Sierra Pacific Industries v. Lyng

Decision Date25 January 1989
Docket Number87-3799 and 87-3835,86-15012,Nos. 86-2708,86-2718,86-2994,s. 86-2708
Citation866 F.2d 1099
Parties35 Cont.Cas.Fed. (CCH) 75,617 SIERRA PACIFIC INDUSTRIES, a California corporation; Pine Mountain Lumber Co., a California corporation; George A. Schmidbauer; Mary M. Schmidbauer; Schmidbauer Lumber, Inc., a California corporation, Plaintiffs-Cross Appellees, and Eel River Sawmills, Inc., a California corporation; Erickson Lumber Co., a California corporation; Hi-Ridge Lumber Co., a California corporation; P & M Cedar Products, Inc., a California corporation, Plaintiffs-Appellants-Cross Appellees, v. Richard LYNG, * Secretary of the United States Department of Agriculture; R. Max Peterson, Chief of the United States Forest Service; Zane G. Smith, Jr., Regional Forester for Region 5 of the United States Forest Service, Defendants-Appellees-Cross Appellants. BIG FLAT TIMBER CO., a California general partnership; Suntip Co., an Oregon general partnership; Hampton Tree Farms, Inc., an Oregon corporation; Roseburg Lumber Co., an Oregon corporation; Publishers Paper Co., a Delaware corporation; Penn Timber, Inc., an Oregon corporation; Merrill & Ring, Inc., a Washington corporation; Wilsonville Timber Co., Ltd., an Oregon partnership, Plaintiffs-Cross Appellees, and Willamette Industries, Inc., an Oregon corporation, Plaintiff-Appellant- Cross Appellee, and Pedee Lumber Co., an Oregon corporation; Alpine Veneers, Inc., an Oregon corporation, Plaintiffs-Intervenors, v. Richard LYNG, Secretary of the United States Department of Agriculture; R. Max Peterson, Chief of the United States Forest Service; James F. Torrence, Regional Forester for Region 6 of the United States Forest Service, Defendants-Appellees-Cross Appellants.
CourtU.S. Court of Appeals — Ninth Circuit

Wesley R. Higbie, Hendrickson, Higbie & Cole, San Francisco, Cal., for plaintiffs-appellants-cross appellees Eel River Sawmills, Inc., et al.

James N. Westwood, Miller Nash, Wiener, Hager & Carlsen, Portland, Or., for plaintiff-appellant-cross appellee Willamette Industries, Inc. Dirk D. Snel, Dept. of Justice, Land and Natural Resources Div., Washington, D.C., for defendants-appellees-cross appellants.

James H. Clarke, Spears, Lubersky, Campbell, Bledsoe, Anderson & Young, Portland, Or., for plaintiff-cross appellee Publishers Paper Co.

Mildred J. Carmack, Schwabe, Williamson & Wyatt, Portland, Or., for plaintiffs-cross appellees Penn Timber, Inc., et al.

Appeal from the United States District Court for the Northern District of California.

Appeal from the United States District Court for the District of Oregon.

Before GOODWIN, SCHROEDER and POOLE, Circuit Judges.

POOLE, Circuit Judge:

Plaintiffs, logging and timber firms, brought separate actions in California and Oregon against defendants, the Secretary of Agriculture and U.S. Forest Service officials, challenging the validity of regulations issued to implement Sec. 2 of the Federal Timber Contract Payment Modification Act, 16 U.S.C. Sec. 618 (Supp. IV 1986) ("the Act"). The Act allows holders of certain federal timber contracts to be released from their contractual obligations upon payment of a "buy-out" charge. The plaintiffs appeal those portions of the district courts' orders sustaining three of the regulations, and the government appeals those portions which hold that the effective date of the release must be adjusted to reflect the Secretary's delay in implementing the regulations. We affirm in part, reverse in part and remand for further proceedings.

BACKGROUND 1

The National Forest System is administered by the Secretary of Agriculture through the United States Forest Service. Pursuant to 16 U.S.C. Sec. 472a (1982), the Forest Service sells to private companies the rights to cut and sell timber grown on National Forest System lands. 2 For each designated tract, the Forest Service estimates the volume of merchantable timber and the appraised value so that prospective purchasers can prepare bids. A timber sale contract is awarded to the highest qualified bidder.

Each timber sale contract obligates the purchaser to cut and remove all included timber from the designated tract within a certain period, usually three to five years. Under these contracts, actual payment is not based on the estimated volume; rather, the purchaser pays the contract rate multiplied by the actual volume of merchantable timber removed. In the event of failure to perform, the purchaser is obligated to pay damages to the U.S. in the amount of the difference between the contract price and the price at which the timber can be resold.

