Macroeconomics

Harvard Business School 9-598-069 November 21, 1997

Don Daniels, MBA'93, and Diane Richmond of AKT Developments prepared this case under the supervision of Professor Ray A. Goldberg as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.

Copyright © 1997 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

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Borden Ranch: Balancing Private Property Rights and Social Interests in Ag

As Angelo Tsakopoulos toured the grounds of the vast Borden Ranch in September of 1997, the property appeared to be bustling with activity. Grape harvest was in full force, and the approximately 2800 acres of grapes developed by farmers who had purchased land from Angelo’s Borden Ranch Partnership (BRP) in the preceding four years were flourishing. There were also a few hundred acres of newly developed apples. Unfortunately, thousands of acres sat idle and out of production. Though Angelo owned the ground, the United States Army Corps of Engineers had forbid him from further developing the property to vineyard or other crops. According to the Corps, and their consulting agencies, the Environmental Protection Agency (EPA) and the Fish and Wildlife Service, such “conversion” from what had traditionally been grazing land to other crops would violate provisions of the Clean Water Act of 1972 and the Endangered Species Act of 1973.

AKT, on behalf of the Borden Ranch Partnership, had recently filed a case in May of 1997 before the courts to free his land for development, but the outcome was uncertain. Farmers throughout the nation watched this struggle with great interest (Exhibit 1). Angelo, a successful and wealthy farmer/developer in the Sacramento region, had become the standard bearer for the farming industry in California’s Central Valley, the nation’s most diverse and productive agricultural region. He was fighting a battle that many smaller farmers could not afford to fight. The issue of private property, from the farmers’ perspective, was paramount. If one could not farm his or her property as he/she saw fit, did the person really own the property or was the farmer just serving as a land steward for the government? If Angelo Tsakopoulos could not fight and win such a battle, what chance did the small farmer have (Exhibit 2)?

Also, the issue of legislation intent versus interpretation was in the spotlight. Many farmers had no quarrel with particular legislation, including the Clean Water Act and the Endangered Species Act, if the legislation were interpreted properly. The major objections were to the interpretation and implementation of such legislation by the administering agencies within the farming industry. Many argued that the enforcing agencies had too much latitude in interpretation and, moreover, did not have the industry expertise to properly administer the laws. Additionally, it was often unclear which agencies, exactly, exercised jurisdiction. Initially, Angelo had been instructed to deal with the Soil Conservation Service. Later, the Corps, EPA and Fish and Wildlife service claimed jurisdiction. It had been a long and confusing struggle. The end of another growing season was approaching and Angelo wondered what actions he should pursue next and, more importantly, what actions would be pursued against him.

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598-069 Borden Ranch: Balancing Private Property Rights and Social Interests in Ag

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Borden Ranch

In 1993 Angelo Tsakopoulos bought 8400 acres southeast of Sacramento, California, called Borden Ranch, for the purposes of dividing the land and selling the land into parcels for agricultural use. He would also keep and farm much of the land himself. The land was then being used as cattle grazing ground, but Angelo saw potential for vineyard development. Vineyard developments were becoming increasingly profitable and popular and successful vineyards had been established nearby.

Historically, farming had been one of the few industries in the United States that had escaped much of the intense scrutiny of environmental legislators. Though certain activities involved in farming, such as pesticide and herbicide application, were closely monitored at the county and state levels, the basic activities of tilling and planting had been completely left to the discretion of the farmer. Typically, a person could buy of piece of land that had been zoned for agriculture and develop that piece of land to anything from apples to zucchini with no regard for bureaucratic involvement. This, however, was changing.

In the same year that it bought the ranch, BRP sold parcels to two parties for development into vineyard. Angelo intended to sell the ground “ready to plant.” In other words, BRP would deep plow (or “deep rip” as it was otherwise referred to) the ground and then disk the topsoil before transferring title to the buyer. Deep plowing involved running a blade 6-8 feet into the earth throughout the property, thus breaking up the ground to a sufficiently deep level to enable permanent crops, such as grape vines, to properly root. If the ground were not ripped, the soil would remain too tight to allow proper rooting.

“Cease and Desist,” the Borden Ranch Motto

Shortly after BRP began preparation of 411 acres of Borden Ranch in the Fall 1993, the company was contacted by the Army Corps of Engineers, ordering BRP to cease and desist all development activity on the ranch. Though this was not a formal cease and desist order, BRP was prevented from continuing development until a proper permit had been obtained. According to the Army Corps of Engineers, the company was in danger of violating provisions of the Clean Water Act of 1972 and the Endangered Species Act of 1973. This intervention by the Corps and other governmental bodies would not be the last.

The Clean Water Act governed the discharge of dredged or fill material into the waters of the United States, and made it unlawful to discharge such materials without first receiving authorization, (usually a permit) from the Army Corps of Engineers. Amendments to the Clean Water Act of 1972 established the Section 404 regulatory program, which administered, among other things, the permitting process. In 1977, certain exemptions were added to the Clean Water Act, including Section 404(f) exemptions, which provided that discharges that were part of normal farming, ranching and forestry activities were exempt and did not require a section 404 permit.

The Corps stated that the property contained swales and vernal pools. Swales are subtle low- lying areas that served as drainage into streams and creeks during wet times of the year. Most of the year, swales were dry. Swales had been interpreted as “navigable waterways of the United States” and therefore fell under the jurisdiction of the Clean Water Act of 1972. Vernal pools are low lying areas with poor drainage which served as a natural habitat for fairy shrimp, a tiny crustacean that had recently been nominated for addition to the endangered species list. There was much argument over whether fairy shrimp were actually endangered, as well as whether or not the existence of vernal pools were vital to their continued survival (it had been argued that fairy shrimp could survive in almost any wet environment, including tire tracks and hoof prints (Exhibit 3)) but, regardless, the Army Corps would not allow further development of the property until a “404” permit had been filed and approved. This permit, Angelo was told, would address both the provisions of the Clean Water Act and the Endangered Species Act.

