TABLE OF CONTENTS. Sterling E. Rives III Katherine C. Donhauser

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1 Published by the Local Government Section of the Virginia State Bar Vol. XXVII, No. 1, Summer 2016 EMAC, LLC v. County of Hanover A Discussion of the Virginia Supreme Court s Holding and Its Impact on the Practice of Zoning Law Throughout the Commonwealth Sterling E. Rives III Katherine C. Donhauser In the beginning weeks of 2016, the Supreme Court of Virginia affirmed the dismissal on demurrer of a complaint alleging discriminatory zoning in EMAC, LLC v. County of Hanover, 781 S.E.2d 181 (Va. 2016). The court s opinion in this case is of special interest to practitioners of zoning law in Virginia because it marks the first time that the court has affirmed the dismissal of a lawsuit challenging a locality s zoning decision on demurrer and because it sheds considerable light on the factors that may be considered in a case alleging that a zoning decision was discriminatory. Facts of the Case The Comprehensive Plan of Hanover County designates certain areas adjacent to Interstates 95 and 295 for destination commerce, defined as commercial use that draws customers from areas beyond the Richmond region and is dependent on visibility from interstate highways. To facilitate the development of destination commerce projects, a Hanover County Zoning Ordinance provides for destination commerce signs. These signs, which may include electronic variable message panels, are permitted by conditional use permit (CUP) only for destination commerce projects comprised of at least 100 acres within a single unified development with no less than 1,500 feet of interstate frontage. Typically, only one sign may be constructed, but two signs may be permitted when there is a minimum separation of 3,000 feet between the signs within the same development. Sterling Rives is the County Attorney for Hanover. Katherine Donhauser is an Assistant County Attorney for Hanover. They may be reached respectively at srives@hanovercounty.gov and kcdonhauser@hanovercounty.gov. TABLE OF CONTENTS EMAC, LLC v. County of Hanover... 1 Chairman s Message... 2 Case Summary: Bear Island Paper WB, LLC v. County of Hanover... 7 Proffers: Policies and Standards under New U.S. Army Corps v. Hawkes: A New Appeal Option May Not Be So Appealing to Localities Membership Notices Board of Governors... 24

2 Chairman s Message I am truly honored and humbled to be Chairman for the coming year. I appreciate the Board's confidence and hope we have another good year. Thanks to Larry Spencer and Eric Gregory for a great year last year. We finished within budget, awarded two scholarships, and published excellent Journals. Congratulations to our new officers. Eric Gregory is our new Vice Chairman and Lesa J. Yeatts our new Secretary. We also appreciate the hard of work Annie Kim and Bonnie France whose terms on the Board expired at the end of June. At the same time, we welcome Jan Proctor and Bernadette Peele as our new Board members and look forward to their contributions in the years ahead. In addition to electing officers at Virginia Beach we co-sponsored an excellent CLE panel discussion of the meaning of Official Acts. Entitled Official Acts and Honest Services in the Wake of U.S. v. McDonnell. The distinguished panelists dissected the government's case against the former Governor. The panel's reading of the tea leaves from the oral arguments before the Supreme Court seemed spot on with the opinions issued only about two weeks later. It was a very timely and well done CLE. I was told this is my opportunity to wax philosophic. I will take it. This will be my eleventh year as County Attorney for Tazewell County and forty-fifth as her native son. Our county of 44,743 residents rests high in the mountains of the Great Southwest, 540 square miles of ridges and valleys. I often joke that if we were flat we would be as big as Texas. Unfortunately, these are challenging times for us, because the coal industry is under siege. Businesses, retail stores, machine shops, restaurants are closing right and left; unemployment is surging; school populations are dropping; and poverty is growing. It seems night is falling on the Cumberlands. The demand for local government services swells as revenues dwindle. Our locality seeks solutions and questions the limits between what we can and cannot do at the local level. Unfortunately, we all know the person in the room who must say, "wait, I don't think we can do that" or "we cannot do it that way" or "we have to procure that." That is when I think, 'I am glad my name is not on the ballot.' After one of those moments this year, I remembered a particular lecture of my favorite professor at Emory & Henry. At the beginning of his constitutional law class, Dr. Saliba, in his Lebanese accent I had grown to love, asked, "Who speaks for the rule of law?" We all knew an answer would result only in more questions. Silence. I decided I would be the foil for the day and answered, "the courts." In his Socratic way he made me walk through the judicial process up to the Supreme Court and then he asked, "Why do we do what they say? What armies do they command?" I do not recall how that conversation concluded that day. Nor do I specifically recall any other lectures that semester. But I have often thought about that question, "Who speaks for the rule of law?" I think now, twenty-five years removed from that day at Emory, I know at least one piece of the answer. We do. Local government attorneys speak for the rule of law. As we all know the vast majority of state and federal dollars are spent through local governments. Most laws and regulations are enforced through local government. The proverbial rubber meets the road in local government. Far from the Supreme Court we, the local government attorneys, are the first to speak for the rule of law. My message to local government attorneys as the summer winds down is this: As you go through the tedium of ordinary days, please keep in mind that you do labor for a noble cause and serve a high purpose. Eric Young Chairman Page 2

3 In 2012, Hanover County received an application for a CUP (CUP-2-12) for two destination commerce signs to be located in Northlake Park, a destination commerce project located on Interstate 95, south of Ashland. The application was submitted by Northlake Land Investments (Northlake), the developer of Northlake Park, and Craig Realty Group (Craig Realty), a national developer of outlet malls. According to the application, a phased outlet center and complimentary retail tenants, hotels and restaurants were planned for the Northlake project. The signs, in part, were intended to promote this substantial addition to the project as well as advertise for other land owners in Northlake Park. One of the signs, on the north end of the project, was to be located on land owned by Northlake, and the second sign on the southern end of the project was to be located on land owned by EMAC, where the McGeorge Rolling Hills RV dealership is located. Attached to the application was a copy of a letter of intent for the sale to Craig Realty of a three-acre portion of EMAC s property where the southern sign would be located. The requested CUP-2-12 was approved by the Hanover County Board of Supervisors subject to a number of conditions, including the submission of a master plan for the entire destination commerce project and the requirement that the proposed outlet center actually be under construction before either sign is constructed. In Hanover County, all CUPs expire one year after their date of approval unless substantial construction or use as permitted by the CUP has been initiated. However, the Board of Supervisors may extend a CUP s period of validity upon application demonstrating why commencement of construction or use has not been initiated and that extension of the CUP is in the public interest. In June of 2013, Northlake and Craig Realty requested a one-year extension of CUP-2-12, noting that the outlet center developer was not yet prepared to begin construction. This extension was approved. By the fall of 2013, it had become clear to Craig Realty and Northlake, and to the County, that the property owned by EMAC that was the subject of the letter of intent attached to the original application for CUP-2-12 and the location of the proposed southern sign would not be conveyed to Craig Realty. In fact, in 2013, EMAC planned and commenced construction of a major expansion of its RV dealership and business onto the property that was the subject of the letter of intent. In 2014, EMAC, which had not previously participated in the CUP process, requested another one-year extension for CUP-2-12 for the southern sign that was to be located on its property. Around the same time, Northlake and Craig Realty also requested an additional extension of CUP-2-12, but only for the northern sign on property owned by Northlake. Instead of asking for an extension for the southern sign, Craig Realty filed a new CUP application (CUP-4-14), requesting a destination commerce sign to be located on the proposed site of the outlet center property owned by Craig Realty and adjacent to EMAC s property. The application requested approval of this new sign in the event that the Board of Supervisors [took] action not to grant an extension to [CUP-2-12] for the southern sign that was proposed for location on EMAC property. The Board of Supervisors approved Craig Realty and Northlake s extension request for CUP-2-12 as it relates to the sign on Northlake s property and denied EMAC s request to extend CUP-2-12 for the sign on its property. The motion for this action specifically noted that the original purpose of CUP-2-12 was to provide signage to serve the proposed outlet center and other retail businesses located within the destination commerce development. It also noted that the conditions of the CUP linked the construction of the sign to the construction of the outlet center, and it stated that, without signed agreements assuring that the outlet center and all of the other businesses in the district would have access to the sign, the proposed sign on EMAC s property did not meet the purpose of the ordinance. Following the denial of its extension request, EMAC submitted a claim against Hanover County alleging an unlawful regulatory taking of its property and demanding $6,966,000 in damages. On that same day, EMAC filed a complaint in Hanover Circuit Court against the Page 3

