Nos. 99-244 and 99-253
In the Supreme Court of the United States
MOBIL OIL EXPLORATION AND PRODUCING SOUTHEAST, INC., PETITIONER
v.
UNITED STATES OF AMERICA
MARATHON OIL COMPANY, PETITIONER
v.
UNITED STATES OF AMERICA
ON WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
BRIEF FOR THE UNITED STATES
SETH P. WAXMAN
Solicitor General
Counsel of Record
DAVID W. OGDEN
Acting Assistant Attorney General
LAWRENCE G. WALLACE
Deputy Solicitor General
KENT L. JONES
Assistant to the Solicitor General
DAVID M. COHEN
DOUGLAS N. LETTER
THOMAS M. BONDY
MARK A. MELNICK
Attorneys
Department of Justice
Washington, D.C. 20530-0001
(202) 514-2217
QUESTIONS PRESENTED
1. Whether, in the circumstances of this case, an asserted delay in the
processing of a plan of exploration to perform environmental studies required
by Congress was a material breach, or a repudiation, of federal offshore
oil and gas leases.
2. Whether, in the circumstances of this case, the lessees waived any claim
for rescission and restitution by continuing to require performance by the
United States under the leases and by requesting and obtaining a rent-free
extension of the leases commensurate with the asserted processing delay.
3. Whether, in the circumstances of this case, if a breach occurred that
was not waived, the proper remedy is (i) a rent-free extension of the leases
commensurate with the asserted processing delay or (ii) cancellation of
the leases and restitution to the lessees of the payments made to secure
the leases.
In the Supreme Court of the United States
No. 99-244
MOBIL OIL EXPLORATION AND PRODUCING SOUTHEAST, INC., PETITIONER
v.
UNITED STATES OF AMERICA
No. 99-253
MARATHON OIL COMPANY, PETITIONER
v.
UNITED STATES OF AMERICA
ON WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
BRIEF FOR THE UNITED STATES
OPINIONS BELOW
The opinion of the court of appeals upon panel rehearing (Pet. App. 3a-24a)
is reported at 177 F.3d 1331.1 The original opinion of the court of appeals
that was subsequently withdrawn (Pet. App. 25a-43a) is reported at 158 F.3d
1253. The opinion of the Court of Federal Claims (Pet. App. 45a-99a) is
reported at 35 Fed. Cl. 309.
JURISDICTION
The revised opinion and judgment of the court of appeals were entered on
May 13, 1999 (Pet. App. 1a-24a). The petition for a writ of certiorari in
No. 99-244 was filed on August 10, 1999. The petition for a writ of certiorari
in No. 99-253 was filed on August 11, 1999. The petitions were granted on
November 15, 1999. The jurisdiction of this Court rests upon 28 U.S.C. 1254(1).
STATUTORY PROVISIONS INVOLVED
Pertinent provisions of the Outer Continental Shelf Lands Act (OCSLA), 43
U.S.C. 1331 et seq., the Coastal Zone Management Act (CZMA), 16 U.S.C. 1451
et seq., and the Outer Banks Protection Act (OBPA), Pub. L. No. 101-380,
§ 6003, 104 Stat. 555 (repealed 1996), appear at Pet. App. 100a-173a.
STATEMENT
Petitioners seek to recover from the United States the amounts they paid
to obtain federal oil and gas leases on the outer continental shelf. The
court of appeals correctly held that the facts of this case do not warrant
the restitutionary relief that petitioners request. Petitioners failed to
show any material breach by the United States of its obligation under the
leases, or indeed any breach at all. The gravamen of their complaint is
that a now-repealed intervening statute (the Outer Banks Protection Act)
interferred with their rights under the leases, but the court of appeals
correctly found that the Act resulted in no delay or alteration of any right
petitioners otherwise would have enjoyed. Petitioners' claim for rescission
is, in any event, foreclosed by their conduct electing to require further
performance by the United States under the leases at substantial additional
public expense.
I. Introduction And Statutory Background
1. This case involves the proper interaction of legislation that seeks,
on the one hand, to preserve and protect the environment while, on the other
hand, allowing development of certain natural resources on federal lands.
The case arises in the context of federal oil and gas leases obtained by
petitioners for submerged lands offshore of North Carolina. The offshore
lands that petitioners have sought to develop are located at what is known
as "The Point"-the area offshore of the Outer Banks at "the
convergence of the Gulf Stream, continental slope, and shelf waters."
J.A. 207. It "is an area characterized by unique physical and biological
qualities." Ibid. "One of the East Coast's most important commercial
and recreation fisheries is located in the waters overlying the proposed
drill site." Id. at 225. This "area serves as an important migratory
pathway and feeding habitat" for many fish species, and "an important
food source * * * would be exposed to * * * wastes" resulting from
drilling activities in this location. Ibid. The areas that petitioners have
sought to develop are a "highly productive and ecologically unique
area essential to the State's coastal zone." Id. at 207. The statutory
context in which the leases for these areas were issued, and are to be administered,
is highly protective of these important environmental interests.
2. The Outer Continental Shelf Lands Act (OCSLA), 43 U.S.C. 1331 et seq.,
was enacted by Congress in 1953. The Outer Continental Shelf (OCS) is the
submerged land beneath navigable waters on the Continental Shelf beginning
seaward of the coastal waters within the jurisdiction of the individual
States. See 43 U.S.C. 1301(a), (b), 1331(a). The States exercise jurisdiction
over the waters and submerged lands within three miles of their coasts.
See 43 U.S.C. 1311(a), (b), 1312. Pursuant to the OCSLA, the federal government
exercises jurisdiction over the OCS and ownership of the mineral resources
found there. Pet. App. 4a; 43 U.S.C. 1332, 1333.
The OCSLA establishes a detailed framework for issuing mineral leases on
the OCS by competitive bidding and for the approval of related activities
under the leases. The Secretary of the Interior is authorized to administer
the Act's provisions relating to the leasing of the OCS. 43 U.S.C. 1334,
1337, 1343-1346. The Secretary is also directed to promulgate rules and
regulations to carry out those provisions-including regulations for the
prevention of waste and for conservation of the natural resources of the
OCS-and the statute specifies that such regulations shall apply to all operations
conducted under any OCS lease. 43 U.S.C. 1334, 1337 (1994 & Supp. III
1997). The Act specifies that these regulations "shall include, but
not be limited to," provisions-
(1) for the suspension or temporary prohibition of any operation or activity,
including production, pursuant to any lease or permit (A) at the request
of a lessee, in the national interest, to facilitate proper development
of a lease or to allow for the construction or negotiation for use of transportation
facilities, or (B) if there is a threat of serious, irreparable, or immediate
harm or damage to life (including fish and other aquatic life), to property,
to any mineral deposits (in areas leased or unleased), or to the marine,
coastal, or human environment, * * * .
43 U.S.C. 1334(a) (emphasis added). The OCSLA also directs the Secretary
to promulgate regulations providing for the extension of OCS leases in the
event of their suspension. Ibid. The regulations promulgated by the Secretary
under this statute provide that the leases granted under the Act may be
suspended (and thereby extended without rent) in order (i) to conduct an
environmental analysis; (ii) to comply with the National Environmental Policy
Act; (iii) to avoid threats of serious harm or damage to life, property
or the environment; or (iv) to compensate for inordinate delays encountered
by lessees in obtaining required permits or consents for lease operations.
30 C.F.R. 250.110(b) (formerly codified at 30 C.F.R. 250.10(b) (1997)).
The Secretary is required to conduct environmental analyses to ensure that
serious harm or damage to the environment will not occur and is to offer
OCS leases through a competitive bidding process. 43 U.S.C. 1337(a), 1346(a)
(1994 & Supp. III 1997). An OCS lease does not grant the lessee an unfettered
right to explore and develop the leased area. Instead, the lessee obtains
a priority over others in submitting for federal approval plans for exploration,
production, or development. Secretary of the Interior v. California, 464
U.S. 312, 317, 337 (1984); Tribal Village of Akutan v. Hodel, 869 F.2d 1185,
1187 (9th Cir. 1988), cert. denied, 493 U.S. 873 (1989). Before the lessee
may actually explore and develop the leased area, numerous conditions must
be satisfied under the leases. In particular, the lessee must obtain mandatory
state and federal approvals before any exploration activities may proceed.
Pet. App. 5a-6a. The purchase of the lease rights and the payment of the
lease rentals does not guarantee the lessee that any of the state or federal
approvals required before exploration can occur will in fact be granted.
As this Court explained in Secretary of the Interior v. California, 464
U.S. at 339:
Under the plain language of OCSLA, the purchase of a lease entails no right
to proceed with full exploration, development, or production * * * ; the
lessee acquires only a priority in submitting plans to conduct those activities.
If these plans, when ultimately submitted, are disapproved, no further exploration
or development is permitted.
3. Among the numerous requirements that must be met by a lessee before exploration
and development may occur, the following are involved in this case:
a. The lessee must submit a plan of exploration for approval by the Secretary.
43 U.S.C. 1340(b), (c)(1). The Secretary may approve the exploration plan
only if it is consistent with the OCSLA, with the regulations prescribed
pursuant to OCSLA, and with the provisions of the lease. 43 U.S.C. 1340(c)(1).
As part of the approval process, the Secretary must evaluate the environmental
impacts of the activities described in the plan of exploration. 30 C.F.R.
250.203(g) (formerly codified at 30 C.F.R. 250.33(g) (1997)). In making
that evaluation, the Secretary is to consider the written comments of the
Governor of any affected State. 30 C.F.R. 250.203(h) (formerly codified
at 30 C.F.R. 250.33(h) (1997)). If an acceptable plan of exploration is
submitted to the Secretary, it is to be approved within 30 days of submittal.
43 U.S.C. 1340(c)(1). The power that the Secretary has under 43 U.S.C. 1334(a)
to suspend leases while evaluating potential environmental harms (see page
4, supra), however, also authorizes him to suspend the 30-day approval process
for exploration plans for this same purpose. H.R. Rep. No. 590, 95th Cong.,
2d Sess. 49 (1978). The Secretary is directed by the OCSLA to disapprove
any plan of exploration that would likely cause any condition described
in 43 U.S.C. 1334(a)(2)(A)(i)-such as harm or damage to life (including
fish and other aquatic life), to property, to any mineral, to the national
security or defense, or to the marine, coastal, or human environment-if
the plan cannot be modified to avoid that condition. 43 U.S.C. 1340(c)(1).
b. If the plan of exploration would affect the land, water use, or the natural
resources of the coastal zone of any State, the plan may not be implemented
unless the further requirements of the Coastal Zone Management Act (CZMA),
16 U.S.C. 1451, et seq., have been satisfied. Under the CZMA, each State
may adopt a Coastal Zone Management Plan for the protection and management
of its coastal areas. The Secretary is not to "grant any license or
permit for any activity described in detail in the exploration plan"
until the lessee has complied with the state-approval procedure established
in the CZMA. 16 U.S.C. 1456(c)(3)(B); 43 U.S.C. 1340(c)(2). Under that procedure,
the lessee makes an initial certification that its plan of exploration is
in compliance with the State's Coastal Zone Management Plan. If the State
objects to the lessee's certification, the lessee may appeal the State's
objection to the Secretary of Commerce. The Secretary of Commerce may override
the State's objection only upon a finding that the plan is consistent with
the objectives of the Coastal Zone Management Act or is necessary in the
interest of national security. 16 U.S.C. 1456(c)(3)(B)(i)-(ii); 43 U.S.C.
