United States v. Needham

United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS December 16, 2003
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
______________________________ Clerk

No. 02-30217

______________________________

In the Matter of: JAMES HAMILTON NEEDHAM; JANELL RENAE COLE
NEEDHAM
Debtors

UNITED STATES OF AMERICA, ET AL.

Appellants,

versus

JAMES HAMILTON NEEDHAM, ET AL.,

Appellees.
___________________________________________________________________
________________________

In the Matter of: JAMES HAMILTON NEEDHAM; JANELL RENAE COLE
NEEDHAM
Debtors
D & C OPERATING INC.
Appellants,
versus

JAMES HAMILTON NEEDHAM; JANELL RENAE COLE NEEDHAM

Appellees.

Appeals from the United States District Court
for the Western District of Louisiana,
Lafayette-Opelousas Division

___________________________________________________________________

Before REAVLEY, JOLLY, and JONES, Circuit Judges.
EDITH H. JONES, Circuit Judge:

This case arises from the efforts of the United States

Coast Guard to compel James and Janell Needham (“Needhams”) to

reimburse the United States, under the Oil Pollution Act (“OPA”),

33 U.S.C. §§ 2701-2720 (2000), for cleanup costs associated with an

oil spill. The bankruptcy court, in the first instance, and the

district court on appeal, held that the Needhams were not liable to

the United States for the cleanup costs because the waters in

question were not navigable, and were therefore beyond the reach of

the OPA. However, for the reasons stated below, we disagree and

therefore reverse and remand.

I. BACKGROUND

On or about January 25, 1999, the Louisiana Department of

Environment Quality (“LDEQ”) received a complaint of an oil spill

in LaFourche Parish, Louisiana. The spill occurred at a facility

known as the Thibodeaux Well when Tommy Jones, a pumper/gauger

employed by Needham Resources, Inc. (“NRI”), pumped oil from a

containment basin into an adjacent drainage ditch. The well is co-

owned by NRI and D&C Operating, Inc. (“D&C”).1 James Needham

(“Needham”) is the sole owner of NRI.

The EPA investigated the spill and contacted James

Needham to discuss the matter. Initially, NRI hired a private

contractor to perform the necessary cleanup, but lacked the

1
D&C owns 90% of the well and NRI, the well operator, owns the
remaining 10%.

2
resources to complete the operation. The EPA and the Coast Guard

then assumed responsibility for the cleanup effort funded by the

Oil Spill Liability Act. Their efforts cost roughly $207,000.2

On February 8, 1998, the Needhams filed a Chapter 11

bankruptcy petition in the Western District of Louisiana.3 The

next day, the United States sued the Needhams, NRI and D&C in

federal court to recover its cleanup costs. The civil suit was and

remains stayed pending resolution of this bankruptcy court dispute

over the government’s proof of claim against the Needhams. D&C

also filed a proof of claim, contingent upon a finding of liability

under the OPA. The Needhams objected to the EPA’s proof of claim,

asserting, inter alia, that the spill did not implicate any

navigable waters subject to federal jurisdiction, and was therefore

not regulated by the OPA.

At the bankruptcy court hearing on the disputed claim,

the United States offered a videotape showing the extent of the oil

spill. Patrick Breaux, an environmental coordinator with the LDEQ,

narrated the video and offered further testimony concerning the

nature and extent of the cleanup. Breaux was the hearing’s only

live witness. Moreover, within a litany of documentary evidence,

the parties submitted a five-page written stipulation addressing a

2
The Oil Spill Liability Trust Fund is directly available to the EPA
and the Coast Guard to fund federal removal costs. See 33 U.S.C. §§ 2712(a);
1321(s)(2000). Moreover, the Fund is available to pay uncompensated removal
costs to third parties. See 33 U.S.C. § 1012(a)(4)(2000).
3
The Needhams’ bankruptcy petition was later converted to Chapter 7.

3
variety of evidentiary and substantive issues. Importantly, the

parties there agreed that the oil, which was originally discharged

into the drainage ditch at Thibodeaux Well, spilled into Bayou

Cutoff, and then into Bayou Folse. Bayou Folse flows directly into

the Company Canal, an industrial waterway that eventually flows

into the Gulf of Mexico.

After reviewing the evidence, the bankruptcy court found

that “neither the drainage ditch nor Bayou Cutoff are navigable

waters nor are they sufficiently adjacent to the navigable waters

to support an extension of the OPA.” In re Needham, 279 B.R. 515,

519 (Bankr. W.D. La. 2001). Thus concluding that the spill was not

subject to federal regulation, the bankruptcy court sustained the

Needhams’ objection to the United States’ proof of claim. The

United States appealed the decision to the district court, which

briefly affirmed, finding no basis to disturb the bankruptcy

court’s conclusions. See United States v. Needham, 2002 WL 1162790

(W.D. La. January 22, 2002).