4 County and the Board of Supervisors (collectively Hanover ) alleging that, by failing to grant EMAC s request for extension of CUP-2-12, Hanover (1) violated Dillon s Rule, (2) made an arbitrary and capricious zoning decision, (3) deprived EMAC of its substantive and procedural due process rights and equal protection rights and had taken EMAC s property without just compensation, all in violation of the United States and Virginia constitutions, and (4) denied EMAC its vested rights in violation of Virginia Code EMAC requested damages in the amount of $6,900,000, plus attorneys fees, expert witness fees and costs. In response to this complaint, Hanover filed a demurrer and motion to dismiss EMAC s claims, asserting that (1) the request for damages should be dismissed because EMAC had disregarded the mandatory procedures for pursuing a monetary claim against a county, (2) Hanover County is not a proper party in a case challenging a zoning decision by its Board, (3) EMAC failed to allege sufficient facts to support its due process, equal protection and taking claims, and (4) the facts alleged by EMAC demonstrate that EMAC did not have vested rights in the CUP. The demurrer also argued that, because the facts alleged in EMAC s Complaint demonstrated that the applicants for the CUP on EMAC s property were, as it turned out, neither the owners, contract purchasers nor the authorized agent of the owner of the property where the sign was to be constructed, as required by state law and County ordinance, the CUP was void ab initio, conveyed no rights and could not have been extended. In the midst of these initial stages of litigation, the Board approved Craig Realty s CUP application for the new sign on its property. As the result of a joint consent order on a motion craving oyer filed by Hanover, seven additional documents, including applications and accompanying materials for CUP-2-12, the CUP-2-12 extension requests and Craig Realty s CUP-4-14 application, were deemed exhibits to EMAC s Complaint. Hanover then filed an amended demurrer and motion to dismiss arguing that the facts alleged in EMAC s Complaint, and the information contained in the newly added exhibits, demonstrated that there was a rational basis for the Board s decision to deny CUP-2-12 s extension for the southern sign and that the decision was not arbitrary and capricious. The Trial Court s Ruling After reviewing the voluminous pleadings, briefs and a transcript of two and one-half hours of oral argument, the Honorable J. Overton Harris issued a letter opinion in Hanover s favor, focusing on whether the Board s decision to deny EMAC s request for an extension of CUP-2-12 as it applied to its property was arbitrary and capricious and whether the Board had illegally discriminated against EMAC. The trial court relied on the decision in City Council of Virginia Beach v. Harrell, 236 Va. 99 (1988), in concluding that EMAC failed to allege that the existing zoning applied to its property was unreasonable and that, moreover, the facts alleged in the complaint demonstrated the economic viability of EMAC s land under the existing zoning ordinance. The trial court went on to note that the facts alleged in EMAC s Complaint, as amplified by the exhibits originally attached to the complaint and those added pursuant to Hanover s Motion Craving Oyer, provided sufficient evidence of reasonableness to demonstrate that the Board s denial of EMAC s extension request was, at least, fairly debatable. The facts illustrated that the conditions applied to CUP-2-12 could best, and perhaps only, be achieved by Northlake and Craig Realty, not by EMAC. The facts also indicated that a hostile relationship had developed between EMAC and Craig Realty making the possibility of any agreement for operation of the sign unlikely. The information contained in the CUP application and other documents before the Board of Supervisors when it made its decision indicated that ownership and management of the signs should be in the hands of the developer of Page 4

5 the entire project and not an independent property owner such as EMAC. Accordingly, the trial court granted the County s Demurrer and Motion to Dismiss. EMAC promptly noted its appeal. The Supreme Court of Virginia s Opinion On appeal to the Supreme Court of Virginia, EMAC claimed not to have waived its allegations regarding the Dillon Rule, due process, equal protection and taking without just compensation, but the briefs, oral arguments and the Court s opinion focused on EMAC s claim that Hanover had made a discriminatory zoning decision. The Court began its analysis, in an opinion written by Justice Goodwyn, by noting that documents brought into a case as a result of a motion craving oyer are incorporated into the pleadings and may be used to amplif[y] the facts alleged in a complaint when a court decides whether to sustain or overrule a demurrer. 781 S.E.2d 181, 185 (Va. 2016). The opinion also noted that a court considering a demurrer may ignore a party s factual allegations contradicted by the terms of authentic, unambiguous documents that are properly part of the pleadings. Id. After discussing the materials that a court may consider on demurrer, the Court cited City Council of Virginia Beach v. Harrell for the proposition that the standards of judicial review for zoning enactments also apply to decisions on applications for CUPs. 236 Va. at However, the Court concluded that the trial court had erred in relying on Harrell and Board of Supervisors v. International Funeral Services, Inc., 221 Va. 840 (1980), for the proposition that a landowner challenging the denial of a CUP must show not only that the requested use is reasonable but also that the existing zoning is unreasonable as applied to that property. The Court held that [a]n impermissibly discriminatory decision is unreasonable regardless of whether the existing zoning ordinance is reasonable as applied to an applicant s land. In order to allege a valid claim for impermissible discrimination, the contesting party must show that the requesting use granted to one owner was rejected as to another similarly situated. 781 S.E.2d at 186 (citing Bd. of Supervisors v. McDonald s Corp., 261 Va. 583, 591 (2001)). If a landowner makes such a showing, the locality has the burden to prove that there was a rational basis justifying the allegedly discriminatory action, thereby establishing that the decision was fairly debatable. 1 The Court did, however, affirm the trial court s alternative basis for its decision to grant Hanover s Demurrer, which was that EMAC s Complaint and exhibits did demonstrate that the Board s decision to deny EMAC s extension request was supported by a rational basis and was fairly debatable. An examination of the complaint and its exhibits, even when read in the light most favorable to the plaintiff, showed that Northlake and EMAC were not similarly situated landowners because Northlake and Craig Realty were the original applicants for CUP-2-12, and EMAC was not. EMAC was the owner of the land designated for the southern sign at the time of the application for CUP-2-12, and the applicants, Northlake and Craig Realty, were neither the owner, nor EMAC s attorney-in-fact or authorized agent. 1 We respectfully disagree with the Supreme Court of Virginia s conclusion that the trial court erred in applying the unreasonable existing use doctrine as one means of analyzing the demurrer. Although on appeal, EMAC focused on its claim of discriminatory zoning, EMAC s Complaint was comprised of eight counts, only one of which, Count II, alleged that the denial of the extension was arbitrary and capricious. Within Count II, EMAC alleged a number of reasons why it believed that the denial of the extension was arbitrary and capricious. EMAC s allegation of discriminatory zoning was limited to a single sentence in its 138 paragraph complaint ( Likewise, the Board s decision violated the law as it treated similarly situated land differently. ) In the context of all of the claims before the trial court at the time it ruled on Hanover s Demurrer, it was certainly appropriate to consider whether EMAC had alleged, or could prove, that the existing zoning applicable to its property was unreasonable. Page 5

