A Victim of Wetlands Regulations

How the Army Corps of Engineers Turned James Wilson into a Criminal

Marisa Manley’s articles have appeared in the Wall Street Journal and Harvard Business Review.

Since 1968, James J. Wilson’s Interstate General Co., L.P., has been developing a 9,100-acre planned community in Maryland, called St. Charles. It is located about 20 miles from Washington, D.C., and some 33,000 people live there.

Recently, the Washington Post reported, Maryland Governor Parris N. Glendening cited St. Charles, with its clustered houses, apartments, townhouses, and commercial buildings, as an example of his policy initiative called Smart Growth. The Maryland Department of the Environment awarded St. Charles a Certificate of Appreciation for contributions to the improvement and strengthening of Maryland’s sediment, stormwater and nonpoint source programs.

Interstate General has been following the development plan cleared by the Environmental Protection Agency, Fish and Wildlife Service, Soil Conservation Service, Army Corps of Engineers, and state regulators more than 20 years ago. The company’s Draft Environmental Impact Statement for St. Charles Communities, Charles County, Maryland, prepared with the Department of Housing and Urban Development, covered the development of 9,100 acres, or 14 square miles, which could eventually accommodate 80,000 people.

Now for doing what all these officials approved, Wilson faces four felony counts, multi-million-dollar penalties, and jail time. This has depressed the market value of the company by $100 million. Federal bureaucrats have done their best to destroy his reputation and torment his family. Wilson’s wife and six children were devastated to see U.S. attorneys grab headlines by portraying him as an environmental criminal.

Trouble began when an Army Corps of Engineers inspector visited the company on April 18, 1990. The inspector had noticed that the company had deposited between 19 and 40 inches of soil on two-and-a-half acres of a property called Parcel L, adjacent to Route 925 and Smallwood Drive, in Charles County, Maryland. He claimed the property was a wetland. He insisted the Army Corps of Engineers had jurisdiction over wetlands, and declared nobody could put soil on a wetland without a permit from the Army Corps of Engineers.

Wilson, who is chairman and CEO of Interstate General, told the inspector that the property didn’t have any water on it. In the past, the property had been seasonally wet and had been lawfully drained. It was one of the highest pieces of land in the county, about 200 feet above sea level.

Wilson told the inspector that Interstate General had received the necessary permits and approvals from Charles County and the Maryland Department of the Environment, which had approved the company’s proposed system of drainage channels and sediment lakes to control any pollution and prevent sediment runoff. We played by the rules and got all the permits we thought were required, Wilson said.

The Clean Water Act (1972) outlawed the dumping of dredged or fill material into a navigable waterway unless the Army Corps of Engineers issued a section 404 permit. But Parcel L was nine miles from a navigable waterway, so in 1976 the Army Corps of Engineers reported that Wilson’s plans do not have a clear connection to interstate commerce. Consequently, the chief of the Planning Division told Wilson: The construction of St. Charles Communities will have no impact on our area of responsibility. In other words, no section 404 permit was needed.

Since then, environmentalist litigation required the Army Corps of Engineers to draft regulations asserting jurisdiction over wetlands. But for years essentially all they could say was that a wetland was a swamp or marsh. They couldn’t point to a spot on somebody’s property where a wetland ended—and would be free from bureaucratic interference. But in 1987 the Army Corps of Engineers issued Delineation and Identification of Jurisdictional Wetlands, a 150-page manual which defines wetlands in terms of soils, water saturation, and other factors, and claimed federal government jurisdiction over wetlands adjacent to navigable waterways of the United States. Congress, however, didn’t see fit to amend the Clean Water Act. You still won’t find the word wetland in it. Interstate General has long developed properties using drainage channels and sediment lakes. The amended Clean Water Act didn’t give the Army Corps of Engineers any more jurisdiction than they had before.

