California Supreme Court Rules No “No Surprises” Under the California Endangered Species Act
 
August 7, 2008
 
Elizabeth Lake - San Francisco
Peter Landreth - San Francisco

On July 17, 2008, the California Supreme Court issued a decision that could significantly impact development in California and upset expectations of public and private developers who have completed Habitat Conservation Plans (HCPs) under the federal Endangered Species Act (ESA) with corresponding permits from the state under the California Endangered Species Act (CESA).¹ In Environmental Protection and Information Center v. California Department of Forestry and Fire Protection, Docket No. S140547 (Cal. Sp.Ct., July 17 2008) (EPIC), the Court ruled on various challenges by environmental groups to several regulatory approvals that had implemented the 1996 Headwaters Agreement. In a key part of the decision with statewide implications, the Court held that “no surprises” regulatory assurances limiting the obligation of landowners to mitigate certain future unforeseen impacts to endangered species may not be provided in permits issued under CESA. While the decision does not impact agreements under the federal ESA, it substantially limits the degree to which they can be used to satisfy counterpart state law requirements, potentially creating additional requirements and costs for development in California.

Statutory Background

Under CESA, “take” of listed species is generally prohibited. To “take” means to catch, capture or kill.² However, the California Department of Fish and Game (CDFG) may authorize take through issuance of an Incidental Take Permit (ITP) under CESA if such take is incidental to an otherwise lawful activity and so long as “the impacts of the authorized take shall be minimized and fully mitigated” and those measures are “roughly proportional in extent to the impact of the authorized taking on the species.”³ CDFG may also authorize take under the Community Conservation Planning (NCCP) Act. However, NCCPs can only be initiated for large landscape areas, must address ecosystem integrity and function, and must provide for conservation of the covered species. A NCCP must mitigate for impacts and make an additional contribution to recovery of the covered species.⁴

Like state law, the federal ESA prohibits the “taking” of federally-listed species and allows permits to be issued for take incidental to lawful activities.⁵ For non-federal development, the U.S. Fish and Wildlife Service and National Marine Fisheries Service (together “Services”) can issue an ITP only after the project applicant prepares an HCP that “minimizes and mitigates” the impact on the species “to the maximum extent practicable” and so long as issuance of the permit would not “appreciably reduce the likelihood of the survival and recovery of the species in the wild.”⁶

The Services have developed “regulatory assurance” rules that have created incentives for landowners to enter into long-term HCPs by limiting the uncertainty associated with potential future changed circumstances. The No Surprises Rule provides that “no additional land use restrictions or financial compensation will be required of the permit holder with respect to species covered by the permit, even if unforeseen circumstances arise …”⁷ Under the companion Permit Revocation Rule, a permit may not be revoked “unless continuation of permitted activity would be inconsistent with [the requirement not to appreciably reduce the likelihood of survival and recovery of the species] and the inconsistency has not been remedied in a timely fashion.”⁸ In upholding the assurances rules in 2007 after over 10 years of litigation, the U.S. District Court for the District of Columbia held that the assurance rules mean that the Services cannot revoke the ITP “unless continuation of the permit puts a listed species in jeopardy of extinction.”⁹

The effect of providing such regulatory assurances has been dramatic. As noted in the Services’ Notice of Availability of a Final Addendum to the Handbook for Habitat Conservation Planning and Incidental Take Permitting Process, between 1982 and 1992, the Services only issued 14 ITPs. After the assurance policies were implemented, between 1994 and 2000 the Services issued 260 HCP permits covering more than 20 million acres of land, providing conservation for approximately 200 listed species.¹⁰ According to the current U.S. Fish and Wildlife Service Web site, as of August 2008, 545 HCPs have been issued, protecting more than 40 million acres.¹¹ As noted by the Services, an HCP “provides the flexibility the Services and applicants need to resolve issues between economic development and species conservation.”¹² This premise has been carried over into the state permitting process as well, with both permittees and regulatory agencies relying on the terms of HCPs to fulfill the requirements of CESA and obtain long-term coverage under both federal and state law.

Case Analysis

The Headwaters Agreement was a landmark settlement reached between the Pacific Lumber Company (PALCO) and the federal and state governments providing for the long-term logging and conservation management of over 200,000 acres of timberland in Humboldt County, California. Among other things, the agreement set forth the process for PALCO to complete a Sustained Yield Plan, which is essentially a “master” logging plan under state forestry law to provide for long-term logging protocols. The agreement also established the process for a federal HCP to provide coverage under the federal ESA for take of listed species incidental to logging activities, along with several other approvals, including an ITP issued by the CDFG under CESA.¹³ The necessary regulatory approvals were obtained in early 1999 and environmental groups promptly sued.

The Headwaters regulatory approvals were highly interrelated, and the CESA ITP incorporated by reference the terms and conditions of the HCP. Specifically, CDFG found that the HCP satisfied the requirements of CESA to minimize and “fully mitigate” the impacts to listed species associated with the covered logging activities. Both the HCP and the ITP were issued for a 50-year term. The HCP Implementation Agreement included “no surprises” assurances, which provided that if anticipated changed circumstances occurred, then PALCO would implement additional specified mitigation measures prescribed in the HCP, but no other additional measures would be required by CDFG or the federal agencies without PALCO’s consent. Further, the no surprises assurances provided that in case of unforeseen circumstances, no commitment of additional land, water or natural resources, or additional restrictions on the use of such resources, would be imposed without PALCO’s consent. The difference between anticipated changed circumstances and unforeseen circumstances was based on the size of the event, so that, for example, a wildfire caused in whole or in part by timber operations was anticipated if it was 5,000 acres or less and unforeseen if it exceeded that amount.

