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July 26, 1983


Barrington D. Parker, United States District Judge.

The opinion of the court was delivered by: PARKER


 This environmental-law proceeding involves the validity of a permit issued by the defendant, the Secretary of the Army, (Secretary or Army), to the Hampton Roads Energy Company, *fn1" a company seeking to build an oil refinery on Chesapeake Bay at Portsmouth, Virginia. Plaintiffs, National Wildlife Federation and other environmental groups, seek a judicial declaration that the permit was wrongfully issued and an injunction prohibiting the Secretary from authorizing any activities under the permit pending compliance with the Administrative Procedure Act (APA), 5 U.S.C. §§ 551 et seq.; section 404 of the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977 (CWA), 33 U.S.C. § 1344; and the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. §§ 4321 et seq.

 For the reasons stated below, the Court finds merit in a number of the plaintiffs' claims and consequently enjoins the Army from authorizing any activities under the permit until certain significant procedural defects associated with the granting of the permit are rectified.


 Chesapeake Bay is the largest estuary in the United States, with 19 major rivers and hundreds of smaller rivers as tributaries. It serves as a habitat for numerous species of birds and fish, and as a valuable resource for tourism and recreation.

 In March 1975, defendant-intervenor Hampton Roads Energy Company submitted an application to the Army Corps of Engineers, Norfolk District, for a permit to undertake work in the Chesapeake Bay in conjunction with its construction of an oil refinery along the west bank of the Elizabeth River in Portsmouth, Virginia. *fn2" The application called for the construction of a marine terminal, the dredging of an access channel and anchorage basin, and the disposal of the dredged fill. The undertaking required a permit from the Army Corps of Engineers under section 10 of the Rivers and Harbors Appropriation Act of 1899 (RHA), 33 U.S.C. § 403, and section 404 of the CWA. The Army Corps' District Engineer for the Norfolk District issued a public notice and invited comment on the permit application. See 33 C.F.R. §§ 325.1(a); 325.2(2)(3); 325.3. In addition, pursuant to section 102(2)(C) of NEPA, 42 U.S.C. § 4332(2)(C), and 33 C.F.R. § 325.4(b)(3), the District Engineer released a draft Environmental Impact Statement for public review and comment.

 Numerous comments on the proposal were received from federal, state, and local agencies as well as from private groups and citizens. A public hearing was then held in the spring of 1976. See 33 C.F.R. §§ 325.2(a)(5); 325.3(b)(3); 327. Illustrating the deep public interest in the project, more than 1,000 persons attended the hearing, where the plaintiffs and other organizations offered testimony, statements, and recommendations. These were then utilized by the District Engineer in the preparation of a Final Environmental Impact Statement (FEIS), *fn3" which was released to the public for review and comment. See 33 C.F.R. § 325.4(c). Again, intense public comment was generated, with 535 letters of comment received from various governmental agencies, citizens groups (including plaintiffs) and the general public.

 In January 1978, the District Engineer recommended denial of the permit application finding that the risks to human health, water quality, and marine life outweighed the benefits accruing from the refinery's contribution to the nation's energy requirements. *fn4" He concluded that the project was not in the public interest. However, because this recommendation was contrary to the stated position of the Governor of Virginia, the matter was referred from the District Engineer to the North Atlantic Division Engineer of the Army Corps. See 33 C.F.R. §§ 325.8(b); 325.8(d)(2). Following the District Engineer's recommendation, some 83 additional comments were received into the administrative record.

 Relying on the earlier documentation of the record, but drawing a contrary conclusion, the Division Engineer reversed the District Engineer's decision and recommended granting the permit subject to a number of conditions. *fn5" But because of objections to the issuance of the permit raised by a number of federal agencies -- the National Marine Fisheries Service, the Fish and Wildlife Service and the Environmental Protection Agency -- on environmental grounds, the Division Engineer's decision was not final, and the matter was referred to the Chief Engineer of the Army Corps. See 33 C.F.R. §§ 325.8(c); 325.8(d)(1).

  After a review of the proceedings at the District and Division levels, the Chief Engineer determined that a more extensive analysis of alternative refinery sites was required before he could pass on the merits of the permit. *fn6" To review the alternatives, he formed a Federal Interagency Task Force consisting of representatives from the Environmental Protection Agency, Department of Energy, the Coast Guard, the National Marine Fisheries Service, and the Fish and Wildlife Service. Based on the Task Force report and on additional information the Army Corps prepared and circulated for review a draft Supplemental Environmental Impact Statement (SEIS). See 33 C.F.R. § 230.11(b). *fn7" Later, a final SEIS *fn8" was prepared and released, and it too was subject to public comment.

