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  • Southern California Steelhead Trout: Potential Endangered Species Listing Opening Up a Big Can of Worms

    Notwithstanding its protected status as a listed species under the federal Endangered Species Act, the Southern California steelhead population is proposed for listing under the California Endangered Species Act. During a time of unprecedented drought and storm activity resulting from climate change, this move to list the species in California is likely to have major impacts on the provision of water and recycled water supply, flood control and storm water treatment and management. In the latest episode of Digging Into Land Use Law, Nossaman Environment & Land Use partner Mary Lynn Coffee and Water partner Lori Anne Dolqueist discuss the California Endangered Species Act listing process, the potential effects of a listing on public health and safety activities and regulatory tools available to streamline approvals for such activities if a listing is adopted.


    Transcript: Southern California Steelhead Trout: Potential Endangered Species Listing Opening Up a Big Can of Worms

    0:00:00.7 Lori Anne Dolqueist: Not withstanding its protected status as a list species under the Federal Endangered Species Act, the Southern California steelhead population is proposed for listing under the California Endangered Species Act, which is likely to have major impacts during a time of unprecedented drought and storm activity resulting from climate change. On the provision of water and recycled water supply, flood control, storm water treatment and management.

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    0:00:33.0 Speaker 2: Welcome to Digging Into Land Use Law. Nossaman's podcast covering the development of all things in on or above the ground.

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    0:00:50.1 LD: Welcome to Digging Into Land Use Law. I'm Lori Anne Dolqueist a partner in Nossaman's Water Group. My practice focuses on California utility regulatory matters with a particular focus on matters involving water utilities, and I have with me today my colleague, Mary Lynn Coffee. Mary Lynn is a partner in Nossaman's Environment & Land Use Group, and she has extensive experience providing legal and regulatory advice with respect to state and federal water quality, wetlands, endangered species and other natural resource protection laws. Mary Lynn's work brings her into contact with a variety of stakeholders, regulators, environmental groups, public agencies and private entities, so she always has her finger on the pulse of what is going on with respect to environmental and water issues in California.

    0:01:38.1 LD: I'm delighted to have the opportunity to chat with her today about the proposal to list the Southern California steelhead population under the California endangered species act. Hi Mary Lynn.

    0:01:49.8 Mary Lynn Coffee: Hi. Good afternoon.

    0:01:52.8 LD: Good afternoon. Mary Lynn, maybe you can start with just giving us an overview of the issue and then you and I can get into some of the details.

    0:02:00.3 MC: Sure, so what happened is that Cal Trout, which is a environmental group here in California, dedicated to the protection of aquatic species, and particularly fish and trout, has submitted a petition to list the California steelhead­–in particularly the Southern California population of steelhead–as endangered. They submitted that petition in June of 2021 to the Fish and Game Commission here in California, and it has been under consideration and the outcome of that listing process under the California Endangered Species Act would be listing the species for protection, and the moment that it becomes listed for protection, even as a candidate species, all take of that species is prohibited.

    0:02:56.1 MC: And take is defined in California as anything that would kill or injure the species and has also been more broadly interpreted to include indirect methods of harming the species, those types of activities are prohibited and punishable by fines and criminal penalties, even when they're unintentional. This has a separate significant state layer of regulation for the species that duplicates, but often is different than the regulation under federal law. We do have federal protections in place, but often the California Department of Fish and Wildlife determines different conservation measures and different ways of protecting the species are required under state law, and those are not just supplemental, but often quite different than what the National Marine Fishery Service would require under federal law.

    0:03:53.8 LD: You mentioned that this had already been listed at the federal level, do you know what prompted the movement to get it listed at the state level?

    0:04:02.9 MC: The Cal Trout petition lays out a lot of scientific information and factors, most of it directed to the absence of recovery, but their primary point is that recovery of this species is not occurring at the speed or rate that they would expect given the federal listing, and therefore the state listing, the supplemental protections provided by that state listing are warranted for this species, and they carefully determine that the state protections are only needed for what they call the Southern California distinct population segment, and there is an issue actually under California law whether you can list the distinct population segment, but setting that aside and just thinking about the science for a moment, they say that it's just the southern population segment that must be protected, but it's important for our listeners to know that the way they define the southern population segment is all the fish that would occupy any of the rivers that outlet to the ocean, creeks, tributaries, etcetera from Santa Maria, California to Tijuana. It's not really limited to Southern California. We really are talking about the population of fish that extends well into the Central Coast.

    0:05:20.8 LD: So, you mentioned some differences between the federal regulation and what could end up as state level regulation, can you talk a little bit about the differences between those or how they interact or possibly conflict?

    0:05:34.4 MC: Sure, so as I mentioned, we do have the Federal listing in place, and as a result of that, there are a number of restoration projects, physical solutions, restoring more natural hydrograph in certain areas, and these projects have been going on for some time under the auspices of the Federal Endangered Species Act. One of the first places that we're seeing the overlap and its potential regulation at this point, because the species isn't listed under state law yet, but we're already seeing California Department of Fish and Wildlife weigh in on these restoration projects, and they're not weighing in with just supplemental conservation measures, they are actually weighing in with conservation measures that conflict with the conservation measures already identified for a number of these projects, and that makes for a very difficult permitting process.

    0:06:29.3 MC: When the species is listed, an individual take permit would be needed even for incidental take associated with these restoration projects, and if California Department of Fish and Wildlife on one hand is recommending a certain set of measures and those measures are different than and in addition to the measures recommended by NIMS now we've got both supplemental mitigation costs as well as conflicts in how they implement the conservation measure.

    0:06:58.3 MC: One example of that, just to give you a flavor of it, that I'm personally aware of, is a project designed to change hydrology so that a more natural, very southern California, typical flashy hydrology is restored. Reductions in fresh water, increases in more saline water because this particular fish spends part of its life cycle in the ocean and needs to migrate to saline water for a life stage, and so the project required more salinity and more flashier flows, and that was reducing fresh water and open water habitat, the conservation measures were all geared to benefiting the flashy flows and the natural hydrology, and CDFW has now weighed in to say, We not only need that, but we need to replace the open water, and the whole purpose of the project was to get rid of the open fresh water. If we put that somewhere else, now we're going to have more mitigation at least from NIMS and possibly from CDFW for that new open water. So that's an example of the kind of conflicts that can arise when you have a species that's double regulated at both the federal and the state level.

    0:08:14.8 LD: Mary Lynn, can you tell me a little bit about the process involved with getting it listed at the state level?

    0:08:21.0 MC: Sure. So that process is well under way, which is why you and I are talking today because engagement is timely, as I mentioned, Cal Trout submitted the petition to list to the Commission in June of 2021, and the next step that happens in the process under statute, and this is all in the fish and game code, is that the Commission has to formally accept the petition, which they did on July 2nd of 2021. From that point, then the Department of Fish and Wildlife, which is separate from the commission, but in this circumstance acts a lot like staff for the commission. Then the department, upon acceptance of a petition undertakes what they call a 90-day evaluation, it can take a little longer, in this case it did, but the department evaluates whether or not the petition sets forth information that indicates that the listing is warranted. And then they have to present that report, that evaluation to the commission when it's completed. That report was just completed, I believe about November 28th, and it did go back to the Commission on November 28th, and the next step is that the commission will notice acceptance of the department's report, that will happen at the upcoming December 15, 16 commission hearing. And then from there, there will be another 30-day review process for the public to get to review the department's evaluation.

    0:09:58.1 MC: And then in February, at the February 16 and 17 2022 meeting of the Commission, the Commission will consider the department's evaluation, they'll consider any public comments submitted during that 30-day public notice period, and they'll determine based on the factors in statute whether or not they agree with the department and whether or not the listing is warranted. Now, if they determine the listing is warranted, which I think we all anticipate that they will, because the department's evaluation says it's warranted, then at that point the species actually becomes protected as if it were already listed and as endangered or threatened.

    0:10:38.7 MC: And when we have that may be warranted finding and we call the species a candidate species, and under the California Fish and Game Code, all candidate species are protected and the take prohibition, not just intentional, but remember any incidental take that might occur when you're doing your otherwise lawful public health and safety activities, that prohibition applies, and therefore, if you're going to undertake any activity that could take a species, you have to get an individual Take Permit first and that those permits are also called 281 permits it's fish and game code section 2081 pursuant to which those are issued. So that process is about to unfold, and I think we can all anticipate that by February, those 2081 permits will be needed for any public health and safety, water supply, flood control type of activities that could result in the incidental take of the steelhead.

    0:11:37.5 LD: So, Mary Lynn, what are the factors or issues or information that's considered as part of this process of evaluation?

    0:11:46.0 MC: The factors that are considered in determining whether to list a species are all set both in the Fish and Game Code at Section 2073 of the Fish and Game Code, and they're all scientific factors, and they're all factors that are really related to determining whether or not there might be jeopardy for the species, so they will consider the information presented in the petition regarding population trends, the range of the species, where the species are located, how many of them there are, what are their life history needs, what's the ability essentially of the population to survive and reproduce and all of that's really getting to what chance does this species have to thrive and recover or is the species really in jeopardy warranting this type of listing for special protection.

    0:12:40.3 MC: Those factors are largely... Well, they're entirely really scientific. There is some ability to consider ongoing management efforts like the restoration efforts I was referring to before to determine whether or not those are assisting in the survival and recovery of the species, but the inquiry is limited, there is no ability to do a cost-benefit type of analysis, the economics of some of these conservation measures are not taken into account, and frankly, the types of activities that could be adversely affected are not taken into account, even if those are public health and safety activities.

    0:13:22.8 MC: I often hear a lot of folks argue that there should be the ability to take into account the effects on public health and safety for people when you're listing a species, but that is not the way the state law is written, it's not the way the federal law is written either, but it's not the way the state laws is written, so the commission cannot consider those types of activities and those types of effects in the listing decision itself, those types of considerations really only play a part in the permitting process after the listing already occurs.

    0:13:57.8 LD: Well, that's... Leads me to my next question actually, Mary Lynn, can you talk a little bit about the permitting process and give us a flavor of how the permitting process might be longer or more challenging with this listing.

    0:14:11.0 MC: Sure. So, when a species is listed, as I mentioned, take is prohibited, even if the take is just incidental to an unintended consequence of performing other activities, and for the clients, you and I deal with, those are all public health and safety activities, water supply, flood control, water recharge, ground water recharge, some diversions particularly for water quality management, we do a lot of storm water diversion for water quality management try to infiltrate that instead of having it run off. And if there's any take of the species incidental to those otherwise public health and safety activities that take is prohibited, and to make sure that you're not criminally or civilly liable for it, then the agency undertaking those activities needs to get a permit to allow for the incidental take. Those permits under state law are called 2081 permits, and those permits are essentially based upon habitat management plans, so the permitee develops a habitat management plan incorporates a number of conservation measures that are devised to avoid, minimize and mitigate the effects of the project and the take associated with the project. And once the Department accepts your habitat management plan, also called a Habitat Conservation Plan, then once the department approves of that, they will make findings that your particular activity won't jeopardize the species, and then the activity can go forward under an individual 2081 permit.

    0:15:50.3 MC: That's the typical route, and those permits take a really long time to develop, the technical information involved, the difficulty in putting together the habitat management plan, the difficulty in finding a package of conservation measures that can justify in the department view, a no jeopardy finding. I've never seen a 2081 permit issued in less than a year, and that was for a very small project, more typically, the process is between five and seven years to get that type of permit. Obviously, when you're dealing with an emergency flood or you're dealing with a drought and you need to get water supply from one place to another, five to seven years is not a typical process.

    0:16:33.6 MC: There are some possibilities for streamlining take, and there have been precedent for streamlining take permits using Section 2084a for species when they're in the candidacy, and then using Section 2081 for species after they are listed as endangered or threatened, the streamlining essentially takes the approach that there can be permitting by rule, so you can identify in the rule particular conservation measures that must be implemented, and then so long as the projects implement those conservation measures, their activities can be permitted, it gives a more streamlined way to conduct particularly appropriately, I think health and safety activities related to water supply and flood control, although they've also been used for other types of activities, the most recent 2084 rule was a Joshua tree rule issued to developers, but essentially it allows some certainty for permittees, they know if they implement the suite of conservation measures specified in their rule, then their incidental Take is permitted and they can continue with their activities, that is a place...

    0:17:48.6 MC: Under those 2084 and 2081 rules, that is a place that the department and the Commission can consider, not really cost-benefit, but can consider the importance, urgency type of activities that are going on, and then can provide some certainty as to those types of conservation measures that will address what's anticipated to be the adverse effects of those activities on the particular listed species, that's where that comes in, not during the listing phase.

    0:18:20.0 LD: Now, Mary Lynn, you mentioned some of the uses or entities who might be affected by that, but maybe give me a little bit more detail on that, who among our listeners or not listeners who should be recommended to listen to this could be affected by this?

    0:18:34.0 MC: Really anyone who is doing anything that could affect the streams that are occupied by the steelhead or that could affect the flow in the stream occupied by the steelhead. There's four main areas where clients like yours and mine, who are typically involved in water supply, flood control types of activities, there's really four main areas that they will see an effect of these duplicative, sometimes conflicting regulations at the state and federal level.

    0:19:06.8 MC: The first area I gave you an example of before, it's when you're doing a restoration project or a physical solution of some sort that allocates water to various uses, and the primary conservation measure recommended by CDFW and all other regulatory agencies, the primary management measure for these species is to mandate certain levels of in-stream flow at certain depths, at certain velocities during migratory periods and at certain temperatures, and those temperatures are very low because they're temperatures that were developed based on studies done in Washington and Oregon, where the climate and the stream temperatures are much colder. So if you're mandating certain levels of flow in a surface water, you can anticipate that activities that would allocate that flow to things like water supply or to things like groundwater recharge, where you're actually infiltrating water instead of letting it flow down the stream, things that would detain flow like reservoirs and dams, all of those types of activities affecting flow will be impacted by the listing.

    0:20:20.6 MC: A second area that's a little bit more esoteric, but also will be greatly affected is the area of re-use of recycled water. Many agencies right now discharge recycled water to surface waters, and there is a process anytime you're going to change the location of that discharge or you're going to change the discharge and use the water beneficial for potable reuse, that process is called the Water Code Section 1211 process, and the California Department of Fish and Wildlife comments on any application to stop discharging recycled water to a surface water and instead to potably reuse that water, which is required by the State Water Board's recycled water policy. We're already seeing in many instances that the California Department of Fish and Wildlife comments negatively on the ability to reduce discharges to surface waters in order to increase potable reuse, and they're doing that on the basis of the need for in-stream flow to support groundwater-dependent ecosystems and fish like the steelhead. So, with the listing, obviously in-stream flows, mandates will make their way into any kind of section 1211 application and will reduce the ability to recharge groundwater and to re-use recycled water.

    0:21:43.0 MC: I think the third area that we would really anticipate seeing a good deal of effect really deals with diversions and discharges, so if you're going to discharge in your sanitation district or you have a municipal storm water sewer system and you have an MS4 and PDS permit that governs discharges from that sewer system, and then you want to continue those discharges, but there's something in the discharge or there's a diversion of the discharge to infiltration that would affect in-stream flow, you'll now see your NPDS permits carrying new conditions. And the final area that will be affecting all of our clients is actual physical alterations to these surface waters themselves, any alteration to the bed or bank of a surface water requires a 1600 agreement from the California Department of Fish and Wildlife, these would be any types of alterations related to a new outlet structure or a bridge or a diversion, or simply maintaining a Flood Control channel, trimming vegetation, removing sediment, all of these require 1600 agreements, and those 1600 agreements will need to post-listing carry new conservation measures for the steelhead, so really very far reaching in terms of the new regulation and new conservation measure mandates associated with both capital activities as well as just ongoing every day operation and maintenance activities.

    0:23:19.3 LD: Alright, well, that certainly is a lot. One thing I wanted to get your take on Mary Lynn, is the state of California is currently yet again in a state of extreme drought, and how would this listing affect sort of the challenge is created by drought or efforts to address drought issues.

