                              In the
 United States Court of Appeals
                For the Seventh Circuit
                          ____________

No. 05-1125
BRICKS, INC.,
                                                          Petitioner,
                                 v.

UNITED STATES ENVIRONMENTAL
PROTECTION AGENCY,
                                                         Respondent.
                          ____________
                Petition for Review of an Order of the
                 Environmental Protection Agency,
                            Case No. 04-02.
                          ____________
 ARGUED SEPTEMBER 15, 2005—DECIDED OCTOBER 21, 2005
                   ____________


  Before FLAUM, Chief Judge, and RIPPLE and KANNE,
Circuit Judges.
  FLAUM, Chief Judge. In July 2000, Environmental
Protection Agency Region 5 (“the EPA”) filed a complaint
against Bricks, Inc. (“Bricks”), alleging that Bricks vio-
lated the Clean Water Act, 33 U.S.C. §§ 1251 et seq.
(“CWA”), by discharging dredge and fill material into
wetlands without a section 404(a) permit, 33 U.S.C. § 1344.
The EPA assessed class II civil penalties against Bricks,
pursuant to section 309(g) of the CWA. 33 U.S.C. § 1319(g).
The administrative law judge (“ALJ”), after two days of
hearings, issued an Initial Decision in favor of the EPA.
2                                              No. 05-1125

Bricks appealed to the Environmental Appeals Board (“the
Board”). The Board overturned the ALJ’s Initial Decision,
finding that the EPA had not proved its case
by a preponderance of the evidence.
  Bricks then filed a fee and expenses application with the
ALJ, pursuant to the Equal Access to Justice Act (“EAJA”).
5 U.S.C. § 504; 28 U.S.C. § 2412. The EAJA allows a
defendant who prevails in an action brought by a federal
agency to recover its legal fees and expenses, unless the
agency’s position was substantially justified or if special
circumstances would make an award unjust. 5 U.S.C.
§ 504(a)(1); 28 U.S.C. § 2412(d)(2)(A)(ii). Bricks contended
that the EPA’s position was not substantially justified and
also argued that it was entitled to fees in excess of the
statutory maximum of $125 per attorney hour. The ALJ
granted Bricks’ fees and expenses, but denied Bricks’
request for attorney’s fees in excess of the statutory maxi-
mum. The EPA appealed and Bricks cross appealed to the
Board. The Board reversed the ALJ’s award of fees, finding
that the EPA was substantially justified in bringing its
complaint against Bricks. Bricks petitions for review of the
Board’s decision and asks this Court to reinstate the ALJ’s
fee award and to award Bricks attorney’s fees in excess of
the statutory cap. For the following reasons, we deny
Bricks’ petition.


                     I. Background
  Bricks owns a triangular piece of farmland in North
Aurora, Illinois that is bordered on the east by Orchard
Road, the west by Deerpath Road, and the south by Inter-
state 88 (“the property”). The property is located approxi-
mately two to three miles east and fifteen miles south of
Fox River, a navigable water, and one to two miles west of
a non-navigable tributary of Blackberry Creek. A portion of
the property contains wetlands.
No. 05-1125                                                        3

  In 1997, Bricks began planning to develop the property.
Bricks wished to install an access road connecting the
property to Orchard Road and Deerpath Road. Bricks hired
Environmental Planning Team Chicago (“EPT”) to perform
a wetlands delineation on the property, following the
procedures set forth in the U.S. Army Corps of Engineers’
Wetlands Delineation Manual. EPT found that there were
approximately eleven acres of wetlands on the property,
one-third of an acre of which would be filled to construct the
access road, and advised Bricks that it would need to obtain
a Nationwide or Individual Permit before filling
the wetlands.1 Bricks directed its engineering consultant,
Manhard Consulting, Inc. (“Manhard”) to obtain permits
from the Corps, and Manhard hired Environmental Con-
sultants and Planners (“ENCAP”) to obtain any necessary
permits. ENCAP concluded that Bricks’ plans to install
the access road would impact 0.3 acres of wetlands and
would be covered under a Nationwide Permit. ENCAP then


