Ka' Makani 'O Kohala Ohana, Inc. (Ka Makani), a citizen coalition, appealed the United States District Court for the District of Hawaii's summary judgment decision dismissing Ka Makani's action against the County of Hawaii Department of Water Supply (DWS) and its Department Manager, the United States Geological Survey (USGS) and its District Chief, and the United States Department of Housing and Urban Development (HUD) and the Secretary's Representative of HUD. The Ninth Circuit held that the involvement by the USGS and HUD in a transbasin water diversion system project (the Project) did not constitute a "major Federal action" under the National Environmental Policy Act (NEPA).[1] Therefore, the court concluded that NEPA requirements for a detailed Environmental Impact Statement (EIS) were not triggered, and the court affirmed the district court's dismissal.

The DWS planned a transbasin water diversion system in Hawaii to transfer groundwater in order to provide potable water for coastal resorts. The USGS matched the DWS's $800,000 for preliminary studies of the area, planned its own studies on the impact of the Project on streams at DWS's request, and consulted with DWS about the Project's design. When Congress passed an appropriations bill allocating $500,000 for a state EIS evaluating the development of a water resource system for the community, HUD gave the County of Hawaii the application materials for the "special purpose grant" and provided recommendations about the application--including how to restrict activities to exempt them from NEPA requirements.[2]

The Ninth Circuit first decided that its review of the district court's decision would be de novo, and therefore reviewed the agency's decision for "reasonableness."[3] The court reasoned that when an agency has not conducted an environmental assessment and decides not to require an EIS, and if the issues of the case are "primarily legal" and the facts of the case are undisputed, the court will review under a "reasonableness" standard.[4] This standard gives the agency's decision deference unless "it is plainly erroneous or inconsistent with the regulation."[5]

The Ninth Circuit then addressed whether the involvement of the USGS and HUD rendered the Project a "major Federal action" under NEPA.[6] NEPA requires that an EIS be prepared by a federal agency for all "major Federal actions significantly affecting the quality of the human environment."[7] To determine whether the Project fell within the scope of NEPA, the court looked at the role of federal funding and the degree of agency control over the Project. Because the total of all federal funding was only $1.3 million compared to the estimated $80 million total cost of the Project, the court concluded that the federal contribution was not enough to transform a state action into a federal one. In addition, though USGS and HUD gave extensive advice in the planning stage of the Project, the state retained control over decision-making. Therefore, because federal action was restricted to the support and funding of preliminary studies and the Project was ultimately controlled by the state and other nonfederal groups, the court held that there was no "major federal action" as described under NEPA.

Finally, the Ninth Circuit responded to Ka Makani's contention that HUD's regulations require a federal EIS for special purpose grants. Under HUD's regulations, a federal EIS is required for the grants unless the project fits into an exemption, including "[e]nvironmental and other studies, resource identification and the development of plans and strategies."[8] The court affirmed the exemption status of the Project under this definition. In addition, the court refuted Ka Makani's reliance on the "connected actions" provision in HUD regulations which requires the aggregation of all activities related through geography or functionality into one project.[9] The Ninth Circuit found that when a special purpose grant had been given specifically for the preparation of an EIS and other preliminary activities, "it would be illogical to require a full-blown EIS of the whole Kohala Project before permitting the release of funding for these preliminary purposes."[10] Finally, the court found that these preliminary activities had no impact on the environment, which would defeat the aggregating purpose of the "connected actions" provision.[11] Therefore, the court held that HUD's interpretation of its own regulation was proper, affirming the district court's summary judgment decision.