Federal Court Caps OCS Oil and Gas Lease Sale, Sketches New Horizons for OCS Lands Act

For the second time in less than a year, a federal district court has enjoined the Department of the Interior's program to accelerate development of outer continental shelf (OCS) petroleum resources off the shores of the middle Atlantic states. On January 28, 1978, only three days prior to the formal commencement of the sale of leases to tracts for oil and gas development in the Georges Bank region of the mid-Atlantic¹, Federal District Judge Arthur Garrity, in Massachusetts v. Andrus,² preliminarily enjoined the Secretary of the Interior from receiving or opening any bids in connection with the sale, finding that the Secretary's last-minute decision to proceed was contrary to his duties under the Outer Continental Shelf Lands Act (OCSLA),³ the National Environmental Policy Act (NEPA),⁴ and the Administrative Procedure Act (APA).⁵ On January 30, the day before the scheduled sale, defendants and intervenors brought an emergency appeal before the First circuit Court of Appeals, which declined to stay the injunction, expressing an inability to declare the lower court's order either arbitrary or patently erroneous.⁶ The parties have agreed to file briefs with the appellate court on an expendited basis, and a full hearing has been scheduled for early March.

The lower court's opinion is a rich gumbo of innovative legal interpretations which, if upheld on appeal and supported by the district court's subsequent opinion on the merits, may establish important precedent with respect to OCS leasing, NEPA litigation, and other areas of environmental law as well. In the short term, however, the most significant consequence of the decision is that a small but visible component of the Carter Administration's push to develop new sources of energy while accepting greater environmental risks has been sidetracked.

Atlantic OCS Development: Phase Two

The federal government's plan to develop the petroleum resources of the Georges Bank region is but one aspect of a long-range developmental initiative originating with the enactment of the OCSLA in 1953. In the 1950s and 1960s, public concern over environmental dangers and the prospect of higher economic returns acted to confine Outer Continental Shelf oil and gas development largely to coastal waters in the Gulf of Mexico. But in response to the Middle East oil embargo in 1973, President Nixon acted to accelerate and expand the OCS program, and this expansion led to proposals for the public auction of development leases within the two areas of the mid-Atlantic OCS thought to contain significant oil deposits: the Baltimore Canyon, off the New York and New Jersey shores, and the Georges Bank region,⁷ off the coast of Massachusetts.

County of Suffolk

Prior to the 1976 sale of leases in the Baltimore Canyon, the County of Suffolk, the State of New York, and other plaintiffs obtained a preliminary injunction against the sale on the grounds that the Department of the Interior had not complied with the requirements of NEPA. The federal district court found that the Department's environmental impact statement (EIS) inadequately anticipated both the range and magnitude of the onshore impacts of the project and therefore provided an insufficient basis on which to decide to proceed with the sale. Plaintiffs' victory was sweet but short-lived; within days the preliminary injunction was lifted by the Second Circuit, which found no validity to plaintiffs' claim that they would suffer irreparable injury from the mere opening of bids by the Secretary. These sentiments were echoed by United States Supreme Court Justice Marshall in his denial of the application for emergency relief from the stay.⁸ The Justice reminded the parties that the sales could be subsequently voided should it appear after a full hearing on the merits that the EIS was legally insufficent.

As if on cue, the district court did exactly that six months later. In his second confrontation with the case, Judge Weinstein expanded the bases of his earlier rejection of the EIS to include the Department's unrealistic estimates of the economic costs and benefits of the extraction process, its failure to consider the [8 ELR 10049] possibility of separating exploratory and production leasing, and other fatal deficiencies.⁹ Not mistaking the writing on the wall, however, Judge Weinstein stayed the effect of his own injunction pending review by the Second Circuit.