1340(c)(2). If the State has objected to the certification, and if the Secretary
of Commerce does not override the State's objection, then no operations
may be conducted under the plan of exploration. 43 U.S.C. 1340(c)(2). In
that situation, the lessee must either satisfy the State's objections or
submit an alternative exploration plan. 16 U.S.C. 1456(c)(3)(B). See J.A.
253-256, 329-332.
c. If the lessee's plan of exploration contemplates the discharge of any
pollutants into the ocean, the Federal Water Pollution Control Act, 33 U.S.C.
1251 et seq., also requires the lessee to obtain a National Pollutant Discharge
Elimination System (NPDES) permit from the Environmental Protection Agency.
33 U.S.C. 1311(a), 1342(a). An NPDES permit cannot be obtained unless the
lessee has first complied with the state-approval requirement of the CZMA.
The lessee must thus certify that the discharge would be in compliance with
the Coastal Zone Management Plan of the affected State. If the State objects
to that certification, the Secretary of Commerce may override the State's
objection only upon a finding that the drilling plan would be consistent
with the objectives of the CZMA or is necessary in the interest of national
security. 16 U.S.C. 1456(c)(3). If the Secretary of Commerce does not override
the State's objection, a discharge permit may not be issued by the EPA.
Ibid.
d. A lessee must obtain a permit to drill before commencing any exploratory
well under an approved plan of exploration. 43 U.S.C. 1340(d); 30 C.F.R.
250.414 (formerly codified at 30 C.F.R. 250.64 (1997)). If such an exploratory
well is authorized and proves successful, the lessee must then obtain approval
of a development and production plan before pursuing further activity. 43
U.S.C. 1351. Drilling permits and development and production plans may be
approved only if the state-approval requirements of the CZMA have been satisfied.
See 43 U.S.C. 1340(c)(2), 1351(d).
e. These restrictions on operations are expressly set forth in the lease
terms and in the governing statutes and regulations. Oil and gas exploration
companies such as petitioners, who are "knowledgeable and sophisticated
purchasers," enter into such leases fully aware of the limitations
they impose on potential operations. Pet. App. 13a.
II. Petitioners' Leases
4. Between 1981 and 1983, petitioners bid on and obtained ten-year federal
oil and gas leases offshore of the Outer Banks area of North Carolina. C.A.
App. 180-183. Each of the leases was issued on a standard form. Under that
lease form, the parties' rights were subject to all of the provisions and
terms of the OCSLA and its regulations, to "all other applicable statutes
and regulations," and to other regulations issued in the future that
provide for the prevention of waste and the conservation of the natural
resources of the OCS. Pet. App. 175a. The leases specify that they may be
suspended or canceled by the United States under the terms set forth in
the OCSLA. Id. at 180a.
5. During the 1980's, petitioners joined with the owners of adjacent OCS
leases to form a single exploration unit known as the Manteo Unit. Pet.
App. 7a. That unit contained four of the five leases involved in this case.
C.A. App. 180-183, 251. Petitioner Mobil Oil Exploration and Producing Southeast,
Inc. (Mobil) was the operator of the unit. C.A. App. 210.2
As unit operator, Mobil met in 1988 with representatives of the Minerals
Management Service (MMS) of the Department of the Interior and the State
of North Carolina to commence discussions regarding a potential exploratory
well on the Manteo Unit. At that meeting, the Governor of North Carolina
expressed the State's "grave concerns about the impacts development
of any hydrocarbon resources [in that area of the Outer Banks] would have
on the State's valuable estuarine system and other important coastal resources."
J.A. 61. The Governor emphasized that (id. at 61-62):
the earlier environmental impact statements (EIS), completed before and
after the leases were issued are unsound for some topics. The level of scientific
information for these ocean areas has increased dramatically since 1981.
It shows unquestionably that the prior analyses were based on flawed data
and assumptions. Direct and indirect onshore impacts from a discovery the
size Mobil is projecting were never sufficiently analyzed.
In particular, the State expressed the concern that new information regarding
fisheries, oil spill trajectories, and ocean currents and conditions was
needed to ensure that petitioners' plan of exploration would comply with
the State's Coastal Management Plan and other applicable environmental requirements.
Ibid.; see id. at 61-75.
6. Knowing that the State's objection was a potential bar to operations
under these leases, Mobil entered into lengthy negotiations with the State
and the MMS which resulted in a Memorandum of Understanding (MOU) dated
July 12, 1989. Under the MOU, Mobil agreed to submit a draft plan of exploration
for review by the State and MMS undertook to complete an Environmental Report
(ER) on the exploratory well proposed by Mobil. J.A. 79. Mobil also requested
and obtained a temporary "suspension" of its leases (J.A. 83)
which "put the leases on hold, extended their terms, and suspended
[lease] rental payment obligations." C.A. App. 128.3. The MOU further
provided that "[i]f the State objects to Mobil's certification of consistency
[under the Coastal Zone Management Act], or if any other administrative
or judical challenges or appeals arise, or if the issuance of the permits
for Mobil's exploration activities is delayed due to any of the other circumstances
contemplated by 30 C.F.R. § 250.10," the MMS would "issue
additional suspensions of operations, pursuant to 30 C.F.R. § 250.10,
to allow for the resolution of such matters and to allow Mobil two drilling
seasons under the [exploration plan] thereafter." J.A. 83 (emphasis
added).
7. Pursuant to the MOU, Mobil submitted a draft plan of exploration for
one exploratory well on the Manteo Unit on September 1, 1989. C.A. App.
268. MMS subsequently issued the draft ER required by the MOU. The State
of North Carolina was unsatisfied with the draft exploration plan and the
draft ER, however, because it believed that many unique facts regarding
the oceanographic and coastal conditions of the Outer Banks area had not
properly been taken into account. J.A. 86-95.
8. The draft plan of exploration for the Manteo Unit contemplated the discharge
of wastes into the ocean. Mobil was therefore also required to obtain an
NPDES permit from EPA to pursue its plan. 33 U.S.C. 1311(a), 1342(a) (1994
& Supp. III 1997). As with respect to the permits required from the
Secretary of the Interior before exploration may occur, an NPDES permit
could not be issued by the EPA until Mobil obtained either the concurrence
of the State of North Carolina to Mobil's CZMA compliance certification
or an override by the Secretary of Commerce of any objection raised by the
State. 16 U.S.C. 1456(c)(3).
When Mobil certified that its NPDES permit application complied with the
North Carolina Coastal Management Plan on April 17, 1990 (J.A. 96-97), North
Carolina made a timely formal objection to that certification on July 16,
1990. Id. at 106-112. The State's objection explained that Mobil had presented
insufficient information to address and resolve the significant environmental
concerns created by the proposed exploration plan. Ibid. The State complained
that Mobil failed to provide "adequate site specific baseline data"
and "has not fully documented assumptions used" in its models.
Id. at 109. As the result, "the applicability of the models * * * cannot
be judged." Ibid. The State concluded that "the only alternative
is for Mobil to provide the required information," and that, after
that information is provided, "the State will then be in a position
to review the proposed activity to determine whether it may be conducted
in a manner consistent with the North Carolina Coastal Management Program."
Id. at 110.
Because of the State's objection, Mobil was not eligible to receive an NPDES
permit for the proposed Manteo Unit exploration plan. 16 U.S.C. 1456(c)(3).
Instead of providing the data and other information requested by the State,
however, in July 1990 Mobil invoked the adversary procedures of the CZMA
by seeking review of the State's objection before the Secretary of Commerce.
J.A. 168. The commencement of that proceeding made petitioners' leases eligible
for suspension under the provisions of the MOU. See pages 9-10, supra.
III. Enactment And Repeal Of The OBPA
9. On August 18, 1990, the Outer Banks Protection Act (OBPA), was enacted
as part of the Oil Pollution Act of 1990. Pub. L. No. 101-380, § 6003,
104 Stat. 555 (repealed 1996). The OBPA was enacted out of a concern of
Congress that, in reviewing OCS activities affecting the Outer Banks region
of North Carolina, the Department of the Interior needed to ensure that
it was giving proper attention to the national environmental policies established
under prior legislation such as NEPA and the CZMA. Congress noted that the
Outer Banks of North Carolina was an area of exceptional environmental fragility,
and that oil and gas development could adversely affect a fishing industry
valued at more than $1 billion annually, as well as a major industry of
the area, tourism. Congress noted its concern that there may be insufficient
knowledge of the physical and oceanographic characteristics of the area
and of the fish species that exist there. OBPA § 6003(b)(1)-(5), 104
Stat. 555. In particular, Congress expressed concern that the EIS prepared
for the North Carolina lease sales before 1981 appeared insufficient and
outdated and thereby failed to accomplish the objectives of federal environmental
legislation. Congress found that more recent environmental inquiries had
failed to allay concerns about the adequacy of information available to
make decisions about leasing, exploration, and development offshore of North
Carolina. OBPA § 6003(b)(6)-(8), 104 Stat. 555-556.
In light of these concerns about the sufficiency of environmental information
for the uniquely fragile Outer Banks, the OBPA (i) required the establishment
of an Environmental Sciences Review Panel (ESRP) to review the environmental
issues affecting this area and (ii) directed the Secretary not to make further
lease sales or approve further exploration or development and production
activities offshore of North Carolina until the later of October 1, 1991,
or 45 days of continuous session of Congress after the Secretary submitted
a written report to Congress, made after consideration of the findings and
recommendations of the ESRP, certifying that available information is sufficient
to enable the Secretary to carry out his responsibilities under the OCSLA
in authorizing the activities listed above. OBPA § 6003(c)(3), 104
Stat. 556. The ESRP established by the OBPA was required to prepare and
submit to the Secretary findings and recommendations:
(i) assessing the adequacy of available physical oceanographic, ecological,
and socioeconomic information in enabling the Secretary to carry out his
responsibilities under the [OCSLA] with respect to authorizing [leasing,
exploration, and development]; and
(ii) if such available information is not adequate for such purposes, indicating
what additional information is required to enable the Secretary to carry
out such responsibilities * * * .
OBPA § 6003(e)(2)(A), 104 Stat. 557. The ESRP was to terminate its
activities after submitting its findings and recommendations to the Secretary.
OBPA § 6003(e)(4), 104 Stat. 558.
10. Following enactment of the OBPA on August 18, 1990, the MMS issued suspensions
that applied generally to all leases offshore of North Carolina. J.A. 129-138.
Under those suspensions, the terms of the affected leases were "extended
for a period of time equal to the period the suspension is in effect"
and "[n]o payment of rental is required during the period of this directed
suspension." J.A. 130. At the time this general suspension was issued,
the leases of petitioners were already eligible for suspension under the
specific terms of the MOU because of the State's earlier objection to the
CZMA consistency certification for the NPDES permit. See pages 9-10, supra.
11. Following enactment of the OBPA, petitioners continued to treat their
North Carolina leases as in effect and as binding upon the parties. They
continued to exercise various rights under the leases and continued to seek
and demand performance from the United States. In particular, on August
20, 1990, Mobil submitted for approval its final plan of exploration to
drill one exploratory well on the Manteo Unit. J.A. 115. Accompanying that
plan was a certification by Mobil that the plan of exploration satisfied
the North Carolina Coastal Zone Management plan. The State of North Carolina
promptly objected to that certification on November 19, 1990. Id. at 141-148.