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Borden Ranch: Balancing Private Property Rights and Social Interests in Ag 598-069

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The Permitting Process

The permitting process was typically of itself an arduous process.

Timeline Action

60 days First, the applicant was required to present maps to the Corps showing the location and nature of any suspected wetlands on the subject property. This usually involved hiring environmental consultants to do the work.

2-5 weeks. Once the maps were approved by the Corps, the applicant was required to submit the 404-permit application for the subject property. The application had to a) describe the activities to be performed on the property, b) describe the wetland areas to be impacted and, c) describe the mitigation activities to be pursued by the owner for potential impacts on the wetland areas.

2-4 weeks The Corps reviews the application

45 days The Corps sends out public notice to all potential interested parties for comment, including, but not limited to:

Other government agencies, including the consulting agencies Environmental groups like the Sierra Club Adjoining property owners Individuals living in the area

The parties had 45 days to comment

2-3 weeks The Corps prepares the comments for distribution to the applicant

2-6 weeks The applicant is required to submit an “Alternatives Analysis” that responds to all of the comments to the satisfaction of the Corp

180 day limit Concurrent with the application of the permit, the Corps, through its consulting agency, the U.S. Fish and Wildlife Service, is conducting its own independent “Biological Opinion” which details the impact to the habitat and species in the planned usage area of the property. The U.S. Fish and Wildlife Service had 180 days in which to issue the opinion

Overall Ideally, in a timeframe from six months to one year, the application would be approved . However, it should be noted that the process could take much longer depending on the nuances of the particular case and the individuals involved in processing the case.

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598-069 Borden Ranch: Balancing Private Property Rights and Social Interests in Ag

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Rip and Disk Everything, but Mitigate

Of course, if the property fell under the exemptions of 404(f), there was no need to file such a permit. In October of 1993 Angelo consulted with his agribusiness consultant and with an expert from the Soil Conservation Service (SCS) of Sacramento County (also a government agency). The conclusion of both experts was that since BRP intended to conduct normal farming activities, including plowing and disking, which did not level the land or convert wetlands to dry land, that no permit was needed. Moreover, the Soil Conservation Service agent expressed to Angelo that the SCS maintained authority over determining wetland existence on farmland and rangeland. Based on these opinions, BRP started the first phase of development on the Borden Ranch.

However, in ordering development of the property halted, the Army Corps of Engineers indicated the preparation activities were prohibited if a vernal pool or drainage swale was involved, even for the purposes of rangeland improvement. In the view of the Corps, such activities potentially converted wetlands to dry land. Furthermore, the Corps chose to classify vernal pools on Borden Ranch as “unique,” an opinion the SCS disputed.

In January of 1994, the partnership submitted a notification to the Corps to obtain a 404 permit for the 411 acre parcel. The Corps, in turn, requested EPA guidance with respect to granting a farming exemption for the proposed activities. The EPA responded in late June of 1994 in a letter stating that the “proposed activities at Borden Ranch,” specifically plowing, would “puncture the restricting layer of claypan soils” on which the vernal pools were situated and impact their hydrology, eventually converting them to non-waters. No references were made to either the plowing or disking of swales. A permit was granted in June of 1994. BRP was required to mitigate the destruction of vernal pool acreage by reconstructing the vernal pools (physically moving the topsoil containing the pools) to another site. This process cost approximately $600,000 for seven impacted acres. The process resulted in an unprofitable transaction for Angelo, but it enabled him to meet his obligations to the buyers of the land, which was of primary importance to Angelo.

Don’t Rip the Vernal Pools, No Permit Required

To avoid the confusion associated with the first development at Borden Ranch, Angelo decided to take a more proactive stance and to meet with officials of the Corps and EPA in advance of a second phase of development involving approximately 1800 acres. On September 22, 1994 BRP representatives and Corps/EPA officials met and jointly decided that disking the Borden Ranch was legal and acceptable. Farm activities that did not fill a vernal pool or block a seasonable wetland could be performed, deep plowing could occur on all areas except vernal pools (including swales), and, moreover, a 404 permit would not be required as long as normal, ongoing farming and ranching activities were conducted. Angelo was very pleased with the results of the meeting. He finally believed that he had clear direction and approval from the appropriate federal authorities.

Angelo immediately started land preparation activities on the second development phase within the terms of his agreement with the Corps and EPA. Preparation continued through October and November, until the rainy season began. Based on his agreement with the Corps, Angelo entered into purchase and sale agreements with several large farmers in the area. Those farmers, in turn, entered into grape purchase agreements with wineries and also negotiated financing with banks. Many business people within the wine industry had a lot invested in Borden Ranch and Angelo's ability to deliver the ground in the condition and at the time as promised.

Don’t Rip the Swales, Avoid the Vernal Pools Completely and Get a Permit

Land preparation activities recommenced in the Spring of 1995 following the rainy season. Then, on April 12, the Corps issued it’s first formal cease and desist directive that detailed a

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Borden Ranch: Balancing Private Property Rights and Social Interests in Ag 598-069

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surprising redefinition of regulated activities. Now, according to the Corps, deep plowing drainage swales was not exempt. Moreover, plowing of other areas of Borden Ranch was now a regulated activity that required permitting. The Corps argued that plowing of the swales increased percolation into the ground reducing waterflow off the property, resulting in a violation of the Clean Water Act of 1972.

