Mich. Farm Bureau v. Dep't of Env't

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MICHIGAN FARM BUREAU, et al., Plaintiffs-Appellees/Cross-Appellants, v. DEPARTMENT OF ENVIRONMENT, GREAT LAKES, AND ENERGY, Defendant-Appellant/Cross-Appellee.

No. SC 165166

Supreme Court of Michigan

July 31, 2024

Argued January 11, 2024 (Calendar No. 3).

Chief Justice: Elizabeth T. Clement Justices: Brian K. Zahra David F. Viviano Richard H. Bernstein Megan K. Cavanagh Elizabeth M. Welch Kyra H. Bolden

Michigan Farm Bureau, along with numerous farmer associations and livestock farms, brought an action in the Court of Claims against the Department of Environment, Great Lakes, and Energy (EGLE), seeking declaratory and injunctive relief. EGLE administers the National Pollutant Discharge Elimination System (NPDES) program that is outlined in the federal Clean Water Act, 33 USC 1251 et seq.; the federal Environmental Protection Agency (EPA) delegated the power to administer the NPDES program within Michigan's borders to Michigan under 33 USC 1342, and Michigan's Legislature in turn, delegated this authority to EGLE. Under its authority to administer the NPDES program, EGLE has promulgated rules in Mich. Admin Code, R 323.2101 et seq., that provide requirements for NPDES permits and the process by which they are issued. Under 40 CFR 122.44(d)(1) (2023), EGLE must include conditions in addition to or more stringent than the conditions set forth in EGLE and EPA rules that EGLE deems necessary to achieve water-quality standards in the relevant waterway; EGLE promulgated these water-quality standards, which are codified in Part 4 of the Michigan Administrative Rules governing water-resource protection, Mich. Admin Code, R 323.1041 et seq. In this case, EGLE issued a general permit in March 2020 that gave rise to this dispute. The 2020 general permit imposed new conditions that included a reduction of the limit on the amount of phosphorus that may be applied to land; revised setback provisions, requiring both: (1) that farms keep a 35-foot wide vegetated barrier in which CAFO waste may not be applied, along any surface water of the state, open tile line intake structures sinkholes, and agricultural well heads, including but not limited to roadside or any ditches that are conduits to surface waters of the state (with the exception of surface waters of the state that are up-gradient of the land application), and (2) that the permittee may not apply waste within 100 feet of any surface water of the state or those same conduits to surface waters of the state; and a presumptive three-month ban during January through March on applying waste on land and on transferring waste to other entities that apply waste to land during those months. Plaintiffs alleged that the added conditions exceeded EGLE's statutory authority and were contrary to state and federal law regulating concentrated animal feeding operations (CAFOs) under the federal Clean Water Act and state law pursuant to Part 31 (Water Resources Protection), MCL 324.3101 et seq., of the Natural Resources and Environmental Protection Act (the NREPA), MCL 324.101 et seq.; lacked factual justification under the standard for setting conditions under Part 31 of the NREPA; were arbitrary and capricious; were unconstitutional; and were invalid because of EGLE's failure to follow the procedures required under the Michigan Administrative Procedures Act (the APA), MCL 24.201 et seq., to promulgate the conditions as rules. A similar group of farms and farm associations first petitioned for a contested-case hearing under Mich. Admin Code, R 323.2192(c) to appeal the 2020 general permit and the legality of the new conditions that the permit imposed; however, before a contested-case hearing could be held, plaintiffs brought this action in the Court of Claims. EGLE moved for summary disposition, arguing that because plaintiffs failed to exhaust available administrative remedies, the Court of Claims lacked jurisdiction. Plaintiffs argued that exhaustion was unnecessary because plaintiffs challenged EGLE's authority to include the new conditions in the general permit, which involved legal issues that did not require factual development and exempted the issues from the exhaustion requirement. The Court of Claims, Cynthia D. Stephens, J., held that it lacked subject-matter jurisdiction because plaintiffs did not exhaust their available administrative remedies and because plaintiffs' contested case remained pending. Plaintiffs appealed, and the Court of Appeals, Gadola, P.J., and Servitto and Redford, JJ., affirmed the Court of Claims' ultimate holding that the Court of Claims lacked subject-matter jurisdiction but held that plaintiffs could seek a declaratory judgment by way of MCL 24.264. 343 Mich.App. 293 (2022). The Court of Appeals specifically held that the 2020 permit conditions were "rules" under the APA because they were in addition to or more stringent than the mandatory minimum conditions but that because plaintiffs had not first requested a declaratory ruling from EGLE, the Court of Claims lacked subject-matter jurisdiction. EGLE sought leave to appeal in the Supreme Court, arguing that the 2020 permit conditions were not rules under the APA, and the Supreme Court granted the application. 511 Mich. 971 (2023).