1
   Nationwide Permits are intended to authorize routine activities
with little paperwork and delay. At issue here are Nationwide
Permits 14 and 26, which were effective during the period in
which Bricks’ fill activity took place. Nationwide Permit 14,
entitled “Road Crossings,” authorized fill activity for the construc-
tion of roads crossing “waters of the United States,” including
wetlands, so long as that activity complied with certain restric-
tions. 61 FED. REG. 65,874, 65,915 (Dec. 13, 1996). Nationwide
Permit 26, entitled “Headwaters and Isolated Waters Discharges,”
allowed discharge of dredged or fill material into headwaters and
other non-tidal waters and their adjacent wetlands, if the
discharge would not cause the loss of more than three acres of
waters of the United States. Id. at 65,916. A party wishing to
discharge fill material that would cause the loss of more than one-
third of an acre was required to submit a Pre-Construction
Notification to the Corps before commencing. Id. Additionally, the
Corps has authority to grant after-the-fact permits, in accordance
with the regulations promulgated under section 404 of the CWA.
33 C.F.R. § 326.3(e)(1).
4                                              No. 05-1125

submitted a Pre-Certification Notification to the Corps,
asking the Corps to confirm that the project was covered
under a Nationwide Permit.
  Bricks began constructing the access road before it
received a response from the Corps, completing the road
between August 23 and 25, 1999. The Corps notified Bricks
on August 23, 1999 that it had received Bricks’ Pre-Con-
struction Notification and that, according to a preliminary
evaluation, the project would require authorization under
Nationwide Permit 26 or under an Individual Permit.
  Subsequently, the Corps was informed that Bricks was
already developing the property. A Corps employee visited
the property and observed that Bricks had placed fill in a
wetland area while constructing the access road. The Corps
issued a Cease and Desist Order to Bricks on August 26,
1999. During later investigations, employees of the Corps,
the EPA, and the local Soil Conservation District found that
Bricks had destroyed wetlands when constructing the
access road and two retention basins.
  The Corps then responded by letter to Bricks’ Pre-Certifi-
cation Notification. The Corps reported that Nationwide
Permit 14 would cover Bricks’ construction of the access
road, but not the two retention basins. Bricks would need to
obtain an after-the-fact permit to be covered by Nationwide
Permit 26. While Bricks was attempting to obtain an after-
the-fact permit from the Corps, the EPA issued a Findings
of Violation and Compliance Order (“Compliance Order”)
stating that Bricks was in violation of section 301 of the
CWA. 33 U.S.C. § 1311. The Compliance Order required
Bricks to submit an after-the-fact application to the EPA,
containing a mitigation plan for restoring wetlands located
on the property. Bricks submitted the application in
January 2000. On June 7, 2000, the Corps issued Bricks an
after-the-fact permit pursuant to Nationwide Permit 26,
authorizing Bricks to discharge materials into 1.05 acres of
No. 05-1125                                                 5

wetlands on the property.
  On July 21, 2000, the EPA filed an administrative
complaint, alleging that Bricks used bulldozers and other
earthmoving machinery to discharge approximately 8,000
cubic yards of fill into wetlands on its property; that, under
the CWA, this activity constituted discharge of pollutants;
and that because Bricks did not have a permit under section
404 of the CWA, 33 U.S.C. § 1344, Bricks had violated
section 301 of the CWA, 33 U.S.C. § 1311. The complaint
also alleged that the wetlands are adjacent to an unnamed
tributary of Blackberry Creek, which is itself a tributary of
Fox River, an interstate water within the ambit of the
CWA. This made the wetlands “waters of the United
States,” protected by the CWA. See 33 U.S.C. § 1362(7).
Bricks responded by arguing, among other things, that the
wetlands were isolated and did not fall under CWA jurisdic-
tion. Therefore, according to Bricks, the company was not
required to obtain a section 404(a) permit. See 33 U.S.C. §
1344(a).
  The ALJ commenced a two-day hearing to consider the
EPA’s complaint. The ALJ found in his Initial Decision that
the EPA had shown by a preponderance of evidence that
Bricks violated section 301 of the CWA by filling wetlands
located on the property. Section 301(a) prohibits any person
from discharging dredged or fill material into waters of the
United States, 33 U.S.C. § 1311(a); 33 U.S.C. § 1362(6),
unless the Corps issues a permit, 33 U.S.C. § 1344(a).
Under regulations promulgated by the Corps, “waters of the
United States” include waters that “are currently used, or
were used in the past, or may be susceptible to use in
interstate or foreign commerce” (i.e., “navigable waters”), 33
C.F.R. § 328.3(a)(1), tributaries of those waters, 33 C.F.R.
§ 328.3(a)(5), and “[w]etlands adjacent to” waters of the
United States or their tributaries, 33 C.F.R. § 328.3(a)(7).
The EPA and Bricks agreed that the property contains
wetlands.
6                                                No. 05-1125