    0:23:39.5 MC: I think we can already see that because we have several listed fish in the Central Valley, and there have been battles that date back far before even you and I were lawyers. Which seems like forever ago. The thing is that any surface water may have multiple beneficial uses and that water may need to go for water supply for people or water supply for irrigation, or it may need to stay in the stream for fish, and as I mentioned, the primary conservation measure here for steelhead will be to mandate in stream flow for fish, and if it has to stay in the stream, it cannot be taken out and used for people or used for irrigation, we are already seeing the effects of that in multiple ways, we saw the voluntary agreements. Well, first we saw the state water board mandate curtailments and then the voluntary agreements to try to get more balance into that process. We've seen Northern California curtailments issued this year, those have just been extended, so that literally there's a curtailment from taking any water out of certain rivers and streams, and so when the water has to stay in for the fish, then it can't be used for water supply or irrigation needs or ground water recharge or some of the other beneficial uses, so there will be a direct effect and there will be very difficult beneficial use decisions that will have to be made as a result of this listing.

    0:25:08.7 LD: Always interesting times when you're working with California and water issues. That's for sure. [chuckle]

    0:25:13.4 MC: Always.

    0:25:14.4 LD: Mary Lynn, what can people do and when who are concerned about this or want to have some input into the process?

    0:25:23.4 MC: Well, as I mentioned, because the commission is going to be considering this in February of 2022, now is the time to engage if your operations will be affected, and frankly, not just because they're our clients, but I think it's particularly important for Public Health and Safety Agencies to engage, because there will be conflicts. There will be a 30-day notice period and that notice period is intended to allow for members of the public, clients, etcetera, to submit comments, and I really encourage comments on the effects of this listing on ongoing operations. Now, as you may remember, I said that really the listing decision itself, which is the only decision that the commission's right now teed up to make in February, only considers science. There are a lot of scientific arguments as to why this particular group of fish is not listable population, also a lot of additional science that might be considered as to whether or not the fish is recovering or whether the fish is jeopardized. So that's certainly one avenue. In addition, however, as I noted, because that is all a consideration based on best available science, it doesn't allow for consideration of the types of activities that need to be ongoing, particularly to address climate change and drought and unusual storm.

    0:26:54.2 MC: My recommendation for folks I'm working with is that they also need to request the Commission take another action, and my recommendation is that they would ask for that 2084a rule that I was talking about, which is a streamlined rule for permitting particular types of activities based on a specified set of conservation measures that appears in the rule. In the context of adopting a 2084 rule for a candidate species, the commission can allow for ongoing Incidental Take associated with certain public health and safety activities, so long as the agencies are implementing specified conservation measures that have benefit for the species, there's certainty in that approach, and the agencies know what to do in terms of conservation measures, and as long as they're implementing it, then they can continue with their public health and safety activities and particularly they can do that on an emergency basis because as I noted, there's often not time to get a permit if you're dealing with a mud slide or a flood, or you're dealing with the drought and you just get hit with curtailments that give you a zero allocation.

    0:28:05.3 MC: That would be my recommendation. Those are places where the Commission has a little bit more flexibility to balance the needs of people and the fish, that's not a flexibility they have in a listing decision itself, and so I do recommend engaging on that at the February hearing because at the February hearing, if they determine that the listing may be warranted, then the species becomes a candidate and that take prohibition kicks in, so the 2084a rule will be needed no later than February 17th, 2022.

    0:28:38.7 LD: Alright, well, thank you very much, Mary Lynn for that great explanation of this issue and also recommendations for actions that people can take, and they need to be thinking about taking them right now, so thank you very much.

    0:28:50.9 MC: My pleasure. Nice to talk with you.

    0:28:54.5 LD: Always. And thank you to our listeners for joining us for this episode of Digging Into Land use Law for additional information on this topic or other environment and land use matters, please visit our website at nossaman.com. And also, don't forget to subscribe to Digging Into Land use Law wherever you listen to podcasts so you don't miss an episode until next time.

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    0:29:19.9 S2: Digging Into Land use Law is presented by Nossaman LLP, and cannot be copied or re-broadcast without consent. The content reflects the personal views and opinions of the participants. The information provided in this podcast is for informational purposes only is not intended as legal advice and does not create an attorney-client relationship, listeners should not act solely upon this information without seeking professional legal counsel.

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  • CERCLA at 40: The Monster That Often Eats the Village

    Congress enacted the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), also known also as Superfund, in 1980 to address the horror of sites like Love Canal where discarded toxic chemicals began oozing into neighboring backyards and basements, contaminating air, soil and water, and endangering human health and the environment. Many people were sickened and hundreds of homes that were found to be uninhabitable were bulldozed as a part of the cleanup. Since its enactment, CERCLA has become the predominant site remediation vehicle and its reach has expanded far beyond the typical landfill sites to include factories, waterways, mining sites and recreational areas. Moreover, CERCLA’s impacts extend beyond contaminated sites into many aspects of commerce. In this episode of Digging Into Land Use Law, Nossaman Environment & Land Use partners Leslie Nellermoe and Reed Neuman discuss some places to look for the CERCLA monster and offer possible strategies to harness the beast.


    Transcript: CERCLA at 40: The Monster That Often Eats the Village

    0:00:00.1 Leslie Nellermoe: In 1980, Congress enacted CERCLA, the Comprehensive Environmental Response Compensation and Liability Act, also known as Superfund, to address the threats posed by contaminated sites like Love Canal. Since its enactment, CERCLA has become the predominant site remediation vehicle and its reach has expanded far beyond the typical landfill sites to include factories, waterways, mining sites and recreational areas. CERCLA's impacts now affect many aspects of commerce. Today we'll talk about some places to look for the CERCLA monster and offer possible strategies to harness the beast.

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    0:00:38.3 Speaker 2: Welcome to Digging Into Land Use Law, Nossaman's podcast covering the development of all things in, on, or above the ground.

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    0:00:54.6 LN: Thank you, joining us for this episode of Digging Into Land Use Law. I'm Leslie Nellermoe, a partner in the environment and land use group at Nossaman. I have practiced for a number of years with my focus on contaminated sites, all aspects, clean-ups, sales, mergers, and sometimes even permitting. I'm joined today by Reed Neuman, who's also a partner in the environment and land use practice at Nossaman. He has practiced environmental law and litigation for over four decades. He represents major manufacturers and other private entities around the country. So, let's start, Reed with a brief discussion about what CERCLA is and why it came into being, so then we can talk about what it's changed, how it's changed, and its importance in today's legal and commercial world.

    0:01:40.3 Reed Neuman: Very good. Hi, Leslie.

    0:01:43.6 LN: Good morning. So, Reed, why did Congress pass CERCLA?

    0:01:45.1 RN: Well, I think, Leslie, I hope, anyway, most of our listeners are familiar with the origin story of CERCLA that in 1980, after Congress had already put into place several of the, what we consider to be the bedrock of environmental laws, pollution control and protection laws, the Clean Air Act, Clean Water Act, Safe Drinking Water Act, and a little later the Ripper Statute, there still remained a sense that impacts from historic waste disposal needed to be addressed a little more effectively and more quickly. Although there were various statues already on the books, including things that long forgotten like the Rivers and Harbors Act and Ripper, of all those statutes were available, they still depended upon a fairly cumbersome process of the government showing that our threat existed, that it needed to be dealt with, and by and large then persuading a court to fix the liability to parties and persuade the court to impose a remedy through injunctive relief.

    0:02:37.7 RN: As you can imagine, those cases too often move fairly slowly through the court and not getting action out into the field as promptly as the public wanted it to be, again, needing to prove up to threat that our health and human environment, there's need to affix the liability and then to convince the court what the appropriate relief is to impose through injunctive relief. The bad optics of the Love Canal situation and others were continuing to bring pressure on the federal government.

    0:03:07.5 RN: So after a few years of thinking about how to do it, Congress in 1980, devise what we know now to be the response action and reimbursement scheme under CERCLA, that largely has shifted the focus to work in the first instances accelerating response actions and putting up front the site investigation and response action process, and keeping the focus away in the first instance from going to court to get these cases started, although CERCLA does have its own immanent hazard and injunctive relief provision like Ripper does, which is essentially a statutory nuisance provision, it's really used and the response action and reimbursement approach has become the norm, as I said, this was intended by Congress to fill in perceived gaps to what the Federal toolbox was at the time, and over the years, it has become indeed the predominant vehicle to address the impacts from legacy contamination.

    0:04:03.9 LN: What did the clean-ups look like in those early days? What kinds of sites are we talking about and who was in charge?

    0:04:08.9 RN: Well, again, driven by the optics represented by situations like Love Canal, where there were just ghastly impacts on neighbors and residents and things that are sort of obvious to anyone, deteriorating facilities, stacked drum sitting idle on the back dock at a factory, or frankly, fires, explosions and catastrophic events leading to the release of hazardous substances, there were a number of problem children sites that were already on the radar of US EPA, and as to which US EPA and the state agencies had a fair amount of information through its regulatory apparatus to understand what the threats were at these particular sites, these handful of bad actor sites were the first ones that EPA moved to put on the national priorities list of sites needing to be attended to, and again, most of these were already in the system by way of information generated in the regulatory process.

    0:05:10.0 LN: EPA was in charge at that point.

    0:05:12.3 RN: EPA was really the only game in town at that point. You had willing and to some extent able state agencies that were part of the process, but for the most part, US EPA was the agency that was obviously directed by Congress in CERCLA to get started on collecting information, putting together the national priorities list and organizing the response action program as it did, it had through the provisions, the enactment of the appropriations under CERCLA, it had a significant war chest assigned to it for money to conduct site investigations and response actions. There was an awful lot of partnering that the federal government did and continues to do with state agencies to work together on data collection, site investigation, PRP identification efforts, but for the most part, EPA was the lead dog and it still remains so on many of the bigger sites.

    0:06:08.9 LN: When you say PRP, what do you mean?

    0:06:11.8 RN: PRP is a potentially responsible party, it's a term in the vernacular that's come to be sort of inclusive of all the parties whose status is laid out in the statute of parties that can be liable under CERCLA for having either arranged, transported or somehow been involved in the ownership of facility as that term is defined, where a release defined, of a hazardous substance defined, occurs that necessitates a response action and cost. So PRPs are just obviously what we talk about as that universe of responsible entities that are potentially liable parties under the defined terms in CERCLA.

    0:06:49.8 LN: EPA had this big list, they had a big pot of money. Did they get them all cleaned up?

    0:06:55.6 RN: No, obviously, after the law was passed, it was going to take some time to shake out the reach, the impact and frankly the effect of some of the fairly startling provisions in the statute, right away there was litigation up and down the wall with challenges to the standard of liability set forth in the statute, defenses, if any, to liability, things like that. So the early cases, one by one, tackle a lot of these issues that were either unclear or not codified at all in the statute, but the extensive legislative history suggests that they meant to be dealt with, and over time, the case law emerged fairly clearly that liability under the statute is strict, it's joint and several, and very importantly, it's retroactive in its application, reaching back to activities that occurred long, long ago, if indeed there still today are impacts or threats from contaminated materials released or disposed many, many years ago way before the enactment with statute, they still can be addressed through the statute. The important thing, of course, that carries throughout the legal regime is that liability under the statute is without regard to fault, defenses are very, very limited. And for the most part, that case law has confirmed that when looking at potential liability under the statute, we're not talking about what historically are well-understood common law concepts of fault, whether the conduct was intentional or negligent or anything in between.

    0:08:28.2 RN: We're mostly focusing on the status of the entity as through potentially a responsible party rather than conduct, did you own the facility? Did you generate the waste, did you transport it or give it to somebody to be transported for disposal, or did you send it down the sewer or did you let it migrate away from your property without regard to fault, those are the types of entities that are covered as responsible parties.

    0:08:54.2 LN: Has a lot of change over the last 40 years?

    0:08:58.1 RN: It's changed a lot and, in some respects, it's changed very little. In the latter, it's relatively unchanged in terms of the basics of the liability scheme that I just described and how response actions are conducted the National contingency plan is essentially unchanged in 40 plus years since the statute was enacted. It lays out how one goes about conducting a site investigation and selecting a response action or remedy or removal action, but a lot of litigation has occurred over the years, as I mentioned, about the availability and the nature of any defenses to liability whether harms at a complex site can in some ways be divisible or divide it for terms of liability that my stuff's over here to the one side, but it's not over there, Should I be liable for only that one side or should I be liable for both sides. Those types of questions have been dealt with and are still being done, to a large extent, in the courts. All of which is mostly an attempt to pare back and minimize the sometimes-harsh impacts of the application of joint and several liability. More recently the litigation, it's still going on today with some frequency is focused on what parties may be entitled to bring claims under what circumstances, whether they have to be sued by the government, entitled to bring a claim or can they be a volunteer to conduct a response action.

    0:10:17.3 RN: For how long do those claims accrue before they have to be acted upon lest they be barred by applicable eliminations periods, and frankly, what protections that parties can get when they settle claim in whole or in part from potential claims from other parties. Those are the types of things that litigation these days, is mostly focused on.

    0:10:36.5 LN: If I had a banner at the beginning of this period 40 years ago that said, "It's not fair, it doesn't make sense, just write a check." I could still use that today, couldn't I?

    0:10:47.1 RN: That's basically the deal, of course, fairly quickly and conclusively got rid of the notion that fairness was a defense to just about anything. Most entities now that have had any experience, good, better or indifferent, with statute and the legal principles understand that fairness is not what it's about whether I did or didn't do the right thing, whether I was negligent in doing that or whether I did what I did, because the state agency told me that that was the best place to dispose of my stuff 40 years ago. That doesn't matter. So basically, yes, the inquiry now has shifted away from whether it's fair, whether I was smart, dumb, good or bad, and now it's just, do I fall into one of the categories, and what do we do about it?

    0:11:29.3 LN: So how do sites look now? You said that the easy ones were identified early on and some of them were addressed, what do they look like now?

    0:11:36.1 RN: I guess I should say that it's not so much the easy sites, but it was the notorious and obvious sites, and that was the Acme landfill down the road with the fence around it that everybody knows not to enter because it looks like Chernobyl, then obviously the abandoned site with drums piled up, those types of things were the ones that were obvious and most needing of immediate attention, increasingly now we're finding that Superfund type liabilities arise it in more nuanced and less obvious situations, whether it be under a concrete floor of a factory that for years has been operating cleanly and efficiently, but then when the redevelopment comes along and you dig in, you find, "Oh my gosh, there's tanks that were not emptied underneath 20 feet down, and by the way they're leaking." Those types of situations give rise to response actions and potentially CERCLA claims nobody really understood or intended. It's not just the places where a disposal occurred and was obvious, it's more likely nowadays to be these unknown problems, these places where hazardous substances have come to be located, whether washed downstream from a mining site or whether from an outfall of a sewer that then has sort of loaded the bottom of a river bed with a layer of contaminants that indeed is a facility that can be addressed through the CERCLA program.

    0:13:00.7 RN: And again, it's not just the stuff where somebody intentionally and knowingly took something to be dumped, it's where hazardous substances have come to be located, so increasingly are some very surprising locations that are themselves now, Superfund facilities.

    0:13:13.7 LN: Is EPA still running the show?

    0:13:15.2 RN: EPA is still in charge of setting the ground rules, obviously setting the principles in place, an awful lot of what EPA, years ago, decided was the best approach to settling cases with PRPs and what consent agreements need to look like. An awful lot of the practices, whether you want to call them best practices or not, practices adopted by US EPA, and it's always friendly counterpart, the Department of Justice, do indeed permeate and have been adopted largely by a lot of the state and other actors, who themselves either want to compel clean-ups or conduct clean-ups and want others to pay for them, but we have a whole lot of other actors, for sure. EPA is no longer the only sheriff in town, fair number or if not the majority of states have by and large, enacted baby Superfund statutes that mimic the liability scheme, perhaps have even a broader reach because unlike CERCLA, they can reach out to touch petroleum related waste in a way that CERCLA carved out years ago. Tribal groups and regional governments and a whole bunch of other actors now are basically finding themselves at the forefront of initiating response actions, and as we'll talk about in a few minutes, an awful lot of activity that ends up in a CERCLA claim arises not from government compulsion or government health protection initiatives, but from private party transactions and dealing with your neighbors.

