Attorney for Appellant Attorneys for Appellee
Steve Carter George M. Plews
Attorney General of Indiana Sue A. Shadley
S. Curtis Devoe
Steven D. Griffin
Deputy Attorney General Stephen A. Studer
Indianapolis, Indiana John H. Lloyd, IV
South Bend, Indiana
Attorneys for Amici Curiae
David C. Van Gilder Attorneys for Amici
Curiae
Indiana Division, Izaak Walton League Larry J. Kane
of America, Inc.; National Wildlife Indiana
Builders Association, Inc.
Federation; Save the Dunes Council, Indianapolis,
Indiana
Inc.; Save the Dunes Conservation
Fund, Inc.; Hoosier Environmental Mark J. Thornburg
Council, Inc.; Cedar Creek Wildlife Indiana Farm
Bureau, Inc..
Project, Inc. Indianapolis, Indiana
Fort Wayne, Indiana
____________________________________________________________________________
__
In the
Indiana Supreme Court
_________________________________
No. 49S00-0204-CV-237
Indiana Department of Environmental
Management,
Appellant (Defendant below),
v.
Twin Eagle llc,
Appellee (Plaintiff below).
_________________________________
Appeal from the Marion Superior Court, No. 49F12-0107-CP-002490
The Honorable Michael D. Keele, Judge
_________________________________
On Motion to Transfer Pursuant to Appellate Rule 56(a)
_________________________________
September 23, 2003
Boehm, Justice.
The federal Clean Water Act (“CWA”) prohibits “the discharge of any
pollutant” into “waters of the United States” without a permit. Similarly,
Indiana state environmental law generally requires a permit to discharge
pollutants into “waters of the state.” Ind. Admin. Code tit. 327, r. 5-2-2
(2001). Twin Eagle, the plaintiff here, seeks to undertake a project that
would put dredged and fill material in certain wetlands and waters on a
site in Allen County, Indiana. This material is a “pollutant” as the term
is used in the CWA and Indiana environmental regulations. The parties
disagree whether a state permit may be required for those waters that are
not waters of the United States. We hold that the Indiana Department of
Environmental Management (“IDEM”) may require permits for dredged and fill
materials under its existing rules. We also conclude that discharges into
private ponds and isolated waters may be regulated under some
circumstances, and that IDEM’s interim process for permitting dredged and
fill material is not the product of invalid rulemaking. Whether the facts
justify the regulation of these waters is an issue for the agency to
resolve in the first instance.
The Regulatory Framework and Factual and Procedural History
The National Pollutant Discharge Elimination System (“NPDES”) is the
centerpiece of CWA permits. 2 William H. Rodgers, Jr., Environmental Law:
Air and Water, § 4.26 at 372 (1986). Although most discharges are governed
by the NPDES permit process, the CWA provides for permits for discharges of
dredged and fill material to be issued under a “Section 404 Program”
administered by the Army Corps of Engineers. 33 U.S.C. § 1344 (2001); 33
C.F.R. 323.6 (2003). A state may also receive EPA approval to administer
its own NPDES program to issue permits for waters within the state. 33
U.S.C. § 1342(b); 40 C.F.R. §§ 123.1-123.64 (1998). In 1975, the EPA
approved Indiana’s NPDES program. Although the CWA also allows state
administration of a Section 404 program, 33 U.S.C. § 1344(g),[1] Indiana
has not sought permission to issue permits under that program.
Until recently, IDEM considered all waters of the state that were
regulated through the federal Clean Water Act Section 404 program to be
“waters of the United States” subject to the CWA. As a result, the federal
Section 404 program regulated all dredged and fill material in all waters.
For that reason, IDEM enacted no regulations of its own governing the
discharge of dredged and fill material. In 2001, however, the United
States Supreme Court held, in Solid Waste Agency of N. Cook County v.
