In the

United States Court of Appeals

For the Seventh Circuit ____________

No. 02-2045

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

v.

RUETH DEVELOPMENT CO.

and HAROLD G. RUETH,

Defendants-Appellants.

____________

Appeal from the United States District Court for

the Northern District of Indiana, Hammond Division.

No. 2:96-cv-540—James T. Moody, Judge.

____________

ARGUED APRIL 9, 2003—DECIDED JULY 10, 2003

____________

Before FLAUM, Chief Judge, and POSNER and KANNE,

Circuit Judges.

FLAUM, Chief Judge. In 1996 the United States sued

the Rueth Development Company and Harold Rueth (collectively “Rueth”) under the Clean Water Act, 33 U.S.C.

§ 1251 et seq. (“CWA” or “the Act”), for failure to obtain a

permit before discharging dredged or fill material into

four acres of wetlands located in Dyer, Indiana. Rueth

chose to settle the suit and entered into a consent decree

that required him to restore the wetlands by specified

dates. When he failed to meet those deadlines, the government moved to enforce the agreement, seeking over

$6,750,000 in penalties. Rueth responded by petitioning for
2 No. 02-2045

modification or vacatur of the consent decree based on the

Supreme Court’s decision in Solid Waste Agency of N.

Cook County v. United States Army Corps of Eng’rs, 531

U.S. 159 (2001) (“SWANCC”), which he claimed was a

material change in law affecting the decree’s validity. The

district court disagreed, granted the government’s motion to enforce, and assessed penalties in the amount of

$4,018,500, and Rueth appeals. We affirm.

I. BACKGROUND

In April 1991 the Environmental Protection Agency

(“EPA”) issued an administrative compliance order under

33 U.S.C. § 1319(a), finding that Rueth had illegally

discharged dredged or fill material into wetlands located

in the Castlewood subdivision of southeastern Dyer. The

fill was specifically found to have been placed in wetlands

“adjacent to an unnamed tributary to Dyer Ditch, which

flows north to Hart Ditch, which flows north to the

Little Calumet River, which is a navigable water of the

United States.” The compliance order directed Rueth to

cease all discharges and restore the wetlands to their

original condition, warning that noncompliance could result in the assessment of substantial penalties under the

CWA.

Rueth then proceeded to apply for an after-the-fact permit from the United States Army Corps of Engineers

(“Corps”). The Corps declined to give approval, however,

noting its concern that Rueth was presenting his development plans in a piecemeal fashion in an attempt to avoid

a comprehensive review of their cumulative environmental impact. The Corps stated that it would reconsider

its position if Rueth modified his plans so that less than

ten acres of wetlands were affected.

Rueth did not submit new development plans, reapply

for a permit, or undertake the restoration activities out-
No. 02-2045 3

lined in the administrative compliance order. Instead, he

filed a complaint for equitable relief in the district court,

claiming that the government lacked regulatory jurisdiction over the wetlands in the Castlewood subdivision. But

because the administrative compliance order was a preenforcement action not subject to judicial review, the

district court dismissed the suit, and we affirmed, stating

that Rueth could contest jurisdiction if and when the EPA

sought judicial or administrative enforcement of penalties

against him. Rueth v. EPA, 13 F.3d 227, 230 (7th Cir. 1993)

(“Rueth I”). We also remarked in passing,

We acknowledge that our holding places Rueth somewhat in limbo until such time as the EPA seeks to

enforce the compliance order or assess administrative

penalties. . . . Responsibility for this predicament does

not fall entirely on the EPA and the Corps of Engineers, as any reasonable and experienced developer

such as Rueth should have known that the wetlands

were potentially subject to regulation. Perhaps Rueth

is in its present predicament because it attempted to

short cut and take an end-run around the permit

requirement. . . . Of course, Rueth now argues that it

had no idea the wetlands at the Castlewood development were “waters of the United States” [within the

