Mobil Oil Exploration and Producing Southeast, Inc. v. United States - Merits

Docket number: 
Nos. 99-244 and 99-253
Supreme Court Term: 
1999 Term
Court Level: 
Supreme Court

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 App. 3a-24a) is reported at 177 F.3d 1331.1 The original opinion of the court of appeals that was subsequently withdrawn (Pet.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

Type: 
Merits Stage Brief
Updated October 21, 2014