United States Army Corps of Eng’rs, 531 U.S. 159 (2001) (“SWANCC”), that
waters are “waters of the United States” for purposes of the CWA only if
they are either navigable or tributaries of or wetlands adjacent to
navigable waterways. Id. at 171, 174.[2] As a practical matter,
construction projects affecting many ponds and wetlands were no longer
subject to federal regulation, and the federal Section 404 program was no
longer available to grant permits that would bring the projects into
compliance with state law. IDEM attempted to fill the resulting gap in the
state’s regulation of dredged and fill materials by a series of memoranda
stating its intention, until new rules were approved, to regulate waters of
the state no longer subject to federal jurisdiction through an “interim
regulatory process” whereby it would apply its state NPDES permitting
process to applications for permits for dredged and fill material.
It is clear the federal law does not prevent a state from having a
broader or more stringent regulatory program than the CWA imposes. See
e.g. EPA v. California ex rel. State Water Res. Control Bd., 426 U.S. 200,
218 (1976); United States Steel Corp. v. Train, 556 F.2d 822, 830 (7th Cir.
1977); City of Albuquerque v. Browner, 865 F.Supp. 733, 739 (D. N.M. 1993).
Indeed, SWANCC itself referred to “the State’s traditional and primary
power over land and water use.” SWANCC, 531 U.S. at 174. The issues here
are whether Indiana statutes authorize IDEM to take its announced steps.
Twin Eagle plans to construct a residential development on
approximately 460 acres of property it owns in Fort Wayne, Indiana.
Approximately 21.52 acres of the property consist of ponds and wetlands.
In March 2001, Twin Eagle hired a private contractor to perform a wetland
delineation, a process which identifies the boundary, size and type of each
body of water or wetland on the property. The delineation, which was
approved by the United States Army Corps of Engineers on June 13, 2001,
determined that 14.75 of the 21.52 acres are wetlands and private ponds
that, under SWANCC, are not subject to the CWA. Twin Eagle’s plans called
for filling in much of these 14.75 acres, and this would require a permit
if the state regulatory scheme applies to these waters.
On July 26, 2001, Twin Eagle sought a declaratory judgment to prevent
IDEM from enforcing state environmental laws against the project. IDEM
responded with a motion to dismiss for lack of subject matter jurisdiction,
citing a lack of case or controversy and the failure of Twin Eagle to
exhaust administrative remedies. Both parties filed motions for summary
judgment. The trial court granted Twin Eagle’s motion and held: (1)
Indiana state environmental laws gave IDEM no NPDES regulatory authority
over private ponds or isolated wetlands that are not “waters of the United
States” and could not require an NPDES permit for activities affecting
those waters; (2) whether or not IDEM could regulate some waters not
subject to the CWA, Indiana statutes gave IDEM no jurisdiction over private
ponds and isolated wetlands; (3) IDEM could not bring an enforcement action
for the discharge of fill material into waters that are not waters of the
United States; and (4) IDEM’s interim regulatory process constitutes an
invalid attempt at rulemaking without complying with required procedures.
We granted IDEM’s petition to transfer under Appellate Rule 56(A) and now
reverse the court’s grant of summary judgment to Twin Eagle.
I. The Trial Court’s Subject Matter Jurisdiction
IDEM asserts that the trial court lacked subject matter jurisdiction
because no actual controversy exists until IDEM resolves whether the waters
on the site are subject to regulation, and also because Twin Eagle has not
exhausted its administrative remedies. Twin Eagle counters that its claims
raise pure questions of law challenging the authority of the agency to
regulate the subject matter. Specifically, Twin Eagle contends these
waters are private ponds and isolated wetlands over which Indiana law gives
IDEM no jurisdiction. Twin Eagle also contends that in any event Indiana’s
jurisdiction over fills regulated by the Section 404 process is coextensive
with CWA jurisdiction which, under SWANCC, does not extend to these waters.