In response, on behalf of BRP, an officer of the Natural Resources Conservation Service stated at an April 18, 1995 meeting with the Corps that Borden Ranch drainage swales were not situated in hardpan soils. With no hardpan layers to puncture, drainage swales continued to perform as seasonal wetlands after chiseling (breaking the ground-up to a level not exceeding 24 inches) or deep plowing. BRP also offered to provide evidence from agricultural experts to support this position. Nevertheless, the Corps insisted that, from that point forward, swales not be ripped.

The Corps cooperated with BRP to issue a fast-track permit for the acres that had already been prepared in order that the ground be planted. The permit was issued on May 31, 1995. The parties jointly agreed that even though disking was still considered an exempt activity, BRP would no longer disk the vernal pools and only chisel the swales. Angelo now knew that the Corps could change its position after the fact, and he wanted to take no chances. Also, between 1400 and 1600 acres would be set aside as a mitigation area. The pools and swales that had been avoided in the vineyard development area would be studied over time to see if they were impacted by surrounding farming activity. In the event that they were not substantially impacted, sections of the set aside area would be “credited” to BRP in order that Angelo might use the ground for mitigation against other ground to be developed.

BRP proceeded with development of an additional approximately 800 acres that had not yet been permitted, but under the guidelines set forth in the April 18, 1995 meeting, while the permit was in process. All vernal pools were avoided and swales were not ripped. Then, on November 22, 1995,1 another cease and desist order was issued. The Corps claimed that “unauthorized discharges” had been made into waterways of the United States on the 800-acre parcel and another 80-acre parcel. Angelo protested and continued his fight to free BRP’s land for development. In early 1996 the Army Corps of Engineers issued an Administrative Order on Consent which:

1. Issued after-the-fact permits for all the second phase of development at Borden Ranch.

2. Established a 1,418 acre preserve2

3. Provided a mechanism for study whereby BRP could receive the additional credits back from the preserve for use in future developments as studies of the swales and vernal pools continued

Avoid the Swales Completely, Avoid the Vernal Pools by 15’ and Get a Permit

At last, it seemed as though Angelo had resolved all of the problems associated with the first two phases of development. Autumn was now beginning and BRP wanted to begin preparation of the remaining plantable acreage of the ranch so that the ground could be planted in the following year. Angelo needed to move quickly before the rainy season. At the same time, however, he did not want any problems with the governmental agencies. To this end he arranged a meeting on

1 Note that Exhibit 1, the Sacramento Bee Article, refers to only two cease and desist orders through April of 1997. There were actually three according to BRP officials. 2 Exhibit 1 also refers to a preserve of 1,740 acres. The difference between the 1,740 and the 1,418 was proposed additional preserve that had not yet been finalized.

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598-069 Borden Ranch: Balancing Private Property Rights and Social Interests in Ag

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September 5, 1996 with officials of the Army Corps of Engineers and the EPA, attended by both local representatives and representatives from Washington, D.C. In the September 5 meeting the parties agreed that BRP could develop the remainder of the ranch if all swales were avoided completely (no plowing or disking) and if the vernal pools, in addition to remaining untouched, were afforded a 10’ to 15’ buffer. In Angelo’s and his advisors’ opinions, this resulted in complete avoidance of anything that might be considered lowlands or wetlands, and, consequently, would be upland farming and exempt from the permitting process. In light of prior difficulties, however, Army Corps requested that BRP receive a permit. Though they believed Angelo would adhere to the agreed development practices, they did not want to set a precedent for others, who might be less likely to adhere to proper development practices, to be exempt from seeking a permit. Angelo agreed to start the permit process, but, in view of the conservative development practices he would be instituting on the remainder of the ranch (which, after this meeting, he believed to be blessed by both the Army Corps and EPA), he decided that he would start plowing and disking the property according the guidelines set forth in the September meeting. He also offered to employ an independent observer to monitor his development activities. The Army Corps declined to take him up on his offer.

After the meeting, he was extremely confident that there was no danger of violating any provisions of the Clean Water Act or Endangered Species Act. Avoiding the vernal pools by 10’ to 15’ was, in practice, encumbersome and expensive, but worth the effort to avoid further problems Deep plowing the ground up to 8 feet required massive equipment. These large land preparation machines were relatively difficult to maneuver and, when the second phase was developed, the machines ended up leaving large areas around the vernal pools unripped simply because they could not circle closely around the pools without endangering them. In one instance, a farmer purchased 800 acres from BRP including 6 acres of vernal pools; when the land was finally ripped, 26 acres remained unprepared due to the difficulty of plowing around these sensitive areas.

By October, Angelo was forced to halt ground preparation due to rain. He recommenced activity in February of 1997. BRP and the Army Corps had continued meeting on an intermittent basis after the September meeting on various issues, including the configuration of the preserve. Even though the negotiated Administrative Order on Consent set forth the boundaries of the preserve in great detail, the federal agencies claimed that there had been misunderstandings about the actual location and configuration of the preserve. In one of these meetings, in early 1997, the Army Corps was surprised to find that BRP had actually begun preparation of the remainder of the ranch. They objected to the fact that a consultant had not been hired even though Angelo had offered to hire an independent monitor!