    0:14:44.8 LN: I've also observed that the roles of state and federal government have changed in that not only are they the enforcers, but sometimes they are also the liable parties, and I think that's a big change, do you not?

    0:15:00.5 RN: It is a big change, I suppose it was a matter of time before it came to be realized that the state and federal governments operate in communities, they have fairly large institutional activities that themselves are pollution causing. They need to use solvents at air force bases, they need to use all sorts of chemical materials at military and hospital facilities and VAs, obviously the awful lot of waste associated with nuclear materials processes end up in landfills or at least used to, and so yes, the state and federal governments themselves, increasingly because of their business like operations in a lot of locations, themselves end up being PRPs and end up being involved in Superfund site liability determinations and allocations.

    0:15:50.4 LN: Let's move away from the government actors and talk, as you mentioned we would, about private parties and real estate transactions and how CERCLA comes into play there.

    0:16:01.3 RN: Yeah, well, increasingly I think folks that are in business, have ownership of properties or have sold assets or real estate, understand that impacted properties and the vestiges of those operations or industrial activities have left behind types of conditions that themselves usually manifest in claims to clean them up and if that's the case, then that can be a CERCLA and the state analogs going to be a primary consideration in whether and on what terms to sell, or acquire, or redevelop and refinance property. Increasingly, folks have come to understand that assessing whether there's ongoing or potential response actions at a piece of property, or that there's activities nearby where the plume that's heading your way and that in 10 years may be on your property and that you either need to do something to protect perhaps your water supply, or you need to do something to protect the value of a property, all sorts of things need to be assessed at the beginning that at their end point could end up being involved in a CERCLA response action and claim. The need is there to be understanding whether there's outstanding orders, directives, permits or consent agreements with the government or private parties that either describe or may implicate response action obligations down the road.

    0:17:25.0 LN: There also are some initiatives under CERCLA, both state and federal to redevelop contaminated site. How does that come into play here?

    0:17:33.9 RN: Well, it comes into play in a lot of ways, but basically, you find now that properties that likely were with good reason deemed to be unusable or likely not to be re-used for any purpose beyond the fairly dirty purpose that they had been subjected to in years past can, through the federal programs to incentivize and encourage redevelopment of what we call brownfields brings back into play a lot of properties that for years, companies may well thought of Well, we're done with the clean up that needed to be done, measured by the standards at the time or measured by the community expectations at the time, and that that site won't be a problem later on. Well, now, if it indeed that factor is to be reconverted into some sort of other public use or that area of property that was impacted by surface mining or whatever wants to become a golf course. Well, you all of a sudden have the need to be looking at the potential for response actions and costs on properties that for years were just deemed to be sort of in the rearview mirror.

    0:18:37.0 LN: If you are a buyer and are doing this investigation that you mentioned of neighbors and so on. Is it just immediate neighbors? Is it current neighbors? Can you go further back in time?

    0:18:47.7 RN: No, I guess the beauty and the curse of CERCLA is if there is a problem, if there is gum stuck to the bottom of your shoe in terms of a sub-surface area at the property that is contaminated or a tank that needs to yanked, or if there is a set of pipes that were filled at one time and are contaminated, the recourse is not just with the immediate seller that you're in privity with as you would be in contract law, and not necessarily the guy that occupies the property next door, that...

    0:19:14.3 RN: 15 years prior to that guy's ownership of that property, sent onto your property through the ground water, a plume of contaminated material, all of those things are in play if to the extent that there are available parties to go after, whether they're obviously still in existence and amenable to suit, but you have to be thinking about recourse against all of these types of parties right up front, and it's important to look at the history of the property that you're talking about, the history of some immediate adjacent neighboring properties in terms of what industrial activities may have occurred and as a result, whether impactful activities have taken place at those properties and assess what was left behind and un-remediated or at least left in the air to be determined as to whether there is a problem that may manifest itself in years to come that...

    0:20:08.2 RN: If you become the owner of the property, and if you're the owner of the property at the time of any release, well, then you fall into that category of liable parties, and you may be asked in the first instance to do something about it, and the challenge will be to try to find out who others are that need to be brought in that should be doing something about it.

    0:20:27.3 LN: And how do you bolster your case against those others?

    0:20:30.1 RN: Well, what it means is that in addition to thinking about understanding the problem and going through the normal due diligence steps to ascertain what the problem might be and how bad it might be and figure out how to negotiate for it if indeed there is to be a set of environmental obligations that you are going to either take on as the buyer or be left with if an unsuccessful seller, as soon as you're getting wind of the existence or potential existence of a problem, that party really needs to start thinking like a plaintiff to pull together the requisite information to understand what the problem is if appropriate to do something about it, and to do something about it in a way that you're thinking about being a potential plaintiff to be able to assert a claim and successfully transfer some of that liability, if appropriate, to other parties and that that means that just instead of just looking at record evidence to understand the problem, it may be more proactive steps in the way of sampling exercises and other things may need to be started fairly early on to get your arms around the problem in a way that if it comes time to assert a claim, and stick some of that liability on somebody else, you've begun the process of perfecting that claim right from the get-go.

    0:21:45.9 LN: Are there rules that you have to follow to make sure your claim is ready to go, if that's where you have to end up?

    0:21:51.6 RN: Yeah, pretty much whether you're dealing with the federal government, obviously, or if it's a state lead site, or if indeed you are a private property owner that's looking to protect yourself and maximize the value of your property because you don't want to get stuck with liability that really should be somebody else's problem. The NCP, the federal regulations enacted under CERCLA, like I said, lay out and have for years laid out how to go about conducting a response action, and by and large, those are applicable to just about any response action that one could conduct. If you follow those rules and not necessarily with respect to all the things in terms of holding public meetings and what not. But if you basically follow those rules and other things that have sprung up around them as best practices under the various scientific and engineering standards to conduct, you will probably assure that you have at least a prima facie, a threshold case of establishing liability on the part of somebody else, if in deed there is a somebody else to whom you can connect by nexus information for the liability.

    0:22:56.7 LN: How about timing, you have to be worried about when you start this?

    0:23:00.7 RN: As I mentioned, you absolutely do, because when there is a credible suggestion that there is a threat, there is a release that needs to be acted upon besides reporting that to the responsible agencies, it may be that the private party is in the first instance, the one that has to deal with it, and indeed the clock will start running. It's not unlike discovery rules in common law practice, once appraised of the problem, you have some limited amount of time to do something. Now, if you have an agreement with the government for the conduct of a response action CERCLA will then kick you into certain time parameters based upon whether your activity is a removal or a remedial action, there are separate statutes of limitation that pertain to your ability to bring federal causes of action for recovering those costs, but by and large, to answer your question, yes, absent an agreement with the potentially responsible parties on the other side to toll the running of any applicable statutes of limitation. Yeah, you're on the clock. Once you find that there's a problem that needs to be dealt with.

    0:24:02.8 LN: Once you have this information, are there reporting obligations beyond those to the environmental agencies that you should be aware of?

    0:24:10.7 RN: Yeah, putting aside potential claims, whether you are or not in the mindset or in a position to do something about it, in terms of shifting through legal means, those liability costs to other parties, the fact that the gum is stuck to your shoe and there is a known or potentially large environmental liability associated with your business or your real estate or both, there certainly are situations where the magnitude of those potential liabilities becomes so great that if you're a public company, they have to be accounted for in your financial records, and if one or more of these liabilities under CERCLA are known and reasonably estimable and they are sufficiently material to require acknowledgement in your public reporting, companies do have to go through the exercise, setting aside reserves that are adequate to cover those liabilities until they're either resolved and taken off the books, or they go away through divestiture or other means to shift those problems to somebody else, so if a known problem, which is fairly easy to determine if there is a potential of a liability because you've either received a letter from the government, you've signed on to an agreement that says, Hey, that's your problem, or some other way that you have some reasonable way of knowing that if it's a problem, it's yours, the tougher problem then is to figure out whether the cost of that potential liability later to be determined that's this big...

    0:25:42.6 RN: A clean up and your percentage of that clean-up is x, those future parameters are difficult to estimate, and only if they're estimable do companies need to put them onto their books, but if they're estimable within a range, and the range is from a reasonable best case to a reasonable worst case potential outcome, you typically almost always have to book at the high end of that range to keep your nose clean with the accounting rules.

    0:26:14.8 LN: You talked a little bit about risk shifting as you were talking about how you set the deals up, and so on it seems to me that that's a pretty big deal, so are there other risk-shifting processes or procedures or issues that you'd like to bring to the real estate transaction discussion?

    0:26:31.3 RN: Yeah, I think in fairness, we talked only mostly about the ability through legal means to shift costs to other parties at arm’s length, more typically, or perhaps most typically, companies find themselves sharing those risks by agreement in real estate transactions, they find some way to identify, quantify and then allocate the risk of either a known problem, there is a consent agreement to finish over the next 10 years, completion of a ground water pump and treat system, you're going to take that on, you're going to pay either all of the costs, or I'm going to split the cost with you up to a certain amount or whatever. Those are known liabilities, and it's fairly easy to allocate in the transaction document the risks of those future costs. What's more difficult obviously, if it's a contingent or an unknown inestimable future liability, you have to figure out but the challenge is for how long to share that risk with the buyer and seller, depending on what position you're in, what things would trigger either the ability to access insurance or escrowed funds that have been put aside to deal with that contingent liability or to tear up the agreement entirely and to go back into court to litigate who should pay and how much...

    0:27:48.8 RN: All of those things can be addressed with difficulty, but can be addressed, that should be addressed in the environmental portion of the transaction documents.

    0:28:00.3 LN: Just one last thing on this general concept, is it not also true that these issues come up when you're selling your company or merging with another company and not just on specific real estate transactions?

    0:28:12.0 RN: For the most part, these liabilities arise in conjunction with a physical piece of ground somewhere where hazardous substances have come to be located, but the liabilities run with the assets of the entity, and indeed this is something that needs to be looked at with respect to purchasing an entity outright. Even if the real estate that the company operated on in big town USA long ago has been divested and turned into the new local library, the liability associated with the activities of that entity years ago need to be accounted for in the transaction document because indeed... Again, the liability is not just because you own the property, but if you fall into the category of someone whose status connects to the historic release of the hazardous substances.

    0:29:01.0 LN: I think we should move to another arena for allocation, which is outside of the transaction arena, and in the paying for the response costs, paying for the remedy cost arena. I think it makes sense for us to move to that now.

    0:29:17.0 RN: I do too. I was going to say in that regard, that although we've talked a little bit about voluntary efforts to shift responsibilities through transaction documents, the types of cases where you don't have a transaction, but you have a dispute, you have an assertion that one or more entities is involved at a super fun site, giving rise to CERCLA claims, whether held by the state, whether held by US EPA, or held by a tribe or held by a private party, invariably parties have been less than satisfied with recourse to the courts to resolve these disputes, and increasingly are availing themselves of the services of private industry, of very capable professionals that mediate and allocate these types of cost, multi-party sites, hundreds of parties, very greatly complicated fact patterns, and I think Leslie you have a lot of experience with that. Recently, some of it painful, but if you don't mind talking about it, I think that's where we should shift.

    0:30:15.8 LN: Okay, I do have some experience with that in a particular site at which I've been working for many years, because all of these cases take forever and ever to resolve, it is the Portland Harbor site, and there are some hundred parties participating in an allocation process, these parties are all potentially responsible parties or PRPs at a site that includes about 12 miles of the Willamette River in the vicinity of Portland, Oregon. A number of years ago, like 13, EPA suggested to the group of PRPs that an allocation process might be useful because they did not anticipate that litigation would be the way to resolve how the costs of the remedy would be shared. So we embarked upon that. We did hire as a group two very, very successful mediators who have worked in both complex river systems and other sites for many years and bring a wealth of experience and expertise to the site in a way that you are unlikely to find when you initiate litigation because there are few jurists. Certainly, you can't predict that there would be one in every jurisdiction who really understand these matters and are willing to put in the time and effort it takes to sort through all the facts, even with the help of magistrates and the like...

    0:31:35.5 LN: We started this process, we are trying to avoid litigation so far that's been only marginally successful because there is an action pending which is told to bring other parties into the mediation allocation process, but in general, the effort has been focused in this allocation process.

    0:31:53.5 RN: How have you noticed parties reacting to, if you will, or accepting being part of a process where you're consciously avoiding the courts, you're avoiding going to see a judge, maybe a magistrate, maybe a magistrate that's got some experience with these types of things. You're not even dealing in ADR with a former judge, you are dealing with folks who are in the profession for the express purpose of helping to resolve these very complicated types of sites, have you found that for the most part, parties go into it with a level of acceptance and an expectation that they're going to get treated fairly and get a decent... Or at least an explainable outcome.

    0:32:34.0 LN: Absolutely. In this instance, we have someone whose background is in economics, but who has done a lot of allocations, and we have an experienced Superfund lawyer as our allocation team. My observation, having looked at parties big and small approaching this, is that overall, people think that they are being treated fairly.

    0:32:53.0 LN: People are confident that the legal issues that they raise will be decided correctly, and that ultimately the allocation that comes out of this very long process will be appropriate and fair. This process is specifically set up to result in a preliminary allocation report followed by mediation, which gives the parties another chance to say, “Well, we don't agree with this piece, we don't think this is quite fair. Could you look at this again?” There are several ways in which people get to have their voices heard, and I think that makes a big difference in their attitudes toward the process.

    0:33:27.5 RN: Is it your experience, Leslie, that these types of situations allow parties to sort of bring their best to the table, put all of their facts on the table, is it the case that the level of sophistication and expertise that you're dealing with in terms of the professional allocator allows you to explain yourself, perhaps in a way that you wouldn't be able to do in court then if the outcome is what the outcome is, at least you haven't had to pull any punches and cut any corners.

    0:33:53.5 LN: Absolutely, I think that all of the practitioners, whether they are the scientists, the consultants or the lawyers in this allocation, are in fact bringing their A-game and they are doing that because they know it'll be heard, they know it'll be understood. And in some cases, they've been directed to answer specific questions or provide specific information, so I think that's a huge part of the reason that this is likely to be successful. The other thing that I think is really helpful is that this is an alternative dispute resolution process, it is covered by mediation confidentiality, and that does allow people to respond to inquiries and to provide information that they might not readily provide in the litigation setting. As a result, I think we have a better record. I think people better understand what their neighbors and historical residents of their property have done, and I think that just makes for a better process.

    0:34:48.5 RN: Do you find that as a result of the thoroughness of the presentations that you're able to make in these proceedings, and again, the fact that the folks to whom you are presenting these things that may actually speak the language and know what you're talking about, does that mean that the ultimate acceptance by your client, or folks on the other side who perhaps have been at some point reluctant to accept the reality or the likely outcome, does it mean to you that there's a higher level of acceptance of the outcome, if you go through this kind of sophisticated process.

    0:35:20.5 LN: I think it absolutely means that. Our mutual client in this case has never been designated PRP, but for factual reasons, they believe that they will get a far better shake out of this allocation process than they would in litigation, and I don't believe that our client is the only one in that sort of situation, I believe that even though this process has taken a long time, it has given all of the parties an opportunity to observe the professionalism of the allocators and the way they make decisions, and to be confident that the outcome will be one that they can live with.