meaning of the CWA]. As our decision in Hoffman

Homes, Inc. v. EPA, 999 F.2d 256, 261 (7th Cir. 1993),

makes clear, however, nearly all wetlands fall within

the jurisdiction of the CWA since one test for whether

the wetland affects interstate commerce is whether

migratory birds use the wetland. Decisions such as

Hoffman Homes, give full effect to Congress’s intent

to make the Clean Water Act as far-reaching as the

Commerce Clause permits. On the other hand, it is

not inconceivable that the EPA or the Corps of Engineers might completely overextend their authority. In

such a case, we suggest to those agencies that we
4 No. 02-2045

will not hesitate to intervene in pre-enforcement activity, but this is not the case as we are of the opinion

that the wetland at issue falls under the broad definition of “waters of the United States” in Hoffman Homes.

Rueth I, 13 F.3d at 230-31 (citation omitted).

By November 1996 Rueth had still not performed the

tasks outlined in the administrative compliance order,

prompting the government to file this enforcement action.

The complaint asserted two bases for the government’s

regulatory jurisdiction: (1) adjacency—specifically, that

the Castlewood wetlands were “adjacent to waters which

flow into the Little Calumet River, an interstate stream,

which itself is a ‘water of the United States’ within the

meaning of the CWA,” see 40 C.F.R. § 230.3(s)(7); and

(2) effect on interstate commerce, see id. § 230.3(s)(3). In

addition to injunctive relief, the complaint requested

that the district court assess a civil penalty under 33

U.S.C. § 1319(d) for each day that Rueth was in violation

of the CWA and the administrative compliance order.

After over a year of negotiations, the parties entered

into a proposed consent decree, which the court then

entered as a final judgment in January 1999. In the consent decree, Rueth agreed to perform a number of “milestone” tasks—such as excavating fill, sealing and raising

storm sewers, and replacing wetland vegetation—by set

deadlines. The agreement also required Rueth to pay a

$23,000 civil penalty and set forth additional stipulated

penalties that would result from failure to meet “any

milestone” according to the specified timetable.

Rueth ultimately completed the wetland restoration at

a cost of around $100,000 but failed to perform a number

of the interim milestones in a timely fashion. Because of

this failure, the government moved to enforce the stipulated-penalties provision of the consent decree, alleging

that Rueth had “in very large part” disregarded his ob-
No. 02-2045 5

ligations under the agreement. For instance the government asserted that Rueth was 67 days late in paying the

$23,500 penalty, 579 days late in excavating the fill and

performing the storm-sewer tasks, and 158 days late in

replacing the wetland vegetation. The government sought

a separate stipulated penalty for each alleged violation of

the agreement, resulting in a grand total of $6,757,500.

But before the district court could rule on the government’s motion to enforce, Rueth moved under Fed. R. Civ.

P. 60(b)(5) for modification or vacatur of the consent decree based on the Supreme Court’s decision in SWANCC.

Rueth claimed that SWANCC, which held that “navigable

waters” as defined in the CWA does not extend to isolated intrastate waters solely because they are used as

habitat by migratory birds, made “legal what the decree

was designed to prevent,” thus rendering it unenforceable.

The district court disagreed, however. It concluded that

SWANCC did not affect the validity of the decree because the government had not invoked the Migratory

Bird Rule as a basis for its jurisdiction but sought rather

“to regulate the [Castlewood] Site on the theory that it is

an ‘adjacent wetland.’ ” Then, the court made a factual

finding that the Castlewood wetlands were “adjacent” to

navigable waters because they have “an [effect] on flows to

Dyer Ditch, and ultimately the Little Calumet River,” which

“is itself a navigable waterway.” The court thus denied

Rueth’s Rule 60(b)(5) motion, granted the government’s

motion to enforce the consent decree, and imposed penalties in the amount of $4,018,500.

