Digging Into Land Use Law

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.}

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_{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.}

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.

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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.}

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Following a historic 2020 election, with record voter turnout and multiple controversies amid a global pandemic, Nossaman Government Relations & Regulation (GRR) Chair Fred Dombo spoke from Washington, DC with Nossaman GRR Partner Amber Maltbie in Los Angeles about the likely policy consequences of the new Congress and the new Administration. Their conversation covers the potential for introduction of a large infrastructure package, as well as trends that they noted in the election outcome and how the results might impact policy decisions going forward.

Transcript: Digging Out of the 2020 Elections

_{0:00:00.2 Amber Maltbie: Today we are going to “dig out” from the 2020 election and examine the likely policy consequences of the new Congress and the new administration, including the potential introduction of a large infrastructure package. We will also discuss some trends that we noted in the election outcome and how the results might impact policy decisions going forward.}

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_{0:00:25.2 Speaker 2: Welcome to Digging Into Land Use Law, Nossaman's podcast covering the development of all things in, on, or above the ground.}

_{0:00:42.2 AM: Thank you for joining us on this new episode of Digging Into Land Use Law. Today we will be discussing the 2020 election. My name is Amber Maltbie, and I'm a partner in Nossaman's Government Relations & Regulation Group. My practice focuses on campaign finance and election law. And I provide strategic counsel to individuals, nonprofits, agencies, and organizations engaged in political and lobbying activity. Joining me today is Fred Dombo, who serves as chair of Nossaman's Government Relations & Regulation Group which combines experience as an aide to members of the US House of Representatives, committees on appropriations, and energy and commerce. With more than 20 years of private practice to provide clients with cost-effective advice on the legal and political implications of their government relations activities. It's great to be here with you today, Fred.}

_{0:01:37.3 Fred Dombo: Thanks very much, Amber. I'm glad to join you today to discuss the implications for infrastructure land use and environmental matters.}

_{0:01:44.8 AM: Before we jump into the big picture of what happened at the federal level, we thought it would be fun to take a look at what happened beyond the presidential and those senate races. There was a lot of activity that happened at the state level. And there were also some trends that we noticed in terms of the election outcomes.}

_{0:02:08.6 FD: Yeah, at this point, I think in California, there's a few House seats that still haven't been determined. But more importantly, we saw a lot of changes, an increase in diversity of the new Congress. And as people may know, or may not know, we have a bipartisan practice. For example, you're a Democrat, I'm a Republican, I was proud to see that we're going to have at least 31 Republican Women make their way into Congress come January, surpassing a record set in 2006, according to CNN and the Washington Post.}

_{0:02:40.3 AM: So that was one of the big landmark things that happened in this election is that there was such abuse and Republican women who ran and won at the congressional level that was complimented in 2018 when Democratic women ran and won in unprecedented numbers. And so now Republican women have double the numbers of representation that they had previously. And so overall, we're seeing this trend towards getting women to run and to get elected. And we'll talk a little bit more about why that representation matters when we're talking about the policy implementation later on in our podcast here.}

_{0:03:23.2 FD: The other thing that happened with so much change on the one hand, and I think you're going to go into some details regarding other ways, diversity increased in the congressional level. But interestingly, on the state level, there was some turnover expected in a legislative chambers that just didn't materialize. In fact, only one state had turnover in their legislature. In New Hampshire, Senate and House both moved from Democrat to Republican, which seems counter to the trend across the country. It seems that the trend that was expected didn't actually materialize. Both had gone the other way in 2018. And now they're flipped back according to the National Conference of State legislators.}

_{0:04:02.1 AM: Well, that may be true, but new, New Mexico had something historic happen. It now has a majority of women in its state legislature, making the Mexico only the second state in the country that to be majority women represented. Nevada actually stole that claim in 2018 to become the first but I think too, the other thing to take into consideration is that we are at the tail end of the decade, set the Census count has ended and so redistricting is going to start in earnest in the next year. And so we'll see a lot of jockeying at state... At the state legislative level where the legislatures control the redistricting, or before the redistricting commissions that a number of states have set up to serve as independent bodies to redraw those lines.}

_{0:05:00.8 FD: Yeah, that was kind of an untold storyline in a lot of the media, we saw around the 2020 elections. For example, in the Arizona House, a lot of money was dumped into there to try to change it. It's been Republican since 1966. It appears as though it's going to have that same partisan makeup as it has had. In the last session, 31 Republicans and 29 Democrats, despite speculation that it might change and despite a lot of effort to flip it, and despite the whole state, really going from red to blue. So it's just a lot of interesting different facts and stats, we need to unpack from the selection and see what that means. But right now, we can tell you some high-level definitely impacts that's going to have on the policy agenda.}