Don’t Do Anything

In April of 1997 another cease and desist order was filed against Angelo. EPA contended that there was fill material deposited in swales. In a meeting in Sacramento, California in the same month, Angelo and his advisors, along with representatives of many farmers who had bought land from BRP, met with representatives of the Army Corps, EPA and the Fish and Wildlife Service. EPA officials stated that there were violations but stated, at that time, they could neither comment on the nature nor the exact location of the violations. They stated only that on a random check by EPA representatives, violations of the Clean Water Act of 1972 had been observed. U.S. Fish and Wildlife would issue their findings in the form of a biological opinion within four to five months. Both Angelo and the farmers were outraged that they could receive no more information and that ground preparation would be halted for such a long period of time. When asked by one of the farmers if the presiding EPA agency employed an expert in agriculture that could be consulted on this issue, the answer from the EPA representative was “No”; no such expert was employed and no expert in agriculture had been consulted.

Also, in the same meeting, representatives of the Fish and Wildlife Service voiced concerns over the potential impact of farming activities on vernal pools and suggested that, in the future, the

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10’ to 15’ buffer might not be enough. They stated that further studies were underway. When asked by one farmer by what distance a farmer (specifically, an individual farmer without the resources of BRP to hire consultants and lawyers to develop a much smaller piece of ground) should avoid vernal pools to be “sure” of perpetrating no infraction, the answer from the Fish and Wildlife Service was 250’. If such a law were enforced, the farmer pointed out, a vernal pool as small as 1’ would take 4.5 acres out of production. In essence, under this scenario, much of the Eastern San Joaquin and Sacramento Valleys could be taken completely out of potential production.

After the meeting, Angelo fully believed that he had compromised enough. On May 6 he filed a case against the U.S. Army Corps of Engineers and the United States Environmental Protection Agency charging that the agencies were unlawfully expanding their authority under the Clean Water act in order to block unregulated plowing and other basic and commonly used agricultural techniques. The lawsuit alleged:

Federal regulators were unlawfully applying the Clean Water Act to normal farming and ranching activities, such as plowing, which were exempt from regulation.

Federal regulators were demanding that farmers seek a federal permit to plow if incidental fallback or soil loosing resulted from such activities, even though Congress never intended to regulate plowing under the Clean Water Act. In January of 1997 a federal court overturned the agencies’ own regulation to this effect (the “Tullock Rule”).

Federal regulators were demanding that farmers seek a federal permit for certain farming activities occurring outside isolated seasonal wetlands or other so- called “waters of the United States.”

The arbitrary and capricious expansion of federal regulations denies farmers due process of law by requiring them to prove they are obeying the law, rather than requiring the agencies to prove a violation has occurred.

Furthermore, in August of 1997, a letter was issued by the Fish and Wildlife Service claiming that BRP may have incurred certain criminal and civil liabilities under the Endangered Species Protection Act. According to the letter, there was evidence of a “take” of endangered species life on BRP property. Angelo asked for the evidence to be presented to him, and, as of November 1997, he was still waiting on the information . . . just as he was waiting for information on BRP’s alleged “fill” violations.

As Angelo gazed across the undeveloped Borden Ranch’s grasslands, he certainly agreed that there had been a “take,” but of a different sort. In Angelo’s eyes, and in the opinion of many Central Valley farmers, the government had performed a “take” of private lands. Many questions remained unanswered.

What impact would the outcome of Angelo’s case have on the U.S. farming industry in general? What changes needed to be made within the existing system to ensure that both private property rights and the environment were adequately protected? What actions could small farmers take in such an uncertain environment to protect themselves? A bigger question, pertaining to everyone, not just farmers, related to what actions taken by a government agency enforcing a particular law constitute unlawful interpretation and not just enforcement?

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598-069 Borden Ranch: Balancing Private Property Rights and Social Interests in Ag

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Exhibit 1

Tsakopoulos Battles U.S. Fellow farmers see him as leader in wetlands dispute

By Nancy Vogel and Michael Doyle Bee Staff Writers

Walking his Borden Ranch property near Galt, chewing green wheat kernels plucked from his fields, Angelo Tsakopoulos doesn’t seem so far from the melon patch he tended as a teenager on his uncle’s ranch a few miles away.

He talks like a farmer, too, as he admires the rows of young grape vines that stripe the rolling hills he owns.

“If you have water you can grow anything,” said the 70-year-old millionaire developer. “We live in one of the best agricultural parts of the world.”

And like other farmers in the Galt area, Tsakopoulos has found himself in trouble with the U.S. Environmental Protection Agency, the Army Corps of Engineers and the Fish and Wildlife Service for illegally destroying wetlands with “deep ripping,” a kind of plowing that slices the land open 4 to 8 feet deep.

But Tsakopoulos—who has given more than half a million dollars to Democrats in the past decade and raised millions more—is no ordinary farmer, not to the others who make a living from the soil of southern Sacramento County, and not to the federal regulators cracking down on deep ripping.

To the other farmers, Tsakopoulos is their champion against what they see as overzealous bureaucrats working beyond the intent of Congress.

“If they can bring Angelo to his knees, the rest of us will tremble,” said Gary Silva, who raises cattle near Tsakopoulos’ property and has gotten in regulatory trouble for wetland destruction himself.

“Angelo is the person in front,” said Mike Wackman, an Elk Grove farmer and assistant to Rep. Richard Pombo, R-Tracy. “And whatever happens to him is going to trickle down.”

To the regulators, however, Tsakopoulos is a tough antagonist who arrives at meetings with troops of consultants and lawyers who make the most of the ambiguity in murky wetlands rules. And his political connections can’t be ignored, they say.

“He can have a representative of (local Democratic Rep. Vic) Fazio’s office request that we meet and we’re sensitive to that,” said Tom Coe, chief of the California/Nevada section of the Corps of Engineers. “Anybody who is able to fly back to Washington and get a meeting with the assistant secretary of the Army and then go to the White House has access that other people don’t.”