Between 1977 and 1980, a combination of economic factors caused many timber companies to bid for timber at three to four times the Forest Service appraised value. In the early 1980's, however, the market for forest products declined substantially, leaving timber companies with contract obligations far above the market value of the timber. Strict enforcement of contract deadlines threatened to force many timber companies out of business, devastating communities which were dependent on the forest products industry.

The Forest Service responded to this economic situation by authorizing extraordinary extensions of time for contract performance, based on a finding of substantial overriding public interest pursuant to 16 U.S.C. Sec. 472a(c)(B). The extension policies announced in May 1980 and October 1981 became known as "Soft I" and "Soft II" respectively. A third extension policy was In July 1983, the President authorized the Secretary of Agriculture to extend certain timber sale contracts for up to five years without requiring the purchaser to pay interest. This policy was known as the Multi-Sale Extension Program (MSEP). In order to qualify, a purchaser had to agree to modify his contracts to include certain conditions. The major requirement was that the purchaser establish a harvest schedule reflecting proportionate harvesting of all timber remaining in the extended contracts. 3

announced in November 1982. At first, these extension policies required the timber companies to make interim monthly payments (extension deposits) during the term of the extension. In 1982, however, the government authorized deferral of extension deposits until just before harvesting, provided that the purchaser paid interest for the deferral period.

In 1984, Congress passed the Federal Timber Contract Payment Modification Act, and it was signed by the President on October 16, 1984. Pub.L. 98-478, 98 Stat. 2213 (1984). The Act ratified the MSEP (with one modification not relevant here) as implemented by the Secretary of Agriculture. 16 U.S.C. Sec. 618(b). The Act also authorized and directed the Secretaries of Agriculture and Interior to permit purchasers to return a certain number of timber contracts upon payment of a "buy-out" charge. 16 U.S.C. Sec. 618(a).

Under Sec. 2(a)(6)(A) of the Act, the Secretaries were directed to publish final rules for the implementation of the Act within 90 days after enactment. 16 U.S.C. Sec. 618(a)(6)(A). On January 4, 1985, the Forest Service published for comment its proposed rules, along with proposed modifications to the MSEP to accommodate the effects of the Act. Final rules for implementing the Act were not published until June 27, 1985; final rules modifying the MSEP were published on August 7, 1985.

PROCEEDINGS BELOW

In August 1985, ten plaintiffs sued the Secretary of Agriculture and Forest Service officials in the District of Oregon, challenging the validity of seven of the final buy-out regulations. In September 1985, nine different plaintiffs filed a substantially identical complaint in the Northern District of California, challenging six of the final regulations.

On August 8, 1986, the district court in California (Judge Samuel Conti, presiding) issued its opinion on the parties' cross motions for summary judgment. Sierra Pacific Industries v. Block, 643 F.Supp. 1256 (N.D.Cal.1986). The court upheld substantially all of the regulations, 4 but it also held that the Secretary's delay in promulgating the regulations required that the effective release date of each contract be adjusted by the length of the delay. The Secretary appeals the latter ruling, and four of the plaintiffs ("the California appellants") appeal the grant of summary judgment as to three of the regulations.

On February 2, 1987, the district court of Oregon (Judge Helen Frye, presiding), relying in part on the decision in the California litigation, issued an unpublished opinion. The Oregon decision followed the California ruling on the implementation delay. Judge Frye also granted summary judgment for the plaintiffs as to one of the regulations, holding that the government had failed to give adequate notice in promulgating the regulation. Summary judgment was granted for the defendants on the remaining claims. The Secretary appeals the ruling regarding the implementation delay, and plaintiff Willamette Industries appeals the grant of summary judgment as to its first claim.

STANDARD OF REVIEW

The district court's grant of summary judgment is reviewed de novo. Zarr v. Barlow, 800 F.2d 1484, 1486 (9th Cir.1986). The regulations at issue are final rules promulgated under Sec. 2(a)(6)(A) of the Act; consequently, they are subject to judicial review in accordance with the Administrative Procedure Act, 5 U.S.C. Secs. 701 et seq. (1982) ("the APA"). The APA provides that final agency action shall be held unlawful and set aside if it is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law," or if it was taken "without observance of procedure required by law." 5 U.S.C. Sec. 706(2)(A) & (D).

Review under the "arbitrary and capricious" standard is narrow, and a court may not substitute its judgment for that of the agency. Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856,...

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