Amber Resources Co. v. U.S.

• Decision Date: 25 August 2008
• Docket Number: No. 2007-5047.,No. 2007-5082.,2007-5047.,2007-5082.
• Citation: 538 F.3d 1358
• Parties: AMBER RESOURCES COMPANY, Aera Energy LLC, Delta Petroleum Corporation, Ogle Petroleum, Inc., Olac Resources, LLC, Poseidon Petroleum LLC, Total E & P USA, Inc., Plains Exploration & Production Co., Noble Energy, Inc., Anadarko E & P Company LP, and Devon Energy Production Company, L.P., Plaintiffs-Cross Appellants, and Nycal Offshore Development Corporation, Plaintiff, v. UNITED STATES, Defendant-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

538 F.3d 1358

AMBER RESOURCES COMPANY, Aera Energy LLC, Delta Petroleum Corporation, Ogle Petroleum, Inc., Olac Resources, LLC, Poseidon Petroleum LLC, Total E & P USA, Inc., Plains Exploration & Production Co., Noble Energy, Inc., Anadarko E & P Company LP, and Devon Energy Production Company, L.P., Plaintiffs-Cross Appellants, and Nycal Offshore Development Corporation, Plaintiff, v. UNITED STATES, Defendant-Appellant.

No. 2007-5047.

No. 2007-5082.

United States Court of Appeals, Federal Circuit.

August 25, 2008.

Steven J. Rosenbaum, Covington & Burling LLP, of Washington, DC, argued for plaintiffs-cross appellants. With him on the brief were E. Edward Bruce, Thomas J. Cosgrove, and Gina L. Paik.

Thomas G. Hungar, Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendant-appellant. On the brief were Jeanne E. Davidson, Director, Patricia M. McCarthy, Assistant Director, and Allison Kidd-Miller and Gregg M. Schwind, Trial Attorneys.

Before LOURIE, BRYSON, and GAJARSA, Circuit Judges.

BRYSON, Circuit Judge.

Over a period of years between 1968 and 1984, the federal government granted a number of leases to private entities to explore for and develop oil and gas resources in the outer continental shelf off the California coast. Because of court decisions construing a 1990 statute that was enacted after the leases were in place, the government took action that had the effect of preventing the lessees from continuing exploratory activities on the leased properties, at least temporarily. The owners of the leases then filed suit in the Court of Federal Claims claiming that the government had breached the lease agreements. The Court of Federal Claims agreed with the leaseholders, held that they were entitled to a restitutionary award as damages for the breach, and awarded them restitution in the amount of the funds that had been paid for the leases at the time the leases were executed. The government has appealed the finding of liability and the damages award. See Amber Res. Co. v. United States, 68 Fed.Cl. 535 (2005) ("Amber I"). The lessees have cross-appealed the trial court's denial of their request for additional damages attributable to costs incurred during the development of the leases. See Amber Res. Co. v. United States, 73 Fed.Cl. 738 (2006) ("Amber II"). We affirm the trial court's judgment in all respects.

I

Under the Outer Continental Shelf Lands Act ("OCSLA"), the federal government has jurisdiction and control over the outer continental shelf, which is defined as including all submerged land that is beyond the outer limits of state jurisdiction (ordinarily three nautical miles from shore) and within the limits of national jurisdiction (ordinarily 200 miles from shore). See 43 U.S.C. §§ 1331(a), 1332; see also id. § 1301 (defining navigable waters). The OCSLA allows the Secretary of the Interior to grant leases for the development of various natural resources in those submerged lands. Id. §§ 1337, 1344-46.

Once the Interior Department has granted a lease for the extraction of oil and gas resources in the outer continental shelf, the lessee must submit an exploration plan to the Secretary for approval before beginning exploration on the leased property. 43 U.S.C. § 1340(c)(1). After successful exploration, the lessee may submit a development and production plan, which is also subject to the Secretary's approval pursuant to statute. Id. § 1351. The leases are ordinarily set to expire in five years, unless they begin to produce oil or gas within that period, in which case the leases continue for as long as oil or gas is produced in paying quantities, or approved drilling or well reworking is continuing on the properties. Id. § 1337(b)(2).

If production has not started within the original term of the lease, the lessee can request that the Secretary of the Interior grant a suspension of the lease. As the trial court explained, "[l]essees frequently request suspensions to prevent lease expiration in the face of ongoing exploration or development activities that have not yet resulted in the production of oil in paying quantities." Amber I, 68 Fed.Cl. at 538. Because the lessee is entitled to continue preparatory activities on the leased property during a granted suspension, the lessees in this case refer to granted suspensions as "green light" suspensions. The effect of such a granted suspension is to extend the expiration date of the lease for a period equal to the length of the suspension. See 30 C.F.R. §§ 250.174, 250.180.