That objection conclusively barred the Secretary of the Interior from permitting
any implementation of the proposed plan of exploration unless the State's
objection was overturned by the Secretary of Commerce. 43 U.S.C. 1340(c)(1).
In November 1990, petitioners therefore sought review of the State's CZMA
objections before the Secretary of Commerce. J.A. 168.
That proceeding was conducted by the Secretary of Commerce jointly with
his review of the State's prior CZMA objections to the NPDES permit application
for that same unit. J.A. 168-169, 186-187, 196-336. North Carolina, along
with 13 federal agencies and the National Security Council, took part in
those administrative proceedings. Id. at 211, 277. The OBPA had no effect,
and imposed no delay, on this review of the State's CZMA objections by the
Secretary of Commerce. Id. at 186-187.
12. In January 1992, while petitioners' appeals to the Secretary of Commerce
were still pending, the ESRP issued its final report to the Secretary of
the Interior. That report recommended that additional environmental data
and studies be obtained before proceeding further with development of the
Outer Banks. J.A. 149-164. The Secretary then issued a report to Congress,
as required by the OBPA, in April 1992. Pet. App. 198a-204a. In that report,
the Secretary addressed the ESRP's recommendations and concluded that he
possessed sufficient information to perform his obligations under the OCSLA
for review of the pending Manteo Unit plan of exploration. Id. at 202a.
That certification by the Secretary removed the temporary restraint on approval
of the Manteo Unit plan of exploration under the OBPA. The Secretary nonetheless
voluntarily deferred further consideration of that plan until he completed
two discrete environmental studies recommended by the ESRP. Ibid. Throughout
this entire period, all activities on the proposed Manteo Unit were in any
event barred by the objections of North Carolina to Mobil's CZMA certifications
of its plan of exploration and NPDES application. 16 U.S.C. 1456(c)(3)(A)-(B);
J.A. 106-112, 141-148.
13. After the Secretary submitted his April 1992 certification to Congress,
the MMS sent a letter to the lessees of OCS leases on the Outer Banks that
terminated the suspensions imposed on those leases in September 1990. J.A.
165-167. But petitioners then requested the MMS to reinstate the lease suspensions,
pursuant to the MOU, so that petitioners could continue to pursue their
administrative appeals of North Carolina's CZMA objections. J.A. 168-172.
Petitioners stated that, while the mandates of the OBPA had "been fulfilled,
the Manteo Unit partners are still awaiting a decision from the U.S. Department
of Commerce on appeals from the State of North Carolina's Denials of Consistency
Certification on the [Manteo Unit] Exploration Plan and the NPDES Permit.
These appeals were filed respectively, in July 1990 and December 1990."
J.A. 168. Because those proceedings have delayed any operations on the Manteo
Unit "over the past period of years," and because that delay "continues
at present," petitioners asked for the lease suspensions to be continued
in effect. Id. at 169. MMS granted petitioners' request for a further suspension
of the leases. Id. at 172-174.
14. In July 1994, MMS released the two environmental studies that the Secretary
voluntarily performed in connection with his review of the Manteo Unit plan
of exploration. J.A. 194. At that time, however, the lease suspensions granted
to Mobil pending a decision by the Secretary of Commerce on the State's
objections to the plan of exploration and the discharge permit still remained
in effect. Pending resolution of those proceedings, and pursuant to the
lease suspensions issued at Mobil's request, no further action was taken
by the Secretary on the proposed plan of exploration.
15. On September 2, 1994, the Secretary of Commerce issued decisions declining
to override the objections of the State of North Carolina to the plan of
exploration and the discharge permit that Mobil requested for the Manteo
Unit. J.A. 196-336. The Secretary noted that the area in which petitioners
sought to drill for oil and gas-"The Point" of the Outer Banks-is
"unique" in its "physical and biological qualities."
Id. at 207. Because of its location at the "convergence of the Gulf
Stream, continental slope and shelf waters," there are concentrated
masses of "nutrients, plankton and floating materials near the sea
surface" that make "The Point [a] highly productive and ecologically
unique area essential to the State's coastal zone." Ibid. The "anomalously
high biomass" of this area makes it an "unusually abundant"
environmental resource. Ibid. As a result, "the area serves as an important
migratory pathway, feeding habitat and spawning ground for several commercially
significant species." Id. at 225.
With respect to both the proposed discharge permit and the proposed plan
of exploration, the Secretary concluded that there was inadequate information
"to adequately assess the risk of adverse impacts" on these important
environmental resources. J.A. 228, 304.3 The Secretary found that the environmental
hazards from these activities are particularly significant because of the
location of the proposed drilling site at "one of the most productive
offshore fishing grounds along the east coast." Id. at 243. The Secretary
noted that available data suggested that the proposed exploration would
"have adverse effects on the resources and uses of the State's coastal
zone." Id. at 245. "Given that this is a frontier area and an
area of rich natural resources upon which the State heavily depends,"
the Secretary concluded that "Mobil has not adequately documented the
biological resources or ecological relationships at risk." Ibid. The
Secretary further concluded that "the ecological relationship of the
benthic environment to the State's fisheries must be further assessed in
order to adequately evaluate the risks of impact of Mobil's proposed activities."
Id. at 246.
16. After the Secretary of Commerce declined to override North Carolina's
objections under the CZMA, the MMS informed Mobil that the lease suspensions
that had been granted pending that decision were terminated. C.A. App. 534.
Petitioners, however, promptly filed a suit in federal district court to
challenge the determinations made by the Secretary of Commerce. Mobil Oil
Exploration v. Brown, Civ. No. 95-93SSH (D.D.C.). They then requested "reinstatement
of the suspensions" in order to complete their suit challenging the
decisions upholding the State's CZMA objections to the plan of exploration
and the discharge permit. App., infra, 2a.
The MMS granted the suspension request, noting that the requested suspensions
"are appropriate pursuant to 30 C.F.R. 250.10(b)(6) and the MOU while
Mobil seeks judicial review of the Secretary's decision." App., infra,
5a. This lease suspension, which was issued at petitioners' request, remains
in effect to this day.
17. In 1996, Congress repealed the OBPA. Pub. L. No. 104-134, Title I, Department
of the Interior § 109, 110 Stat. 1321-177. Because the Secretary of
Commerce declined to override North Carolina's objections to the plan of
exploration and the discharge permit, petitioners were barred both before
the OBPA was enacted and after the OBPA was repealed-as well as while the
OBPA was in effect-from any action to implement the proposed Manteo Unit
plan of exploration. 43 U.S.C. 1340(c)(2).
IV. The Present Litigation
18. In October 1992, more than two years after the OBPA was enacted and
during the period that lease suspensions requested by Mobil were in effect,
petitioners joined an action filed in the United States Court of Federal
Claims in which they claimed that enactment of the OBPA in 1990 effected
a material breach and an anticipatory repudiation of their leases.4 The
trial court awarded summary judgment to petitioners (Pet. App. 45a-99a)
and entered a final judgment awarding them "restitution of their up-front
[lease] payments" in a total amount exceeding $156 million. Id. at
xa, 44a.
19. The court of appeals reversed. Pet. App. 3a-24a. The court concluded
that "there is no evidence of a breach of contract by the United States"
and that "the lease agreement in this case has not been breached by
either party." Id. at 18a-19a. "Rather, [petitioners have] been
unable to obtain the necessary Government approvals that would allow [them]
to go forward with exploration of the lease site, a problem for [petitioners]
that arose in 1989, before the OBPA was enacted, and continued after the
OBPA was repealed." Ibid. The court rejected petitioners' argument
that the OBPA was "a supervening act" that made performance impossible.
Id. at 19a. The court noted that the "OBPA was not the cause of [petitioners']
inability to obtain issuance of the required permits and approvals for its
proposed oil exploration." Ibid. Although the lessees paid a substantial
up-front cash bonus and annual rents in exchange for the "exclusive
right and privilege to drill for, develop, and produce oil and gas resources"
(id. at 13a), that right "was expressly conditioned on compliance with
a complex fabric of statutory and regulatory provisions, which included
involvement by both federal and state agencies. The lessees were both knowledgeable
and sophisticated purchasers, and entered into these leases with their legal
eyes wide open." Ibid.
The court of appeals further explained that "[w]hatever restraints
on secretarial actions were imposed by the OBPA essentially had no effect
upon these OCS leases because exploration could not proceed without North
Carolina's concurrence in the [plan of exploration's] CZMA consistency certification
or the override provided by law." Pet. App. 14a. The court observed
that "North Carolina objected from the beginning to the Manteo Unit's
proposed exploration as being inconsistent with its coastal zone program
under the CZMA * * *; North Carolina maintained [its] * * * objections throughout
the time that the moratorium imposed by the OBPA was effective." Ibid.
The court concluded that "[u]nder the circumstances of this case, to
treat [petitioners'] failure to obtain the necessary approvals and permits
for exploratory activity as a breach of contract by the Government would
be to eviscerate these salutary protections of the nation's fragile coastal
lands and waters." Id. at 15a.
The court of appeals also found unconvincing petitioners' contention that,
"even if their leases are subject to state objection over the CZMA
consistency certification, the OCSLA provides for cancellation of the leases
and restitution in such a situation." Pet. App. 16a. The court explained
that "[t]he lessee contracted for the exclusive opportunity to explore
in a certain area; the inability of a lessee to explore, if not attributable
to the Government, does not create an entitlement to any refund of the consideration
paid to obtain the lease." Id. at 18a.5
Judge Newman dissented. Pet. App. 19a-24a. In Judge Newman's view, petitioners
had an "entitlement" under their leases to explore the tracts
in question that "was negated when the government refused to issue
the requisite permits, barring all exploration." Id. at 20a. Judge
Newman reasoned that the United States breached the leases by refusing "to
override North Carolina's objection, although it had that right by statute."
Ibid.6
V. The Pending CZMA Litigation
20. The suit filed by petitioners to challenge the decision of the Secretary
of Commerce declining to override the State's CZMA objections to the Manteo
Unit is still pending in federal district court. The court stayed those
proceedings after petitioner sought to supplement the administrative record
in 1996 to add with studies "submitted more than two years after the
comment period closed." 920 F. Supp. 1, 2 (D.D.C. 1996). The court
concluded that the Secretary of Commerce should decide whether to reopen
the record and that, "[i]f the Secretary decides against reopening
the [record], the Court will lift the stay." Id. at 3.
The Secretary of Commerce advised the parties on December 8, 1999, that
he declined to reopen the record to admit the two new studies. In doing
so, the Secretary emphasized that, "even were I to reopen the record
to admit the two studies and reconsider my decision, I would still lack
sufficient information to override North Carolina's objections." App.,
infra, 8a.7
The federal district court proceedings commenced by Mobil are thus still
pending, and the lease suspensions requested by Mobil therefore remain fully
in effect. See page 17, supra.
SUMMARY OF ARGUMENT
I. Petitioners seek rescission and restitution for a purported breach and
repudiation of their leases which they assert occurred through the enactment
and implementation of the OBPA. There is no dispute among the parties that
this case is governed by the general principles of contract law incorporated
as federal common law under the decisions of this Court.
The standards for rescission and restitution under the federal common law
of contracts are most stringent. A contract claimant may obtain rescission
and restitution only by establishing that there has been a material or total
breach that defeats the essential object or purpose of the contract. Similarly,
only a repudiation of an essential element of the contract can justify rescission
and restitution. A failure to perform that is not a material breach of the
contract, or that does not defeat an essential object of the agreement,
may merit an award of provable damages, but it does not justify rescission
and restitution.
