Small Business Doomed by Birds Engaging in Interstate Commerce

National Center for Public Policy Research | July 7, 2008 | 8:21pm EDT
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(Editor's Note: The following is the 78th of 100 stories regarding government regulation from the book Shattered Dreams, written by the National Center for Public Policy Research. will publish an additional story each day.)

Larry Squires, a veterinarian since 1948, owned a corporation in New Mexico that disposed of production water from oil and gas wells until the U.S. Environmental Protection Agency (EPA) took his property without compensation.

Squires owns land that contains a playa lake (sinkholes that gather rainwater approximately once every 100 to 200 years) ideal for the disposal of these wastes because its bed consists of thick, red clay that is impermeable to water.

A 1987 EPA determination said that the lake did not fall under the jurisdiction of the Clean Water Act. Therefore, the disposal of oil field brine (saltwater) on the property was allowed. Squires created Laguna Gatuna, Inc., thereafter, and the firm invested in the installation of pipelines from the lake to nearby oil and gas wells.

In 1992, the EPA monitored the playa for water quality. When it noticed dead birds in the area of the lake, the EPA decided that Laguna Gatuna, Inc., had violated the Clean Water Act by discharging pollutants without the EPA's permission. The EPA claimed that the lake "provides a significant nesting, feeding and loafing area for migrating birds, including shorebirds, ducks, coots, grebes and raptors." On the rare occasion that natural rainwater accumulates in the sinkholes, the playa could be regulated by the Clean Water Act because birds landing on these puddles "are engaged in interstate commerce."

The EPA issued a cease and desist order to Laguna Gatuna, Inc., and threatened to impose a $100,000-a-day fine should the company continue to dispose of production water on the land.

The company had no choice but to shut down immediately. It asked for "just compensation" for its loss of property value, but the U.S. Federal District Court in New Mexico and the U.S. Court of Appeals held that the courts did not have the jurisdiction to pursue the case because EPA orders under the Clean Water Act are not open to judicial review.

Fortunately for Squires, in 2001, the Supreme Court struck down the Migratory Bird Rule under the Clean Water Act in SWANCC v. U.S. Army Corps of Engineers. Since then, Squires has pursued his own case for compensation and, in September 2001, the U.S. Court of Federal Claims ruled in his favor. The court found that the Laguna Gatuna's numerous investments made in anticipation of future company progress had been destroyed by the EPA's regulatory order. Consequently, the agency's action constituted a "taking" that warranted compensation.

Because Larry Squires has cancer, he has tried to close the deal quickly by negotiating directly with the government for compensation and attorney's fees. As a result, however, the current amount of settlement is "about half what it was worth," according to Squires.

Sources: Mountain States Legal Foundation, United States Court of Federal Claims, Larry Squires.

Copyright 2003, National Center for Public Policy Research

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