_{0:05:45.7 AM: One thing that you mentioned there, Fred, that is interesting is that the difference between how voters are voting at one level but then voting differently at another level. So for example, you mentioned Arizona, the legislature did not flip. However, it appears Arizona turned blue for the presidential election. And so there's some disconnect there. One of the mechanisms for influencing policy change that a lot of our clients actually utilize is the ballot measure process. And this is a way when the legislature is not going the way perhaps people really wanted to go in terms of policy, individuals, special interest groups, they can go directly to the voters with the policy proposal through the initiative process. And this is...}

_{0:06:38.3 AM: Not allowed in every state, it's a process allowed in about 25 states. Another trend that we saw this year was the voters adopting policies when the legislature refused to act, and this is something we saw earlier in the year in red states like Missouri and Oklahoma, passing Medicaid expansion at the ballot, when the legislatures have refused to adopt those proposals. And then on the general election, you had red states like South Dakota and Montana, voters adopted cannabis legalization recreational use for adults, 21 and older, when the legislatures had not been friendly to those policies.}

_{0:07:26.0 AM: I think that may be akin, and Fred, this something where I'd really like to dig in with you, is we're looking at potentially having a Democratic administration, but a Republican-controlled senate. And you mentioned there's a number of big policy proposals being pushed through the federal government, and I just talked about how at the state level we see different competing legislative policies being dealt with. How do we anticipate that occurring at the federal level?}

_{0:08:03.0 FD: Yeah, I think you're going to see that definitely in the form of an infrastructure package. The big piece of legislation that everyone's been waiting on and now very much expecting at the outset of a Biden administration is going to be a large infrastructure package that's also going to serve as a vehicle for stimulating jobs and helping the recovery from the pandemic.}

_{0:08:24.4 FD: Before we get there though, the Congress has some unfinished business to attend to, the current Congress, and that includes the fiscal year 2021 appropriations, the most passed spending bills the senate released, 12 of them. And at the time of this recording, the vice chairman there, the Democrat Patrick Leahy from Vermont, said negotiations between the Democrats and Republicans are going well, and that they're probably going to be able to have a product out to cover the rest of fiscal year 2021 before too long.}

_{0:08:57.4 FD: A little more complicated is the coronavirus stimulus package, the next version of that that everyone's been talking about. Not a lot has changed there since before the election. Some speculated that after the election, it would be easier to get that done, there would be less pressure on Majority Leader McConnell to hold a lot on spending. Well, recently he came out with a statement, once again, advocating for a smaller bill, a lower dollar amount spent in the bill because unemployment is down once again, and Eli Lilly has an antibody therapy that's been touted and granted emergency use authorization by the Food and Drug Administration.}

_{0:09:42.2 FD: And of course, big recent news is Pfizer's COVID-19 vaccine, 90% effective. So his point is, this thing might be ending sooner than expected, and therefore, we shouldn't spend as much money. I think a lot of policymakers are going to disagree on the House side with that, so that could be a more approach of battle in the current Congress.}

_{0:10:04.9 FD: Also of interest to our listeners is the Water Resources Development Act, WRDA. That conference report is in the House after it passed the House in July and was reported to the Senate, which back in May, Ian had handled it. The product that will be forthcoming and that's a very significant piece of legislation as listeners know. Another one is the National Defense Authorization Act.}

_{0:10:32.5 FD: The situation with the infrastructure packages that Highway Trust Fund, which actually provides the funding for the programs, is headed for insolvency. It's derived from fuel taxes, they haven't been increased since 1993, and the authorization for these programs is up as well. So that's due in September 2021, we have less than a year to get that taken care of.}

_{0:10:58.8 FD: House Ways and Means Committee will provide the funding mechanisms for that. They definitely want to put forth a bill... Their portion of the bill and help upgrade the country's roads and bridges and waterways, but they're also positioning it as an opportunity to create good jobs for folks who were out of work and that'll re-energize the economy.}

_{0:11:21.8 FD: The House Transportation and Infrastructure Committee has the structure of that bill, it's a $500 billion authorized bill that doesn't actually have the funding mechanism in it, and that's... Had already passed Congress earlier, this current Congress, and would establish, potentially, a national vehicle-miles traveled pilot program, to see if that's a viable way to fund our infrastructure around the country.}