Third, Twin Eagle argues that IDEM’s attempt to assume jurisdiction
through its interim process did not follow the statutory requirements for
rulemaking by an administrative agency.
A. Ripeness for Declaratory Judgment
The Declaratory Judgments Act is to be “liberally construed,” Indiana
Code section 34-14-1-12 (1998), and allows for an interested party “whose
rights, status, or other legal relations are affected by a statute . . .
[to] have determined any question of construction or validity arising under
the . . . statute . . . and obtain a declaration of rights, status, or
other legal relations thereunder.” Ind. Code § 34-14-1-2 (1998). IDEM
claims that the trial court lacked subject matter jurisdiction because
there was neither an actual controversy nor the ripening seeds of a
controversy. Specifically, IDEM argues that because it has made no
determination concerning whether the waters at issue are within its
regulatory jurisdiction, Twin Eagle presents a “hypothetical case”
inappropriate for a declaratory judgment. We disagree. Although the
Indiana state courts are not subject to a constitutional requirement of a
case or controversy similar to that imposed by Article III of the federal
constitution, Cincinnati Ins. Co. v. Wills, 717 N.E.2d 151, 154 n.2 (Ind.
1999), the Declaratory Judgments Act requires a justiciable controversy or
question. Little Bev. Co. v. DePrez, 777 N.E.2d 74, 83 (Ind. Ct. App.
2002). The controversy requirement is met when a case presents the
“ripening seeds” of a controversy. Id. We have long taken the view that
“where . . . the claims of the several parties in interest, while not
having reached that active stage, are nevertheless present, and indicative
of threatened litigation in the immediate future, which seems unavoidable,
the ripening seeds of a controversy appear.” Owen v. Fletcher Sav. & Trust
Bldg. Co., 189 N.E. 173, 177, 99 Ind. App. 365, 374 (1934) (citations
omitted). Twin Eagle has challenged the validity of a process which
affects its ability to discharge dredged and fill materials on its
property. The validity of the interim process, not merely its ultimate
outcome, is one major issue in this litigation, and in Twin Eagle’s ability
to use its property as it wishes. Even if the administrative process may
be resolved in favor of Twin Eagle, Twin Eagle’s claim, if valid, could
obviate the need to go through the process. As such, the claim presents a
genuine controversy that was properly brought to the trial court.
Therefore, Twin Eagle’s challenge of the validity of the interim process
was proper under the Declaratory Judgments Act.
B. The General Requirement to Exhaust Administrative Remedies
We have repeatedly emphasized the value of completing administrative
proceedings before resorting to judicial review. State Bd. of Tax Comm’rs
v. Montgomery, 730 N.E.2d 680, 684 (Ind. 2000) (quoting State v. Sproles,
672 N.E.2d 1353, 1358 (Ind. 1996)). The reasons for this requirement are
well established: (1) premature litigation may be avoided; (2) an adequate
record for judicial review may be compiled; and (3) agencies retain the
opportunity and autonomy to correct their own errors. Even if the ground
of the complaint is the unconstitutionality of the statute, which may be
beyond the agency’s power to resolve, exhaustion of administrative remedies
may still be required because administrative action may resolve the case on
other grounds without confronting broader legal issues. Turner v. City of
Evansville, 740 N.E.2d 860, 862 (Ind. 2001); Austin Lakes Joint Venture v.
Avon Utils., Inc., 648 N.E.2d 641, 644 (Ind. 1995); Sproles, 672 N.E.2d at
1358. Ordinarily, an administrative agency must resolve factual issues
before the trial court acquires subject matter jurisdiction. Turner, 740
N.E.2d at 862. But exhaustion of administrative remedies is not required
if a statute is void on its face, and it may not be appropriate if an
agency’s action is challenged as being ultra vires and void. Id. More
generally, if an action is brought upon the theory that the agency lacks
the jurisdiction to act in a particular area, exhaustion of remedies is not
required. Frank E. Cooper, State Administrative Law 577 (1965). To the
extent the issue turns on statutory construction, whether an agency
possesses jurisdiction over a matter is a question of law for the courts.
