# Appendix — Environmental Protection Agency v. Defenders of Wildlife

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0500%3A03

## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 2007
- **Citation:** 549 U.S. 1105

## Text

Supreme Co S.
pre | eg Us

The EPA has followed the section 7 consultation process before
transferring permitting authority to states for more than a decade.
Every pollution permitting transfer decision since 1993 has involved
some form of EPA consultation with FWS regarding endangered
species. See 66 Fed. Reg. 12,791 (Feb. 28, 2001) (Maine); 63 Fed. Reg.
51,164 (Sept. 24, 1998) (Texas); 61 Fed. Reg. 65,047 (Dee. 10, 1996)
(Oklahoma); 61 Fed. Reg. 47,932 (Sept. 11, 1996) (Louisiana); 60 Fed.
Reg. 25,718 (May 12, 1995) (Florida); 59 Fed. Reg. 1535, 1543 (Jan. 11,
1994) (announcing 1993 approval of South Dakota’s application after
FWS consultation). Earlier pollution permitting transfer decisions do
not appear to have been preceded by Endangered Species Act consulta-
tion. See, e.g., 52 Fed. Reg. 27,578 (July 22, 1987) (Utah); 51 Fed. Reg.
44.518 (Dec. 10, 1986) (Arkansas); 19 Fed. Reg. 39,063 (Oct. 3, 1984)
(Rhode Island); 47 Fed. Reg. 17,331 (Apr. 22, 1982) (New Jersey); 44

~~

Sa

During the course of the consultation, FWS field of-
fice staff in Arizona expressed serious reservations
about the proposed transfer. F WS staff noted that sec-
tion 7 consultations regarding past pollution permits in
Arizona had led to mitigating measures to protect spe-
cies’ critical habitat, and feared that, without such man-
datory consultation, Arizona would issue permits with-
out mitigating measures. As a result, there could be
harm to certain listed species and habitat, particularly
the southwestern willow flycatcher, Pima pineapple cac-
tus, Huachuca water umbel, cactus ferruginous pygmy
owl,’ “and perhaps other species.” The staff concluded
“that the transfer of this program from EPA to the
State causes the loss of protections to species resulting
from the section 7 process, and the impact of this loss
must be taken into account in the effects analysis in the
biological opinion.” In response, EPA staff opined that
the EPA lacked the legal authority to base its transfer
decision on these concerns, because the agency does
“not have the legal authority to regulate the non-water-
quality-related impacts associated with State NPDES-

Fed. Reg. 61,452 (Oct. 25, 1979) (Alabama); 39 Fed. Reg. 26,061 (July
16, 1974) (announcing approval of applications from fifteen states in the
early years of Clean Water Act operation).

* We note that FWS has proposed removing the pygmy owl from the
list of threatened and endangered species, although the owl currently
remains listed. See 70 Fed. Reg. 44,547 (Aug. 3, 2005). Even if the
FWS eventually de-lists the pygmy owl, that would not affect our
analysis of this case for two reasons. First, we focus on the agency’s
action based on the record before it, which includes the pygmy owl's
listed status. Second, the FPA’s action can affect multiple listed species
in Arizona, noi only the pygmy owl. While we illustrate our analysis
with examples of individual listed species, including the pygmy owl, our
analysis applies with equal force even if the FWS de-lists any such
species.

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permitted projects that are of concern to FWS, includ-
ing the authority to object to such permits based on non-
water quality related impacts to listed species.”

To resolve this disagreement, staff of the two agen-
cies developed an “Interagency Elevation Document,”
summarizing their respective opinions. Pursuant to the
Memorandum of Agreement, this document transferred
authority over the Biological Opinion to the Director of
FWS, the Director of the National Marine Fisheries
Service, and the Deputy Assistant Administrator of Wa-
ter at the EPA. See 66 Fed. Reg. 11,202, 11,209 (Feb.
22, 2001).

After the consultation at the national level between
the EPA and FWS, the Field Supervisor of the Arizona
Ecological Services Field Office of the FWS issued a
Biological Opinion recommending approval of the trans-
fer of permitting authority to Arizona. Noting the loss
of section 7 consultation, the Biological Opinion recog-
nized that, after the transfer, no federal agency would
have the legal authority to consult with developers con-
cerning the potential impact on listed species of any pol-
lution permits. Such consultation had lead to measures
protecting listed species, including the Pima pineapple
cactus, razorback sucker, Gila topminnow, southwestern
willow flycatcher, and cactus ferruginous pygmy owl.
Although Arizona could voluntarily consult with FWS
regarding pollution permits, neither the EPA nor FWS
could require Arizona to act on behalf of listed species.

After recognizing this impact of the transfer of per-
mitting authority, the Biological Opinion concluded that
the loss of any conservation benefit is not caused by
EPA’s decision to approve the State of Arizona’s pro-
gram. Rather, the absence of the section 7 process

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that exists with respect to Federal [Clean Water Act]
permits reflects Congress’ decision to grant States
the right to administer these programs under state
law provided the State’s program meets the require-
ments of 402(b) of the Clean Water Act.

The Biological Opinion goes on to conclude:

While reviewing this above referenced approval, the
F WS has spent considerable time analyzing direct
and indirect effects. In the course of this analysis,
our field office staff biologists have expressed con-
cerns that the approval will result in loss of section
7 consultation-related conservation benefits. We
have stated our belief that the loss of section 7 con-
servation benefits is an indirect effect of the authori-
zation. Furthermore, we have stated that this loss of
conservation benefits will appreciably reduce the
conservation status of the cactus ferruginous
pygmyowl and the Pima pineapple cactus. Notwith-
standing this, our final opinion is that the loss of sec-
tion 7-related conservation benefits, which would
otherwise be provided by section 7 consultations, is
not an indirect effect of the authorization action.

In changing from a Federal permitting program
to a State permitting program, the permit-related
section 7 processes for consultation will no longer
apply. Essentially, there will be no substantive
change in the permit program, but there will be a
reduction in the number of mechanisms available to
both of our agencies to protect federally-listed spe-
cies and critical habitat in Arizona. We believe that
the assumption of the program by the State of Ari-
zona will not cause development, and concur that

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EPA’s [Clean Water Act|-mandated approval of the
program has only an attenuated causal link to the
reduction in Federal [Endangered Species Act] con-
servation responsibilities.”

As an alternative to this lack-of-causation analysis,
the Biological Opinion stated that other federal and
state laws would sufficiently protect endangered spe-
cies, so that transfer of permitting authority would not
likely jeopardize such species or their critical habitat.
These other laws included section 9 of the Endangered
Species Act, 16 U.S.C. § 1538, which outlaws “taking” an
endangered species. The Biological Opinion’s reliance
on this statute contrasted with earlier FWS staff con-
cerns that “section 9 does not generally apply to plant
species (such as the Pima pineapple cactus) and it is not
effective for extremely rare, but wide-ranging species
(such as the cactus ferruginous pygmy-owl). FWS
therefore does not believe that section 9 enforcement
offsets the effects of approving this program.”

Independently of the Biological Opinion, an official at
the Arizona Game and Fish Department” indicated that
his department had “worked cooperatively with ADE Q”
when reviewing past water pollution permit applications

* The just-quoted passage mentioned two species in passing in the
midst of concluding that any harm to those species was not an indirect
effect of the EPA’s transfer decision. Elsewhere, the Biological Opinion
noted the listed species in Arizona but did not specifically discuss the
effect of the transfer on any of these species.

* The official, Bob Broscheid, whose title at the Arizona Game and
Fish Department is “Project Evaluation Program Supervisor,” wrote
to an official at the EPA's regional office that would supervise Arizona's
permitting decisions. He also carbon copied-an ADEQ official. Bros-
cheid’s letter describes the Game and Fish Department's understand.
ing of its role but does not purport to speak for ADEQ.

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and “look{ed] forward to continuing this level of cooper-
ation between our agencies.” Noting the EPA-FWS
Memorandum of Agreement, the official asserted that
“(t]his agreement will serve as a guideline for EPA,
FWS, and the State of Arizona to ensure that NPDES
permits will not negatively impact endangered and
threatened species.” The EPA’s response to the Game
and Fish Department official’s statement was: “EPA
appreciates the commenter’s support. As with all com-
ments submitted, we have considered these comments in
making our final determination on the application.”

FWS staff had earlier suggested the development of
a formal memorandum of understanding with ADEQ or
the Arizona State Lands Department, but did not men-
tion the Game and Fish Department. No such memoran-
dum of understanding was ever signed, and no official
from either ADEQ or the State Lands Department sub-
mitted a letter similar to the Game and Fish Depart-
ment letter.

The EPA approved the permitting authority transfer
two days after the FWS issued the Biological Opinion,
see 67 Fed. Reg. 79,629 (Dec. 30, 2002), noting its belief
that the Biological Opinion “appropriately considered all
relevant information regarding the effects of the ap-
proval.” The Arizona Department of Environmental
Quality (ADEQ) currently operates the program, issuing
permits for water pollution. See ADEQ: Permits, at
http://www.azdeq.gov/environ/water/permits/index.html
(last visited July 5, 2005).

Petitioners, Defenders of Wildlife, the Center for
Biological Diversity, and Craig Miller, a resident of
Pima County, Arizona (collectively, Defenders) chal-
lenge the pollution permitting transfer in two lawsuits,

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consolidated before us. In the first, Defenders filed a
petition for review of the EPA’s transfer decision with
this court. The petition alleges that the EPA failed ade-
quately to consider the transfer’s impact on endangered
and threatened species and their habitat, and, in partic-
ular, that the EPA’s reliance on the Biological Opinion
violated the Endangered Species Act and was arbitrary
and capricious under the-Administrative Procedure Act.
See 5 U.S.C. § 706(2)(A). Three other sets of parties
have since intervened, supporting the transfer but tak-
ing some issue with the EPA’s administrative practices
and reasoning: the National Association of Home Build-
ers and several Arizona home builders’ associations
(Home Builders); the Arizona Chamber of Commerce
and several other business associations (Chamber); and
Arizona.

Defenders also filed an Endangered Species Act and
Administrative Procedure Act suit in district court in
Arizona alleging, among other claims, that the Biological
Opinion supporting the pollution permitting transfer
does not comply with Endangered Species Act stan-
dards. The district court held that this court has exclu-
sive jurisdiction over the Biological Opinion challenge
pursuant to 33 U.S.C. § 1369(b)(1)(D), and ordered that
challenge severed from other claims in the district court,
transferred to this court, and consolidated with Defend-
ers’ suit challenging the EPA transfer.

Il. Jurisdiction & Standing

Before proceeding to the merits, we must satisfy our-
selves that we have subject-matter jurisdiction over this
case and that petitioners have standing to raise their
claims. See B.C. v. Plumas Unified Sch. Dist., 192 F.3d
1260, 1264 (9th Cir. 1999). The Chamber contends this

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court lacks jurisdiction to hear Defenders’ challenge to
the Biological Opinion, and the Home Builders maintain
that Defenders do not have standing to bring this action.
Neither argument is convincing.

A. Subject-Matter Jurisdiction

“(Ajny interested person” may seek judicial review
of the EPA Administrator’s pollution permitting or state
transfer decisions in the circuit court in which the per-
son resides, so long as that circuit is directly affected by
the Administrator’s action. 33 U.S.C. § 1369(b)(1). See-
tion 1369(b)(1)(D) grants this court subject matter juris-
diction to review “any determination as to a State permit
program submitted under section 1342(b).” The Cham-
ber argues that §1369(b) authorizes review only of the
EPA Administrator’s transfer decision, not of a Biologi-
cal Opinion completed by the FWS that informs that
decision.

We disagree. The Supreme Court has noted that
biological opinions typically have a “virtually determina-
tive effect” on the ultimate agency action. bennett v.
Spear, 520 U.S. 154, 170, 117 S. Ct. 1154, 1387 L. Ed. 2d
281 (1997); see also id. at 169, 117 S. Ct. 1154 (noting
that a Biological Opinion “in reality . . . has a powerful
coercive effect on the action agency” with the potential
to “alter[ ] the legal regime to which the action agency
is subject”). It would be anomalous to review the ulti-
mate agency “determination” while ignoring the reason-
ing contained in a biological opinion “virtually determi-
native” of that action.

The actual sequence of events in this instance in con-
sistent with the Supreme Court’s observations in
Bennett regarding the impact of a biological opinion on
an agency's final decision. The EPA Administrator's

—

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decisionmaking process before approving Arizona’s per-
mitting transfer application included section 7 consulta-
tion with FWS and the consideration of the Biological
Opinion that resulted from it: The initial dispute be-
tween the EPA and FWS regarding the Biological Opin-
ion was “elevated” to the national level, and the final
Biological Opinion incorporated the results of consulta-
tion between the EPA and FWS. The final EPA deci-
sion, in turn, followed the issuance of the Biological
Opinion by two days. In its unpublished Response to
Comments regarding Arizona’s application to assume
permitting authority, released the same day as its final
decision, the EPA noted that it had “considered the [bio-
logical] opinion of the FWS in proceeding with its ap-
proval action.” The EPA went on to approve the Biolog-
ical Opinion’s conclusions, stating its determination that
“F'WS appropriately considered all relevant information
regarding the effects of the approval action on listed
species and designated and proposed critical habitat in
arriving at its conclusion, including a broad range of
direct and indirect effects of EPA’s approval action,”
and declaring that “no information has been submitted
which would indicate that the conclusions in FWS’s bio-
logical opinion are incorrect.”

The EPA, as part of the statutorily mandated consul-
tation process, approved of and relied upon the Biologi-
cal Opinion when considering Arizona’s transfer applica-
tion. Evaluating the Opinion’s evidentiary and analytic
basis is thus integral to reviewing the EPA's final deci-
sion.’