_{0:11:49.7 FD: That has set the stage for Mr. Biden's proposal, that that is a full... In the campaign, has available, publicly available plan that would cost about $2.6 trillion. It would include not just highways, roads and bridges, rail, transit, but also housing, schools, electric vehicles, trains, water resources, and broadband.}

_{0:12:20.5 FD: The scope of it, very broad, very aspirational. The goal is to create a modern sustainable infrastructure that will actually foster job creation and improve the equity in our infrastructure system and deliver a clean energy future. So there's going to be... The Republican Senate's going to have a lot to say about that. We might see that funded through a temporary gas tax increase that's been phased out as we phase in a vehicle miles travel tax. As part of that, you may have a carbon tax that would also include a dividend or a tax credit hooked into carbon equity. The concept of...}

_{0:13:06.6 FD: Having these systems paid for in a progressive fashion that's going to put... Shift the burden off of people that's able to pay. So Biden has been a supporter of bonds for infrastructure, so we expect to see that. In 2009, he supported the Build America Bonds program, as well as public-private partnerships, which I know are of interest to a lot of our listeners. There's been bipartisan supporting Congress for Private Activity Bonds and the TIFIA program. Not only will Biden emphasize them, but also maybe use them or TIFIA in particular, as a model to help fund airports and also to help develop broadband programs. The infrastructure package is going to be the subject of a lot of debate and there's a lot of work to do on it, even though in the last Congress, they were thoroughly developed proposals. That's the biggest, perhaps, aspect of the Biden Administration of interest to our listeners, but also there's... In the environmental land use area generally, there are going to be some changes.}

_{0:14:14.0 FD: One of the more noteworthy ones that came up in the election is he's going to rejoin... Have the United States rejoin the Paris Accords. And the other thing that may be of more practical everyday concern for our listeners is that a Biden Justice Department is going to be emphasizing enforcement in the environment area. So as listeners probably know, the US, as part of the Paris Accord, we voluntarily commit to cutting its carbon dioxide emissions by 26% or 28% by the year 2025. And also, the US would contribute funding heavily to Green Climate Fund that helps poor nations invest in renewable energy. As I mentioned though, the DOJ's Environment and Natural Resources division will quickly undo some of the Trump directives that constrained settlements in environmental enforcement cases, and also are going to increase enforcement activity and emphasize environmental and climate justice in the process.}

_{0:15:21.0 FD: There's going to be an increasing willingness to litigate regarding pollution and wildlife, particularly with respect to public lands and tribes and any federal property. That's something that I know listeners would be interested in just generally. Biden had pledged to reverse the Trump tax cuts. The Senate may have something to say about that, the Republican-controlled Senate. House Ways and Means Chairman, who'll be very involved in the infrastructure package, also wants to make some changes to the 2017 Republican tax cuts, including removing the $10,000 cap on state and local tax deductions, the ability to deduct the taxes you pay to the state and local governments from your federal taxes. Increasing the corporate income tax to 28% from 21%, and then increasing taxes on those making more than $400,000 a year. So those are some of the big ticket items on the agenda.}

_{0:16:22.3 AM: So, Fred, for our listeners that may not know, when you're talking about this infrastructure package, it sounds like it has a lot in it that could really benefit local economies. You mentioned jobs, I think you mentioned housing, roads, that is a lot. So from the... Two questions, one, How do states go about partaking in the projects? How do they get in on that, for a lack of a better phrase. Again, this is your arena, not mine... The second part of my question... Well, I guess it's a three-part question. The second part of my question is, Does the new composition of the Congress, the House and the Senate, and the fact that we really do have a more diverse Congress than we've had before, is that going to shape what the application processes look like? And then my... And we'll get to my third question. I'll let you answer my first two. [laughter]}

_{0:17:26.8 FD: Sure. So the funding is going to come down through existing programs. We mentioned the TIFIA and Private Activity Bonds, and we... It's also going to come potentially through projects that get written directly into the bill. This alludes to a separate debate that's been going on mostly among appropriators, which is whether or not to return to congressionally directed spending, otherwise known as earmarks, that these bills, these large infrastructure spending bills that come by every five years or so, often have both a funding mechanism as well as an authorization mechanism. So that is not the ways Federal spending usually gets approved by Congress. Appropriations are separate from the authorization, typically, and when you authorize on appropriations, then we're starting to get what you call earmarks. And how much the Democrats have been talking about doing that more if the Biden Administration wants to put particular spending lines into the package at some point, and the House agrees to that, you may not get resistance from the Senate.}