Rueth then moved under Rule 59(e) to alter or amend

the judgment, claiming that there was no evidence whatsoever that the Castlewood wetlands were “adjacent” to a

navigable waterway. He also claimed for the first time

that the language of the consent decree did not allow for

stipulated penalties to be separately imposed for each

uncompleted or delayed “milestone” task. Though the dis-
6 No. 02-2045

1 Section 230.3(s)(3) was formerly codified at 33 C.F.R. § 328(a)(3)

(1999). For simplicity we will cite to only § 230.3(s)(3) throughout

this opinion.

trict court denied the motion, it agreed with Rueth that

the question of “adjacency” was still open to dispute and

therefore vacated that portion of its earlier order. Nonetheless, the court held that, even assuming the wetlands

were isolated and not adjacent, Rueth was still not entitled to modification or vacatur of the consent decree

because he waived his right to contest the government’s

regulatory jurisdiction by entering into the agreement. The

court also upheld its award of stipulated penalties, and

Rueth now appeals.

II. DISCUSSION

Section 404(a) of the CWA grants the Corps authority

to issue permits “for the discharge of dredged or fill material into the navigable waters at specified disposal sites.”

33 U.S.C. § 1344(a). “Navigable waters” is defined elsewhere in the Act as “the waters of the United States,

including the territorial seas.” Id. § 1362(7). The Corps has

in turn defined “waters of the United States” to include

“waters such as intrastate lakes, rivers, streams (including intermittent streams), mudflats, sandflats, wetlands,

sloughs, prairie potholes, wet meadows, playa lakes, or

natural ponds, the use, degradation or destruction of which

could affect interstate or foreign commerce.” 40 C.F.R.

§ 230.3(s)(3) (2003).

In SWANCC the Supreme Court held that § 230.3(s)(3),1

as clarified by the Migratory Bird Rule, 51 Fed. Reg. 41217

(1986), exceeded the authority granted to the Corps under

§ 404(a) of the Act. The Migratory Bird Rule, which the

Corps issued in 1986 to clarify the reach of its jurisdiction,
No. 02-2045 7

had provided that § 404(a) extends to intrastate waters

that provide habitat for migratory birds. But the Court

concluded that nothing in the text of the statute indicated any Congressional intent to extend the jurisdiction of the Corps to “ponds that are not adjacent to open

water.” SWANCC, 531 U.S. at 168. Instead, § 404(a)’s use

of the word “navigable” had “the import of showing . . . what

Congress had in mind as its authority for enacting the

CWA: its traditional jurisdiction over waters that were

or had been navigable in fact or which could reasonably

be so made.” Id. at 172.

The question before us now is what effect, if any,

SWANCC has on the validity of the consent decree in this

case. In moving to modify or vacate the decree, Rueth relied

on the third clause of Fed. R. Civ. P. 60(b)(5), which provides that a court may relieve a party from a final judgment if “it is no longer equitable that the judgment

should have prospective application.” To obtain relief

under this provision, Rueth bears the burden of showing

“that a significant change in circumstances warrants

revision of the decree.” Rufo v. Inmates of Suffolk County

Jail, 502 U.S. 367, 383 (1992). One instance where modification might be warranted is if the “statutory or decisional law has changed to make legal what the decree

was designed to prevent.” Id. at 388. Rueth contends

that that is what SWANCC did here. Specifically, he asserts that SWANCC stripped the government of power

to regulate the Castlewood wetlands because they are

isolated and intrastate; therefore, the consent decree “is

void ab initio and should be rescinded.”

The government, not surprisingly, believes otherwise.

Though the complaint did cite § 230.3(s)(3) as one basis

for regulatory jurisdiction, the government claims that

SWANCC is nonetheless irrelevant because the complaint did not specifically invoke the Migratory Bird

Rule; instead, the alleged interstate-commerce nexus
8 No. 02-2045

under § 230.3(s)(3) “rested on other important ecological

functions of the wetland, such as water filtration, flood

control, and wildlife habitat.” Essentially, the government

is urging us to give SWANCC its narrowest reading

possible—that use as habitat by migratory birds is insufficient to bring purely isolated, intrastate ponds within

the Corps’ jurisdiction under the CWA. Or, in other words,

SWANCC did nothing more than invalidate the Migratory

Bird Rule. Section 230.3(s)(3), however, extends the Corps’

jurisdiction to intrastate waters for reasons other than

those having to do with use by migratory birds. For instance it includes waters that “are or could be used by

interstate or foreign travelers for recreational or other

purposes,” waters “[f]rom which fish or shellfish are or

could be taken and sold in interstate or foreign commerce,”

and waters that “are used or could be used for industrial

purposes by industries in interstate commerce.” The government claims that SWANCC left these provisions intact, whereas Rueth claims that SWANCC deprived the

