OCTOBER TERM, 1999
Syllabus
MOBIL OIL EXPLORATION & PRODUCING SOUTHEAST, INC.
v.
UNITED STATES
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FEDERAL
CIRCUIT
No. 99-244. Argued March 22, 2000-Decided June 26, 2000*
Two oil companies, petitioners here, paid the Government $156
million in return for lease contracts giving them the rights to
explore for and develop oil off the North Carolina coast, provided
that the companies received exploration and development permission
in accordance with procedures set out in,
inter alia, the
Outer Continental Shelf Lands Act (OCSLA), the Coastal Zone
Management Act of 1972 (CZMA), and regulations promulgated pursuant
to those Acts. OCSLA, among other things, requires the Department
of the Interior to approve a company's Plan of Exploration (Plan)
within 30 days of its submission if the Plan meets certain
criteria. A company must also obtain an exploratory well drilling
permit after certifying under CZMA that its Plan is consistent with
each affected State's coastal zone management program. If a State
objects, the Secretary of Commerce must override the objection or
the certification fails. Interior may grant the permit if Commerce
rules against the State. While the companies' Plan was pending
before Interior, the Outer Banks Protection Act (OBPA) became law.
OBPA prohibited the Interior Secretary from approving any Plan
until,
inter alia, an OBPA-created Environmental Sciences
Review Panel (Panel) reported to the Secretary and the Secretary
certified to Congress that he had sufficient information to make
OCSLA-required approval decisions. In no event could he approve any
Plan for 13 months. Interior told Mobil the Plan met OCSLA
requirements but that it would not approve the Plan until the OBPA
requirements were met. It also suspended all North Carolina
offshore leases. After the Panel made its report, the Interior
Secretary made the requisite certification to Congress but stated
that he would not consider the Plan until he received further
studies recommended by the Panel. North Carolina objected to the
CZMA certification, and the Commerce Secretary rejected Mobil's
override request. Before the Commerce Secretary issued his
rejection, the companies joined a breach of contract lawsuit in the
Court of Federal Claims. That court granted them summary judgment,
finding that
*Together with No. 99-253,
Marathon Oil Co. v.
United
States, also on certiorari to the same court.
605
the Government had broken its contractual promise to follow
OCSLA, that the Government thereby repudiated the contracts, and
that that repudiation entitled the companies to restitution of
their payments. In reversing, the Federal Circuit held that the
Government's refusal to consider Mobil's Plan was not the operative
cause of any failure to carry out the contracts' terms because the
State's objection to the CZMA certification would have prevented
the exploration.
Held: The Government broke its promise, repudiated the
contracts, and must give the companies their money back. Pp.
614-624.
(a) A contracting party is entitled to restitution if the other
party "substantially" breached a contract or communicated its
intent to do so. Here, the Government breached the contracts and
communicated such intent. None of the provisions incorporated into
the contracts granted Interior the legal authority to refuse to
approve the companies' Plan, while suspending the lease instead.
First, such authority does not arise from the OCSLA provision, 43
U. S. C. § 1334(a)(1)(A), that permits the Secretary to promulgate
regulations providing for suspension of an operation or activity
only upon "the request of a lessee." Second, the contracts say that
they are subject to then-existing regulations and future
regulations issued under OCSLA and certain Department of Energy
Organization Act provisions. This explicit reference to future
regulations makes it clear that the contracts' catchall provisions
referencing "all other applicable ... regulations" must include
only statutes and regulations already existing at the time of the
contracts. Thus, the contracts are not subject to future
regulations promulgated under other statutes, such as OBPA. Third,
an OCSLA provision authorizing suspensions in light of a threat of
serious harm to the human environment did not authorize the delay,
for Interior explained that the Plan fully complied with current
legal requirements and cited OBPA to explain the delay. Insofar as
the Government means to suggest that OBPA changed the relevant
OCSLA standard, it must mean that OBPA in effect created a new
requirement. Such a requirement would not be incorporated into the
contracts. Finally, when imposing the delay, Interior did not rely
upon any of the regulations to which the Government now refers.
OBPA required Interior to impose the contract-violating delay and
changed pre-existing contract-incorporated requirements in several
ways. By communicating its intent to follow OBPA, the Government
was communicating its intent to violate the contracts. Pp.
614-620.
(b) The Government's contract breach was substantial, for it
deprived the companies of the benefit of their bargain. Under the
contracts, the incorporated procedures and standards amounted to a
gateway to
606
Syllabus
the companies' enjoyment of their rights to explore and develop
oil. Timely and fair consideration of a submitted Plan was a
material condition of the contracts, yet the Government announced
an OBPA-required delay of 13 months minimum, and the delay turned
out to be at least four years. This modification of the procedures
was not technical or insubstantial, and it amounted to a
repudiation of the contracts. Pp. 620-621.
(c) Although acceptance of a once-repudiated contract can
constitute a waiver of the restitution right that repudiation would
otherwise create, none of the events that the Government points
to-that the companies submitted the Plan to Interior two days after
OBPA became law, that the companies subsequently asked the Commerce
Secretary to override North Carolina's objection to the CZMA
certification, and that the companies received suspensions of their
leases pending OBPAmandated approval delays-amounts to significant
postrepudiation performance. pp. 621-623.
(d) Finally, the Government's argument that OBPA caused the
companies no injury because they could not have met the CZMA
consistency requirements misses the point: The companies seek not
damages for breach of contract but restitution of their initial
payments. Because the Government repudiated the contracts, the law
entitles the companies to that restitution whether the contracts
would, or would not, ultimately have produced a financial gain or
led them to obtain a definite right to explore. pp. 623-624.
177 F.3d
1331, reversed and remanded.
BREYER, J., delivered the opinion of the Court, in which
REHNQUIST, C. J., and O'CONNOR, SCALIA, KENNEDY, SOUTER, THOMAS,
and GINSBURG, JJ., joined. STEVENS, J., filed a dissenting opinion,
post, p. 624.
Carter G.
Phillips argued the cause for
petitioners in both cases. With him on the briefs for petitioner
Marathon Oil Co. were
Richard D. Bernstein, Griffith L. Green,
Michael S.
Lee, and
Richard L. Horstman. E. Edward
Bruce and
Steven J. Rosenbaum filed briefs
for petitioner Mobil Oil Exploration & Producing Southeast,
Inc.
Kent L. Jones argued the cause for the United States in both
cases. With him on the brief were Solicitor General Waxman, Acting
Assistant Attorney General Ogden, Dep-
607
uty Solicitor General Wallace, David M. Cohen, Douglas N.
Letter, Thomas M. Bondy, and Mark A. Melnick.t
JUSTICE BREYER delivered the opinion of the Court.
Two oil companies, petitioners here, seek restitution of $156
million they paid the Government in return for lease contracts
giving them rights to explore for and develop oil off the North
Carolina coast. The rights were not absolute, but were conditioned
on the companies' obtaining a set of further governmental
permissions. The companies claim that the Government repudiated the
contracts when it denied them certain elements of the
permission-seeking opportunities that the contracts had promised.
We agree that the Government broke its promise; it repudiated the
contracts; and it must give the companies their money back.
I A
A description at the outset of the few basic contract law
principles applicable to this action will help the reader
understand the significance of the complex factual circumstances
that follow. "When the United States enters into contract
relations, its rights and duties therein are governed generally by
the law applicable to contracts between private individuals."
United States v.
Winstar Corp., 518 U. S. 839,
tJ. Berry St. John, Craig Wyman, G. William Frick, David T.
Deal, and Douglas Morris filed a brief for the American Petroleum
Institute as amicus curiae urging reversal.