  Bricks argued, however, that the wetlands were “iso-
lated”—not connected to waters of the United States—and
hence not covered by the CWA. Bricks’ central legal argu-
ment was that the EPA was precluded from asserting
jurisdiction over the wetlands located on the property,
because of the Supreme Court’s decision in Solid Waste
Agency of Northern Cook County v. U.S. Army Corps of
Engineers, 531 U.S. 159 (2001) (“SWANCC”), in which the
Court rejected the Corps’s argument that isolated ponds
were “navigable waters” under the Migratory Bird Rule.
The ALJ rejected this argument and pointed out that the
Court in SWANCC had distinguished that case from United
States v. Riverside Bayview Homes, Inc., 474 U.S. 121
(1985), in which the Court found that wetlands adjacent to
navigable water were navigable waters, based on the
“significant nexus” between wetlands and navigable waters.
SWANCC, 531 U.S. at 167. Bricks also argued that there
was no hydrological connection between the wetlands on its
property and navigable waters. The ALJ rejected this
argument as well. The ALJ relied on the testimony of four
witnesses and a site map prepared by Bricks’ contractor to
find that, although it was a “close question,” the preponder-
ance of the evidence demonstrated that the wetlands on
Bricks’ property were waters of the United States subject to
the CWA. Specifically, the wetlands ran into a tributary of
Blackberry Creek, and Blackberry Creek ran into Fox River,
a navigable water. The ALJ assessed a $65,000 penalty
against Bricks.
  The Board reversed the ALJ’s Initial Decision. The Board
examined the testimony and evidence relied on by the ALJ
and concluded that the EPA had failed to prove, by a
preponderance of the evidence, that there was a hydrologi-
cal connection between the wetlands on Bricks’ property
and the Fox River.
    After the Board issued its Final Order reversing the ALJ’s
No. 05-1125                                                7

Initial Decision in favor of the EPA, Bricks filed a claim
with the ALJ for legal fees and expenses, pursuant to the
EAJA. The ALJ, relying on United States v. Hallmark
Construction Co., 200 F.3d 1076, 1080 (7th Cir. 2000),
determined that the EPA’s decision to file a complaint
against Bricks was not “substantially justified.” The ALJ
reasoned that because the Board had concluded that the
EPA’s testimony and evidence failed to establish a hydrolog-
ical connection between the wetlands located on Bricks’
property and a navigable water, Bricks was entitled to legal
fees and expenses. However, the ALJ rejected Bricks’ claim
for attorney’s fees in excess of the statutory maximum of
$125.00 per hour, finding that Bricks failed to show that the
case was sufficiently complex to justify a higher rate under
the “special factor” standard contained in 5 U.S.C. §
504(b)(1)(A). The EPA appealed to the Board. Reviewing the
ALJ’s decision de novo, the Board reversed. The Board
found that the EPA had presented evidence and testimony
showing a possible hydrological connection between the
wetlands located on Bricks’ property and a navigable water.
Additionally, the Board explained that the EPA had
provided support for all of the elements of proof required by
the CWA and that in this case the EPA could not have
predicted that the Board would not find this support
sufficiently persuasive. Bricks now appeals.