In an unusually creative application of FED. R. CIV. P. 52(a), which makes a trial court's findings of fact binding unless "clearly erroneous," the court of appeals reversed, principally on grounds of error in the assessment of the materiality of the NEPA violations.¹⁰ Minor insufficiencies, the court ruled, may be cured in later stages of project development since the sale of the leases does not constitute an irrevocable commitment to develop the resource. This ruling followed in logical sequence the court's previous determination that the mere acceptance of bids for leases is not irrevocable, but it left unanswered the question of when the point of irrevocability is reached. The search for the point of no return, moreover, appears to be at odds with the general NEPA mandate that all environmental factors be given the fullest possible consideration at the earliest practicable stage in the decision-making process.¹¹

Massachusetts v. Andrus

The Baltimore Canyon controversy parallels in many ways the Georges Bank dispute. In each case, the locality shouldering the greatest threat of environmental harm challenged the adequacy of the Secretary's NEPA procedures and sought emergency injunctive relief only days before the scheduled opening of bids. But there are crucial distinctions between the two cases. The Georges Bank fishing ground is an area of ecological richness virtually unmatched among the nation's OCS waters. Estimates of the area's contributions to the total world fish protein harvest range as high as 15 percent.¹² Whereas the prevailing winds and currents are expected to move any future oil spills from Baltimore Canyon tracts out to sea, spills in the Georges Bank region would likely migrate shoreward, posing more immediate and extreme damage to the coastline and coastal waters.

Aside from the physical differences between the two areas, there have been several significant legislative developments which have served to set the Massachusetts litigation on a somewhat different footing than that in County of Suffolk. The Fisheries Conservation and Management Act (FCMA),¹³ which became effective in 1977, directs the Secretary of the Interior, with the assistance of Regional Fishery Management Councils, to supervise more closely and protect more fully the nation's fishery resources out to the 200-mile limit. At the time of the Massachusetts litigation, both houses of Congress had considered and the Senate had passed amendments to the OCSLA providing strengthened controls over off-shore energy development.¹⁴ Thus, due to the different factual and statutory background against which the Georges Bank sale was taking place, plaintiffs in Massachusetts v. Andrus were able to advance a far more substantive challenge to the Secretary's decision than had plaintiffs in County of Suffolk.

The foundation of plaintiffs' case in Massachusetts was that under the OCSLA, particularly in light of the recently renewed declaration of congressional policy to preserve OCS waters and fishery resources within the amendments to the Coastal Zone Management Act (CZMA)¹⁵ and the FCMA, the Secretary is at all times under a strict duty to ensure that his actions do not result in the degradation of the character of OCS waters or the fishery resources therein. Therefore, plaintiffs argued, the Secretary's decision to proceed with an undeniably hazardous program without waiting for the imminent enactment of protective legislation violates the high standard of care to which he is subject and is enjoinable. In the way of further independent grounds for relief, plaintiffs argued that the EIS prepared in connection with the sale was materially inadequate under NEPA primarily because it failed to weigh the costs and benefits of the alternative of waiting for the new legislation.

The District Court Opinion

Judge Garrity's finding that plaintiffs were likely to prevail on the merits reveals his conviction of the soundness of their novel positions. Despite some initial difficulty over a perceived ambiguity within § 1332(b)¹⁶ of the OCSLA, the judge read that provision, in conjunction [8 ELR 10050] with the FCMA and the recent amendments to the CZMA, to appoint the Secretary of the Interior, in effect, as the "guardian" of fishing resources in OCS waters. The court then held that the Secretary's decision to proceed with the lease sale without waiting for enactment of the OCS amendments was inconsistent with the fiduciary and affirmative duties ascribed to him under those statutes.

Moreover, the means by which the Secretary arrived at that decision reveals that it was conducted with a high regard for expediency and the interests of the prospective bidders and a concomitant disregard for environmental values. In support of this finding the opinion cites at relative length from statements and press releases issued by the Secretary. The court was rankled by his expression of intent at one point not to decide whether to hold the sale until the day before it had been scheduled and at other points that he intended to go through with the sale largely because he had given his word on the matter to the oil industry. To the court, the OCSLA, and even more so the impending amendments, impose upon the leasing process an exacting and detailed regulatory regime precisely to avoid this type of ill-conceived, eleventh-hour decision making. Even were the Secretary's behavior not voidable under the OCSLA, the court went on, it exceeds the notions of balance and good faith implicit in the "arbitrary and capricious" standard of the APA.¹⁷