A brief of
amici curiae urging affirmance was filed for
the State of California et al. by
Bill Lockyer, Attorney
General of California,
Richard M. Frank, Chief Assistant
Attorney General,
J. Matthew Rodriquez, Senior
Assistant Attorney General, and
John A. Saurenman, Deputy
Attorney General, and by the Attorneys General for their respective
States as follows:
Michael F.
Easley of North
Carolina,
W A. Drew Edmondson of Oklahoma,
Hardy
Myers of Oregon,
Charlie Condon of South Carolina, and
Christine Q Gregoire of Washington.
608
895 (1996) (plurality opinion) (internal quotation marks
omitted). The Restatement of Contracts reflects many of the
principles of contract law that are applicable to this action. As
set forth in the Restatement of Contracts, the relevant principles
specify that, when one party to a contract repudiates that
contract, the other party "is entitled to restitution for any
benefit that he has conferred on" the repudiating party "by way of
part performance or reliance." Restatement (Second) of Contracts §
373 (1979) (hereinafter Restatement). The Restatement explains that
"repudiation" is a "statement by the obligor to the obligee
indicating that the obligor will commit a breach that would of
itself give the obligee a claim for damages for total breach."
Id., § 250. And "total breach" is a breach that "so
substantially impairs the value of the contract to the injured
party at the time of the breach that it is just in the
circumstances to allow him to recover damages based on all his
remaining rights to performance."
Id., § 243.
As applied to this action, these principles amount to the
following: If the Government said it would break, or did break, an
important contractual promise, thereby "substantially impair[ing]
the value of the contract[s]" to the companies,
ibid., then
(unless the companies waived their rights to restitution) the
Government must give the companies their money back. And it must do
so whether the contracts would, or would not, ultimately have
proved financially beneficial to the companies. The Restatement
illustrates this point as follows:
"A contracts to sell a tract of land to B for $100,000. After B
has made a part payment of $20,000, A wrongfully refuses to
transfer title. B can recover the $20,000 in restitution. The
result is the same even if the market price of the land is only
$70,000, so that performance would have been disadvantageous to B."
Id., § 373, Comment a, Illustration 1.
609
B
In 1981, in return for up-front "bonus" payments to the United
States of about $156 million (plus annual rental payments), the
companies received 10-year renewable lease contracts with the
United States. In these contracts, the United States promised the
companies, among other things, that they could explore for oil off
the North Carolina coast and develop any oil that they found
(subject to further royalty payments) provided that the companies
received exploration and development permissions in accordance with
various statutes and regulations to which the lease contracts were
made "subject." App. to Pet. for Cert. in No. 99-253, pp.
174a-185a.
The statutes and regulations, the terms of which in effect were
incorporated into the contracts, made clear that obtaining the
necessary permissions might not be an easy matter. In particular,
the Outer Continental Shelf Lands Act (OCSLA), 67 Stat. 462, as
amended, 43 U. S. C. § 1331
et seq. (1994 ed. and Supp.
III), and the Coastal Zone Management Act of 1972 (CZMA), 86 Stat.
1280, 16 U. S. C. § 1451
et seq., specify that leaseholding
companies wishing to explore and drill must successfully complete
the following four procedures.
First, a company must prepare and obtain Department of the
Interior approval for a Plan of Exploration (Exploration Plan or
Plan). 43 U. S. C. § 1340(c). Interior must approve a submitted
Exploration Plan unless it finds, after "consider[ing] available
relevant environmental information," § 1346(d), that the proposed
exploration
"would probably cause serious 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." § 1334(a)(2)(A)(i).
610
Where approval is warranted, Interior must act quicklywithin
"thirty days" of the company's submission of a proposed Plan. §
1340(c)(1).
Second, the company must obtain an exploratory well drilling
permit. To do so, it must certify (under CZMA) that its Exploration
Plan is consistent with the coastal zone management program of each
affected State. 16 U. S. C. § 1456(c)(3). If a State objects, the
certification fails, unless the Secretary of Commerce overrides the
State's objection. If Commerce rules against the State, then
Interior may grant the permit. § 1456(c)(3)(A).
Third, where waste discharge into ocean waters is at issue, the
company must obtain a National Pollutant Discharge Elimination
System permit from the Environmental Protection Agency. 33 U. S. C.
§§ 1311(a), 1342(a). It can obtain this permit only if affected
States agree that its Exploration Plan is consistent with the state
coastal zone management programs or (as just explained) the
Secretary of Commerce overrides the state objections. 16 U. S. C. §
1456.
Fourth, if exploration is successful, the company must prepare,
and obtain Interior approval for, a Development and Production
Plan-a Plan that describes the proposed drilling and related
environmental safeguards. 43 U. S. C. § 1351. Again, Interior's
approval is conditioned upon certification that the Plan is
consistent with state coastal zone management plans-a certification
to which States can object, subject to Commerce Department
override. § 1351(a)(3).
C
The events at issue here concern the first two steps of the
process just described-Interior's consideration of a submitted
Exploration Plan and the companies' submission of the CZMA
"consistency certification" necessary to obtain an exploratory well
drilling permit. The relevant circumstances are the following:
611
1. In 1981, the companies and the Government entered into the
lease contracts. The companies paid the Government $156 million in
up-front cash "bonus" payments.
2. In 1989, the companies, Interior, and North Carolina entered
into a memorandum of understanding. In that memorandum, the
companies promised that they would submit an initial draft
Exploration Plan to North Carolina before they submitted their
final Exploration Plan to Interior. Interior promised that it would
prepare an environmental report on the initial draft. It also
agreed to suspend the companies' annual lease payments (about
$250,000 per year) while the companies prepared the initial draft
and while any state objections to the companies' CZMA consistency
certifications were being worked out, with the life of each lease
being extended accordingly.
3. In September 1989, the companies submitted their initial
draft Exploration Plan to North Carolina. Ten months later,
Interior issued the promised ("informal" presubmission)
environmental report, after a review which all parties concede was
"extensive and intensive." App. 179 (deposition of David Courtland
O'Neal, former Assistant Secretary of the Interior) (agreeing that
the review was "the most extensive and intensive" ever "afforded an
exploration well in the outer continental shelf (OCS) program").
Interior concluded that the proposed exploration would not
"significantly affec[t]" the marine environment or "the quality of
the human environment."
Id., at 138-140 (D. S. Dept. of
Interior Minerals Management Service, Environmental Assessment of
Exploration Plan for Manteo Area Block 467 (Sept. 1990)).
4. On August 20, 1990, the companies submitted both their final
Exploration Plan and their CZMA "consistency certification" to
Interior.
5. Just two days earlier, on August 18, 1990, a new law, the
Outer Banks Protection Act (OBPA), § 6003, 104 Stat. 555, had come
into effect. That law prohibited the Secre-
612
tary of the Interior from approving any Exploration Plan or
Development and Production Plan or to award any drilling permit
until (a) a new OBPA-created Environmental Sciences Review Panel
had reported to the Secretary, (b) the Secretary had certified to
Congress that he had sufficient information to make these
OCSLA-required approval decisions, and (c) Congress had been in
session an additional 45 days, but (d) in no event could he issue
an approval or permit for the next 13 months (until October 1991).
§ 6003(c)(3). OBPA also required the Secretary, in his
certification, to explain and justify in detail any differences
between his own certified conclusions and the new Panel's
recommendations. § 6003(c)(3)(A)(ii)(II).
6. About five weeks later, and in light of the new statute,
Interior wrote a letter to the Governor of North Carolina with a
copy to petitioner Mobil. It said that the final submitted
Exploration Plan "is deemed to be approvable in all respects." It
added:
"[WJe are required to approve an Exploration Plan unless it is
inconsistent with applicable law or because it would result in
serious harm to the environment. Because we have found that Mobil's
Plan fully complies with the law and will have only negligible
effect on the environment, we are not authorized to disapprove the
Plan or require its modification." App. to Pet. for Cert. in No.