The Interior Department also has the authority to direct suspensions under circumstances specified by regulation, such as when the lessees' activities "pose a threat of serious, irreparable, or immediate harm or damage." 30 C.F.R § 250.172(b). During such "directed" suspensions, no offshore activity on the leases is permitted. For that reason, the lessees refer to directed suspensions as "red light" suspensions.

In 1972, Congress enacted the Coastal Zone Management Act ("CZMA"), which is directed to conservation within the coastal zone. Pub.L. No. 92-583, 86 Stat. 1280, codified at 16 U.S.C. § 1451 et seq. The coastal zone is defined as including the coastal waters and the adjacent shorelands. In the Great Lakes, it includes all waters extending to the international boundary between the United States and Canada, and in other areas it includes all waters under state jurisdiction, generally up to three miles from the shore.

The CZMA directs the federal government to encourage coastal states to develop coastal management plans. 16 U.S.C. § 1452. Once a state adopts a coastal management plan, section 307(c)(1) of the CZMA sets forth the obligation of federal agencies to act consistently with that plan. Id. § 1456(c)(1). At the time the leases at issue in this case were granted, section 307(c)(1) required each federal agency "conducting or supporting activities directly affecting the coastal zone" to do so "in a manner which is, to the maximum extent practicable, consistent with approved state management programs." 16 U.S.C. § 1456(c)(1) (1982).

A separate section of the CZMA, section 307(c)(3), provides that after the Secretary of Commerce approves a state's coastal management plan, any applicant for a federal permit to conduct an activity that affects land or water uses in the state's coastal zone is required to certify that its activity complies with the enforceable policies of the state's approved program. 16 U.S.C. § 1456(c)(3). If the state objects to the applicant's certification, the activity can go forward only if the Secretary of Commerce determines that the activity is consistent with the objectives of the CZMA or is otherwise necessary in the interest of national security. Section 307(c)(3) applies to the approval of lessees' exploration plans and to their development and production plans, but not to the processing of requests for lease suspensions.

In the series of transactions from which this case arose, the Mineral Management Service ("MMS") of the Department of the Interior granted a total of 40 leases off the coast of California to a number of separate operators. Thirty-five of those leases are at issue in this appeal. With one exception, the leases were all granted between 1979 and 1984; the one exception was a lease granted in 1968. The leases authorized the grantees to explore and develop oil and gas resources under the OCSLA. In consideration for their exploration and development rights, the lessees paid upfront "bonuses" to the government. Approximately $1.1 billion was paid as consideration for the leases at issue in this case. In addition, the lease agreements provided that the lessees would make annual rental payments and would pay royalties to the federal government on any resources produced. The plaintiffs in this case are either the original lessees or their successors-in-interest. Section 1 of each lease agreement incorporated by reference those statutes that were in effect at the time the lease agreements were executed. Except for the one lease granted in 1968, the incorporated statutes included the CZMA and the National Environmental Policy Act ("NEPA"), Pub.L. No. 91-190, 83 Stat. 852 (1970), codified at 42 U.S.C. § 4331 et seq.

The Interior Department initially held auctions for the oil and gas leases without making a determination under the CZMA that the sales were consistent to the maximum extent practicable with California's coastal management program. The Department did so because it regarded the sales of leases in the outer continental shelf as not "directly affecting" the coastal zone and therefore not triggering the provisions of the then-applicable version of section 307(c)(1) of the CZMA. The State of California filed suit in federal court challenging the Department's interpretation of the statute. That issue ultimately reached the Supreme Court, and in 1984 the Court upheld the Department's position in Secretary of the Interior v. California, 464 U.S. 312, 104 S.Ct. 656, 78 L.Ed.2d 496 (1984).

In 1990, Congress amended section 307(c)(1) of the CZMA, changing the statute in ways that are of central importance to this case. First, Congress altered the coverage of the statute from applying to activity that "directly affect[s]" the coastal zone to applying to "each ... activity within or outside the coastal zone that affects any land or water use or natural resource of the coastal zone." 16 U.S.C. § 1456(c)(1). The Conference Report on the amendments indicated that the change was designed to overturn the Supreme Court's decision in the California case and "to make clear that the outer Continental Shelf oil and gas lease sales are subject to the requirements of section 307(c)(1)." H.R.Rep. No. 101-964, at 970 (1990) (Conf. Rep.), as reprinted in 1990 U.S.C.C.A.N. 2374, 2675. The Conference Report added: "The amended provision establishes a generally...