There has been a longstanding debate about how to apply the one-year time limit on Clean Water Act Section 401 certification decisions. The D.C. Circuit court in Hoopa Valley Tribe v. FERC, 913 F.3d 1099 (D.C. Cir. 2019) established a bright-line standard that a 401 certification must be issued or denied within one year of receipt of application, or the certification opportunity is waived. States cannot engage in actions to extend this deadline by requiring an applicant to withdraw and refile their application or by finding an application incomplete. This bright-line test was reinforced by the Second Circuit’s more recent decision in New York State Department of Environmental Conservation v. FERC, 991 F.3d 439 (2d Cir. 2021). This interpretation was also codified in EPA’s 2020 Clean Water Act Section 401 Certification Rule. See 85 Fed. Reg. 42210 (July 13, 2020). However, on July 2, the Fourth Circuit offered a different interpretation of Section 401 in its decision in N.C. Department of Environmental Quality v. FERC, No. 20-1655 (McMahan Hydro).

In this case, FERC determined that waiver had occurred because the North Carolina Department of Environmental Quality (NCDEQ) did not make a 401 certification decision within a one-year period. FERC found that NCDEQ had participated in a scheme of withdrawing the Section 401 application and resubmitting it in order to extend the one-year deadline. In its July 2 opinion, the Fourth Circuit overturned FERC’s waiver determination. The court affirmatively stated that its decision was based solely on the lack of facts in the record supporting FERC’s determination that the state had coordinated with the applicant to withdraw and resubmit its application in order to extend the one-year deadline. However, unrelated to its holding, the Fourth Circuit went out of its way to explain that it may not interpret Section 401 to require a state to grant or deny a request for CWA Section 401 certification within one year.

In its opinion, the Fourth Circuit first reaffirmed that, because FERC does not administer the Clean Water Act, its interpretation of Section 401’s waiver provision is not entitled to deference. Then, in what it characterized as dicta, the court offered its own interpretation that as long as a state “acts” on a request for Section 401 certification (which the court interprets to mean something other than issuing or denying), the state may not have waived its Section 401 authority. The court explained that the purpose of the waiver language is to prevent inactivity by a state (as in the Hoopa Valley Tribe case), but not to deprive a state of its Section 401 certification opportunity where a state “in good faith takes timely action to review and process a certification request.”

According to the court, in this case, NCDEQ did “act” by reviewing the application; thus, final agency action — i.e., granting or denying the request — is not required by CWA Section 401 for the agency to have “acted” on the request. The court acknowledged that no other circuit court has adopted this interpretation of Section 401 but stated that it is not inconsistent with the decision in Hoopa Valley Tribe, “which simply held that whatever ‘fails or reuses to act’ in § 401 means, the agencies there had not acted.”

The Fourth Circuit clearly signaled that it interprets Section 401 of the Clean Water Act in a manner that would effectively negate the holdings in Hoopa Valley Tribe and New York State Department of Environmental Conservation v. FERC. As a result, we expect that additional litigation will continue to occur until such time that the issue is ripe for resolution by the U.S. Supreme Court. Notably, the court did not address EPA’s interpretation of Section 401 of the CWA — a statute that EPA administers — as articulated in the Section 401 Certification Rule. Instead, the court stated that it provided no deference to FERC’s interpretation of Section 401 (even though it was consistent with EPA’s interpretation). The timeline for states and authorized tribes to act on a water quality certification request and the role of federal permitting agencies in the 401 process will continue to be in the spotlight as EPA reconsiders the 401 Rule.