    0:35:54.3 RN: We have talked a little bit about how liability and risks get determined and allocated in the context of the Superfund remediation program, what we think of as the clean-up program, I mentioned upfront that we're not specifically talking about how the NRD program works with different jurisdictional agencies that develop records for either asserting claims or are more likely to engage in consensual agreements to conduct restoration activities and assessments, but a lot of what we've been talking about in terms of the liability scheme and the fact that the liabilities that once determined can be allocated certainly would seem to apply to what you've been talking about in terms of the expertise of the professional allocation process, there aren't that many NRD cases yet that have gone through that process, but there certainly seems to be no reason why they couldn't. And I think that's something that we probably should be looking for down the road, but the NRD program... How it works and how you interact with it. I think it's a whole other discussion. One thing that I wanted to ask you about, Leslie, is that because of your experience, is that we've talked a lot already today about the role of US EPA, state governments, private parties, but we're neglecting one particular party, also in the Superfund cleanup program, particularly in the NRD Program, and that is the tribes that have jurisdictional interests of their own. Can you talk a little bit about that?

    0:37:20.1 LN: Yes, thank you. In Portland, for example, there is a natural resource trustee Council, which is involved in assessing damages to natural resources and then determining likely causes and seeking funds to restore or replace. The tribes who are part of the council are also involved in overseeing the remedial decisions and the implementation just as EPA in the state of Oregon are, their roles are a little bit different because although the state has state funding and EPA has funding authorized by Congress, the tribes, generally do not have budgets that allow for participation in oversight, and therefore are looking to the participating parties to fund their participation, but certainly I have seen over time remedies shift, remedies change, implementation vary because of tribal concerns and issues both about cultural and historical resources and present day concerns about their members. So they are a player. I think they're becoming an increasingly large player at many sites that I see, and they do change the dynamic. With that, I think we'll conclude, thank you to our listeners for joining us for this episode of Digging Into Land Use Law.

    0:38:36.8 LN: For additional information on this topic or other environmental and land use matters. Please visit our website at nossaman.com, and don't forget to subscribe to Digging Into Land Use Law, wherever you listen to podcasts so you don't miss an episode. Until next time.

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    0:38:54.8 S2: Digging Into Land Use Law is presented by Nossaman LLP, and cannot be copied or re-broadcast without consent, content reflects the personal views and opinions of the participants. The information provided in this podcast is for informational purposes only. It is not intended as legal advice and does not create an attorney-client relationship. Listeners should not act solely upon this information without seeking professional legal counsel.


  • Market Rent Adjustment Provisions in Long-Term Ground Leases

    In this episode of Digging Into Land Use Law, Nossaman Real Estate Group Co-Chair David Graeler and associate Maya Hamouie discuss myriad problems that may arise when a market rent adjustment provision in a long-term ground lease is stated unclearly. David and Maya, along with guest speaker Scott Delahooke, MAI, review a recent market rent adjustment arbitration concerning a long-term ground lease, the key California case law at issue in the dispute, the different valuation approaches taken by the ground lessor and ground lessee, the differences in approaching valuations in California versus other jurisdictions and how the arbitration panel ruled.  They also discuss ways to draft rent-adjustment provisions to more clearly lay out the adjustment process and to hopefully reduce the likelihood of litigation.​


    Transcript: Market Rent Adjustment Provisions in Long-Term Ground Leases

    0:00:00.2 David Graeler: Long-term ground leases almost always include a provision that enables the ground lessor to achieve a market-based return on the land over the course of the lease’s term. How these rent adjustment provisions are written will have a major impact on how the ground lessor and ground lessee will settle upon future rent many decades after the ground lease was executed. This episode will be of interest to anyone involved in long-term ground leases, including attorneys, lessors, lessees and appraisers.

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    0:00:35.2 Welcome to Digging Into Land Use Law, Nossaman’s podcast covering the development of all things in, on, or above the ground.

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    0:00:52.2 DG: Thank you for joining us today. I’m David Graeler, co-chair of Nossaman’s Real Estate Group and chair of its litigation department. I’m joined today by my colleague, Maya Hamouie, who is an associate in our real estate group, and Scott Delahooke, who is an MAI appraiser with the Delahooke Appraisal Company. Today we’re going to be discussing a real-world example of a market rent adjustment provision and a long-term ground lease that resulted in a hotly contested multi-day virtual arbitration before a panel of three arbitrators. Our client in the matter was the ground lessor, so please keep in mind that while we are going to be providing a balanced analysis of the two sides’ positions, we lived the case for a couple of years advocating for the ground lessor.

    0:01:38.7 DG: Scott, thank you so much for joining Maya and me today. You were one of our appraisal experts in the arbitration, and we’re very excited to visit with you on a real-world example of what can happen when a rent adjustment provision in a long-term ground lease is, how shall I put it? Less than clear. As far as what we’re going to be covering today, we’re first going to start with a general overview of facts that gave rise to our arbitration, including the pertinent provisions in the long-term ground lease. We’ll next discuss how we approach the valuation in light of the governing lease documents. We’ll then discuss how the ground tenant approached the valuation, and then we’ll wrap up with how the arbitrators decided the case, the merits of our trading versus litigating in court and we’ll provide some thoughts on how the ground lease could have been written differently to avoid some of the problems that our client and the opposing party encountered.

    0:02:36.0 DG: Alright, so let me set the stage for the case that we arbitrated. This was a long-term ground lease that was entered into back in 1980. It had a base term of 35 years and two options that would extend the base term out to a maximum of 50 years. The property was located in the North Hollywood area of Los Angeles and was unimproved at the time the ground lease was entered into. The ground tenant ultimately constructed some incubator or flex base buildings that still exist to the day. Our client is a public agency who acquired the property some years after the original ground lease was entered into. The original lessor was Southern Pacific Railroad. So, our client inherited its lease and really didn’t have anything to do with drafting the original lease, and as it turns out, had no one to talk about what they intended when the original lease was entered into. Scott, maybe you can talk a little bit about some of the characteristics of the property from an appraiser’s perspective.

    0:03:52.6 Scott Delahooke: First of all, thanks very much for the opportunity to be part of the panel and to talk about this fascinating case. The property that was encumbered by a single lease was actually two separate sites, both of which were on a corner across the street from each other. As you noted, the sites were originally railway right-of-way, so they were relatively shallow in-depth and very long, but because they were corner sites, they were fairly functional, they had good access. The depth of the sites along the main right-of-way was about 80 feet, and that became an issue of both research and conversation during the arbitration. The underlying zoning on the date of value was PF or public facility zone. That also became an issue of great conversation. That is a very specific zone classification given only to sites that are owned by public agencies. It is not a classification that’s assigned to a private party that owns a site. The two sites were built with single story multi-tenant industrial spaces, you mentioned, David, incubator-type spaces.

    0:05:11.2 SD: So, each one of the spaces was about 1000-1500 square feet, and there were local mom and pop stores or storage users in them. Buildings were built after the lease commenced, so it was at the discretion of the ground tenant as to what they built and what they have continued to manage today. They are both level sites, and they are in an area of North Hollywood where there was a huge trend towards building, even on sites of this configuration, four, five and six story multi-family, high density developments with ground floor parking and commercial. So, the trends were away from the type of use that was initially built on the sites, and that also played into a lot of the conversation of this matter.

    0:06:04.8 DG: Yeah, in fact, one of the things that I presented at the arbitration was evidence that the land uses were changing in response to some of the transit stations that were put in place in recent years, including light rail and bus transit. And so there had been a lot of transit-oriented development in that area, which influenced your opinions in this case, right?

    0:06:32.7 SD: Absolutely, yes. And whether they were in this specific overlay of transit or proximate to it, developers were building like crazy as much residential housing as they could because of the subway station and the bus station facilities that were proximate to this particular site.

    0:06:58.3 DG: Okay, so here we are, we got retained by our client, who was the lessor in this case. One of the first things we did was read the lease to understand how we were going to go about figuring out what the rent should be as of the rent reset period. And I should mention that the rent reset period we were looking at was as of June 1st, 2015, and while we didn’t arbitrate the case until late 2020 into early 2021, it was all about what rent would be retroactive to June 1st, 2015. Maya, I know you spent quite a bit of time reading these leases, maybe you can tell our audience about some of the key provisions in the lease that helped inform our approach with respect to this rent adjustment.

    0:07:50.6 Maya Hamouie: Thanks, David. I’m excited to be here today. So as David mentioned, the rent revision in the ground lease was really the key provision that the dispute centered around. And the rental revision provision provided that the rent shall be the reasonable and fair rental value of the premises at the time of each such revision as determined by the lessor and lessee, but not less than the rental rate then in effect. And reasonable and fair rental value of the premises are really the key terms here that David will get into. And as David mentioned, this provision also allows for retroactive payment of the revised rent amount. And the lessor here is the one who has the power to allow for the arbitration to commence or allow for the appraisal of this in order to determine the rental revision, and here the lease provided for a panel of three arbitrators with each party choosing one and the third being selected by the two arbitrators.

    0:08:44.7 DG: Thanks, Maya. And so here, after reading the lease, I made the determination that reasonable and fair rental value necessarily was going to require an appraisal expert, and so I reached out to you, Scott, first to see if you were interested in participating in this appraisal assignment, and then ultimately to value it. And I, of course, sent you the underlying lease documents. How did you interpret reasonable, fair rental value of the premises when you first read those words?

    0:09:17.2 SD: Great question. And the term reasonable is a term of art, not an appraisal term. Certainly, an appraiser is to collect data and analyze the data in a fair and reasonable manner and pay attention to the definitions of value and the scope of the assignment. But I have not seen that word used in a lease of any kind, including a ground lease, so you and I talked through that issue of what does reasonable actually mean in this context. The lease was also silent as to whether or not the terms and conditions of the underlying lease were to be considered, so absent a specific directive that the lease was to be considered including the remaining term of the lease, it was my view that the property should be looked at as if vacant and available for its highest and best use for a developer that would work in conjunction with the underlying ground lessor or a private property owner who had developed the property to its highest and best use. You and I talked that through at great length in the very beginning, and I think we both saw that as the appropriate way to move forward.

    0:10:31.8 DG: Yeah, absolutely. And part of what helped inform my decision on this was the conversation we had about what the purpose of this ground rent recent provision was, and as we discussed, any time a lessor agrees to encumber its land with a long-term lease, it’s taking significant risk that the appreciation of the land is going to outpace the rents it’s generating, in terms of what a reasonable return on the value of the land would be, and so it’s prudent in all kinds of long-term ground leases to incur these types of market rent adjustment provisions to ensure that over time, the owner of the property will continue to generate a reasonable market-based return on the value of the land. I assume you agree with all of that?

    0:11:23.5 SD: I do, and I’ve worked on assignments where there are certain constraints that the reset provision has. For instance, a reset provision may say that you’re supposed to appraise the value of the land, assuming you could build only a 20,000 square foot office building or an industrial building of a certain size. So that there’s a consistency between the use of the property and the value of the underlying land, but without that constraint, which we did not have in this case, in my mind, it clearly puts the onus on the appraiser to look at market trends, to look at the highest and best use, to look at the underlying zoning or the most probable zoning and move forward and value the site accordingly, and that’s what we did, and I think that was the appropriate approach to take.

    0:12:16.0 DG: Now, the magic words in this lease were reasonable and fair rental value of the premises. It does not say market. There’s no reference to a market-derived value. I know we had some discussions early on whether rent needed to be a market derived value. What caused you to conclude that it should be?

    0:12:36.1 SD: So not only was the word reasonable unique, but the rental value is unique. Usually, it’s market rent or some phraseology like that. Rental value is kind of a unique term, but you and I talked it through, and I think ultimately, it’s the ground lease reset in this case, and in all the cases I’ve worked on, have provisions there to allow for appropriate return to the ground lessor position. And so, I used and all of the experts in this case also used the definition of market rent put forward by the Appraisal Institute’s Dictionary of Real Estate Appraisal. So there actually wasn’t a disagreement in the underlying definition of market rent that we all apply, we just all applied it differently.

    0:13:26.1 DG: Yeah, and I remember not knowing how the tenant was originally going to take it or interpret that in taking the deposition of the tenant’s person most qualified, who conceded that it would be a market-derived value. So, it ended up not being an issue. So, we know we’re going to derive a market-based value, and you mentioned earlier that you concluded based on the language of the lease that you are going to derive a value that was based on the highest and best use to the land. What was a necessary step after that in order to assist you in generating your valuation opinion?

    0:14:08.6 SD: So, we talked a little bit earlier about the market trends and the higher density residential development that was taking place, I also mentioned earlier that the underlying zoning was public facilities, which is a very unique classification given by the city, two sites that are owned by agencies. I went to the city and said, “If this was being developed by a private developer to its highest and best use, would the PF zoning be the applicable zoning that the city would use?” And they said, “No, that’s just in place because of a public agency’s ownership of that site.” So, then I asked the question, “Well, what is the reasonable, reasonably probable zone classification to consider when I’m looking at this site? Whether the public agency keeps the site and ground leases it to a new ground tenant or sells it, what is the right way for me to look at this as an appraiser? How would the city look at this?” And they confirmed that the surrounding zoning, which was commercial, it was C2 and C4 would be the zone classification the city would use to establish what would be permitted on these sites. So that was... And it was a conversation with the city planners. It was... We also brought on another expert that you and I will talk about in a moment, but it was clear that the PF zoning was a constraint that was not what should be considered when looking at a market value, market rental rate for this particular property.

    0:15:41.8 DG: And in assessing your highest and best use conclusion that you would ultimately reach, one of the important things was what would be legally permissible on the property, and that’s why you were looking at whether the PF zoning would prohibit legally the kind of use that you are envisioning. Is that an accurate characterization?

    0:16:04.3 SD: Absolutely.

    0:16:05.4 DG: Okay, and then one of the other things that you would look at with your highest and best use analysis is whether or not the property could physically accommodate the kind of use that you thought would be the highest and best use, which was some kind of a multi-family development. And as you mentioned earlier, this property only was about 80 feet deep, which potentially caused or created a development constraint, and as you just mentioned, we brought in a second expert who was an engineer who actually designed a mixed use development on this site and laid it out with a floor plan for both parking and residential units above in order to demonstrate that there was no development constraint based on the depth of the site, and also to help support how many units could ultimately be developed on the site. And how did you use that opinion?

    0:17:00.0 SD: Yeah, so that opinion was really important. I’ll take a step back very quickly. There was actually a site adjacent south to the subject properties, which was only about 90 feet deep, which had been developed with a high density, five or six-story multi-residential development. So, I already had market evidence which showed that that type of structure could be put on a site that had similar depth to the subject site, but I went a step further because I wanted to engage an engineer who did design site plan, architectural work as well. And have them put a hypothetical development on our site and tell me based on setbacks and height limitations and all of that, if our site could be developed in a manner consistent with my comparables, from a density standpoint, from a placement standpoint, and from a construction cost standpoint. So that if our site would have taken a higher construction cost for underground parking or some other construction cost like that, I need to take that into account in my adjustment process, but he was able to go in and look and design a building very similar to what was being built around the subject property, and that the site depth was not a constraint and not a limiting factor on the density of development, or again, on the cost of construction.

    0:18:29.1 DG: And just for the audience, I’ll summarize that based on the input of that other expert, and based on your own investigation that you made with the city’s Planning Department, you satisfied yourself that the subject property could be developed in a manner consistent with what you felt was its highest and best use which would be a multi-family development.

    0:18:53.5 SD: Absolutely.

    0:18:54.9 DG: And ultimately, you rendered an opinion of value for the land based on that type of development, which you then applied a rate of return to which was market derived as well, to conclude that rent should be $400,000 per year as of our June 1st, 2015 reset date, right?

    0:19:15.4 SD: Correct.

    0:19:17.0 DG: And I should mention that the tenant had been paying $116,000 per year in rent under the lease. So that just goes to show you how divergent the contract rent can become when real property values go up over the term of a long-term ground lease like this. I’m going to now talk a little bit about what the other side did. I would say that because the lease, ground rent reset provision in the lease was written the way it was, it allowed for the ground tenant to get creative about how it approached value. The first thing they argued, I think this was the tenant’s primary argument at the arbitration, was that rent doesn’t even need to be market-based, and this was despite the fact that the tenant got two appraisers to appraise the property using a market derived value, and it’s despite the fact that this is the way that two parties have always approached this issue throughout the history of the lease.

