Defenders of Wildlife and the Center for Biological Diversity (Defenders) challenged a district court's summary judgment ruling that an Army Corps of Engineers' (Corps) decision to forego consultation with the Fish and Wildlife Service (FWS) regarding the effect of two prospective real estate developments on the Arizona cactus ferruginous pygmy-owl (Arizona pygmy-owl) was not arbitrary or capricious. Judge Noonan, writing for the panel, and Judge Rymer, upheld the district court's grant of summary judgment to the Corps in a succinct de novo opinion. Judge Ferguson dissented.
In December 1999, the Corps received a permit application under section 404 of the Clean Water Act for Continental Reserve, a 598-acre property development in Marana, Arizona. Continental Reserve is "a master-planned community with single-family residences, a 9-acre community park, a 10-acre elementary school site, and large areas of undisturbed open space."
The Corps preliminarily determined the project would not affect the Arizona pygmy-owl and thus concluded that no formal consultation with FWS would be required under section 7 of the Endangered Species Act (ESA). FWS objected on the grounds that "this particular project area serves as a movement corridor for the [Arizona] [pygmy-owl] and likely provides nesting, roosting, and foraging habitat." Notwithstanding FWS' continued objections, non-concurrence, and requests for formal consultation, the Corps issued its Environmental Assessment (EA), determining the project would have "no effect" on the Arizona pygmy-owl, and granted the section 404 permit on March 22, 2001.
Meanwhile, the Corps had received a second section 404 permit application from Grosvenor Holdings (Grosvenor) for Entrada del Oro ,a master planned community comprising 440 acres in single family residences, parks, a school site, and open spaces in Pinal County, Arizona. On November 15, 2001, the Corps released its EA finding "no effect" on the Arizona pygmy-owl, and noting the withdrawal of the Corps' initial request for FWS consultation once the area lost its designation as critical habitat, and further noting the Corps "fully considered" FWS' comments. The Corps granted Grosvenor's permit on December 5, 2001, with conditions that mandated regular, future surveys for Arizona pygmy-owls. FWS requested formal consultation to police the Corps' and Grosvenor's compliance.
Defenders initiated suit against the Corps under section 7 of the ESA and the Administrative Procedure Act (APA), challenging the Corps' "no effect" determination and its decision not to enter into a section 7 consultation with FWS. Grosvenor filed a motion to intervene as of right, which the court granted as to the remedial phase and denied as to the liability stage. The parties filed cross motions for summary judgment and on August 18, 2003, the court granted the Corps' motions with regard to both developments, noting that "the 'no effect' determination was a decision for the Corps to make, not [FWS]." Further, the court found that the Corps "considered the relevant factors based upon the voluminous data before it, reasonably rejected the undocumented assertions made by [FWS], and articulated a rational connection between the facts and its decision to make a 'no effect' determination."
On appeal, Grosvenor and amici challenged Defenders' standing to bring the appeal. The Ninth Circuit affirmed Defenders' standing based on the lower court's findings that Defenders sufficiently established its members' interest in the Arizona pygmy-owl and the fact that a contrary decision would have provided a remedy. Further, the Ninth Circuit upheld Defenders' standing on the grounds that the case was not moot because the court could design a remedy to provide protection to the bird.
The majority began its analysis of the propriety of the project permits by determining whether FWS could mandate a section 7 consultation. The court turned to the regulations regarding formal consultation along with a FWS published opinion, which both led the court to affirm its prior holding that although FWS may request that an action agency enter formal consultation, the final decision to enter into formal consultation rests with the action agency.
Next, the majority affirmed its prior ruling in National Association of Home Builders v. Norton that questioned the legitimacy of classifying the Arizona pygmy-owl as a specially protected Discrete Population Segment (DPS). In dicta, the majority stated it could rely on Home Builders to affirm the lower court's decision in the present case. However, "out of an abundance of caution," under de novo review, the majority held "that the decision [by the Corps to grant the permits] rested on the firm foundation that no [Arizona] pygmy-owls had been found to live within either project area." Further, the court held "[FWS'] nondesignation as critical [habitat] of the Continental Reserve project area was properly read by the Corps as a finding that the land 'was not essential to the functioning of Unit 3 as a corridor for movement of [Arizona] pygmy-owls.'"
Thus, the Ninth Circuit upheld the grant of permits to both development projects when it affirmed the Corps' right to decline a request from FWS to enter a formal consultation. The court did not decide Grosvenor's appeal from the judgment limiting its intervention.
