512 F.2d 706 (9th Cir. 1975), 73-2415, Ness Inv. Corp. v. United States Dept. of Agr., Forest Service

Docket Nº:73-2415.
Citation:512 F.2d 706
Party Name:NESS INVESTMENT CORPORATION, and Canyon Lake Resort, Inc., Appellants, v. UNITED STATES DEPARTMENT OF AGRICULTURE, FOREST SERVICE, and Fred Wirth, ForestSupervisor, Appellees.
Case Date:February 21, 1975
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

Page 706

512 F.2d 706 (9th Cir. 1975)

NESS INVESTMENT CORPORATION, and Canyon Lake Resort, Inc., Appellants,



Fred Wirth, ForestSupervisor, Appellees.

No. 73-2415.

United States Court of Appeals, Ninth Circuit

February 21, 1975

Page 707

John C. Hughes (argued), Hughes, Hughes & Conlan, Phoenix, Ariz., for appellants.

Carl Strass and Terrence L. O'Brien (argued), Lands & Natural Resources Div., U. S. Dept. of Justice, Washington, D. C., for appellees.

Before WRIGHT and SNEED, Circuit Judges, and LINDBERG, District Judge. [*]


LINDBERG, Senior District Judge.

This appeal presents the question whether a federal court may review a refusal by the Department of Agriculture, Forest Service (forest service), to issue a special use permit to a so-called successor group of investors for operation of a resort in a national forest. The successor group of investors has appealed from an order of the district court 1 granting the forest service's motion to dismiss for want of jurisdiction. We affirm for the reasons expressed below.


On May 18, 1965, the forest service issued 2 a twenty year special use permit 3 to the Ness Investment Corporation

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(NIC), an Arizona corporation. The permit authorized NIC, subject to numerous terms and conditions, to construct, operate and maintian a resort at Canyon Lake in the Tonto National Forest, approximately forty-six miles east of Phoenix, Arizona. Among the duties imposed upon NIC through the permit were: keeping a responsible management official on the site or immediately available; providing a sanitation system and related facilities; constructing roads, parking lots, buildings, water systems, a sewage disposal system and a gas storage system; meeting a schedule for development of the site and for installation of the enumerated facilities. It was the opinion of the forest service that NIC was not fully discharging its permit responsibilities, and on May 3, 1968, the regional forester attempted to revoke the permit. The board of forest appeals, in an order filed on July 24, 1969, held this attempt to have been effective.

The Secretary of Agriculture is authorized, under such regulations as he may make and upon such terms and conditions as he may deem proper, (a) to permit the use and occupancy of suitable areas of land within the national forests, not exceeding eighty acres and for periods not exceeding thirty years, for the purpose of constructing of maintaining hotels, resorts, and any other structures or facilities necessary or desirable for recreation, public convenience, or safety.... The authority provided by this section shall be exercised in such manner as not to preclude the general public from full enjoyment of the natural, scenic, recreational, and other aspects of the national forests.

Subsequently, in a letter dated September 24, 1969, the regional forester requested NIC to show cause why the permit should not be revoked. Through a memorandum of October 16, 1969, Berth C. Ness, chief executive officer of NIC, authorized William H. O'Brien to handle all negotiations with the forest service pertaining to the permit. On October 22, 1969, O'Brien wrote to the forest supervisor and noted only the following points: NIC had merged with a group of investors with experience in the resort business; arrangements had been made to satisfy most of the claims outstanding against improvements on the resort site; development and operation of the site had been prohibited by the forest service for two years; the bond securing the permit then remained in effect; with new management the terms and conditions of the permit could be met. The record does not reveal that any NIC response to the request to show cause was forthcoming. On May 4, 1970, the chief of the forest service revoked the permit by letter; the letter was sent to Berth C. Ness at his business address in Minnesota. The revocation was based upon the failure of NIC to comply with the terms of the permit. An appeal was filed. 4