State ex rel. Paynter v. Marion County Superior Court, Room No. 5, 264 Ind.
345, 350, 344 N.E.2d 846, 849 (1976).
The issues presented by this case can be summarized as: (1) does IDEM
have the authority to regulate “waters of the state” previously regulated
by the Section 404 program; (2) if IDEM is so authorized, can it properly
exercise that authority through the NPDES permitting process; (3) if IDEM
does have the authority to prohibit a discharge without an NPDES permit as
to some waters, does that authority extend to discharges into private ponds
and isolated wetlands in general and these waters in particular.
We agree with Twin Eagle that its challenge to IDEM’s authority to
apply the NPDES program to dredged and fill permits does not require
exhaustion of remedies because at least the first two of these issues turn
on issues of law. IDEM either does or does not have the legislative
authority to regulate introduction of dredged and fill materials into
waters that are not waters of the United States. Similarly, if the waters
are subject to regulation, IDEM either is or is not authorized to apply the
NPDES permitting system. Whether ponds and isolated wetlands are subject
to regulation is a matter of construction of a statutory exemption from the
grant of regulatory authority over “waters.” Finally, Twin Eagle claims
the absence of an approved state administered Section 404 program precludes
IDEM from acting. All of these issues are pure issues of law.[3]
For the reasons explained below, we resolve these abstract issues of
law in favor of IDEM’s ability to apply the interim process to waters of
the state no longer subject to federal regulation. Assuming any waters on
Twin Eagle’s land are indeed “private ponds” and “isolated wetlands,” as
explained below, if a discharge from a pond threatens to cause pollution of
other waters, IDEM may regulate even a private pond. I.C. § 13-11-2-265
(2002). Twin Eagle may be correct that the particular waters at issue are
not subject to regulation, but the proper forum to address this fact
sensitive issue is through the administrative process. We therefore defer
to the administrative process to determine whether potentially dispositive
factual circumstances exist here. I.C. § 13-11-2-265(a); Turner, 740
N.E.2d at 862.
II. IDEM’s Authority to Regulate the Waters at Issue
IDEM seeks to apply the state’s NPDES permit process to discharges
previously regulated by the federal Section 404 program. This presents at
least these issues: (1) whether IDEM has statutory authority to regulate
waters that are not waters of the United States; (2) whether Indiana law
gives IDEM regulatory powers over “private ponds” or “isolated wetlands” or
both; and (3) if so, whether the NPDES permitting system is authorized to
be employed.
A. Waters of the State That Are Not “Waters of the United States”
Indiana environmental laws give IDEM the power to regulate discharges
into “waters of the state.” I.C. § 13-18-4-3 (1998). This statutory
authority does not derive from federal legislation and no federal law
purports to restrict the state’s regulation of the type of waters at issue
here. Nor, by its terms, does the Indiana statute limit its reach to
waters within the scope of the CWA. Indeed, long before the enactment of
the CWA, IDEM and its predecessors had jurisdiction over all the waters of
the state except those specifically excluded by statute. 1935 Ind. Acts
537 (the agency had “jurisdiction to control and prevent pollution in the
waters of this state . . . .”).
IDEM’s current statutory authority can be traced back to 1935, when
the General Assembly authorized the Indiana Department of Commerce and
Industry to regulate waters. Id. The state also has a long history of
regulating waters through the Water Pollution Control Board (the “Board”).
Created in 1943 through its predecessor, the Stream Pollution Control
Board, the Board’s primary purpose is to adopt rules regarding water
pollution. I.C. §§ 13-18-4-3 and -4 (1998). In 1972, the federal Clean
Water Act was passed. 33 U.S.C. §§ 1251 et seq. The Indiana legislature
later created IDEM, and constituted it as the Indiana state agency to
implement the CWA. I.C. § 13-13-5-1. The Board is now one of six agencies
that operate under IDEM’s umbrella but with separate and distinct statutory
authority. The Water Pollution Control Board in particular is assigned the
duties of adopting rules “for the control and prevention of pollution” in
Indiana’s waters. I.C. § 13-18-3-1.