Judge Ferguson's dissent criticized the majority opinion's dicta as having no relevance to the present case. Further, the dissent criticized the majority opinion by asserting "the Corps' decision to forego consultation with [FWS] was both arbitrary and capricious given [FWS'] persistent and persuasive objections to the two real estate developments at issue."
The dissent criticized the majority's dicta regarding the strength of Home Builders as being premature for two reasons. First, Judge Ferguson claimed the Ninth Circuit "did not vacate [FWS'] DPS listing of the Arizona pygmy-owl . . . [but] remanded to the district court for further proceedings." Presently, that case is still pending. Second, Judge Ferguson emphasized that in Home Builders the "Home Builders [did] not challenge [FWS'] determination that, once severed from the rest of the western pygmy-owl population, the Arizona pygmy-owls could be considered endangered."
The dissent primarily focused on its assertion that the Corps' decision to forego consultation was arbitrary and capricious. First, the dissent indicated that the threshold for FWS consultations is low. Second, the dissent cast the issue of the present appeal not as whether the law requires the Corps to consult FWS, "but whether the Corps arbitrarily and capriciously issued 'no effect' determinations in the face of scientific evidence suggesting specific and serious effects of two real estate developments on the Arizona pygmy-owl." Thus, the dissent asserted "the Corps' decision to forego consultation with [FWS] 'must be reversed [if the Corps] . . . entirely failed to consider an important aspect of the problem.'"
The dissent observed that the Corps, in its "no effect" determination, relied on a Biological Evaluation and an Environment Assessment that each focused on a lack of actual physical presence of Arizona pygmy-owl in either project area or immediately surrounding area. The dissent pointed out, however, that "the Corps ignored [FWS'] scientifically compelling evidence demonstrating the effect of the Continental Reserve project on the potential habitat of Arizona pygmy-owls." Thus, the dissent concluded, "the Corps had a duty to initiate consultation with [FWS] about [the] possible effect [of Continental Reserve]" and its failure to do so was arbitrary and capricious.
Regarding the Entrada del Oro project, the development site had a prior critical habitat designation. The dissent relied on the developer's prior concession that the land provided migratory connectivity between the Salt River and possible breeding areas on the Gila River as evidence that the project "may affect" the Arizona pygmy-owl's habitat. However, a district court vacated the critical habitat designation, prompting the Corps to issue a "no effect" determination and withdraw its then pending informal consultation with FWS. Because the Corps did not show "why the removal of the critical habitat designation in the Entrada del Oro area rationally eliminates the previously acknowledged effect of the development on loss of potential habitat for the Arizona pygmy-owl," the dissent concluded the Corps' decision to forego FWS consultation was arbitrary and capricious. Further, the dissent concluded that the majority "illogically impl[ied] that the presence of a critical habitat is necessary to trigger section 7 consultation." The dissent closed by asserting this case goes to the core of the policy of "institutionalized caution" in protecting endangered species.
 Previously, a Ninth Circuit panel described the Arizona pygmy-owl's habitat and "how [FWS] came to designate the Arizona pygmy-owl as a discrete populations segment (DPS), distinct from the pygmy-owls in Texas and in Mexico." Defenders, 414 F.3d 1066, 1068 (9th Cir. 2005) (citing Nat'l Ass'n of Home Builders v. Norton, 340 F.3d 835, 838 (9th Cir. 2003)). That panel held that FWS acted arbitrarily and capriciously in designating the Arizona pygmy-owl as a discrete population segment when FWS failed to demonstrate "a rational basis in the listing rule for its finding that the Arizona pygmy-owl was a significant part of the taxon to which it belongs." Id. (citing Home Builders, 340 F.3d at 852).
 Id. at 1070 (noting in a footnote that the circuit court in Home Builders refused to vacate the listing of the Arizona pygmy-owl despite the Ninth Circuit's finding of substantive error, and further noting that as a result, no foreseeable termination of the erroneous listing is in sight).
 Id. (quoting 51 Fed. Reg. at 19,949) ("The 'may affect' standard 'must be set sufficiently low to allow Federal agencies to satisfy their duty to 'insure' under section 7(a)(2) [that species are not jeopardized].").
 See id. (citing Wash. Toxics Coal. v. Envtl. Prot. Agency, 413 F.3d 1024 (9th Cir. 2005)) ("Placing the burden on the acting agency to prove that the action is non-jeopardizing [of the continued existence of an endangered or threatened species] is consistent with the purpose of the ESA and what we have termed its 'institutionalized caution mandate.'").