II. STANDARD OF REVIEW

We review the factual findings of the trial court for

clear error. In re Gerhardt, 348 F.3d 89, 91 (5th Cir. 2003).

Therefore, whether a waterway is navigable-in-fact is subject to

the clearly erroneous standard. See Dardar v. LaFourche Realty

Co., Inc., 55 F.3d 1082, 1085 (5th Cir. 1995)(citing The Daniel

4
Ball, 77 U.S. (10 Wall.) 557, 563 (1870)).4 “Under a clear error

standard, this court will reverse only if, on the entire evidence,

we are left with the definite and firm conviction that a mistake

has been made.” Otto Candies, L.L.C. v. Nippon Kaiji Kyokai Corp.,

346 F.3d 530, 534 (5th Cir. 2003) (citations and quotations

omitted). Conversely, the district court’s statutory interpreta-

tion is subject to de novo review. United States v. Phillips,

319 F.3d 177, 183 (5th Cir. 2003).

III. DISCUSSION

The United States challenges the bankruptcy court’s

conclusion that the oil discharged from the Needham facility did

not contaminate waters regulated by the federal government under

the OPA. It contends that the oil spilled into navigable-in-fact

waters, or at a minimum, into waters adjacent to an open body of

navigable water. Because we agree with the latter argument, we

reverse the bankruptcy court’s decision.

A.

4
This court’s decision in Dardar appears to be in tension with the
Supreme Court’s decision in United States v. Appalachian Elec. Power Co., 311
U.S. 377, 403-404, 61 S.Ct. 291, 297-98 (1940), which suggests a mixed question
of law and fact standard. The Court stated that “[i]n cases involving the
navigability of water courses, this Court, without expressly passing on the
finality of the findings, on some occasions has entered into consideration of the
facts . . . to determine for itself whether the courts have correctly applied to
the facts found the proper legal tests.” Id. In the Court’s view, “[b]oth the
standards and the ultimate conclusion involve questions of law inseparable from
the particular facts to which they are applied.” Id. at 404. Nonetheless, as
will be made clear below, the result in this matter is unchanged regardless of
the standard of review employed.

5
 The OPA imposes strict liability upon parties that

discharge oil into “navigable waters,” a term defined in the

statute to mean “the waters of the United States, including the

territorial sea.” 33 U.S.C. § 2701(21)(2000).5 This is

co-extensive with the definition found in the Clean Water Act

(“CWA”). See Rice v. Harken Exploration Co., 250 F.3d 264, 267

(5th Cir. 2001) (citing 33 U.S.C. § 1362(7)(2000)).6 Rice

establishes that the OPA, like the CWA, does not extend federal

regulation to the outermost limits of the Commerce Clause. Id. at

269-70.

Although under both the OPA and the CWA “waters and

wetlands need not always actually be navigable-in-fact to be

protected,” id. at 268, the Supreme Court recently found the

inclusion within “waters of the United States” of certain isolated,

non-navigable waters exceeded the Army Corps of Engineers’

regulatory power under the CWA. Solid Waste Agency of Northern

Cook County v. United States Army Corps of Engineers(“SWANCC”), 531

U.S. 159, 172-74, 121 S.Ct. 675, 682-84 (2001). The Court

emphasized that these isolated bodies of water were neither

navigable-in-fact nor adjacent to open water. Id. at 168.

5
Under the OPA, “each responsible party for a vessel or facility from
which oil is discharged . . . into or upon the navigable waters or adjoining
shorelines . . . is liable for the removal costs and damages . . . that result
from such incident.” 33 U.S.C. § 2702(a)(2000).
6
Rice was the first case in this circuit to examine the contours of
the OPA, and offers a persuasive analysis of its text and legislative history.
250 F.3d at 267-68.

6
 SWANCC narrowed, but did not overturn United States v.

Riverside Bayview Homes, 484 U.S. 121, 106 S.Ct. 455 (1985), which

upheld CWA regulations restricting discharges into a non-navigable

wetland adjacent to open waters. Id. at 133.7 To reach this

result, Riverside Bayview Homes interpreted “waters of the United

States” broadly to encompass “all wetlands adjacent to other bodies

of water over which the Corps has jurisdiction . . . .” Thus,

Riverside Bayview Homes, unlike SWANCC, involved a wetland

“adjacent to an open body of water that was actually navigable.”

Rice, 250 F.3d at 268; see also SWANCC, 531 U.S. at 167 (stating

that the wetland in Riverside Bayview Homes “actually abutted on a

navigable waterway”).

Nevertheless, the United States urges this court to

approve its regulatory definition of “navigable waters.” See

40 C.F.R. § 300.5 (2003). This definition includes as “navigable

waters” all “tributaries” of navigable-in-fact waters. See id. at

§ 300.5(d). According to the government, the definition covers all

waters, excluding groundwater, that have any hydrological connec-

tion with “navigable water.” At least two courts appear to have

agreed with this expansive interpretation. See United States v.