99-253, p. 194a (letter from Regional Director Bruce Weetman to the
Honorable James G. Martin, Governor of North Carolina, dated Sept.
28, 1996).
But, it noted, the new law, the "Outer Banks Protection Act
(OBPA) of 1990 ... prohibits the approval of any Exploration Plan
at this time." It concluded, "because we are currently prohibited
from approving it, the Plan will remain on file until the
requirements of the OBPA are met." In the meantime a "suspension
has been granted to all leases offshore
613
the State of North Carolina."
Ibid. See also App. 129-131
(letter from Lawrence H. Ake, Minerals Management Service, to
William C. Whittemore, Mobil Exploration & Producing U. S.
Inc., dated Sept. 21, 1990 (notice of suspension of leases, citing
30 CFR § 250.10(b)(7) (1990) as the basis for the
suspensions)).
About 18 months later, the Secretary of the Interior, after
receiving the new Panel's report, certified to Congress that he had
enough information to consider the companies' Exploration Plan. He
added, however, that he would not consider the Plan until he
received certain further studies that the new Panel had
recommended.
7. In November 1990, North Carolina objected to the companies'
CZMA consistency certification on the ground that Mobil had not
provided sufficient information about possible environmental
impact. A month later, the companies asked the Secretary of
Commerce to override North Carolina's objection.
8. In 1994, the Secretary of Commerce rejected the companies'
override request, relying in large part on the fact that the new
Panel had found a lack of adequate information in respect to
certain environmental issues.
9. In 1996, Congress repealed OBPA. § 109, 110 Stat.
1321-177.
D
In October 1992, after all but the two last-mentioned events had
taken place, petitioners joined a breach-ofcontract lawsuit brought
in the Court of Federal Claims. On motions for summary judgment,
the court found that the United States had broken its contractual
promise to follow OCSLA's provisions, in particular the provision
requiring Interior to approve an Exploration Plan that satisfied
OCSLA's requirements within 30 days of its submission to Interior.
The United States thereby repudiated the contracts. And that
repudiation entitled the companies to restitution of the
614
up-front cash "bonus" payments they had made. Co
no co
Inc. v.
United States, 35 Fed. Cl. 309 (1996).
A panel of the Court of Appeals for the Federal Circuit
reversed, one judge dissenting. The panel held that the
Government's refusal to consider the companies' final Exploration
Plan was not the "operative cause" of any failure to carry out the
contracts' terms because the State's objection to the companies'
CZMA "consistency statement" would have prevented the companies
from exploring regardless.
177 F.3d
1331 (1999).
We granted certiorari to review the Federal Circuit's
decision.
II
The record makes clear (1) that OCSLA required Interior to
approve "within thirty days" a submitted Exploration Plan that
satisfies OCSLA's requirements, (2) that Interior told Mobil the
companies' submitted Plan met those requirements, (3) that Interior
told Mobil it would not approve the companies' submitted Plan for
at least 13 months, and likely longer, and (4) that Interior did
not approve (or disapprove) the Plan, ever. The Government does not
deny that the contracts, made "pursuant to" and "subject to" OCSLA,
incorporated OCSLA provisions as promises. The Government further
concedes, as it must, that relevant contract law entitles a
contracting party to restitution if the other party "substantially"
breached a contract or communicated its intent to do so. See
Restatement § 373(1); 11 W. Jaeger, Williston on Contracts § 1312,
p. 109 (3d ed. 1968) (hereinafter Williston); 5 A. Corbin,
Contracts § 1104, p. 560 (1964); see also
Ankeny v.
Clark, 148 U.
S. 345, 353 (1893). Yet the Government denies that it must
refund the companies' money.
This is because, in the Government's view, it did not breach the
contracts or communicate its intent to do so; any breach was not
"substantial"; and the companies waived their rights to restitution
regardless. We shall consider each of these arguments in turn.
615
A
The Government's "no breach" arguments depend upon the contract
provisions that "subject" the contracts to various statutes and
regulations. Those provisions state that the contracts are "subject
to" (1) OCSLA, (2) "Sections 302 and 303 of the Department of
Energy Organization Act," (3) "all regulations issued pursuant to
such statutes and in existence upon the effective date of" the
contracts, (4) "all regulations issued pursuant to such statutes in
the future which provide for the prevention of waste and the
conservation" of Outer Continental Shelf resources, and (5) "all
other applicable statutes and regulations." App. to Pet. for Cert.
in No. 99-253, at 175a. The Government says that these provisions
incorporate into the contracts, not only the OCSLA provisions we
have mentioned, but also certain other statutory provisions and
regulations that, in the Government's view, granted Interior the
legal authority to refuse to approve the submitted Exploration
Plan, while suspending the leases instead.
First, the Government refers to 43 U. S. C. § 1334(a)(1)(A), an
OCSLA provision that authorizes the Secretary to promulgate
regulations providing for "the suspension ... of any operation or
activity ...
at the request of a lessee, in the national
interest, to facilitate proper development of a lease." (Emphasis
added.) This provision, as the emphasized terms show, requires "the
request of a lessee," i.
e., the companies. The Government
does not explain how this requirement was satisfied here. Hence,
the Government cannot rely upon the provision.
Second, the Government refers to 30 CFR § 250. 110(b)(4) (1999),
formerly codified at 30 CFR § 250.10(b)(4) (1997), a regulation
stating that "[t]he Regional Supervisor may ... direct ... a
suspension of any operation or activity ... [when the] suspension
is necessary for the implementation of the requirements of the
National Environmental Policy Act or to conduct an environmental
analysis." The Government says
616
that this regulation permitted the Secretary of the Interior to
suspend the companies' leases because that suspension was
"necessary ... to conduct an environmental analysis," namely, the
analysis demanded by the new statute, OBPA.
The "environmental analysis" referred to, however, is an
analysis the need for which was created by OBPA, a later enacted
statute. The lease contracts say that they are subject to
then-existing regulations and to certain future regulations, those
issued pursuant to OCSLA and §§ 302 and 303 of the Department of
Energy Organization Act. This explicit reference to future
regulations makes it clear that the catchall provision that
references "all other applicable ... regulations,"
supra, at
615, must include only statutes and regulations already existing at
the time of the contract, see 35 Fed. Cl., at 322-323, a conclusion
not questioned here by the Government. Hence, these provisions mean
that the contracts are not subject to future regulations
promulgated under other statutes, such as new statutes like OBPA.
Without some such contractual provision limiting the Government's
power to impose new and different requirements, the companies would
have spent $156 million to buy next to nothing. In any event, the
Court of Claims so interpreted the lease; the Federal Circuit did
not disagree with that interpretation; nor does the Government here
dispute it.
Instead, the Government points out that the regulation in
question-the regulation authorizing a governmental suspension in
order to conduct "an environmental analysis"was not itself a
future regulation. Rather, a similar regulation existed at
the time the parties signed the contracts, 30 CFR § 250. 12(a)(iv)
(1981), and, in any event, it was promulgated under OCSLA, a
statute exempted from the contracts' temporal restriction. But that
fact, while true, is not sufficient to produce the incorporation of
future statutory requirements, which is what the Government needs
to prevail. If the pre-existing regulation's words, "an
environmental analysis," were to apply to analyses mandated by
future
617
statutes, then they would make the companies subject to the same
unknown future requirements that the contracts' specific temporal
restrictions were intended to avoid. Consequently, whatever the
regulation's words might mean in other contexts, we believe the
contracts before us must be interpreted as excluding the words
"environmental analysis"
insofar as those words would
incorporate the requirements of future statutes and future
regulations excluded by the contracts' provisions. Hence, they
would not incorporate into the contracts requirements imposed by a
new statute such as OBPA.