Even when a material breach or repudiation of the central object of the
contract occurs, rescission and restitution do not automatically follow.
The party who seeks such relief must unequivocally manifest his intention
to rescind the contract within a reasonable time. If the non-breaching party
continues to treat the contract as binding after the purported breach or
repudiation, and continues to seek performance from the allegedly breaching
party, he may not subsequently claim that the breach was material and may
not then obtain restitution. In that situation, the claimant is limited
to a recovery of such damages as are proven to result from the partial breach.
II. The standards governing rescission and restitution are not satisfied
by petitioners in the circumstances of this case. The OBPA did not effect
a material breach or repudiation of the cental object of the lease agreements.
Indeed, as the court of appeals correctly held, that Act did not result
in any breach of contract by the United States (Pet. App. 19a).
The OBPA did not impose any new substantive requirements or conditions upon
petitioners. That Act suspended the Secretary's approval of lease operations
offshore of North Carolina for the specific purpose of ensuring that the
Secretary was adequately implementing other, preexisting environmental legislation
to which such leases are expressly subject. These leases, and the statutes
and regulations to which the leases are subject, authorize lease suspensions
and administrative delays so that environmental studies may be conducted.
Delays of that nature are expressly contemplated and provided for by the
parties' agreements and thus do not represent a material breach or repudiation
of the leases.
Far from defeating the central object of the leases, the OBPA in fact imposed
no delay on the parties' performance beyond that already occurring under
the express terms of the leases. Petitioners' ability to undertake exploration
activities under their leases was at all times-before enactment of the OBPA,
while it was in effect, and after its repeal-barred by North Carolina's
objections under the CZMA. If the OBPA had never been enacted, petitioners
would have thus experienced precisely the same delay in proceeding with
their proposed operations.
III. Presumably recognizing that fact, petitioners did not treat their leases
as materially breached or repudiated when the OBPA was enacted in 1990.
Instead, they did just the opposite. They treated the leases as continuing
in effect and repeatedly demanded contract performance by the United States
by (i) submitting a proposed plan of exploration, (ii) contesting the objections
of the State of North Carolina to the plan of exploration and the associated
discharge permit in proceedings conducted before the Secretary of Commerce
under the CZMA and (iii) requesting and obtaining suspensions of their lease
obligations so that they could conduct those continuing proceedings. Through
these actions, petitioners made an affirmative election to continue the
contract in effect and thereby waived any claim of rescission based upon
the alleged breach or repudiation of the leases occurring through enactment
of the OBPA.
IV. Petitioners have separately requested and received all of the relief
to which they may be entitled. Even if a technical breach of the lease agreements
occurred, which we dispute, petitioners would be limited to such damages
as could be proved from any delay imposed by the OBPA. No such delay occurred,
and no such damages exist. Instead, at petitioners' repeated requests, and
for reasons unrelated to the OBPA, petitioners' leases were extended for
a period of time that began before the OBPA was enacted and that continues
to this date, long after the OBPA has been repealed. Throughout this period,
petitioners' leases have been continuously extended, and petitioners have
been relieved of any obligation to make lease rental payments. At petitioners'
request, these lease suspensions still remain in effect and will not expire
until petitioners' challenge to the State of North Carolina's objections
to the Manteo Unit exploration plan are finally resolved in other litigation
now pending in federal district court. The court of appeals correctly concluded
that petitioners' continuing failure to satisfy North Carolina's CZMA objections
is "not attributable to" the United States and "does not
create an entitlement to any refund of the consideration paid to obtain
the lease." Pet. App. 18a.
ARGUMENT
I. GENERAL STANDARDS GOVERNING RESTITUTION APPLY TO THIS CASE
Although the background of this case involves a complex statutory and regulatory
scheme governing the offshore leasing of federal lands, resolution of the
parties' dispute turns on the application of basic principles of contract
law. Petitioners seek rescission and restitution for a purported breach
and repudiation of leases that allegedly resulted from the enactment and
implementation of the OBPA. The contractual issues to be resolved in this
case are questions of federal common law that are "not controlled by
the law of any State." United States v. Allegheny County, 322 U.S.
174, 183 (1944).
A. Standards For Recovery Of Restitution For Material Breach
It is well established that "[n]ot every departure from the literal
terms of a contract is sufficient to be deemed a material breach" that
would justify rescission and restitution. Stone Forest Indus., Inc. v. United
States, 973 F.2d 1548, 1550-1551 (Fed. Cir. 1992). Under the federal common
law of contracts, a contract claimant may obtain rescission and restitution
for breach of contract only by demonstrating a material or total breach
that goes to the essence of the contract and defeats its essential object
and purpose. Everett Plywood Corp. v. United States, 512 F.2d 1082, 1093-1094
(Ct. Cl. 1975) (restitution improper when the breach "neither defeated
the whole purpose of the contract nor deprived plaintiff of substantially
all that it had bargained for"); Rudd Paint & Varnish Co. v. White,
403 F.2d 289, 291 (10th Cir. 1968) (rescission and restitution appropriate
only when a breach is "substantial"); Neenan v. Otis Elevator
Co., 180 F. 997, 1000-1001 (S.D.N.Y. 1910) (rescission and restitution appropriate
only when the breach or default "goes to the substance of the contract"),
aff'd, 194 F. 414 (2d Cir. 1912). "Restitution is an available remedy
for breach of contract only when the breach is of such vital importance
and so material that it is held to go to the 'essence' of the contract."
United States v. Western. Cas. & Sur. Co., 498 F.2d 335, 339-340 (9th
Cir. 1974) (citing 5 Corbin on Contracts § 1104, at 562 (1964)). See
also John D. Calamari & Joseph M. Perillo, Contracts § 15-3, at
649 (3d ed. 1987); 1 George E. Palmer, The Law of Restitution § 4.7,
at 427 (1978).
Whether, for this purpose, a contract has been materially breached turns
on "the nature and effect of the violation in light of how the particular
contract was viewed, bargained for, entered into, and performed by the parties."
Stone Forest Indus., Inc. v. United States, 973 F.2d at 1551.8 Among the
factors considered in determining whether a breach is material is an assessment
of the "object of the parties in making the agreement" (Federal
Land Bank of Wichita v. Krug, 856 P.2d 111, 115 (Kan. 1993)), "the
purpose of the contract" (Gibbs v. G.K.H., Inc., 427 S.E.2d 701, 702
(S.C. Ct. App. 1993)), and whether the claimant has been denied the "major
benefit" of the exchange (Thomas v. HUD, 124 F.3d 1439, 1442 (Fed.
Cir. 1997)). A material breach is one that defeats both the purpose and
object of the contract and that renders performance "substantially
different from what was contracted for." Callanan v. Powers, 92 N.E.
747, 752 (N.Y. 1910). "A breach which goes to only a part of the consideration,
is incidental and subordinate to the main purpose of the contract, and may
be compensated in damages does not warrant a rescission of the contract."
Eliker v. Chief Indus., 498 N.W.2d 564, 566-567 (Neb. 1993) (quoting Klapka
v. Shrauger, 281 N.W. 612, 616 (Neb. 1938)). The applicable test is whether
the breach is so substantial that it "go[es] to the root of the agreement"
and defeats the parties' object in making the contract. Frank Felix Assocs.,
Ltd. v. Austin Drugs, Inc, 111 F.3d 284, 289 (2d Cir. 1997) (citations omitted).
Even when a material breach occurs, the non-breaching party is not automatically
entitled to rescission and restitution, for he must take "affirmative
steps" to "manifest his intention to rescind within a reasonable
time." Graham v. James, 144 F.3d 229, 237-238 (2d Cir. 1998). If the
non-breaching party continues to treat the contract as binding and continues
to demand performance from the other party after a breach occurs, he may
not subsequently claim the breach was material and obtain restitution. Instead,
the claimant is then limited to such provable damages as occurred from the
partial breach. See, e.g., Cities Serv. Helex, Inc. v. United States, 543
F.2d 1306, 1313 (Ct. Cl. 1976); Everett Plywood Corp. v. United States,
512 F.2d at 1093.
B. Standards For Recovery Of Restitution For Repudiation
Similar rules apply when the claim of restitution is based on an alleged
repudiation of the contract. A refusal to perform an incidental obligation
does not warrant rescission of the contract. To justify rescission and restitution,
the repudiation must be so material that it defeats the essential object
of the parties in making the contract. City of Fairfax v. Washington Metro.
Area Transit Auth., 582 F.2d 1321, 1327-1331 (4th Cir. 1978), cert. denied,
440 U.S. 914 (1979); Fredonia Broad. Corp. v. RCA Corp., 481 F.2d 781, 794
(5th Cir. 1973). The repudiation must be a "'refusal to perform * *
* of the whole contract or of a covenant going to the whole consideration.'"
City of Fairfax v. Washington Metro. Area Transit Auth., 582 F.2d at 1327
(quoting Kimel v. Missouri State Life Ins. Co., 71 F.2d 921, 923 (10th Cir.
1923)). Accord, Campos v. Olson, 241 F.2d 661, 662-663 (9th Cir. 1957).
"[T]he obligation repudiated must be so essential to the purpose of
the contract that non-performance makes the agreement worthless." United
Corp. v. Reed, Wible and Brown, Inc., 626 F. Supp. 1255, 1257 (D. V.I. 1986).
To warrant restitution, a repudiation "cannot consist of a mere partial
breach; nor can it be based on mere delay unless the contract makes time
of the very essence." City of Fairfax v. Washington Metro. Area Trans.
Auth., 582 F.2d at 1327 (footnotes omitted).
The repudiation must also reflect a "distinct and unequivocal absolute
refusal to perform, and must be treated and acted upon as such by the party
to whom the promise was made; for if he afterwards continue to urge or demand
a compliance with the contract, it is plain that he does not understand
it to be at an end." Smoot's Case, 82 U.S. (15 Wall.) 36, 48 (1872).
See also Dingley v. Oler, 117 U.S. 490, 503 (1886); Tretchick v. Department
of Transp., 109 F.3d 749, 752 (Fed. Cir. 1997) (anticipatory repudiation
must be an absolute, unqualified communication of refusal to perform); United
States v. Dekonty Corp., 922 F.2d 826, 827-828 (Fed. Cir. 1991); Kinsey
v. United States, 852 F.2d 556, 558 (Fed. Cir. 1988).
As with claims for rescission based upon an alleged material breach, a claim
for rescission based upon a repudiation of the contract may not be pursued
if the claimant did not treat the contract as at an end but instead continued
to seek compliance with it. "On the heels of [a] repudiation [the non-repudiating
party] had two options: (1) it could have stopped performance and sued for
total breach; or (2) it could have affirmed the contract by continuing to
perform while suing in partial breach." ARP Films, Inc. v. Marvel Entertainment
Group, Inc., 952 F.2d 643, 649 (2d Cir. 1991). Actions taken by the non-breaching
party to seek or demand performance by the other party after the purported
repudiation are "tantamount to an election to affirm the contract."
Ibid., citing, e.g., Cities Service Helex, Inc. v. United States, 543 F.2d
at 1313-1314.