6 Therefore, CUP-2-12, although valid as to the northern sign on Northlake s property, was void ab initio as to the southern sign. The Court also noted that the Hanover County Zoning Ordinance provides that an extension of a CUP is allowed only if approval of additional time is consistent with the public interest. Id. at 186 (citing Hanover Cnty. Code (b)(3)). However, the facts alleged in EMAC s Complaint and contained in the numerous exhibits indicate that the destination commerce signs are intended to serve all of the businesses located within the project and that the construction and operation of the signs, in particular, were tied to the development of the outlet center. The Court noted that Northlake and Craig Realty had an agreement in place for the operation of the northern sign and that there was no such agreement between EMAC and Craig Realty or Northlake for operation of the southern sign. The Court also recognized that allegations in the complaint suggested an adverse relationship between EMAC and Craig Realty. These facts demonstrated that granting EMAC s requested extension for CUP-2-12 was not consistent with the public interest and that EMAC and Northlake were not similarly situated landowners, especially when the purpose for destination commerce signs is considered. The Court concluded that [i]t was rational, fairly debatable and consistent with the public interest to allow the CUP for the sign on EMAC s property to lapse so that the Board could evaluate the appropriate placement of the southern sign consistent with the public interest. Id. at 188. Accordingly, the judgment of the circuit court was affirmed. In her dissent, Justice Powell disagreed with the majority s determination that EMAC and Northlake were not similarly situated landowners. Also citing Board of Supervisors v. McDonald s Corp., 261 Va. 583 (2001), for its impermissible zoning discrimination standard, Justice Powell wrote that in determining whether the landowners are similarly situated, the focus of our analysis should be on the properties at issue, not the landowners. Id. (citations omitted). Justice Powell noted that in the McDonald s case, the Court enumerated eight factors that distinguished the subject property from the comparison sites and that each of these enumerated factors refers to differences in the properties themselves and not to any differences between the property owners. She concluded that [i]n the present case, neither party has identified any difference in the properties, other than the ownership. Id. Conclusion The Supreme Court of Virginia has previously indicated that staff reports attached to a complaint in a lawsuit challenging the validity of an ordinance setting utility rates may be considered by the trial court on demurrer, and that staff reports and recommendations admitted into the record may be relied upon when granting summary judgment in special use permit cases. See Eagle Harbor L.L.C. v. Isle of Wight Cnty., 271 Va. 603 (2006); Newberry Station Homeowners Ass n v. Bd. of Supervisors, 285 Va. 604 (2013). Now, through its opinion in the EMAC case, the Court has affirmed that, even on demurrer, a trial court may rely on facts alleged in a complaint and in exhibits admitted pursuant to a motion craving oyer when concluding that the denial of a zoning request was fairly debatable and supported by a rational basis. Accordingly, for the local government attorney who would like to dispose of challenges to zoning decisions on demurrer, it is important to assure that all of the information relevant to a zoning decision is clearly set forth within the zoning application or staff report. Likewise, especially for CUPs and special exceptions, it is helpful if the zoning ordinance specifies standards and criteria governing the consideration of applications. Finally, and especially when a zoning request is being denied, it is beneficial to have a motion that clearly articulates the reasons for the action. In this case, the motion denying EMAC s request for an extension of the CUP was recited in the complaint, trial court briefs, trial court opinion, appellate briefs and in oral argument before the Supreme Court of Virginia. A local government attorney can assure that such a motion is well thought out and articulated. Page 6

7 A Case Summary: Bear Island Paper WB, LLC v. County of Hanover A circuit court decision favorable to local governments was recently issued in the pending tax case of Bear Island Paper WB, LLC v. County of Hanover. Hanover s Commissioner of Revenue assesses machinery and tools at the static rate of 10% of original total capitalized cost pursuant to Virginia Code (B) and interprets the phrase to mean what the original purchaser paid for the equipment to the manufacturer or dealer. Bear Island, which recently bought a paper plant in a bankruptcy sale, claims that the phrase means what the current owner paid for the equipment. Bear Island s interpretation would reduce its machinery and tools tax liability in Hanover by approximately $700,000 per year. In a motion for partial summary judgment and supporting memorandum, the County argued that Bear Island s interpretation would defeat the requirement for uniformity in assessments because the assessed value of similar equipment would vary dramatically depending on whether it was owned by the original purchaser or a subsequent purchaser. The County also relied on a 2014 Virginia Attorney General s Opinion, which had been requested by the Commissioner and supported his interpretation, as well as the fact that the General Assembly had apparently acquiesced in the interpretation espoused by the opinion. In its cross-motion for partial summary judgment, Bear Island argued that the Commissioner s interpretation was impractical and contrary to the plain language of the statute. Ruling from the bench on the motion and crossmotion filed by the parties, the Honorable Walter W. Stout III agreed with the Commissioner s interpretation of original total capitalized cost. By granting the County s Motion and denying Bear Island s Cross-Motion, Judge Stout s decision resolved the key legal issue in this case. Although there are factual issues still remaining and the case is not yet resolved in its entirety, this interlocutory decision provides insight into the meaning of original total capitalized cost in Virginia Code (B) and, by analogy, the meaning of original cost as used in An appeal seems likely. Page 7

8 Proffers: Policies and Standards under New of the Code of Virginia Eric A. Gregory From Euclidean to Conditional Zoning L ocal authority to control or direct development through local zoning ordinances emerged in the early part of the last century, prior to the 1926 case of Euclid v. Ambler Realty Co., 272 U.S. 365, 47 S. Ct. 114 (1926), decided by the Supreme Court of the United States. In that case, which spawned the term Euclidean zoning, the Village of Euclid, Ohio had adopted a zoning ordinance for regulating and restricting the location of trades, industries, apartment houses, two-family houses, single family houses, etc., the lot area to be built upon, the size and height of buildings, etc. Euclid at , 115. The Village of Euclid s ordinance limited development of the property at issue in accordance with the rules imposed for the zoning districts in which the property was located. The ordinance limited the development of certain properties and portions of properties in various ways, seeking to segregate certain uses for the protection of the public health, safety, and welfare. The property owner contended that the property was more valuable if developed for industrial purposes but the zoning ordinance did not permit this. The property owner, therefore, asserted that the ordinance violated 1 of the Fourteenth Amendment to the U.S. Constitution, deprived the property owner of liberty and property without due process of law and denie[d] the equal protection of the law, having restricted the lawful use of the property so as to confiscate and destroy a great part of its value. Id. at 384, 117. The Court upheld the ordinance, holding that the exclusion of buildings devoted to business, trade, etc., from residential districts, bears a rational relation to the health and safety of the community. Id. At 391, 119. Overruling the property owner s general constitutional claims, the Court determined that the ordinance in its general scope is a valid exercise of authority. Id. at 397, 121. The ordinance restricted the type and scope of property development, but it did not rise to the level of a taking requiring compensation under the Constitution. Euclidean zoning was here to stay but conditional zoning was a concept that would be developed later in the century. The case of Nollan v. Cal. Coastal Com., 483, U.S. 825, 107 S. Ct (1987), did not address directly the issue of conditional zoning but it did concern the concept of imposing conditions as a part of the building prmit approval process. The Supreme Court, in Nollan, denied the California Coastal Commission the ability to obtain a public access easement as a condition for granting a building permit without just compensation to the landowner; however, the opinion, authored by the late Justice Antonin Scalia, also served to recognize the governmental authority to prohibit certain land uses in advance of a legitimate state interest in the exercise of its police powers and to condition such uses upon concessions made by the landowner, as long as the condition furthers that same governmental interest. Nollan at , Eric Gregory practices law with Hefty, Wiley & Gore, P.C. in Richmond, Virginia, focusing primarily upon the representation of Virginia local governments, political subdivisions, and non-profit organizations. Eric may be reached via at eric@heftywiley.com. The case of Dolan v. City of Tigard, 512 U.S. 374, 114 S. Ct (1994), provided additional guidance concerning conditional zoning. Dolan established that for a condition imposed as a part of the land use approval process to be legitimate, there must be an essential nexus between the legitimate state interest and the imposed permit condition. Dolan at 386, In this case, the government again lost, but the standards established by Dolan and Nollan both served to bolster the concept of conditional zoning as a means to regulate and address demands associated with local land use development. Page 8