A faithful Democrat who has hosted President Clinton on his visits to Sacramento and in turn spent a night in the Lincoln Bedroom, Tsakopoulos has used his access to rail against the wetlands regulators

from the White House to the Pentagon to Congress to the Interior Department.

To not do so, he said, would be “derelict.” “It is not right to attempt to use friendships for

your own gain,” said Tsakopoulos. “However, when it comes to the community, if you can make a difference, you must make a difference.”

“The problem is a national problem. It is a statewide problem. The U.S. bureaucracy should not be getting involved in these types of activities.”

But his lobbying has not made a difference, Tsakopoulos said.

“With friends like these, who needs enemies?” he said. He claims wrangling with regulators has stripped him of more than $8 million in property value and interest in the four years since his AKT Development Corp. bought Borden Ranch.

Others say he is working the system to his advantage.

“It’s the large landowners, the people with money who figure out the weaknesses in the system and hire the lawyers and experts to capitalize on those weaknesses,” said Alta Tura, a member of the Sacramento Audubon Society. “The small landowners can’t do that, the conservationists can’t do that.”

It’s not clear what, if anything, Tsakopoulos has gained by his power and influence, or perception of it.

“He’s been in our office in Washington before, and we’ve been contacted by his staff occasionally,” said Mike Hardiman, a spokesman for Pombo. “His interest has been environmental issues in general, and the unreasonable treatment by the Corps of Engineers and the Fish and Wildlife Service.”

Cognizant of the developer’s fund-raising clout with Democrats, Pombo suggested to Tsakopoulos at one meeting that he might have better luck talking to Democrats in Congress or the Clinton administration. Tsakopoulos knew that; he had just come from one Democratic congressional office, and was on his way to see Deputy Interior Secretary John Garamendi, the former California legislator and state insurance commissioner.

“Every citizen in this nation has a right to ask for help, whether or not they’ve given money,” said Garamendi, who has been a beneficiary of Tsakopoulos’ fund-raising prowess. “The fact is, I met with people who are contributors to Republicans far more than I met with Angelo. The developers that are out there are Republican.”

Garamendi said he had transmitted Tsakopoulos’ concerns to federal regulators but had not impeded or interfered with any enforcement actions. “I

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specifically did not get involved in this thing,” he said. “The fact of the matter is Angelo did not get special treatment.”

The 13 square miles of hilly land Tsakopoulos bought 10 miles northeast of Galt are creased with swales, considered “waters of the U.S.” subject to Corps of Engineers regulation, and speckled with one of the most dense concentrations of vernal pools remaining in the Central Valley, according to the Fish and Wildlife Service.

Those pools look like cracked mud in the summer. But when they fill with winter rain, they come alive with an array of specialized insects, flowers and tiny, federally protected fairy shrimp and tadpole shrimp.

“I would run into him at a reception or something and he would say, we have to do something about the fairy shrimp, it’s going to stop development,” recalled Rep. Robert Matsui, D- Sacramento. But Matsui said Tsakopoulos had never asked him to improperly intervene with federal agencies.

Tsakopoulos bought the rangeland intending to prepare it for vineyards, then sell most of it. Since 1993, a third of the land has been deep-ripped, much of it without first getting permission from the Corps of Engineers.

The EPA and corps since March 1994 have issued to Tsakopoulos two cease-and-desist orders, two after-the-fact permits for work done illegally and two “administrative orders,” a type of enforcement action. The first order required him to set aside about 20% of his range as a preserve. That’s now the largest swath of protected wetlands in Sacramento County, said Coe.

The second, issued by the EPA this month, ordered him to stop destroying wetlands on his property. It came after inspectors saw that in discing his fields—an activity that isn’t regulated— Tsakopoulos illegally pushed and dragged soil into swales and vernal pools.

“The alleged findings which led to the order are both legally and factually incorrect,” wrote Tsakopoulos in reply this week.

It appears EPA staff in San Francisco was ready to move more decisively against Tsakopoulos in late 1995, when inspectors learned that he deep-ripped a second time without a permit—this time 800 acres, including 80 acres that he had earlier agreed to preserve. But EPA headquarters in Washington advised them to “hold off.”

Notes from a December 7, 1995, conference call between EPA staff in San Francisco and Gregory Peck, deputy director of the EPA wetlands division in Washington, state that “although the Region was moving towards a formal enforcement action in two of these cases (including the Borden Ranch property owned by Angelo Tsakopoulos), we suggested that the Region hold off at this time and instead pursue a strategy that could enhance the potential for

compliance without the need for formal enforcement.”

That strategy, according to the notes, includes building a public record that shows the agency’s willingness to work with landowners at the same time the EPA draws a “line in the sand” by issuing national guidelines on deep ripping.

Peck said he didn’t interfere in the Tsakopoulos case. Regional staff called him for advice, he said, and he suggested working with landowners until the EPA could issue guidelines that would clarify that deep ripping in the Central Valley is not exempt from regulation.

While deep ripping in the clay soils of Mississippi and Alabama is common and can actually improve wetlands, said Peck, in the Central Valley it destroys vernal pools.

“They asked for our input,” said Peck, “and we did not dictate a result, we did not direct a result.”

Asked if he ever got any pressure from higher- ups or the White House to go easy on Tsakopoulos, Peck said, “Unequivocally not.”

The guidelines issued by the EPA in December 1996, he said, “contradicted the position Angelo has taken on whether deep ripping is exempt.”

Pombo’s office called him, Peck said, to let him know that Tsakopoulos “distinctly disagreed” with the EPA’s conclusions.