For petitioners to prevail in this case, they therefore must establish that
a delay occurring from the operation of the OBPA (i) effected a material
breach of the leases that defeated their essential object or (ii) constituted
an unequivocal and absolute refusal to perform and a repudiation of the
central or "root purpose" of the lease agreements. Even if such
a material breach or repudiation were established, petitioners would then
also be required to establish that they in fact treated the leases as at
an end and did not continue to seek or demand performance under the leases
by the United States.
II. THE OBPA DID NOT MATERIALLY BREACH OR REPUDIATE PETITIONERS' LEASES
The court of appeals correctly concluded that petitioners cannot satisfy
these prerequisites of restitution. As the court explained, the enactment
and implementation of the OBPA did not effect a breach of the leases at
all, much less a material breach. Pet. App. 18a-19a.9 The OBPA did not impose
any new substantive requirements or conditions upon petitioners or the Secretary.
That statute required the Secretary of the Interior to ensure that he was
conducting a realistic review of the environmental issues that were framed
under the preexisting legislative scheme (NEPA, CZMA, and OCSLA) to which
these leases were expressly subject. A temporary suspension of lease operations
to permit such environmental investigations to be conducted is specifically
authorized by the terms of the leases and by the regulations to which the
leases are subject. Because a delay of that nature is expressly authorized
under the leases, it did not constitute a material breach or repudiation
of the leases.
A. The Enactment And Implementation Of The OBPA Did Not Breach Petitioners'
Leases
1. Prior to enactment of the OBPA, petitioners had tentatively proposed
to drill an exploratory well in an area of the Outer Banks that is "[o]ne
of the East Coast's most important commercial and recreation fisheries"
and is "characterized by unique physical and biological qualities."
J.A. 207. The proposal to drill in this "ecologically unique area"
(ibid.) created especially sensitive environmental concerns for the Outer
Banks and for the State of North Carolina-concerns that had not been alleviated
by earlier environmental reports prepared by MMS. Id. at 61-75.10
In enacting the OBPA, Congress found that the oceanographic characteristics
of the Outer Banks were complex and not well documented, that little was
understood about the unique ecology of that area, and that prior studies
had not addressed and resolved the significant environmental questions posed
by development in this sensitive offshore zone. OBPA § 6003(b), 104
Stat. 555-556. The Act therefore directed the Secretary not to approve further
leases or lease operations in the Outer Banks until he was able to certify
that he possessed sufficient information to discharge his preexisting environmental
responsibilities under the OCSLA. A panel of knowledgeable experts-the ESRP-
was created to provide information and recommendations to assist the Secretary
in making that certification. See page 12, supra. The Secretary was not
required to accept any recommendations made by that panel. Instead, after
the Secretary certified in 1992 that he possessed sufficient environmental
information to discharge his responsibilities under the OCSLA, his authority
to approve or disapprove proposed operations under the OCSLA was unaffected
by the OBPA. OBPA § 6003(c)-(e), 104 Stat. at 556-558. See pages 14-15,
supra.
Any temporary delay in the approval of lease operations that could have
resulted before the Secretary certified his readiness to perform his OCSLA
responsibilities was precisely the type of delay contemplated and authorized
by the parties under these leases. By incorporating the provisions of the
OCSLA and other applicable statutes and regulations, the leases authorize
the suspension of "any operation or activity" when appropriate
"in the national interest" or "if there is a threat of serious,
irreparable, or immediate harm or damage to life (including fish and other
aquatic life), to property, to any mineral deposits (in areas leased or
unleased), or to the marine, coastal, or human environment * * * ."
43 U.S.C. 1334(a)(1)(A)-(B) (emphasis added). Lease suspensions of this
type "merely put the leases on hold, extend[] their terms, and suspend[]
rental payment obligations." C.A. App. 128.3.
This contractual authority to suspend lease operations when environmental
harm is threatened or when dictated by the "national interest"
applies directly here.11 The Conference Report on the OBPA notes that any
delay resulting from the performance of the required environmental analy-
sis is "related to a legitimate and broad-based public purpose-environmental
protection" and to the need "for the collection and analysis of
crucial oceanographic, ecological, and socioeconomic data." H.R. Conf.
Rep. No. 653, 101st Cong., 2d Sess. 163 (1990). The Conferees concluded
that such environmental investigation is "a reasonable action to prevent
a public harm that could result from the lack of such information."
Ibid.
By incorporating the regulations issued under the OCSLA, the leases also
authorize suspension when "necessary for the implementation of the
requirements of the National Environmental Policy Act or to conduct an environmental
analysis." 30 C.F.R. 250.110(b)(4) (emphasis added) (formerly codified
at 30 C.F.R. 250.10(b)(4) (1997)). That suspension provision applies precisely
to the OBPA, which by its terms directed the Secretary to "conduct
an environmental analysis" to ensure that he was properly able to perform
his duties under the OCSLA. OBPA § 6003(c)-(e), 104 Stat. at 556-557.
The fact that it was Congress that directed the Secretary to perform this
environmental analysis-and that the Secretary did not initially undertake
this review on his own initiative-does not make the suspension provision
inapplicable. This Court has emphasized that it is not a breach of contract
for Congress to mandate specific action that was otherwise left to the discretion
of the Secretary under a federal lease. North American Commercial Co. v.
United States, 171 U.S. 110, 134 (1898). The United States is "the
real contracting party," and the Secretary is merely its agent. Ibid.
Under the applicable statutes and regulations, the United States was entitled
to require a suspension of the leases to "conduct an environmental
analysis" and thereby determine whether the preexisting environmental
requirements applicable to those leases were being met.12 That is precisely
what Congress directed in enacting the OBPA: as the Conferees emphasized,
because the leases incorporate the suspension regulations, "the lease
terms of all affected OCS tracts will be extended" rent-free during
the period that the required environmental determinations are being made
and "the interests of the lessees [therefore] will not be adversely
affected to achieve the legitimate purposes of this section." H.R.
Conf. Rep. No. 653, supra, at 163.13
2. The requirement that the Secretary certify to Congress that he possessed
sufficient information to comply with his responsibilities under OCSLA before
approving further lease operations under that statute (OBPA § 6003(c)(3),
104 Stat. 556) did not alter petitioners' rights under the leases. All operations
conducted under OCS leases are subject to compliance with the requirements
of OCSLA, NEPA and the CZMA. See pages 5-7, supra. If the Secretary did
not possess sufficient information to comply with his responsibilities under
those statutes, he would not be able to authorize any lease operations.
The OBPA did not add any new substantive requirements to those preexisting
statutory conditions upon lease operations. See pages 12-13, supra. After
completing the required environmental inquiries, the Secretary was authorized
to approve exploration and development of OCS leases on the Outer Banks
under the same legal criteria that applied prior to enactment of the OBPA.
See pages 14-15, supra.
In 1992, the Secretary certified to Congress that he possessed sufficient
information to carry out his responsibilities under the OCSLA for review
of the Manteo Unit exploration plan. Pet. App. 198a.14 At that time, however,
the Secretary decided, on his own initiative, to defer approval of the proposed
Manteo Unit plan of exploration until two specific environmental studies
recommended by the ESRP were completed.15 Pet. App. 202a. The Secretary's
determination to conduct those additional "environmental analyses"
was authorized by the leases (see page 32, supra); it was not a requirement
imposed by the OBPA. See note 15, supra.16 The lessees acknowledged that
their leases authorized a suspension for the performance of such environmental
studies by requesting a renewal of their lease suspensions at that time.
J.A. 168-174.
B. The OBPA Did Not Deprive Petitioners Of The Central Object Of The Leases
Or Constitute A Refusal To Perform Them As A Whole
The OBPA did not defeat the central object of the leases. In fact, that
Act imposed no delay on the performance of the parties beyond that already
authorized and occurring under the express terms of the leases. Petitioners'
ability to undertake exploration activities under these leases was at all
times-both before enactment of the OBPA and after its repeal-blocked by
North Carolina's objections under the CZMA. See pages 14-15, supra. Even
if the OBPA had never been enacted, petitioners would thus have experienced
precisely the same delay in proceeding with the proposed operations. As
the court of appeals stated, petitioners' "failure to overcome North
Carolina's objections resulted in a delay that preceded and extended throughout
the period in which the OBPA was effective" (Pet. App. 15a).
1. The sole aspect of performance that petitioners claim was impeded during
the temporary delay assertedly imposed by the OBPA was the right to have
an "approvable" plan of exploration accepted by the Secretary
within 30 days of its submission. 43 U.S.C. 1340(c)(1). But petitioners
offer no plausible basis for asserting that the 30-day period assigned for
this particular administrative step goes to the "essence" of the
parties' agreement. It is, in fact, abundantly clear that it does not.
The "essence" of the parties' agreement was for petitioners to
obtain a first priority on any right to seek access to offshore minerals
for exploration and development. That right "was expressly conditioned
on compliance with a complex fabric of statutory and regulatory provisions,
which included involvement by both federal and state agencies." Pet.
App. 13a. Approval of an exploration plan is only one among many express
preconditions to the exploration and development of an OCS lease. Even when
the Secretary has approved an exploration plan, no activities may occur
pursuant to the plan when (as in this case) the lessee has not achieved
compliance with the Coastal Zone Managment Plan of the affected State. 16
U.S.C. 1456(c)(3)(B); 43 U.S.C. 1340(c)(2). And when, as in this case, the
plan of exploration contemplates the discharge of wastes into the ocean,
no exploration activities may occur until the lessee obtains an NPDES permit
from EPA-a requirement that is independently subject to the CZMA certification
process that petitioners have failed to satisfy. 16 U.S.C. 1456(c)(3)(A)-(B);
33 U.S.C. 1311(a), 1342(a). Moreover, even if CZMA compliance were at some
point obtained, exploration still could not occur until the lessee obtains
a drilling permit-which is an approval procedure for which no specific time
limit applies. See 43 U.S.C. 1340(d); 30 C.F.R. 250.414.
The legislative history of the OCSLA confirms that the 30-day approval procedure
for exploration plans does not function as the "essence" of these
agreements. The Conference Report notes that the Secretary may delay approval
of any proposed exploration plan beyond the 30-day period whenever "he
believes a suspension of activities on the lease is warranted." H.R.
Rep. No. 590, supra, at 49.17 The legislative history is thus consistent
with the general rule of construction that a statute establishing a time
period for governmental action is not mandatory in the absence of express
language that specifies a consequence for a failure to comply. See United
States v. James Daniel Good Real Property, 510 U.S. 43, 62-65 (1993) ("if
a statute does not specify a consequence for noncompliance with statutory
timing provisions, the federal courts will not in the ordinary course impose
their own coercive sanction"); Canadian Fur Trappers Corp. v. United
States, 884 F.2d 563, 566 (Fed. Cir. 1989).18 The "coercive sanction"
sought by petitioners in this case-rescission and restitution of the lease
for an asserted "noncompliance with statutory timing provisions"
(but see note 17, supra)-is thus not justified by principles either of contract
law or of statutory construction.
In light of the inherently complex and lengthy processes involved in the
administration of OCS leases, the asserted failure to obtain compliance
with this one, specific 30-day approval period was not "of such vital
importance" that it deprived petitioners of "the 'essence' of
the contract." United States v. Western Cas. & Sur. Co., 498 F.2d
at 339. See also City of Fairfax v. Washington Metro. Area Transit Auth.,
582 F.2d at 1327 (rescission cannot "be based on mere delay" of
a performance that the contract has not expressly made "of the very
essence"); pages 26-27, supra.