                      II. Discussion
  Bricks asks this Court to find, based on Hallmark, that
the EPA’s position in the underlying enforcement action
was not substantially justified. Bricks further asks this
Court to award it attorney’s fees in excess of the $125.00
per hour maximum established by the EAJA. This Court
will reverse the Board’s decision to deny fees under the
EAJA if that decision was unsupported by substantial
evidence. 5 U.S.C. § 504(c)(2).
8                                                No. 05-1125

  Bricks’ central argument is that because the Board’s
decision in the underlying enforcement action was critical of
the EPA’s position, the Board should have awarded legal
fees and costs under the EAJA. Specifically, the Board
found (1) that the testimony of ENCAP employee Thomas
Kehoe did not provide “the critical missing link” establish-
ing a hydrological connection between the wetlands located
on Bricks’ property and Blackberry Creek or a tributary
thereof; (2) that the testimony of Randolph Briggs, of the
local Soil Conservation District, was “ambiguous” and
“unconvincing” as to whether a channel located south of
Interstate 88 existed at the time Briggs surveyed the site
and whether the channel flowed into Blackberry Creek; (3)
that the Board had “serious doubts” about the reliability of
the notations on a map prepared by Bricks’ engineers,
which the EPA used to establish a hydrological connection;
and (4) that, taken as a whole, the EPA’s “case suffers from
a fatal lack of clarity” and is “contradictory and inconclusive
at best.”
  Hallmark outlines a three-part test for determining
whether an agency’s position was substantially justified.
The EPA’s decision is substantially justified if “its position
was grounded in ‘(1) a reasonable basis in truth for the facts
alleged; (2) a reasonable basis in law for the theory pro-
pounded; and (3) a reasonable connection between the facts
alleged and the legal theory advanced.’ ” Hallmark, 200 F.3d
at 1080 (quoting Phil Smidt & Son, Inc. v. NLRB, 810 F.2d
638, 642 (7th Cir. 1987)). Hallmark also makes clear that
“the outcome of a case is not conclusive evidence of the
justification for the government’s position.” Id. at 1079.
Instead, the Board’s analysis should “contain an evaluation
of the factual and legal support for the government’s
position throughout the entire proceeding.” Id. at 1080.
  In a case such as this one, where the Board’s opinion
appears strongly to favor a defendant who has prevailed in
an underlying suit brought by the government, the Board is
No. 05-1125                                                  9

required to provide a “more thorough explanation for
denying attorney’s fees to the prevailing party.” Id. at 1079.
  In Hallmark, the Corps, through the U.S. Attorney, filed
a complaint in federal district court alleging that Hall-
mark had discharged pollutants into a wetland area, in
violation of the CWA. The district court found for Hallmark
and concluded that the Corps had acted in an arbitrary and
capricious manner by classifying the defendant’s property
as wetlands. United States v. Hallmark Constr. Co., 30 F.
Supp. 2d 1033, 1041 (N.D. Ill. 1998). The district court also
found that the Corps’s determination “was not based on a
consideration of the relevant factors and evidence” and that
“[m]uch of the government evidence rested on speculation
and conjecture.” Id. Nonetheless, the district court denied
Hallmark’s request for legal fees and costs under the EAJA.
Hallmark appealed, and this Court reversed and remanded,
because the district court failed to reconcile its denial of
Hallmark’s EAJA fee request with the strong language it
had used in the underlying case. Hallmark, 200 F.3d at
1081. The Court explained that “the district court’s conclu-
sion on the merits that the government’s position was
‘arbitrary and capricious’ appear[ed], at least on the surface,
to be at odds with its subsequent conclusion that the
government’s position was ‘substantially justified.’ ” Id. This
Court explained that “[a]lthough there is no presumption
that a prevailing party against the government will recover
attorney’s fees under the EAJA, the government bears
the burden of proving that its position meets the substan-
tially justified standard.” Id. at 1079 (internal citations
omitted).
  In this case, the Board properly concluded that the EPA’s
position in the underlying enforcement action was substan-
tially justified. As an initial matter, the Board’s decision
reversing the ALJ’s Initial Decision was not the “slam
dunk” that Bricks implies. The Board made clear that it
was “not rul[ing] out the possibility that a hydrological
10                                               No. 05-1125