Third, the Government refers to OCSLA, 43 U. S. C. § 1334(a)(1),
which, after granting Interior rulemaking authority, says that
Interior's "regulations ... shall include ... provisions ... for
the suspension ... of any operation ... pursuant to any lease ...
if there is a threat of serious, irreparable, or immediate
harm or damage to life ... , to property, to any mineral
deposits ... , or to the marine, coastal, or
human
environment." (Emphasis added.)
The Government points to the OBPA Conference Report, which says
that any OBPA-caused delay is "related to ... environmental
protection" and to the need "for the collection and analysis of
crucial oceanographic, ecological, and socioeconomic data," to
"prevent a public harm." H. R. Conf. Rep. No. 101-653, p. 163
(1990); see also Brief for United States 32. At oral argument, the
Government noted that the OBPA mentions "tourism" in North Carolina
as a "major industry ... which is subject to potentially
significant disruption by offshore oil or gas development." §
6003(b)(3). From this, the Government infers that the pre-existing
OCSLA provision authorized the suspension in light of a "threat of
... serious harm" to a "human environment."
The fatal flaw in this argument, however, arises out of the
Interior Department's own statement-a statement made
618
when citing OBPA to explain its approval delay. Interior then
said that the Exploration Plan "fully complies" with current legal
requirements. And the OCSLA statutory provision quoted above was
the most pertinent of those current requirements.
Supra, at
609. The Government did not deny the accuracy of Interior's
statement, either in its brief filed here or its brief filed in the
Court of Appeals. Insofar as the Government means to suggest that
the new statute, OBPA,
changed the relevant OCSLA standard
(or that OBPA language and history somehow constitute findings
Interior must incorporate by reference), it must mean that OBPA in
effect created a
new requirement. For the reasons set out
supra, at 616, however, any such new requirement would not
be incorporated into the contracts.
Finally, we note that Interior itself, when imposing the lengthy
approval delay, did not rely upon any of the regulations to which
the Government now refers. Rather, it relied upon, and cited, a
different regulation, 30 CFR § 250. 110(b)(7) (1999), which gives
Interior the power to suspend leases when "necessary to comply with
judicial decrees prohibiting production or any other operation or
activity." The Government concedes that no judicial decree was
involved in this action and does not rely upon this regulation
here.
We conclude, for these reasons, that the Government violated the
contracts. Indeed, as Interior pointed out in its letter to North
Carolina, the new statute, OBPA,
required Interior to impose
the contract-violating delay. See App. 129 ("The [OBPA] contains
provisions that specifically prohibit the Minerals Management
Service from approving any Exploration Plan, approving any
Application for Permit to Drill, or permitting any drilling
offshore the State of North Carolina until at least October 1,
1991"). It therefore made clear to Interior and to the companies
that the United States had to violate the contracts' terms and
would continue to do so.
619
Moreover, OBPA changed pre-existing contractincorporated
requirements in several ways. It delayed approval, not only of an
Exploration Plan but also of Development and Production Plans; and
it delayed the issuance of drilling permits as well. It created a
new type of Interior Department environmental review that had not
previously existed, conducted by the newly created Environmental
Sciences Review Panel; and, by insisting that the Secretary explain
in detail any differences between the Secretary's findings and
those of the Panel, it created a kind of presumption in favor of
the new Panel's findings.
The dissent argues that only the statements contained in the
letter from Interior to the companies may constitute a repudiation
because "the enactment of legislation is not typically conceived of
as a 'statement' of anything to anyone party in particular," and a
repudiation requires a "statement by the obligor to the obligee
indicating that the obligor will commit a breach."
Post, at
630-631, n. 4 (opinion of STEVENS, J.) (quoting Restatement § 250).
But if legislation passed by Congress and signed by the President
is not a "statement by the obligor," it is difficult to imagine
what would constitute such a statement. In this action, it was the
United States who was the "obligor" to the contract. See App. to
Pet. for Cert. in No. 99-253, at 174a (lease, identifying "the
United States of America" as the "Lessor"). Although the dissent
points out that legislation is "addressed to the public at large,"
post, at 631, n. 4, that "public" includes those to whom the
United States had contractual obligations. If the dissent means to
invoke a special exception such as the "sovereign acts" doctrine,
which treats certain laws as if they simply created conditions of
impossibility, see
Wins tar, 518 U. S., at 891-899
(principal opinion of SOUTER, J.);
id., at 923-924 (SCALIA,
J., concurring in judgment), it cannot do so here. The Court of
Federal Claims rejected the application of that doctrine to this
action, see
620
35 Fed. Cl., at 334-336, and the Government has not contested
that determination here. Hence, under these circumstances, the fact
that Interior's repudiation rested upon the enactment of a new
statute makes no significant difference.
We do not say that the changes made by the statute were
unjustified. We say only that they were changes of a kind that the
contracts did not foresee. They were changes in those approval
procedures and standards that the contracts had incorporated
through cross-reference. The Government has not convinced us that
Interior's actions were authorized by any other contractually
cross-referenced provision. Hence, in communicating to the
companies its intent to follow OBPA, the United States was
communicating its intent to violate the contracts.
B
The Government next argues that any violation of the contracts'
terms was not significant; hence there was no "substantial" or
"material" breach that could have amounted to a "repudiation." In
particular, it says that OCSLA's 30-day approval period "does not
function as the 'essence' of these agreements." Brief for United
States 37. The Court of Claims concluded, however, that timely and
fair consideration of a submitted Exploration Plan was a "necessary
reciprocal obligation," indeed, that any "contrary interpretation
would render the bargain illusory." 35 Fed. Cl., at 327. We
agree.
We recognize that the lease contracts gave the companies more
than rights to obtain approvals. They also gave the companies
rights to explore for, and to develop, oil. But the need to obtain
Government approvals so qualified the likely future enjoyment of
the exploration and development rights that the contract, in
practice, amounted primarily to an
opportunity to try
to obtain exploration and development rights in accordance with the
procedures and under the standards specified in the
cross-referenced statutes and regulations. Under these
circumstances, if the companies did
621
not at least buy a promise that the Government would not deviate
significantly from those procedures and standards, then what did
they buy? Cf.
id., at 324 (the companies bought exclusive
rights to explore and develop oil
"if they
met" OCSLA requirements (emphasis added)).
The Government's modification of the contractincorporated
processes was not technical or insubstantial. It did not announce
an (OBPA-required) approval delay of a few days or weeks, but of 13
months minimum, and likely much longer. The delay turned out to be
at least four years. And lengthy delays matter, particularly where
several successive agency approvals are at stake. Whether an
applicant approaches Commerce with an Interior Department approval
already in hand can make a difference (as can failure to have
obtained that earlier approval). Moreover, as we have pointed out,
OBPA changed the contract-referenced procedures in several other
ways as well.
Supra, at 619.
The upshot is that, under the contracts, the incorporated
procedures and standards amounted to a gateway to the companies'
enjoyment of all other rights. To significantly narrow that gateway
violated material conditions in the contracts. The breach was
"substantia[l]," depriving the companies of the benefit of their
bargain. Restatement § 243. And the Government's communication of
its intent to commit that breach amounted to a repudiation of the
contracts.
C
The Government argues that the companies waived their rights to
restitution. It does not deny that the United States repudiated the
contracts
if (as we have found) OBPA's changes amounted to a
substantial breach. The Government does not claim that the United
States retracted its repudiation. Cf.
id., § 256 (retraction
will nullify the effects of repudiation if done before the other
party either changes position in reliance on the retraction or
communicates that it considers the repudiation to be final). It
cannot claim that
622
the companies waived their rights simply by urging performance.