2. In concluding that no material breach of contract resulted from enactment
of the OBPA, the court of appeals properly took into account the fact that
the Secretary "could not have issued any permits for exploration so
long as North Carolina's [CZMA] objections remained in force" and that
petitioners' "failure to overcome North Carolina's objections resulted
in a delay that preceded and extended throughout the period in which the
OBPA was effective." Pet. App. 15a.
Petitioners assert (Mobil Br. 29-30; Marathon Br. 39-42) that this concurrent
prohibition of lease operations under the CZMA is irrelevant because an
award of restitution is not premised on proof from the non-breaching party
that it would have been able to perform its side of the bargain. See Ankeny
v. Clark, 148 U.S. 345, 353 (1893). But the issue in this case is not whether
petitioners could, in fact, ultimately achieve performance under the contract:19
it is whether an asserted delay resulting from the OBPA "defeated the
whole purpose of the contract" and thereby justifies rescission and
restitution. Everett Plywood Corp. v. United States, 512 F.2d at 1093-1094;
see pages 27-29, supra. The court of appeals correctly reasoned that the
asserted delay resulting from the OBPA was, in fact, inconsequential to
the essential rights existing under the leases and that rescission and restitution
is therefore not justified. Pet. App. 13a. As the court stated, the asserted
delay "had no effect upon these OCS leases"-and therefore was
not a material breach- because exploration was concurrently stalled in any
event due to petitioners' ongoing failure to achieve compliance with the
requirements of the CZMA that were expressly incorporated into the leases.
Id. at 14a.20
III. PETITIONERS WAIVED ANY CLAIM FOR MATERIAL BREACH OR REPUDIATION
Petitioners did not treat these leases as materially breached or repudiated
when the OBPA was enacted in 1990. They did just the opposite. They treated
the leases as continuing in effect and repeatedly demanded various different
types of contract performance by the United States. In particular, after
the asserted breach, petitioners (i) submitted a proposed plan of exploration
under the leases, (ii) contested the objections of the State of North Carolina
to the plan of exploration and to the associated NPDES discharge permit
in proceedings under the CZMA conducted first before the Secretary of Commerce
and ultimately in federal district court, and (iii) requested and obtained
numerous suspensions of lease operations so that they could pursue their
continuing efforts to demand and achieve performance under the leases. See
pages 15 and 17, supra; note 12, supra.
Such actions seeking contractual performance after the asserted material
breach has occurred are "tantamount to an election to affirm the contract."
ARP Films, Inc. v. Marvel Entertainment Group, Inc., 952 F.2d at 649. Even
when a material breach or repudiation occurs, there is no automatic right
of rescission and restitution. Instead, a material breach gives the non-breaching
party the right to elect whether to treat the contract as at an end or to
continue it. Cities Serv. Helex, Inc. v. United States, 543 F.2d at 1313;
see pages 30, 32, supra. If the non-breaching party decides to treat the
contract as at an end, both parties are relieved from further performance.
If the non-breaching party instead demands further performance under the
contract and thereby elects to continue it in effect, both parties remain
obligated to it.21 In that situation, the non-breaching party has waived
the claim for rescission and retains only a claim of damages for partial
breach.22 Ibid. See also Dingley v. Oler, 117 U.S. at 501-504; Smoot's Case,
82 U.S. (15 Wall.) at 47-48.
Action taken by the non-breaching party to compel contract performance after
a material breach has occurred is the antithesis of the acceptance of a
repudiation; it is instead an election to continue performance under the
contract. Cities Serv. Helex, Inc. v. United States, 543 F.2d at 1316; see
also Phillips Petroleum Co., 225 Ct. Cl. at 578.23 Such actions are inconsistent
with a claim for rescission because, by not treating the contract as at
an end and thereby discharging the breaching party of any further obligation
under the contract, they deprive that party of the opportunity to save the
expense of additional performance. Ling-Temco-Vought, Inc. v. United States,
475 F.2d at 638, 639 n.5.
For more than two years after the OBPA was enacted, petitioners did not
suggest or announce that the leases would be treated as at an end. Instead,
both before and after filing this suit in 1992, they continued to demand
and obtain a variety of different types of contract performance from the
United States. For example, in submitting a proposed plan of exploration
after the OBPA was enacted, Mobil sought to require the Secretary to take
affirmative action under the leases and expend resources in doing so. J.A.
115. Nothing in the submission of that proposed plan of exploration communicated
to the United States that petitioners were electing to treat the leases
as terminated; instead, petitioners were urging continued performance under
the leases. Ibid. Having thus continued to "urge or demand a compliance
with the contract," petitioners cannot now contend that they instead
"underst[oo]d it to be at an end." Smoot's Case, 82 U.S. (15 Wall.)
at 47-48; Dingley v. Oler, 117 U.S. at 501-504 (same); see also Union Pac.
R.R. v. United States, 847 F.2d 1567, 1570 (Fed. Cir. 1988).24
After the alleged material breach of contract, petitioners also affirmatively
treated the leases as in effect by pursuing administrative proceedings before
the Secretary of Commerce seeking to overturn North Carolina's objections
to the plan of exploration under the CZMA. In doing so, petitioners required
the expenditure of resources by the Department of Commerce, the Department
of the Interior, and the 12 other federal agencies that took part in the
administrative proceedings. J.A. 196, 211, 261, 277. Moreover, even after
petitioners commenced the present suit for restitution, they have continued
to seek enforcement of their lease rights (i) by pursuing their challenge
to the State's CZMA objection into federal district court and (ii) by seeking
and obtaining extensions of their leases to permit those continuing lease
enforcement efforts to proceed. See J.A. 168-171; App., infra, 2a.
For a period of several years following the enactment (and repeal) of the
OBPA, petitioners' conduct has thus been significantly inconsistent with
any election to treat these leases as at an end. Their continued efforts
to demand and obtain performance under the leases, which have compelled
several agencies of the United States to expend considerable resources in
continued administration of these leases, represent an "election"
that bars any claim for restitution. Petitioners have "affirmed the
contract by continuing to perform;" they may therefore obtain recovery
only for such damages as are proven to result from the asserted "partial
breach" of contract. ARP Films, Inc. v. Marvel Entertainment Group,
Inc., 952 F.2d at 649; see also Sun Oil Co. v. United States, 572 F.2d 786,
801, 817 (Ct. Cl. 1978).
IV. PETITIONERS HAVE RECEIVED ANY RELIEF TO WHICH THEY ARE ENTITLED
Outside the four corners of this litigation, petitioners have requested
and been granted all of the relief to which they may be entitled. Even if
some technical breach of the lease agreements occurred, which we dispute,
petitioners would be limited to the recovery of such damages as were actually
caused by delay imposed by the OBPA. See Sun Oil Co. v. United States, 572
F.2d at 804- 806.25 Because the continuing objections of North Carolina
to the plan of exploration preclude petitioners from proceeding with any
exploration or development activities under these leases, petitioners cannot
establish that they have suffered any actual injury or damages from the
alleged delay in the approval of those plans by the United States.
To the contrary, both before and after enactment of the OBPA, petitioners
have requested the Secretary to suspend operations under these leases while
their challenges to the State's CZMA objections are litigated to conclusion.
Both before the OBPA was enacted and after it was repealed, those requests
were granted by the Secretary. See pages 9, 15, 17, supra. The lease suspensions
requested by petitioners thus continue in effect until this day, and they
will remain in effect until petitioners' challenge to the State's objections
are finally resolved in the separate litigation commenced by petitioners
in federal district court. See page 17, supra.
Throughout the lengthy period of the lease suspensions that petitioners
have requested, the terms of the leases have been continuously extended
and petitioners have been relieved of any obligation to make lease rental
payments. See page 9, supra. Petitioners thus retain the same rights under
their leases that they had when the lease suspension first went into effect
before the OBPA was enacted, in July 1989. As the court of appeals concluded,
the "real complaint" of petitioners is that they have been unable
throughout this period to satisfy or "override North Carolina's CZMA
objections." Pet. App. 16a. Petitioners' continuing failure or inability
to provide the data and analysis that would allow them to resolve the State's
long-stated environmental objections is "not attributable to"
the United States and "does not create an entitlement to any refund
of the consideration paid to obtain the lease." Id. at 18a.26
CONCLUSION
The decision of the court of appeals should be affirmed.
Respectfully submitted.
SETH P. WAXMAN
Solicitor General
DAVID W. OGDEN
Acting Assistant Attorney General
LAWRENCE G. WALLACE
Deputy Solicitor General
KENT L. JONES
Assistant to the Solicitor General
DAVID M. COHEN
DOUGLAS N. LETTER
THOMAS M. BONDY
MARK A. MELNICK
Attorneys
JANUARY 2000
1 Unless otherwise noted, citations in this
brief to "Pet. App." are to the appendices of the petition filed
in No. 99-253.
2 The operating agreement specified that unit operations would "be
suspended while compliance is prevented * * * by governmental rules, regulations,
or orders * * * provided, however, that performance shall be resumed within
a reasonable time after such cause has been removed * * * ." C.A. App.
236.
3 One of the specific concerns that supported the State's objections was
that "Mobil's proposed wastes may either destroy or poison a food source
for part of the State's demersal fishery resources." J.A. 231.
4 The action was commenced by Conoco, Inc., in May 1992. J.A. 1. Petitioners
are the sole remaining plaintiffs in that action. The complaint included
an allegation of a taking of property, which is not before the Court at
this time.
5 Because the court of appeals reversed the trial court's finding of liability,
the court did not address the challenges raised by the government to the
manner in which the lower court calculated the amount of restitution.
6 In response to a petition for rehearing, Judge Newman revised her original
dissent, in which she had concluded that "the United States did not
breach this contract." Pet. App. 43a. In her original dissent, she
had reasoned that restitution was nonetheless permissible on the theory
that "the contract was voided without the fault of either party"
because it had been "made impossible of performance * * * due to the
continuing intervention of the State of North Carolina." Ibid.
7 The Secretary of Commerce stated that he "continue[d] to encourage
Mobil, North Carolina and other interested parties to work toward resolution
of North Carolina's need for additional scientific information about the
impacts of Mobil's proposed projects on its coast resources." App.,
infra, 8a-9a.
8 As Professor Corbin has noted, whether a breach is described as a total
or partial breach turns on "a careful weighing of the importance of
the facts and events before it, a reasonable interpretation of the expressions
of the parties, a consideration of existing doctrines and antecedent cases,
and a determination of what public welfare and sound policy require."
4 Corbin on Contracts, supra, § 946, at 812. "In one sense, there
is never such a thing as an immaterial breach. For any breach of contract,
an action lies; any breach is material enough for that, although if no substantial
injury is shown the damages recoverable are only nominal. But not infrequently
the term material breach is used to mean one that the injured party can
elect to treat as a total breach." Id. at 813. A judgment about whether
a breach is "material" for this purpose is thus implicitly a judgment
about whether restitution is an appropriate remedy. Id. at 812 (the label
"stat[es] the result").
9 United States v. Winstar Corp., 518 U.S. 839 (1996), on which petitioners
seek to rely, is fundamentally inapposite because, as the court of appeals
correctly held, "there is no evidence of a breach of contract by the
United States" in this case. Pet. App. 19a. The Court's decision in
Winstar, moreover, does not address, and is not inconsistent with, any of
the established legal prerequisites of restitution discussed in this brief.
