Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. IP-74-688-C - James E. Noland, Judge.
Pell and Bauer, Circuit Judges, and William J. Campbell, Senior District Judge.*fn*
CAMPBELL, Senior District Judge.
Defendants-Appellees State of Indiana and The Indiana State Highway Commission withdrew a state highway project from a federal-aid highway program (23 USC § 101 et seq.), and claim a right to proceed with state funds in the final stages and construction of the project. By electing to withdraw the project from federal funding consideration, defendants have avoided compliance with the environmental impact statement requirements which are made necessary for "major federal actions" by the National Environmental Policy Act (NEPA), 42 U S C § 4321 et seq. We are called upon to determine whether the project in this case is a "major federal action," and whether the state may avoid the requirements of NEPA by withdrawing the project from federal programming.
Plaintiff, an Ohio partnership, owns a shopping center through which defendants were about to construct a highway. The district court granted a preliminary injunction against defendants on the ground that there had been no compliance with federal environmental statutes. Following a trial on the merits, the district court dissolved the preliminary injunction and entered judgment in favor of defendants. We vacate that judgment and remand.
The facts are not in dispute. The project which is the focal point of the controversy in this case is a proposed development of a 28-mile-long by-pass around the South Bend-Elkhart metropolitan area in Northern Indiana. As the result of a study initiated more than twenty years ago by defendant Highway Commission, a four-lane limited access highway was conceived to alleviate traffic congestion along Highway U.S. 20, which runs generally in an east-west direction through the center of the South Bend-Elkhart metropolitan area. The western terminus of the by-pass exists at a point on U.S. 20 west of South Bend; the eastern terminus is to be located at a point east of the City of Elkhart.
The by-pass project was programmed to be constructed as a federal project in four segments. One segment, from the western terminus on U.S. 20 to a point on U.S. 31 south of the City of South Bend, already has been constructed with an expenditure of approximately 6.7 million dollars in federal funds. This segment appears to occupy roughly one-fourth of the total mileage of the project. The remainder of the project, approximately 20 miles in length, was planned to be constructed as a federally funded program in three segments since 1966 or 1967. The First Segment was planned to run due east from the eastern terminus of the segment which had already been constructed to a point on State Road 331, a distance of 3.8 miles. It is the construction of this First Segment which gives rise to the controversy in this case.
In 1968 plaintiff purchased the site of the present Scottsdale Mall, a shopping center complex in South Bend. The district court found that, as presently planned, the 3.8 mile First Segment of the by-pass would bisect plaintiff's property, which is located near the western terminus of the proposed First Segment. Construction of the segment would permanently remove 599 parking spaces from the shopping center, and would render inoperative the expansion potential which is part of the inherent design of the shopping center. As the district court further found, the location for the corridor of the First Segment as well as the remaining segments was established in 1967 after considerable discussion regarding the general location of the proposed by-pass. At the time of acquiring the site of the shopping center, plaintiff knew that the by-pass corridor would bisect its property.*fn1
On December 5, 1974, the Highway Commission advised the plaintiff that it intended to proceed with the First Segment as originally proposed. As of that date, substantial steps had been taken under the Federal-Aid Highway Act to construct the remaining segments with the assistance of federal funds. Plaintiff then instituted this action, seeking to enjoin the State of Indiana and its Highway Commission from proceeding with the plans to construct the First Segment on the grounds that the selection of the route as proposed by the State of Indiana was arbitrary and capricious, and that the State had not filed an Environmental Impact Statement (E I S) as required by federal law. The district court granted the preliminary injunction on January 20, 1975. The defendants then decided to construct the First Segment and remaining segments without federal assistance and took steps to "de-program" this project from further federal consideration.*fn2
Our review of the record reveals a project with an extensive history of federal-state involvement. Since as early as 1966, the three remaining segments of the by-pass were scheduled, programmed, and worked upon as a federal project. The project went through the programming stage in accordance with 23 U S C § 105 and regulations promulgated thereunder. Location hearings were conducted as required by federal law. In accordance with the Federal Highway Administration's Policy and Procedure Memorandum 20-8 of 1969, the Highway Commission published a notice indicating that the Department of Transportation had approved the design plans for the First Segment. Between August, 1971, and February, 1975, defendants received $162,000 in federal money for purposes of completing preliminary engineering studies on the project.*fn3 The record shows that the preliminary engineering stage was virtually completed, and that the state was about to commence right of way acquisition with federal funds when the plaintiff instituted this action.
In 1973, the Highway Commission requested authority to proceed with land acquisition for the First Segment. When the federal authorities advised that an E I S was required, the Highway Commission advised the Department of Transportation that it intended to withdraw its application for federal funding of the First Segment. The Department of Transportation then informed the Highway Commission that all three remaining segments were, for E I S purposes, considered one project, and that, even though the state had withdrawn its application for federal funds as to the First Segment, an E I S would be required for all remaining segments of the bypass. Indiana's compliance with this requirement and the Department of Transportation's actions with respect thereto are less than exemplary. The State submitted a final E I S for approval to the Secretary of the Department of Transportation for the remaining two segments. The State then supplemented that E I S with an E I S as to the First Segment. Although the supplement was procedurally*fn4 and may have been substantively deficient, the Secretary approved the submission. When plaintiff questioned the adequacy of the E I S, the Secretary, in January, 1975, responded by withdrawing its approval of the E I S and requiring another single E I S to be prepared for all three remaining segments of the by-pass.
In early 1975, approximately 185 million dollars were made available to finance Indiana highway projects. All of these funds had to be committed to specific projects by July 1, 1975. By that date, Indiana had committed all of the federal funds to projects other than the by-pass, and shortly thereafter took steps to "de-program" the remaining two segments of the by-pass from federal funding consideration. The State indicated on brief and during oral argument that the federal monies previously received for preliminary engineering study were "refunded" to the federal government. We note that the net amount of funds received by Indiana was not reduced by the "refund". In fact, the record indicates that Indiana made an accounting transfer of the money, apply the amounts received for the by-pass to other projects.*fn5
The district court concluded that since the Highway Commission had failed to obtain an E I S at the location stage as required by 23 CFR § 771.5 (b),*fn6 its eligibility for federal funding was foreclosed - a course of action reserved to each state by right under 23 U S C § 145. That statute provides:
The authorization of the appropriation of Federal funds or their availability for expenditure under this chapter shall in no way infringe on the sovereign rights of the State to determine which projects shall be federally financed. The provisions ...