Among other procedural and substantive challenges regarding the Sustained Yield Plan, environmental plaintiffs argued that such “no surprises” assurances were inconsistent with CDFG’s statutory mandate under CESA to ensure that the impacts of take authorized under a CESA ITP are “fully mitigated.” The Supreme Court agreed, finding that the California Legislature, in enacting the relevant provisions of CESA, “intended that a landowner bear no more – but also no less – than the costs incurred from the impact of its activity on listed species,” including the impacts of future activities. The Court found that the Implementing Agreement went too far in exempting from mitigation the impacts of future changed and unforeseen circumstances resulting from PALCO’s own activities (e.g., fires originating from timber operations, or floods exacerbated by timber harvesting) that might necessitate additional mitigation measures to meet CESA’s “fully mitigate” standard. While the Court emphasized that permit holders are not obligated under CESA to “mitigate the impacts of the natural disasters themselves when it did not contribute to them,” the Court found that because the ITP is valid for 50 years, it is debatable whether the extreme events covered by the permit are truly unforeseen, and when a permit holder’s activities exacerbate the impacts, it must fully mitigate the impact “guided by the principal of rough proportionality.”

The Court distinguished between CESA and the NCCP Act, which provides regulatory assurances comparable to those provided pursuant to the federal ESA for HCPs. The Court rejected PALCO’s and CDFG’s argument that the “explicit provision for regulatory assurances in [one] statute does not imply a lack of authority to grant regulatory assurances in the other,” observing that the “natural inference” of the inclusion of regulatory assurances in the NCCP Act was that the Legislature did not intend to provide such assurances under CESA.

The Court noted that the HCP included various “adaptive management” measures, but found that the relationship between these provisions and the no surprises assurances was unclear. The Court left open the question on remand of whether these adaptive management provisions could satisfy the “fully mitigate” standard, notwithstanding the no surprises assurances. Such adaptive management measures could still provide a considerable degree of flexibility in the long-term implementation of HCP/CESA ITPs, but permittees would face considerable uncertainty regarding the costs of potential future mitigation.

Conclusion

No surprises clauses have been a significant inducement for large projects to enter into HCPs, and use of HCPs to obtain ITPs under the federal ESA and CESA has preserved millions of acres of land. However, in the wake of the Court’s decision in EPIC, private parties in California may not enjoy the same level of certainty as is available under federal law, and those seeking long-term incidental take coverage for their activities under federal and state law now face the arduous task of completing a combined HCP/NCCP if they hope to obtain assurances that future changed circumstances will not substantially increase their regulatory compliance costs. As pointed out by amici curiae, the California Building Industry, the EPIC decision may make it difficult to obtain participation in California conservation planning by private entities in the future. The Court accordingly invited the Legislature to amend CESA, noting that the “expansion of the circumstances under which such assurances can and should be given is a matter best addressed by the Legislature.”

About Our Environment Practice

For more information, contact:

Elizabeth Lake
415.743.6969
elizabethbetsy.lake@hklaw.com

Peter Landreth
415.743.6975
peter.landreth@hklaw.com

toll free: 1.888.688.8500

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1 California Fish and Game Code Section 2050 et seq.

2 California Fish and Game Code Section 86.

3 California Fish and Game Code Section 2081(b)(2).

4 California Fish and Game Code Section 2820.

5 16 U.S.C. Section 1538(a)(1); 1539(a)(1)(B). Under the federal ESA, “take” means “harass, harm pursue, hunt, shoot, wound, kill, trap, capture, or collect, or to attempt to engage in any such conduct.” 16 U.S.C. Section 1532(19).

6 16 U.S.C. Section 1539(a)(2)(B).

7 63 Fed. Reg. at 8859 (Feb. 23, 1998); 50 C.F.R. Section 17.22; 17.32.

8 69 Fed. Reg. 71723 at 71724 (Dec. 10, 2004).

9 Spirit of the Sage Council v. Kempthorne, 511 F.Supp.2d 31 (D.D.C. 2007).

10 65 Fed. Reg. 35241 (June 1, 2000).

11 http://ecos.fws.gov/conserv_plans/public.jsp, accessed August 4, 2008.

12 64 Fed. Reg. 11,485 (March 9, 1999) (“Notice of Availability of a Draft Addendum to the Final Handbook for Habitat Conservation Planning and Incidental Take Permitting Process”).

13 The Court specifically considered an ITP under section 2081 of the Fish and Game Code. An ITP may also be issued under section 2080.1 pursuant to a determination that a corresponding permit under the federal ESA is consistent with CESA. CDFG has consistently interpreted section 2080.1 to impose the same substantive requirements on ITPs as section 2081, and the Court’s holding appears broad enough to cover CESA ITPs issued under either provision.