_{0:18:40.4 FD: So we could see that. Funding could come that way, but most likely, and I think probably the best way to stimulate job growth is going to be through the existing programs that the Department of Transportation and others have for this funding to find its way to worthy projects and into worthy rail and transit systems. Whether or not the diversity of the Congress is going to help change the way those programs work, I don't know that it's going to have an impact that quickly. I think this bill is going to happen pretty fast. I tend to believe that one of the benefits of diversity is that you had different perspectives to a process that may have been going on for some time, and I think there's potential for that to happen here. I just don't see it right off the bat.}

_{0:19:34.0 AM: My final question, my third question, again is a process of state versus federal process question. And to give you... The framework that I'm thinking of as an example, is Medicaid expansion. As you know, it is a product of ObamaCare and state legislatures can opt into Medicaid expansion through the federal government, and if they don't, the voters can go to the ballot box themselves to pass Medicaid expansion. And I'm just wondering if there is any scenario, with the infrastructure project or anything else that you've been talking about, where we would need the voters or interest groups to have to circumvent the legislature to take advantage of what the federal government is doing.}

_{0:20:28.9 FD: That's a very interesting question, and interestingly, to the ballot process. Some of these infrastructure programs require a local spend, a certain amount of local and state investment in the projects. If the legislature doesn't approve that on the state level, then it would be possible, I suppose, for voters to create a project, especially in California, by a valid initiative to improve funding for a project that would provide the local match or the state match for accessing and unlocking a large amount of federal infrastructure dollars.}

_{0:21:12.9 AM: We've covered a lot of topics today, but why don't we close out with you telling us what you think will be most top of mind for our listeners.}

_{0:21:22.1 FD: ESG's rule-making on increasing disclosure, environmental, social and governance issues, publicly traded companies need to do, so. That could... The Biden administration will probably support redoing rule-makings or new SEC rule-makings that allow for greater disclosure of ESG risks, and then also ease up the thresholds for a shareholder to just submit proposals for a vote by board shareholder proximates. A lot of times those are aimed at lobbying and campaign finance disclosures, making the companies disclose on their websites their association spending as well as their peer corporate political contributions. And then, of course, as we've been talking to our clients, it's not first on everyone's list, it's not first on most people's list, but it's on everyone's list, privacy. Determining on a federal level what personal information is, quote-unquote, personal information.}

_{0:22:21.7 FD: That's something that businesses and other entities are increasingly calling congress. They need some federal standard for it. California leads the way on that for the United States with regimen pretty tough on par with in Europe, and for... Outside of the healthcare context, HIPAA, we don't really have a federal definition other than out of what personal information is, and so it would be helpful to businesses, the federal government to actually make a determination regarding that. So those are just some of the other smaller issues that are big to some of our clients like for our listeners, I wanted to touch on those too.}

_{0:23:03.8 AM: Well, thank you very much, Fred. I really enjoyed our discussion today, and thank you to our listeners for joining us for Digging Into Land Use Law. For additional information on this topic or other environment and land use issues, please visit our website at nossaman.com. And don't forget to subscribe to Digging Into Land Use Lawwherever you're listening to podcasts, so that you don't miss any of our upcoming episodes. Until next time.}

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_{0:23:34.5 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's 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.}

In this episode of Digging Into Land Use Law, Nossaman Environment & Land Use Group Partner Linda Larson and Associate Brian Ferrasci-O'Malley dive into the issues surrounding the effects of climate change on American fisheries and fishery management. The conversation covers how changing ocean conditions are impacting fish species that have been traditionally caught and enjoyed by Americans, what legal tools are available now for fishery managers to manage fisheries sustainably in the face of impacts from climate change and whether legal changes are needed to ensure sustainable U.S. fishing in the face of these daunting transformations.

Transcript: What Happens When the Fish Move? A Look at the Practical and Legal Impacts of Climate Change on American Fisheries

_{0:00:00.0 Brian: What happens when the fish move? Today, we dive into the issues surrounding the effects of climate change on American fisheries and fishery management. Changing ocean conditions are impacting fish species that have been traditionally caught and enjoyed by many Americans. We'll consider what legal tools are available now for fishery managers to manage fisheries sustainably in the face of impacts from climate change and whether additional legal changes are needed to ensure sustainable US fishing in the face of these daunting transformations.}