9 Conditional Zoning and Voluntary Proffers Conditional zoning and proffers have been a part of Virginia land use and development law and practice for over 35 years. Proffers, or voluntary proposals by applicants for property rezoning to mitigate the impacts of the development they propose to undertake, are an important facet of conditional zoning in Virginia. Authorized by statute in 1979, the ability to accept proffers provide a mechanism to allow greater flexibility in the local zoning application and approval process. Proffers have long stood as a means for property owners and developers to offset certain local impacts associated with commercial and residential development, particularly public schools, roads, parks, libraries and other public services and amenities. Through proffers, developers can enhance the likelihood that their rezoning application will be approved by offering to mitigate impacts by donating land, building public facilities, or making cash payments to help meet local public infrastructure needs. Proffers, while at times controversial, have been integral to local governments ability to guide, direct, and mitigate the impacts of local growth and development. As long as there is a nexus and rough proportionality between the government s demand and the effects of the proposed land use, conditions and proffers offered by developers as part of a rezoning application process have largely been deemed permissible under the Nollan and Dolan standards. In the absence of that nexus, cases have been subject to judicial checks and corrections. For instance, in Board of Supervisors of Powhatan County v. Reed s Landing Corp., 250 Va. 397, 463 S.E.2d 668 (1995), a local government s denial of a rezoning was overruled by the Supreme Court of Virginia because the developer s proffers did not meet the county s demand. The Court held that the board of supervisors sole reason for denying the rezoning was due to the applicant s failure to proffer a per-lot cash payment consistent with the county s proffer guidelines. For this reason, the Court determined that the board of supervisors imposition of a conditional fee in exchange for the rezoning was not a voluntary proffer by the developer and was therefore unlawful. In Gregory v. Board of Supervisors, 257 Va. 530, 514 S.E.2d 350 (1999), the Supreme Court of Virginia sided with Chesterfield County s governing body in determining that the board of supervisors decision denying a rezoning application, while based in part on the applicant s failure to submit cash proffers in compliance with the county s proffer guidelines, was also based on valid community health, safety, and welfare concerns. In light of the deference applied to legislative decisions, the Court determined that the governing body s action was lawful. The lesson from these two Virginia cases is that zoning decisions by local governing bodies should be based, in part, upon impacts to the local health, safety, and welfare. While proffers by applicants to mitigate those impacts are lawful, they must remain voluntary, without any suggestion of coercion. Denying a rezoning application solely on an applicant s failure or unwillingness to submit the prescribed or expected cash proffer tends toward the extortive and unlawful. The Supreme Court of the United States provided further guidance in the more recent case of Koontz v. St. Johns River Water Mgmt. Dist., 133 S. Ct. 2586, 2013 U.S. LEXIS 4918 (2013). In its analysis, the Court noted that [e]xtortionate demands for property in the landuse permitting context run afoul of the [Fifth Amendment] Takings Clause not because they take property but because they impermissibly burden the right not to have property taken without just compensation. Koontz at 2596, 21. Ultimately, the Court held that the Government s demand for property from a land-use permit applicant must satisfy the requirements of Nollan and Dolan even when the government denies the permit and even when its demand is for money. Id. at 2603, Page 9

10 The majority opinion in Koontz, however, also recognized the two realities of the [land use] permitting process: The first is that land-use permit applicants are especially vulnerable to the type of coercion that the unconstitutional conditions doctrine prohibits because the government often has broad discretion to deny a permit that is worth far more than property it would like to take. A second reality of the permitting process is that many proposed land uses threaten to impose costs on the public that dedications of property can offset. Where a building proposal would substantially increase traffic congestion, for example, officials might condition permit approval on the owner s agreement to deed over the land needed to widen a public road. Id. at , Moreover, the Court noted that [i]nsisting that landowners internalize the negative externalities of their conduct is a hallmark of responsible land-use policy, and we have long sustained such regulations against constitutional attack. Id. at 2595, 18 (citing Village of Euclid v. Amber Realty Co., 272 U.S. 365 (1926)). Basing its decision firmly within the context of Euclid, Nollan, and Dolan, the Koontz decision seeks to strike a balance, enabling permitting authorities to insist that applicants bear the full costs of their proposals while still forbidding the government from engaging in out-and-out extortion that would thwart the Fifth Amendment right to just compensation. Id. at 2595, The challenge for local governments, when considering a land-use permit application when proffers are attached or may be expected to be attached, is to hold permit applicants responsible for the external and very real impacts of the proposed project, while not verging into the realm of extortive conduct. In short, stay focused on matters of legitimate local government concern: public health, safety, and welfare (i.e. public safety, schools, recreation, and transportation). Establish a clear connection from the development to the impacts that are of legitimate local government concern so as to comply with Nollan. Demonstrate the essential nexus between the development s impacts and the conditions imposed. And be reasonable; that is, make sure conditions are roughly proportional to the recognized and designated impacts. In most cases, the proper balance has been struck by Virginia local governments under U.S. Supreme Court and Virginia precedents and applicable statutory law prior to There continues to be debate, however, from developers who believe the proffer system, particularly in regard to offsite improvements, was being abused. Alleged abuses have inspired regular efforts to restrict the system. Another chapter in this cycle was written during this past 2016 Session of the Virginia General Assembly. SB549/HB770: Negotiation and Compromise As prologue to their rollout of SB549/HB770 just before the 2016 Session of the Virginia General Assembly, proponents of the legislation cited examples in which certain unidentified local governments had allegedly pressured developers to install a certain type of showerhead fixtures in dwelling units and to install granite counter tops in other developments to make them of higher quality. The bills proponents also alleged that some localities cash proffer guidelines included components to fund facilities that lacked sufficient nexus to development projects to be constitutional. According to the proponents, these were instances in which local governments went too far. They believed these types of demands were unreasonable and beyond the areas of interest and authority of local government, which should be properly limited to the actual impacts on public infrastructure and facilities. Proponents of SB549/HB770 declared that the legislation was necessary due to these and other anecdotally-described abuses of the proffer system by local governments. Page 10

11 Virginia local governments naturally have a different perspective and offered counterproposals. Portions of these counter-proposal drafts ultimately were incorporated into the legislation passed by the General Assembly and signed by the Governor. For instance, the final version of SB549, which is now codified as Va. Code , defines public facilities as public transportation facilities, public safety facilities, public school facilities, or public parks. Under , local governments may only accept off-site proffers to address an impact to a public facility falling within one of these categories. Whereas the original drafts of SB549/HB770 would have limited off-site proffers to provide for public road facilities, public safety facilities, public school facilities, or necessary improvements to these facilities, the compromise legislation extended the definition to include public parks but not public libraries. When passed and signed by the Governor, SB549 included an enactment clause providing that the act is prospective only and applies to rezoning applications submitted on or after July 1, 2016, the legislation s effective date. 1 The new law only applies to residential rezonings and, importantly, does not apply to non-residential (i.e., commercial or industrial) rezonings. In addition, it only applies to the residential components of mixed-use rezonings. Therefore, the legal framework existing prior to the passage of still applies to commercial or industrial rezonings (i.e., the U.S. Supreme Court cases of Nollan, Dolan, and Koontz, applicable Virginia cases, and Va. Code ). The Definition of Unreasonable and a new Proffer Standard In addition to limiting the types of public facilities for which proffers may be accepted, the initial draft of SB549 would have required proffers to be specifically and uniquely attributable to the particular development at issue and the impact that it caused. See subsection C of This would have been akin to an impact fee standard from other states typically imposed in the context of by-right developments. This new standard would have represented an aggressive leap from the general nexus and rough proportionality standard typically applicable to Virginia rezoning/proffer cases to a more stringent standard that would have been difficult to meet, largely because it was undefined. Since specifically and uniquely attributable was not defined by the bill, it would likely have been left to the courts to provide a definition. Local government representatives proposed an alternative that eliminated the hazy specifically and uniquely attributable standard with directly attributable. Ultimately, the proponents were not amenable to this alternative, desiring there to be a direct and specific correlation between the subject development and proffers submitted to mitigate its impacts. The compromise standard eliminates uniquely and requires that proffers be specifically attributable to the new residential development or use. Section , as adopted, provides that a proffer, or proffer condition amendment, whether onsite or offsite, offered voluntarily shall be deemed unreasonable unless it addresses an impact that is specifically attributable to a proposed new residential 1 2. That this act shall be construed as supplementary to any existing provisions limiting or curtailing proffers or proffer condition amendments for new residential development or new residential use that are consistent with its terms and shall be construed to supersede any existing statutory provision with respect to proffers or proffer condition amendments for new residential development or new residential use that are inconsistent with its terms. 3. That this act is prospective only and shall not be construed to apply to any application for rezoning filed prior to July 2, 2016, or to any application for a proffer condition amendment amending a rezoning for which the application was filed prior to that date. Chapter 322 of the Virginia Acts of Assembly, 2016 Session, Approved March 8, Page 11