connection exists between [the wetlands on Bricks’ prop-
erty] and Blackberry Creek or a tributary thereof.” Instead,
the Board “simply h[e]ld that the [EPA] ha[d] not met its
burden of proving such a connection by a preponderance of
the evidence.” In Hallmark, by contrast, the district court
below found that the Corps’s decision to classify Hallmark’s
property as wetlands was arbitrary and capricious, not
simply insufficient to establish the Corps’s case by a
preponderance of the evidence.
  Additionally, in this case the Board provided a sufficient
explanation to reconcile its decision for Bricks in the
underlying enforcement action with its denial of fees and
costs to Bricks under the EAJA. Examining the administra-
tive record as a whole, the Board found that the EPA had
“presented a significant amount of evidence pointing to a
possible hydrological connection between the [wetlands
located on Bricks’ property] and a navigable water or a
tributary thereof to the south,” including testimony and
map notations. The Board explained that “this is not a
situation where the [EPA] omitted a crucial element of proof
from its case; rather, this is a situation where the proof was
in fact presented, but it fell short, in the Board’s view, of
meeting the [EPA]’s Burden of Persuasion.” The Board
found that “[u]nder these circumstances, we would be hard
pressed to conclude that the [EPA] lacked a reasonable
basis to proceed” with its complaint against Bricks. There-
fore, the Board concluded that it could not “expect the
[EPA] to have predicted the outcome of the Board’s determi-
nations” because its decision in the underlying enforcement
action “turned, in part, on the Board’s findings and conclu-
sions relating to the probative value of the witnesses’
testimony, including doubts surrounding the depth of the
witnesses’ knowledge of the relevant circumstances as well
as gaps, ambiguities, and contradictions in the testimony of
the witnesses when considered in the aggregate.”
  The Board’s distinction between a reversal based on the
No. 05-1125                                                11

credibility and weight of the agency’s testimony and
evidence and a reversal based on a missing “crucial element
of proof” is supported by this Court’s decision in Europlast,
Ltd. v. NLRB, 33 F.3d 16 (7th Cir. 1994). In that case, we
considered whether the NLRB should have awarded attor-
ney’s fees to an employer under the EAJA after the NLRB
dismissed an unfair labor practices complaint that was
brought against the employer. We affirmed the decision of
the Board to deny the employer’s application for fees,
because “it was possible to draw a set of inferences” from
the testimony offered by the NLRB that would have sup-
ported the NLRB’s position. Id. at 18. Therefore, the
NLRB’s decision to file a complaint against the employer
was substantially justified. Id. at 17; cf. Temp Tech Indus.,
Inc. v. NLRB, 756 F.2d 586, 590 (7th Cir. 1985) (NLRB’s
decision to litigate issue of company’s alleged unlawful
termination of striking employee turned on assessment of
employee’s credibility and fact that ALJ did not find
employee credible did not mean NLRB’s position was not
substantially justified or that company was entitled to a fee
award under the EAJA).
   In this case, the EPA presented testimony and evidence
to show a hydrological connection between the wetlands
located on the property and Blackberry Creek, but the
Board found that the testimony and evidence was not
sufficient to meet the EPA’s burden of persuasion. Specifi-
cally, the Board found that while the testimony of
Thomas Kehoe showed that a drainage ditch ran from the
property to the south under Interstate 88, it did not
show that a hydrological connection existed to the south
of Interstate 88; that while the testimony of Randolph
Briggs showed that there was an “S” shaped channel located
to the south of Interstate 88, Mr. Briggs did not specifically
state that the channel existed in 1999 or was “continuously
flowing”; that while Amy Nerburn testified that a hydrologi-
cal connection existed, her opinion was based on a docu-
12                                                   No. 05-1125