    0:20:20.3 DG: But nonetheless, the ground tenant argued that the rent should be based on 25% of the gross rents the tenant generated from its sub-tenants. Again, the lease doesn’t say that, there’s nothing to indicate that the parties ever approached setting rent that way, but because the lease used the word reasonable, the ground tenant argued that that’s a reasonable way to set rent. The second thing the ground tenant argued was whatever the market rent would be or the reasonable rent should be as of June, 1st, 2015, it shouldn’t be applied retroactively because our client took too long to increase the rent. So, they argued against retro activity. And then finally, the ground tenant, as I mentioned, retained two different appraisers who approached valuation in a way, very differently than you did Scott and I’ll summarize their approaches.

    0:21:19.7 DG: The first appraiser that the ground tenant retained was actually retained all the way back in 2015, and he focused heavily on the PF zoning of the property and concluding that the PF zoning really didn’t allow for any development on-site consistent with its highest and best use. And as a consequence, He discounted downward or adjusted downward his sales data by 50% or 75% at times, even though he was pulling comparable data that was very similar to what you relied on, in terms of being residentially oriented. And as a consequence, among other things he did, including initially believing that there was a parking covenant that damaged value, which he later conceded was a mistake. He concluded that the rent for the property should only be $100,000 a year, which was lower than the contract rent, and therefore he felt the contract rent should just remain in place. Our client obviously wouldn’t agree with that, so we ended up in the arbitration process. Once the arbitration process was underway, the ground tenant secured a second appraisal and much like the first appraiser, this second appraiser also approached value by looking at a market derived value, market rent definition and looked at highest and best use, he too took into account the PF zoning, but his biggest impact on value was the 80-foot depth of the site.

    0:22:56.9 DG: He concluded that because of the 80-foot depth on the site, you really couldn’t make any kind of meaningful development on the property because it was development constraint. And he reached that conclusion without consulting any engineering experts like you did, Scott, and ultimately, because of that development constraint that he felt existed, searched for land sales that were acquired by a buyer without any plans for development, buyers who purchased properties for surface storage or surface parking with no plans for development. And in order to find those sales, he went very far away to get them in all inferior markets, and he admitted that. The closest sale was several miles away, I think two, three miles away, and the farthest, think I was 10 or 15 miles away, and he ignored a lot of sales that were much, much closer, and through those sales, he rendered a value conclusion that resulted in rent being $150,000 per year, so a nominal increase from the contract rent. So those were the differences in value as stated in the appraisal reports, then we got to taking depositions, and once I started taking the opposing appraisers depositions, I learned for the very first time that not only did they take into account what was written in the reports, but they also took into account the amount of time remaining on the lease at the time of the rent reset, specifically 15 years.

    0:24:33.1 DG: And what they said is, even though the appraisal reports didn’t talk about this issue, the amount of time remaining on the lease would be a major impact on the ability of a tenant to develop the site because you would never realize a return on your investment in a 15-year time period. And therefore, as of June 1st, 2015, you couldn’t make any meaningful use of the property and that that had a major impact on their value conclusions, again, no reference to this in their appraisal reports, but it’s an argument they put forth at the arbitration, after testifying to it in deposition. So that kind of lays out the two sides appraisals. One thing that was not present in, Scott, your appraisal or the two appraisals obtained from the ground tenant was any notion that anybody was appraising rent based on the existing use. It was really not an issue that anybody was focused on based on the lease language, and then to our surprise, we received a motion in limine shortly before the arbitration began that sought to exclude your entire opinion because you failed to appraise rent according to the existing use, and instead appraised rent according to the highest and best use.

    0:25:56.0 DG: It was a fascinating motion because I thought, if the arbitration panel was going to grant it, then necessarily the ground tenant’s two appraisers who also didn’t appraise rent according to the existing use would also need to be tossed, and there would be no valuation opinions left. In any event, we did have an in-use appraisal for our client as well, I should mention that. Back in 2015, when our client was in negotiations with the ground tenant over what market rent should be, my client... Our client decided to retain an appraiser to value rent according to the existing use as kind of a check on value. It was not what it really believed rent should be or how it should be set, but it obtained that appraisal and that appraisal set rent at $225,000 per year based on the existing use, which was, again, higher than the landlord’s two other appraisals. And ultimately, we decided to exchange that in-use appraisal because of the word reasonable in the lease, I felt that the word reasonable would make it very difficult for our arbitration panel to come in at a number that would put the ground tenant upside down in terms of what it had to pay for the ground lease versus what it was able to receive in its sub-tenant rents.

    0:27:25.0 DG: And so, coming in with a number in between seemed like a good strategic approach to give the panel an alternative choice on value. And because our client had offered to settle for less than that $225,000 per year figure. So, being where we are at this point, we really encountered two distinct legal issues that we had to run to ground, the first was whether it was appropriate to take into account the terms and restrictions in the lease, namely the amount of time remaining on the lease, and I’m going to ask Maya, who did all the research for us, she did great research in this case, including finding some articles that talked about the California rule, which was instructive on that issue. And the second was whether or not it was appropriate to appraise rent according to the land’s highest and best use, or its existing use, and Maya found four published cases on that, which also were instructive. So Maya, maybe you can talk about those two different legal issues.

    0:28:31.2 MH: Sure, thanks David. So, I did find four published cases that addressed ground rent resets on long-term ground leases in several articles that discuss rent resets based on those cases. In one article the author coined the term and referred to the California rule as presuming that the value of the land means the fair market value in an appraisal as at its highest and best uses, not limited by any use restrictions in the lease or by the nature of the existing improvements, unless a clear intention to the contrary appears from the lease. And this was actually perfect for us because we’re in California, and this allowed us to argue that our appraisers could value rent as... At the highest and best use without any regard to the terms and restrictions in the lease. And the tenant was actually trying to apply the majority or the New York rule where if the lease is silent, you should consider the terms and restrictions of the lease.

    0:29:24.4 DG: And you said you found four published court of appeal decisions that were instructive on whether to value rent based on the existing use or the highest and best use. What did those cases show?

    0:29:37.2 MH: That’s right. So, in three of the cases, the leases had broad use provisions that allowed for valuing the highest and best use of the land for any particular purpose. In the last case, it was different, it had a lease that restricted the tenant to a single use, which was a theater, and so in that case, the land had to be appraised taking into account the used provision.

    0:30:00.7 DG: So, based on that law that Maya so capably found, we argued that since we were in California and since the lease was silent on whether to take into account the terms and restrictions of the lease, it would be inappropriate to apply the remaining term of the lease in restricting the available uses. Interestingly, the tenant obtained a rebuttal expert from Canada who had written an article on this topic, but the article wasn’t specific to California and focused on the majority or New York rule, which said that when the lease is silent, you still take into account the terms and restrictions of the lease. And when I push that expert about it in deposition, he conceded that California was different, which I thought was a really, really key admission. And then finally, as Maya mentioned, the four cases she found, one of them called for an appraisal based on the existing use, because the use provision was only a single use. That didn’t exist in our lease, our least had a very broad use provision which allowed the ground tenant to put the property to any number of different uses, and it was much more similar to the other three published cases that allowed for value to be set based on highest and best use.

    0:31:17.7 DG: So, we argued, number one, that the tenants argument that you had to take into account the terms and conditions that the lease was wrong under the California rule, and number two, that it was appropriate to appraise according to highest and best use, based on the three cases that said that where the least provisions had broad use permission. So, what did the arbitration panel ultimately do here? As we suspected, because our arbitrators were all trained lawyers, they focused heavily on the word reasonable in the rent reset provision, and ultimately, never really addressed whether it was appropriate to appraise rent, by taking into account the terms and restrictions of the lease. Instead, based on the word reasonable, and based on the fact that the lease called for rental value, they concluded that that must mean that the parties should appraise rent according to the existing use, they didn’t touch the fact that the use provision was broad, they did talk about how the parties later amended the lease after the improvements were built and therefore confined the tenant into a single use. But there was no case law that said that because the cases all spoke to what different uses were allowed under the lease.

    0:32:41.6 DG: But by doing that, effectively the arbitration panel tossed the other, the ground tenants appraisals because they didn’t really appraise based on existing use, and in one instance, when they thought maybe he did, they noted that that appraiser’s comparable sales came from very far away. They also decided not to focus on Scott’s appraisal because he appraised based on highest and best use, and instead they focused on the second appraisal we exchanged and discounted it by 10%, and that was their value. I think it came out to a little over $202,000 per year, we had offered $200,000 per year on rent to settle, so we did better than that. And that could have been the end, and everybody could have gone away less than happy, but our arbitration panel decided to construe the lease as allowing for the prevailing party to receive attorney fees, and expert fees, and arbitrators fees, and none of that is present in the ground rent reset clause of the governing lease. So, number one, we felt that that was a mistake, but number two, even if it did provide for the prevailing party to receive attorney’s fees, the client, our client, the ground lessor, achieved an outcome that was based on an appraisal that it exchanged.

    0:34:08.8 DG: Not one that was based on an appraisal that the tenant exchanged. It was within 10% of that appraisal in fact, and yet, the panel nonetheless concluded that the ground tenant was the prevailing party and awarded attorney’s fees, expert fees, and the arbitrators fees. The panel did allow rent to be increased retroactively, and so what that effectively did was wipe out the back rent that was owed and set the new rent going forward from the present time, it was less than a desirable outcome from our perspective, and one where I thought the arbitrators made some mistakes. Alright, Scott, so obviously, you’re not a lawyer, you’re an appraiser, you can’t really weigh in on the legal conclusions that were reached by our arbitration panel. I am curious to know your thoughts from an appraisers perspective on the ultimate determination of market rent at a little over $202,000 per year. And perhaps you could also comment on the overall underlying purpose of market rent adjustment provisions and long-term ground lease such as this one.

    0:35:29.7 SD: Yeah, I think that’s a really important issue to discuss, because even though the appraisers for the ground tenant did not say the remaining term mattered, or had any impact on their conclusions in their reports, they did argue that in the depositions. And it just on its face, seems to me, to be both unfair and unreasonable to the ground owner. When a ground lease is started, a 55-year, 50-year ground lease, or longer, there’s a base provision of usually 30 to 40 years before the first reset, and all the appraisers in this case agree that to do a new development, you’ve gotta have at least 30 to 40 years to be able to recapture the cost of the improvements that you would build. And that anything short of that was just not enough time to recoup your outlay for building buildings. So in this case, there was a 35-year beginning term of the total 55 years before a reset, the rent was set, the ground tenant built their building, and got the return on and of those improvements they built.

    0:36:42.3 SD: The fact that they were arguing that at the rent reset, we could only consider the remaining term, which was 10 to 15 years, and that nothing could be feasibly developed on the site, and the return generated over that 10 or 15 years meant that the value of the land was constrained to some open storage use. It is not market value of that land, based on its highest and best years. It actually is a less desirable piece of property at the first rent reset than it was in the original beginning of the lease, and it makes no sense to me that a ground owner would agree to a lease provision that actually results in a lower return, lower rent at the first rent reset than at the original beginning of the lease.

    0:37:39.0 SD: And so, just on its face, it made no sense that this argument is what the parties intended, especially the ground owner intended. But again, the appraisers all... We all agreed, including me, that you need at least 30 to 40 years to recover the cost of new development. So that argument just made no sense. The other thing that we did is as the panel was beginning to lean towards the existing use, we could tell by the questions they were asking and by the way the ground tenant was presenting the information. We came up with rebuttal documents based on their actual profit and loss statements to show that the ground tenant was receiving or should have been receiving sufficient net income to be able to pay the rent I estimated and still have a return left over to their position as a ground tenant. And the panel completely disregarded that as well. So, this outcome for me was reasonable, but only as it applied to the ground tenant, not the ground landlord.

    0:38:49.6 DG: So, Maya... And thank you, Scott. Maya, I’m going to create a hypothetical time machine and put you in it and go back in time and you’re now the lawyer for Southern Pacific Railroad about to enter into a lease with this tenant, and you have the ability to tell your client what you think they should do with the rent reset provision. With the benefit of hindsight, how would you have approached things differently?

    0:39:19.8 MH: So, the first thing that I would tell my client to do is to definitely not use the word reasonable. Reasonable is problematic because it allows the trier of fact to really do whatever he or she wants, and we really can’t predict the outcome. I would say stay away from that word. Second, I would that if you intend for rent to be based on the highest and best use of the land, without regards to the terms and restrictions of the lease, say that clearly, or if you don’t want to say that, say the rent will be based on 10% of the fair market value of the land, at its highest and best use. So, any of those options, I think could have helped avoid some of the issues that we faced in this case and the parties would have been on the same page had the lease rental revision been drafted differently.

    0:40:03.3 DG: Yeah, I completely agree with that. Clarity is key, give the parties clear direction on what they should do so that when you disappear after signing that lease, whoever is going to be left having to deal with what you wrote 30, 40, 50 years down the road, has some sense about what they are supposed to do. And doesn’t end up in a situation where our tenant appraised apples, basically land that was constrained by the existing term of the lease, and our client appraised oranges. You want to make sure that everybody is appraising the same thing because that better ensures that the two sides are going to come together, it reduces the likelihood that there will be a contested process, and ultimately it saves everybody time and money. The benefit of hindsight, definitely stay away from the word reasonable, and if you want it to be based on highest and best use, without regard to the terms and conditions or restrictions of the lease, say it.

    0:41:10.0 DG: Let’s talk a little bit now about arbitrating disputes and whether if we could go back in our time machine, we would have not used an arbitration provision that called for a panel of three arbitrators and instead maybe called for a single arbitrator, or maybe even no arbitration at all, and instead to just have these kinds of disputes litigated in court. Scott, I know you have personally served as an arbitrator before in valuation disputes, and I know you’ve also been an expert witness in similar types of disputes, and you’ve obviously testified in court quite a number of times. Do you have any thoughts on this issue?

    0:41:51.4 SD: Yes, so, I would say being involved in, on several levels in arbitrations and also being in court in front of juries and judges, my preference is to be in a courtroom, whether before just a judge or a jury. It allows for... I like getting up and moving around and engaging with, especially juries to see if what I’m explaining is making sense, because if it’s not, then I can go back around and kind of get another stab at the apple and try and re-explain it until the lights seem to go on. In an arbitration setting, especially one that’s by Zoom, it’s much more difficult to get a sense of what’s going on. The other pieces, in my experience as an arbitration panel member, very often there is... There is the desire to get consensus to get all three panel members to sign off on the award, which means that, there isn’t necessarily... ‘because you have two-party appointed plus a neutral, there isn’t necessarily the desire to get it right, but to move it to some midpoint or some consensus, and I would prefer... And I think the outcomes where I’ve testified in arbitration and there’s a single arbitrator, there is more risk, but I think the outcome is much more likely to award the stronger case, the better experts, the better legal arguments.

    0:43:26.8 SD: The single arbitrator will be able to follow, usually the best presented and most well-documented case, without having to reach a consensus and compromise with other panel members that may have agendas and try and pull them in a different direction. So that’s kind of my experience in this and David, I don’t know, you could talk about the economic piece of this and the speed, but just from a process standpoint, I would say single arbitrator or court of law.

    0:44:00.3 DG: Yeah, you know, my thought on this, I would say has evolved over time and probably will evolve again in the future. But where I currently stand on this is the cost of an arbitration, particularly one like this, where we have three arbitrators, I don’t think is all that much less than litigating a case in court, and that’s supposed to be one of the reasons in favor of arbitration, you’re paying the hourly rates of three highly compensated professionals on top of the lawyers and the experts. The other thing is from a timing standpoint, there’s lots of discovery that takes place in arbitration, just like there would be in court. In the absence of a pandemic, I think that the timing is probably pretty comparable. Because we had a pandemic, I think we were able to arbitrate our case by a Zoom more quickly than we otherwise would have been able to try a case in court. But I don’t know that that was necessarily a good thing under the circumstances.

