Real Estate: A Challenge to Wetlands Regulation

Real estate matters simultaneously represent market potential, transactional sophistication and regulatory complexity. New opportunities such as renewable energy siting must be balanced against compliance demands affecting everything from foreign investment to wetlands development. Add the constant need for contractual vigilance, and real estate becomes a major challenge for corporate counsel.

Since 1972, the Clean Water Act has required landowners to secure U.S. Army Corps of Engineers permission before filling in wetlands on property adjacent to navigable waterways. Three decades of case law and legislation have given the Corps considerable discretion to halt such wetlands degradation and fine landowners who attempt it without authorization.

Two Michigan cases heard by the U.S. Supreme Court in February 2006 challenge that authority. In both cases, landowners undertaking retail and condominium projects were prohibited by the Corps of Engineers from filling in wetlands substantially removed from navigable waters. The Carabell case involves property one mile from Lake St. Clair; the Rapanos case involves property 20 miles from a river that drains into Lake Huron. The landowners are challenging the treatment of their projects based in part on a 2001 Supreme Court ruling that isolated wetlands do not come under the navigable waterways jurisdiction of the Clean Water Act.

A decision that the Clean Water Act does not prohibit fill-in on the properties could jeopardize the federal government's ability to prohibit states upstream on navigable waters from actions that damage water quality for states downstream. Because of this, the attorneys general of more than 30 states filed amicus briefs upholding Clean Water Act authority. Property rights activists, in contrast, contend that the Corps of Engineers action under the act is a taking that deprives landowners of due compensation. It is uncertain how the Supreme Court will rule in this first major environmental controversy heard by Chief Justice Roberts and Justice Alito.