Twin Eagle cites what is now codified at Indiana Code section 13-18-3-
2(a) (2002), which authorizes IDEM to adopt rules “necessary” to the
implementation of the CWA, and contends that only waters subject to the
federal law are within IDEM’s rulemaking power. We do not regard this as a
jurisdictional confinement of the waters to be regulated to those subject
to the CWA. In any event, it is not the only authorizing statute. Several
other provisions of Indiana law authorize IDEM to issue regulations without
regard to the CWA or any other federal law. Specifically, “[t]he board may
adopt rules restricting the polluting content of any waste material and
polluting substances discharged or sought to be discharged into any of the
streams or waters of Indiana.” I.C. § 13-18-4-3 (1998). In addition, the
Board “shall adopt rules for the control and prevention of pollution . . .
that is deleterious to the public health . . . or by which . . . any fish
life or beneficial animal or vegetable life may be destroyed . . . .” I.C.
§ 13-18-3-1. And IDEM’s commissioner may “take appropriate steps to
prevent any pollution that is determined to be unreasonable and against
public interests . . . .” I.C. § 13-18-4-4. That is what IDEM has done by
issuing the interim regulations. Twin Eagle notes the more recently added
authority under Indiana state law to adopt regulations to implement the
CWA. I.C. § 13-18-3-2 . We think this was intended to make clear the
state agency was empowered to proceed under federal law, but in no way
curtailed its preexisting authority.
Among the rules adopted pursuant to these authorizations is the
requirement that “[a]ny discharge of pollutants into waters of the state”
requires an NPDES permit unless it is specifically excluded. 327 I.A.C. 5-
2-2. The reach of the rule is unaffected by the choice of Congress to
limit federal legislation or by any constitutional constraints on federal
jurisdiction. Thus, when SWANCC curbed previously expansive views of the
reach of the CWA, IDEM’s scope of authority did not shrink. To the
contrary, as the Supreme Court expressly noted, SWANCC had no effect
whatever on the scope of waters subject to state regulation. SWANCC, 531
U.S. at 174. In short, Twin Eagle would have been required to get state
water approval through the water certification process before SWANCC,
albeit pursuant to a federal, not a state, law. The contraction of federal
authority did nothing to limit state power.
B. Private Ponds and Wetlands
Although Indiana is not precluded from regulating waters beyond
federal regulatory reach, the issue remains whether the legislature has
given IDEM authority over the waters at issue. To do that, it is not
sufficient that IDEM have the authority to regulate some waters beyond the
post-SWANCC reach of the CWA. It must also have the statutory authority to
regulate “private ponds” or “isolated wetlands” or both, and must be able
to reach the particular waters at issue here. Indiana Code section 13-11-2-
265 defines “waters” as:
(1) the accumulations of water, surface and underground, natural and
artificial, public and private; or
(2) a part of the accumulations of water;
that are wholly or partially within, flow through, or border upon
Indiana.
I.C. § 13-11-2-265 (2002). However, “the term ‘waters’ does not include a
private pond . . . unless the discharge from the pond . . . causes or
threatens to cause water pollution.” Id. A private pond is a body of
water wholly upon the land of a single owner or group of owners and not
connected with any public waters of the state. Trowbridge v. Tarabi, 693
N.E.2d 622, 627 (Ind. Ct. App. 1998); I.C. § 13-11-2-265. Whether Twin
Eagle’s project involves ponds within this definition, and if so whether
their discharge causes or threatens pollution are fact issues for
administrative determination in the first instance.