In its defense, the Department of the Interior argued that there was no need to postpone the sale; should Congress choose to enact protective legislation, which was still an open question, it could do so retroactively. Alternatively, the department could promulgate regulations under the Act which would have the same purpose and effect. The court, however, was wary of this argument because of the decision in Union Oil v. Morton,¹⁸ which held that the property rights in oil leases are determined with respect to regulations in effect at the time of purchase. Under that rationale, the subsequent adoption of legislation or regulations which are retroactive in application might constitute an unconstitutional taking of private property under the Fifth Amendment. Constitutional problems notwithstanding, Congress might simply choose not to give the amendments retroactive application. In the court's opinion, the advantage to plaintiffs in holding up the sale is further underscored by the holding in Union Oil that the Secretary is powerless under the Act to cancel premanently leases shown to be excessively hazardous to the environment, a shortcoming which would be corrected by the proposed amendments.

NEPA Violations

The court also held that the Secretary had been derelict in his obligations under the OCSLA by proceeding with the sale on the basis of an EIS which was inadequate under NEPA.¹⁹ The principal NEPA violation cited by the court was the lack of a careful discussion of the costs and benefits resulting from a short delay in the sale. Should the proposed OCSLA amendments be enacted, they would entail a cognizable ecological benefit to all OCS waters, particularly the Georges Bank region. Although such benefits do not easily lend themselves to precise quantification, they must be adequately identified and evaluated in order to be balanced against conflicting considerations. Similarly, the EIS neglected the "cost" aspect of the equation: the economics of delay and the difficulties in retroactive application of the amendments.

In what appears to be an unprecedented application of NEPA, Judge Garrity held that although the EIS directed plentiful attention to the project impacts upon aquatic life and the marine environment, it was nevertheless legally inadequate for failure to raise the possibility of the designation of the area as a marine sanctuary.²⁰ The effect of such a designation would be to prohibit all activities inconsistent with the unique characteristics of the area, a prohibition which would almost certainly include mineral extraction. By failing to discuss the possibility of such a designation, the EIS precluded the option of determining whether it would be in the national interest to preserve the area for its marine resources and food production capability instead of using it for its oil and gas reserves.

A considerable portion of the opinion focused on a careful balancing of the harms facing each party as a result of the grant or denial of the requested relief. This analysis undoubtedly reflects Judge Garrity's desire to save his opinion from the fate of Judge Weinstein's. The court took pains to distinguish County of Suffolk by pointing to the imminent appearance in this case of federal legislation which would radically affect the rights, obligations, and relationships of the parties. A lesser but equally imminent injury was the probable havoc the lease agreements would wreak upon the Regional Fishery Management Plan, which was approaching readiness to be submitted to the Secretary of Commerce for approval under the Fisheries Conservation and Management Act and which would be rendered moot to a large extent by the sale of the leases. In addition, plaintiffs were threatened with the imminent loss of the opportunity of preserving the Georges Bank region as a marine sanctuary because once the bids were accepted, the opportunity to secure that designation would be irretrievably lost.

This impending harm to plaintiffs was balanced against the economic costs to the intervenors and federal defendants in the event of delay of the sale. The court painstakingly dissected these costs and dismissed them as either reasonably foreseeable incidents of transactions of this nature or an insignificant loss of opportunity cost which would be easily borne by the taxpayers. When cast in these terms, the balance of hardships swung appreciably more in favor of plaintiffs than was the case in County of Suffolk.