Corps of all power to regulate any intrastate water based

on a nexus to interstate commerce. We conclude that

they are both partly right—the government because

SWANCC does not expressly make § 230.3(s)(3) illegal, and

Rueth because his reading ultimately may be the only

logical extension of the case. The Court’s concern with the

Migratory Bird Rule was that it conferred regulatory

jurisdiction over waters that were not actually or potentially “navigable”; § 230.3(s)(3) suffers from the same

infirmity. For instance, that fish or shellfish can be taken

from a water and sold in interstate commerce does not

make that water any more “navigable” than it would be

if it were frequented by migratory birds. The same holds

true for intrastate waters that are used by interstate

travelers or for industrial purposes by industries in interstate commerce.

But what effect SWANCC has on the Corps’ jurisdiction

under § 230.3(s)(3) is a question that we need not decide
No. 02-2045 9

in this case. For it is clear that SWANCC did not affect

the law regarding the government’s alternative asserted

basis for jurisdiction—adjacency under § 230.3(s)(7). The

Corps’ adjacency jurisdiction is well-established; it was

upheld by the Supreme Court in United States v. Riverside

Bayview Homes, Inc., 474 U.S. 121 (1985), and was reaffirmed in SWANCC. Recognizing this, Rueth offers a

number of reasons why we should find that the Corps

lacks adjacency jurisdiction here. First, he claims that

the government has offered no evidence that the Castlewood wetlands are actually adjacent to navigable waters.

But this is beside the point. The government never had

to present such evidence because of the very fact that

Rueth chose not to litigate the case. Rueth also points out

that the district court’s order denying his post-judgment

motion “assumed” that the wetlands are isolated and not

adjacent. He attaches too much significance to the court’s

assumption, however; the court proceeded on the theory

that the wetlands are not adjacent only because it thought

that Rueth would lose regardless. Finally, Rueth asserts

that the wetlands’ link to navigable waters is too attenuated to establish adjacency, alleging that the wetlands

are “merely adjacent to a tertiary tributary of a navigable

water (adjacent to an unnamed tributary of Dyer Ditch

which is a tributary of Hart Ditch which is a tributary of

the Little Calumet River).” But this simply raises the

question of what “adjacency” means, which SWANCC did

not address at all. Rueth, moreover, waived his right to

litigate the issue when he signed the consent decree. And

further, it is not even apparent that the necessary contiguity to a navigable water is missing here. In Riverside

Bayview Homes, the Court found mere surface runoff

into nearby navigable waters to be a meaningful enough

connection to give rise to the Corps’ adjacency jurisdiction.

474 U.S. at 134. And recently, in United States v. Deaton,

No. 02-1442, 2003 WL 21357305 (4th Cir. June 12, 2003),

the Fourth Circuit upheld the Corps’ exercise of adjacency
10 No. 02-2045

2 As the court described it, the surface runoff drained into a

roadside ditch, which in turn “drain[ed] into a culvert under

Morris Leonard Road. On the other side of the road, the culvert

drain[ed] into another ditch, known as the John Adkins Prong

of Perdue Creek. Perdue Creek flows into Beaverdam Creek, a

natural watercourse with several dams and ponds. Beaverdam

Creek is a direct tributary of the Wicomico river, which is

navigable. Beaverdam Creek empties into the Wicomico River

about eight miles from the [defendants’] property. About twentyfive river miles further downstream, the Wicomico River flows

into the Chesapeake Bay, a vast body of navigable water.” Id.,

2003 WL 21357305, at *2.

jurisdiction over a parcel of land whose only connection to

navigable waters was surface runoff that, after a “winding,

thirty-two-mile path,” emptied into the Chesapeake Bay.2

Despite the government’s assertion of adjacency jurisdiction, Rueth seems to suggest that it would nonetheless

be manifestly unfair to hold him to the terms of the consent decree because, at the time he settled the case, the

law was well-established that the Corps could exercise

jurisdiction over isolated intrastate waters. As Rueth

points out, we told him in his first appeal that “nearly

all wetlands fall within the jurisdiction of the CWA since

one test for whether the wetland affects interstate commerce is whether migratory birds use the wetland.” Rueth