“Wetlands” also raise factual issues. The term has no statutory
definition and the only definition of that term applicable to the Water
Pollution Control Board in the statutes and rules defines wetlands as
“those areas that are inundated or saturated by surface water or ground
water at a frequency and duration to support and that, under normal
circumstances, do support a prevalence of vegetation typically adapted for
life in saturated soil conditions. Wetlands generally include the
following: (1) Swamps. (2) Marshes. (3) Bogs. (4) Similar areas.” 327
I.A.C. 6.1-2-62 (dealing with industrial waste).[4] See also Family Dev.
Ltd. v. Steuben County, 749 N.E.2d 1243 (Ind. Ct. App. 2001) (dealing with
regulation of pre-SWANCC federal wetlands). Moreover, wetlands by their
very nature vary in the amount of water they contain at a given time, and
their boundaries can change depending on the season and the weather. But
their outer boundaries are ascertainable, so the mere difficulty in
determining what constitutes a wetland does not remove it from IDEM’s
jurisdiction. Nor do the characteristics of wetlands automatically remove
them from of “waters of the state” if the statutory definition of “waters,”
includes “the accumulations of water . . . or . . . a part of the
accumulations.” I.C. § 13-11-2-265 . So defined, at least some wetlands
can be waters of the state.
Finally, presumably in response to the regulatory gap created by
SWANCC, in March 2002 the General Assembly enacted Public Law 183, which
states that a state agency may not “adopt or amend an administrative rule .
. . that concerns the definition of ‘wetlands’ or ‘isolated wetlands’ . .
. .” 2002 Ind. Acts 183 Sec. 2. In the absence of any general definition
of “isolated wetland,” it remains for case-by-case determination whether a
particular site does or does not include “waters of the state” within the
general regulatory power of IDEM under I.C. § 13-18-4-4, - 5 (1998).
Whether the wetlands on Twin Eagle’s project meet that definition is again
a question for the administrative process to resolve. Twin Eagle has at
least two options if it believes its project will not affect regulated
waters. It can apply for an NPDES permit, and challenge the finding if it
believes it to be erroneous. Or, if Twin Eagle is sufficiently confident
that its project will not violate the Act, it may proceed and risk an
enforcement action by IDEM. This may leave a somewhat unsatisfactory legal
framework, but we see no alternative to individualized determinations of
IDEM’s jurisdiction given the statutory prohibition against rulemaking.
C. The Interim Process
Even if IDEM has statutory authority to regulate the waters at issue,
the issue remains whether the interim process is lawfully imposed. It is
well established that administrative agencies may make reasonable rules and
regulations to apply and enforce legislative enactments. Ind. Dep’t of
Envtl. Mgmt. v. AMAX, Inc., 529 N.E.2d 1209, 1212 (Ind. 1988); Podgor v.
Ind. Univ. 178 Ind. App. 245, 250, 381 N.E.2d 1274, 1278 (1978). But IDEM
may regulate by a new rule only if the proper rulemaking procedures have
been followed. Thus, in establishing rules, the agency must comply with
the Indiana Administrative Orders and Procedures Act, Indiana Code chapter
4-22-2, which includes provisions for public hearings and review by
executive branch officials. By contrast, agency actions that result in
resolutions or directives that relate solely to internal policy, procedure,
or organization, and do not have the effect of law, are not subject to the
same requirements. I.C. § 4-22-2-13(c)(1) (1998); AMAX, Inc., 529 N.E.2d
at 1212. The validity of the interim regulatory process turns on whether
it constituted a new rule when IDEM applied the NPDES permit process to
waters of the state previously, but no longer, subject to the federal
Section 404 program. IDEM does not assert that it followed rulemaking
procedures in announcing the “interim process.” Rather it contends that
requiring state NPDES permits for dredge and fill after SWANCC is not a new
rule at all and is therefore not subject to the statutory requirements for
adopting new rules. A rule is defined by Indiana Code section 4-22-2-3 as:
[T]he whole or any part of an agency statement of general
applicability that:
(1) [H]as or is designed to have the effect of law; and
(2) [I]mplements, interprets, or prescribes:
(A) Law or policy; or
(B) The organization, procedure, or practice requirements
of an agency.