Stay Denied by Court of Appeals

The First Circuit's denial of the government's appeal of the district court's injunction offers little indication of [8 ELR 10051] Judge Garrity's success in attempting to avoid the fate of Judge Weinstein by remaining within the "rule of reason." It was with that principle, which requires reviewing courts to limit their scrutiny of an EIS to the reasonableness of its conclusions, that the Second Circuit supported its reversals of the district court in County of Suffolk. The appellate court's brief memorandum reserved this issue for plenary review, and placed greater emphasis on the constraints to which it is subject on summary review of interlocutory orders. Plaintiffs must have taken heart, however, at the absense of hostility similar to that displayed by the Second Circuit in County of Suffolk,²¹ as well as from the statement with which the court concluded its findings:

In sum, when dealing with a resource, such as the Georges Bank fishery, which, as the district court says, "has taken millions of years to accrue and will be with us for better or worse for untold centuries to come," a delay of several months in order to give meaningful judicial consideration to these questions seems not unreasonable. There may be issues more serious than ones involving the future of the oceans of our planet and the life within them, but surely they are few.²²

Conclusions

Judge Garrity's progressive reading of the OCSLA will have profound implications for future OCS development of all types if it is sustained on review, but that prospect seems unlikely. The preliminary injunction is premised largely on a construction of § 1332(b) which would have the Secretary pursue the goal of environmental sanctity to the virtual exclusion of all others. In view of the Act's recurring theme of harmonizing the conflicting objectives of environmental protection and accelerated development, a better interpretation would have the Secretary wear the twin hats of protector and developer. Even this view of the Secretary's OCSLA duties, however, would probably not justify his handling of the Georges Bank sale under the procedural requirements of NEPA or the APA.

Procedural issues aside, by restraining a major federal program with national and international significance pending future legislative action, Judge Garrity appears to have ventured into uncharted and potentially hazardous waters. The dangers in this practice are less evident in this case, where on the facts the Secretary's actions were so clearly questionable, but under more typical circumstances this judicial policy would likely be viewed as inappropriate. The legislative process is simply too unpredictable a basis on which to hinge the functions of the executive branch. For example, had the Georges Bank sale been delayed pending enactment of the "national energy plan," which has at times appeared close to passage, this phase of the accelerated OCS development program would still be at square one. (Indeed, current speculation is that much of the Administration's energy package may never make it out of Congress.)

The district court's granting of a preliminary injunction appears grounded on a calculus which merits greater attention. Certainly the imminence of the pending legislation is a crucial factor in this determination. Equally important is the clarity of the legislation's terms and the directness of its impact upon the activity to be undertaken. What would the court's approach have been had the environmental safeguards contained within the forthcoming amendments been either ambiguous or relatively inconsequential? Another important variable must be the nature and degree of defendant's dutyof care. Perhaps Judge Garrity would have been less comfortable bringing the lease sale to an abrupt halt had he not first laid a foundation by declaring the Secretary "the guardian" of OCS fishery resources. Under the unusual facts of this case, each of these three criteria argued compellingly in favor of injunctive relief. Nevertheless, at this point it is an open question whether the district court's order will survive review in the First Circuit. Under more usual circumstances, the concept of "waiting for new law" will probably prove less viable or will at least require more rigorous substantiation and analysis.

As is not infrequently the case with respect to preliminary injunctions, plaintiffs in Massachusetts v. Andrus have been virtually assured of victory regardless of the ultimate disposition on the merits. At a bare minimum, it should take two months for the First Circuit to decide the case, and for Interior, should that opinion be favorable, to reschedule the sale.²³ In that time, the conference committee considering the OCSLA amendments will probably have ironed out its differences and sent a bill on to the President. If not, Congress could still request the Secretary to hold up the sale for a few more weeks. A third possibility is that the Department of the Interior will voluntarily exercise self-restraint, thereby giving substance to the Administration's recent pledge to give the "fullest possible protection to the environment" in managing the nation's OCS resources.²⁴

1. The Georges Bank region of the mid-Atlantic lies approximately 63 to 200 miles southeast of Nantucket Island, Massachusetts.

2. Nos. 78-1036, -1037, 8 ELR 20187 (D. Mass. Jan. 28, 1978).

3. 43 U.S.C. § 1331-1343, ELR STAT. & REG. 41435.

4. 42 U.S.C. §§ 4331-4361, ELR STAT. & REG. 41009.

5. 5 U.S.C. §§ 500-503, 701-706, ELR STAT. & REG. 41001, 41005.