10 In 1994, the Secretary of Commerce declined to override North Carolina's
objection to the drilling proposal under the CZMA and concluded that petitioners
had failed adequately to address the environmental harms threatened by their
proposed development of the Outer Banks leases. J.A. 245-246; see pages
16-17, supra. Instead of providing the data and related information that
had been requested by the State, Mobil pursued a course of litigation-challenging
the determinations of the State and the Secretary of Commerce in a district
court proceeding that is still pending. See pages 20-21, supra.
11 The 30-day review procedure established for plans of exploration under
43 U.S.C. 1340(c)(1) is similarly subject to deferral whenever the Secretary
"believes a suspension of activities on the lease is warranted."
H.R. Rep. No. 590, supra, at 49.
12 In addition, 30 C.F.R. 250.110(b)(6) permits suspension of OCS leases,
at the direction of the United States or at the request of the lessee, to
allow for inordinate delays encountered by lessees in obtaining required
permits or consents. This regulation permits suspension "because of
governmental delays beyond the control of the lessee." 47 Fed. Reg.
30,055 (1982).
13 Petitioners incorrectly imply (Mobil Br. 5-7; Marathon Br. 10-11) that
the legislative history of the OBPA demonstrates an intent by Congress to
accomplish an open-ended ban on exploration. Petitioners' description of
the contents of the "legislative record" is inaccurate. In particular,
the cited letters from Congressman Walter Jones and Governor James Martin
of North Carolina to President Bush concerning lease operations on the Outer
Banks (J.A. 102-105) are not part of the Congressional Record and do not
address or explain the scope or purpose of the OBPA. None of the remarks
cited by petitioners that actually are part of the legislative history of
the Act conflict with the clear statement of the Conference Report that
the Act merely imposed a "temporary delay in the approval of activities
on existing leases offshore North Carolina" for which the leases would
be "extended" and which would therefore not "adversely affect"
the interests of the lessees. H.R. Conf. Rep. No. 653, supra, at 163. As
Mobil concedes (Mobil Br. 6), when Congressman Jones had previously sought
an actual ban on exploration offshore of North Carolina, the House of Representatives
rejected the request.
14 Petitioners incorrectly assign importance to the fact that the Secretary's
certification did not expressly address any subsequent or alternative exploration
or development activities petitioners might want to perform. See Mobil Br.
8-9, 21, 24 n.21; Marathon Br. 15, 29. It is not surprising that the Secretary's
certification specifically addressed only the Manteo Unit plan of exploration,
for the Secretary had no other proposals for exploration or development
before him. He obviously could not certify that he possessed sufficient
information to carry out his responsibilities under the OCSLA regarding
other activities that petitioners might hypothetically wish to perform at
some future time. If other activities were proposed in the future, they
could not, under the terms of the leases, be approved unless the Secretary
had sufficient information to make the environmental determinations required
under the preexisting applicable statutes. See pages 5-7, supra. The OBPA
did not alter that fact.
15 Under the OBPA, the Secretary was not required to adopt any of the environmental
study recommendations of the ESRP. See H.R. Conf. Rep. No. 653, supra, at
162.
16 Mobil errs in asserting that the Secretary refused to permit exploration
of the Manteo Unit until completion of "all of the studies recommended
by the Panel." Mobil Br. 8. In fact, the Secretary stated that he would
pursue only two of the studies recommended by the ESRP. Contrary to petitioners'
contention (Mobil Br. 8-9; Marathon Br. 15-16), the Secretary did not suggest
that any future exploration proposals would be delayed for the performance
of additional studies recommended by the ESRP. The Secretary instead stated
that environmental information would "be evaluated after the results
are available from the first exploratory well" and that the need for
additional studies would be addressed as "a part of th[e] environmental
assessment process" required under the OCSLA before development operations
could commence. Pet. App. 202a. See 43 U.S.C. 1351(e)-(f).
Mobil incorrectly suggests that the ESRP "determined that additional
studies would be required before deciding whether to permit any of these
additional wells." Mobil Br. 9. The ESRP was plainly not empowered
to rule upon anything; it merely performed an analysis and issued a report
making recommendations. OBPA § 6003(3), 104 Stat. 557. The Secretary
was vested with the responsibility and authority under the OCSLA to decide
whether to approve any proposed activities, and the OBPA did not change
that. 43 U.S.C. 1340(c).
17 Since the Secretary deferred action on the exploration plan until required
environmental analyses were conducted, for which a suspension of activities
was warranted under the applicable regulations, and since the further suspensions
requested by petitioners continue in effect even to this day, the period
in which the exploration plan is to be approved under 43 U.S.C. 1340(c)(1)
has not even yet commenced to run. See pages 15, 17, supra. Petitioners
are thus not only wrong in stating that a material breach occurred; they
are wrong in stating that any breach at all has occurred. Pet. App. 19a.
18 See also United States v. Montalvo-Murillo, 495 U.S. 711, 717-719 (1990);
Brock v. Pierce County, 476 U.S. 253 (1986).
19 Indeed, since petitoners' leases remain in effect, they may still be
able to perform under them. That is, presumably, the reason that petitioners
have continued to pursue their litigation challenging the CZMA objections
of the State of North Carolina.
20 One of the five leases at issue in this case (see page 8, supra) was
not part of the Manteo Unit and has never been encompassed within a proposed
plan of exploration. The OBPA obviously did not limit any operations under
that lease, since none have ever been proposed.
21 If a party "does what amounts to recognition of the transaction
as existing, or acts in a manner inconsistent with its repudiation, or permits
the other party to deal with the subject matter under the belief that the
transaction has been recognized, or abstains for a considerable length of
time from impeaching it, so that the other is reasonably induced to suppose
that it is recognized, there is acquiescence, and the transaction, though
it be originally impeachable, becomes unimpeachable." Union Pac. R.R.
v. United States, 847 F.2d 1567, 1570 (Fed. Cir. 1988) (quoting Harvey Radio
Labs. Inc. v. United States, 115 F. Supp. 444, 448-449 (Ct. Cl. 1953)).
22 See also Phillips Petroleum Co. v. United States, 225 Ct. Cl. 575, 578-579
(1980); Pinewood Realty Ltd. Partnership v. United States, 617 F.2d 211,
215 (Ct. Cl. 1980); Airco, Inc. v. United States, 504 F.2d 1133, 1135-1137
(Ct. Cl. 1974); Ling-Temco-Vought, Inc. v. United States, 475 F.2d 630,
635-639 (Ct. Cl. 1973).
23 An exchange of correspondence that requests or offers contract performance
has been held to constitute a sufficient election to foreclose a claim of
material breach or repudiation. See Dingley v. Oler, 117 U.S. at 503; Airco,
Inc. v. United States, 504 F.2d at 1135-1137.
24 If a party continues to insist on performance, and fails to declare a
contract terminated, after an essential aspect of performance has not occurred
in a timely manner, he may not thereafter contend that time was "of
the essence" in the performance of that obligation. Pinewood Realty
Ltd. Partnership v. United States, 617 F.2d at 214; DeVito v. United States,
413 F.2d 1147, 1153-1154 (Ct. Cl. 1969); Jackson v. United States, 12 Cl.
Ct. 363, 365-366 (1987).
25 The United States is not liable for damages from a delay in performance
that is not caused by its actions. Merritt-Chapman & Scott Corp. v.
United States, 528 F.2d 1392, 1397 (Ct. Cl. 1976). Government delays in
the approval of OCS lease operations do not support a claim for damages
if the lessee's operations would have been delayed for independent reasons.
Sun Oil Co. v. United States, 572 F.2d at 804-806, 817.
26 Because the court of appeals reversed the trial court's conclusion that
petitioners were entitled to restitution, it did not address the government's
further arguments that the trial court had incorrectly calculated the amount
of the award. Accordingly, if this Court reverses the decision of the court
of appeals on the issue of liability, the case should be remanded to the
court of appeals for further proceedings regarding the proper calculation
of the amount of the award.
27 See, Decision and Findings in the Drilling Discharge consistency appeal
of Mobil Exploration & Producing Southeast, Inc. from an Objection by
the State of North Carolina, September 2, 1994, pp. 40-41; Decision and
findings in the Plan of Exploration Consistency Appeal of Mobil Exploration
& Producing Southeast, Inc. from and Objection by the State of North
Carolina, September 2, 1994, p. 33.
28 The administrative record for the PDD was first closed on June 18, 1991.
It was reopened at North Carolina's request on April 29, 1992, and remained
open for one month as agreed by Mobil and North Carolina, closing for the
second time on May 29, 1992, with the submission of Mobil's Supplemental
Final Statement. All federal agency comments were received prior to the
first closing of the record, including those of the Minerals Management
Service dated, December 27, 1990, on the PDD and June 1, 1991, on the POE.
29 See, Mobil's supplemental Final Brief on POE at 11, and Mobil's Supplemental
Final Brief on the PDD at 12.
APPENDIX
Mobil Exploration & Producing U.S. Inc.
3000 PEGASUS PARK
DALLAS, TEXAS 75247
P.O. BOX 650232
DALLAS, TEXAS 75265-0232
TONI D. HENNIKE
COUNSEL
TELEPHONE (214) 951-3300
FACSIMILE (214) 951-2029
United States Department of the Interior
Minerals Management Service
1201 Elmwood Park Blvd.
New Orleans, LA 70123-2394
Attention: Mr. Ralph Melancon February 21, 1995
Regional Supervisor
Dear Mr. Melancon:
On November 9, 1994 and again on December 1, 1994 Mobil received a letter
from the MMS terminating the suspension for the following OCS leases effective
November 10, 1994:
OCS Lease Numbers
00225 00227 00229 00231 00233 00235 00237 00239 00242 00244 00448 00226
00228 00230 00232 00234 00236 00238 00240 00243 00446
The November 9 MMS letter indicated that the suspensions were being terminated
because the two studies recommended by the Environmental Sciences Review
Panel were sent to the Commerce Secretary (Secretary) and because on September
2, 1994 the Secretary had denied Mobil's appeals of North Carolina's denials
of consistency. However, the time period to seek judicial review of the
Secretary's decisions had not expired when the MMS terminated the suspensions.
On January 18, 1994 Mobil filed suit challenging the Secretary's decisions
with regard to the Manteo Unit. (Mobil Exploration & Producing Southeast
Inc. v. Ronald H. Brown, Case No. 1: 95CV00093, United States Court for
the District of Columbia). Since the Secretary's decision is being challenged,
it is not a final decision and will not be until it is upheld by a final
nonappealable judgment issued from a court with competent jurisdiction.
Thus, Mobil requests a reinstatement of the suspensions effective November
10, 1994 in order that the terms of subject leases be extended for a period
of time equal to the period the suspensions are in effect and to allow Mobil
two drilling seasons under the EP thereafter.
Mobil makes this request (1) pursuant to 30 C.F.R. § 250.10(b)(6),
which allows the Regional Supervisor to grant suspensions when inordinate
delays are encountered by the lessee(s) in obtaining required permits or
consents, including judicial challenges or appeals; and (2) pursuant to
the July 12, 1989 Memorandum of Understanding with the State of North Carolina
and the MMS which states:
If the state objects to Mobil's certificate of consistency, or if any other
administrative or judicial appeals arise, . . . upon Mobil's application,
[the MMS will] issue additional suspensions of operations, pursuant to 30
C.F.R. § 250.10, to allow for the resolution of such matters and to
allow Mobil two drilling seasons under the EP thereafter. For the purpose
of this paragraph, a drilling season is the period of May through October
31.
