Century Exploration New Orleans, LLC v. United States

• Citation: 745 F.3d 1168
• Decision Date: 18 July 2014
• Docket Number: No. 2013–5073.,2013–5073.
• Parties: CENTURY EXPLORATION NEW ORLEANS, LLC, Plaintiff–Appellant, and Champion Exploration, LLC, Third Party Plaintiff–Appellant, v. UNITED STATES, Defendant–Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

745 F.3d 1168

CENTURY EXPLORATION NEW ORLEANS, LLC, Plaintiff–Appellant,andChampion Exploration, LLC, Third Party Plaintiff–Appellant,

v.UNITED STATES, Defendant–Appellee.

No. 2013–5073.

United States Court of Appeals,Federal Circuit.

March 14, 2014.

Rehearing and Rehearing En Banc Denied July 18, 2014.^*

Richard K. Leefe, Leefe, Gibbs, Sullivan, & Dupré, of Metairie, LA, argued for plaintiff-appellant. With him on the brief were Michael R. Gelder and James K. Sticker, III.

Guy E. Wall, Wall Bullington & Cook, LLC, of New Orleans, LA, argued for third party plaintiff-appellant.

Gregg M. Schwind, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendant-appellee. With him on the brief were Stuart F. Delery, Assistant Attorney General, Jeanne E. Davidson, Director, and Steven J. Gillingham, Assistant Director. Of counsel on the brief was Matthew T. Ballenger, Attorney Advisor, Office of the Solicitor, United States Department of the Interior, of Washington, DC.

Before LOURIE, DYK, and WALLACH, Circuit Judges.

DYK, Circuit Judge.

Appellants Century Exploration New Orleans, LLC (Century) and Champion Exploration, LLC (Champion) appeal from a judgment of the Court of Federal Claims (Claims Court) granting summary judgment to the government on the issue of breach of contract.

Century and Champion are in the business of oil and gas exploration, development, and production. They jointly leased the mineral rights to land on the Outer Continental Shelf from the government. The terms of their lease allowed the government to change existing regulatory requirements under the Outer Continental Shelf Lands Act of 1953 (OCSLA), 43 U.S.C. § 1331 et seq. The appellants argue the government breached their lease because it imposed additional regulatory requirements pursuant to the Oil Pollution Act (OPA), 33 U.S.C. § 2701 et seq. We agree with the Claims Court that the government made these changes pursuant to OCSLA, not OPA, and we affirm.

Background

Appellants Century and Champion obtained an oil and gas lease from the government for a 5760–acre tract called Block 920, Ewing Bank (EW920) located on the Outer Continental Shelf. They made an initial bonus payment of $23,236,314 to acquire the lease and have paid the government additional rental payments of $9.50 per acre, per lease year—$54,720 per year—since that initial payment. The lease (Lease No. OCS–G 32293) became effective on August 1, 2008, and had an initial term running through July 31, 2016. Section 1 of the lease provided:

This lease is issued pursuant to the Outer Continental Shelf Lands Act of August 7, 1953, 67 Stat. 462[,] 43 U.S.C. § 1331 et seq., as amended (92 Stat. 629), (hereinafter called the “Act”). The lease is issued subject to the Act; all regulations issued pursuant to the Act and in existence upon the Effective Date of this lease; all regulations issued pursuant to the statute in the future which provide for the prevention of waste and conservation of the natural resources of the Outer Continental Shelf and the protection of correlative rights therein; and all other applicable statutes and regulations.

J.A. 88.

In Mobil Oil Exploration & Producing Southeast, Inc. v. United States, the SupremeCourt interpreted a lease provision that was nearly identical to the one at issue here. 530 U.S. 604, 120 S.Ct. 2423, 147 L.Ed.2d 528 (2000).¹ In Mobil Oil, the question was whether certain oil company leases were subject to a new statute, the Outer Banks Protection Act, 33 U.S.C. 2753 (1990), 104 Stat. 555 (repealed 1996), which was enacted after the leases were signed and changed the requirements applicable to the lessees. Mobil Oil, 530 U.S. at 611–13, 120 S.Ct. 2423. The Court held that the leases were subject to all statutes and regulations in existence as of their effective date, but, as to future regulations, were subject only to OCSLA regulations issued after the effective date of the leases. Id. at 615, 120 S.Ct. 2423. Thus, the Court concluded that the government's imposition of new regulatory requirements pursuant to the Outer Banks Protection Act breached the leases. Id. at 620, 120 S.Ct. 2423. Here, appellants similarly claim that the government changed regulatory requirements after the effective date of their lease pursuant to OPA, not OCSLA.