12 development or other new residential use applied for. See Virginia Acts of Assembly 2016 Session, Chapter 322, Approved March 28, 2016; (Emphasis added.) Moreover, Id. an offsite proffer shall be deemed unreasonable unless it addresses an impact to an offsite public facility, such that the new residential development or new residential use creates a need, or an identifiable portion of a need, for one or more public facility improvements in excess of existing public facility capacity at the time of the rezoning or proffer condition amendment and each such new residential development or new residential use applied for receives a direct and material benefit from a proffer made with respect to any such public facility improvements. Onsite versus Offsite Section draws an important distinction between offsite proffers and onsite proffers. An onsite proffer means a proffer addressing an impact within the boundaries of the property to be developed and shall not include any cash proffers. An offsite proffer is defined as a proffer addressing an impact outside the boundaries of the property to be developed and shall include all cash proffers. See Virginia Acts of Assembly 2016 Session, Chapter 322, Approved March 28, 2016; Va. Code (A). (Emphasis added.) Proffers for onsite improvements, to be deemed reasonable, must be specifically attributable to the proposed new residential development or new residential use. Onsite proffers, which would include in-kind contributions, may address any impacts created by the project, so long as those impacts are specifically attributable to the development. Cash proffers for onsite improvements, arguably, are no longer an option under because all cash proffers are included within the definition of, and thus the applicable heightened standard for, offsite proffers. Offsite proffers, to be deemed reasonable, must be specifically attributable to the proposed new residential development or other new residential use and they must address a need or a portion of a need for one or more public facility improvements created by the new residential development. Under the new law s standard, moreover, the new residential development or new residential use must receive a direct and material benefit from a proffer made with respect to any such public facility improvements. See Virginia Acts of Assembly 2016 Session, Chapter 322, Approved March 28, 2016; Va. Code (C). (Emphasis added.) Strictly attributable creates a higher standard than a Dolan essential nexus and roughly proportionate standard, but it is unclear how stringent this new standard will be. Under the new standard, one must still demonstrate an essential nexus by connecting the legitimate local government interest, the direct impact of the development project, and the conditions imposed. But, in addition, proffered conditions must be shown to be specifically attributable to the development and its impacts. The direct and material benefit is aimed at requiring some color to be added to the picture. That is, it would seem that a roughly proportionate relationship between the project impacts and a proffered condition, donation of land, public facility, improvements, etc. would no longer suffice. The direct and material benefit of the proffered conditions, facilities, improvements, etc. must be clearly demonstrable. Data and impact analyses would appear to be in order. One must not only connect the dots, but fill in the picture as well. The last sentence in subsection C of the new statute provides guidance as to how the picture is to be completed. That provision authorizes localities to base their assessment of public facility capacity on the projected impacts specifically attributable to the new residential development or new residential use. Id. (Emphasis added.) This direction authorizes localities Page 12

13 to rely upon projected impacts and analyses but it does not necessarily direct localities themselves to prepare projections or perform analyses. In order to obtain the necessary projections and analyses, one approach localities may consider would be to require applicants to prepare and submit a public services and facilities impact analysis. The Virginia Department of Transportation s (VDOT) Traffic Impact Statement (TIS), often referred to as a Traffic Impact Analysis (TIA), model is an example of how this would function. See Va. Code Demonstrating projected impacts specifically attributable to the Development: Public Services and Facilities Impact Analysis The basis for VDOT s TIS model lies in Va. Code and is further developed by applicable VDOT regulations, specifically 24 VAC Section (B) requires localities to submit rezoning applications to VDOT for review if the rezoning will substantially affect transportation on state-controlled highways. The application shall include a traffic impact statement if required by local ordinance or pursuant to regulations promulgated by the Department. Va. Code (B). VDOT s regulations are very rigorous and detailed in regard to content, required elements, methodology, and standard assumptions. Although does not explicitly require rezoning applicants to include a public services and facilities impact analysis, the fact that the statute authorizes localities to rely upon such an analysis would at least imply that the analysis could be required by a locality. Moreover, it seems reasonable to expect the applicant to bear the burden and cost of developing the data, performing the analysis, and preparing and submitting a report as part of their application. Any such analysis should be informed by the locality s comprehensive plan and capital improvement plan. Certain Virginia localities are actively considering or in the process of adopting this approach. Prince William County, for instance, repealed its proffer guidelines and directed staff to develop for consideration the county s residential rezoning and proffer amendment application criteria to require that all applicants: 1. Specifically identify all of the impacts of the proposed rezoning and/or proffer amendment, 2. Propose specific and detailed mitigation strategies and measures to address all of the impacts of the proposed rezoning and/or proffer amendment, 3. Specifically address whether all of the mitigation strategies and measures are consistent with all applicable law, including , and 4. Specifically demonstrate the sufficiency and validity of those mitigation strategies using professional best accepted practices and criteria, including data, records, and information used by the applicant or its employees or agents in identifying any impacts and developing any proposed mitigation strategies and measures. 2 Consistent with the VDOT TIS model, it is envisioned that data gathering and analysis would be conducted by third-party planning and zoning consultants. The costs for providing such analyses would be borne by the applicants; however, local governments will also bear additional costs for additional staff time and other resources necessary for reviewing all of the additional information submitted. 2 Prince William County, Res. No , May 17, 2016, Staff Working Document, May 27, 2016, Re: Initiate Actions in Response to Senate Bill 549 Relating to Conditional Zoning for Residential Rezonings and Proffer Amendments. Page 13

14 The City of Chesapeake is considering a similar approach. At press time, Chesapeake was considering an amendment to Article 16 of its Zoning Ordinance 3 to incorporate provisions of The proposed amendments also require applicants to provide an impact analysis statement and a certification that any proffers submitted are reasonable, consistent with, and in compliance with the new law. Like the pending Prince William approach, this places some of the responsibility for compliance upon the applicant. These approaches and the costs associated with them may not be warmly received by the development community. In light of the requirements of and risks inherent in , however, the TIS-like model and sharing of costs and responsibilities may be a prudent and reasonable approach. Perhaps this process, independently developed data and analysis, informed by the locality s comprehensive plan and capital improvement plan, take the place of what would sometimes involve a direct negotiation between government officials and developers. A New Standard and New Ramifications In the past, rezoning decisions typically would involve a dialogue among applicants, developers, local government officials, and staff, which might typically include fairly open discussions regarding the proffers that would be submitted, how they might be received, and developers often sought input and guidance from county officials and staff. Under newly enacted , however, such discussions may constitute a violation of the law. And the consequences for the local government under (D) are significant. Under subsection D, if a rezoning applicant whose application is denied proves, by a preponderance of the evidence, that the applicant refused or failed to submit a proffer or proffer condition amendment that meets the statutory definition of unreasonable (see above), that the applicant has also proven was suggested, requested, or required by the locality, the court shall presume, absent clear and convincing evidence to the contrary, that such refusal or failure was the controlling basis for the denial. Instead of enjoying the typical standard of review applicable to legislative decisions fairly debatable, in favor of the legislative body the newly imposed preponderance of the evidence standard now favors the applicant. If the presumption is met by the applicant and the locality fails to provide clear and convincing evidence to refute it, then the court will likely remand the matter to the governing body with a direction to approve the rezoning or proffer condition amendment without the inclusion of the unreasonable proffer. Upon remand, the local governing body has 90 days to approve the rezoning without the offensive proffer provision(s). If the governing body refuses to do so, the court shall enjoin the locality from interfering with the use of the property as applied for without the unreasonable proffer. What raises the stakes even higher under the new law is the fact that an aggrieved applicant whose legal action is successful in court may be awarded reasonable attorney fees and costs. But then again, attorney fees and court costs were already available to aggrieved applicants that are successful in challenging a grant or denial of any approval or permit under , which was enacted in 2014 in direct response to the Koontz decision. These and further ramifications of are significant and were foreseen by Justice Kagan in Koontz. In her dissent, Justice Kagan speculated that [i]f a local government risked a lawsuit every time it made a suggestion to an applicant about how to meet permitting criteria, it would cease to do so; indeed, the government might desist altogether from communicating with applicants. Koontz at 2610, 62. Indeed, under the new standard imposed by , which is higher than the Nollan and Dolan standard, we may have reached the point when no local government official with a decent lawyer would have a 3 City of Chesapeake Code, Appendix A, Article 16, Section 16. Page 14