* The EPA does not argue otherwise. Indeed, the EPA’s argument
in this court largely replicates the Biological Opinion’s reasoning,
confirming that the reasoning was a key factor in its decision.

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We conclude that we have jurisdiction to consider the
adequacy of both the section 7 consultation and the Bio-
logical Opinion that resulted from it while reviewing the
EPA’s final decision.

B. Standing

Petitioners who “allege [1] personal injury [2] fairly
traceable to the defendant’s allegedly unlawful conduct
and [3] likely to be redressed by the requested relief”
establish Article III standing. Allen v. Wright, 468 U.S.
737, 751, 104 S. Ct. 3315, 82 L. Ed. 2d 556 (1984). As De-
fenders’ members meet this three-part test, Defenders
has organizational standing to represent their interests.

Several Defenders’ members reside in Arizona and
photograph and observe in Arizona various named,
listed species—such as the cactus ferruginous pygmy
owl, Huachuca water umbel, and the other species noted
in Part I.C, supra—and hike and camp in these species’
various habitats. These members do so regularly and
plan to continue doing so in the future, because, among
other reasons, these activities bring them recreational,
aesthetic, and spiritual fulfillment. The members’ activi-
ties occur on and near land—such as the upper San
Pedro River region, the Sonoran Desert near Saguaro
National Park and Tortolita Mountains Park, and the
Verde River region—where significant commercial and
residential development is taking place, development
that depends on water pollution permits. The members
assert, consistently with the Biological Opinion, that
section 7 consultation has in the past led to mitigation
measures by real estate developers in these areas and
has thereby protected listed species and their habitat.
They further assert that the loss of section 7 consulta-
tion would mean that developers of future projects

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would not engage in such mitigation measures and that
listed species, and the members’ interest in their activi-
ties involving them, would thereby be harmed.

The members thus “observe[ | or work[ ] with .. .
particular animalls and plants] threatened by a federal
decision,” Lujan v. Defenders of Wildlife, 504 U.S. 555,
566, 112 S. Ct. 2130, 119 L. Ed. 2d 351 (1992); allege a
harm to those animals and their habitat throughout Ari-
zona; and assert “that [they have] an aesthetic or recre-
ational interest in a particular place, or animal, or plant
species . . . impaired by a defendant’s conduct.” Eco-
logical Rights Found. v. Pac. Lumber Co., 230 F.3d
1141, 1147 (9th Cir. 2000) (citing Friends of the Earth,
Inc. v. Laidlaw Envtl. Servs., Inc., 528 U.S. 167, 182-83,
120 S. Ct. 693, 145 L. Ed. 2d 610 (2000)); see also
Kootenai Tribe of Idaho v. Veneman, 313 F.3d 1094,
1109-10 (9th Cir. 2002) (holding that regular “recreation
and nature appreciation” on land covered by challenged
agency action established injury-in-fact). Those allega-
tions meet the criteria for demonstrating an adequate
injury in an environmental case.

The Home Builders argue that alleging harm
throughout the state of Arizona cannot establish stand-
ing, because the state encompasses too large an area to
permit a sufficiently specific injury-in-fact allegation.
The Defenders’ members who filed declarations, how-
ever, mention specific subareas within the state where
they engage in activities related to particular listed spe-
cies and where development is occurring. Our cases
require no greater precision. Res. Ltd., Inc. v. Robert-
son, 35 F.3d 1300, 1303 (9th Cir. 1993); see also Kootenai
Tribe, 313 F.3d at 1110 (finding standing where party
alleged harm to 58.5 million acres of land). Moreover, in

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light of the statewide impact of the EPA’s transfer deci-
sion, alleging an injury-in-fact covering large areas
within the state simply reflects the relatively broad na-
ture of the potential harm.

The alleged injuries are fairly traceable to the EPA’s
pollution permitting transfer decision. As alleged by
Defenders, that decision will remove water pollution
permitting decisions from the significant protections
provided by section 7.

Finally, the alleged injuries would be redressable by
a court order vacating or mitigating the EPA’s transfer
decision. The protections accorded by the Endangered
Species Act would then come back into operation.

Additionally, section 7(a)(2) of the Endangered Spe- —
cies Act contains both substantive and procedural re-
quirements, and the plaintiffs in this case have alleged
violations of both requirements. They thus have alleged,
in addition to substantive noncompliance, “procedural”
harms, as described in Lujan and subsequent cases—
here, lack of adequate consultation between the EPA
and the FWS, including reliance on a legally improper
Biological Opinion.

Reliance on procedural harms alters a plaintiffs bur-
den on the last two prongs of the Article III standing
test. See Lujan, 504 U.S. at 572 n.7, 112 S. Ct. 2130. To
establish standing by alleging procedural harm, the
members must show only that they have a procedural
right that, if exercised, cou/d protect their concrete in-
terests and that these interests fall within the zone of
interests protected by the statute at issue. See Pub.
Citizen v. Dep't of Transp., 316 F.3d 1002, 1015 (9th Cir.
2003), rev'd on other grounds, 541 U.S. 752, 124 8. Ct.
2204, 159 L. Ed. 2d 60 (2004); Tyler v. Cuomo, 236 F.3d

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1124, 1136 (9th Cir. 2000); Churchill County v. Babbitt,
150 F.3d 1072, 1077 (9th Cir. 1998), amended by 158
F.3d 491 (9th Cir. 1998).

The members have met these procedural harm re-
quirements. They have, first, established a reasonable
probability that the challenged action will threaten
their concrete interests. See Citizens for Better For-
estry v. U.S. Dep’t of Agric., 341 F.3d 961, 969-70 (9th
Cir. 2003); Douglas County v. Babbitt, 48 F.3d 1495,
1501 n.6 (9th Cir. 1995). We held in Citizens for Better
Forestry that violating the procedural requirements for
forestry decisions meets that bar, as the violation less-
ens the likelihood that environmental considerations will
be attended to in making those decisions. /d. at 972-75.
Similarly, the use of improper section 7 consultation by
reason of an inadequate biological opinion lessens the
likelihood that the impact of the proposed action on
listed species and their habitats will be recognized and
accounted for in making the transfer decision. See id. at
972.

An association has standing to sue on behalf of its
members who have individual standing if “the interests
at stake are germane to the organization’s purpose, and
neither the claim asserted nor the relief requested re-
quires the participation of individual members in the
lawsuit.” Laidlaw, 528 U.S. at 181, 120S. Ct. 693. The
interests at stake—protection of endangered species—
plainly relate to Defenders’ mission. Nor does this law-
suit require the active involvement of individual mem-
bers, as the relief sought will run equally to all of them.

Accordingly, we hold that Defenders has standing to
challenge the FPA’s pollution permitting transfer deci-
sion. See Defenders of Wildlife v. Flowers, 414 F.3d

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1066 (9th Cir. 2005) (holding that Defenders has stand-
ing to challenge particular construction permits in Ari-
zona because of “their members’ interest” in species that
might live where construction would occur).

III. The Merits
A. Standard of Review

Under the Endangered Species Act, each agency has
an obligation to “insure” that any action it takes is “not
likely to jeopardize” listed species or their critical habi-
tats. See § 1536(a)(2);* 50 C.F.R. § 402.15(a) (requiring
each agency to determine how to proceed “in light of its
section 7 obligations and the Service’s biological opin-
ion”). Defenders allege that the EPA failed to satisfy

* The relevant portions of section 7(a) of the Endangered Species Act
provide:

(1) The Secretary shall review other programs administered by
him and utilize such programs in furtherance of the purposes of
this chapter. All other Federal agencies shall, in consultation with
and with the assistance of the Secretary, utilize their authorities in
furtherance of the purposes of this chapter by carrying out pro-
grams for the conservation of endangered species and threatened
species listed pursuant to section 1533 of this title.

(2) Each Federal agency shall, in consultation with and with the
assistance of the Secretary, insure that any action authorized,
funded or carried out by such agency (hereinafter in this section
referred to as an “agency action”) is not likely to jeopardize the
continued existence of any endangered species or threatened
species or result in the destruction or adverse modification of
habitat of such species which is determined by the Secretary . . .
to be critical, unless such agency has been granted an exemption
for such action by the Committee pursuant to subsection (h) of this
section. In fulfilling the requirements of this paragraph each
agency shall use the best scientific and commercial data available.

16 U.S.C. §8§ 1536(a)(1)-(2) (emphasis added).

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this obligation and thus acted arbitrarily and capri-
ciously, in violation of the Administrative Procedure
Act.” See 5 U.S.C. § 706(2)(A); Am. Mining Cong. v.
EPA, 965 F.2d 759, 763 (9th Cir. 1992) (applying
§ 706(2)(A) arbitrary and capricious review to § 1369(b)
petition). |

An agency decision will survive arbitrary and capri-
cious review if it is

~ rational, based on consideration of the relevant fac-
tors and within the scope of the authority delegated
to the agency by the statute. . . . Normally, an
agency rule would be arbitrary and capricious if the
agency has relied on factors which Congress had not
intended it to consider, entirely failed to consider an
important aspect of the problem, offered an explana-
tion for its decision that runs counter to the evidence
before the agency, or is so implausible that it could
not be ascribed to a difference in view or the product
of agency expertise.

Motor Vehicle Mfrs. Ass‘n v. State Farm Mutual Auto.
Ins. Co., 463 U.S. 29, 42-43, 103 S. Ct. 2856, 77 L. Ed.
2d 443 (1983) (citations omitted). Agency decisions may
not, of course, be inconsistent with the governing stat-
ute. 5 U.S.C. § 706(2)(A) (instructing courts to “set
aside” agency action “not in accordance with law”).
Also, internally contradictory agency reasoning renders
resulting action “arbitrary and capricious;” such actions
are not “founded on a reasoned evaluation of the rele-
vant factors.” Ariz. Cattle Growers’ Ass'n v. U.S. Fish
and Wildlife, 273 F.3d 1229, 1236 (9th Cir. 2001) (quot-

" All parties agree that arbitrary and capricious review applies to
Defenders’ petition for review.

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ing Marsh v. Or. Natural Res. Council, 490 U.S. 360,
378, 109 S. Ct. 1851, 104 L. Ed. 2d 377 (1989)); see also
Gen.Chem. Corp. v. United States, 817 F.2d 844, 857
(D.C. Cir. 1987) (finding agency action “arbitrary and
capricious” because it was “internally inconsistent and
inadequately explained”).

Defenders allege, in particular, that the EPA’s reli-
ance on the Biological Opinion was arbitrary and capri-
cious, as the Biological Opinion is itself invalid. See Res.
Ltd., 35 F.3d at 1304 (holding that an action agency may
not arbitrarily and capriciously rely on a flawed biologi-
eal opinion); Pyramid Lake Paiute Tribe v. U.S. Dep't of
the Navy, 898 F.2d 1410, 1415 (9th Cir. 1990) (same). An
agency can satisfy the arbitrary and capricious standard
of review, however, even if it relies on an “admittedly
weak” Biological Opinion, if there is no “information the
Service did not take into account which challenges the
[biological] opinion’s conclusions.” /d. at 1415 (cited in
Res. Ltd., 35 F.3d at 1304). The upshot is that we must
consider whether the EPA, through the Biological Opin-
ion or otherwise, considered all the relevant Endan-
gered Species Act factors and offered an explanation for
its decision that is both “plausible” and internally coher-
ent.

Applying this test, we first examine the consistency
of the EPA’s reasoning. Next, we examine the Biologi-
cal Opinion, including its legal conclusion regarding the
effects of the transfer decision on listed species and
their habitat. We then review the other information
relied on by the EPA.

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B. Coherent reasoning?

As an initial matter, the EPA’s approval of Arizona’s
transfer application cannot survive arbitrary and capri-
cious review because the EPA relied during the adminis-
trative proceedings on legally contradictory positions
regarding its section 7 obligations. Its reasoning was
therefore “internally inconsistent and inadequately ex-
plained.” Gen.Chem. Corp., 817 F.2d at 857.

The EPA definitively stated several times during the
decisionmaking process, including when announcing its
final decision, that section 7 requires consultation re-
garding the effect of a permitting transfer on listed spe-
cies. The agency so stated when announcing its Memo-
randum of Agreement with the FWS, see 66 Fed. Reg.
11,202, 11,206 (Feb. 22, 2001); when announcing that it
had initiated section 7 consultation regarding Arizona’s
application because, pursuant to 50 C.F.R. § 402.14(a),
approving that application “may affect” listed species,
see 67 Fed. Reg. 49,916, 49,917, 49,919 (Aug. 1, 2002);
when responding, in an unpublished document, to com-
ments regarding Arizona’s application (noting that
“[t]here is no doubt” that the pollution permitting trans-
fer “is an action mandating formal consultation under
section 7”); and when announcing the approval of Ari-
zona’s application. See 67 Fed. Reg. 79,629, 7°,630 (Dec.
20, 2002) (noting that section 7(a)(2) generally “re-
quires” consultation and that the EPA consulted with
FWS “under section 7(a)(2)”).

Also, before deciding that consultation was neces-
sary, the EPA first determined that transferring pollu-
tion permitting authority to Arizona “may affect” listed
species and their critical habitat. See 50 C.F.R.
§ 402.14(a) (requiring consultation when an agency de-

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termines its action “may affect” listed species or critical
habitat). The EPA, in its unpublished biological evalua-
tion, made this determination in recognition that in the
absence of section 7 consultation on each permitting de-
cision, “there will be a reduction in the number of mech-
anisms available to the [FWS] to protect Federally-
listed species and designated critical habitat in Arizona.”