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_{0:00:37.2 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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_{0:00:53.7 Brian: Thank you for joining us on this new episode of Digging Into Land Use Law. Today we'll be discussing the practical and legal impacts of climate change on American fisheries. My name is Brian Ferrasci-O'Malley, and I'm an associate in Nossaman's Environment & Land Use Group. My practice spans both transactional work and litigation, and I regularly advise clients across the US on energy development, site clean-up and federal wildlife law issues. Joining me today is Linda Larson, a partner in the Environment & Land Use Group here at Nossaman. Linda has led numerous complex litigation matters in trial and appellate courts, and she has particular expertise in fisheries, endangered species, sediments, water and hazardous waste issues. Linda was recognized as the 2020 Lawyer of the Year for natural resources law in Seattle by Best Lawyers in America. And has also been named an energy and environmental trailblazer by the National Law Journal. It's great to be here with you today, Linda.}

_{0:01:48.6 Linda: Nice to be with you, Brian.}

_{0:01:51.3 Brian: So, help set the stage. Why should we be worried about climate change impacting American fisheries?}

_{0:01:57.0 Linda: Well, I think as consumers, we should be very interested in climate change and impacts on American fisheries, because we like to eat fish. Americans consume about 16 pounds of seafood each year, that's about half of what people eat in Asia and Europe, but nonetheless, we like our fish, and we rely on American fishermen to supply us with wild-caught fish and shellfish. And we should also care because we're citizens of planet Earth and our oceans make up over 70% of the earth's surface, and they are really taking the hit on climate change. Climate change is drastically changing the oceans. They are the world's largest carbon sink. They're currently absorbing about a third of the carbon dioxide humans emit into the atmosphere, and that absorption of carbon is literally changing the ocean's chemistry, and it's causing it to acidify at an alarming rate.}

_{0:02:57.0 Linda: And this has not good impacts for the growth and reproduction of many marine species, including the fish that we like to eat. Climate change has drastically warmed the world's oceans, which have absorbed over 90% of the heat trapped by greenhouse gases, and this is transforming entire ecosystems like, coral reefs and seriously destabilizing fishing, endangering coastal communities all around the globe, and certainly all across our country. There's a lot at risk too from an economic standpoint. In 2017, Marine and Coastal fishery supported $244 billions in economic activity, and we're responsible for 1.7 million jobs in the United States. So, we have an economic impact and we have environmental impacts. The climate change and the associated problem of ocean acidification are increasing the vulnerability of fish stocks and protected species, and this has impacts from critters like seals and whales, to sea lions, to salmon, to shrimp.}

_{0:04:07.7 Linda: And these dual-stressors are impacting habitats in ways that may not be mitigatable. And nowhere is there a better illustration of both using and protecting marine ecosystems that are so dramatically impacted by climate change as the Arctic ecosystems off of Alaska. And from a regulatory standpoint, the oceans are dynamic systems, and so, it's always been difficult to strike the right balance between use and protection, and it's always been a complicated and controversial process, whether it's setting fishing levels or reducing bycatch, thinking about how best to recover endangered species, and considering whether we should issue more permits for oil and gas exploration? And so, when you have to try to incorporate the unpredictability of climate change into decision-making, those decisions are even more challenging than they've been before.}

_{0:05:07.5 Brian: Thanks, Linda, that's a really informative background to help lay the ground work for our discussion today. You mentioned both economic impacts and ecological impacts, can you give a couple examples of discrete ways that climate change is affecting fisheries in either an ecological or an economic way?}

_{0:05:29.5 Linda: Sure. You know, the major impacts are really stemming from the increase in ocean temperatures. We'll talk, I think a little bit later about that in more detail, but in general, ocean ecosystems are being disrupted by increasing temperatures and that results in changing the species composition in a particular ocean area, results in habitat loss, and there then the whole food web structure changes. We've seen this coming for decades, and now I think what we're seeing in the last few years is that we're probably seeing an acceleration in these trends. And second, from a socio-economic standpoint, Marine Fisheries and fishing communities are at risk of significant impacts from increasingly common extreme events, not just the gradual warming of the ocean, but also these episodic events, like very high temperatures in the ocean, in particular areas, or very low oxygen levels or very acidified conditions.}

_{0:06:37.7 Linda: And then we have some examples where we just really don't know what happened, but they were pretty drastic. And the example that comes to mind is the die out of sea stars or starfish all along the West Coast of America, from Oregon, through British Columbia and up into Alaska. And that had catastrophic effects in terms of how it changed the composition of the species that we saw in areas where Starfish used to be, because they were literally gone. And scientists still to my knowledge have not figured out why that happened, nor have they figured out why it's slowly coming back.}

_{0:07:21.4 Brian: You mentioned changes in species composition, the example of the sea stars, what are some other ways that these increasing global temperatures, these more extreme weather events might impact fisheries, what other implications could it have?}