Indeed, Tsakopoulos has demanded—and gotten—a lot of attention from elected officials and regulators, to the point where he’s probably gotten quicker action from the agencies, said Coe.

For example, a September 1996 meeting on his ranch was attended by staff members from the offices of Pombo and Fazio and a staff member for U.S. Sen. Dianne Feinstein, D-Calif.

Three officials from the headquarters of the Corps of Engineers, EPA and the Natural Resources Conservation Service—including Peck—also flew in from Washington for the day.

Peck said he decided to go to Borden Range after getting letters from Pombo and Fazio complaining about the deep-ripping regulation.

“What we clarified for these farmers, including AKT, was that you need a permit,” said Peck.

It’s difficult to compare how regulators have handled Tsakopoulos’ case with other local cases of deep ripping. Not only does he own a much larger piece of property, he alone repeatedly deep-ripped without a permit.

“He knows how to push the envelope real hard,” said Coe.

Tsakopoulos has agreed to preserve 1,740 acres, about 20% of his property. He has destroyed roughly 50 acres of wetlands, by Corps of Engineers’ estimates, but the preserve contains 104 acres of wetlands.

There aren’t hard-and-fast rules for what is required of the landowners, said Coe.

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“We have to take into account the severity of the impact, the technical, logistical and economical ability of the person to do mitigations,” he said.

In the Tsakopoulos case, Fish and Wildlife Service officials have asked him to contribute only a few acres of wetlands. They say that’s because the 1,740 acres Tsakopoulos preserved contains enough vernal pools to substitute for the typical requirement that landowners hire consultants to create new pools and inoculate them with plant seeds and fairy shrimp eggs.

“We actually got a better deal out of him by not having him do restoration,” said spokeswoman Patricia Foulk. “We got some fine vernal pools.”

Fish and Wildlife Service biologists say the pools are so abundant, they more than compensate for what Tsakopoulos has so far destroyed. In fact, after he illegally deep-ripped in the fall of 1995, they did not require him to set aside more land.

A Fish and wildlife Service memo described that deal as “highly favorable to AKT.” And the Los Angeles Times quoted that phrase two weeks ago in a story alleging that because of his political connections, Tsakopoulos had received favorable treatment at the hands of federal regulators. The memo went on to say, however, that Tsakopoulos had refused to endorse the deal.

And he remains defiant about the possibility that regulators also will ask him to make up for the wetlands damaged this spring by crews discing his property.

“The swales should not be avoided,” he said. “They are excellent farmland. The hard position that the services are taking is giving us no choice but to litigate, and that will set the standard for everyone else.”

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Exhibit 2

The FLOC Fairness to Land Owners Committee

1730 Garden of Eden Rd. (410) 228-3822 Cambridge, MD 21613 Fax (410) 228-3965

Statement of Nancy Cline

Before the House Committee on Resources Task Force on Wetlands

Roseville, California April 19, 1995

Mr. Chairman and Representatives,

I am Nancy Cline, mother of five young children, owner of a small family winery in Sonoma, California and a member of The Fairness to Land Owners Committee.

I am here today to urge you to swiftly pass legislation to ensure the equal protection of the private property rights of those who can’t afford to spend their life savings fighting the unchecked power of the federal bureaucrats.

I am here today to expose the nightmare we have been living.

For the last several years the bureaucrats have threatened us and intimidated us into silence. Speaking today, I risk further retaliation by the bureaucrats against my precious family. However, after a great deal of soul searching, my husband and I decided that the government has already shattered our dreams, devastated our family, threatened our financial security and diminished our respect for our government. We also came to the stark reality that if we can be intimidated into silence then the future of our precious children is at great risk—for they will have no freedom in their futures.

Early in 1989, my husband wanted to fulfill his life-long dream of creating and owning a family winery. My husband and I purchased 350 acres in Sonoma; it seemed the perfect place to raise our family, farm and establish a small winery.

Fred immediately began to farm the land. He worked hand in hand with the Soil Conservation Service, who indicated in August 1990 that the U.S. Army Corps of Engineers wanted to speak with him about his agricultural practices.

A Corps official showed up at the property and informed Fred that he believed that the property was a wetland. Fred showed the agent that the government’s aerial photo of our so-called wetlands was an overflowing watering trough for cattle. Then the agent mentioned an endangered salt marsh harvest mouse.

The Corps enforcement officer told Fred that plowing was okay, leveling was not. Leveling is the spreading of dirt to make a field easier to plant. This is a regular farming practice in our area.

Although Fred agreed to adhere to his orders, the agent went back to his office and issued an intimidating Cease and Desist Order saying that they “discovered an unauthorized activity,” and threatened us with fines of up to $25,000 per day or imprisonment of up to a year.

It was the first time we had heard the term wetland to describe our land. It was the first time we heard that the federal government had jurisdiction over farming.

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We hired an expert attorney on land use and the Clean Water Act, who indicated that since our property had been grazed and farmed since 1930, Fred’s farming activities were agriculturally exempt. Our attorney said he would write a letter and get the Cease and Desist Order rescinded.

Fred continued to plow and plant hay—told by both the Corps and our attorney that both these farming practices were fine.

Daily we expected the Cease and Desist Order to be rescinded.

I think back now, and wonder how we could have been so naive. My God, we had no idea that these people would try to destroy our family. We thought they would recognize the obvious agricultural history of our property and move on.

In December 1991, Corps agents issued another Cease and Desist Order. We met at the property hoping for resolution but the agents insisted that the flapgate and the mere plowing of our hayfield constituted a violation of the Clean Water Act.