Despite the lucidity and consistency of its position on
the consultation point in the administrative proceedings,
in litigation the EPA’s lawyers have taken varying
stances on the same issue. Before the Fifth Circuit, the
EPA “suggest[ed]” that section 7 compelled consultation
regarding pollution permitting transfers and, when nec-
essary to protect species, allowed conditioning such
transfers on formal agreements requiring states to fol-
low section 7 procedures when issuing permits. Am.
Forest & Paper Ass’n v. EPA, 137 F.3d 291, 297 (5th
Cir. 1998). The Fifth Circuit rejected the latter position
and did not address the former. /d. at 298 & n.6.

The EPA’s brief in this case states that American
Forest “supports a finding that EPA lacks” authority to
protect endangered species when considering pollution
permitting approvals. The same brief, however, main-
tains that we need not decide the question because the
agency did not rely on this position in its decision in this
case. At oral argument, the EPA declined to take a posi-
tion as to whether it has an obligation under section
7(a)(2) to consult with FWS with regard to permitting
transfer decisions—even though, during the decision-
making process, the agency unequivocally stated several
times that it does have such an obligation.

25a

The EPA’s post-decision equivocation cannot have
any impact on our consideration of the validity of the
transfer decision. We must review the EPA’s actions
based on the “grounds . . . upon which the record dis-
closes that its action was based.” SEC v. Chenery Corp.
(Chenery 1), 318 U.S. 80, 87, 63 S. Ct. 454, 87 L.Ed. 626
(1943); see also Gifford Pinchot Task Force v. U.S.
FWS, 378 F.3d 1059, 1072 n.9 (9th Cir. 2004). The re-
cord shows unequivocally that the EPA based the action
under review in this case on its belief that section 7 re-
quired consultation. We must judge its reasoning taking
that position into account.

Doing so, we conclude that the obligation to consult
—which, under the regulations, applies only to federal
agency actions that “may affect” listed species, 50
C.F.R. § 402.14(a)—and the reasons given in the Biologi-
cal Opinion for concluding that the transfer decision
would not have an indirect effect on endangered species
cannot coexist under section 7(a)(2). The Biological
Opinion reasoned that there could be no such effect, be-
cause (1) the EPA has no authority to disapprove trans-
fer applications because of an impact on listed species,
section 7(a)(2) of the Endangered Species Act notwith-
standing; (2) any impact on the post-transfer protection
of listed species was the result of Congress’ determina-
tion that states have no consultation or mitigation obli-
gations, not of the transfer decision; and (3) the poten-
tial future impact on listed species would be caused en-
tirely by new private development, and the transfer de-
‘cision would not cause such development. By relying on
this line of reasoning after determining that it did have
a consultation obligation, the EPA decided that it had to
consult but had no authority to do anything concerning
the matter about which it had to consult. One would not

26a

expect that Congress would set up such a nonsensical
regime. Not surprisingly, it did not.

Section 7(a)(2) makes no legal distinction between
the trigger for its requirement that agencies consult
with FWS and the trigger for its requirement that agen-
cies shape their actions so as not to jeopardize endan-
gered species.’ Instead, in one, integrated provision,
the statute provides that agencies “shall, in consultation
with and with the assistance of the |[F WS], insure that
any action authorized, funded, or carried out by such
agency . . . is not likely to jeopardize the continued
existence of any endangered species or threatened spe-
cies or result in the destruction or adverse modification
of [critical] habitat of such species. . . .” An agency’s
obligation to consult is thus in aid of its obligation to
shape its own actions so as not to jeopardize listed spe-
cies, not independent of it. Both the consultation obliga-
tion and the obligation to “insure” against jeopardizing
listed species are triggered by “any action authorized,
funded, or carried out by such agency,” and both apply
if such an “action” is under consideration.

This being the case, the two propositions that under-
lie the EPA’s action—that (1) it must, under the Endan-
gered Species Act, consult concerning transfers of CWA
permitting authority, but (2) it is not permitted, as a

" As described above, section 7 consultation is triggered by a
determination that an agency action “may affect” listed species, 50
C.F.R. § 402.14(a), and an obligation to act to mitigate harm to such
species is triggered if the FWS determines that the agency action is
“likely to jeopardize” listed species or “adverse{ly| modifly]" their
habitat. § 402.14(h). If an ageney action cannot legally affect listed
species—as the Biological Opinion concludes regarding the EPA's
approval of Arizona's appiication—then the “may affect” standard is not
met.

27a

matter of law, to take into account the impact on listed
species in making the transfer decision—cannot both be
true. Because the agency’s decisionmaking was based
on contradictory views of the same words in the same
statutory provision, the ultimate decision was not the
result of reasoned decisionmaking.

Additionally, the third prong of the Biological Opin-
ion’s reasoning—that it is private development, not the
EPA’s transfer decision, that would cause any impact on
listed species—suffers from an independent lack of plau-
sibility. Events can, of course, have more than one
cause. Events can be caused by several actions in a
“but-for” causal chain. If any one of the necessary ac-
tions does not take place, the ultimate event does not
occur. See, e.g., Olympic Airways v. Husain, 540 U.S.
644, 653, 124 S. Ct. 1221, 157 L. Ed. 2d 1146 (2004)
(“[T Jhere are often multiple interrelated factual events
that combine to cause any given injury.”). Obviously,
without private decisions to construct new develop-
ments, there will be no Clean Water Act construction
permits and no impact from the issuance of such permits
on listed species or their habitats. Just as obviously,
without the transfer of permitting authority from the
federal to the state government, developers could be
required, as they were before the transfer decision, to
mitigate any impact from their development on listed
species. So the impact of private development will be
different depending upon whether the federal or state
government does the permitting. In other words, the
two sets of decisions together—the private development
decisions and the governmental transfer decision—but
not either one independentiy, have the potential to affect
listed species and their habitat. The Biological Opinion’s
determination to the contrary disregards the obvious

28a

cause analysis and thus fails the reasoned decision-
making standard.

For these reasons, the transfer decision cannot
stand. We must remand to the agency for a plausible
explanation of its decision, based on a single, coherent
interpretation of the statute.

C. Statutory power to protect species?

Even viewed in isolation, the first explanation for the
EPA’s no impact conclusion—that the loss of section 7
consultation was not an effect of its transfer decision
because the agency had no authority to base its transfer
decision on the loss of consultation—fares no better.

Under the statutory regime, the statutory obligation
is to “insure” against likely jeopardy of listed species.
The two critical factors triggering this obligation are
(1) that the “action” be one for which the agency can
fairly be ascribed responsibility, namely, an action “au-
thorized, funded or carried out” by the agency; and
(2) that there is the requisite nexus to an impact on
listed species, namely, a direct or indirect effect “likely
to jeopardize the continued existence of any endangered
species or threatened species or result in the destruction
or adverse modification of [critical habitat].” 16 U.S.C.
§ 1536(a)(2). There are, consequently, three relevant
statutory concepts governing the reach of sect:on
7(a)(2): the nexus to any impact on listed species, the
nature of the obligation to “insure” against jeopardizing
listed species, and the actions covered.

29a

1. Nexus

The case law indicates that a negative impact on
listed species is the likely direct or indirect effect of an
agency’s action only if the agency has some control over
that »sult. Otherwise, the requisite nexus is absent.

A seminal section 7 indirect effects case, National
Wildlife Federation v. Coleman, 529 F.2d 359 (5th Cir.
1976), held that the Department of Transportation was
responsible for development encouraged by interstate
highway construction, because the Department did “con-
trol this development to the extent that [it] control[s]
the placement of the highway and interchanges.” /d. at
374. Recently, the Supreme Court in Department of
Transportation v. Public Citizen, 541 U.S. 752, 770, 124
S. Ct. 2204, 159 L. i&d. 2d 60 (2004) endorsed a similar
standard to that used in National Wildlife Federation,
albeit under a different statute.

Public Citizen concerned the application of the Na-
tional Environmental Policy Act (NEPA), 42 U.S.C. §§
4321-4370f, regulations to the U.S. Department of Trans-
portation’s (DOT) regulations governing safety rules for
Mexican trucks traveling on American roads. The
NEPA regulations share with the Endangered Species
Act regulations a similar definition of “indirect effects.”
Compare 40 C.F.R. § 1508.8(b) (“Indirect effects .. .
are caused by the action and are later in time or farther
removed in distance, but are still reasonably foresee-
able.”) with 50 C.F.R. § 402.02 (“Indirect effects are
those that are caused by the proposed action and are
later in time, but still are reasonably certain to occur.”).

30a

The question in Public Citizen was whether DOT was
required under NEPA to develop an environmental im-
pact statement with regard to the poliution caused by
the entry of Mexican trucks onto United States high-
ways under the North American Free Trade Agreement.
The Court held “that where an agency has no ability to
prevent a certain effect due to its limited statutory au-
thority over the relevant actions, the agency cannot be
considered a legally relevant ‘cause’ of the effect.” Pub.
Citizen, 541 U.S. at 770, 124 S. Ct. 2204 (emphasis
added); see also id. at 767, 124 S. Ct. 2204 (analogizing
“cause” ing ~y for purpose of defining “indirect effects”
to proximate cause inquiry in tort law). ‘:

Given the similarity in the applicable regulations, we
adopt the Public Citizen standard for purposes of deter-
mining the likely effects of agency action under section
7(a)(2) of the Endangered Species Act. Accordingly,
deciding whether the Biological Opinion followed En-
dangered Species Act regulations defining “indirect ef-
fects” requires us to determine whether the EPA can
consider and act upon the loss of section 7 consultation
benefits in deciding whether to transfer pollution per-
mitting authority to Arizona. If so, then the EPA’s
transfer decision can be a cause of the loss of section 7
consultation benefits; the loss of those benefits should
have been included in tne Biological Opinion as an indi-
rect effect of the potential transfer decision; and the loss
of those benefits should have been considered and acted
upon by the EPA.

3la

2. “Insure that any action . . . is not likely to jeop-
ardize the continued existence of any [listed] species”

Authority over the loss of section 7(a)(2) consultation
could be grounded in either the Clean Water Act or the
Endangered Species Act. The former option is not pre-
sented here,'’ so we focus on whether the obligation in
section 7(a)(2) to “insure” against jeopardizing listed
species empowers the EPA to make decisions to pre-
serve listed species and their habitat even if the Clean
Water Act does not so specify. If so, then the EPA has
the authority—indeed, because section 7(a)(2) speaks in
mandatory terms, the duty—to deny a pollution permit-
ting transfer application that meets Clean Water Act
standards but would jeopardize protected species.

The language in section 7(a)(2) providing that each
federal agency “shall . . . insure that any action autho-
rized, funded or carried out by such agency” will not
jeopardize listed species or their critical habitat is ad-
dressed to each agency, without exception. Our question
is: what does it require each agency to do?

The ordinary meaning of “insure” as used in this con-
text requires agencies to take action, as dictionary defi-
nitions make clear. To “insure” is “[t]o make (a person)
sure (of a thing)” and (“[tjo make certain, to secure, to
guarantee (some thing, event, etc.)”).'* VII THE Ox-

"No party questioned the EPA's determination that Arizona's
transfer application met the Clean Water Act factors. Cf Am. Forest
& Paper Ass'n v. EPA, 137 F 3d 291, 298 (5th Cir. 1998) (“EPA's dis-
cretion lies . . . in ensuring that those [§ 1342(b)] criteria are met.”).

" We refer to such actions as “agency actions.”

'’ This definition is consistent with those in dictionaries in print at the
time Congress enacted the Endangered Species Act in 1973. See, e.g.
WERBSTER’'S NEW WORLD DICTIONARY OF THF AMERICAN LANGUAGE

——

32a

FORD ENGLISH DICTIONARY 1059 (2d ed. 1989) (empha-
sis removed). Unless an agency has the authority to
take measures necessary to prevent harm to endangered
species, it is impossible for that agency to “make cer-
tain” that its actions are not likely to jeopardize those
species. Otherwise, agencies would be forced to choose
between violating section 7’s prohibition on agency ac-
tions that are likely to jeopardize listed species and act-
ing beyond their powers to protect such species.

The Supreme Court’s seminal section 7 case, Tennes-
see Valley Authority v. Hill, 437 U.S. 153, 180, 98 S. Ct.
2279, 57 L. Ed. 2d 117 (1978), confirms this textual inter-
pretation:

One would be hard pressed to find a statutory
provision whose terms were any plainer than those in
§ 7 of the Endangered Species Act. Its very words
affirmatively command all federal agencies ‘to in-
sure that actions authorized, funded, or carried out
by them do not jeopardize the continued existence’ of
an endangered species or ‘result in the destruction or
modification of habitat of such species. . . . This
language admits of no exception.

466, 731 (2d College Ed. 1972) (defining “insure” as “same as ensure,”
which is defined as “to make sure or certain; guarantee: secure”). “In-
sure” has multiple definitions, but the alternatives are inapposite to
section 7(a\2). They include “to pledge one’s credit,” “to engage by
pledge or contract,” and “to secure the payment of a sum of money in
the event of loss.” THE OXFORD ENGLISH DICTIONARY 1059 (2d ed.
1989).

33a

437 U.S. at 173, 98 S. Ct. 2279 (first alteration added,
other alterations in original) (citation omitted).'"* An
“affirmative command” by a superior authority—here,
Congress—ordinarily carries with it both the obligation
and the authority to obey that command. For example,
despite policy arguments in favor of continuing con-
struction of the dam, the Court in Hill relied on Con-
gress’s use of “the plainest of words” and section 7’s
equally plain legislative history, id. at 194, 98 S. Ct.
2279, to hold that further construction was in “irrecon-
cilable conflict” with section 7. /d. at 193, 98 S. Ct. 2279;
see also id. at 184, 98 S. Ct. 2279 (“The plain intent of
Congress in enacting this statute was to halt and reverse
the trend toward species extinction, whatever the
cost.”). |

'* The Chamber refers to a case of this court as purportedly limiting
Hill, National Wildlife Federation v. Burlington Northern Railroad,
Inc., 23 F 3d 1508 (9th Cir. 1994). This court cannot, of course, limit any
holding of the Supreme Court; only the Court or, for statutory cases,
Congress may do that. See Rodriguez de Quijas v. Shearson/Am.
Express, Inc., 490 U.S. 477, 484, 109 S. Ct. 1917, 104 L. Ed. 2d 526
(1989).