Deaton, 332 F.3d 698, 702 (4th Cir. 2003)(asserting authority,

7
As the Court stated in SWANCC: “We said in Riverside Bayview Homes
that the word ‘navigable’ in the statute was of ‘limited effect’ and went on to
hold that § 404(a) extended to non[-]navigable wetlands adjacent to open waters.
But it is one thing to give a word limited meaning and quite another to give it
no effect whatsoever.” 531 U.S. at 682-83 (citation omitted).

7
under the CWA, over wetlands that are “adjacent to, and drain into,

a roadside ditch whose waters eventually flow into the navigable

Wicomico River and Chesapeake Bay”); United States v. Rapanos, 339

F.3d 447, 449 (6th Cir. 2003) (asserting authority, under the CWA,

over wetlands that flow into a man-made drain, which in turn flows

into a creek, which in turn flows into a navigable river).

In our view, this definition is unsustainable under

SWANCC. The CWA and the OPA are not so broad as to permit the

federal government to impose regulations over “tributaries” that

are neither themselves navigable nor truly adjacent to navigable

waters. See Rice, 250 F.3d at 269.8 Consequently, in this circuit

the United States may not simply impose regulations over puddles,

sewers, roadside ditches and the like; under SWANCC “a body of

water is subject to regulation . . . if the body of water is

actually navigable or adjacent to an open body of navigable water.”

Rice, 250 F.3d at 269.9

B.

8
In short, the regulatory definition, if applied in this fashion,
would push the OPA to the outer limits of the Commerce Clause and raise serious
constitutional questions. As noted above, Rice and SWANCC have rejected such an
expansive reading of the OPA and CWA respectively. Accordingly, the regulation
is not entitled to Chevron deference. SWANCC, 531 U.S. at 172-73 (“Thus, where
an otherwise acceptable construction of a statute would raise serious
constitutional problems, [courts] will construe the statute to avoid such
problems unless such construction is plainly contrary to the intent of
Congress.”) (quoting Edward J. DeBartolo Corp. v. Fla. Gulf Coast Bldg. & Constr.
Trades Council, 485 U.S. 568, 575 (1988)).
9
In the end, there must be “a close, direct and proximate link
between . . . [the] . . . discharges of oil and any resulting actual,
identifiable oil contamination of natural surface water that satisfies the
jurisdictional requirements of the OPA.” Rice, 250 F.3d at 272.

8
 Using this interpretation of the OPA, we next consider

the bankruptcy court’s findings of fact. Two finding of fact are

critical. First, the court found that the oil spilled only into

the drainage ditch adjacent to the Thibodeaux Well and Bayou

Cutoff. See In re Needham, 279 B.R. at 516-18. The court ruled

that neither the drainage ditch nor Bayou Cutoff were navigable-in-

fact. Id. at 518. Second, the court found that the Gulf of Mexico

was the only open body of navigable water in the vicinity of the

spill. Id. at 518. These findings constitute clear error.

Specifically, it was clear error to disregard the effects

of the spill on Bayou Folse and the Company Canal. The parties’

stipulation of facts contained the following language: “On or

before January 25, 1995, oil was discharged from the Thibodeaux

facility into Bayou Cutoff and Bayou Folse near Thibodeaux,

LaFourche Parish, Louisiana.” (emphasis added). “Under federal

law, stipulations of fact fairly entered into are controlling and

conclusive and courts are bound to enforce them, unless manifest

injustice would result therefrom or the evidence contrary to the

stipulation was substantial.” Quest Medical, Inc. v. Apprill,

90 F.3d 1080, 1087 (5th Cir. 1996)(citations omitted).

There is no basis to disregard the stipulation, and

indeed none has been argued. Not only is the stipulation

consistent with the evidence adduced at the hearing, but in his

opening statement, counsel for the Needhams acknowledged that the

9
residue from the spill was found 10 to 12 miles from the oil well,

i.e., in Bayou Folse.10

As a result of the stipulation, the court should not have

limited its application of the OPA to the spill’s impact on Bayou

Cutoff. Under Rice, and in light of the stipulation, the proper

inquiry is whether Bayou Folse, the site of the farthest traverse

of the spill, is navigable-in-fact or adjacent to an open body of

navigable water. See Rice, 250 F.3d at 269. Either basis is

sufficient to trigger the OPA.

We conclude, because it is undisputed, that Bayou Folse

is adjacent to an open body of navigable water, namely the Company

Canal.11 “[T]he term ‘navigable waters’ is not limited to oceans

and other very large bodies of water.” Rice, 250 F.3d at 269.