Id., § 257 (the injured party "does not change the effect of
a repudiation by urging the repudiator to perform in spite of his
repudiation"); see also 11 Williston § 1334, at 177178. Nor has the
Government convinced us that the companies' continued actions under
the contracts amount to anything more than this urging of
performance. See 2 E. Farnsworth, Contracts § 8.22, p. 544 (2d ed.
1998) (citing
United Cal. Bank v.
Prudential Ins.
Co., 140 Ariz. 238, 282283, 681 P. 2d 390, 433-434 (App. 1983)
(urging performance and making "efforts of its own to fulfill the
conditions" of the contract come to the same thing)); cf. 11
Williston § 1337, at 186-187. Consequently the Government's waiver
claim must come down to a claim that the companies
received
at least partial performance. Indeed, acceptance of performance
under a once-repudiated contract can constitute a waiver of the
right to restitution that repudiation would otherwise create.
Restatement § 373, Comment
a; cf. Restatement of Restitution
§ 68, Comment
b (1936).
The United States points to three events that, in its view,
amount to continued performance of the contracts. But it does not
persuade us. First, the oil companies submitted their Exploration
Plan to Interior two days
after OBPA became law.
Supra, at 611. The performance question, however, is not
just about what the oil companies did or requested, but also about
what they actually received from the Government. And, in respect to
the Exploration Plan, the companies received nothing.
Second, the companies subsequently asked the Secretary of
Commerce to overturn North Carolina's objection to the companies'
CZMA consistency certification. And, although the Secretary's
eventual response was negative, the companies did at least receive
that reply.
Supra, at 613. The Secretary did not base his
reply, however, upon application of the contracts' standards, but
instead relied in large part on the findings of the new,
OBPA-created, Environmental
623
Sciences Review Panel. See App. 224, 227, n. 35, 232-233, 239,
244 (citing the Panel's report). Consequently, we cannot say that
the companies received from Commerce the kind of consideration for
which their contracts called.
Third, the oil companies received suspensions of their leases
(suspending annual rents and extending lease terms) pending the
OBPA-mandated approval delays.
Supra, at 612-613. However, a
separate contract-the 1989 memorandum of understanding-entitled the
companies to receive these suspensions. See App. to Brief for
United States 2a (letter from Toni D. Hennike, Counsel, Mobil
Exploration & Producing U. S. Inc., to Ralph Melancon, Regional
Supervisor, U. S. Dept. of Interior Minerals Management Service,
dated Feb. 21, 1995 (quoting the memorandum as a basis for the
requested suspensions)). And the Government has provided no
convincing reason why we should consider the suspensions to amount
to significant performance of the lease contracts in question.
We conclude that the companies did not receive significant
postrepudiation performance. We consequently find that they did not
waive their right to restitution.
D
Finally, the Government argues that repudiation could not have
hurt the companies. Since the companies could not have met the CZMA
consistency requirements, they could not have explored (or
ultimately drilled) for oil in any event. Hence, OBPA caused them
no damage. As the Government puts it, the companies have already
received "such damages as were actually caused by the [Exploration
Plan approval] delay," namely, none. Brief for United States 43-44;
see also 177 F. 3d, at 1340. This argument, however, misses the
basic legal point. The oil companies do not seek damages for breach
of contract. They seek restitution of their initial payments.
Because the Government repudiated the lease contracts, the law
entitles the companies to that restitution
624
STEVENS, J., dissenting
whether the contracts would, or would not, ultimately have
produced a financial gain or led them to obtain a definite right to
explore. See
supra, at 608. If a lottery operator fails to
deliver a purchased ticket, the purchaser can get his money
back-whether or not he eventually would have won the lottery. And
if one party to a contract, whether oil company or ordinary
citizen, advances the other party money, principles of restitution
normally require the latter, upon repudiation, to refund that
money. Restatement § 373.
III
Contract law expresses no view about the wisdom of OBPA. We have
examined only that statute's consistency with the promises that the
earlier contracts contained. We find that the oil companies gave
the United States $156 million in return for a contractual promise
to follow the terms of pre-existing statutes and regulations. The
new statute prevented the Government from keeping that promise. The
breach "substantially impair[ed] the value of the contract[s]."
Id., § 243. And therefore the Government must give the
companies their money back.
For these reasons, the judgment of the Federal Circuit is
reversed. We remand the cases for further proceedings consistent
with this opinion.
It is so ordered.
JUSTICE STEVENS, dissenting.
Since the 1953 passage of the Outer Continental Shelf Lands Act
(OCSLA), 43 U. S. C. § 1331
et seq., the United States
Government has conducted more than a hundred lease sales of the
type at stake today, and bidders have paid the United States more
than $55 billion for the opportunity to develop the mineral
resources made available under those leases.1 The United States, as
lessor, and petitioners, as les-
1
Conoco, Inc. v.
United States, 35 Fed. Cl. 309,
315, n. 2 (1996); see also U. S. Dept. of Interior, Minerals
Management Service, Mineral Revenues 1999, Report on Receipts From
Federal and American Indian Leases 35
625
sees, clearly had a mutual interest in the successful
exploration, development, and production of oil in the Manteo Unit
pursuant to the leases executed in 1981. If production were
achieved, the United States would benefit both from the substantial
royalties it would receive and from the significant addition to the
Nation's energy supply. Self-interest, as well as its duties under
the leases, thus led the Government to expend substantial resources
over the course of 19 years in the hope of seeing this project
realized.
From the outset, however, it was apparent that the Outer Banks
project might not succeed for a variety of reasons. Among those was
the risk that the State of North Carolina would exercise its right
to object to the completion of the project. That was a risk that
the parties knowingly assumed. They did not, however, assume the
risk that Congress would enact additional legislation that would
delay the completion of what would obviously be a lengthy project
in any event. I therefore agree with the Court that the Government
did breach its contract with petitioners in failing to approve,
within 30 days of its receipt, the plan of exploration petitioners
submitted. As the Court describes,
ante, at 609610, the
leases incorporate the provisions of the OCSLA into their terms,
and the OCSLA, correspondingly, sets down this 30-day requirement
in plain language. 43 U. S. C. § 1340(c).
I do not, however, believe that the appropriate remedy for the
Government's breach is for petitioners to recover their full
initial investment. When the entire relationship between the
parties is considered, with particular reference to the impact of
North Carolina's foreseeable exercise of its right to object to the
project, it is clear that the remedy ordered by the Court is
excessive. I would hold that petitioners are entitled at best to
damages resulting from the delay caused by the Government's failure
to approve the plan within the requisite time.
(reporting more than $64 billion in royalties from federal
offshore mineral leases from 1953-1999).
626
STEVENS, J., dissenting
I
To understand the nature of the breach, and the appropriate
remedy for it, it is necessary to supplement the Court's
chronological account. From the time petitioners began discussing
their interest in drilling an exploratory well 45 miles off the
coast from Cape Hatteras in the fall of 1988, until (and even
after) the enactment of the Outer Banks Protection Act (OBPA), §
6003, on August 18, 1990, their exploration proposal was fraught
with problems. It was clear to petitioners as early as October 6,
1988 (and almost certainly before), that the State of North
Carolina, whose approval petitioners knew they had to have under
their lease terms in order to obtain the requisite permits from the
Department of the Interior (DO!), was not going to go along
readily. App. 61-63 (letter from North Carolina Governor James G.
Martin to Ralph Ainger, Acting Regional Manager, Minerals
Management Service (MMS) (a division of the DO!)). As the Court
explains,
ante, at 610, without the State's approval
pursuant to the Coastal Zone Management Act (CZMA), 16 U. S. C. §
1451
et seq., incorporated into the OCSLA by multiple
references, no DOl licensing, permitting, or lessee exploration of
any kind could ensue, 43 U. S. C. § 1340(c).