No Appeal

The Army Corps inspector issued a cease-and-desist order against depositing any more soil, and he issued an order demanding that Wilson remove the soil from Parcel L. (Wilson wanted to know what the legal basis was for the order, but the inspector wouldn’t say.) Wilson was shocked to discover there wasn’t any appeal process within the Army Corps of Engineers, any way a citizen could appeal a decision rendered by a rank-and-file bureaucrat. Even the Internal Revenue Service has an appeals process. At the Army Corps of Engineers, you could request an interview with a higher-up, but they didn’t have to see you, and they certainly weren’t obliged to give you a hearing or weigh evidence from both sides. Short term, Wilson had no choice, and he had the soil removed, at a cost of $160,000.

But Wilson had long developed properties that were environmentally correct, and he was outraged at the Corps’ high-handed tactics. We had played by the rules—which we had nothing to do with making—and now the Army Corps of Engineers was changing the rules. It wouldn’t cost them a penny, but it would throttle our plans, which had taken years to develop and on which millions of dollars of commitments had been made.

Wilson figured that if he—who could afford to mount a legal counterattack—did not fight the Army Corps of Engineers, then how could anyone else be expected to fight? In the spring of 1991, he filed a suit charging that the cease-and-desist order amounted to a taking for which just compensation was due under the Fifth Amendment of the U.S. Constitution. They stalled for two years, refusing to identify the legal basis for their claims. Without retreating, they told the court in 1993 that they still hadn’t identified wetlands on their property. The court dropped the case, but Interstate General was still prohibited from further developing its property.

Three months later, U.S. Attorneys in Baltimore began a grand jury investigation that took months. In October 1993, the grand jury indicted Interstate General, its subsidiary St. Charles Associates, and Wilson. They were accused of clearing, ditching, draining, and filling a wetland on Parcel L and three other sites—50 acres altogether. Yet the Army Corps of Engineers had never once suggested there was anything wrong with what they did on those sites. All of them are more than six miles from the Potomac River and hundreds of yards from the nearest creeks, none of which is navigable. Moreover, the company ended up filling 20 of the 50 acres with water to make lakes, and much of the remaining property became open space.

Wilson Fights On

U.S. Attorney Lynne A. Battaglia offered Wilson a settlement. They wouldn’t prosecute him if he agreed to pay a $1-million fine and admit to having committed four felonies. Wilson knew that defending himself against the charges would cost more than $1 million, and the settlement would have protected him and his family from further prosecution. “But I come from stubborn Irish stock—my father had fought for Irish independence back in 1922. I declined the offer. Extortion is extortion even if it’s practiced by the United States government.”

The case went to trial in January 1996. The government prosecutors told the judge that the Army Corps of Engineers has jurisdiction over the property because rain falling on our land ultimately drains via intermittent streams into navigable waterways. The theory here amounts to claiming federal jurisdiction over virtually every piece of ground in the entire United States—everywhere it rains. In any event, none of the intermittent streams she alluded to are depicted on official quad maps published by the Army Corps of Engineers and the U.S. Geological Survey. Nor do the maps show any wetlands in the disputed areas. Nor was any evidence presented that Wilson’s filling of four parcels affected interstate commerce.

The prosecutors repeatedly claimed Interstate General was destroying wetlands, although the government’s own expert agreed that if you’re there in June, especially July or August, September or October, they tend to be dry. The government expert added the properties retain water for only a short period of time. Other government experts disclaimed any specific environmental harm that might have resulted from draining these properties or prior development of nearby properties. Elsewhere big projects have been canceled because of alleged potential harm to animals, fish, or plants, but this wasn’t an issue.

In any case, no federal statute required that wetlands be protected. The closest thing was the Clean Water Act, which prohibited the discharge of any pollutant into certain waters without a permit. The Corps was authorized to issue permits only for the discharge of dredged or fill material into the navigable waters. The Supreme Court case, U.S. vs. Riverside Bay View, extended Corps jurisdiction to wetlands immediately adjacent to navigable waters, but St. Charles is six miles from navigable waters (the Potomac River). Interstate General’s case presents a direct challenge to government power over millions of acres deemed to be jurisdictional wetlands, and this outrages environmental extremists.

