Meadow Green-Wildcat Corp. v. Hathaway, GREEN-WILDCAT

• Decision Date: 09 January 1991
• Docket Number: No. 90-1788,GREEN-WILDCAT,90-1788
• Citation: 936 F.2d 601
• Parties: MEADOWCORPORATION, d/b/a Wildcat Mountain Ski Area, Plaintiff, Appellant, v. Michael B. HATHAWAY, etc., Defendant, Appellee. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 601

936 F.2d 601

MEADOW GREEN-WILDCAT CORPORATION, d/b/a Wildcat Mountain Ski

Area, Plaintiff, Appellant, v. Michael B. HATHAWAY, etc., Defendant, Appellee.

No. 90-1788.

United States Court of Appeals, First Circuit.

Heard Jan. 9, 1991.

Decided June 20, 1991.

Randall F. Cooper with whom Cooper, Fauver & Deans, P.A. was on brief, North Conway, for plaintiff, appellant.

Nancy E. Hart, Asst. U.S. Atty., with whom Jeffrey R. Howard, U.S. Atty., was on brief, Concord, N.H., for defendant, appellee.

Before BREYER, Chief Judge, ALDRICH, Senior Circuit Judge, and TORRUELLA, Circuit Judge.

BREYER, Chief Judge.

This case turns on the meaning of the word "error" in a land use permit that the Forest Service issued to a ski resort owner. See 16 U.S.C. Sec. 497. It raises a difficult question about the standard of review that a court should apply to the Forest Service's own interpretation of such a document. Ultimately, we decide that, for reviewing purposes, we should treat the permit (called a "Term Special Use Permit") as if it were a kind of contract between the Service and the resort owner. That is to say, we should allow the agency no more freedom to interpret the words of such a permit than were that permit a contract between a government agency and a private party. That being so, we conclude that the Forest Service incorrectly interpreted the word "error" in the Term Permit, and we reverse a district court judgment in its favor.

I Background

The background facts are fairly simple. In 1986 Meadow Green-Wildcat Corporation ("Meadow Green") bought the assets of Wildcat Mountain Corporation ("Wildcat"), a ski resort operated on federal land at Pinkham Notch, New Hampshire. In October 1986 the Forest Service issued Meadow Green a new Term Special Use Permit, allowing it to use this federally owned land for twenty years in return for a fee. See Appendix A. The Term Permit contained detailed rules for calculating that fee. The Term Permit said that, among other things, the Service would calculate the fee on the basis of Meadow Green's investment in the ski area assets, which the Permit stated was $5,049,853. The Permit's fee calculation rules call that investment "Gross Fixed Assets" or "GFA." The Term Permit also said, however, that the Service could recalculate the fee and apply the new fee retroactively if this $5,049,853 "GFA" figure was an "error." To be specific, the Term Permit stated the following:

As of April 30, 1986, the initial GFA under this ownership has been determined to be $5,049,853 as shown in detail on attached schedule, [sic] 1, "Gross Fixed Assets." If an error is found in the GFA amount, it shall be changed to the correct amount retroactive to the date the error occurred.

(Emphasis added.)

In 1989 Forest Service auditors announced they had found an "error" in the GFA amount. They said it should have been $3,195,911. The Service then recalculated the fee for 1986, 1987, and 1988. And, it asked Meadow Green to pay approximately $65,000 in additional fees for those years.

After exhausting its agency appeals, Meadow Green asked the federal district court to review, and to set aside, this agency determination. See 5 U.S.C. Sec. 701 et seq. It said the Service was wrong about the "error," for there was no error, and, in any event, the court should estop the agency from denying the $5 million figure. The district court granted summary judgment for the Service, and Meadow Green has appealed. In our view, the $5 million figure is not "an error" within the meaning of those words as used in the Permit. Consequently, the Service's determination was "not in accordance with law" and must be set aside. 5 U.S.C. Sec. 706(2)(A). Therefore, we need not reach the question of agency estoppel.