Rather, inland waterways may also fall within the definition of

navigable waters. See id. Inland waterways, such as the Company

Canal, are navigable-in-fact “when they are used, or are

susceptible of being used, in their ordinary condition, as highways

for commerce, over which trade and travel are or may be conducted

. . . .” Daniel Ball, 77 U.S. at 563; see also Appalachian Elec.

10
Additionally, Patrick Breaux testified that the oil was visible in
the water “near a point where Highway 90 intersects Bayou Folse.”
11
Whether Bayou Folse is navigable-in-fact is a close question, and one
we need not resolve here. Bayou Folse’s adjacency to the Company Canal is
sufficient to resolve this matter. Moreover, it is unwise for a court to
overreach and resolve issues unnecessarily, particularly when, as is the case
here, the issue involves navigable waters. See Appalachian Elec. Power Co.,
311 U.S. at 408 (concluding that “[w]hen once found to be navigable, a waterway
remains so”).

10
Power Co., 311 U.S. at 409 (a waterway is navigable if it can be

made useful through reasonable improvements); Economy Light & Power

Co. v. United States, 256 U.S. 113, 122, 41 S.Ct. 409, 412 (1921)

(the use of navigable waters may be limited to travel during

seasonal water level fluctuations); but see United States v.

Oregon, 295 U.S. 1, 23, 55 S.Ct. 610, 619 (1935)(waterway is not

navigable where commercial use or susceptibility of use is

“sporadic and ineffective”).

The Company Canal falls within the definition of

navigable waters. At the bankruptcy court hearing, Breaux

testified that “[t]he Company Canal is an industrial corridor

between the Intracoastal Waterway and Bayou LaFourche.” He also

observed that the Company Canal contains “shipyards, repair

facilities, dry docks, [and a] gas freeing operation.” An inland

waterway, such as the Company Canal, that supports commerce, is

unobstructed, and is traversed on a consistent basis is navigable-

in-fact.

Thus, the only remaining question is whether Bayou Folse

is adjacent to the Company Canal. Under Rice, the term “adjacent”

cannot include every possible source of water that eventually flows

into a navigable-in-fact waterway.12 Rather, adjacency necessarily

12
Neither the CWA nor the OPA define the term “adjacent.” The Army
Corps of Engineers defines “adjacent” to mean “bordering, contiguous, or
neighboring.” 33 C.F.R. § 328.3. However, this regulation was invalidated, at
least in part, in SWANCC. Nevertheless, the Corps’ definition comports with the
term’s plain meaning. WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY 26 (1986) offers
several definitions: “(a) not distant or far off: nearby but not touching;

11
implicates a “significant nexus” between the water in question and

the navigable-in-fact waterway. See SWANCC, 531 U.S. at 167

(finding that Riverside Bayview Homes turned on the “significant

nexus” between the wetlands and the “navigable waters”); see also

Rice, 250 F.3d at 271 (requiring that the adjacent body of water be

“sufficiently linked” to the navigable-in-fact water). Under this

standard, Breaux’s testimony and the stipulation prove that Bayou

Folse is plainly adjacent to the Company Canal — Bayou Folse flows

directly into the canal. On this basis, the Thibodeaux Well oil

spill implicated navigable waters and triggered federal regulatory

jurisdiction pursuant to the OPA.

IV. CONCLUSION

Under Rice, the OPA permits the recovery of cleanup costs

in only two instances: (1) if oil spills into navigable-in-fact

waters or (2) if oil spills into non-navigable waters (or wetlands)

that are truly adjacent to an open body of navigable water. Here,

the parties stipulated that oil spilled into Bayou Folse. Bayou

Folse is adjacent to the Company Canal, which is an open body of

navigable water. We therefore conclude that the OPA applies to the

(b) relatively near and having nothing of the same kind intervening: having a
common border: abutting, touching: living nearby or sitting or standing
relatively near or close together; and (c) immediately preceding or following
with nothing of the same kind intervening.” Hence, both the regulatory and plain
meaning of “adjacent” mandate a significant measure of proximity. Therefore,
including all “tributaries” as “navigable waters” would negate Rice’s adjacency
requirement, and extend the OPA beyond the limits set forth in SWANCC.

12
spill at issue. Consequently, we REVERSE and REMAND this matter

for consideration of the Needhams’ remaining defenses.13

13
On appeal, the parties submitted supplemental briefs addressing the
remaining questions under the OPA: (1) whether James Needham was an owner or
operator of the facility and (2) whether Needham could establish a third party
affirmative defense. See 33 U.S.C. § 2701(32)(2000); 33 U.S.C. § 2702(a)(2000);
33 U.S.C. § 2703(a)(2000). However, we conclude, in our discretion, that the
bankruptcy court should address these fact-laden issues in the first instance.
See Louisiana World Exposition v. Federal Ins. Co., 858 F.2d 233, 254 (5th Cir.
1988).

13