ment containing a watershed plan, rather than her personal
knowledge; and that while Thomas Slowinski testified that
drainage from the general area of Bricks’ property flowed
into Blackberry Creek, he also testified that there was no
defined stream channel to the south of Interstate 88.
  Similar to the NLRB in Europlast, 33 F.3d at 18, the
Board decided not to infer from the above testimony that a
hydrological connection existed between wetlands located on
the property and Blackberry Creek. But the Board also did
not rule out the possibility that there was a hydrological
connection, and it cited approvingly the ALJ’s decision in
the underlying enforcement action that the existence of a
hydrological connection was a “close question.” In this
Circuit, although not dispositive,“the closeness of the
question is, in itself, evidence of substantial justification.”
Cummings v. Sullivan, 950 F.2d 492, 498 (7th Cir. 1991).
  In sum, we find that the Board’s decision to deny Bricks’
request for legal fees and expenses was supported by
substantial evidence. The EPA had a reasonable basis for
pursuing its hydrological connection theory, even though
the Board did not ultimately find in the EPA’s favor.2


2
   The Board did not discuss whether the hydrological connection
theory pursued by the EPA had a reasonable basis in law. See
Hallmark, 200 F.3d at 1080. Bricks maintains that the Supreme
Court’s decision in SWANCC, 531 U.S. 159, discredited that
theory. However, the ALJ correctly found in the underlying
enforcement proceeding that SWANCC held only that the Corps
had exceeded its authority under the CWA by extending the
definition of “navigable waters” to include isolated ponds used as
habitat by migratory birds. Id. at 171. The Supreme Court was
careful to distinguish SWANCC from Riverside Bayview Homes,
474 U.S. 121, in which the Court found that “Congress’ concern for
the protection of water quality and aquatic ecosystems indicated
its intent to regulate wetlands ‘inseparably bound up with the
                                                     (continued...)
No. 05-1125                                                      13

Because we agree with the Board that an award of Bricks’
legal fees and expenses is inappropriate, we need not
reach the issue whether Bricks is entitled to attorney’s fees
in excess of the statutory maximum.


                        III. Conclusion



2
   (...continued)
“waters” of the United States.’ ” SWANCC, 531 U.S. at 167
(quoting Riverside Bayview Homes, 474 U.S. at 134). Additionally,
regulations promulgated by the Corps include within the defini-
tion of “waters of the United States” wetlands adjacent to waters
of the United States or their tributaries. 33 C.F.R. § 328.3(a)(7).
In United States v. Gerke Excavating, Inc., 412 F.3d 804, 807 (7th
Cir. 2005), we cited that regulation approvingly and found that if
waters from wetlands enter a stream that flows into a navigable
water, those wetlands are “waters of the United States” under the
CWA. See also Carabell v. U.S. Army Corps of Eng’rs, 391 F.3d
704, 710 (6th Cir. 2004) (wetlands adjacent to but separated by a
man-made berm from a ditch that flowed into tributaries of
navigable waters are “waters of the United States” subject to
CWA jurisdiction); United States v. Rapanos, 376 F.3d 629, 642
(6th Cir. 2004) (wetlands with a surface water connection to
tributaries of navigable waters are subject to CWA jurisdiction).
We note that the Supreme Court has granted a writ of certiorari
in Carabell and Rapanos to consider whether wetlands that are
hydrologically isolated from any “waters of the United States” are
subject to CWA jurisdiction. ___ S. Ct.___, 2005 WL 2493858 (U.S.
Oct. 11, 2005). The Court’s decision in that case will not affect our
decision here, because the EPA’s complaint against Bricks was
based on the theory that the wetlands on Bricks’ property are
hydrologically connected to waters of the United States—that is,
the wetlands are adjacent to a tributary of Blackberry Creek, and
Blackberry Creek flows into Fox River, a navigable water.
14                                             No. 05-1125

  For the foregoing reasons, Bricks’ petition for review of
the Board’s decision denying Bricks its legal fees and costs
is DENIED.

A true Copy:
      Teste:

                        ________________________________
                        Clerk of the United States Court of
                          Appeals for the Seventh Circuit




                  USCA-02-C-0072—10-21-05