_{0:07:39.9 Linda: Well, I think from a regulatory standpoint, it can really topple some of the things that have been put in place in the decades since the Magnuson Act was enacted about four years ago. The key thing that I see is that the location and timing of very long-established fisheries may shift, and this is critical from a regulatory standpoint, because commercial fisheries are very highly regulated in time and place, in terms of where they can take place. I think sometimes people have a romantic and outdated image of what fishermen do, you know, it's the lonely rugged guy in the rubber hat out on the oceans all by himself battling the elements. But really in the federal fisheries, people are very highly regulated, and particularly with respect to what's known as catch shares, which are licenses that are issued to fishermen that incorporate authorizations to fish only for certain fish and only in certain locations.}

_{0:08:46.7 Linda: And granted these are big locations, these can be hundreds of square miles, but we're also seeing changes in commercial species in terms of where they want to locate, and they could very well vacate some of the fishing grounds that have been very highly successful for many, many years. And so therefore, those people that have invested in these licenses, which are extremely valuable and can be bought and sold, could be left with an investment in equipment, in gear, in vessels, that needs to shift, and it's not clear how the regulatory regime is prepared to accommodate those people or not accommodate those people. All of the... You know, you can imagine that when a catch share program is established and there's an allocation of these valuable species between different fisherman, that's controversial, there's often litigation, and there's going to be a lot of discussion about fairness and equity, if all of that has to be literally moved geographically.}

_{0:09:53.7 Linda: The other thing that is being predicted is that catch levels may decline, and that also will have implications about what's fair and equitable and sustainable. And the declining catch levels will probably lead to volatility in the availability and prices of key commercial species. So that's going to have impacts for consumers, as well as fishermen. It also poses challenges for effective fisheries and protected species management. Commercial fishing is regulated under what's known as the Magnuson-Stevens Fishery Conservation and Management Act. It has as its purpose, both preventing overfishing and ensuring that there's a sustainable American fishery. It's implemented through Regional Fishery Management Councils, which develop fishery management plans and policies and propose legislation to the National Oceanic and Atmospheric Administration, which turns those plans into regulations and then implements and enforces them. And what we're seeing is that the councils are already grappling with how to manage their catch levels in these volatile economic conditions.}

_{0:11:07.8 Brian: There are a lot of good points in what you just had to say, Linda, and I want to unpack a couple of them if we can. First, you talked about the importance of how the location and timing of established fisheries may shift and why that's important given restrictions on when and where you can fish, but can you give me an example of a fishery or of a resource where that's happening?}

_{0:11:31.4 Linda: Sure, and I think it's a good one, because it also illustrates how these shifts and timing can affect consumers. So, Dungeness Crab is a perfect example of that. In recent years, we have seen the fishing season open much later in the year than it had on average in the past, and that has had significant impacts on the ability of commercial fishermen to get this product to consumers in time for the winter holidays, when a lot of people like to celebrate by eating crab.}

_{0:12:07.2 Brian: That's a great example, Linda, thank you. One of the other elements you talked about was declining catch levels, and how that might be a predicted implication of climate change. Can you talk through what that looks like? What will catch levels... Will those effects be felt across the United States, will they be felt differently in different areas, what can we expect as far as declining catch levels?}

_{0:12:34.5 Linda: Well, I'm afraid, the bad news is that all US large marine ecosystems, with the exception of the Alaska Arctic, are expected to see declining fishery catches. And the modeling that I looked at, tried to project changes within large marine ecosystems for the period 2041 through 2060 relative to what we were seeing in 1991 to 2010. And although these are just projections, they suggest that there's going to be significant shifts in the maximum catch potential essentially within two generations. The modeling does project significant increases in maximum fish potential off of the North Slope of Alaska and around Greenland, but all of the other large US marine ecosystems are expected to see declining fishery catches. And this is an issue of both quantity and type, obviously decreased maximum fish catch potential suggests there's going to be resource scarcity and more price volatility, but there's also the consideration of geographic shifts of fisheries as northern areas see more potential.}

_{0:13:48.8 Linda: And this may seem random, and I may be totally speculating, but one of the more interesting things that happened in the North Pacific in the summer of 2020, is that you as fishermen fishing for pollock and other ground fish within the US economic zone, which is 200 miles off of the coast of America, were harassed and threatened by Russian military ships. And it's totally unclear why they were doing that. We don't know if they were just flexing their muscle, if they were just testing the Trump administration, we don't know what they were up to, but it's not unreasonable to think that they were trying to stake their claim, or at least announce their presence in these Arctic areas off of the North Slope, where these fish, these very valuable fish which also have parallel Russian fisheries are expected to become more and more, that's where you're going to have to go to fish.}