    0:45:00.8 DG: And I agree with you, Scott, about the inherent tendency for a panel of arbitrators to compromise on an outcome, which probably takes away the ability of one party to really win. Here, each party designated one arbitration panelist, and those two designated panelists appointed the chair, which was the third panelist, all of our panelists came from the same ADR firm, which I think created its other challenges because I think there was even greater tendency for them to want to have a unanimous outcome. If all three neutrals came from different firms, maybe that would have helped with the problem a little bit. But all things being equal, I think in the future, I would want to adjudicate this kind of dispute in court, particularly because of the ruling the arbitration panel made on attorney’s fees. I think that was a clear legal error, I know the other side of undoubtedly disagrees, maybe they do now. But the reality is, throughout the case, nobody was thinking they would be entitled to recover attorney’s fees as a prevailing party.

    0:46:12.4 DG: And with an arbitration, unless the contract that sets forth the arbitration provides for a right to appeal, there’s very little you can do to correct this kind of mistake. You can ask the arbitration panel to correct the error, not likely going to happen. You can then file a petition to the Superior Court to correct the error, but the law is pretty darn clear about the limited circumstances when those kinds of petitions to vacate an arbitration award will actually be granted. And so here, if we had been in court and the judge had made the mistake on awarding attorneys fees, we’d have the ability to seek review by the Court of Appeal. And then in...

    0:46:57.3 SD: David, A quick comment on that. Something like that can be used in horse trading as well, to try and pull one arbitration panel member into a consensus, and it shouldn’t be a chip, it should be an independent decision, and I’m not speaking as a lawyer, but it seems to me that it should be an independent decision of the outcome and the award. And in this case, I don’t know if it was a chip, but I have seen and been involved in other cases where it was.

    0:47:29.7 DG: And then I’ll just wrap up with a comment on my experience doing this arbitration via Zoom. It went better than I thought, but there were definite limitations with it, and not being in the same room with the triers of fact, there’s just not an ability to pick up on the non-verbal communication that people inherently will give you when you’re in a room with them, when you’re looking at a computer screen. And Scott, you and I have worked together quite a few times over the years in court, and I think one of your strongest skills beyond being a technically excellent expert and appraiser, is your ability to communicate in lay person’s terms and connect with your trier of fact. And doing it through Zoom limited your ability to do that, as compared to being in person. Ultimately, I don’t think that’s what swayed the panel one way or another, I think they were going to probably reach the same conclusion, even if we were there in person. But it was something I definitely noted. Any final thoughts from Scott or Maya?

    0:48:41.5 SD: One funny recollection in this era of Covid is my deposition was in person and it was in my backyard, and unfortunately it happened to be on a day when it was 105 degrees, and I think it went, beginning to end, the deposition was maybe six to seven hours and counsel for the ground tenant, who happens to be a client of mine as well, wanted to stay and chat. So, we were probably sitting in the backyard at very high temperatures for a very long time, I think we almost lost the court reporter at one time, so anyway... [laughter]

    0:49:18.5 DG: Yeah, the court reporter...

    0:49:21.7 SD: These are the kinds of moments that we tend to remember. The unique moments.

    0:49:26.3 DG: Yeah, great, great memories for sure that we will keep with us and tell more stories on for... Well, Scott, thank you very much for spending a little bit of time with us talking about this case.

    0:49:37.6 SD: My pleasure.

    0:49:37.7 DG: And Maya, thank you for your participation as well. And most of all, thank you to our listeners for joining us for this episode of Digging Into Land Use Law. For additional information on this topic or other environment and land use matters, please visit our website at Nossaman.com, and don’t forget to subscribe to Digging Into Land Use Law, wherever you listen to podcasts, so you don’t miss an episode. Until next time.

    [music]

    0:50:07.9 Digging Into Land Use Law is presented by Nossaman LLP and cannot be copied or rebroadcast without consent. Content reflects the personal views and opinions of the participants. The information provided in this podcast is for informational purposes only, is not intended as legal advice and does not create an attorney client relationship. Listeners should not act solely upon this information without seeking professional legal counsel.


  • What’s in a Wetland: An Overview of Federal and State Developments in Defining Jurisdictional Wetlands

    In this episode of Digging Into Land Use Law, Nossaman Environment & Land Use partner Mary Lynn Coffee and Stephanie Clark explore the eternal question – at least under federal and California law – what’s in a wetland? In recent years both the federal government and California have taken steps to provide a specific definition of what is a jurisdictional wetland. In this episode, we give a broad overview of what the current lay of the land is at both the federal and state levels, and offer some predictions for how that might change in the coming years.


    Transcript: What’s in a Wetland: An Overview of Federal and State Developments in Defining Jurisdictional Wetlands

    0:00:00.4 Stephanie Clark: The eternal question, at least under Federal and California law, what's in a wetland? Today, we're looking at the latest California and federal regulatory developments in defining what constitutes a jurisdictional wetland. In recent years, both the Federal Government and California have taken steps to provide a specific definition of what is a jurisdictional wetland.

    0:00:21.1 SC: In today's episode, we give a broad overview of what the current lay of the land is at the federal and state levels, and some predictions for how that might change in the coming years.

    [music]

    0:00:36.0 Speaker 2: Welcome to Digging Into Land Use Law, Nossaman's podcast covering the development of all things in, on, or above the ground.

    [music]

    0:00:51.2 SC: Hi everyone, and welcome to Digging Into Land Use Law. My name is Stephanie Clark, and I'm an associate attorney in Nossaman's Environment & Land Use Group. I'm joined today by Mary Lynn Coffee, an environment and land use senior partner with more than 30 years of experience providing legal and regulatory advice and counsel regarding wetlands and water quality.

    0:01:11.1 SC: Mary Lynn has advised on permitting and compliance for a number of private and public projects throughout California, and has advised on permitting compliance strategies for projects outside of California as well. Homebase for both of us is Nossaman's Orange County, California office. Welcome, Mary Lynn.

    0:01:26.7 Mary Lynn Coffee: Thanks, good to see you.

    0:01:29.4 SC: Good to see you as well. So before we get too far into this, because I know it gets really hairy really fast, to the extent you can, because I know this is a very big ask, what are some of the most important things for our audience to know about the federal Clean Water Act and the Porter-Cologne Act at the state level?

    0:01:48.7 MC: In California, we regulate natural resources twice, almost always, and both of these acts play role at, one at the federal, federal Clean Water Act, and with the state level, Porter-Cologne, in regulating wetlands. Wetlands actually is much more broadly defined than that. When we're talking about regulation in terms of protecting wetlands, we're really talking about protecting all types of aquatic features.

    0:02:15.6 MC: Wetlands, as most people define them are marshes, salt marshes, fresh water marshes, but both acts protect other kinds of non-wetland waters as well, things like creeks and streams. The extent to which they protect streams that don't have water in them called "ephemeral or intermittent" streams is somewhat debated, but they both protect to some extent those kinds of channels and streams, rivers. It's much broader than what normally would be referred to as a wetland, but "wetlands" is kind of a catch-all phrase.

    0:02:48.0 MC: Both of those acts protect aquatic features, and at the federal level, what we see in terms of wetlands Protection is that we have section 404 of the federal Clean Water Act, which requires a permit for any discharge of dredged or fill material to aquatic features defined in the statute and the regulation as "Waters of the United States".

    0:03:13.8 MC: "Discharge of dredged and fill material" really just means a discharge of dirt into a water of the United States, and that often happens when you need to build an infrastructure or project or a private development project, there would be discharges of fill, for example, if you are going to build a bridge over a stream, there'd be a discharge of fill for the pilings to cross the stream. There's discharges of dredge and fill when you're filling a wetland so that you can build a building on top of it.

    0:03:43.1 MC: These kinds of things are regulated under section 404 of the Clean Water Act, and you have to have a permit from the Army Corps of Engineers and provide mitigation and meet other requirements in order to be able to discharge that fill. Most importantly, you need to make sure that there's no net loss of the protected resource.

    0:04:01.7 MC: Similarly, the state Porter-Cologne Act also regulates discharges of dredge and fill at the state level. A fun fact is that the Porter-Cologne Act was actually adopted in the mid-'60s to regulate discharges of dredge and fill and other kinds of pollutants. And the federal Clean Water Act was modeled on the California Porter-Cologne Act. It was adopted in '72 and was based on our California act.

    0:04:31.1 MC: Both now in parallel, regulate discharges of pollutants and discharges of dredge and fill. Under Porter-Cologne, those discharges of dredge and fill are regulated under two different sections of Porter-Cologne. One section is 13-263, which requires waste discharge requirements, that's what we call our state law permit, WDRs or waste discharge requirements for any discharge of waste, including discharges of dredge and fill.

    0:04:57.8 MC: Then there's a separate section of Porter-Cologne, which actually tasks the Water Boards with issuing what's called Clean Water Act Section 401 certifications. The federal Clean Water Act requires a certification from the state agency, that in fact, a 404 permit and a discharge of dredge and fill that's being permitted under the federal Clean Water Act complies with all state laws that govern discharges of waste and discharges of pollutants, discharges of dredge and fill.

    0:05:32.3 MC: They have two sets of jurisdiction under Porter-Cologne to regulate these discharges of dredge and fill. One is under 13-263 in the form of WDRs, the other is in the form of issue in a 401 cert under the latter adopted provisions of Porter-Cologne.

    0:05:50.5 SC: Now, I know one of the weird things about the federal Clean Water Act, because I'm going to start with federal and then go into the state, is that it uses this lovely term "Waters of the United States" throughout the whole act, but it doesn't actually define that term anywhere in the act, so it's really been up to the courts and now several different iterations of regulation to try and define what is a water of the United States.

    0:06:20.2 SC: In the last couple of years, about the last six years, that's really kind of started to heat up. We had some initial attempts to regulate what is a water of the United States through the courts initially, then in 1987, there were some regulations put out by the Army Corps and the EPA. And then in 2015, the Obama administration did the first very major overhaul of those regulations in response to a whole series of Supreme Court decisions that we won't go into too far, but they're sort of the key Clean Water Act decisions made through the course of all of these decisions, established what's known as the "significant nexus test".

    0:07:00.5 SC: That was based on a concurring opinion by Justice Kennedy, in I believe the Rapanos versus the United States case. Basically it's, a water is a water of the United States if it has a significant nexus to a traditionally navigable water. It sounds like a little bit of a squishy test because it kind of is. [chuckle]

    0:07:21.0 SC: The regulations have really tried over the last six years to tease out what that means. In 2015, the Clean Water Rule tried to define that in really more scientific than practical terms, there was a lot of science behind that regulation, and it went into water flow and interconnections, sub-surface connections, a lot of things that if you're a regulated person trying to construct your little project, you may or may not see, but had to do a whole bunch of more investigations to find.

    0:07:52.1 SC: As is tradition in environmental law, those regulations, the 2015 Clean Water Regulations, were immediately challenged in lawsuits all across the country, with one side arguing that it brought too many waters under federal regulation, and the other side arguing, "Well, no, it really didn't bring enough waters within federal jurisdiction."

    0:08:12.3 SC: That really resulted in a patchwork where the rule applied in some places, it didn't apply in other places, and that litigation was still going on when the Trump administration took office, and it was seen as a major problem by the Trump administration for the regulated community. And this is a very short version of this very, very long story, [chuckle] but the Trump administration ultimately over the four-year course of that administration, repealed the 2015 Clean Water Rule.

    0:08:43.0 SC: They didn't actually do that until 2019, which is pretty far into that administration, but what that means is they essentially said, "No, the 2015 Clean Water Rule doesn't exist anymore," and we went back to the 1987 regulation. After that, they embarked on the journey of establishing their own set of regulations of what is a water of the United States. That resulted in the 2020 enactment of the Navigable Waters Protection Rule. So that's the Trump administration's role. It went into effect last year.

    0:09:17.1 SC: And again, as is tradition in environmental law, the Trump administration was immediately sued over that rule. Those lawsuits are still going on all over the country, but the bottom line is the 2020 Trump rule, the Navigable Waters Protection Rule is now the law of the land everywhere. For a little while, it wasn't the law of the land in Colorado, that was its one little hold out, but the Tenth Circuit very recently made it the law of the land everywhere, by basically saying that in Colorado, the District Court didn't properly decide that Colorado should be exempt from applying the Trump rule.

    0:09:56.0 SC: They've now required Colorado to implement it, and the Biden administration has asked for a stay. In most of those cases, they're all in various stages, but specifically in Colorado, and this may be the one hold out here, the Tenth Circuit declined to stay the case and kick the can down the road for the Biden administration.

    0:10:17.8 SC: That is the one case that's really forging ahead at the glacial pace of federal ligation. [chuckle] So that's where we are today, and given all of that very complicated history, Mary Lynn, where do you think the Clean Water Act regulations are likely to go under the Biden administration?

    0:10:37.3 MC: Well, that's the...

    0:10:37.3 SC: Million-dollar question?

    0:10:40.1 MC: More than million-dollar question for many of the regulated community, right? We did see the Obama administration adopt a rule in 2015 that generally defined more broadly "waters of the United States", so more aquatic features were included in the jurisdictional area, more permits were needed by the regulated community to discharge dredge and fill.

    0:11:00.6 MC: Ultimately, we saw the Trump administration adopt a rule that significantly departed from that significant nexus test you were talking about that was established by the Supreme Court in Rapanos, and that rule really focused on including as waters of the United States, only those types of aquatic features that have water running in them, some water flowing, excluded ephemeral drainages, and also looked much more closely and required a much more close connection that involved flowing waters between adjacent wetlands and streams and these traditionally navigable waters. The Trump rule did narrow that jurisdiction.

    0:11:48.6 MC: As we see in every administration, every administration take stock of what the last administration did in its rule-makings, take stock of the litigation pending, and then decides how to move forward. We would anticipate that now that all these cases are pending over the Trump rule, we would anticipate that Biden would not just request a stay, but actually would stop defending the 2020 Biden rule.

    0:12:19.2 MC: The Biden team made no secret of the fact that they thought that the Trump rule was too narrow in terms of protecting wetlands and aquatic features, so I would fully anticipate that they will step back from defense of the 2020 rule and that will leave the litigation either being stayed, so it doesn't move forward, maybe ultimately withdrawn. That's the litigation side.

    0:12:45.3 MC: But then the question is, will they leave that 2020 rule in place? Or will they try to repeal it and replace it with something else? Odds are, and they will try to repeal it and replace it with something else. And the question is, what can they do in a four-year term, because obviously, we have very high priorities in terms of getting vaccines in arms, dealing with the COVID crisis, so will they have enough time to address the 2020 rule, and how will they most likely do that?

    0:13:18.1 MC: I think you can weigh in on this because you have been watching the litigation for Nossaman, but what we saw in the Trump administration's approach might actually provide a viable approach for the Biden administration in addressing this. I believe we saw in the Trump administration that their action to repeal, just repeal the Obama rule, and then to go back to the pre-2015, those 1987 regulations, we saw that upheld in a few courts, as I recall.

    0:13:50.6 SC: Yeah, it was actually challenged initially. Some of those lawsuits morphed over time and are now challenging the 2028 Navigable Waters Protection Rule, but the action of simply repealing the 2015 Clean Water Rule, that was upheld in several courts. So that really does provide a bit of a pathway for the Biden administration. If they're looking to make the Navigable Waters Protection Rule go away, at the very least they now have a roadmap for within four years, it is absolutely certain that they can, at the very least, repeal it.

    0:14:27.9 MC: Mm-hmm, and go back to that 1987 regulation, which was broader, did define "waters of the United States" more broadly than that Trump rule does. And so that might be one of the rare circumstances we might see the Biden administration take a page from the Trump administration.