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As a point of information, the involvement of O'Brien with the resort originally planned by NIC arose from O'Brien's apparent status as an NIC creditor and from the following series of events. Berth C. Ness and O'Brien entered into an agreement on January 9, 1969. Under the agreement, the First Southwest Small Business Investment Corporation (FSSBIC), of which O'Brien was then president, would receive title to all of the physical assets at Canyon Lake belonging to NIC. The agreement was subject to the condition both that the forest service approve transfer of the NIC permit and that financing be available. Preferred stock in the amount of $80,000.00 in a corporation to be organized by O'Brien was to have been issued to NIC in consideration for the transfer; in addition, FSSBIC was to have assumed all of the liabilities of NIC. A bill of sale dated November 1, 1969, evidenced the fact that NIC had conveyed all of its assets located at Canyon Lake to Canyon Lake Resort, Inc. (CLR). The bill of sale executed pursuant to the January 9, 1969, agreement. It appears that this agreement and transfer were executed in settlement of a legal action; for a state court in Arizona has adjudged that, at the time of the decree, FSSBIC held title to all of the improvements at Canyon Lake in which NIC had had an interest. First Southwest Small Business Investment Corp. v. Dick B. Roach and Jane Doe Roach, Berth C. Ness and Jane Doe Ness, and Ness Investment Corp., No. 21015, (Superior Court, Pinal County, Arizona, January 27, 1970).

By telegram dated January 15, 1970, O'Brien notified the regional forester that, as a result of court action in lieu of foreclosure, the November 1, 1969, bill of sale had been issued, and that FSSBIC had later assigned the assets to CLR. In a February 4, 1970, letter FSSBIC notified the forest supervisor of the January 27, 1970, judgment and made application for a transfer of the permit to CLR. The forest supervisor in a letter of March 16, 1970, denied the application for transfer of the permit; the forest supervisor felt that clause twelve of the

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NIC permit 5 prohibited its transfer. In a letter written on April 10, 1970, O'Brien writing for FSSBIC, applied under clause twelve for a permit in favor of CLR. In that letter O'Brien again stated that FSSBIC had had title to the NIC assets and had transferred them to CLR. On January 29, 1971, O'Brien executed an assignment transferring all of the physical assets at Canyon Lake from FSSBIC and CLR to NIC.

Beginning on January 27, 1971, a hearing was held before the board of forest appeals concerning the May 4, 1970, revocation of the NIC permit. After the hearing a decision, of which no review has been sought, was rendered and an opinion was issued. In re: Ness Investment Corporation, Forest Service Docket No. 134 (November 4, 1971). The decision of the board of forest appeals was summarized at the conclusion of the opinion as follows. In re: Ness Investment Corporation, supra, pp. 11-12:

The decision of the Chief, Forest Service, is correct in that there are substantial breaches of the conditions of the special use permit issued to Ness Investment Corporation which warrant action to revoke the permit. However, before final revocation action, the Forest Service is directed to allow the O'Brien group to file an application under clause 12 of the permit setting forth the necessary facts and proof of ownership of physical assets at Canyon Lake. Such application shall be filed with the Forest Service not later than 60 days from the date of issuance of this decision, or within such additional time as the Chief of the Forest Service may grant for such purpose. Upon receipt of an application from the O'Brien group, timely filed, the Forest Service shall consider the application and determine whether the applicant is qualified under the criteria specified in clause 12 of the permit and any applicable standards prescribed by Regulation or the Forest Service Manual. If it is determined that the applicant is qualified and that a permit will be issued to the applicant, such action by the Forest Service will terminate this appeal. If, on the other hand, it is determined that the applicant is not qualified or is unwilling to accept such reasonable conditions as may be prescribed by the Forest Service for the issuance of such a permit or for inclusion in the terms of the permit, the permit of Ness Investment Corporation shall be revoked finally as of the date of the notice to the O'Brien group and Ness Investment Corporation by the Forest Service of such determination. 6

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Explication of the view of clause twelve taken by the board of forest appeals in its decision was included in the body of the opinion. In re: Ness Investment Corporation, supra, pp. 10-11:

Clause 12 of the permit specifically provides that a successor-in-interest to the permittee's improvements who is determined to be qualified as a permittee will be issued a permit subject to such new or additional conditions as the circumstances may warrant... It is the view of the Board that the O'Brien group has attempted to exercise the rights of a successor-in-interest to the permittee with the status granted it under clause 12 of the permit and that, on application of such a successor, the Forest Service should decide whether it is or is not qualified to succeed to the permit "subject to such new conditions and stipulations as existing or prospective circumstances may warrant...." The Board is not persuaded that the failure of the Ness Investment Corporation to perform the terms of the permit or the pendency of its appeal from the revocation action of the Chief of the Forest Service is any bar to consideration by the Forest Service...

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