_{0:15:09.7 Brian: Wow, I did not know about those incidents. That brings an entire different level of international intrigue to the topic. But stepping back, you've alluded to these changes that we're seeing in the North Pacific fishery, and I'm in particularly interested about the arrival of this shift north, this geographic shift north of species with, as you identified the very specific time and place restrictions on fisheries, especially in Alaska and the North Pacific. So could you give some examples of what shifts we have seen already? What shifts are potentially on the horizon for specific stocks?}

_{0:15:54.6 Linda: Sure, I'd be happy to talk about that more, and first, let me set the stage a little bit and put Alaskan fisheries in context. I think it's fair to say that you can't overstate the value of Alaskan fisheries to US fisheries. Over half of the fish caught in the United States are caught in Alaska, and it's an extremely valuable fishery. It has an average wholesale value of nearly $4.5 billion a year, but we've seen pretty dramatic impacts of climate change already in Alaska and on Alaska fisheries. As I said before, climate change is causing the ocean to become more acidic and that has led to outbreaks of harmful algal blooms and those have affected the distribution, abundance, and behaviors of commercially valuable species, and put this entire world-class fishery at risk. The other factor that fishermen are reporting is that the ice edge, so the edge of the Arctic ice that comes down into Alaska, is retreating farther and farther north, and that's also causing behavioral changes in species such as pollock, and that is making... Again, that has implications for the folks who have licenses that are limited in where they can fish for certain species.}

_{0:17:23.0 Linda: But another example I want to talk about is the Pacific cod fishery. The cod fishery is the second most valuable fishery in Alaska right behind pollock, which is the most valuable fishery in the world. And in 2018, the Pacific cod fishery experienced a 58% reduction in annual catch limits, and that was followed by a complete closure of the fishery in 2019. This is the first time the fishery had ever been closed due to concerns over low stock. And you might think, "Well, then they shouldn't have fished it so hard," but it wasn't actually a problem of harvest being too high, it turns out. The National Oceanic and Atmospheric Administration, NOAA, did a study to try to figure out what was going on, and they found that the lack of cod could be traced to egg hatching problems that were caused by a marine heatwave that lasted in the North Pacific from 2013 to 2016. So, the fish that you would have expected to have been of a catchable size three years later or five years later after they were laid in that time period, just simply didn't survive and therefore, were not there to be fished.}

_{0:18:47.7 Brian: Those are some excellent examples. Thanks, Linda. I'm curious if you can also talk about how extreme weather events are affecting fisheries? So not just the things that are happening because of the slow increase of temperatures over time, but what about the episodic instances that you referred to earlier, how are they affecting fisheries?}

_{0:19:11.1 Linda: Well, we do have, unfortunately, almost annual examples of how extreme weather events can affect fisheries, and I'm going to start in 2012 when there was a North Atlantic heatwave. It was concentrated in the Gulf of Maine, however, there were shorter periods with very warm temperatures that extended all the way from Cape Hatteras over to Iceland during the summer of 2012. American lobster and longfin squid and people who fish on them were impacted by this North Atlantic heatwave. And with respect to lobsters, they moved north to try to stay within their preferred temperature range, and they did that by starting their summer migration a month early, and therefore, they grew the market size faster than usual, and the result was a saturated market, and the price collapsed for Maine lobster men.}

_{0:20:08.6 Linda: And we've seen that northern migration trend continue, which has resulted in tensions between Canada and the US, where the US... Some of the US fishermen think that Canada is benefiting at their expense, and I think it's worth mentioning that we do have fisheries that we call manage with Canada, lobster on the East Coast and halibut on the West Coast, and there's also plenty of controversy over the management of halibut on the West Coast, but we'll leave that for another day.}

_{0:20:42.9 Brian: Those are a lot of very illustrative examples. I don't want to say they're good examples, because it's a little scary, all these changes, but I think they do help identify what potential implications are out there from the resource perspective. I want to ask, how have you seen the regulators respond to these changes over the past decade or more? What have they been doing to respond to the changes of climate change, and do they have the tools that they need?}

_{0:21:17.2 Linda: A strong argument could be made that you don't really need to drastically amend the Magnuson-Stevens Act to give fishery managers the tools that they need to consider the effects of climate change or to react to extreme events. And some fishery management councils are explicitly incorporating climate change considerations into ecosystem management right now, they're not waiting for legislation, they are required to do annual recalculations of what catch level should be, and they do that. The problem is that in many instances, the science and the data is really lagging the timeframe that they need to make the decision about the upcoming fishing years, and the data really isn't there to make everybody comfortable as they'd like it to be about predictions in the North Pacific for many of these valuable species, they do biannual or every three years, they literally go out and try to do surveys of available catches, and those have been shut down because of COVID this year.}