15 conversation with a developer, as feared by Justice Kagan. Id. at 2610, 63. Let s hope not. And with the creative options being developed by local government attorneys and their respective governing bodies around the Commonwealth, let s hope all concerned can work with these new standards. The End of an Era? Or Just a New Way Forward? Is the proffer era over? As a statutory matter, no. However, as a practical matter, given the limitations and potential liabilities under the new law, the future is unclear. Under , local governments and developers will have to develop a new system to determine how best to measure and mitigate the impacts of particular development projects. Although the basic argument about how to pay for the costs of development taxes versus proffers or impact fees 4 will remain, the new processes, procedures and the standards to govern them that will develop out of the framework established by may prove to be beneficial to all concerned. Though the costs may be higher, the provision of objective data and analysis will likely contribute to a better way of identifying and addressing specific impacts. Unfortunately, providing public infrastructure on the granular level does not work so well. Therefore, this new system will also result in rezoning applications being denied more frequently, simply because localities will decide that the available infrastructure cannot absorb the new development. That is simply the reality of setting up a system with such inherent challenges and risks, such as we now have with What will be the result of this latest modification of the proffer system? Will local governments and real estate developers be able to work with these new rules and develop new tools to aid local zoning and development decision-making? Or, will we see another round of litigation as stakeholders struggle to find the right path forward? Only time will tell 4 The General Assembly severely curtailed the authority of Virginia localities to adopt impact fee ordinances in 2007 when amendments to applicable code provisions were passed. See Va. Code , et seq. Page 15

16 U.S. Army Corps v. Hawkes: A New Appeal Option May Not Be So Appealing to Localities Emily Russell In May 2016, the U.S. Supreme Court, in U.S. Army Corps of Engineers v. Hawkes Co., Inc., held that jurisdictional determinations ( JD or JDs ) by the U.S. Army Corps of Engineers are final agency actions that may be appealed under the federal Administrative Procedure Act. Before Hawkes, landowners could only challenge a JD after receiving a Clean Water Act permit from the Army Corps of Engineers following a cost-intensive and lengthy application process. This article will explore the impacts the Court s holding may have on Virginia local governments in their dual-role as regulators of private land-development activities and as landowners/developers themselves. The first section is a primer on jurisdictional determinations and Section 404 of the Clean Water Act. The second provides an overview of the Supreme Court s decision in Hawkes. The third sections identifies impacts of Hawkes for Virginia local governments, including failure to remove all regulatory barriers to construction, leaving administration of local government programs beholden to the federal appeals process, creating an opportunity for earlier third party challenges to development projects, and creating a new forum to consider in litigation strategy. This article concludes that, on balance, the impacts of Hawkes are less favorable for local governments than favorable but the unfavorable impacts will only come to light if developers and third parties decide to start appealing JDs. What is a Jurisdictional Determination? Before a landowner can begin developing his property, he should identify whether any waterbodies on the property are subject to state and/or federal regulation that requires a permit before beginning construction activities. Development activities that impact waterbodies in Virginia are regulated by the federal Clean Water Act (33 U.S.C et seq.), Sections 9 and 10 of the Rivers and Harbors Act of 1899 (33 U.S.C. 403, 404), the Wetlands Act of 1972 (Va. Code Title 28.2, Ch. 13), and the State Water Control Law (Va. Code, Title 62.1, Ch. 3.1). The State Water Control Law includes the following articles relevant to this Article: the Virginia Water Resources and Wetlands Protection Program (Article 2.2, Va. Code :20, et seq.); the Stormwater Management Act (Article 2.3, Va. Code :24 et seq.); the Erosion and Sediment Control Law (Article 2.4, Va. Code :51, et seq.); and the Chesapeake Bay Preservation Act (Article 2.5, Va. Code :67 et seq.). The regulatory bodies charged with implementing and enforcing this statutory framework include U.S. Army Corps of Engineers (Corps), U.S. Environmental Protection Agency (EPA), Virginia Department of Environmental Quality (DEQ), Virginia Marine Resources Commission (VMRC), local wetlands boards, and local governments. Given the sheer number of laws and distinct regulatory bodies overseeing protection of waterbodies in Virginia during development, a critical first step in land development is to characterize the type of waterbodies present on the subject property and determine which legal requirements apply. Emily Russell is an Assistant County Attorney for Chesterfield. She may be reached via at RussellEm@chesterfield.gov. The Clean Water Act protects waterbodies across the U.S. by prohibiting the discharge of any pollutant to navigable waters unless the discharge is pursuant to a permit issued by either EPA or the Army Corps of Engineers. See 33 U.S.C. 1311(a), 1362(12). Navigable waters is defined as waters of the U.S., 1 1 This term has been the subject of much litigation and debate since the scope of waters of the United States became unclear after two U.S. Supreme Court decisions in 2001 and This article does not consider the issues or current litigation related to the meaning of waters of the United States. Page 16

17 a term that has been construed by both the Corps and the Supreme Court to include waterbodies and wetlands that are not traditionally navigable in fact. 33 U.S.C. 1362(7); 33 C.F.R ; see Solid Waste Agency of N. Cook Cty. v. U.S. Army Corps of Eng rs, 531 U.S. 159, 167 (2001); see also Rapanos v. United States, 547 U.S. 715, 759 (2006). The Corps, pursuant to the Clean Water Act, has created a process for determining when a waterbody falls under the federal jurisdiction (and, therefore, the permitting requirements) of the Clean Water Act. This process begins with gathering information about the waterbody to determine if it meets the definition of waters of the United States and culminates in what is known as a jurisdictional determination. Approved jurisdictional determination means a Corps document stating the presence or absence of waters of the United States on a parcel or a written statement and map identifying the limits of waters of the United States on a parcel. Precon Dev. Corp. v. U.S. Army Corps of Eng rs, 633 F.3d 278, (4th Cir. 2011). If, by approving a JD, the Corps finds that waterbody on the property meets the definition of waters of the U.S., development activity impacting the waterbody is regulated under Section 404 of the Clean Water Act. Section 404 of the Clean Water Act (33 U.S.C. 1344) regulates the discharge of dredged or fill material to waters of the United States. Landowners whose development will impact waters of the United States, including wetlands, by dredging and/or filling must apply for and obtain a permit, known as a 404 permit, before such dredging or filling activities may occur. 33 C.F.R. Pt Before applying for a 404 permit, landowners request JDs from the Corps to determine whether a waterbody meets the definition of waters of the United States. If the waterbody is not a water of the United States, then it is not subject to federal jurisdiction and there is no need to obtain a federal 404 permit. This is the crux of the argument in U.S. Army Corps of Eng rs v. Hawkes Co., Inc. 136 S. Ct (2016). Once the Corps makes its JD, local governments in Virginia have elected to rely on that decision as a basis for administration of their own regulatory programs. Discussion of U.S. Army Corps of Engineering v. Hawkes In Hawkes, a peat mining company in Minnesota wanted to expand its operations to an adjacent property and was unhappy with a JD from the Corps, which concluded that the proposed expansion site contained wetlands that were connected to a river located approximately 120 miles from the site. Hawkes Co., Inc. v. U.S. Army. Corps of Eng rs, 963 F. Supp.2d 868, (D. Minn. 2013). Nonetheless, the Corps expected the peat mining company to proceed with applying for and obtaining a 404 permit on the basis of a JD that it disagreed with. See Hawkes Co., Inc. v. U.S. Army Corps of Eng rs, 782 F.3d 994, 1001 (8th Cir. 2015). If after obtaining the permit, the Corps reasoned, the peat mining company still disagreed with the JD, it could appeal the permit. Id. The company believed it should be able to challenge the Corps JD first without having to go through the time and expense of applying for and receiving a 404 permit that may be based on an incorrect JD. Id. The peat mining company administratively appealed the JD to the Corps and the Corps confirmed its previous decision that the JD was correct. Id. at 998. Having exhausted its administrative remedies, the company then filed suit in federal court challenging the jurisdictional determination. Id. On appeal from the trial court, the U.S. Court of Appeals for the Eighth Circuit determined that a JD, like the one here, marked the consummation of the Corps decisionmaking process and that legal consequences flow from the decision. Id. at 999, Accordingly, the court found that a JD is a final agency action and that judicial review was available under the federal Administrative Procedure Act (APA). Id. at The Corps requested that the Supreme Court review the question of whether a JD constitutes a Page 17