We spent thousands of dollars for our attorney to provide exhaustive documentation to the Corps that the property was in agricultural use for the last 60 years and that virtually all of Fred’s activities were ag exempt and not regulated by the Clean Water Act or the Corps regulations.

Again, our attorney assured us that our property and activities were exempt. Not to worry, the Corps would see the light.

The corps responded—that it didn’t matter. They wanted the property put back the way it was prior to agricultural use.

In November 1992, a letter arrived from the Corps. Despite the massive and expensive documentation provided by our attorney, we were told we had 45 days to close our flapgates, fill in any ag ditches, restore the site to its pre-agricultural state, post a bond for the Corps to be assured of our intentions, and be prepared to hire an environmental consultant for five years to monitor the site according to the Corps’ wishes.

Obviously, continued farming was out of the question.

Throughout this time period, we required many meetings with the Corps to resolve this issue. They promised to meet yet they wouldn’t. To date, and I mean as of February 1995, they have refused to meet with us or our attorney.

In January 1994, the FBI showed up. Obviously the Corps had no desire to discuss or resolve this issue. We were told to hire a criminal attorney.

I don’t know how to convey to you the terrifying and gut-wrenching experience of being a target of a criminal investigation. We sank into utter helplessness as we finally realized that they had no intention—and never had—of resolving our simple problem.

Their issue was power and control. Their issue was an edict from the U.S. Attorney General demanding more criminal environmental convictions in the Ninth Circuit—apparently short of the prescribed quotas.

The FBI and EPA interrogated neighbors, acquaintances and strangers. They asked about our religion, whether we were intelligent, did we have tempers. They asked how we treat our children.

Our property was surveyed by military blackhawk helicopters. Their cars monitored our home and our children’s school. They accused Fred of paying neighbors to lie. The FBI actually told one terrified neighbor that this investigation was top secret, with national security implications. The community reeled, as did we.

Our personal papers were subpoenaed. The grand jury was convened.

We spent thousands of additional dollars to hire more attorneys. The Justice Department told our attorneys that—unless we would plead guilty and surrender our land—they would seek a criminal indictment of both Fred and me. According to one government attorney, I was to be included because I had written a letter to the editor of a local paper in their opinion, “publicly undermining the authority of the Army Corps.”

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Let me tell you—it has been a wretched nightmare. A nightmare for my husband, a nightmare for my children and a nightmare for me. I will never be able to adequately express what this abuse of power, the threat of prison, the use of the FBI, and the intimidation used to get us to plead guilty did to our family this last year.

After months of anxiety, anger, sleepless nights, and $100,000 of legal fees, we decided that there was no way we were going to plead guilty when we were absolutely innocent of any criminal behavior.

I remind you that in the midst of this sinister lunacy, Fred and I had five tender children to nurture and protect. Our decision to stand up for our family, our children’s legacy and future, and our dreams has cost us dearly—both emotionally and financially.

With us refusing to surrender, the agencies knew that they did not have a criminal—and in our opinion, not even a civil—case. Two months ago, they informed our attorney—orally, of course—that they were not proceeding on criminal charges.

To date, the Corps has refused to resolve the issue and rescind the Cease and Desist Orders. With these orders still in effect, half of our farm is restricted from participating in regular farming activity.

The agony of this experience has left deep scars.

We have no idea how to settle this issue or how to resolve the horrible wrenching pain of the last year. We remain at the mercy of the bureaucrats and their next interpretation of their regulations. We are terrified that they might try to retaliate upon learning of my appearance here today.

We are not alone. Across this country the bureaucrats are abusing land-owning citizens. The people are rightfully terrified to come forward. They are intimidated into silence.

It’s time for Congress to admit that the bureaucratic regulations promulgated from the Clean Water Act, the Endangered Species Act and other federal land-use legislation gives far too much unchecked power to out-of-control bureaucrats. It’s time for Congress to stand up to the tunnel-visioned preservationists who want the government to control every inch of the land, every use and every specie.

It’s time for Congress to recognize that compromising our rights under the Fifth Amendment compromises the very foundations of democracy.

Many of our acquaintances advised me that speaking here today was a foolish, naive and risky proposition. Hadn’t I gotten a big enough dose of the absolute power of our government? Hadn’t I learned to quietly disappear and let them attack someone else?

I have listened to their comments, but have chosen to ignore them. I am here today—asking for your help and your solution—because I refuse to give up on our American system.

I urge you to make these abusive federal agencies accountable to you. They are running amuck in this country—destroying the dreams, financial and emotional security of decent, productive citizens.

They had no right to strip Fred and me of our dreams. They had no right to force us to spend our children’s legacy to protect ourselves from incarceration, from prison.

This is not about protecting the environment. It’s about agencies out of control and in need of adult supervision. This is about their desire—and power—to control land and their total disregard for private property rights. And it is about the future of this great country.

These agents have stolen our dreams and our land. If they want our land, I urge you to make them pay for it.

Thank you.

This document is authorized for use only by Hameeda Lamb in Business & Economic Policy Graduate Online Fall 2018-2019 at Northwood University, 2018.

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Exhibit 3

Fairy Shrimp Tale: Prawns in a Battle with Developers * * * * *

One Man’s Mud Puddle May Be Another’s Vernal Pool—Ditch or Natural Habitat?

By Timothy Noah Staff Reporter of The Wall Street Journal

SACRAMENTO, Calif.—This is a fairy shrimp tale that came true.

Once upon a time—up until 1990—three species of fairy shrimp were so obscure that they dwelt on this planet unnoticed by humankind.