_{0:22:20.0 Linda: So then we're going to have that data gap, and then there are other fisheries where the money is just not there to do the surveys, and so, managers have to rely on really, really old data and hope that they're right. And that's a pretty concerning practice for everybody, as they're not doing it beacuse they want to, but they're doing it because they're required legally to use the best available science, and the best available science is really old. We need to think about as a society, how much do we want to invest in letting the science be better for fisheries. And Congress is not totally ignoring the problem, just this month, the chair of the House Committee on Natural Resources introduced this 324-page behemoth piece of proposed legislation called the Ocean-Based Climate Solutions Act of 2020 that has a very wide range of proposals and ideas about how to address climate change, some of which would end up amending the Magnuson-Stevens Act.}

_{0:23:32.0 Linda: There are continual efforts to amend the Magnuson-Stevens Act, but I, for one, I'm pretty cynical about them because there have been an annual amount and then nothing ever gets passed. So, more to come in terms of whether there'll be legislation that explicitly gives some direction on how to deal with climate change, and then in the meantime, I think managers, because they have a responsibility to just consider the state of the ecosystem as they set catch levels, they're just going out and doing it.}

_{0:24:08.7 Brian: You mentioned best available science, Linda, and I know that that has a particular meaning, I'm thinking of something you mentioned earlier in our conversation, you used a different term overfishing, and I know that has a colloquial meaning, but I know it also has a very specific meaning within the statutory context, and I'm curious if you can talk about how all of these variables, be it catch limits, what's being taken out of the resource, the impacts of climate change, how do those affect something like the term overfishing?}

_{0:24:43.8 Linda: Well, I think for me, it makes me wonder whether we need to update that term and maybe do away with it all together or replace it with something else, because the term overfishing sort of implies that human action is the thing that's driving... Or the primary driver of the state of a fishery stock, and maybe we need to switch that up a little bit and call it something like depleted stocks or threatened stocks, instead of using this, what's become to be a very charged term to describe stocks that are in trouble, because it may inaccurately imply that fishermen are to blame for a poor state of a particular species. And maybe as we're seeing in those examples that I saw, that I said about Pacific cod, maybe stressed stocks or stressed because of nothing that has anything to do with fishing activity, and it could be that really, it's the effects of climate change, it's pollution, it's changes in migration patterns, it's other naturally occurring reasons, not just fishing.}

_{0:26:02.5 Linda: Now obviously, fishing levels have to be tailored to make those stocks sustainable, but I think fishermen feel that sometimes they're unfairly blamed when a stock is in trouble. And the prime example of that is salmon in California, where I think that fishermen say labeling the salmon fishery as being over-fished is disparaging to them, when really, I think everybody could agree that drought impacts and diversions of water are the primary drivers of closing that salmon fishery.}

_{0:26:39.5 Brian: Taking a step back and looking at things from a 30,000-foot level, we've talked a lot today about various impacts, economic impacts, ecological impacts, what do all of these potential impacts to the fisheries mean going forward? What are the implications of this combination of slow burn factors, increased extreme weather events and changes to the regulatory structure?}

_{0:27:10.0 Linda: Well, I think the main implication is we're just facing a period of huge uncertainty. There's going to be uncertainty due to changes in fisheries abundance, that's going to have impacts on how and where and when you conduct the fisheries. It's going to have impacts on the value of the species and the prices for consumers, and it's going to have impacts on endangered species that rely on fish as their primary prey. It's a cascading effect, it's not just human predators, it's critter predators as well. I think as a society, we've decided that we want to have fisheries and we want those fisheries to be sustainable, but we need to invest in the science and see where that takes us. And we've have to be prepared to adjust the regulatory regime in a way that is both fair to the folks who have invested their livelihoods in fishing, fair to the communities that have grown up to support fishermen and also somehow guarantees that we're going to have fish in the ocean going forward, even if they move.}

_{0:28:30.1 Brian: Well, I think that's a great place to stop our conversation for today, thank you, Linda. I really enjoyed this discussion and look forward to continued ones. And a big thank you as well to our listeners for joining us for another episode of Digging Into Land Use Law. For additional information on this topic or other environmental land use issues, please feel free to 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 won't miss any of our upcoming episodes. Until next time.}

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_{0:29:08.3 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.}

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