I.C. § 4-22-2-3.
We conclude that Twin Eagle’s claim that a new rulemaking procedure
was required turns on an incorrect view of Indiana’s regulatory framework.
Indiana Administrative Code title 327 rule 5-2-2 requires an NPDES permit
to be issued for “[a]ny discharge of pollutants into waters of the state,”
subject to certain exceptions. The exception relevant here is found at 327
I.A.C. 5-2-4, which provides an exemption from the permitting process for:
(2) Discharges of dredged or fill material into waters of the
state and regulated under Section 404 of the CWA, except where
the commissioner determines, on a case-by-case basis that such a
discharge threatens to violate state water quality standards
concerning toxic pollutants.
327 I.A.C. 5-2-4 (2). The effect of withdrawal of the federal program from
these waters is to remove Twin Eagle’s from those “regulated under Section
404 of the CWA.” Thus, by its terms, this regulation no longer provides an
exception and leaves Twin Eagle subject to the general prohibition against
discharge without an NPDES permit. The interim process is simply the
application of a preexisting process to transactions that were previously
thought to be exempt, but are no longer exempt because they no longer meet
the federal requirements for the exemption.
Twin Eagle also challenges IDEM’s authority to regulate its waters
because it reads this rule as allowing the commissioner to make case-by-
case decisions only when toxic pollutants are at issue. Twin Eagle asserts
that the exclusion concerns only situations where a discharge of pollutants
into CWA waters is threatened. We do not agree. The effect of the cited
language is to permit the state to add requirements to a federally
permitted project, not to exempt it. The section is labeled “exclusions”
and lists those activities that do not require a permit. The first
sentence of section 2 excepts state waters regulated under the CWA.
Because the waters at issue are, for purposes of this case in its current
procedural posture, state waters outside the scope of the CWA, they do not
meet this exception and require an NPDES permit under the rule. Therefore
this rule would encompass the exact situation we have here: regulation of
waters potentially within IDEM’s jurisdiction but outside the boundaries of
the CWA. The effect of SWANCC was thus to remove Twin Eagle’s project from
eligibility for the exception provided by Indiana Administrative Code title
327 rule 5-2-4(2). As such, no rulemaking is involved by applying the
previously existing NPDES process to the no longer exempt discharge.
Twin Eagle notes that IDEM announced an intent to adopt a new rule to
deal with post-SWANCC permits for isolated wetlands. Twin Eagle reasons
from this that the interim process required a rulemaking exercise. But
IDEM’s desire to adopt a new rule does not imply that there is no
regulatory scheme in place after the evaporation of the exemption for
Section 404 permits. Adopting a new rule is fully consistent with the
notion that, like the Section 404 program for waters of the United States,
a different program may be appropriate for isolated wetlands that are
waters of the state. In the meantime, however, the NPDES program is in
place and there is no exemption.
Finally, Twin Eagle points out that the Water Pollution Control
Board, not IDEM’s commissioner, has the authority under Indiana Code
sections 13-14-8-1, -2 to adopt rules regarding the waters at issue and
that, even if the interim regulatory process is otherwise valid, IDEM
usurped this authority. This contention proceeds from the assumption that
the interim process involved a rulemaking exercise. Because we reject that
premise, the argument falls with it.
Conclusion
The trial court had subject matter jurisdiction over the declaratory
judgment action. IDEM is within its statutory authority to require NPDES
permits for the discharge of fill material into waters of the state
previously regulated under the Section 404 program. Private ponds, when
the discharges from these ponds cause or threaten to cause water pollution,
and some isolated wetlands are waters of the state. We leave it to the
regulatory process to determine in the first instance whether permits are
required and, if so, should be issued in this case. We remand to the trial
court with directions to enter a declaratory judgment consistent with this
opinion.