    [chuckle]

    0:14:48.2 MC: I would anticipate that action occurring and then the question of course becomes what do they replace it with? Do they replace it with a rule, do they leave the 9987 rules in place, or do they simply try to replace it with the Obama rule? My guess is what we would see there is that they would attempt to replace it with a Biden rule, perhaps if they can get that done in four years. My guess is that the Biden rule will be very much based on the Obama rule, and that they will tweak that Obama rule to address some of the issues that it appeared in the litigation before it all became moot with the Trump rule, that it appeared in the litigation created issues for that, the legality of the Biden rule.

    0:15:38.5 MC: There were certain provisions in the Obama rule that courts question fairly openly, even though they didn't decide on whether they were legal or not. One of those was the attempt to regulate anything within a certain linear foot of an otherwise jurisdictional water. And I think we could see that they try to tweak those provisions which looked like the courts did not favor, and issue a Biden rule, that I suspect, given the time, given the administration was, was a part of the Obama meditation. I suspect that the new rule, if they issue one, will be largely based on the Obama 2015 rule.

    0:16:23.5 SC: That sounds likely, because a lot of the legwork was already done under the Obama administration, and certainly the current President was part of that administration, but I guess what we have seen under the Trump administration is that four years is just not a lot of time given all of the moving pieces here, and it's certainly not enough time to anticipate all of the many varieties of lawsuits that will inevitably follow.

    0:16:52.8 MC: Right, right. And given that lack of time, of course, we know the Administrative Procedures Act requires any regulation to be grounded in and based upon substantial evidence, and the Obama rule certainly was based upon a lot of technical evidence. That evidence has been summarized in response to the litigation that was pending before it became moot. I suspect that rather than reinventing the wheel and trying to come up with all that new substantial evidence, that the path of least resistance would be to really just rely upon both that substantial evidence and the prior rule, at least for the vast majority of a new Biden rule.

    0:17:38.3 SC: And the million-dollar question will remain, is four years enough time for them to do it? [chuckle]

    0:17:50.3 MC: Yeah. "Water of the United States" is something that will remain a question for my lifetime for sure, and maybe for yours. That is a problem actually for our clients though, for the regulated community, because we see the definition of "waters of the United States" remain so uncertain, and that is what governs the first step that you take in permitting any kind of development project.

    0:18:13.5 MC: You need to have a delineation of waters of the United States to start your 404 permit process. The rules you use to devise that technical delineation, which is essentially a map of the waters of the United States that you might affect with a project, the rules that you use are very important because it's very expensive to get that delineation done, and it's the first step in your permitting process.

    0:18:38.6 MC: So we could see... What we did see, and what I suspect we could see again, is that you start a delineation under one set of rules. Those rules are either invalidated by repeal in the Executive Branch or invalidated by litigation in the courts, and then you have to start your delineation over again with a new rule.

    0:19:01.7 MC: With the Trump rule, we saw delineations were done under the Obama rule, and then they... When the repeal happened, they were done under the 1987 rule, and then when the Trump rule came in, they had to be re-done under the Trump rule, and three delineations for one permit and the cost in expensive and the delay that goes with that can be very significant. I don't necessarily see an end to that problem of uncertainty in how we define "waters of the United States" any time soon.

    0:19:31.5 SC: And certainly, the irony there is the regulations are supposed to make it clearer for the regulated community. That's the lay of the land under federal law right now. As we mentioned, the law of the land right now is the Navigable Waters Protection Rule, so for wetland, it's a restricted jurisdiction under the Clean Water Act. They really have to be, for an adjacent wetland, connected to a traditionally flowing navigable water.

    0:19:58.3 SC: If they're not, if they're just isolated, under the current state of the law, no mention what happens under the next version, [chuckle] but under the current state of the law, that would not be a jurisdictional well under the federal law. But since we also have double regulation in California, under the Porter-Cologne Act, since you, Mary Lynn, are our Porter-Cologne guru, what are some of the biggest developments under state law as relates to wetlands?

    0:20:26.6 MC: Well, in California, for our California clients, the state law developments are actually much more important than the ongoing saga and definition and redefinition of "waters of the United States". In California, the State Water Resources Control Board adopted statewide regulations that would govern discharges of drudge and fill material.

    0:20:49.8 MC: These regulations govern those discharges whether the Water Board is taking an action on a 401 cert under Porter-Cologne, or whether they're taking the action under WDRs, discharges of drudge and fill material under Porter-Cologne, or both. And they often do both, because Porter-Cologne regulates waters of the state instead of waters of the United States.

    0:21:14.5 MC: The regulation of waters of the state is much broader than regulations of waters of the United States. We've talked a little bit about waters of the United States being governed by connection, whether that significant nexus or direct flow connection to traditional navigable waters. The definition under California law is entirely different and much broader. "Waters of the state", which are regulated by the water boards in California include all surface and ground water of the state. That's the definition. It's very broad.

    0:21:48.6 MC: No idea of traditional navigability, no ideas of flow. So much broader, encompasses waters of the United States, but then also encompasses a lot of other waters, like isolated waters that were determined by the Supreme Court not to be jurisdictional under the federal act, like the federal drainages, which the Trump rule excludes from jurisdiction. So, much broader requirement to get a state law permit under Porter-Cologne for discharges of dredge and fill to all waters of the state.

    0:22:23.0 MC: As I mentioned, that regulation became effective in May of 2020 and essentially establishes a new state level 494 permitting program for all kinds of discharges of dredge and fill to any waters of the state. It also defined in that regulation what wetland waters are. We think of wetlands as being marshes, but under the state definition of "wetland", a wetland doesn't have to have vegetation, as it does under federal definition. A wetland essentially is just any piece of land that's inundated with water regularly. So that is a bit broader in terms of definition.

    0:23:02.1 MC: It also includes constructed or artificial wetlands, unless six different tests are met, including that the wetland area has to be less than one acre, so it includes a lot of constructed and artificial wetlands that are excluded under the Federal Clean Water Act. New waters, the state regulation don't define, but also require permits for discharges of dredge and fill to any non-wetland water. What we call a "non-wetland water" would be a canal, a flood control channel, ditches, lakes, reservoirs, detention basins, ponds, streams. These types of things.

    0:23:42.9 MC: Now, broadly in California, WDRs and/or a 401 certification is required for any discharge to any of those waters in the state as broadly defined under these new regulations. It's really from the standpoint of what a development critical path would be compliant with the state law, is definitely more important in California projects.

    0:24:07.6 SC: I know when the "waters of the US" definition has changed over time, almost every time you've seen all of these cases pop up all over the United States. Given that this is such a significant change under California law to how waters of the state are regulated, have we seen that sort of, the same sprouting of litigation all over the place?

    0:24:29.2 MC: You know, we haven't. We did see in response to the adoption of the regulations themselves, we did see a case that was brought by the San Joaquin Tributaries Authority, that was brought in Sacramento Superior court as a trial court case, so it's not necessarily precedential. What we saw in that trial court case, it was an actual argument that the State Water Resources Control Board, under Porter-Cologne, did not have authority to regulate all discharges of dredge and fill to waters of the state.

    0:25:11.2 MC: The Court actually agreed with that premise and ruled that the State Water Board only had authority under Porter-Cologne to regulate discharges of dredge and fill to ocean waters and certain other waters of the state, but did not have regulatory authority to regulate discharges of dredge and fill broadly to all surface waters in every region. Instead, the court pointed out that that authority under Porter-Cologne was vested in regional water quality control boards.

    0:25:45.0 MC: The upshot of that case is that the regional water quality control boards do have the authority to regulate discharges of dredge and fill to all surface waters. The regional water quality control boards can implement those regulations or others to govern those discharges of dredge and fill and can demand WDRs, in other words, permits for those discharges, but the state water had limited authority to implement its regulations.

    0:26:11.3 MC: In response to that, the State Water Board does not appear to be appealing the ruling. Instead, they have planned to re-adopt these waters of the state regulations on April 6, 2022, and they are going to re-adopt those under a provision of Porter-Cologne that provides very clearly that the State Water Board has the authority to set state-wide policy with respect to water quality issues of concern in the state. Protection of wetlands is clearly something that falls within that purview.

    0:26:43.0 MC: They are going to re-adopt them under a different statute that does give them the authority to set a policy, but obviously, they want more than a policy here, they want to be able to enforce these regulations and issue permits, and so they have also proposed to re-adopt these regulations under a second statue in Porter-Cologne, which gives the State Water Board the authority to adopt what's called "water quality control requirements". Sounds a lot like a regulation, right?

    [chuckle]

    0:27:13.9 SC: A lot.

    0:27:13.9 MC: Yeah, so they're going to re-adopt them as water quality control requirements, again, pertaining to water quality policies, they're critical to the State of California. That will give them this broader regulatory authority they're looking for, and a new statute to cite as the authorization that would indicate that in fact this regulation is within their purview.

    0:27:42.5 MC: Interestingly, the new regulation that allows them to adopt water quality control requirements, also requires the State Water Board to consider the impacts of the proposed regulation on the ability for every person in California to be provided with housing. Another huge policy issue in our state.

    0:28:07.5 MC: Right, the availability of housing. In this hearing on April 6th, I anticipate that we will see the California Building Industry Association, the California Construction Industry Coalition for Water Quality, and other affordable housing groups, I would expect we would see them to make comments on the re-adoption of these regulations, and the costs that the regulations create for particularly residential development.

    0:28:35.0 MC: In the adoption of the waters of the state regulations hearings and in that public comment process, they presented a great deal of evidence about the increased cost over and above what it costs to get a section 404 permit to comply with these new state regulations, primarily the regulations are more stringent than the federal regulations.

    0:28:54.8 MC: There were a lot of costs that they documented, and I suspect they will bring those costs forward again and asked the State Water Board to reconsider them in considering whether to re-adopt the regulations. I don't necessarily think it's going to change the outcome, I think the State Water Board will re-adopt the regulations, that I do suspect that there will be a new effort to get them to consider the costs on particularly residential construction associated with complying with these regs.

    0:29:25.9 SC: Given all of that, what does the regulated community do right now? because you have these waters of the state regulations, and then you have the normal federal regulations, so if you need a federal permit and you might impact some wetland waters of the state, what you do right now?

    0:29:50.3 MC: Well, right now, you have to comply with the state waters of the state regulations, and I don't expect anything will change with that on April 6th. I anticipate that you will need to comply with these more stringent regulations. If you have both impacts to waters of the United States and impacts to waters of the state, I really recommend that you comply with these regulations via the 401-certification procedure. The Water Boards, however, can ask you to get separate WDRs, in which case you're getting two permits for essentially the same types of fill. One for waters of the US, one for waters to the state.

    0:30:31.1 MC: At any rate, whether you're doing it through a 401 cert or you're getting separate WDRs, you will need to comply with these more stringent regulations in terms of permitting and mitigating your impacts associated with discharges of dredge and fill. What does that mean as a practical level? The new state regulations are more stringent than federal requirements in several areas, and the regulated community will have to understand those new requirements.

    0:31:00.2 MC: The first area that this regulation is more stringent is with respect to mitigation required to support the issuance of a permit. Both state law and federal law require no net loss of aquatic features. That's interpreted differently at the state level and more stringently at the state level. These new regulations mandate that no net loss requires a mitigation floor of 1:1 in terms of either acreage or feet.

    0:31:30.0 MC: If you're going to impact, let's say a linear drainage. Let's say it's 15 feet long. Or let's say you're going to impact a linear drainage that is half an acre. In the past, and still under federal law, if that drainage had no particular water quality function or value, no habitat, no endangered species, you could replace the impacted area with a mitigation site that was smaller, maybe 14 linear feet or maybe a quarter of acre, that had much better water quality, habitat, ecological function and value, and that would be acceptable mitigation because you have aquatic resource lift in terms of function and value, even though you didn't have the same area.

    0:32:16.9 MC: That's no longer permitted in California. You must have the 1:1 acreage or linear feet, minimum. And then on top of that, you need to provide for your aquatic lift in California. That actually has not only impacts on development of infrastructure in private developments, where we see the most impact of that is actually on restoration projects.

    0:32:42.2 MC: Interestingly, I'm dealing with a restoration project now, where the goal of the project is to eliminate a recharge, ground water recharge pond that has over time become connected with and actually reducing the function of a stream. The goal is to rebuild the stream, make it function correctly and move this recharge pond offline and then improve water quality and habitat around the recharge pond.

    0:33:09.7 MC: Because it's a 1:1 issue, we can't, in this mitigation project, we can't actually count the rebuilding of the stream and get it to fully offset the amount of the pond that we have to take out to rebuild this drain bank. It's blocking what everybody agrees is a fantastic restoration project because we can't come up with the appropriate mitigation.

    0:33:32.2 MC: It's interesting, it's actually having a much bigger effect on restoration projects at the moment, even than development projects. But that's one example of more stringent requirements. We also see temporary impacts now, if they're greater than one year, they require 1:1 mitigation, they can no longer be self-mitigating. That's a fairly significant [0:33:53.3] ____ in mitigation.

    0:33:55.1 MC: And then we see a lot of requirements around justifying mitigation, so we have to show mitigation fits into the watershed by explaining a watershed management plan and where this mitigation site would sit. Developing a watershed mitigation plan is incredibly expensive and time-consuming because you have to deal with all the water resources in the whole watershed, and so that's creating difficulties in justifying the mitigation.

    0:34:22.9 MC: You also need to climate change assessment for justifying your mitigation. The climate change assessment has to say what will happen based on anticipated effects of climate change to the mitigation site over time, and nobody really knows how to do that analysis, so that's creating another hurdle in terms of more stringent requirements.

    0:34:43.5 SC: It sounds like a lot for any developer, whether it's a rehabilitation project or housing project, or even a public agency trying to build a public facility. It's a lot for anyone to bite off. Is there any effort to streamline or clarify how development projects are supposed to move through this process?

    0:35:06.2 MC: There are some efforts afoot, and the efforts are supported actually both by the resolution that the State Water Board adopted when they adapted the waters of the state regulations, they recognized that there would be more stringent requirements and that those requirements would need to be the subject of ongoing discussion and implementation guidance.

    0:35:30.7 MC: There was implementation guidance issued by the State Water Board in April of 2021, there are still a lot of questions after that implementation guidance, including questions about how to do watershed management plans, and another more stringent requirement, how to do 404-B1 alternatives analysis for your 401 cert.

    0:35:52.3 MC: The 404-B1 alternatives analysis is a requirement to come up with the least environmentally damaging practicable alternative, the LEDPA, which requires consideration of engineering design and how you can avoid and minimize impacts. That process is becoming very extended because now the State Water Board is exercising its authority to mandate new engineering changes and to choose a different LEDPA than the Army Corps of Engineers has chosen.

    0:36:21.6 MC: So that's another area where some work has begun to try and streamline that process and to move it to an earlier point in the planning process, more like the CEQA alternatives analysis and integrate it with that process in order to minimize the difficulties that come up with using a different LEDPA after you're already done with CEQA, after you've already analyzed all those alternatives.

    0:36:49.7 MC: So that's an area that industry groups are beginning to work with the State Water Board to try to address in terms of streamlining, identifying those watershed management plans. I try to identify and get those approved so that multiple projects can use them to justify their mitigation as an area on the list to address the State Water Board, and then developing a template climate change analysis that folks can rely on and use to justify their mitigation sites, is another area of streamlining.

    0:37:23.9 MC: The streamlining program got off to a pretty good start, and then of course we had COVID and we have furloughs at all the water boards. And they have, of course, water quality issues that they are considering, some related to drought, which we're currently in a new drought, some related to COVID. Leeping this as a priority is difficult in the current environment, but there is the opportunity to streamline these more stringent requirements and at least to provide better information to everybody about how to comply with them.

    0:37:56.3 MC: I would really suggest to our regulated clients that they keep an eye on that and participate in that effort in order to address these more stringent mandates.

    0:38:07.0 SC: Mary Lynn, thank you so much for joining me today. I know that issues concerning wetlands are really important to our clients and the regulated community, and I really appreciate you taking the time to provide some insight on the subject. And thank you to our listeners for joining us for this episode of Digging Into Land Use Law.