I, 13 F.3d at 231 (citing Hoffman Homes, Inc. v. EPA, 999

F.2d 256, 261 (7th Cir. 1993)). This statement is obviously no longer accurate after SWANCC, but regardless, we fail to see how it has any effect on the validity

of the decree. Back when the EPA filed its complaint in

1996, Rueth was faced with a choice: he could either contest the government’s jurisdiction or forego the costs and

settle the case. Having reasonably concluded that his

chances of succeeding on the jurisdictional challenge were

not good, Rueth chose the latter course. The defendants
No. 02-2045 11

in SWANCC chose the former. Now, Rueth seeks a free

ride on the defendants’ success in SWANCC, but the

mere fact that the Supreme Court has cast doubt on one

of the complaint’s legal bases is not a ground on which to

reopen the case. See United States v. Krilich, 303 F.3d 784,

792 (7th Cir. 2002) (“Krilich III”); Cincinnati Ins. Co. v.

Flanders Elec. Motor Serv., Inc., 131 F.3d 625, 628-29

(7th Cir. 1997). As we stated in Krilich III, which also

involved a Rule 60(b)(5) motion to vacate a consent decree based on SWANCC,

If a party believes that the waters at issue on his

own property are not properly subject to the EPA’s

authority, whether under the rationale of Hoffman

Homes I, SWANCC or under some other theory, he

should not stipulate otherwise. But that is exactly

what Krilich did, to his continued dismay. He expressly agreed that certain waters on his property

constituted “waters of the United States,” subject to

regulation by the EPA. Like most parties that enter

into a settlement or plea agreement, he presumably

made a tactical decision that the terms of the Consent

Decree were more favorable than the costs or risks

of continued litigation. Accordingly, we conclude that

SWANCC effected no relevant change in decisional law

such that the district court should have modified the

Consent Decree. Nor does SWANCC establish that the

EPA’s entry into and continued enforcement of the

Consent Decree are ultra vires acts. “To hold that a

clarification in the law automatically opens the door

for relitigation of the merits of every affected consent

decree would undermine the finality of such agreements and could serve as a disincentive to negotiation

of settlements in . . . litigation.”

Id. (quoting Rufo, 502 U.S. at 389).

Rueth spends much of his brief explaining how Krilich III

is distinguishable from this case, but ultimately the
12 No. 02-2045

3 Rueth might have an additional problem in that the relief

he seeks—mainly, to be excused from paying the stipulated

penalties that accrued as a result of his missing the deadlines set

forth in the decree—may not be “prospective” in nature. Fed. R.

Civ. P. 60(b)(5). There is no need for us to address this issue,

however.

4 Notably, the district court did not even mention the claim in

its order denying Rueth’s motion.

distinction comes down to this: in Krilich III the defendant had conceded that there was some basis for the

Corps’ jurisdiction other than effect on interstate commerce,

whereas here, Rueth conceded only that there was some

basis for jurisdiction. But this is a distinction without

a difference. Even assuming Rueth is right that SWANCC

made illegal the government’s assertion of jurisdiction

under § 230(s)(3), if the case is reopened, the parties

would still have to litigate whether the government has

adjacency jurisdiction under § 230(s)(7). Six years ago,

however, Rueth made the conscious decision, given the

uncertainties of litigation, not to contest that issue. It

would render the consent decree worthless to allow him

to do so now. See Rufo, 502 U.S. at 389.3

So the district court was right not to modify or vacate

the consent decree, but Rueth maintains that, even so, the

court erred for several reasons in calculating the stipulated penalties. He first contends that the language of

the decree does not support the imposition of cumulative

stipulated penalties for each uncompleted “milestone” task;

rather, according to Rueth’s reading, the court should

have imposed penalties based on days of noncompliance

regardless of the number of violations, which would have

reduced the total penalty to less than $1.5 million. Unfortunately for Rueth, he has waived this claim by raising it

for the first time in his Rule 59(e) motion.4 Anderson v.