In an opinion by Chief Justice Clement, joined by Justices Bernstein, Cavanagh, Welch (as to Parts I, II, III(A), III(B), and III(C)(1)), and Bolden, the Supreme Court held:

Because EGLE lacks the power to issue rules relating to NPDES permits issued to CAFOs, neither the 2020 general permit EGLE issued pursuant to Part 31 of the NREPA nor the discretionary conditions in that permit can have the force and effect of law, and so they cannot be "rules" as defined by MCL 24.207 of the APA. Accordingly, the Court of Claims lacked subject-matter jurisdiction under MCL 24.264.

1. EPA and EGLE rules require every CAFO permit to include certain conditions (mandatory conditions), but federal and state law give EGLE discretion to include extra conditions (discretionary conditions) in a permit that are more stringent than these mandatory conditions when EGLE decides those discretionary conditions are necessary to achieve applicable Part 4 water-quality standards or to comply with applicable laws and regulations. With regard to issuing general permits, under Mich. Admin Code, R 323.2191(2), EGLE must: (1) prepare a draft general permit in which EGLE includes the mandatory conditions and any discretionary conditions that EGLE deems necessary to achieve applicable Part 4 water-quality standards or to comply with other applicable laws and regulations; (2) give public notice of the draft general permit; and (3) allow opportunity for public comment and consider those comments before issuing a final draft of the general permit. After receiving public comment on the draft general permit, EGLE makes a final determination and either issues the general permit, issues the general permit with modifications, or declines to issue it. If EGLE's final determination is not acceptable to the permittee, the applicant, or any other person, they may petition for a contested-case hearing under the APA pursuant to MCL 324.3113(3) and Mich. Admin Code, R 323.2133(2). Under MCL 324.1317, after an administrative law judge makes a final decision as to the general permit following a contested-case hearing, an aggrieved party may appeal to have a panel of the Environmental Permit Review Commission review the administrative law judge's decision. And after the Environmental Permit Review Commission issues a final decision, the final decision is subject to judicial review; judicial review of the administrative law judge's final decision may also be sought directly if no party appeals to the Environmental Permit Review Commission.

2. When a general permit is finalized, the CAFO does not automatically have coverage; the CAFO can apply to EGLE for coverage under the general permit pursuant to Mich. Admin Code, R 323.2192. If EGLE decides the CAFO meets the criteria for coverage under the general permit, EGLE issues a certificate of coverage and the CAFO may discharge pollutants in accordance with the mandatory and discretionary conditions in the general permit. If EGLE decides the discretionary conditions are not appropriate as applied to the CAFO, EGLE may require the CAFO to apply for an individual permit; in that case, EGLE will begin automatically processing the application for an individual permit. Likewise, if a CAFO believes that the general-permit conditions are inappropriate as applied to it, the CAFO may apply for an individual permit from EGLE; however, EGLE may deny the CAFO an individual permit if it decides that the general permit is more appropriate. If EGLE denies the CAFO coverage under a general permit, denies the CAFO an individual permit, or the discretionary conditions in an individual permit are unsatisfactory to the CAFO, the CAFO may petition for a contested-case hearing pursuant to Mich. Admin Code, R 323.2192(c) and MCL 324.3113(3).

3. Under MCL 24.264, a court has subject-matter jurisdiction to hear a declaratory-judgment action in which a party challenges the validity or applicability of an agency rule unless an exclusive procedure or remedy is provided by a statute governing the agency. MCL 24.264 further includes an exhaustion-of-administrative-remedies requirement: a party may not request a declaratory judgment unless the party first requests a declaratory ruling from the agency and the agency has denied the request or failed to act upon it expeditiously. In this case, to determine whether the Court of Claims correctly concluded that it lacked subject-matter jurisdiction under MCL 24.264, the question whether the general permit or discretionary conditions were "rules" had to be answered.

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