    0:38:24.5 SC: For additional information on this topic or other environment and land use matters, please visit our website at nossaman.com, and don't forget to subscribe to Digging Into Land Use Law wherever you listen to podcasts, so you don't miss an episode. Until next time.

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    0:38:42.0 S2: Digging Into Land Use Law is presented by Nossaman LLP and cannot be copied or rebroadcast without consent. Content reflects the personal views and opinions of the participants. The information provided in this podcast is for informational purposes only, is not intended as legal advice, and does not create an attorney-client relationship. Listeners should not actually solely upon this information without seeking professional legal counsel.

    [music]


  • The Rights of Land Owners Impacted by Easements

    In this episode of Digging Into Land Use Law, Nossaman Real Estate partners Simon Adams and Karla MacCary get down and dirty and into the weeds of the rights of land owners that are impacted by easements. It can be important to know how these rights can be established given their effect upon property values. Simon and Karla examine the risk of easement creation and the correct precautions to be taken by owners. They also debate the benefits and burdens of easements by land owners and developers that use these legal rights to enhance the value of their land.


    Transcript: The Rights of Land Owners Impacted by Easements

    0:00:00.0 Simon Adams: In this episode of digging into land use law, we get down and dirty and into the weeds of the rights of land owners that are impacted by easements. It can be important to know how these rights can be established given their effect upon property values. We take a look at the risk of easement creation and the correct precautions to be taken by owners. We will debate the benefits and burdens of easements by landowners and developers that use these legal rights to enhance the value of their land.

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    0:00:31.4 Speaker 2: Welcome to Digging Into Land Use Law, Nossaman's podcast covering the development of all things in, on, or above the ground.

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    0:00:47.7 SA: Good morning, good day, or good evening, depending on what time you're tuning in. My name is Simon Adams, and I'll be your moderator for this episode. I'm a partner in the Nossaman's Real Estate Group, working out of our San Francisco office. Today, it's my privilege to interview my fellow Nossaman partner, Karla MacCary. Karla has more than 25 years of experience advising on real estate financing and transactions. She serves as the co-chair of our Firm's Real Estate Group, and she works out of our downtown Los Angeles office where she enjoys some of the best views of the city. Karla, welcome to this episode. Please, can you explain to the listeners the essence of an easement so that we can all recognize it when we see it?

    0:01:29.5 Karla MacCary: Well, thank you, Simon, for that nice introduction. Well, I'll start by defining what an easement is, and it's an interest in the land of another that gives the owner of that easement the right to use the land or to prevent another owner from using the land. Now, an easement is distinguished from a license, which is the personal privilege, and a license is usually something that can terminate while an easement is permanent. An easement can be insured by a policy of title insurance while a license cannot because it's not an interest in the land.

    0:02:12.6 SA: If having an easement is preferable to a license, how does one go about setting up an easement?

    0:02:19.5 KM: Easements are created by many methods, and the first, and I'll say it the best, most preferable is by an express grant in an easement deed. For example, an owner of Parcel A as grantor grants to the owner of Parcel B as grantee an easement for pedestrian and vehicular purposes, say, 15 feet wide measured from the center line, for ingress and egress from a public street known as Main Street to parcel B.

    0:02:52.9 SA: Since we have a podcast here and people cannot see the documentation, could you explain to our listeners what it may look like?

    0:03:02.5 KM: Exhibit B is going to be a legal description, and they'll also have a map attached to it that shows it drawn out, and the legal description in this instance would probably be a legal description of that center line, and then the map would show 15 feet on either side of it.

    0:03:24.1 SA: Karla, are there other ways to create an easement?

    0:03:26.9 KM: Yes, similar to an express grant, you can have an express reservation in a grantee. For example, in a grant of Parcel B by the owner of Parcels A and B, the grantor accepts and reserves over Parcel A an easement for pedestrian and vehicular access 15 feet wide measured from the center line for ingress and egress from the public street known as Main Street to Parcel B.

    0:03:57.2 SA: Karla, would I be correct in my understanding in that scenario, the owner of Parcel B, having reserved their route to Main Street of Parcel A then sells the land, and we have two different parties, the easement here would remain in place to ensure the road connecting Parcel B to the Main Street is preserved?

    0:04:20.4 KM: Exactly. The other ways to create an easement are a bit messier. The first one of these methods is by implication. And easements can arise by implication under circumstances where the court concludes that the parties intended to create an easement even though they failed to do it in writing and put in a record, and that usually arises where the property used to be held in common ownership, and then part of it was transferred. And an easement by implication can also arise when a landowner subdivides the land, and then the subdivision map shows streets and alleyways that are within the property and provide access to different lots, and then when a lot is conveyed, the deed in their description generally refer to that same map, and that map which has the streets and alleyways becomes part of the deed.

    0:05:17.7 SA: Okay, so if I have a map noting the easements, will that hold up in a court of law?

    0:05:24.7 KM: Yes, it should hold up in court. Another way you can get an easement is by necessity, and again, involving the court. The court will create an easement by necessity based on public policy, in that public policy here, it favors the productive use of land and discourages waste of assets just because there is a lack of access. The court should do this only when the easement is absolutely essential, such as when the land is landlocked.

    0:05:58.6 SA: Again, this is an easement established through the courts?

    0:06:02.8 KM: Yes, yes. And another way courts create easement or are involved with the creation of easements is through the condemnation process. The governmental agency can condemn an easement through the eminent domain process, and at the end of the process, the easement appears of record in the form of a document from the court, the order of condemnation.

    0:06:27.5 SA: If the government seizes my property through eminent domain, and then by filing paperwork as part of that process, an easement can be established. Karla, would the easement be mentioned in the paperwork?

    0:06:41.3 KM: Yes, yes, it would. Now, the last method to create an easement is by prescription. And this... It's a notorious method of creating an easement. It's very similar to adverse possession. The elements of creating an easement by prescription are very similar to adverse possession, but they do not include the payment of taxes unless the easement parcel is separately assessed.

    0:07:08.5 SA: Karla, it seems to me very appropriate that this type of easement is considered notorious. You've just described an easement established on my land without my consent and essentially by way of trespass.

    0:07:21.5 KM: Yeah, that's basically right. So, Simon, do you know, the elements of prescriptive easement that you could explain for our audience?

    0:07:31.7 SA: There's two elements that should be looked for. Firstly, the land must have been used and used continually for a period of five years. And secondly, the land must have been possessed in a manner that's open, notorious and clearly visible to the owner of the burdened land, and hostile and adverse to that owner. Now, whether the criteria have been met is a question of fact. And the person claiming the interest has the burden of proof, and in fact, they're entitled to a jury trial. The claimant doesn't need to show any necessity, but they do need to show the use unlawfully infringed on the rights of the owner of the burdened property. So that's to say our claimant will need to show the use was a trespass. However, there doesn't need to be an intent to violate the rights of another. The person can acquire a prescriptive easement through the mistaken idea that the use that they're making was their right in the first place. Karla, what elements must we be aware of in our review if a project is going to rely upon a prescriptive easement or an easement by implication?

    0:08:44.0 KM: Well, if you're developing a project as a practical matter, you would need to go to court to get the interest recognized and recorded, and a lot of this is for title insurance reasons that... To get financing, you need title insurance, and title insurance companies have underwriting requirements, and they don't like to buy into lawsuits. They want to have it resolved and have the court recognized, and have it put of record, and then they will insure it.

    0:09:18.5 SA: A property owner generally cannot acquire an exclusive prescriptive easement that's the equivalent of a fee title. For example, a prescriptive easement may not be used to resolve a backyard fence dispute. However, courts have recognized an exception to this prohibition for cases involving public health safety and utility services. Karla, are there cases that would help in further understanding the nuances of the general position?

    0:09:47.1 KM: Yeah, a good case on this came out in 1991, and it's called Otay Water District vs Beckwith, and in that case, a water district acquired land, but it turned out almost 1.7 acres of that land wasn't owned by the grantor, but the district was not aware of that when they acquired the land. They thought they had the right to it. They fenced it, they built a reservoir, used the reservoir, and it was readily apparent that use. And about 20 years later, the district, for whatever reason, they discovered this mistake, and they felt that they had to correct it. They brought a court action that successfully gave them a prescriptive easement for that 1.7 acres. The court held that the easement must be exclusive despite the general rule, to protect the public water supply from contamination. They couldn't risk having the true owner of the underlying property come try to use it or the general public. The court also noticed that the easement would terminate when the water district stopped using that 1.7 acres for a reservoir. While they found an exclusive easement, they did not grant them a permanent easement.

    0:11:18.5 SA: Let us imagine for a moment, I'm a property developer and my big concern is whether my main property project is going to be subject to any easements either by prescription or necessity, which could impact upon my planned use of the property. Prescriptive easement can be acquired obviously both by specific persons or by the general public, and whether an easement has been created for the benefit of the general public or the private individual will obviously depend upon whether it's been continuously used in a required manner. Karla, what are the protections might I be considering and looking for regarding my development?

    0:12:00.0 KM: Well, here in California, we have two statutory methods to protect owners from losing property through prescriptions, but those methods cannot undo a prescriptive right that has already been earned before the statutes were passed. So, under Civil Code Section 817, an owner can record with the county recorder a notice with the legal description of the land. And when the use is by specific persons such as neighbors rather than just the general public, that notice, that 817, Civil Code Section 817 notice must be given to the particular user by registered mail or certified mail return [0:12:43.5] ____ requested.

    0:12:47.0 KM: It's worth noting that the consent that the property owner grants can also be revoked by recording a notice of revocation or delivering a notice of revocation to the particular users, but under Civil Code Section 817, after recording the notice and before the revocation, the owner is not supposed to prevent or obstruct appropriate public use. The next statutory method to prevent the acquisition of easement rights through prescription is by posting, and you post a sign at the entrance to the property or intervals of 200 feet along the boundary. The notice should read, "Right to pass by permission and subject to control of owners, Section 1008 Civil Code." So plaques with these notices are often seen on sidewalks and in urban areas. We see them in Downtown Los Angeles and a few places, and the owners have installed these plaques because in the event that their building is destroyed or taken down, they want to reserve the right that maybe they want to build on that area that they're letting the public use at the present time for a sidewalk.

    0:14:02.8 SA: I'd like to turn our attention now to the scenario that is encountered where there's a trail and it's been used over the years for, say, hiking, horseback riding or vehicles, and in this regard, it's important to highlight California Civil Code 1009. This is the law that was passed in '71 in order to encourage private owners of land to permit entry by the public for recreational purposes. Prior to this code becoming law, owners of the undeveloped land were forced to close their trails [0:14:35.1] ____ to keep the public from acquiring a permanent easement. Karla, can you provide some further observations on the effect of this code?

    0:14:44.3 KM: Section 1009 provides that except for land lying within 1000 feet of the mean high tide line of the Pacific Ocean, or between that line and a public road, whichever is less, the public cannot acquire any rights in private property by prescription, unless public funds are being used to improve and maintain that property. So today, in order to prove a prescriptive easement, the claimant would have to show that the easement was acquired before 1971, which is when Section 1009 was passed. And they do try. Just two years ago, there was a case on the issue of trails, and there were witnesses providing testimony about how when they were children, they hiked these trails with their families in the 1950s and the 1960s. And it goes without saying that as time goes on, it's going to be harder and harder to bring these cases because it's going to be harder to have witnesses that have memories of five years of use pre-1971.

    0:15:54.7 KM: It also should be noted that to prove an easement by prescription is highly specific. If you will be investing money in reliance on an easement by prescription, you should confirm that right again through judicial action and record the judgement. Don't rely on your facts maybe similar to another case. And if the land you will be using for your project shows any evidence of adverse use such as trails or roadways, investigate further and see if there's a risk that there's a user who could claim a prescriptive use of the land. And prescription requires continuous use, so in one-off, someone using it in one-off is not going to show prescription, but you should observe over time and see if this use is something that is happening with some frequency. Finally, it's worth noting that you cannot get a prescriptive right against a governmental entity, and the government cannot lose its property through adverse possession.

    0:16:57.0 SA: Well, another issue I'd like your comments on Karla, concerned changed use. Let's consider easements that have been expressly granted or reserved and through prescription. However, in this scenario, a dispute arises because of party changes or intensifies the use of the easements they have. For example, let's say this may happen in a neighboring property being developed and the regular use of access is now being used for construction traffic or a road that was previously only used by hikers is now used by vehicles. Karla, what issues do you want us to consider regarding increased or expanded use?

    0:17:40.2 KM: Yeah, this is an issue where you do see a lot of disputes and litigation on this very issue. And the first place to look is the easement grant, assuming there is one that you have, that this is an easement that was created through an express grant or an express reservation. How specific were they? Was it just an easement for driveway purposes? Or did the language include driving purposes, including the ability and the right to park cars, store trash cans? Is landscaping mentioned? What about irrigation? Does it mention incidental purposes? Easements that are created nowadays, the custom with lawyers who represent a lot and work with real estate developers is to have a pretty detailed document that goes into a lot of detail about everything that can be done through that easement. But often you have what you have with property and the easement may be very simple, and it will require some analysis to determine what sort of rights you can do with the document that's drafted without finding yourself in a dispute with neighbors or the underlying owners. Now, because easements used to be fairly simple documents, general rules have developed about easements and their use. Simon, can you explain to our audience what some of these general rules are?

    0:19:19.7 SA: Yes, so once an easement has been created, both parties have the right to insist that so long as the easement is enjoyed, it shall remain substantially the same at the time it was accrued as a right, regardless of the relative benefit or damage to the parties by reason of a change in the mode and the manner of its enjoyment. The strict application of this rule has been relaxed to permit minor alterations in the sense of the use, as long as the change is one of degree and not a change of character. [0:19:49.7] ____ the easement can make minor changes in the use as long as there is no material or substantial increase in the burden on the servient tenement. So, an increase in use is contemplated, the creation of the easement is permitted, whether you've got increased use success, the success if it's a question of fact, and that depends on either the terms of the document that established the easement or the circumstances of its creation and the intent of those parties. The extent of the easement is inferred from the circumstances that existed at the time the easement was created. Now Karla, there are circumstances where a change of use may be permitted for technological developments if that new use is similar to the former use and the new use results from the change to technological conditions. Can you provide comments to us regarding this?

    0:20:43.1 KM: Yes, consideration is certainly given for technological advances, and we have a case example of that. That is in Salvaty vs Falcon Cable Television from 1985. And in that case, the owner of an easement for telephone poles and lines, the court found that that owner was allowed to use the easement and poles for cable lines because the additional lines did not increase the burden on the underlying property, and the use was consistent with the primary purpose of the grant and was within the natural evolution of communications technology. The extent to which use of an easement can be altered and the question of whether the use is excessive, and amounts to a surcharge of the easement on the burdened property, these are issues of fact that are specific in each case. But as a general rule, the owner of the dominant tenement must use the easement in a manner that imposes the least burden on the owner of the servient tenement, and every incident of ownership that is not inconsistent with the use and enjoyment of the easement is reserved to the owner of the land.

    0:22:01.9 SA: Well, thank you Karla, for joining me today and allowing me to pick through your extensive knowledge on this subject matter, and providing a good explanation of how easements work.

    0:22:13.3 KM: Well, thank you for having me, it was a pleasure.

    0:22:15.6 SA: And I'd like to thank our listeners for joining us in our podcast Digging Into Land Use Law. For additional information on this topic or other environmental land use issues, please do visit our website at nossaman.com. And finally, don't forget to subscribe to our Digging Into Land Use Law podcasts, so that you don't miss any of the new episodes. Until next time.

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    0:22:44.1 S2: Digging Into Land Use Law is presented by Nossaman LLP and cannot be copied or re-broadcast without consent. Content reflects the personal views and opinions of the participants. The information provided in this podcast is for informational purposes only, is not intended as legal advice and does not create an attorney-client relationship. Listeners should not act solely upon this information without seeking professional legal counsel.

    [music]


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