Flexel, Inc., 47 F.3d 243, 247 (7th Cir. 1995). The govern-
No. 02-2045 13

ment made clear in its motion to enforce that it was seeking a separate penalty for each violation of the decree. Yet

in his opposition to the motion, Rueth did not argue that

the stipulated-penalty provision was unclear on its face

but asserted only that the penalties sought were “unconscionable and unenforceable” because they “bear no rational relationship to the potential harm which the plaintiff could have reasonably foreseen at the time it prepared the Consent Decree, and because the size of the

penalties is grossly disproportionate to the degree of harm

to the EPA or the environment resulting from the alleged

delays.” Not until his Rule 59(e) motion did Rueth raise

any question regarding the proper construction of the

stipulated-penalty provision. Further, even had Rueth not

waived his claim, we find the government’s interpretation

of the decree to be the more reasonable one in any event.

We agree with Rueth that the stipulated-penalty provision is facially ambiguous, so in order to resolve the ambiguity we must “look at the evil which the decree was

designed to rectify.” Goluba v. Sch. Dist. of Ripon, 45 F.3d

1035, 1038 (7th Cir. 1995) (quotations omitted). The clear

intent of this decree was to require Rueth to restore the

wetlands by performing six discrete milestone tasks in a

relatively short (eleven-month) timeframe. Rueth knew

that he had to comply with all six milestones in order to

be in compliance with the CWA. Yet if he is right that

the stipulated penalties accrue only by day of violation

rather than per violation, there would be no incentive

for him to complete any of the other five tasks if he is in

violation of one. For this reason we cannot sustain Rueth’s

interpretation of the decree. To do so would render the

number of violations irrelevant to the total penalty, which

would in turn contravene the intent of the parties at

the time the contract was made.

Rueth’s next argument is that the district court erred

by failing to hold a hearing to determine whether the EPA
14 No. 02-2045

had consented to the delays in completing the storm-sewer

tasks. The consent decree, however, has a force majeure

provision, which states that untimely performance would

only be excused if Rueth provided a written request to the

EPA. Rueth did not present any evidence that he did so.

Thus, pursuant to the express terms of the decree, Rueth

waived his right to obtain an extension of the deadlines,

and so the court did not err in refusing to hear evidence

on his claim that the decree had been orally modified. See

United States v. Alshabkhoun, 277 F.3d 930, 936 (7th Cir.

2002); United States v. Krilich, 126 F.3d 1035, 1036-37 (7th

Cir. 1997).

Rueth also contends that, before the court imposed

the penalty, it should have considered the statutory criteria (such as seriousness of the violation and ability to

pay) provided in the CWA. 33 U.S.C. § 1319(d). His argument is without support. Rueth negotiated and freely

entered into the consent decree and is therefore bound

by its terms, including those setting forth penalties, see

Alshabkhoun, 277 F.3d at 935; the statutory factors no

longer have any relevance. Likewise meritless is Rueth’s

argument that the penalties violate due process. Their

apparent severity is due to the fact that Rueth was so

negligent in complying with the decree that he himself

negotiated; indeed, he was up to 579 days late in completing some of the milestone tasks. Given these circumstances we cannot say that the penalty amount is unreasonable, especially considering that it is but a small fraction of the maximum penalty that could have been imposed under the CWA. See id.

III. CONCLUSION

The district court did not err in denying Rule 60(b)(5)

or 59(e) relief, and so the judgment is AFFIRMED.
No. 02-2045 15

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—7-10-03