18 final agency action subject to judicial review under the APA. On December 11, 2015, the Supreme Court granted the Corps petition for certioria S. Ct. 615 (Mem) (2015). The National Association of Counties, the National League of Cities, the U.S. Conference of Mayors, the International Municipal Lawyers Association, and the International City/County Management Association joined an amicus brief urging the Court adopt the Eighth Circuit s decision because: The Army Corps determination that a property contains jurisdictional wetlands significantly impacts the Amici as landowners, as regulators under the Act, and as partners with private entities, significantly affecting their ability to fulfill their responsibilities to their citizens. Amicus Brief, p. 7. Without prompt judicial review of JDs, the local government organizations argued, local governments would be forced to pay potentially unnecessary costs of obtaining permits. Amicus Brief at 9. Not only that, they wrote, but local governments depend on regulatory certainty to meet their obligations for long-term planning and economic development. Amicus Brief at 8. On May 31, 2016 the Court affirmed the Eighth Circuit s decision that a JD is a final agency action that is subject to judicial review under the APA. Id. at The conservative public interest law firm who represented the peat mining company on its appeal to the Eighth Circuit viewed the Supreme Court s decision as holding regulators accountable to the courts by allowing an immediate court challenge to jurisdictional determinations. Hopper, Reed, When regulators label property as wetlands, owners may seek judicial review. The National Association of Counties blog called the win a small victory for counties but stated: Without this ruling, counties that disagreed with a JD related to a particular project would only have two options: either the county would have to go through the 404 permit process or proceed with the project and risk facing civil penalties under the Clean Water Act (CWA). Both options would potentially increase project costs and hinder economic development and capital infrastructure planning. Igleheart, Austin et al., Small Victory for Counties as Supreme Court Rules Against Army Corps in Water Case, June 15, Impacts of Hawkes for Virginia Local Governments as Regulators and as Landowners/Developers Proponents of the Supreme Court s decision in Hawkes lauded it as a success for landowners because they can now seek immediate judicial review of a JD, which generates regulatory certainty and avoids the costs and time associated with the 404 permitting process. While this is certainly true for those who appeal JDs and win, it is clear from the state and local regulatory framework in Virginia that successfully appealing a JD removes only one of many layers of legal prerequisites for beginning a construction project. Second, local governments have incorporated JDs into their local regulatory programs to the extent that if a developer or third party appeals a JD, the local government is forced to halt its process until a court decides the appeal. Third, one unintended consequence of Hawkes is that local governments may have lost some control over their projects because JD appeals are available to anyone 2 Notably, the Court had twice previously denied cert for petitions to review circuit court decisions holding that a JD is not a final agency action subject to judicial review. See Fairbanks N. Star Borough v. U.S. Army Corps of Eng rs, 543 F. 3d 586, 597 (9th Cir. 2008), cert. denied, 557 U.S. 919 (2009) and Belle Co., LLC v. U.S. Army Corps of Eng rs, 761 F.3s 383 (5th Cir. 2014). In March 2015, the U.S. Supreme Court denied certiorari of the Fifth Circuit s decision, one month before the Eighth Circuit issued its opinion reaching the opposite conclusion. 135 S. Ct (2015); 782 F.3d 994 (8th Cir. 2015). Page 18

19 who can demonstrate they have standing to bring an appeal, not just to property owners. Fourth, because of Hawkes, local governments who disagree with a JD for their property have a new option for litigation at an earlier stage in the federal permitting process. After Hawkes, No Drastic Change in the Regulatory Landscape for Local Governments In Virginia, a successful appeal of a JD (meaning that a waterbody previously designated as protected by the Clean Water Act is no longer protected because it is not a water of the U.S. ) does not guarantee that no regulations apply to that waterbody. It is nearly impossible to avoid regulation of a waterbody in Virginia because the scope of the Commonwealth s authority exceeds that of the Corps. Thus, appealing a JD successfully only removes one layer of regulation and does not clear the regulatory path to allow construction activities immediately after receiving a favorable decision from the court. The Commonwealth s jurisdiction over waterbodies, to the extent it coincides with the Corps jurisdiction, can go beyond the Corps jurisdiction. See Treacy v. Newdunn Associates, LLP, 344 F.3d 407, 409, (4th Cir. 2003). In fact, it does go beyond the Corps jurisdiction. Id. The Virginia State Water Control Law creates state jurisdiction over all surface water, ground water, and wetlands, which is broader than the federal government s jurisdiction under the definition of waters of the U.S. in the Clean Water Act. Va. Code ( State waters means all water, on the surface and under the ground, wholly or partially within or bordering the Commonwealth or within its jurisdiction, including wetlands.); cf Solid Waste Agency of N. Cook Cty. v. U.S. Army Corps of Eng rs, 531 U.S. 159 (2001) (holding that waters of the U.S. does not include isolated wetlands). With the passage of the Virginia Water Resources and Wetlands Protection Act, the General Assembly intended to exceed the jurisdiction of the Corps to protect waterbodies when they fell outside federal Clean Water Act protections. See Treacy at 412 ( environmentalists petitioned the Virginia General Assembly to fill the regulatory vacuum [left by two federal court decisions narrowing federal protections for Virginia wetlands]. Delegate L. Preston Bryant, Jr., responded to this call, and co-patroned a bill to provide the state with a comprehensive, nontidal wetlands permitting program. ). Accordingly, it is important for local governments who are developing properties to realize that a successful appeal of a JD does not relieve the local government of all pre-construction permitting obligations because the protections afforded to Virginia waterbodies under state law encompass, and exceed, the protections afforded by Section 404 of the Clean Water Act. Local Government Regulatory Programs Depend on JDs JDs are primarily a tool for informing the federal 404 permitting process. However, when implementing their own regulatory programs, and in spite of the fact that regulation of Virginia waterbodies by the state and the Corps is not coextensive, local governments rely on JDs as an authoritative determination of site-specific environmental features when administering their own programs. Examples include the local government programs under the Chesapeake Bay Preservation Act ( Bay Act ) and the Erosion and Sediment Control Law and the Stormwater Management Act. If a JD is being reviewed in federal court, there will be a delay in the local government s ability to administer these programs to the extent that they cannot move forward without an approved JD. The Chesapeake Bay Preservation Act ( Bay Act ) establishes regulations that are administered by local governments in Tidewater Virginia and allows local governments to incorporate JDs into local regulation of waterbodies. Tidewater Virginia is defined in the Bay Act as those localities east of the Interstate 95 corridor that are in the Chesapeake Bay watershed. Va. Code :68. There are 84 local governments in this defined area. Local Government Liaison Network. The Bay Act requires these 84 Tidewater Virginia localities to adopt a local program implementing the Bay Act, which must include, among other things [a] plan of development process prior to the issuance of a building permit to assure that use and development of land in Chesapeake Bay Preservation Areas is Page 19