6. Massachusetts v. Andrus, No. 78-184 G, 8 ELR 20192 (1st Cir. 1978).

7. See generally, Comment, CEQ's Report on Outer Continental Shelf Oil and Gas Development: Recommendations for Institutional and Legal Modifications, 4 ELR 10070 (1974).

8. New York v. Kleppe, 97 S. Ct. 4 (1976).

9. County of Suffolk v. Secretary of the Interior, 7 ELR 20230, (E.D.N.Y. 1977). See generally, Comment, Interior's Failure to Comply with NEPA Blocks Atlantic OCS Oil Leasing, 7 ELR 10067 (1977).

10. County of Suffolk v. Secretary of the Interior, 7 ELR 20637 (2d Cir. 1977). See generally, Comment, Second Circuit Puts Atlantic OCS Oil Development Back in Business, 7 ELR 10192 (Oct. 1977).

11. Kleppe v. Sierra Club, 427 U.S. 390, 6 ELR 20532 (1976); Council on Environmental Quality, Preparation of Environmental Impact Statements: Guidelines, 40 C.F.R. pt. 1500.02(a), ELR STAT. & REG. 46003. But cf. City of San Diego v. Andrus, 7 ELR 20754 (S.D. Cal. 1977) (EIS is not required until the decision to proceed with the lease sale has been reached.

The last chapter to the history of this litigation was written on February 21, 1978 when plaintiffs' petition for certiorari was denied by the United States Supreme Court. County of Suffolk v. Secretary of the Interior, No. 77-685, 46 U.S.L.W. __ (Feb. 21, 1978).

12. This is Judge Garrity's rough estimate. Massachusetts v. Andrus, 8 ELR 20187, 20188 (D. Mass. 1978).

13. 16 U.S.C. § 1801 et seq.

14. S. 9, 95th Cong., 1st Sess., 123 CONG. REC. S11971 (daily ed. July 15, 1977); H.R. 1614, 95th Cong., 1st Sess., 124 CONG. REC. H601 (daily ed. Feb. 2, 1978). Key provisions among those common to both of the bills would in one way or another establish a "superfund" from a three cent per barrel tax to compensate the cost of cleaning up oil spills of undetermined origin; would require the submission by lessees of development and production plans; and would vest in the Secretary power to terminate any lease which, in his discretion, appears to present an unacceptable environmental risk if allowed to continue in operation.

15. 16 U.S.C. § 1451 et seq., ELR STAT. & REG. 41700:1. See generally, Comment, The Coastal Zone Management Act Amendments of 1976: Tailoring Coastal Zone Protection to Expanded Offshore Oil Production, 6 ELR 10193 (1976).

16. Section 1332(b) provides:

This subchapter shall be construed in such manner that the character as high seas of the waters above the Continental Shelf and the right to navigation and fishing therein shall not be affected.

Judge Garrity was unsure as to whether this language should be read to prohibit any activity affecting fishing or any activity affecting the right to fish, a much lesser stricture.

17. 5 U.S.C. § 706(2), ELR STAT. & REG. 41005.

18. 512 F.2d 743, 5 ELR 20218 (9th Cir. 1975).

19. Massachusetts v. Andrus, 8 ELR at 20189.

20. Under the Marine Protection, Research, and Sanctuaries Act of 1972, 16 U.S.C. §§ 1401-1444, ELR STAT. & REG. 41821, the Secretary of Commerce has the authority to designate important marine and coastal areas as marine sanctuaries, with an aim to preventing their degradation. See generally, Blumm and Blumstein, The Marine Sanctuaries Program: A Framework for Managing Critical Environmental Areas in the Sea, 8 ELR 50016 (1978).

21. See Comment, Second Circuit Puts Atlantic OCS Oil Development Back in Business, 7 ELR 10192 (1977).

22. Massachusetts v. Andrus, 8 ELR at 20192.

23. The option of seeking Supreme Court review of the First Circuit's denial of the stay was virtually precluded because that decision was reached on the afternoon before the sale had been scheduled.

24. The Environment — The President's Message to Congress, 7 ELR 50057, 50060 (1977).