Further, National Wildlife Federation was not a case concerning a
federal action, and therefore did not raise any section 7(a)(2) issue.
Moreover National Wildlife Federation merely supports the obvious
proposition that a preliminary injunction is an equitable remedy and a
court need not grant an injunction “for every violation of law.” 23 F.3d
at 1512.

Finally, far from abandoning the statutory interpretation in Hill, the
Supreme Court has since National Wildlife Federation relied on and
quoted Hill in reiterating the conclusion that “Congress| | inten[{ded]
to provide comprehensive protection for endangered and threatened
species.” See Babbitt v. Sweet Home Chapter, 515 U.S. 687, 699, 115 S.
Ct. 2407, 132 L. Ed. 2d 597 (1994).

34a

Hill’s analysis of the legislative history of the Endan-
gered Species Act confirms that the authority conferred
on agencies to protect listed species goes beyond that
conferred by agencies’ own governing statutes. Hill
noted that earlier endangered species legislation, as well
as earlier versions of the bills that became the present
Endangered Species Act, included the qualifier “insofar
as is practicable and consistent with [an agency’s] pri-
mary purpose.” See Pub. L. 89-669 § 1(b), 80 Stat. 926
(1966); Hill, 437 U.S. at 181 & n.26, 98 S. Ct. 2279. The
final version of the statute “carefully omitted [those]
reservations,” id. at 182, 98 S. Ct. 2279, and replaced
them with the universal terms of section 7. The “pointed
omission” of such qualifications amounted to an “explicit
congressional decision to require agencies to afford first
priority to the declared national policy of saving endan-
gered species.” /d. at 185, 98 S. Ct. 2279 (emphasis
added); see also id. at 174, 98 S. Ct. 2279 (“Congress
intended endangered species to be afforded the highest
of priorities.”) (quoted in Wash. Toxics Coalition v.
EPA, 413 F.3d 1024, 1033 (9th Cir. 2005)).

Another aspect of the statute’s structure and history,
not directly at issue in Hill, bolsters the conclusion that
section 7 includes an affirmative grant of authority to
attend to protection of listed species within agencies’
authority when they take actions covered by section
7(a)(2). Section 7(a)(1) of the Endangered Species Act
directs agencies to “utilize their authorities in further-
ance of the purposes of this chapter by carrying out pro-
grams for the conservation of [listed] species.” 16
U.S.C. § 1536(a)(1). Section 7(a)(2), in contrast, does not
refer to agencies’ existing “authorities,” but instead di-
rects agencies that, when considering covered “actions,”

35a

they are to proceed in a manner not likely to jeopardize
listed species.

The House Report indicates that this distinction be-
tween the two sections was, as one would expect, delib-
erate. The Report noted the requirement of present
section 7(a)(2) as imposing a “further require{ment]”
beyond that of section 7(a)(1)."" See H.R. Rep. No. 93-
412, at 14 (1973), reprinted in 1 CONGRESSIONAL RE-
SEARCH SERVICE, A LEGISLATIVE HISTORY OF THE EN-
DANGERED SPECIES ACT OF 1973, AS AMENDED IN 1976,
1977, 1978, 1979, AND 1980, at 153 (1982) [hereinafter
LEGISLATIVE HISTORY] (emphasis added). The con-
trasting language of the two sections indicates that the
“further requirement” imposed by section 7(a)(2) turns
on the distinction between using existing authority to
promote conservation of species and conferring an addi-
tional, do-no-harm obligation—and reciprocal author-
ity—applicable when the agency’s own actions could
cause harm to endangered species.

That Congress so provided is confirmed by Repre-
sentative Dingell’s statement concerning the final bill,
relied upon by the Supreme Court as an authoritative
statement of section 7’s intent:"° “(T]he agencies of
Government can no longer plead that they can do noth-
ing about [harm to threatened or endangered species].
They can, and they must. The law is clear.””

This history is consistent with the “canon of statutory interpreta-
tion which holds that terms of the same statute are not to be construed
so as to be redundant.” Agredano v. Mutual of Omaha Cos., 75 F.3d
541, 544 (9th Cir. 1996).

” Representative Dingell was the House manager of the Endangered
Species Act. Hill, 437 U.S. at 183, 98 S. Ct. 2279.

36a

Hill, 437 U.S. at 184, 98 S. Ct. 2279 (quoting 119
Cong. Rec. 42913 (1973), emphasis in Hill)."

After the Supreme Court decided Hill in 1978, Con-
gress amended the Endangered Species Act, creating a
narrow exception to section 7’s requirements. See Pub.
L. No. 95-632, 92 Stat. 3751 (1978). The 1978 amend-
ment did not change section 7’s substantive provisions.
Instead, Congress created a process by which agencies
could apply to an “Endangered Species Committee” for
exemptions, § 1536(g), and specified standards by which
to judge such-applications, § 1536(h). The Senate Re-
port described this exemption as a direct response to
Hill, stating that Hill represented “the type of Federal
action which should be eligible for review” for a section
7(g) exemption. S. Rep. No. 95-874, at 2 (1978), re-
printed in 3 LEGISLATIVE HISTORY, at 940.

Another portion of Dingell’s same statement was quoted in an
earlier case of this court, County of Okanogan v. Natl Marine
Fisheries Serv., 347 F.3d 1081 (9th Cir. 2003), to support the proposi-
tion that “(t}here is authority that the [Endangered Species Act] does
not grant powers to federal agencies they do not otherwise have.” /d.
at 1085 (citing Hill, 437 U.S. at 183, 98 S. Ct. 2279). The portion of
Dingell’s statement quoted in Okanogan was also quoted in Hill, but it
is not the Supreme Court's own language. Much more of Dingell’s same
statement, including the language we quote in the text, appears as well
in Hill.

To say that “there is authority” regarding a proposition is not to state
a holding of this court. There is, as we judges are well aware in our
daily work, often conflicting “authority” for any proposition. Okanogan
had no need to survey, as we do today, all the relevant authority, as it
went on to decide the case before it on independent grounds. Because
the Okanogan panel rested its opinion on other points, it did not decide
the question now before us.

37a

The limited exemption created by the 1978 amend-
ments and contained in sections 7(g) and (h) has no di-
rect application here, as the EPA did not apply for it. Its
terms, however, serve to confirm that the interpretation
of the “insure” requirement in Hil! remains controlling.

Sections 7(g) and (h) focus on practical concerns, not
legal constraints on agency power to protect species.
To obtain an exemption, an agency must show that
“there are no reasonable and prudent alternatives to
the agency action,” the benefits of the action “clearly
outweigh the benefits of alternative course of action con-
sistent with conserving the species or its critical
habitat, and such action is in the public interest,”
and the action has regional or national significance.
§ 1536(h)(1)(A)(i)-(ili). Critically, no section 7(g) exemp-
tion may be granted until after consultation is com-
pleted. § 1536(g)(1); 50 C.F.R. § 402.15(c). Thus, at the
time consultation occurs, all parties must operate under
the assumption that all of section 7(a)(2)’s substantive
requirements apply to the action agency. The net effect
of the section 7(g) and (h) exemption, then, is to leave
the consultation requirement in effect as it was previ-
ously; to leave in place the kinds of “agency actions” to
which the section 7(a)(2) requirement applies; but to
provide a set of procedures and substantive standards
for limiting in some circumstances the mandate tnat
agencies “insure” that their actions are not likely to
jeopardize listed species.

That the 1978 amendments reiterated rather than
retreated from /Hill’s underlying understanding of the
Endangered Species Act is confirmed by the history of
those amendments. The House Report summarized Cun-
gress’s understanding of Hill's conclusion that “[t]he

38a

pointed omission of any type of qualifying language in
the statute revealed congressional intent to give the con-
tinued cxistence of endangered species priority over the
primary missions of federal agencies.” H.R. Rep. No.
95-1625, 10 (1978), reprinted in 2 LEGISLATIVE HIs-
TORY, at 734 (emphasis added). Congress did nothing to
alter this conclusion. Instead, in enacting the 1978
amendments, Congress once again refused to adopt an
amendment that would have limited section 7 compliance
to situations when compliance is “practicable and consis-
tent with [agencies] primary responsibilities.” S. Rep.
No. 95-874, at 58-59 (1978), 3 LEGISLATIVE HISTORY at
996-97. Congress’s rejection of this amendment under-
lines its continued understanding, consistent with Hill,
that section 7(a)(2) specifies that agencies must when
acting affirmatively refrain from jeopardizing listed
species, even if the agency’s governing statute does not
so provide. The only exception to this rule lies in a sec-
tion 7(g) exemption.

We conclude that the obligation of each agency to
“insure” that its covered actions are not likely to jeopar-
dize listed species is an obligation in addition to those
created by the agencies’ own governing statute. The
next question we must decide is whether the EPA’s
transfer decision is the kind of agency action to which
that obligation applies.

3. Actions “authorized, funded, or carried out” by an
agency

As we interpret section 7(a)(2) in light of the case law,
the Endangered Species Act confers authority and re-
sponsibility on agencies to protect listed species when the
agency engages in an affirmative action that is both
within its decisionmaking authority and unconstrained by

~~

39a

earlier agency commitments. The decision to approve a
state’s pollution permitting transfer application meets
these criteria and is thus the sort of decision to which
section 7(a)(2) applies. The Biological Opinion’s reason-
ing that the EPA had no choice but to disregard the im-
pact of the transfer on listed species in Arizona was
therefore inconsistent with the statute.

Section 7(a)(2) applies to all agency actions “autho-
rized, funded, or carried out” by the agency in question.
This language does indicate that some agency actions are
not covered—those the agency does not “authorize| ],
fund| J, or carr{y] out.” Our determination as to whether
the transfer decision is covered thus depends on the
meaning of those terms."

The regulatory provision that delineates the actions
covered by section 7(a)(2) reads: “Section 7 and the re-
quirements of this Part apply to all actions in which there
is discretionary Federal involvement or control.” 50
C.F.R. § 402.03. Although there is no statutory reference
to “discretionary involvement or control,” there is the
limitation, just noted, to actions “authorized, funded, or
carried out” by the agency. As that limiting language is
the only possible source for the regulation’s “discretion-
ary” qualification of “all actions,” we take the regulation
as a gloss on what the statutory limitation means and
interpret the term “discretionary” accordingly.

' Because we conclude that approving Arizona's application is an
“authorizing” action, and because no party argued that the EF PA’s use
of some other authority—such as its grant-making authority, see 33
U.S.C. § 1256, which helped Arizona implement the pollution permitting
program—we do not decide whether any action besides the transfer
decision triggered section 7(a)(2).

40a

Arizona and the Chamber note that the Clean Water
Act specifies that the EPA “shall approve” state applica-
tions that meet certain enumerated factors. 33 U.S.C.
§ 1342(b). They argue that this language precludes EPA
“discretion” to act on behalf of listed species, and that,
applying 50 C.F.R. § 402.03, section 7 does not apply.
However, “an agency cannot escape its obligation to com-
ply with the [Endangered Species Act] merely because it
is bound to comply with another statute that has consis-
tent, complementary objectives.” Wash. Toxics, 413 F.3d
at 1032. Applying this principle, we reject, for two rea-
sons, Arizona and the Chamber’s argument that
§ 1342(b) of the Clean Water Act eliminates any obliga-
tion to follow section 7(a)(2) of the Endangered Species
Act. .

First, the EPA makes no argument that its transfer
decision was not a “discretionary” one within the mean-
ing of 50 C.F.R. § 402.03. Indeed, it could not so argue
for, as we have seen, the agency recognizes that it hada
duty to consult, a duty the regulations would preclude if
the federal involvement in or control of the transfer deci-
sion was not sufficiently “discretionary.” We may not
affirm the EPA’s transfer decision on grounds not relied
upon by the agency. See Chenery 1, 318 U.S. at 87, 63 S.
Ct. 454; see also Gifford Pinchot Task Force, 378 F.3d at
1072 n.9. Further, we ordinarily defer to an agency's
interpretation of its own regulation. See United States v.
Cleveland Indians Baseball Co., 532 U.S. 200, 220, 121 S.
Ct. 1433, 149 L. Ed. 2d 491 (2001). As the EPA evidently
does not regard § 402.03 as excluding the transfer deci-
sion, we should not so interpret the regulations.

4la

Second, cases applying § 402.03 are consistent with
our understanding that the regulation’s reference to
“discretionary . . . involvement” is congruent with the
statutory reference to actions “authorized, funded, or
carried out” by the agency. Put another way, imposing
section 7(a)(2)’s substantive requirements in those cases
would have gone beyond the limited command of the stat-
ute.