That is why petitioners pursued multiparty negotiations with the
Federal Government and the State to help facilitate the eventual
approval of their proposal. As part of these negotiations,
petitioners entered into a memorandum of understanding with North
Carolina and the Federal Government, and, according to the terms of
that agreement, submitted a draft plan of exploration (POE) to DOl
and to the State. App. 79-85. The Government also agreed to prepare
draft and final environmental impact reports on petitioners' draft
POE and to participate in public meetings and hearings regarding
the draft POE and the Government's findings about its environmental
impact.
Id., at 81-82. Among other things, this agreement
resulted in the Government's preparation in 1990 of a three-volume,
2,000-page special environ-
627
mental report on the proposed project, released on June 1 of
that year.
Although the State thereafter continued to express its
dissatisfaction with the prospect of exploration and development,
voicing its displeasure with the Government's draft environmental
findings,
id., at 86-95, and rejecting petitioners'
application for a separate required permit,
id., at 96-97,2
petitioners nonetheless submitted a final POE to DOl on August 20,
1990, pursuant to the lease contract terms. This final plan, it
must be noted, was submitted by petitioners two days
after
the enactment of the OBPA-the event petitioners claim amounted to
(either) an anticipatory repudiation of the lease contracts, or a
total breach, Brief for Petitioner in No. 99-244, p. 19 ("[I]n
enacting the OBPA, the Government anticipatorily repudiated its
obligations under the leases ... "); Brief for Petitioner in No.
99-253, p. 21 ("The enactment of the OBPA placed the United States
in total breach of the petitioners' leases").
Following petitioners' submission of the final POE, DOl then had
a duty, under the terms of the OCSLA as incorporated into the lease
contract, to approve that plan "within thirty days of its
submission." 43 U. S. C. § 1340(c)(1). In other words, DOl had
until September 19, 1990, to consider the submitted plan and,
provided that the plan was complete and otherwise satisfied the
OCSLA criteria, to issue its statement of approval. (Issuing its
"approval," of course, is different from granting petitioners any
"license or permit for
2 The Federal Water Pollution Control Act, 86 Stat. 816, 33 U.
S. C. § 1251
et seq., requires lessees to obtain a National
Pollutant Discharge Elimination System (NPDES) permit from the
Environmental Protection Agency (EPA) before lessees may move
forward with any exploration plan that includes discharging
pollutants into the ocean, §§ 1311(a), 1342(a). The EPA cannot
issue an NPDES permit, however, before the lessee has certified to
the State's satisfaction that the discharge would comply with the
State's CZMA requirements. Unless the Secretary of Commerce
overrides any state objection arising during this process, 16 U. S.
C. § 1456(c)(3), lessees will not receive the necessary permit.
628
STEVENS, J., dissenting
any activity described in detail in an exploration plan and
affecting any land use or water use" in a State's coastal zone, §
1340(c)(2); actual permission to proceed had to wait for the
State's CZMA certification.) Despite this hard deadline, September
19 came and went without DOl's issuance of approval.
DOl's explanation came two days later, on September 21, 1990, in
a letter to Mobil Oil from the MMS's Acting Regional Supervisor for
Field Operations, Lawrence Ake. Without commenting on DOl's
substantive assessment of the POE, the Ake letter stated that the
OBPA "specifically prohibit[s]" the MMS from approving any POE
"until at least October 1, 1991." App. 129. "Consequently," Mr. Ake
explained, the MMS was suspending operation on the Manteo Unit
leases "in accordance with 30 CFR § 250.10(b)(7),"
ibid., a
regulation issued pursuant to the OCSLA and, of course,
incorporated thereby into the parties' lease agreement. One week
after that, on September 28, 1990, the MMS's Regional Director,
Bruce Weetman, sent a letter to Governor Martin of North Carolina,
elaborating on MMS's actions upon receipt of the August 20 POE.
App. to Pet. for Cert. in No. 99-253, pp. 193a-195a. According to
Weetman, the POE "was deemed complete on August 30, and transmitted
to other Federal Agencies and the State of North Carolina on that
date. Timely comments were received from the State of North
Carolina and the U. S. Coast Guard. An analysis of the potential
environmental [e]ffects associated with the Plan was conducted, an
Environmental Assessment (EA) was prepared, and a Finding of No
Significant Impact (FONS!) was made."
Id., at 193a. Based on
these steps taken by the MMS, it concluded that the POE was
"approvable" but that the MMS was "currently prohibited from
approving it." Thus, the letter concluded, the POE would "remain on
file" pending the resolution of the OBPA requirements, and the
lease suspensions would continue in force in the interim.
Id., at 194a.
629
II
In my judgment, the Government's failure to meet the required
30-day deadline on September 19, 1990, despite the fact that the
POE was in a form that merited approval, was a breach of its
contractual obligation to the contrary.3 After this, its statement
in the September 21 Ake letter that the OBPA prohibited approval
until at least October 1991 must also be seen as a signal of its
intent to remain in breach of the 30-day deadline requirement for
the coming year. The question with which the Court is faced,
however, is not whether the United States was in breach, but
whether, in light of the Government's actions, petitioners are
entitled to restitution rather than damages, the usual remedy for a
breach of contract.
As the Court explains,
ante, at 608, an injured party may
seek restitution as an alternative remedy only "on a breach by
non-performance that gives rise to a claim for damages for total
breach or on a repudiation." Restatement (Second) of Contracts §
373 (1979) (hereinafter Restatement (Second)). Whether one
describes the suspect action as "repudiation" (which itself is
defined in terms of total breach, see
ante, at 608) or
simply "total breach," the injured party may obtain restitution
only if the action "so substantially impairs the value of the
contract to the injured party ... that it is just in the
circumstances to allow him to recover damages based on all his
remaining rights to performance." Restatement (Second) § 243.
Although the language varies to some small degree, every major
statement of contract law includes the same admonition. See,
e. g., 5 A. Corbin, Contracts § 1104, pp. 558, 562
(1964) ("Restitution is an available remedy only
3 It is incorrect, in my view, to assert that the Government
failed to give the proposal "timely and fair consideration,"
ante, at 620, because, as the Weetman letter establishes,
the Government did engage in such an evaluation process even after
the enactment of the OBPA. It was in failing to issue the approval
on the heels of that evaluation that the Government ran afoul of
its obligations.
630
STEVENS, J., dissenting
when the breach is of vital importance .... In the case of a
breach by non-performance, ... [t]he injured party, however, can
not maintain an action for restitution of what he has given the
defendant unless the defendant's non-performance is so material
that it is held to go to the 'essence'; it must be such a breach as
would discharge the injured party from any further contractual duty
on his own part"). In short, there is only repudiation if there is
an action that would amount to a total breach, and there is only
such a breach if the suspect action destroys the essential object
of the contract. It is thus necessary to assess the significance or
"materiality" of the Government's breach.
Beyond this, it is important to underscore as well that
restitution is appropriate only when it is "just in the
circumstances." Restatement (Second) § 243. This requires us to
look not only to the circumstances of the breach itself, but to the
equities of the situation as a whole. Finally, even if a
defendant's actions do not satisfy the foregoing requirements, an
injured party presumably still has available the standard contract
remedy for breach-the
damages petitioners suffered as a
result.
III
Given these requirements, I am not persuaded that the actions by
the Government amounted either to a repudiation of the contracts
altogether, or to a total breach by way of its neglect of an
"essential" contractual provision.
I would, at the outset, reject the suggestion that there was a
repudiation here, anticipatory or otherwise, for two reasons.