20 accomplished in a manner that protects the quality of state waters. 9 VAC In their plan of development, local governments may include a requirement that all site plans submitted by developers include the boundaries of environmental features identified in a JD from the Corps. If the program is designed with this requirement, the local government may be forced to delay approval of a site plan until an appeal of JD is resolved and the developer can meet the requirement of submitting a site plan or plat showing all boundaries for JD waterbodies. Another element of local government programs under the Bay Act is the use of JDs to confirm the Resource Protection Area (RPA) boundaries identified during site-specific evaluations for connected and contiguous wetlands. See 9 VAC ( Local governments may accomplish [site-specific evaluations] either by conducting the site evaluations themselves or requiring the person applying to use or develop the site to conduct the evaluation and submit the required information for review. ). If the JD is appealed by a landowner, the local government s RPA confirmation will be delayed until the JD issue is resolved. A delay in the RPA will also delay final site plan and plat approval because RPA boundaries must be shown on final plan or plat. 9 VAC (A)(4) ( Local land development ordinances and regulations shall provide for (i) depiction of Resource Protection Area and Resource Management Area boundaries on plats and site plans ). Another way that JDs are utilized at the local level is under the Erosion and Sediment Control Law and the Stormwater Management Act, through which local governments have authority, delegated by the State Water Control Board, to manage stormwater runoff and soil disturbance during development. Under these programs, developers must obtain a land disturbance permit (also called a VSMP authority permit) from the local government for manmade changes to the land through clearing, grading, or excavating. Va. Code :24. Before the locality is authorized to administer the Virginia Stormwater Management Program will issue a land disturbance permit, it may require that a developer to attest that he has secured all required permits. One such permit is a 404 permit, which, again, is issued on the basis of an approved JD from the Corps. Like in the examples above, if a JD is appealed, the issuance of a land disturbance permit at the local level will be delayed until the appeal is resolved and the developer can attest that he has obtained a 404 permit. Because local governments incorporate JDs into their own regulatory schemes, those schemes are dependent on reliable, final JDs. If a JD is challenged, the JD and the boundaries of the waterbodies it identified are no longer final or reliable. Consequently, local government permitting and regulation, which depend on the correctness of Corps JD, will grind to a halt while an appeal makes its way through the court system. If developers begin to file appeals routinely because of Hawkes, local governments will have to evaluate whether, in the exercise of their regulatory powers, they should continue to rely on JDs for identification of environmental features in its plan of development process. Without the option to rely on the Corps JDs, local governments would have to assume field work and administrative duties from the Corps and begin independently evaluating every waterbody on every piece of property being developed in its jurisdiction. This new volume of work would require additional staff and monetary resources to fill the void left by the Corps. Thus, Hawkes has shed light on one weakness in Virginia s regulation of dredging, excavating, and filling of state waters: that by relying on JDs in their own permitting and planning processes, administration of local regulatory programs are beholden to any JD appeal, which necessarily generates creates uncertainty over the reliability of that JD until the appeal is decided. A New Risk of Third Party Challenges It is understood, after Hawkes, that governmental landowners can challenge a JD affecting their property, but one unintended consequence of the decision is the opportunity for third parties to challenge JDs. Groups like homeowners associations, environmental groups, and other local NGOs whose cause relates to a specific waterbody or piece of property (e.g., Friends of Reedy Creek) may have an interest in a JD for waterbodies on government-owned Page 20

21 property. Of course, the reason that such a group would want to challenge a JD is because such an appeal will delay the development. For example, a local government may request a JD for a parcel that contains wetlands adjacent to a stream because it intends to construct a new government building on the parcel. The stream is used by the public as a kayaking and fishing destination. A local group is concerned that impacts to the wetlands during development will impact their enjoyment and use of the adjacent stream. Before Hawkes, the group would have to wait until a 404 permit was issued to contest the development of the property and any perceived impacts on the stream. Now because of Hawkes, if the JD is approved, the local group could argue it has an immediate right to challenge the JD even though it is not an owner of the parcel. Just as before Hawkes, the success of the group s suit will depend on whether it can prove it has standing. To satisfy the case or controversy requirement of Article III of the U.S. Constitution, for all federal litigation, a plaintiff must have standing to sue. Valley Forge Christian College v. Americans United, 454 U.S. 464, 472 (1982). Under the federal APA, a person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial review thereof and the courts review is limited to final agency actions for which no adequate remedies exist other than judicial review. 5 U.S.C. 702, 704. More specifically, in an environmental case, a plaintiff need only show that he used the affected area, and that he is an individual for whom the aesthetic and recreational values of the area [are] lessened by the defendant's activity. Piney Run Preservation Ass n v. Cty. Com rs of Carroll Cty. Md, 268 F.3d 255, 263 (4 th Cir. 2001) (quoting Sierra Club v. Morton, 405 U.S. 727, 735, (1972)); see also State Water Control Bd. v. Crutchfield, 265 Va. 416, 427 (2003) (adopting the Piney Run standard). Thus, it is not particularly difficult for a homeowners association or other group to demonstrate it has standing to challenge a final agency action. Of course, now under Hawkes, JDs are final agency actions. Time will tell whether groups decide to appeal JDs as a means of protecting environmental features they care about at a much earlier stage in the development process. In the meantime, local governments should be aware that Hawkes has created the opportunity for third party challenges to their development projects at an earlier step in the permitting process than developments undertaken pre-hawkes. A New Option for Litigation One potential benefit of Hawkes for local governments that wish to challenge a JD is that it provides a new forum-shopping opportunity. The local government-landowner that is filing a permit application for federal and state permits must get an approved JD before those permits can issue. Once the JD is approved, the local government now, after Hawkes, has three appeal options. First, under the federal APA, it could file an appeal in federal court for judicial review of the JD as soon as the JD is approved. Second, it could wait until a state Virginia Water Protection permit is issued and file an appeal in state court for a review of the wetlands boundaries adopted by the State Water Control Board, which were based on the Corps JD. The issuance of a permit by the State Water Control Board is a final agency action under state law and any landowner aggrieved by the decision is entitled to judicial review. Va. Code Third, he could wait until the federal permit is issued and file an appeal in federal court This is the option the peat miner in Hawkes was attempting to avoid, but it remains an option after Hakes because the issuance of a permit is a final agency action distinct from approving a JD. After the Hawkes decision, Virginia local government-landowners have an earlier opportunity to weigh the federal appeals process against the state appeals process. There may be advantages to bringing a JD appeal to federal court before a permit is issued. Or perhaps, under case-specific circumstances, the matter would be best tried before a state court under state law. Either way, Hawkes provided one more option for judicial review that can influence litigation strategy in the event of an unfavorable JD. Page 21

22 CONCLUSION The U.S. Supreme Court s decision in Hawkes that JDs are final agency actions subject to appeal under the federal APA has created several unfavorable results for Virginia local governments. Namely, when developing properties, localities are still subject to state and local requirements that exceed the jurisdiction of the Clean Water Act; local government programs rely on JDs and will be forced to halt their approval processes while a JD is appealed in federal court; and third parties who oppose developments by local governments may now challenge those developments at an earlier time. However, Hawkes does provide a new option for challenging the Corps when a local government disagrees with its findings, allowing local governments a new tool for litigation. On balance, the Supreme Court s decision that JDs are final agency actions that can be appealed does not provide a significant benefit to local governments in Virginia. Nonetheless, the downsides of Hawkes will only be realized if developers and third parties decide to exercise the right to appeal JDs. It is too early to tell whether these groups will decide to utilize this new option. In the meantime, local governments would benefit from a legal review of their ordinances and regulatory programs to identify instances where JDs are utilized to determine if an appeal would significantly impact their ability to administer that program. In addition, local governments, in their own construction projects, should be mindful of their new right under Hawkes to appeal JDs they disagree with. Page 22