Our § 402.03 “discretionary . . . involvement or con-
trol” cases hold section 7(a)(2) inapplicable if the agency
in question had “no ongoing regulatory authority” and
thus was not an entity responsible for decisionmaking
with respect to the particular action in question. Wash.
Toxics, 413 F.3d at 1033. For example, we have relied on
the “discretionary . . . involvement” regulation to find
section 7(a)(2) inapplicable where the agency lacked any
decisionmaking authority over the action of the kind
challenged. See Ground Zero Ctr. for Non-Violent Ac-
tion v. U.S. Dep’t of the Navy, 383 F.3d 1082, 1092 (9th
Cir. 2004) (holding that the action at issue fell outside the
agency's authority because the risk of harm to listed spe-
cies arose from the President’s decision regarding the
Navy’s nuclear submarine force, not the Navy’s obedi-
ence to that order); see also Marbled Murrelet v. Babbitt,
83 F.3d 1068, 1074 (9th Cir. 1996) (holding section 7(a)(2)
inapplicable where a different agency made the ultimate
decisions, while the respondent agency “merely provided
advice,” without authorizing, funding or carrying out
anything). Other cases have found section 7(a)(2) inap-
plicable where the challenged action was legally foreor-
dained by an earlier decision, such as where the agency
lacked the ability to amend an already-issued permit “to
address the needs of endangered or threatened species.”
Envtl. Prot. Info. Ctr. v. Simpson Timber Co., 255 F.3d

42a

1073, 1082 (9th Cir. 2001) (cited in Wash. Toxics, 413
F.3d at 1032) (applying § 402.16, which has similar lan-
guage to § 402.03); see also Sierra Club v. Babbitt, 65
F.3d 1502, 1509 (9th Cir. 1995) (cited in Wash. Toxics,
413 F.3d at 1032) (holding that section 7(a)(2) did not
apply because the agency had no “{ Jability to influence”
a project based on a right-of-way granted prior to the
Endangered Species Act’s enactment).

In contrast, we have held that section 7(a)(2) does
apply where the agency in question had continuing
decisionmaking authority over the challenged action.
See Wash. Toxics, 413 F.3d at 1032 (holding that
section 7(a}(2) applies to the EPA’s registration of pesti-
cides because of its “ongoing discretion to register pesti-
cides, alter pesticide registrations, and cancel pesticide
registrations”); Turtle Island Restoration Network v.
Nat'l Marine Fisheries Serv., 340 F.3d 969 (9th Cir.
2003) (holding that section 7(a)(2) applies to the granting
of permits—a quintessential “authorizing” action—for
future fishing); see also Sierra Club, 65 F.3d at 1508 (cit-
ing O’Neill v. United States, 50 F.3d 677, 680-81 (9th Cir.
1995), and noting that section 7 applies to already-ap-
proved projects “if the project’s implementation de-
pended on an additional agency action”); Envtl? Prot.
Info. Ctr., 255 F.3d at 1082; Natural Res. Def. Council v.
Houston, 146 F.3d 1118, 1125-26 (9th Cir. 1998) (holding
that section 7(a)(2) applies to “renewal of water con-
tracts” because the agency had power to set the terms
of—that is, to “authorize”—the renewed contracts, and
was not bound to reaffirm merely the previously-negoti-
ated terms); Pac. Rivers Council v. Thomas, 30 F.3d
1050, 1053 (9th Cir. 1994) (holding that section 7(a)(2) did
apply when there was “ongoing agency action” in that the

43a

agency retained power to authorize and carry out land
use decisions).

In sum, we understand our cases applying the “dis-
eretionary . . . involvement” regulation to interpret
that regulation to be coterminous with the statutory
phrase limiting section 7(a)(2)’s application to those cases
“authorized, funded, or carried out” by a federal agency.
Where a challenged action has not been “authorized,
funded, or carried out” by the defendant agency, we have
held that section 7(a)(2) does not apply. Where the chal-
lenged action comes within the agency’s decisionmaking
authority and remains so, it falls within section 7(a)(2)’s
scope."

The dissent concludes that because the Clean Water Act requires
the EPA to consider a list of nine requirements when evaluating a
state’s pollution permitting transfer application, the EPA had no
discretion to reject Arizona’s application on Endangered Species Act
grounds. The EPA has repeatedly taken the position that the question
whether the EPA has sufficient discretion, applying 50 C.% .R. § 402.03,
under the Endangered Species Act is not before us and has twice asked
us to remand any question concerning such discretion. See EPA CR
28(j) letter of July 27, 2005 (“EPA did consult. The only issue before
this Court is the adequacy of that consultation. For the same reason,
the Court should not reach the question regarding whether the EPA
has sufficient discretion to trigger consultation regarding the approval
of the transfer of 402 permitting authority to the State.”); EPA CR 28@)
letter of Aug. 4, 2005 (“Respondents again emphasize that the issue of
whether or not the [EPA] can properly rely on 50 C.F.R. § 402.03 in
deciding whether or not it must consult regarding its approval of the
State of Arizona's Clean Water Act 402 Permitting Program is not
before the Court in this case because EPA did consult regarding the
approval of the program.”). As noted in Part II1.B, supra, the EPA
has taken contradictory positions regarding its section 7(a)(2) obliga-
tions. The dissent does not explain its disagreement with that portion
of our opinion.

The dissent argues that we should nonetheless affirm the KE PA’s

44a

Like the agencies in Washington Toxics, Pacific
Rivers and Houston but not the other § 402.03 cases
noted above, the EPA had exclusive decisionmaking au-
thority over Arizona’s pollution permitting transfer ap-
plication. The EF PA’s decision authorized the transfer,
thus triggering section 7(a)(2)’s consultation and action
requirements.

4. Other Cireuits

Although Washington Toxics and the cases are fully
consistent with our analysis, this case is the first in which
we have specifically addressed the question whether sec-
tion 7(a)(2) of the Endangered Species Act provides a
modicum of additional authority to agencies, beyond that
conferred by their governing statutes, to protect listed
species from the impact of affirmative federal actions.
Other circuits, however, have considered the question.
The reasoning of those opinions reflects an existing
intercircuit conflict on the question before us, with two
circuits reading section 7(a)(2) as we do and two conclud-
ing that section 7 does not itself authorize agencies to
protect listed species even when it is their own action
that is jeopardizing then. Compare Defenders of Wildlife
v. Administrator, EPA, 882 F.2d 1294, 1299 (8th Cir.
1989), and Conservation Law Found. v. Andrus, 623

action based on § 402.083 because the question is one of statutory
interpretation. But that is simply not so; § 402.08 is a regulation, vot a
statute. The dissent offers no analysis of the key statutory provision,
section 7(a)(2) of the Endangered Species Act, nor does it offer any
response to our interpretation of the plain language, intent and history
of that section. Although the dissent does offer an interpretation of the
Clean Water Act, that interpretation only matters if we are wrong
about section 7(a)(2) of the Endangered Species Act and the EPA was
wrong under 50 C.F.R. § 402.05 in consulting about the transfer of
permitting authority.

45a

F.2d 712, 715 (ist Cir. 1979) with Am. Forest & Paper
Ass'n v. EPA, 137 F.3d 291, 294, 298-99 (Sth Cir. 1998),
and Platte River Whooping Crane Critical Habitat
Maint. Trust v. FERC, 962 F.2d 27, 34 (D.C. Cir. 1992).
We do not find the D.C. Circuit and Fifth Circuit cases
persuasive, as they do not reflect a full consideration of
the text and history of section 7(a)(2).

The First Circuit, writing a year after the Supreme
Court decided Hill, noted that the Endangered Species
Act “will continue to apply of its own force to major ac-
tions taken by the [agency],” regardless of the contents
of the specific statute under which the agency acted.
Conservation Law Found., 623 F.2d at 715. Thus, al-
though the governing statute in that case may have con-
tained standards “less stringent than those of the | En-
dangered Species Act]” with regard to the protection of
listed species, “[t]he [Endangered Species Act] by its
terms applies to all action by the Secretary.” Jd. Conse-
quently, “[i]f [the secretary] cannot . . . insure that
exploration wil] not jeopardize the continued existence of
[listed species], he will not approve exploration plans.”
Id.

A decade later, the Eighth Circuit echoed Conserva-
tion Law Foundation, writing that “[e]ven though a fed-
eral agency may be acting under a different statute, that
agency must still comply with the [Endangered Species
Act].” Defenders of Wildlife, 882 F.2d at 1299; John W.
Steiger, The Consultation Provision of Section 7(a)(2) of
the Endangered Species Act and Its Application to
Delegable Federal Programs, 21 ECOLOGY L.Q. 243, 274
(1994) (describing as “well established” the proposition
that “section 7(a)(2) provides an independent source of

46a

authority that is in addition to the authority the Agency
is granted in its programmatic statutes”).

The D.C. Circuit has indicated that the Endangered
Species Act does not empower an agency to impose con-
ditions on an interim, annual license that, unlike the pol-
lution permitting transfer decisions at issue here, the
agency was obliged to issue without any deliberation. In
so concluding, the D.C. Circuit noted in passing the lan-
guage of section 7(a)(2), but reasoned that section 7(a)(1)
instructs agencies to “utilize their authorities,” and that
this section 7(a)(1) language “does not expand the pow-
ers conferred on an agency by its enabling act.” Platte
River, 962 F.2d at 34 (emphasis in original).

Platte River did not recognize the obvious differences
between section 7(a)(1) and 7(a)(2) in both language and
purpose. The D.C. Circuit did not, for example, discuss
at all the meaning of the term “insure” in section 7(a)(2),
absent from section 7(a)(1). Nor did it notice the differ-
ence between affirmative agency attempts to protect
listed species (section 7(a)(1)) and a do-no-harm directive
pertaining to affirmative agency actions with likely ad-
verse impact on listed species (section 7(a)(2)). Finally,
the D.C. Circuit in P/atte River did not mention the avail-
ability of exemptions from section 7(a)(2) under the 1978
amendments, or the repeated decision of Congress not to
approve proposed amendments that would have limited
the reach of section 7(a)(2) so as to accord with the D.C.
Circuit's reading of the unamended statute. For all these
reasons, we do not find Platte River's cursory consider-
ation of the question persuasive.

The Fifth Circuit relied on Platte River to hold that
section 7(a)(2) does not permit the EPA to require a state
to consult with FWS before issuing a water pollution per-

47a

mit. Am. Forest & Paper Ass'n, 137 F.3d at 294, 298-99.
While we do not pass on the precise question decided in
American Forest, we do note that, aside from the defi-
ciencies of Platte River on which the Fifth Circuit relied,
American Forest rested on a fundamental misconception
concerning section 7(a)(2): The Fifth Circuit stated that
it is “largely beside the point” whether the EPA’s trans-
fer decision is an “agency action,” because “[e]ven if EPA
were required to consult with the agencies . . . EPA
lacks authority to” require states to protect listed spe-
cies. /d. at 298 n.6. Section 7(a)(2), however, specifies
that if an agency is contemplating a covered “agency ac-
tion,” it has an obligation both to consult and to “insure”
against taking action likely to jeopardize species. The
Fifth Circuit’s notion that the consultation and assurance
aspects of the statute are independent is simply inéor-
rect.

In sum, the better reasoned out-of-circuit authority,
as well as our own precedent, supports our conclusion
that section 7(a)(2) independently empowers EPA to
make pollution permitting transfer decisions on behalf of
listed species and their habitat when undertaking cov-
ered actions.

5. Summary

We hold that approving Arizona’s pollution permitting
transfer application was an agency action “authorized”
by the EPA, thus triggering both section 7(a)(2)’s consul-
tation requirement and its mandate that agencies not
affirmatively take actions that are likely to jeopardize
listed species. The EPA may have complied with its obli-
gations under the Clean Water Act, but compliance with
a “complementary” statute cannot relieve the EPA of its
independent obligations under section 7(a)(2). See Wash.

48a

Toxics, 413 F.3d at 1033. Section 7(a)(2) imposes a duty
on the EPA to “insure” its transfer decision is not likely
to jeopardize protected species or adversely modify their
habitat, and this duty exists alongside Clean Water Act
provisions as the agency’s “first priority.” Hill, 437 U.S.
at 185, 98 S. Ct. 2279.

We therefore conclude that, under Public Citizen, the
EPA’s transfer (ecision will cause whatever harm may
flow from the loss of section 7 consultation on the many
projects subject to a water pollution permit, and that
harm constitutes an indirect effect of the transfer.’ The
Biological Opinion, which ignored this effect while recog-
nizing that section 7 consultations concerning pollution
permitting permits have saved species’ critical habitat in
the past, was therefore deficient. The EPA erred by re-
lying on this fatally deficient Biological Opinion.

D. Other bases for the EPA’s transfer decision

Having concluded that the Biological Opinion upon
which the EPA relied was flawed in-its basic legal prem-
ise,” we now consider whether that Opinion’s other anal-
yses, or any analysis outside the Biological Opinion that
the EPA relied upon, saves the validity of the EPA’s
transfer decision. .

*” Defenders also challenge the Biological Opinion and the EPA for
failing to analyze the “cumulative effects” of the pollution permitting
transfer, as required by Endangered Species Act regulations. See 50
C.F .R. § 402.14(¢)(3) (requiring consideration of “cumulative effects”);
§ 402.02 (defining “cumulative effects”). As we consider the loss of
section 7 consultation benefits on future permits an “indirect effect” of
the EPA’s transfer decision, we need not consider Defenders’ argument
that the EPA and Biological Opinion should have also considered that
effect as part of a “cumulative effect.”

* See supra, Parts TIBI).

49a

1. No “detailed discussion” of effects on all listed species

Consistent with its underlying legal analysis, the Bio-
logical Opinion never considered in any detail the likely
real-world impact of the transfer decision on listed spe-
cies in Arizona. The failure to conduct that inquiry fa-
tally infects the Opinion’s truncated alternative causation
analysis.

50 C.F.R. § 402.14(h)(2) requires a biological opinion
to include a “detailed discussion of the effects of the ac-
tion on listed species or critical habitat.” The Biological
Opinion on which the EPA relies does not do so. Instead,
it refers to a website summarizing listed species’ status,
but includes no discussion of how the pollution permitting
transfer might affect any particular species. The Biologi-
cal Opinion concludes that the transfer will not likely
jeopardize any species—but only because, once again, “it
is not the proposed action itself that is jeopardizing these
species.”