But in just four years, the vernal pool, longhorn and conservancy fairy shrimp have gone from undetected crustaceans to prawns in a bigger battle between environmentalists and developers.

These tiny creatures aren’t the stuff that shrimp cocktails are made of. Biological cousins of the Sea Monkeys sold through ads in comic books, fairy shrimp measure about an inch fully grown. They swim upside down in mud puddles throughout California’s Central Valley, where they feed on plankton. But the most remarkable attribute of the three newly discovered species is their ability to turn the faces of Sacramento County developers red. Benighted Coexistence

The fairy shrimp and the developers unwittingly lived together in peace until May 1990, when the three new species were first written up in the Journal of Curstacean Biology.

In itself, the discovery was hardly earthshaking. Scientists identify 7,000-odd new plant and animal species somewhere in the world each year. Harvard entomologist Edward O. Wilson, a leading scientific advocate of biodiversity, estimates that the 1.4 million known species logged thus far represent less than one-tenth the total currently inhabiting the earth. “It is a myth that scientists break out champagne when a new species is discovered,” Mr. Wilson has written. “Our museums are glutted with new species.”

What happened next, however, was somewhat more unusual. Few creatures (the snail darter comes to mind) have gone so rapidly from discovery to the threat of extinction. In November 1990—six months after the journal article appeared—Roxanne Bittman, a botanist with California’s Fish and Game Department, petitioned the U.S. Fish and wildlife Service to list the three new fairy shrimp species as endangered. The agency formally proposed the listing in 1992. A final decision is pending. Dead in the Water

If the drive to declare the species endangered succeeds, developers say many of their projects here will be dead in the water.

So, rival biologists have been mud wrestling.

The developers have sent a team of environmental consultants up and down the state dipping canvas nets into muddy ditches to show that California has no shortage of fairy shrimp. They take to the skies to videotape the fairy shrimp’s natural habitat—geological creases in the dry Sierra foothills that fill with rainwater in the winter months, becoming vernal pools come springtime.

From the co-pilot’s seat of a droning prop plane. Paul Sugnet, a biologist working for developers led by Angelo Tsakopoulos, the owner of AKT Development Corp., points to streaks of glinting blue in the greenish-brown landscape below. Conservationists say these vernal pools are being bulldozed out of existence. Mr. Sugnet disagrees: “Vernal pools everywhere you look,” he says, peering through sunglasses.

That sort of talk enrages Robert Holland, a lean, grizzled biologist and sheep farmer. Wading ankle- deep in a muddy pool in search of fairy shrimp, he mutters about “land rapers.” Mr. Holland denies he is referring to Mr. Sugnet, who disputes Mr. Holland’s claim that at least two-thirds, and possibly as many as 90% of California’s vernal pools have vanished since Europeans first settled here.

Mr. Holland wrote a letter in support of the proposed endangered-species listing, taking aim at “esurient land developers, their sniveling attorneys and their accepta pecunaria quisque advocata consultants.” (A brief glossary: “Esurient” means “greedy,” and the italicized phrase, Mr. Holland says, is “bad Latin” for “any position for a price.”)

Oh, yeah, well, the conservationists and regulators are “zealots” who wrongly view developers as “bad people who only take care of themselves,” counters Mr. Tsakopoulos, a wealthy home builder.

If the proposed designation is approved, the developers contend, it could cost them up to $500 million during the next decade in foregone construction. Officials at the Interior Department’s Fish and Wildlife Service answer that the 1973 Endangered Species Act doesn’t permit them to take economics into account when considering a listing. Besides, such action is far less likely to stop building projects than to make developers “plan and think,” says Cay Goude, an assistant field supervisor at the agency’s Sacramento office.

Suspicions abound that in the ongoing debate the fairy s shrimp are actually a red herring. People on the developers’ side whisper that Ms. Bittman, the botanist, is using the new species as a pretext for

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protecting various exotic plant species, such as Downingia pusilla and Orcuttia viscida, that are native to the Central Valley’s vernal pools.

Ms. Bittman denies that she is just out to preserve plants. But she agrees that “I am concerned about plants in the habitat.” She adds that “plant species don’t receive the same level of protection as animal species” under the Endangered Species Act.

So why not petition the federal government to protect the habitat, not merely the shrimp? Because “there’s no endangered natural community law,” she explains. The federal government can move to limit development in a “critical habitat,” but only after a species within that habitat has been declared endangered.

On the other hand, evidence that a habitat is disappearing can be used as a basis for declaring species found in the habitat to be endangered. (Vernal pools destroyed by bulldozers might do the trick.) In the regulatory kingdom of endangered species, such a ruling then means that the federal government can move to protect the habitat.

But developers claim that the fairy shrimp— whose Sea Monkey relatives are so hardy their eggs can be shipped in little packets by mail—aren’t necessarily all that partial to vernal pools. Peter Balfour, a biologist working for Mr. Sugnet, makes this point by scooping out one of the fairy shrimp proposed for listing as endangered from a narrow, rain-filled ditch. Conservationists argue that when fairy shrimp are found in such places, it usually means the spot is a vestigial vernal pool. But this one runs between a highway called Industrial Boulevard and a gravelly railroad bed. Mr. Balfour says the ditch was probably created by bulldozers when they laid the railroad tracks.

Despite their herculean efforts to prove that the newly discovered species are here to stay, some developers confess they can’t see much difference between one fairy shrimp and another. “We’re talking about invertebrates,” says Chris Vrame, project manager for AKT Development.

Source: The Wall Street Journal, March 1994.

This document is authorized for use only by Hameeda Lamb in Business & Economic Policy Graduate Online Fall 2018-2019 at Northwood University, 2018.