Any questions please contact the undersigned.
Very truly yours,
/s/ illegible________
Toni D. Hennike
cc: Chris C. Oynes
Regional Director
MMS, Gulf of Mexico OCS Region
1201 Elmwood Park Blvd.
New Orleans, LA 70123-2394
MS 5322
JUN 02 1995
Mobil Exploration & Producing U.S. Inc.
Attention: MS. Toni D. Hennike
Post Office Box 650232
Dallas, Texas 75265-0232
Dear Ms. Hennike:
Pursuant to Minerals Management Service's (MMS) letter dated October 9,
1992, suspensions of operations (SOO) were issued for the 21 leases in the
Manteo Unit, Agreement No. 752-290001-0, offshore North Carolina. The letter
states that the SOO's will expire when the two studies recommended by the
Environmental Sciences Review Panel have been accepted by the MMS and when
the U.S. Department of Commerce renders a decision on the appeals from the
State of North Carolina's Denial of Consistency Certification on the Exploration
Plan and the NPDES Permit.
By letter dated July 22, 1994, the MMS Transmitted the two aforementioned
studies to the Department of Commerce, and on September 2, 1994, the Secretary
of Commerce issued a decision upholding North Carolina's objection to your
proposed Exploration Plan. The MMS letter dated November 9, 1994, provided
formal notice that the suspensions for the 21 leases in the Manteo Unit
were terminated and that rental payments are to be calculated from November
10, 1994.
Your letter dated Febrary 21, 1995, requests, pursuant to 30 CFR 250.10(b)(6)
and the Memorandum of Understanding (MOU) of July 12, 1989, with the State
of North Carolina and the MMS, the reinstatement of the SOO's for the Manteo
Unit leases effective November 10, 1994. Our office did not receive the
original of this letter; however, a facsimile was received on April 4, 1995.
Mobil filed suit in the U.S. District Court for the District of Columbia
(Case No. 1:95V00093) January 18, 1995, challenging the Secretary's decision
and stating that the time period to seek judicial review had not expired
when the MMS terminated the SOO's.
Although it is our position that the terms of the SOO approval letter dated
October 9, 1992, were satisfied, we believe new suspensions are appropriate
pursuant to 30 CFR 250.10(b)(6) and the MOU while Mobil seeks judicial review
of the Secretary's decision.
Therefore, we hereby approve SOO's for the Manteo Unit leases from November
10, 1994, until a nonappealable final judgment concerning the Secretary
of Commerce's decision is issued from a court of competent jurisdiction.
However, pursuant to 30 CFR 250.10(e), the SOO's shall not exceed five years.
We request that Mobil immediately notify this office of the decision rendered
in its present suit, referenced above, by the delivery of a copy of said
decision.
The terms of the Manto Unit leases will be extended for a period of time
equal to the period the SOO's are in effect. Rental payments for the 21
leases in the Manteo Unit will be required during the time of the SOO's
in accor dance with 30 CFR 218.154(b)(2). The Manteo Unit includes the following leases:
OCS-A 00225 OCS-A 00236
OCS-A 00226 OCS-A 00237
OCS-A 00227 OCS-A 00238
OCS-A 00228 OCS-A 00239
OCS-A 00229 OCS-A 00240
OCS-A 00230 OCS-A 00242
OCS-A 00231 OCS-A 00243
OCS-A 00232 OCS-A 00244
OCS-A 00233 OCS-A 00446
OCS-A 00234 OCS-A 00448
OCS-A 00235
If you have any questions, please call Mr. Al Durr at (504) 736-2659.
Sincerely,
(ORIG. SGD.) GARY L. LORE
Chris C. Oynes
Regional Director
[SEAL OMITTED] THE SECRETARY OF COMMERCE
Washington, D.C. 20230
Dec. 8, 1999
J. Berry St. John
Craig Wyman
Liskow & Lewis
One Shell Square, 50th Floor
New Orleans, LA 70139
Ann Gillooly
Diane Gildersleeve
Mobile Corporation
3225 Gallows Road
Fairfax, VA 22307
Toni D. Hennike
Mobile Exploration & Pro-
ducing
U.S., Inc.
3000 Pegasus Park
P.O. Box 650232
Dallas, TX 75265-0232
Marc D. Bernstein
Amy R. Gilespie
Assistant Attorney General
North Carolina Department
of Justice
P.O. Box 629
Raleigh, NC 27602-0629
Re: Appeals of Mobil Oil Exploration and Producing Southeast, Inc. from
Objections by the State of North Carolina to its Drilling Discharge Plan
and its Plan of Exploration for Monteo Leases
Dear Counsel:
On September 2, 1994, Secretary of Commerce Brown issued a decision declining
to override two objections by the State of North Carolina (North Carolina)
to the proposed drilling discharges (PDD) and overall Plan of Exploration
(POE) by Mobil Oil Exploration & Producing Southeast, Inc. (Mobil) at
a site about 38 miles offshore North Carolina. Secretary Brown made the
decision pursuant to section 307(c) (3) of the Coastal Zone Management Act
(CZMA). Mobil challenged this decision in Federal Court as being arbitrary
and capricious in violation of the Administrative Procedure Act (APA). On
March 11, 1996, the Court ordered a stay of the litigation and remanded
the matter to me for a determination whether the administrative record should
be reopened to receive two studies, one on the impacts of Mobil's proposals
on benthic resources and the other on socio-economic resources. Mobil, et
al. v. Brown, et al., 920 F. Supp. 1 (D.D.C. 1996).
During this same period, Mobil and Marathon Oil Co. brought an action against
the United States for restititution of rents and bonuses paid for the leases
underlying the POE and PDD. Mobil argued that the passage of the Outer Banks
Protection Act prevented it and Marathon from pursuing their rights under
the leases. Marathon Oil Company v. United States, 177 F3d 1331 (Fed. Cir.
1999), petition for cert. filed, August 11, 1999. In addition, since 1995,
several attempts to settle these matters have been initiated and failed.
I decline to reopen the record to admit the two studies at issue in Mobil
v. Brown. Both this Department and parties to appeals under the CZMA have
a strong interest in the finality of my decisions and the administrative
process. Moreover, even were I to reopen the record to admit the two studies
and reconsider my decision, I would still lack sufficient information to
override North Carolina's objection. Thus, I am persuaded that the interest
in finality should prevail over any interest the parties may have in supplementing
the record. In light of this decision, I continue to encourage Mobil, North
Carolina, and other interested parties to work toward resolution of North
Carolina's need for additional scientific information about the impacts
of Mobil's proposed projects on its coastal uses and resources.
Discussion
On September 2, 1994, Secretary of Commerce Ron Brown declined to override
objections by the State of North Carolina (North Carolina) to the Plan of
Exploration (POE) and the Proposal to Discharge Drilling Waste (PDD) associated
with the POE submitted by Mobil Oil Exploration & Producing Southeast,
Inc. (Mobil). The basis of North Carolina's objections was a lack of necessary
information upon which to find the proposals consistent with its coastal
management program. North Carolina specifically identified a need for the
preparation of a four part fisheries study. In reviewing Mobil's appeals,
Secretary Brown was required to determine whether the proposed projects
were consistent with the objectives of the CZMA or necessary in the interest
of national security. See 15 CFR 930.120, 930.121 and 930.130.
The 1994 decisions were based upon two administrative records that total
approximately 10,000 pages of information. In spite of the quantity of material,
certain information necessary to the decision was not provided by Mobil;
specifically the record lacked information on: (1) the cumulative effects
of Mobil's discharges; (2) the ecological effects of Mobil's discharges;
(3) the effects on various fisheries of Mobil's discharges; (4) the effects
on near-surface animals and planktonic resources of Mobil's discharges;
(5) the effects of the discharges on benthic resources; and (6) the socio-economic
effects of the POE. These information gaps precluded the conclusion that
Mobil's POE and PDD "will not cause adverse effects on the natural
resources of the coastal zone substantial enough to outweigh its contribution
to the national interest." 50 CFR 930.121(b).27
The question before me now is whether to reopen the record to admit the
two studies and reconsider the prior decisions. I decline to do so.
First, this Department has an interest in the finality of its administrative
processes. The regulations of the National Oceanic Atmospheric Administration
(NOAA) implementing the CZMA provide for a Secretarial override procedure
that includes the filing of technical information, briefs, federal agency
comments and, if necessary, a public hearing. See, 15 CFR 930.125, 930.126,
930.127, and 930.129. The regulations provide for extensions of time to
be granted, normally in the amount of 15 days. 50 CFR 930.125(c), and 930.126(b).
In the case of Mobil's appeals the development of the administrative records
was allowed to take eighteen months. The administrative records in both
appeals were closed and reopened twice, finally closing May 29, 1992.28
No request to hold the record open for pending research relevant to my decision
was ever submitted by Mobil, North Carolina or any federal agency.
The two studies at issue were completed in March and September of 1993,
long after the record closed in May 1992. Yet the studies were still not
submitted until July 22, 1994. The studies were submitted by the Minerals
Management Service (MMS) without any request to reopen the record or any
opportunity for the parties to comment. Subsequently, through its lawsuit,
Mobil v. Brown, Mobil urged the court to consider the benthic resources
and socio-economic impact studies in reviewing Secretarial decisions. Yet,
Mobil never requested that I consider the studies during the pendency of
its appeals. In fact, in its briefs to me, Mobil stated that the studies
"are not even associated with the information issues at issue here."29
As provided in the CZMA regulations, consistency decisions are based upon
the administrative record developed by the parties and all other interested
agencies and members of the public. It is not practical or reasonable to
reopen the record now to reconsider prior decisions in light of these two
studies. Nor was it reasonable to do so in July 1994, six weeks before the
release of the final decisions. Once the administrative record has closed
and the decision making process begun, the record should not be reopened
unless good cause is shown by the moving party and no prejudice will inure
to the other parties. No such request, argument or showing was ever made
in these cases. The receipt of these studies two years after the administrative
records in these appeals closed, was untimely.
Second, these studies address only two of the six information gaps identified
in the 1994 decisions. Were I to reopen the record to consider these studies,
and if these studies were sufficient to address the need for analyses and
site specific information on benthic resources and socio-economic impacts,
there would still remain significant gaps in information necessary for me
to override North Carolina's objections. Specifically, for the PDD, I would
still lack information on: 1) the potential for bioaccumulation of heavy
metals and other toxic substances; 2) a worst case analysis that accounts
for cumulative impacts and related ecological effects; (3) impacts on near-surface
and planktonic resources; and 4) the ecological functions of the Sargassum
community. For the POE, I would still lack: 1) site specific information
on fishery resources; 2) information on near-surface animals and planktonic
resources, particularly as they relate to the Sargassum communities that
harbor important resources for fish in their larval state; and 3) site specific
studies on potential impacts to the fishery resources.
Without sufficient information to identify the adverse impacts of the proposed
projects to the state's coastal resources, I cannot make the finding required
by 15 CFR 930.121(b). The two studies at issue cannot, alone, address all
the information gaps identified in my September 2, 1994, decisions.
For the foregoing reasons, I decline to reopen the record to include the
two new studies and reconsider my decision in this matter.
Sincerely,
/s/ WILLIAM M. DALEY
WILLIAM M. DALEY
cc: The Honorable Stanley S. Harris
United States District Court
for the District of Columbia