On April 20, 2010, an explosion and fire on the Deepwater Horizon oil rig—a semi-submersible drilling rig located in the Gulf of Mexico—killed eleven workers and resulted in an oil spill that lasted several months. Although the rig was equipped with a blowout preventer—a mechanism designed to stop the flow of oil in the event of a blowout—this device failed to function after the accident. By the time the drill operator finally managed to cap the oil well on July 15, 2010, 87 days after the initial blowout, 4.9 billion barrels of crude oil had been released into the gulf. As a result of the spill, the government imposed new regulatory requirements, which the appellants urge increase the cost of their required bond. The question is whether these requirements were imposed under OCSLA or OPA.

On January 25, 2011, Century filed a three-count complaint in the Claims Court. In its complaint, Century asserted that, as a result of these new regulations, “the government breached its lease agreement with plaintiffs (Count I); that it effected an uncompensated taking of its private property in violation of the Fifth Amendment (Count II); and that the government's activities may have given rise to other, unspecified causes of action (Count III).” J.A. 23. In support of its breach claim, Century alleged that the government's changes to the applicable regulations violated various sections of the Administrative Procedure Act (APA), 5 U.S.C. §§ 553, 706, were therefore unauthorized, and breached the lease. On September 12, 2011, Champion filed a complaint against the government, adopting the allegations Century set forth in its complaint. Since this appeal is exclusively concerned with the appellants' breach claims, we confine our discussion to that issue.

On July 13, 2012, the government filed a motion for summary judgment on the appellants' breach of contract claims. The government argued that it had not breached the appellants' lease. In the alternative, the government argued that even if it had breached the contract, the sovereign acts doctrine shielded it from liability. The appellants filed a cross-motion for partial summary judgment, seeking a determination that the government was liable for breach of contract.

In response to these motions, the Claims Court granted summary judgment to the government, holding that it did not breach any express term of the lease. The Claims Court also found that the government did not breach its implied duty of good faith and fair dealing. With respect to the appellants' APA challenges, the court held that it did not possess subject matter jurisdiction to hear such claims. In the alternative, the Claims Court held that the government was not liable under the sovereign acts doctrine. The Claims Court entered a final judgment under Federal Rule of Civil Procedure 54(b) in favor of the government, dismissing the appellants' breach of contract claims with prejudice.

Century and Champion timely appealed, and we have jurisdiction pursuant to 28 U.S.C. § 1295(a)(3). We review the grant of summary judgment de novo. United States v. Great Am. Ins. Co. of N.Y., 738 F.3d 1320, 1329 (Fed.Cir.2013). The interpretation of the lease is also an issue of law that we review de novo. C. Sanchez & Son, Inc. v. United States, 6 F.3d 1539, 1544 (Fed.Cir.1993).

Discussion

I. Express Breach

The principal issue presented in this appeal is whether the government breached any express term of Century and Champion's lease. As discussed above, the Supreme Court considered a nearly identical oil lease provision in Mobil Oil. The Court held that the lease should be interpreted to protect the lessees from new statutes, new non-OCSLA regulations, and changes to the text of OCSLA itself. Mobil Oil, 530 U.S. at 616, 120 S.Ct. 2423. But the lessees were required to comply with changes in OCSLA regulations. As the Court explained:

[t]he lease contracts say that they are subject to then-existing regulations and to certain future regulations, those issued pursuant to OCSLA [and certain other statutes].... This explicit reference to future regulations makes it clear that the catchall provision that references “all other applicable ... regulations,” must include only statutes and regulations already existing at the time of the contract, a conclusion not questioned here by the Government.

Id. at 616, 120 S.Ct. 2423 (second omission in original) (internal citation omitted). This court followed the Supreme Court's interpretation of the lease language in Amber Resources Co. v. United States, 538 F.3d 1358, 1368 (Fed.Cir.2008), and held that similar lease language only obligated compliance with future changes to OCSLA regulations. Id. at 1362–63, 1368.

A

Initially, some description of OCSLA and OPA is useful. OCSLA provides that the United States, and not the individual states, shall have jurisdiction and control over the submerged lands of the Outer Continental Shelf.²43 U.S.C. § 1332(1); see Barker v. Hercules Offshore, Inc., 713 F.3d 208, 213 (5th Cir.2013) (“OCSLA asserts exclusive federal question jurisdiction over the OCS.”). Congress enacted OCSLA to ensure that a “vital national resource reserve held by the Federal Government for the public” would be “made available for expeditious and orderly development, subject to environmental safeguards, in a manner which is consistent with the maintenance of competition and other national needs.” 43 U.S.C. § 1332(3). In furtherance of this objective, the Department of Interior (Interior Department) enters into mineral leases with private parties. These mineral leases authorize private part...