Defending the Biological Opinion, the Home Builders
argue that the “effects of the action”—which the Biologi-
cal Opinion must consider under 50 C.F.R. § 402.14(h)—
exclude the impact of Arizona water pollution permits on
terrestrial species.~ Neither the Biological Opinion nor

= The record indicates that a large portion of permits issued by
ADEQ—up to 20,000 permits annually—will be for “stormwater con-
struction |discharges].” This reference is to storm water that flows
over a construction site, picking up various pollutants and carrying
them across terrestrial and evefitually into aquatic habitat. Storm-
water Discharges from Construction Activities, EPA-NPDES, at
http: cfpub1.epa.gov/npdes’ stormwater const.cfm ?progran—id —6
(last visited July 5, 2005). Such permits relate to the construction itself,
not to a discrete discharge during construction. As a practical matter,
a developer could not perform any construction activities without such
a permit.

50a

the EPA, however, used this argument to support the
agency action. We may not affirm the EPA’s transfer
decision on grounds not relied upon by the agency. See
Chenery I, 318 U.S. at 87, 63S. Ct. 454; see also Gifford
Pinchot Task Force, 378 F.3d at 1072 n.9. Accordingly,
we need not decide the merits of the Home Builders’ ar-
gument.

It is understandable that EPA has not embraced the
Home Builders’ analysis. According to the Home Build-
ers, the section 7 consultations and EPA-requested miti-
gation undertaken in the past regarding federal pollution
permits were improper, because the EPA took into ac-
count as indirect effects the long-run impact of develop-
ment on terrestrial upland species. This argument is
based on a flawed reading of Endangered Species Act
regulations.

A Biological Opinion must discuss the effects of an
agency action, § 402.14(h), including the action’s direct
effects, indirect effects, and “effects of other activities
that are interrelated or interdependent with that action,”
meaning those actions “that are a part of a larger action
and depend on the larger action.” § 402.02. If a con-
struction project cannot go forward without a water pol-
lution permit, then the entire project is “interrelated or
interdependent” with the proposed discharge and must
be considered in a Biological Opinion.

The Home Builders cite a different regulation, requir-
ing a more limited analysis. See § 402.12(c), (d)(2) (de-
scribing requirements of a biological assessment to in-
clude only discussion of effects on listed species and habi-
tat in the “action area”). But that limited analysis ap-
plies to what an action agency must do before formal sec-
tion 7 consultation begins, and does not excuse agencies

5la

from other section 7 requirements that consultation may
trigger.

The Home Builders also cite cases relating to portions
of development projects that “could exist independently
of each other.” Wetlands Action Network v. U.S. Army
Corps of Eng’rs, 222 F.3d 1105, 1116 (9th Cir. 2000).
Seemingly, the Home Builders argue that, because sec-
tion 7 does not require consultation or mitigation with
regard to a development project truly independent of the
one covered by a permit, section 7 also does not cover
development projects that are dependent on the permit
in question. On the contrary, section 7 covers develop-
ment projects “interrelated or interdependent with” the
discharge permitted by a permit, and therefore covers in
many instances the development that will take place if
construction-connected stormwater discharge is permit-
ted.

Neither the FWS nor the EPA makes any argument
that justifies the Biological Opinion’s failure to analyze,
in detail, the likely effect of such future development
projects fostered by pollution permits on specific species.
This failure is especially telling in light of the benefits of
section 7 consultation regarding water pollution permits.
That consultation, as the Biological Opinion noted, has
led various developers to alter their development plans,
preserving thousands of acres of listed species’ habitat.
For example, such mitigation has “maintain[ed] dispersal
and movement corridors” for the pygmy owl. FWS staff
had noted that the absence of section 7 consultation could
harm specific species, yet the Biological Opinion did not
spell out those concerns in any detail.

By not considering the transfer’s specific impact on
listed species—at least those as to which specific con-

j2a

cerns had been expressed—the Biological Opinion “failed
Lo consider an important aspect” of the transfer decision.
Motor Vehicle Mfrs. Ass’n v. State Farm Mutual Auto.
Ins. Co., 463 U.S. 29, 48, 103 S. Ct. 2856, 77 L. Ed. 2d 443
(1983).

2. Alternatives to section 7 consultation

The Biological Opinion notes state and federal endan-
gered species protections that exist without section 7
consultation, including: (1) the Memorandum of Agree-
ment between the EPA and FWS, EPA oversight over
ADEQ; (2) the Endangered Species Act’s anti-take provi-
sions; and (3) Arizona state law. The EPA relies on these
protections as sufficient to assure against jeopardizing
listed species. None of these protections, however, are
sufficient substitutes for section 7’s consultation and mit-
igation mandates.

a. Memorandum of Agreement

The Memorandum of Agreement provides the closest
substitute for the provisions of section 7. It cannot, how-
ever, replace section 7, because it does not grant the fed-
eral government any authority to require Arizona to en-
gage in the kind of consultation and mitigation measures
EPA had conducted before the transfer.

Under the Memorandum, the EPA will review ADEQ
permits and identify those that “may raise issues regard-
ing” listed species. 66 Fed. Reg. 11,202, 11,216 (Feb. 22,
2001). For projects posing a significant threat to listed
species, the FWS “will work with the State . . . to re-
duce the detrimental effects stemming from the permit.”
Id. The FWS, however, has no statutory authority to
mandate that the state revise any problematic permits,
nor does the EPA. In contrast, all federal agencies have

53a

a duty, in consultation with the FWS, to ensure that their
actions are not likely to jeopardize any listed species or
their designated habitat. § 1536(a)(2).

The Memorandum also provides that the “EPA will
use the full extent of its CWA [Clean Water Act] author-
ity to object toa State . . . permit where EPA finds .
. . thata State . . . permit is likely to jeopardize” listed
species. 66 Fed. Reg. at 11,216. However, the Clean Wa-
ter Act does not grant the EPA authority to make pollu-
tion permitting transfer decisions for the benefit of all
endangered species; the EPA has that authority only
when one also considers the Endangered Species Act.”
As a result, Endangered Species Act concerns raised by
a permit are cognizable under the Clean Water Act only
fortuitously, if at all. Unless the EPA is willing to use
the authority granted by section 7 in addition to that ac-
corded by the Clean Water Act, the EPA’s ability to ob-
ject to permits and thereby conserve listed species will
be quite limited.

In sum, the Memorandum calls for the EPA and the
FWS to discuss listed species matters with ADEQ, but
relies on ADEQ voluntarily to cooperate with those fed-
eral agencies. We assume that ADEQ will consider any
listed species issues raised in good faith. Nothing in the
record, however, indicates that ADEQ even has authority
under state law to require permit applicants to protect

~ Pollution permitting standards that apply to both federal permits,
33 U.S.C. § 1342(a), and state permits, § 1342(b)(1)(A), incorporate
concerns for the effect of pollutants on aquatic species living in water-
ways affected by water pollution. See, e.g. 38 U.S.C. § 1317001)
(listing effeet of toxic pollutants on “affected organisms in any waters”
as a factor te consider in issuing permit). These powers do not extend
to terrestrial species, nor do they include section 7(a\(2)'s prohibition
on agency actions that are likely to jeopardize listed species.

54a

listed species. Section 7 thus provides protection for spe-
cies that reliance on purely voluntary action by the state
cannot supply.

EPA oversight

For similar reasons, EPA oversight under 33 U.S.C.
§ 1342(c) provides a weak substitute for section 7 consul-
tation. Such oversight relates to different substantive
standards—those of the Clean Water Act, rather than
the Endangered Species Act. The Clean Water Act stan-
dards governing permitting decisions wil! not directly
relate to protection of most—if any—listed species, and
so cannot substitute for section 7 coverage.

c. Endangered Species Act anti-take provisions

The Endangered Species Act makes it a crime to
“take” any species listed as endangered, defining “take”
as “harass, harm, pursue, hunt, shoot, wound, kill, trap,
capture, or collect, or to attempt to engage in any such
conduct.” 16 U.S.C. § 1538(a); 16 U.S.C. § 1532(19). The
Supreme Court has upheld regulations that define “take”
to include any act “which actually kills or injures wild-
life,” where such acts may include “significant . . . mod-
ification or degradation” of listed species’ habitat.” See
Babbitt v. Sweet Home Chapter of Cmties. for a Great
Or., 515 U.S. 687, 691, 115 S. Ct. 2407, 132 L. Ed. 2d 597
(1995) (upholding 50 C.F.R. § 17.3). Section 10 of the

* The regulation defines “{hjarm in the definition of ‘take’ in the Act
{as} an act which actually kills or injures wildlife. Such act may include
significant habitat modification or degradation where it actually kills or
injures wildlife by significantly impairing essential behavioral patterns,
including breeding, feeding or sheltering.” 50 C.F.LR. § 17.3.

5da

Endangered Species Act creates an “incidental take”
permit program pursuant to which the Secretary of Inte-
rior may grant permits for activity—such as some con-
struction projects—that may incidentally “take” an en-
dangered species specimen, so long as the permittee suf-
ficiently mitigates the risk of a take. See 16 U.S.C.
§ 1539. These anti-take provisions apply to all actors, not
only the federal government. § 1538(a)(1). Accordingly,
private developers are subject to sections 9 and 10 re-
gardless of whether the EPA or a state government is-
sues the developers’ water pollution permits.

Sections 9 and 10 are important provisions, but they
are not substitutes for section 7 coverage. Section 7 cov-
ers any federal agency action that could threaten species
or their critical habitat. While the anti-take provisions
prohibit “[e}liminating a threatened species’ habitat,”
Envtl. Prot. Info. Ctr., 255 F.3d at 1075, or “significant

. modification or degradation where it actually kills
or injures wildlife,” 50 C.F.R. § 17.3, the effectiveness of
these prohibitions depends on their enforcement by the
appropriate authorities. “|T]he Government cannot en-
force the § 9 prohibition until an animal has actually been
killed or injured.” Sweet Home, 515 U.S. at 703, 115 S.
Ct. 2407. Accordingly, after-the-fact enforcement cannot
prevent threats to listed species the way section 7 can.
Prevention of takings may come from the section 10 per-

mitting process, but private parties choose whether to
‘pursue a section 10 incidental take permit. Defenders of
Wildlife v. Bernal, 204 F.3d 920, 927 (9th Cir. 2000). Pri-
vate parties only have an incentive to do so if there is a
meaningful threat of section 9 enforcement.

On this record, there is no indication that section 9 is
or will be enforced meaningfully enough to provide a suf-

56a

ficient substitute for section 7. The record reflects no
instances in which F WS has initiated a section 9 enforce-
ment action with regard to listed species in Arizona. Ad-
ditionally, FWS staff stated in the Interagency Elevation
Document that they did “not believe that section 9 en-
forcement is an acceptable substitute for section 7 consul-
tation.” This opinion reflected staff concerns, expressed
in internal emails, that section 9 is ill-suited to protect
species such as the pygmy owl, whose numbers are so low
that section 9 enforcement may come too late to prevent
extinction. The Biological Opinion contains no indication
the FWS will increase section 9 enforcement nor any
other analysis alleviating FWS staff concerns. The ab-
sence of record evidence of section 9 enforcement is con-
firmed by our own research, which reveals public notices
regarding only two applications for incidental take per-
mits for projects occurring in Arizona since January 1,
2001. See 69 Fed. Reg. 75,556 (Dec. 17, 2004); 69 Fed.
Reg. 15,362 (Mar. 25, 2004). Compared to the large num-
ber of construction projects in the state, this low number
suggests that developers do not feel that section 9 en-
forcement is sufficiently likely for them to apply for sec-
tion 10 permits.
d. Arizona state law

The Biological Opinion notes one Arizona law that
prohibits the taking of “native plants”’—which, the Opin-
ion notes, includes endangered or threatened plants—
from any land within the state without following certain
procedures. See Ariz. Rev. Stat. § 3-904. The Opinion
implies that this law partially fills a gap left open by the
Endangered Species Act, which limits the taking of en-
dangered plants on federal land only, not all land. See 16
U.S.C. § 1538(a)(2)(B).

57a

The Arizona statute, however, is not an adequate sub-
stitute for section 7(a)(2)’s limitation on granting permits
that could jeopardize listed species. As the Biological
Opinion notes, the Arizona statute merely requires pri-
vate landowners to notify a state agency of plans to de-
stroy certain plants on their property and regulates when
that destruction may take place. See Ariz. Rev. Stat. § 3-
904. It does not prohibit such destruction, or set stan-
dards to be taken into account in the issuance of water
pollution permits. The Biological Opinion does not dis-
cuss the standards that govern Arizona’s regulation of
native plant takes, and does not indicate that Arizona
considers the listed status of plants for federal purposes
in granting native plant take permits.

In sum, the Biological Opinion fails to provide a rea-
soned explanation concerning why Arizona’s native plant
law adequately substitutes for section 7, even for plants.
As it obviously does not do so for animals, § 3-904 is no
substitute for section 7(a)(2) of the Endangered Species
Act.

3. The EPA’s reliance on the Biological Opinion

The EPA had an independent duty under section
7(a)(2) to ensure that its pollution permitting transfer
decision was not likely to jeopardize listed species or ad-
versely modify their habitat. Arbitrarily and capriciously
relying on a faulty Biological Opinion violates this duty.
Res. Ltd., 35 F.3d at 1304; Pyramid Lake, 898 F.2d at
1415.

