Due Diligence on Wetlands May Save Millions

December 8, 2016Newsletters In the Zone

John Duarte, the CEO of Duarte Nurseries in Tehama County, California, provides a perfect example of the need to consider the possible effect on wetlands prior to purchasing or developing property. 

Duarte saw 450 acres that could be farmed after years of cattle grazing. Less than a year after his nursery bought the property, the Army Corps of Engineers ordered him to stop plowing up “vernal pools.”  The Corps later sued for violation of the Clean Streams Law. A federal judge has since ruled that the nurseries are liable and has scheduled a penalty hearing. Duarte told reporters that the court is being asked to fine him $8 to 10 million for plowing. 

Although Duarte denies the claims and intends to appeal, he is still looking at fines in the millions and significant, costly litigation.

The case offers several important lessons and warnings about wetlands that other property developers would be wise to consider.

It has long been the Corps’ interpretation that “vernal pools” are wetlands. If, like most, you don’t know what a vernal pool is, it is defined as a temporary pool of water where things can seasonally grow. The Corps have long stated that lands can be wetlands if they are “inundated or saturated by surface or ground water at a frequency and duration sufficient to support, and that under normal circumstances do support, a prevalence of vegetation typically adapted for life and saturated soil conditions.”

So, how do people who don’t know what a vernal pool is determine whether they own property with wetlands?  The Corps looks at:

  • Whether the property has typical plants that exist in wetlands, discussed in the National Wetland Plant List available online.
  • Whether or not water stands or sits at or above soil surface during a growing season. In other words, wetlands can exist for part of the year and still be considered regulated.
  • Whether there are typical soils found in wetlands, like peat.
  • Whether areas are typically flooded by tides.

Mr. Duarte, like most people, probably isn’t trained to determine what fits these categories. If he purchased the property during a dry season, he may not have seen anything indicating a wetland. Nonetheless, the lawsuit could put him out of business or cost him significantly in fees and costs.

If you use a standard ASTM phase one in your purchase, those audits expressly state that they do not include a review of wetlands. Wetlands are also not identified on deed records. So, what should you do before you buy?

You may want to consult with a trained wetlands delineator. Also, you may need to review site records and talk with the current owner about areas you intend to develop.

Consider, during purchase negotiations, getting formal statements from the seller about his/her knowledge of wetlands. Also, ask questions about where standing water may be throughout the year. Finally, you can check the Corps’ records online to see if there are known wetlands.

Even that may not be enough. The Corps have not evaluated all wetlands and are constantly adding new ones. If you close on the property and then discover what may be wetlands, you may still be able to develop the property.

The Corps can be asked to make one of two determinations regarding wetlands. The Corps make a verified “preliminary jurisdictional determination” of wetlands if you provide initial information on the site. This is not binding on the Corps as it is only a desktop review of the property. Still, it can quickly alert you of a potential problem. 

There is also a more formal determination called a “jurisdictional determination” from the Corps. This typically takes several months and the Corps actually visit the site with a representative trained to identify wetlands. A Corps JD can be considered final. But, if wetlands are found where you want to develop, you can still get a permit to develop them, but that can be a costly and long process.

But as John Duarte can tell you, the risk of doing nothing can be a $10 million error.