First, and most basic, the Government continued to perform under
the contractual terms as best it could even after the OBPA's
passage.4 Second, the breach-by-delay
4 My rejection of the repudiation theory, of course, encompasses
a rejection of the notion that the very enactment of the OBPA
itself constituted an anticipatory repudiation of the parties'
contract. Brief for Petitioner in No. 99-244, p. 19. Repudiation,
as the Court explains, is in the first instance a "'statement by
the obligor to the obligee indicating that the
631
forecast in the Ake letter was not "of sufficient gravity that,
if the breach actually occurred, it would of itself give the
obligee a claim for damages for total breach." Restatement (Second)
§250, and Comment
d; see also 11 W. Jaeger, Williston on
Contracts § 1312 (3d ed. 1968).
While acknowledging the OBPA's temporary moratorium on plan
approvals, the Ake letter to petitioner Mobil states that the
Government is imposing a lease
suspension-rather than a
cancellation or recision-and even references an existing OCSLA
regulatory obligation pursuant to which it is attempting to act.
The Weetman letter explains in detail the actions the MMS took in
carefully considering petitioners' POE submission; it evaluated the
plan for its compliance with the OCSLA's provisions, transmitted it
to other agencies and the State for their consideration, took the
comments of those entities into account, conducted the requisite
analyses, and prepared the requisite findings-all subsequent to the
OBPA's enactment. It cannot be doubted that the Government intended
to continue performing the contract to the extent it thought
legally permissible post-OBPA.
Indeed, petitioners' own conduct is inconsistent with the
contention that the Government had, as of August 18, 1990,
obligor will commit a breach.'''
Ante, at 608 (quoting
Restatement (Second) § 250). Except in some abstract sense, the
enactment of legislation is not typically conceived of as a
"statement" of anything to anyone party in particular, for it is,
by its nature, addressed to the public at large. To the extent this
legislation was directed to anyone in particular, it was to the
Secretary of the Interior, directing him to take or not take
certain actions, not to particular lessees. Finally, while it
surely imposed upon the Secretary obligations inconsistent with the
Secretary's existing duties under the leases, the OBPA itself
contemplated that the parties to the lease contracts would
continue, after a delay, to operate under the OCSLA-based
contractual scheme. The Secretary was, within the confines of the
newly enacted requirements, to continue to take steps to "carry out
his responsibilities under the Outer Continental Shelf Lands Act
with respect to authorizing the activities described in subsection
(c)(1) [(i.
e., approve exploration, development and
production plans for lessees, or grant an application for permit to
drill; permit drilling)]." § 6003(d), 104 Stat. 557.
632
STEVENS, J., dissenting
or indeed as of September 19, 1990, fully repudiated its
obligations under the parties' contracts. As I have mentioned, it
was
after the enactment of the OBPA that petitioners
submitted their final plan to the DOl-just as if they understood
there still to be an existing set of contractual conditions to be
fulfilled and expected to fulfill them. Petitioners, moreover,
accepted the Government's proffered lease suspensions, and indeed,
themselves subsequently requested that the suspensions remain in
effect "from June 8, 1992 forward" under 30 CFR § 250.10(b)(6)
(1990), an OCSLA regulation providing for continued lease
suspension at the lessee's request "to allow for inordinate delays
encountered by the lessee in obtaining required permits or
consents, including administrative or judicial challenges or
appeals." 5
After the State of North Carolina filed its formal CZMA
objections on November 19, 1990 (indicating that the State believed
a contract still existed), petitioners promptly sought in December
1990-again under statutory terms incorporated into the contracts-to
have the Secretary of Commerce override the objections, 43 U. S. C.
§ 1340(c)(1), to make it possible for the exploration permits to
issue. In a response explainable solely on the basis that the
Government still believed itself to be performing contractually
obligatory terms, the Secretary of Commerce undertook to evaluate
petitioners' request that the Secretary override the State's CZMA
objections. This administrative review process has, I do not doubt,
required a substantial expenditure of the time and resources of the
Departments of Commerce and Interior, along with the 12 other
administrative agencies whose comments the Secretary of Commerce
solicited in evaluating the request to override and in issuing, on
September 2, 1994,
5 See App. 170-171 (letter from Leslie Burton, Senior Counsel
for Mobil Oil, to Bruce Weetman, Regional Director, MMS, Sept. 23,
1992); see also App. to Brief for United States 1a (letter from
Toni Hennike, Counsel, Mobil Oil, to Ralph Melancon, Regional
Supervisor, MMS, Feb. 21, 1995) (requesting reinstatement of lease
suspensions).
633
a lengthy "Decision and Findings" in which he declined to do
so.
And petitioners were not finished with the leases yet.
After petitioners received this adverse judgment from Commerce,
they sought the additional lease suspensions described, see App. to
Brief for United States 1a (letter from Toni Hennike, Counsel,
Mobil Oil, to Ralph Melancon, Regional Supervisor, MMS, Feb. 21,
1995), insisting that "the time period to seek judicial review of
the Secretary's decisions had not expired when the MMS terminated
the [preexisting] suspensions," and that "[s]ince 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,"
id., at 2a.
Indeed, petitioners have pending in the United States District
Court for the District of Columbia at this very moment their appeal
from the Secretary of Commerce's denial of petitioners' override
request of North Carolina's CZMA objections.
Mobil Oil
Exploration &
Producing Southeast, Inc. v.
Daley, No. 95-93 SSH (filed Mar. 8, 2000).
Absent, then, any repudiation, we are left with the possibility
that the nature of the Government's breach was so "essential" or
"total" in the scope of the parties' contractual relationship as to
justify the remedy of restitution. As above, I would reject the
suggestion that the OBPA somehow acted
ex proprio vigore to
render a total breach of the parties' contracts. See
ante,
at 621 ("OBPA changed the contract-referenced procedures in several
other ways as well"); Brief for Petitioner in No. 99-253, at 21.
The OBPA was not passed as an amendment to statutes that the leases
by their terms incorporated, nor did the OBPA state that its terms
were to be considered incorporated into then-existing leases; it
was, rather, an action external to the contract, capable of
affecting the parties' actions but not of itself changing the
contract terms. The OBPA did, of course, impose a legal duty upon
the Secretary of the Interior to take actions
634
STEVENS, J., dissenting
(and to refrain from taking actions) inconsistent with the
Government's existing legal obligations to the lessees. Had the
Secretary chosen, despite the OBPA, to issue the required approval,
he presumably could have been haled into court and compelled to
rescind the approval in compliance with the OBPA requirement.6 But
that this possibility remained after the passage of the OBPA
reinforces the conclusion that it was not until the Secretary
actually took action inconsistent with his contractual obligations
that the Government came into breach.
In rejecting the Government's argument that the breach was
insufficiently material, the Court's reliance on the danger of
rendering the parties' bargain illusory, see
ante, at 620,
is simply misplaced. I do not contest that the Government was
contractually obliged to give petitioners' POE prompt consideration
and to approve the POE if, after that consideration, it satisfied
existing OCSLA demands; nor would I suggest that petitioners did
not receive as part of their bargain a promise that the Government
would comply with the procedural mechanisms established at the time
of contracting. But that is all quite beside the point; the
question is not whether this approval requirement was part of the
bargain but whether it was so "essential" to the bargain in the
scope of this continuing contract as to constitute a total
breach.
6 The result of such a proceeding may well have been the
issuance of a judicial decree enjoining the Secretary's actions.
Ironically, the Secretary would then have been authorized under the
regulatory provisions expressly incorporated into the parties'
contracts to suspend the leases.