 The final SEIS was considerably expanded and incorporated the findings of the Task Force on alternative sites. Sixty-seven alternatives were discussed, 48 of which were summarily dismissed as inappropriate. The remaining 19 -- including the Hampton Roads site -- were discussed in narrative form and the narrative was then summarized in a tabular matrix with letter-grade ratings. The Hampton Roads site fared poorly in the matrix, generally receiving one of the worst, if not the worst, set of ratings of the various sites.

 Plaintiffs submitted comments on both the draft and the final SEIS. On the basis of the entire record, including the expanded analysis of alternative sites, the Chief Engineer made a preliminary decision to issue the permit to the Hampton Roads Energy Company, finding that the need for additional refinery capacity on the east coast outweighed the environmental costs. *fn9"

 However, this decision of the Chief Engineer, even though the third determination made by the Army Corps, was not final. An earlier 1967 Memorandum of Understanding between the Secretary of the Army and the Secretary of the Interior required "full coordination and cooperation between their respective Departments" in permit decision-making. 33 C.F.R. § 325, App. B. Therefore, in November 1978, the Chief Engineer notified Interior and several other agencies of his tentative decision. The Departments of Defense, Energy, and the Treasury expressed support for the permit application. However, the Environmental Protection Agency, the National Oceanic and Atmospheric Administration, and, most importantly, Interior, expressed their opposition. Because of Interior's opposition, the permit proposal was referred to the Secretary of the Army for yet another determination, this time to be made in consultation with the Secretary of the Interior in accordance with the Memorandum of Understanding. *fn10"

 The staff of the Secretary of the Army began an extensive review of the proposal. The Assistant Secretary of the Army (Civil Works) then reopened the comment period in response to various requests; conferred with representatives of the Departments of Commerce, Defense, Energy, Interior, Labor, Transportation, Treasury, and the Environmental Protection Agency, and had a member of the Secretary's staff meet with one of the plaintiffs and other environmental groups. The Assistant Secretary also further explored oil spill recovery possibilities.

 To assist the Secretary of the Army, the staff of the Assistant Secretary also prepared a 100-page Staff Evaluation. In two respects, the environmental focus of the Evaluation differed to some extent from the focus in any of the earlier environmental impact statements and in the decisions of the various engineers. First, the Evaluation did not measure the benefits of the refinery in terms of the east coast's need for additional refinery capacity. Rather, it measured the benefits in terms of Net Economic Development (NED), that is, the reduction in the cost of transporting the refined oil products to the metropolitan centers of the east coast from the Hampton Roads refinery, as compared to the cost of transporting the oil products from Gulf Coast refineries. Second, the evaluation differed in its rating of the various site alternatives. When compared with the 18 other alternatives that were previously examined at length in the SEIS, the Hampton Roads site was rated by the Staff Evaluation as one of the five best, while in the SEIS's matrix the site was rated one of the worst. In explaining that seeming inconsistency, the Staff Evaluation said of the SEIS's matrix that

we find gross inconsistencies in the way narrative data were translated into the tabular matrix . . . . Because this information is very misleading on the comparability of [Hampton Roads] to other alternatives, we find the matrix invalid as a decisional guide. The evaluation of alternatives requires a more thorough analysis than the matrix offers. Our analysis follows: . . . . *fn11"

 The Staff Evaluation was then placed in the administrative record after the close of the final comment period. The plaintiffs were thus unable to comment on the Evaluation.

 The decision-making process closed in early December 1979, despite the objections of the Secretary of the Interior to the Staff Evaluation and to the issuance of the permit. The Secretary of the Army announced his decision in favor of the permit and, like the Chief and Division Engineers, he decided that the potential benefits outweighed the environmental costs of the project. However, in basing his decision on the 100-page Staff Evaluation, he departed from the analyses of the Chief and Division Engineers by measuring the benefits of the refinery in terms of savings in transportation costs, rather than in terms of the east coast's need for increased energy supplies. In addition, he relied on the analysis of alternatives in the Staff Evaluation, rather than on the analysis of alternatives in the SEIS. His decision closed the four-and-a-half year period of review. The permit was issued to the Hampton Roads Energy Company on December 28, 1979. Plaintiffs filed suit on September 16, 1980. Because of this lawsuit and another lawsuit currently pending before the Supreme Court of Virginia, Hampton Roads Energy Company has not begun construction of the refinery.


 National Wildlife contends that the permit is defective for two procedural reasons: first, because National Wildlife was denied the opportunity to comment on the 100-page Staff Evaluation, in contravention of the APA, section 404 of the CWA, and the Army Corps' regulation, 33 C.F.R. § 325.3(a); second, because the underlying data employed in the Staff Evaluation concerning the reduction in transportation costs and the re-analysis of alternatives were never incorporated into the FEIS or SEIS, in contravention of NEPA. National Wildlife also contends that the permit is substantively defective in that the Secretary's decision was arbitrary and capricious on the merits. The Court considers each contention in turn.


 A. Comment and Hearing Under the APA, the CWA and the Army ...

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