II The Standard of Review

A Forest Service regulation that defines a "Term Permit," the kind of permit now before us, says that such a Permit is "compensable according to its terms." 36 C.F.R. Sec. 251.51. The words "an error" are terms of the present Permit. Thus, the Service's revised fee is correct, and lawful, if the $5 million figure was "an error," but not otherwise. In deciding the meaning of the term "an error," however, are we to defer to the agency's interpretation of those words? In other words, are we to treat the Term Permit as if it were an agency regulation, or a statute in which Congress has delegated interpretive power to the administering body? See, e.g., Chevron v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984) (courts should defer to reasonable agency interpretations of statutes); Udall v. Tallman, 380 U.S. 1, 4, 85 S.Ct. 792, 795, 13 L.Ed.2d 616 (1965) (courts should give controlling weight to reasonable agency interpretations of regulations). Or, should we treat the Permit like a contract that the government might make with a private party, giving less weight to the agency's interpretation of the document's language, the meaning of which raises a "question of law?" See, e.g., Halifax Engineering, Inc. v. United States, 915 F.2d 689, 690 (Fed.Cir.1990); Shea and Schaengold, A Guide to the Court of Appeals for the Federal Circuit, Briefing Papers (December 1990) at 5 ("It is well established that the interpretation of a contract is a matter of law that may be freely decided by the Federal Circuit.").

We believe that for several reasons we should treat the Term Permit document rather like a contract for reviewing purposes. First, the Permit document itself reads like a contract. It provides long-term authority to use land in return for the permittee's payment of a rental fee. It is twenty-two pages long and contains a highly detailed set of terms and conditions. It uses contract-like language, such as "this permit may be revoked upon breach of any of the conditions herein." Both the Forest Supervisor and the permittee have signed the document, the latter placing his signature under the statement that he "agree[s]" that he "accepts and will abide by" the document's "terms and conditions." We think that the expectation of a person signing such a document is that its terms would bind both him and the Service. Although the terms of the document give the Service power to change various conditions, such as rental conditions, for the future, or even to revoke the Permit on 30 days notice, nothing in the document, or regulations, or authorizing statute suggests that the Service is to have some special advantage, not shared by the permittee, in interpreting the meaning of the document's terms. Indeed, it would seem surprising and unfair if the terms of this document, without so stating, bind the permittee but leave the other party (the Service) free to interpret those same terms as it wishes (limited only by the bounds of "reasonableness").

Second, the statutes that authorize the Forest Service to issue Term Permits state that their purpose is to allow the construction and operation of "hotels, resorts, and other [recreational] structures," 16 U.S.C. Sec. 497, all facilities that "are ... likely to require long-term financing." 16 U.S.C. Sec. 497b. These phrases suggest that one function of the permit is to offer a permittee the security needed to raise many millions of dollars in investment. It is difficult to reconcile the Service's desire for "deference" to its interpretation of the Permit with this purpose. We do not see how a document, the terms of which one party remains comparatively free to interpret to its own advantage, can provide the other party (and its financial backers) the security, stability, or assurance a large and long-term investment would seem to require.

Third, the Service's official regulations treat the Term Permit as if it were a kind of contract. As we have previously said, the regulations state that the Permit is "compensable according to its terms." 36 C.F.R. Sec. 251.51. Moreover, these regulations define a Term Permit very much as they define a "lease," an instrument the terms of which bind the parties. The first is defined as "a special use authorization to occupy and use ... land ... for a specified period which is both revocable and compensable according to its terms." The second is defined as a special use authorization which conveys a right of occupancy and use of ... land ... for a specified period and purpose and is both revocable and compensable according to its terms." Id. Moreover, the regulations say that a permittee may "sublet the use and occupancy of the premises." 36 C.F.R. Sec. 251.55(a). Further, these regulations reserve for the government specific rights, such as "continuing right of access," id. Sec. 251.55(b)(1), thereby suggesting that the permit grants other definite rights to the permittee. These regulations reiterate and elaborate upon the statutory expectation that a ski area permittee will make "existing on site investment" of considerable "magnitude," and that the "magnitude of planned facilities ... [will] require long-term financing and/or operation." 36 C.F.R. Sec. 251.56(b)(2)(E). Although the regulations also state that the Government is free to "revoke" or "terminate" the Permit in the manner and for the reasons specified by the Permit, a contract that one party may terminate for specified reasons is no less a contract. See Farnsworth, Contracts Sec. 2.14 at 77-78 (1982). And unless and until it is terminated, its terms govern actions taken by both parties.

Fourth, the authority that the Government cites for the contrary proposition offers it no real support. The Government cites Chevron, supra, which instructs the courts to pay particular attention to an agency's interpretation of its governing The government also refers to language in an unreported district court case quoted in a Court of Claims case called Mountain States Telephone and Telegraph Co. v. United States, 204 Ct.Cl. 521, 499 F.2d 611 (1974) which says, "[a] special use permit is not a lease." Id., 499 F.2d at 615-16....