635
Whether the breach was sufficiently "substantial" or material to
justify restitution depends on what impact, if any, the breach had
at the time the breach occurred on the successful completion of the
project. See E. Farnsworth, Contracts § 8.16 (3d ed. 1999) ("The
time for determining materiality is the time of the breach and not
the time that the contract was made .... Most significant is the
extent to which the breach will deprive the injured party of the
benefit that it justifiably expected"). In this action the answer
must be close to none. Sixty days after the Government entered into
breach-from September 19, 1990, to November 19, 1990-the State of
North Carolina filed its formal objection to CZMA certification
with the United States. App.141-148. As the OCSLA makes clear, "The
Secretary
shall not grant any license or permit for any activity
described in detail in an exploration plan and affecting any
land use or water use in the coastal zone of a State with a coastal
zone management program ... unless the State concurs or is
conclusively presumed to concur with the consistency certification
accompanying such plan ... , or the Secretary of Commerce makes the
finding [overriding the State's objection]." 43 U. S. C. §
1340(c)(2) (emphasis added); see also § 1351(d). While this
objection remained in effect, the project could not go forward
unless the objection was set aside by the Secretary of Commerce.
Thus, the Government's breach effectively delayed matters during
the period between September 19, 1990, and November 19, 1990.
Thereafter, implementation was contractually precluded by North
Carolina.
This fact does not, of course, relieve the Government of
liability for breach. It does, however, make it inappropriate to
conclude that the Government's pre-November 19 actions in breach
were sufficiently "material" to the successful completion of the
parties' project to justify giving petitioners all of their money
back. At the time of the Government's breach, petitioners had no
reasonable expectation under the lease contract terms that the
venture would come to fruition
636
STEVENS, J., dissenting
in the near future. Petitioners had known since 1988 that the
State of North Carolina had substantial concerns about petitioners'
proposed exploration; North Carolina had already officially
objected to petitioners' NPDES submissiona required step itself
dependent on the State's CZMA approval. App. 106-111. At the same
time, the Federal Government's own substantial investments of time
and resources, as well as its extensive good-faith efforts both
before and after the OBPA was passed to preserve the arrangement,
gave petitioners the reasonable expectation that the Government
would continue trying to make the contract work. And indeed, both
parties continued to behave consistently with that expectation.
While apparently recognizing that the substantiality of the
Government's breach is a relevant question, see
ante, at
608, the Court spends almost no time at all concluding that the
breach was substantial enough to award petitioners a $156 million
refund,
ante, at 620-621. In a single brief paragraph of
explanation, the Court first posits that the Government "did not
announce an ... approval delay of a few days or weeks, but of 13
months minimum and likely much longer."
Ante, at 621. The
Court here is presumably referring to the Ake letter to Mobil
written a few days after the expiration of the 30-day deadline. But
the Government's "statement" to this effect could matter only in
the context of evaluating an intended
repudiation; because,
as I have explained, that "announcement" cannot be seen as a
repudiation of the contract, I do not see how the statement itself
exacerbates the effect of the Government's breach. What matters in
evaluating a breach, of course, is not what the Government said,
but what the Government did. And what the Government did was, as I
have explained, continue to perform in every other way
possible-evaluating the August 20 POE; suspending the leases,
including suspensions in response to petitioners' express requests
(suspensions that continue in effect
637
to this day); and responding over years to petitioners' appeal
from the State's CZMA objection.7
The Court also asserts, without support, that "[w]hether an
applicant approaches Commerce with an Interior Department approval
already in hand can make a difference (as can failure to have
obtained that earlier approval)."
Ibid. Although the Court
thereby implies that the Secretary of Commerce's handling of
petitioners' CZMA override request was somehow tied to the DOl's
failure to issue the required approval, there is record evidence
that petitioners' CZMA appeals were not "suspended, impeded, or
otherwise delayed by enactment or implementation of the ... OBPA
.... " App. 187 (declaration of Margo E. Jackson,
Conoco
Inc. v.
United States, No.
92-331-C (Fed. Cl.,
Apr. 6, 1994) (Commerce Department supervisor in charge of handling
Mobil's appeals)). Whether or not the Secretary's decision was
in-
7 The Court's cursory efforts to discount this evidence of
continued performance fall far short. In light of the Weetman
letter's detailed description of the Government's efforts to
evaluate the POE as submitted, the Court's assertion that "in
respect to the exploration plan, the companies received nothing,"
ante, at 622, cannot be correct. The Court itself insists on
making an indispensable part of the parties' contract mutual
promises to follow certain procedures,
ante, at 620; if that
is the case, we must credit the Government's efforts to follow
those procedures as performance of that promise, and that
performance was "received" by petitioners.
The Court also suggests that the Government was obligated to
extend the lease suspensions to petitioners under the terms of the
parties' separately adopted memorandum of understanding; the
Government should therefore, by the Court's logic, receive no
credit under the lease contracts for continuing to perform.
Ante, at 623. Whether or not the Government was separately
obligated to extend the suspensions it did (and of course the
memorandum agreement only exists because of and as part of the
parties' efforts to fulfill the lease contract terms), both the
Government in extending the initial suspensions, and petitioners,
in requesting additional suspensions, expressly relied upon
regulations incorporated into the OCSLA lease contracts, see
supra, at 631-632. The Court must stretch to avoid crediting
the Government's performance.
638
STEVENS, J., dissenting
fluenced by OBPA-required findings is, of course, a question of
fact that, despite the Court's assertion,
ante, at 622-623,
none of the lower courts in this action decided. Regardless, there
is certainly no
contractual basis for the proposition that
DOl's approval is a condition precedent or in any respect material
to overcoming a state-filed CZMA objection. That objection,
petitioners most certainly knew, was coming whether or not DOl
approved the submitted POE.
In the end, the Court's central reason for finding the breach
"not technical or insubstantial" is that "lengthy delays matter."
Ante, at 621. I certainly agree with that statement as a
general principle. But in this action, that principle does not
justify petitioners' request for restitution. On its face,
petitioners' contention that time was "of the essence" in this
bargain is difficult to accept; petitioners themselves waited seven
years into the renewable 10-year lease term before even floating
the Outer Banks proposal, and waited another two years after the
OBPA was passed before filing this lawsuit. After then accepting a
full 10 years of the Government's above-and-beyond-the-call
performance, time is now suddenly of the essence? As with any
venture of this magnitude, this undertaking was rife with
possibilities for "lengthy delays," indeed "inordinate delays
encountered by the lessee in obtaining required permits or
consents, including administrative or judicial challenges or
appeals," 30 CFR §250.10(b)(6) (1990). The OBPA was not, to be
sure, a cause for delay that petitioners may have anticipated in
signing onto the lease. But the State's CZMA and NPDES objections,
and the subsequent "inordinate delays" for appeals, certainly were.
The Secretary's approval was indeed "a gateway to the companies'
enjoyment of all other rights," but the critical word here is "a";
approval was only one gateway of many that the petitioners knew
they had to get through in order to reap the benefit of the OCSLA
leases, and even that gate was not closed completely, but only
"narrow[ed],"
ante, at 621. Any long-term venture of this
com-
639
plexity and significance is bound to be a gamble. The fact that
North Carolina was holding all the aces should not give petitioners
the right now to play with an entirely new deck of cards.
IV
The risk that North Carolina would frustrate performance of the
leases executed in 1981 was foreseeable from the date the leases
were signed. It seems clear to me that the State's objections,
rather than the enactment of OBP A, is the primary explanation for
petitioners' decision to take steps to avoid suffering the
consequences of the bargain they made. As a result of the Court's
action today, petitioners will enjoy a windfall reprieve that
Congress foolishly provided them in its decision to pass
legislation that, while validly responding to a political
constituency that opposed the development of the Outer Banks,
caused the Government to breach its own contract. Viewed in the
context of the entire transaction, petitioners may well be entitled
to a modest damages recovery for the
two months of delay
attributable to the Government's breach. But restitution is not a
default remedy; it is available only when a court deems it, in all
of the circumstances, just. A breach that itself caused at most a
delay of two months in a protracted enterprise of this magnitude
does not justify the $156 million draconian remedy that the Court
delivers.
Accordingly, I respectfully dissent.
Comments
Be the first to comment
Leave a Comment