When considering challenges to agency actions based
on factual objections to the Biological Opinion, however,
we have held that an agency can satisfy the arbitrary and
capricious standard of review even if it relies on an “ad-
mittedly weak” Biological Opinion, if there is no “infor-

58a

mation the Service did not take into account which chal-
lenges the [biological] opinion’s conclusions.” J/d.; see
also Stop H-3 Ass’n v. Dole, 740 F.2d 1442, 1460 (9th Cir.
1984). This holding is based on the notion that action
agencies should be able to rely on the expert judgments
that underlie most Biological Opinions. See id. (twice
noting reasonableness of action agency’s reliance on “the
expert agency”) (emphasis added). Here, however, the
Biological Opinion’s flaws are /egal in nature. Discerning
them requires no technical or scientific expertise. The
EPA should have understood the legal errors of the Bio-
logical Opinion’s analysis. Its failure to do so led to
an action based on reasoning “not in accordance with
law” and is thus arbitrary and capricious. See 5 U.S.C.
§ 706(2)(A).

Even applying the Pyramid Lake standard, the EPA
acted arbitrarily and capriciously. Information not con-
sidered by the Biological Opinion that challenges its con-
clusion includes FWS staff members’ articulated, specific
concerns about the impact of the loss of section 7 consul-
tation, supported by information regarding the effect of
past section 7 consultations.

The EPA notes that it relied on two pieces of evidence
supporting its conclusion beyond that contained in the
Biological Opinion and argues that consideration of this
evidence provided the reasoned consideration that the
arbitrary and capricious standard requires.~’

The first such evidence is the EPA’s own Biological
Fvaluation. This report focused largely on Clean Water

~ Any explanation for its decision based on facts or reasoning not in
the Biological Opinion must, of course, satisfy the EPA’s substantive
obligations under section 7(a\2) and the arbitrary and capricious
standard of review discussed above.

59a

Act requirements and devoted only a few pages to endan-
gered species. The report summarizes the EPA-FWS
Memorandum of Agreement, Endangered Species Act
anti-take provisions, EPA oversight of ADEQ’s permit
program, and Arizona’s native plant laws, without ad-
dressing their limitations, discussed above. The report’s
“Discussion of Effects” notes the loss of section 7 consul-
tation, but otherwise focuses on Clean Water Act compli-
ance and repeats the protections afforded by other pro-
grams. It does not discuss the impact on listed species of
the loss of section 7 consultation and mitigation and so
adds nothing to the Biological Opinion.

The second piece of evidence on which the EPA relies
is an “assurance| | from the Arizona Game and Fish De-
partment .. . that Federally-listed species would not
suffer” from the lack of section 7 consultations. This doc-
ument is from an Arizona official of a state department
that is wot the one that will issue Clean Water Act per-
mits. He writes that the EPA-FWS Memorandum of
Agreement “will serve as a guideline for . . . Arizona to
ensure that [pollution] permits will not negatively impact
endangered and threatened species.”

There is no indication that Arizona would be bound by
this letter. The ADEQ, the agency primarily responsible
for implementing Arizona’s pollution permitting author-
ity, has not subscribed to its assurances. Nor does the
letter writer explain by what authority Arizona will “en-
sure that . . . permits will not negatively impact endan-
gered and threatened species,” or indicate that his
agency has any authority to do so, let alone authority as
broad as the protections mandated by the Endangered
Species Act as applied by the EPA.

60a

In the abstract, voluntary compliance by state agen-
cies willing to follow FWS recommendations to the same
extent as would the EPA might substitute for section 7
coverage. The EPA, however, could not so conclude
without first analyzing the likelihood that all relevant
Arizona agencies can and would live up to the Game and
Fish Department’s promises, as well as considering the
effectiveness of federal oversight if Arizona agencies fail
to live up to any such promises.

Given its serious faults, the independent evidence on
which EPA relies cannot fill in the crucial gaps in the
Biological Opinion. Neither the Biological Opinion nor
the EPA, consequently, adequately considered indirect
effects of the transfer. The EPA thus “entirely failed to
consider an important aspect of the problem.” State
Farm, 463 U.S. at 43, 103 S. Ct. 2856. Because neither
the Biological Opinion nor the EPA examined all relevant
data, the EPA’s transfer decision was arbitrary and ca-
pricious.

4. Summary

The EPA’s most serious errors were (1) its failure to
understand its own authority under section 7(a)(2) to act
on behalf of listed species and their habitat and (2) its
failure to discuss the specific effects of its decision on the
various listed species present in Arizona. It is possible
that some combination of state and federal protections
for listed species and state agency cooperation with the
federal Memorandum of Agreement might sufficiently
replace the benefits of section 7 consultation so that no
harm to listed species would be “reasonably certain to
occur” as a result of losing section 7 consultation. 50
C.F.R. § 402.02. But the FPA could not so conclude with-
out specifically analyzing each listed species within Ari-

Hla

zona and without more certain assurances of voluntary
state cooperation from officials at all relevant Arizona
agencies, as well as a more careful consideration of the
actual protection accorded by other federal and state
statutory provisions and the Memorandum of Agree-
ment.

IV. Remedy

Typically, when an agency violates the Administrative
Procedure Act and the Endangered Species Act, we va-
cate the agency’s action and remand to the agency to act
in compliance with its statutory obligations. In certain
instances, however, “when equity demands, the [chal-
lenged action] can be left in place while the agency fol-
lows the necessary procedures.” /daho Farm Bureau
Fed’n v. Babbitt, 58 F.3d 1392, 1405 (9th Cir. 1995).

We have carefully considered whether equitable con-
siderations warrant allowing Arizona to maintain its au-
thority over pollution permitting decisions while the EPA
“follows the necessary procedures,” beginning with con-
sultations with the FWS based on legal understandings
consistent with this opinion. Arizona has undoubtedly
expended significant funds to obtain and implement pol-
lution permitting authority and granted a significant
number of permits pursuant to this authority.” We can-
not reverse the expenditure of those funds nor the issu-

* For instance, one type of water pollution permit issued by Arizona
under its pollution permitting authority, stormwater discharge permits,
account for approximately 20,000 permit applications annually. ARIZ.
DEP’T OF ENVT'L QUALITY, ADEQ Director Steve OwensUnveils a
Web-based System to Apply for Stormwater Discharge Permits, at
http://www.azdeq.gov/function news/2003/june html #609 (last visited
July 5, 2005).

62a

ance of those permits. We further recognize the adminis-
trative difficulties in transferring a program like pollu-
tion permitting from Arizona back to the EPA and very
possibly back to Arizona again. Based on the desire of
Arizona to keep its polkition permitting authority and the
record of other states obtaining and maintaining their
own pollution permitting authority, even after full consul-
tation regarding the transfer’s effect on endangered and
threatened species, see supra note 3, it seems likely that
Arizona will again apply for pollution permitting author-
ity. Finally, we note that all of the actors in this case—
Arizona, the EPA, and FWS—operated in a somewhat
murky legal environment. Faced with two circuit court
cases suggesting that the EPA lacked authority to make
pollution permitting transfer decisions based on Endan-
gered Species Act concerns, “the extent of doubt whether
the agency chose correctly” was not insignificant. Sugar
Cane Growers Coop. v. Veneman, 289 F.3d 89, 98 (D.C.
Cir. 2002).

Other factors, however, weigh heavily in favor of va-
cating the EPA’s approval of Arizona’s transfer applica-
tion. As noted above, Arizona annually issues tens of
thousands of pollution permits pursuant to the EPA’s
action. See supra note 22. We have concluded that, ab-
sent section 7- coverage, we have no strong assurances
that these permits will not allow development projects
that are likely to jeopardize listed species or adversely
modify their habitat. The purpose of the Endangered
Species Act—to conserve endangered and threatened
species rather than allow them to go extinct, see 16
U.S.C. § 1531—-renders the risk of harm to listed species
too great. This is particularly true in this case, in which
the record suggests that one species—the pygmy owl—
numbers less than 100. Temporary harms while the

63a

agency “follow [ed] the necessary procedures,” /daho
Farm Bureau, 58 F.3d at 1405, could lead to the perma-
nent harm of extinction. See id. (noting “the potential
extinction of an animal species” as a crucial factor to con-
sider when determining whether a challenged agency
action should be vacated). Our concern with the risk of
extinction comports with our understanding of the En-
dangered Species Act’s ‘“institutionalized caution man-
date.” Wash. Toxics, 413 F.3d at 1030 (quoting Sierra
Club, 816 F.2d at 1389). Without greater assurances that
harm to listed species would not occur, our “institution-
alized caution” makes us unwilling on the present record
to order any remedy other than vacation of the EPA’s
approval of Arizona’s transfer application.

For the just-stated reasons, we vacate the EPA’s de-
cision to approve Arizona’s pollution permitting applica-
tion. Pursuant to 28 U.S.C. § 1631, we transfer Defend-
ers’ Endangered Species Act and Administrative Proce-
dure Act suit challenging the validity of the Biological
Opinion to the district court where it was originally filed
for proceedings consistent with this opinion. The petition
for review is GRANTED and REMANDED to the EPA
for proceedings consistent with this opinion.

THOMPSON, Senior Circuit Judge, dissenting:

Because I disagree with the conclusion in Part ILI of
the majority opinion that the EPA had the authority to
consider the impact on endangered and threatened spe-
cies in making its decision to transfer administration of
the pollution permitting system to the State of Arizona,
I respectfully dissent.

As the majority observes, the requirements of section
7 of the Endangered Species Act “apply to all [agency |
actions in which there is discretionary Federal involve-

64a

ment or control.” 50 C.F.R. § 402.03. “Where there is no
agency discretion to act, the [Endangered Species Act]
does not apply.” Natural Res. Def. Council v. Houston,
146 F.3d 1118, 1125-26 (9th Cir. 1998). We have previ-
ously held that an agency lacks the requisite discretion
to act when the agency does not have the authority to
take action on behalf of endangered or threatened spe-
cies. Ground Zero Ctr. for Non-Violent Action v. United
States Dep’t of the Navy, 383 F.3d 1082, 1092 (9th Cir.
2004) (where agency lacks discretion, to require compli-
ance with section 7 of the Endangered Species Act
“would be an exercise in futility”); Turtle Island Restora-
tion Network v. Nat'l Marine Fisheries Serv., 340 F.3d
969, 974 (9th Cir. 2003) (“[T]he discretionary control re-
tained by the federal agency must have the ability to in-
ure to the benefit of a protected species. If no discretion
to act is retained, then consultation would be a meaning-
less exercise.”) (internal citation omitted); Sierra Club
v. Babbitt, 65 F.3d 1502, 1509 (9th Cir. 1995) (“[WJhere

. the federal agency lacks the discretion to influence
the . . . action, consultation would be a meaningless
exercise; the agency simply does not possess the ability
to implement measures that inure to the benefit of the
protected species.”).

The majority interprets the “discretionary involve-
ment” language of 50 C.F.R. § 402.03 to be “coterminous
with” all actions “authorized, funded, or carried out” by
a federal agency. Stated differently, the majority now
holds that any action which comes within a federal
agency's decisionmaking authority falls within the scope
of section 7(a)(2) of the Endangered Species Act. In my
view, our cases do not take such an expansive view of the
meaning of § 402.03. Rather, we have consistently recog-
nized that an agency may have decisionmaking authority

65a

and yet not be empowered, either as an initial matter or
in conjunction with some continuing authority, to act to
protect endargered or threatened species. See Marbled
Murrelet v. Babbitt, 83 F.3d 1068, 1074-75 (9th Cir. 1996)
(federal agency’s decision to consult with and to provide
advice to private entity was not discretionary agency
action triggering section 7); Sierra Club v. Babbitt, 65
F.3d at 1508-1510 (holding that although the Bureau of
Land Management retained the right to object to a road
development project in three specified circumstances,
“the agency simply [did] not possess the ability to imple-
ment measures that inure to the benefit of the protected
species.”); cf. Turtle Island Restoration Network, 340
F.3d at 975 (concluding that Congress’ decision to use the
words “including but not limited to”” in the statute
granting the Fisheries Service the authority to issue fish-
ing permits “contemplated that the list of potential obli-
gations that the United States had under the Agreement
was not exhausted by those listed in the subsection”).

Here, the EPA did not have discretion to deny trans-
fer of the pollution permitting program to the State of
Arizona; therefore its decision was not “agency action”
within the meaning of section 7 of the Endangered Spe-
cies Act.' The Clean Water Act, by its very terms, per-

. ' The majority concludes that pursuant to SEC v. Chenery Corp.,
318 U.S. 80, 87, 63S. Ct. 454, 87 L. Ed. 626 (1943) (Chenery 1), it may
not deny the petition for review on this basis hecause the EPA didnot
contend that it lacked discretion to consult under Section 7 in conjune-
tion with the transfer of pollution permitting authority to Arizona. We
have, however, previously declined to take such a broad view of Che-
very and instead have observed that although “| glenerally, a reviewing
court may only judge the propriety of an agency's decision on the
grounds invoked by the agency, . . . the court is not so bound when,
us here, the issue in dispute is the interpretation of a tederal statute.”