Dickson and Rucker, JJ., concur.
Sullivan, J., concurs in result with separate opinion in which
Shepard, C.J., joins.
Sullivan, Justice, concurring in result.
In this case, IDEM asks us not to reach the merits on the ground that
Twin Eagle has not exhausted its administrative remedies. Indeed, IDEM has
not even determined whether the waters on Twin Eagle’s property are subject
to regulation. I agree with IDEM’s position and would hold that the trial
court should have dismissed Twin Eagle’s complaint for lack of subject
matter jurisdiction.
The Court rejects IDEM’s argument and proceeds to the merits. But
Twin Eagle’s victory on this issue turns out to be Pyrrhic because the
Court resolves the merits in IDEM’s favor.
Given this result, Twin Eagle might well second-guess its decision to
litigate first. If Twin Eagle had successfully persuaded IDEM not to
regulate (or if IDEM had decided not to prosecute had Twin Eagle proceeded
without applying for a permit), Twin Eagle would not have received the
unwelcome news the Court delivers to it today. One can envision a wide
range of other compromises between IDEM and Twin Eagle more favorable to
Twin Eagle than today’s decision.
Our decisions are replete with reasons supporting the doctrine of
exhaustion of remedies. See, e.g., State Bd. of Tax Comm'rs v. Ispat
Inland, Inc., 784 N.E.2d 477, 482-83 (Ind. 2003); Fratus v. Marion Cmty.
Schs. Bd. of Trs., 749 N.E.2d 40, 46-47 (Ind. 2001); Town Council of New
Harmony v. Parker, 726 N.E.2d 1217, 1224 (Ind. 2000), am. on reh’g on other
grounds, 737 N.E.2d 719 (Ind. 2000); Austin Lakes Joint Venture v. Avon
Utils., Inc., 648 N.E.2d 641, 644-45 (Ind. 1995). The result of today’s
case illustrates one not often given – the doctrine’s benefit to the party
(arguably) subject to a regulatory agency’s jurisdiction. Running the
administrative gauntlet first provides such a party a much greater range of
options and compromises than does litigation alone.
Shepard, C.J., joins.
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[1] The process begins with a wetland delineation by the Corps of Engineers
which identifies the waters subject to the jurisdiction of the CWA. If the
waters are subject to federal regulation the Corps then determines whether
the permit itself should be granted. The state still must certify the
permit to ensure that the activity complies with state water quality
standards. 33 U.S.C. § 1341(d) (2001). In essence, this gives the state
the power to veto any Section 404 permit.
[2] There is some disagreement as to the sweep of SWANCC’s contraction of
federal jurisdiction. Most federal courts have found it as described above
in the text of this opinion, but some have concluded that any hydrological
connection to navigable waters is sufficient for federal jurisdiction. See
generally FD&P Enters., Inc. v. United States Army Corps of Eng’rs, 239 F.
Supp 2d 509, 513-15 (D. N.J. 2003) (discussing federal cases). This issue
is irrelevant for our purposes because to the extent Twin Eagle’s property
remains subject to federal jurisdiction after SWANCC, it remains subject to
the Indiana permitting process.
[3] Neither party argues that the effect of an invalid permitting process
would be to leave Twin Eagle with a proposal prohibited by the general
prohibition against discharge but no means of obtaining a permit. We
assume, without deciding, that a valid permitting process is required for
IDEM to assert regulatory powers over the proposal.
[4] Other definitions relate to Solid Waste Disposal, flood plain
management, and lake construction activities, and some seem to assume a pre-
SWANCC view of federal jurisdiction. See 312 I.A.C. 10-2-44 (Supp. 2002),
312 I.A.C. 11-2-24, and 329 I.A.C. 10-2-207.