The Corps also claimed that Interstate General’s draining of wetlands violated the Tulloch rule, which they had adopted in an attempt to make lawful draining of wetlands virtually impossible. The government’s star witness against the defendants conceded that their regulations effectively required one to use a helicopter for digging a drainage ditch.

The government claimed it was a crime to dig a ditch and leave the dirt alongside the ditch—a practice known as sidecasting. But no federal statute mentions sidecasting, nor is there any statute or regulation which in other terms describes the placing of excavated dirt alongside a drainage ditch. Nor had any court ever ruled that sidecasting is a crime. (In January 1997, U.S. District Judge Stanley S. Harris subsequently ruled that the Tulloch rule went beyond what was authorized in the Clean Water Act. The appropriate remedy for what the agencies now perceive to be an imperfect statute is congressional action, Judge Harris wrote.)

In accordance with the prosecutor’s wishes, U.S. District Court Judge Alexander Williams, Jr., had instructed the jury that they must return a guilty verdict if they believed Interstate General had drained wetlands and deposited dirt alongside drainage ditches, which Wilson had always acknowledged doing. Judge Williams disregarded all requests to show where in the law these things were prohibited. On February 29, 1996, the jury came back with a guilty verdict.

Judge Williams announced the sentence on June 17, 1996: 21 months’ imprisonment and a $1 million fine for Wilson, a $3 million fine for Interstate General and St. Charles Associates. This was the first time in American history anybody was ever prosecuted for depositing dirt alongside a drainage ditch.

Wilson appealed to the Fourth Circuit U.S. Court of Appeals, and they stayed his prison sentence pending appeal, which was heard on March 3, 1997. There were three judges, and rather than take the prosecutor’s word that the Army Corps of Engineers had jurisdiction over property which wasn’t anywhere near a navigable waterway, they actually looked at the statute and noted it didn’t grant any such jurisdiction.

One of the judges asked the prosecutor how one would lawfully drain a wetland. The prosecutor talked about laying mats alongside a ditch as it was being dug, so that the dirt could be put there and not directly on the ground—thereby seeming to concede Wilson’s contention that it is lawful to drain a wetland. The judges didn’t seem to buy the prosecution claim that one should be branded a polluter for digging dirt that had always been there and depositing it a few feet away on other dirt. This didn’t leave much of a case for the prosecution.

Thus far, Wilson’s legal bills have soared over $5.7 million, and the Army Corps of Engineers has impeded further development until the issues are resolved. How can a small property owner possibly defend himself or herself against the Army Corps of Engineers? It’s intimidating to face the prospect of ruinous legal costs, the tremendous time required for a proper legal defense, the agony of a long, drawn-out legal proceeding.

What kind of signals is the government sending developers who are interested in building environmentally sensitive projects? For their trouble, they are treated like common criminals.

Moreover, requiring people to obtain Army Corps of Engineers permits invites corruption because it gives bureaucrats the power of life and death over multi-million-dollar projects. Power corrupts police. Power corrupts Congressmen. Power corrupts White House officials. Power corrupts.

What this case illustrates is bureaucracy run amok. Congress had an open debate on a law which became the Clean Water Act. Among other things, it added to the jurisdiction that the Army Corps of Engineers had over navigable waterways. Then the Army Corps of Engineers issued regulations which—without any Congressional authorization—extended its jurisdiction far beyond navigable waterways to practically the entire United States on the theory that some rain might ultimately find its way into a navigable waterway.

In its commentary on the case, Wall Street Journal deputy features editor Max Boot remarked that “It’s bad enough to think that prosecutors twisted the law and hounded an innocent man into prison. What’s even more frightening is to suppose that the law was applied correctly in this case. That means many more can expect to suffer Jim Wilson’s fate.”

As Washington attorney Nancie Marzulla remarked recently, “That’s environmental law, 1990s-style. The ease with which a prosecutor can obtain a conviction for a wetlands violation is shocking.”

For turning a wetland into a lake, Maryland businessman James Wilson faces federal fines and imprisonment.