66a

mits the EPA to consider only the nine specified factors.
If a state’s proposed permitting program meets the enu-
merated requirements, the EPA administrator “shall
approve” the program. 33 U.S.C. § 1342(b). This Con-
gressional directive does not permit the EPA to impose
additional conditions. Although the majority quite prop-
erly concludes that a federal agency cannot escape its
obligation to comply with section 7 of the Endangered
Species Act when it is “bound to comply with another
statute that has consistent, complementary objectives,”
Wash. Toxics Coalition v. EPA, 413 F.3d 1024 (9th Cir.
2005), here, the EPA has an obligation to evaluate the
state’s application against nine exclusive requirements.
33 U.S.C. § 1342(b); see also Am. Forest & Paper Ass’n
v. EPA, 137 F.3d 291, 297 (5th Cir. 1998) (“The language
of § 1342(b)] is firm: . . . ‘Unless the Administrator of
EPA determines that the proposed state program does
not meet [the specified] requirements, he must approve
the proposal.””) (quoting Save the Bay, Inc. v. EPA, 556
F.2d 1282, 1285 (5th Cir. 1977)); Nat’l Res. Defense
Council v. BPA, 859 F.2d 156, 173-74 (D.C. Cir. 1988)
(observing that “[t]he [Clean Water Act] specifies pre-
requisites for state assumption of the program . . . and
commands the Administrator to approve the state permit

Ry. Executives’ Ass'n v. ICC, 784 F.2d 959, 969 (9th Cir. 1986). The
majority's conclusion further disregards our obligation to review an
agency's statutory mandate de novo, see Portland Adventist Med. Ctr.
v. Thompson, 399 F.3d 1091, 1095 (9th Cir. 2005); see also Am. Rivers
v FERC, 201 F.3d 1186, 1194 (9th Cir. 2000) (noting that review of
“substantive issues of statutory construction” “proceed(s| along [a]
different analytic path! |” and is “subject to |a] separate standard] | of
review than review of an agency's compliance with procedural require-
ments), and, in doing so, to “give effect to the unambiguously expressed
intent of Congress.” Chevron v. Natl Res. Defense Council, 467 US.
S37, 843, 10458. Ct. 2778. 81 L. Ed. 2 694 (1984).

67a

system once he determines that the statutory require-
ments and administrative guidelines are met.”). To im-
pose the additional requirement of consultation under
section 7 would be inconsistent both with the EPA’s stat-
utory obligation to consider only the requirements enu-
merated in § 1342(b) and with the Clean Water Act’s
clearly expressed objectives. See 33 U.S.C. § 1251(b) (“It
is the policy of the Congress to recognize, preserve, and
protect the primary responsibilities and rights of States
to prevent, reduce, and eliminate pollution,” and “that
the States will manage . . . and implement” the
NPDES pollution permitting program).

Nor, in my view, does the EPA possess the kind of
continuing authority to monitor states’ administration of
their pollution permitting programs that would render its
oversight discretionary. As the majority notes, the
EPA’s limited oversight under 33 U.S.C. § 1342(c) relates
only to the substantive standards of the Clean Water Act
and does not grant any additional continuing review au-
thority that would permit meaningful section 7 consulta-
tion. The EPA’s authority to grant or to deny the State
of Arizona’s application to administer the pollution per-
mitting program was nondiscretionary; | would deny the
petition for review. 420 F.34 946, 60 ERC 2025, 35 Envtl.
L. Rep. 20,172, 05 Cal. Daily Op. Serv. 7480, 2005 Daily
Journal D.A.R. 10,216.

68a
APPENDIX B

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

_ Nos. 03-71439, 03-72894

DEFENDERS OF WILDLIFE; CENTER FOR BIOLOGICAL
DIVERSITY; CRAIG MILLER, PETITIONERS

v.

UNITED STATES ENVIRONMENTAL PROTECTION
AGENCY, RESPONDENT, NATIONAL ASSOCIATION OF
HOME BUILDERS; STATE OF ARIZONA; ARIZONA CHAM-
BER OF COMMERCE, INTERVENORS

Uv.

UNITED STATES ENVIRONMENTAL PROTECTION
AGENCY, ROBERT B. FLOWERS, RESPONDENTS

June 8, 2006

ORDER

Before: STEPHEN REINHARDT, DAVID R. THOMPSON,
and MARSHA 8S. BERZON, Circuit Judges.

The panel has voted to deny the petition for panel
rehearing. The full court was advised of the petition for
rehearing en banc. A judge requested a vote on whether
to rehear the matter en banc. The matter failed to re-
ceive a majority of the votes of the nonrecused active
judges in favor of en bane. Fed. R. App. P. 35. The re-
quest for panel rehearing and rehearing en bane is DE-

69a

NIED. Judge Kozinski’s and Judge Kleinfeld’s dissents
from denial of en bane rehearing, and Judge Berzon’s
concurrence in denial of en banc rehearing, are filed con-
currently herewith.

KOZINSKI, Circuit Judge, with whom Judges
O’SCANNLAIN, KLEINFELD, TALLMAN, CALLAHAN and
BEA join, dissenting from denial of rehearing en banc:

Less than two years ago, the Supreme Court unani-
mously reversed our interpretation of the National Envi-
ronmental Policy Act (NEPA). See Dep't of Transp. v.
Pub. Citizen, 541 U.S. 752, 124 S. Ct. 2204, 159 L. Ed. 2d
60 (2004). Tone-deaf to the Supreme Court’s message,
the panel majority in this case interprets the Endan-
gered Species Act (ESA) in precisely the same incorrect
way we interpreted’ NEPA, dramatically expanding agen-
cies’ obligations under the law. Along the way, the ma-
jority tramples all over the Fish and Wildlife Service’s
(F WS) reasonable interpretation of the ESA, deliber-
ately creates a square inter-circuit conflict with the Fifth
and D.C. Circuits, and ignores at least six prior opinions
of our own court. Finally, the decision is one of consider-
able importance to the federal government and the states
of our circuit. This is precisely the kind of case we should
take en banc to set our own house in order.

Background

The Clean Water Act (CWA) instructs that the Envi-
ronmental Protection Agency (EPA) “shall” transfer
pollution permitting authority to a state if the state’s
proposal meets nine criteria. See 33 U.S.C. § 1542(b).
None of the criteria involves consideration of endangered
species. Arizona applied to take over the CWA permit-
ting process within its borders—the forty-fifth state to

70a

do so. There is no dispute that its proposal met all nine
criteria listed in the CWA.

The EPA regional office in San Francisco, however,
was worried that the transfer might affect endangered
species. See 16 U.S.C. § 1536(a)(2) (section 7(a)(2) of the
ESA) (requiring federal agencies to “insure” that their
actions do not jeopardize endangered species). It thus
initiated consultation with FWS pursuant to ESA section
7. The regional office also stated publicly that section 7
required EPA to take endangered species into account
when making a transfer decision. FWS’s local office in
Arizona similarly expressed concerns about the transfer.

Next, the matter was “elevated,” meaning the na-
tional offices of EPA and FWS took over. After national-
level discussions, FWS reversed course, recommending
immediate approval of the transfer. That agency issued
a Biological Opinion (BiOp) concluding that any impact of
the transfer on endangered species would be the un-
avoidable result of (1) Congress’s decision to make ESA
section 7 inapplicable to the states, and (2) Congress’s
decision to require transferring the permitting process
to the states, provided the nine criteria were met (none
of which included consideration of endangered species).
Thus, under FWS’s interpretation, the ESA was inappli-
cable: EPA’s decision to grant the transfer could not
“cause” any impact on endangered species because the
decision was non-discretionary. Two days after receiving
FWS’s recommendation, EPA approved the transfer.

Discussion

In striking down EPA’s transfer approval, the major-
ity makes five fundamental blunders: First, it mistakes
EPA’s internal deliberations for analytical inconsistency.
Second, the majority fails to give appropriate deference

Tla

to FWS’s interpretation of the ESA. Third, the majority
treats the ESA as superior to all other laws, thereby nul-
lifying a crucial ESA regulation and forcing agencies to
violate their governing statutes. Fourth, the majority
contradicts the Supreme Court’s recent pronouncement
in Public Citizen. Finally, the majority dismisses the
reasoned opinions of two other circuits, creating a square
conflict.

1. The majority first finds that EPA’s decision-
making process was internally inconsistent. See Defend-
ers of Wildlife v. EPA, 420 F.3d 946, 959-62 (9th Cir.
2006). On the one hand, EPA stated several times that
the ESA required it to consider endangered species be-
fore approving the transfer. On the other hand, the
agency concluded it had no discretion under the CWA to
take endangered species into account when making the
transfer decision. Thus, the majority finds, EPA’s deci-
sion “cannot stand.” /d. at 962.

The majority makes a big fuss over the supposed in-
ternal inconsistency in EPA’s reasoning, but the so-
called problem is of the panel’s own making. The only
“inconsistency” is between the San Francisco regional
office’s interpretation of the ESA and the interpretation
by EPA headquarters in Washington, D.C. In other
words, EPA changed its mind upon further reflection at
a higher level. The agency’s position is that adopted by
EPA at the national level; the position taken by the
agency's regional office was simply overruled by the na-
tional office in Washington. There is no inconsistency in
the agency’s final action, which is the only one we are
entitled to review. See 5 U.S.C. § 704.

The majority also points out that EPA’s final action in
this case was inconsistent with the actions it has taken

72a

when other states have applied for a transfer. See De-
fenders of Wildlife, 420 F.3d at 952 n.3 (noting that all of
EPA’s transfer decisions since 1993—six besides Ari-
zona—have taken endangered species into account,
whereas none before 1993 did). But there is no indication
that EPA’s deliberations in the other cases were ever
elevated to the national level. As far as we know, this is
the only case in which EPA’s Washington, D.C. office has
opined on the applicability of the ESA to the transfer of
the CWA permitting process. Moreover, an agency is not
locked into a particular position forever; it is entitled to
change its view over time. See Mesa Verde Constr. Co. v.
N. Cal. Dist. Council of Laborers, 861 F.2d 1124, 1130
(9th Cir. 1988) (en banc). EPA’s actions in other cases
are irrelevant to whether its analysis was internally in-
consistent in this one.

In any event, the majority’s finding of an inconsis-
tency in EPA’s analysis, if correct, should have been the
end of the case; the majority should have remanded to
EPA for further clarification, as the agency asked.the
panel to do. See Defenders of Wildlife, 420 F.3d at 969
n.19. Even the majority itself says it “must remand” to
EPA for clarification. See id. at 962. Instead, it embarks
on a 17-page boondoggle, conducting the very analysis
that EPA should have had an opportunity to conduct for
itself. See Gonzales v. Thomas, _ U.S. ;

126 S. Ct. 1613, 1614, 164 L. Ed. 2d 358 (2006) (“The
Ninth Circuit’s failure to remand is legally erroneous,
and that error is ‘obvious in light of Ventura,’ itself a
summary reversal.”).

2. In faulting EPA for its alleged internal inconsis-
tencies, the majority misconstrues the way the ESA was
meant to operate. Under the ESA, a federal agency must

73a

consider whether its action “may affect” endangered spe-
cies. 50 C.F.R. § 402.14(a). If the agency thinks endan-
gered species might be affected, it must ask FWS
whether its supposition is correct—whether its action
would, in fact, affect endangered species—and, if so,
what the impact on endangered species will be. See id.;
id. §§ 402.14(e), (h). Then, FWS must respond by issuing
a BiOp that the agency must take into account before
making its decision. See id. §§ 402.14(e), 402.15(a).

In this case, EPA was initially concerned that its ap-
proval of Arizona’s transfer application might affect en-
dangered species. EPA does not administer the ESA, so
it doesn’t have the expertise to know for sure. See Am.
Forest & Paper Ass'n v. EPA, 137 F.3d 291, 297 (Sth Cir.
1998). In order to find out whether its transfer approval
would, in fact, affect endangered species, EPA did ex-
actly what it was supposed to do: It asked FWS, the
agency that is charged with administering the ESA. See
United States v. McKittrick, 142 F.3d 1170, 1174 (9th
Cir. 1998). And FWS did exactly what it was supposed to
do: It responded with a BiOp informing EPA that its
approval would not, in fact, affect endangered species.
See p. 396 supra. With this advice from the congressio-
nally designated experts in hand, EPA decided that its
initial concerns were unfounded and that it could go for-
ward with the transfer approval.

The majority finds this perfectly logical sequence of
events to be “nonsensical” and impermissible. See De-
fenders of Wildlife, 420 F.3d at 961. According to the
majority, once EPA expressed concern that its action
might affect endangered species, it had already conclu-
sively determined that its decision was governed by the
ESA. See id. In other words, under the majority's inter-

74a

pretation, once FWS is consulted for guidance, it is pre-
cluded from ever determining that the ESA is inapplica-
ble.

With all due respect to my colleagues, it is their con-
clusion that is nonsensical, undermining the entire con-
sultative process that the ESA establishes and striking
down F'WS’s perfectly reasonable interpretation of the
ESA. The majority forgets that FWS is the agency
charged with administering the ESA, and that its inter-
pretation of the ESA is thus entitled to Chevron defer-
ence. See Babbitt v. Sweet Home Chapter of Communi-
ties for a Great Oregon, 515 U.S. 687, 703, 115 S. Ct.
2407, 132 L. Ed. 2d 597 (1995) (citing Chevron U.S.A.
Ine. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 104
S. Ct. 2778, 81 L. Ed. 2d 694 (1984)). Here, FWS deter-
mined—after careful study at the local and national
levels—that the ESA was inapplicable to EPA’s decision,
and it issued a BiOp relaying its conclusion to the EPA.
The majority cannot overturn FWS’s statutory interpre-
tation simply because it disagrees with it.

3. Having decided to conduct—on its own—the very
analysis that FWS already conducted, the majority co-
mes out the other way, getting it flatly wrong. The ma-
jority concludes that section 7 of the ESA required EPA
to take endangered species into account when making the
transfer decision, notwithstanding the plain contrary
language of the CWA. It thus transformed the ESA into
an overriding mandate that trumps an agency’s obliga-
tions under its own governing statute. See Defenders of
Wildlife, 420 F.3d at 963-67.

Further, the majority handily disposes of a regulation
issued by FWS that was supposed to limit ESA’s applica-
bility to “actions in which there is discretionary Federal

\

Tha

involvement or control.” 50 C.F.R. § 402.03 (emphasis
added). Unable to reconcile this regulation with its
newly expansive interpretation of the ESA’s mandate,
the majority simply finds that the word “discretionary”
in the regulation is meaningless; the regulation, an-
nounces the majority, is “coterminous” with the statute
it interprets. See Defenders of Wildlife, 420 F.3d at 967-
69. In other words, despite FWS’s regulat

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0500%3A03. Public record. Not legal advice.