Reservation Ranch v. United States

No. 98-5159 (Fed. Cir. September 9, 1999)

The court holds that the U.S. Forest Service did not breach a timber sale contract when, pursuant to two contract provisions, it canceled the contract to avoid jeopardizing the continued existence of the endangered northern spotted owl in the Six Rivers National Forest. The court first holds that the challenged contractual provisions are a reasonable and valid implementation of the Forest Service's statutory charge under the National Forest Management Act (NFMA) mandate to manage the timber program in a manner that maintains wildlife diversity. The NFMA authorizes the Forest Service to sell timber from the national forests and directs that contract terms shall promote orderly harvesting consistent with the different resource values of the forests. The cancellation regulation in the Code of Federal Regulations contains permissive language reflecting the flexibility of parties to contract to different terms. It specifies that parties may provide for cancellation for reasons not specifically enumerated in the regulation. Therefore, the court finds that the cancellation provisions embodied in the contract are not inconsistent with the cancellation regulation.

The court next holds that the chief of the Forest Service had the authority to make jeopardy findings and to cancel the contract. The contract between the government and the logging company contained language that envisioned the cancellation of the contract upon the chief's determination that continuation of the contract would jeopardize the continued existence of the northern spotted owl or a sensitive species identified by the regional forester. The court finds that the reference in the contract to the regional forester does not place the authority to make the jeopardy finding solely in the regional forester. Further, the logging company's other arguments, that the Endangered Species Act vests the power to issue jeopardy determinations in the U.S. Fish and Wildlife Service (FWS), that the Forest Service may not act contrary to an FWS no jeopardy determination by finding jeopardy, and that the Forest Service articulated no reason for making its own jeopardy determination, are not persuasive.

Counsel for Plaintiff
Karen O'Kasey
Schwabe, Williamson & Wyatt
1211 SW 5th Ave., Ste. 1600-1800, Portland OR 97204
(503) 222-9981

Counsel for Defendant
Lance Lerman
Environment and Natural Resources Division
U.S. Department of Justice, Washington DC 20530
(202) 514-2000

Before Michel and Plager, JJ.

[30 ELR 20094]

Gajarsa, J.:

Decision

Reservation Ranch appeals from the decision of the United States Court of Federal Claims, Reservation Ranch v. United States, 39 Fed. Cl. 696 (1997), granting the government's motion for summary judgment that the United States Forest Service ("USFS") did not breach its timber sale contract with Reservation Ranch. We affirm the decision of the Court of Federal Claims.

Background

In 1978, the Regional Forester designated the northern spotted owl as a sensitive species¹ in Region 5, which encompasses the Six Rivers National Forest. See Forest Service Manual ("FSM") § 2633.4 (1978). In April 1990, the interagency Scientific Committee ("ISC"), headed by USFS biologists, issued an evaluation report regarding the impact of planned timber sales in the Six Rivers National Forest on northern spotted owl habitats. The ISC Report found that the northern spotted owl was imperiled because of continuing losses of habitat from logging and natural disturbances. See report of the Interagency Scientific Committee to Address the Conservation of the Northern Spotted Owl, A Conservation Strategy for the Northern Spotted Owl (U.S.D.A. 1990) ("ISC Report"). It concluded that the USFS management strategy for maintaining viable owl populations was "likely to adversely affect spotted owls and [their] suitable habitat." ISC Report at 353. On June 22, 1990, the United States Fish and Wildlife Service [30 ELR 20095] ("FWS") listed the northern spotted owl as threatened² under the Endangered Species Act, 16 U.S.C. §§ 1531-44 (1994) ("ESA"). After that designation, the USFS, on June 27, 1990, requested a biological opinion from FWS regarding the impact of a number of planned timber sales in the Six Rivers National Forest on the northern spotted owl as required by the ESA. On July 23, 1990, the FWS issued its biological opinion, which concluded that the planned Six Rivers timber sales would not jeopardize the continued existence of the northern spotted owl.

After this biological opinion issued, the USFS entered into a timber sale contract with Reservation Ranch on November 5, 1990. Under the contract, USFS agreed to sell and Reservation Ranch agreed to cut and remove 1,160 MBF (thousand board feet) of timber form Six Rivers National Forest, Gasquet Ranger District, California, the timber sale, termed the POC Aerial Timber Sale ("POC Sale") was designed to enable the USFS to study a new environmentally friendly harvesting method, which would harvest the timber via neutral buoyancy aircraft instead of ground based logging. A provision of the POC sale prospectus notified Reservation Ranch that spotted owls were thought to occupy the sale area and that the contract might be canceled in the event that the spotted owl was listed as a threatened or endangered species under the ESA. Moreover, Special § C8.2(2)(d)³ of the contract expressly authorized the Chief of the USFS ("Chief") to cancel unilaterally the contract and limit compensation in order to provide additional protection for animals that were listed as threatened or endangered under the ESA, or as sensitive by the Regional Forester. Furthermore, if the contract was canceled because of a finding of jeopardy tot he continued existence of a protected species, provision § C9.52 limited purchaser compensation to those costs set out in subsections (1), (2) and (3) of § C9.5,⁴ explicitly noting that "out-of-pocket expenses in (3) do not include lost profits, replacement cost of timber or any other anticipatory losses suffered by Purchaser."

On October 5, 1990, an environmental group sued to enjoin the USFS from proceeding with a number of timber sales, including the POC Sale. The suit was eventually settled under a court order with the USFS agreeing to cancel the contracts and to give the parties to the contracts out-of-pocket expenses only—not lost profits. On July 8, 1992, the Chief notified Reservation Ranch that USFS was canceling the POC Sale under § C8.2(2)(d) of the contract because it would jeopardize the northern spotted owl, a federally listed threatened species. On September 2, 1992. Reservation Ranch filed a claim for $ 5,5000,000 in damages with USFS. On June 23, 1993, the Contracting Officer issued a final decision assessing the total damages for the termination of the POC Sale contract to be $ 63,721.00.

Subsequently, Reservation Ranch refused the award by the Contracting Officer and filed an action in the Court of Federal Claims against the USFS to recover for cancellation of the POC Sale contract. Reservation Ranch claimed that §§ C8.29(2)(d) (species cancellation provision), C9.51 (limiting compensation for court-ordered cancellation), and C9.52 (limiting compensation for species related cancellation) of the contract were invalid because they were in conflict with a USFS cancellation regulation-36 C.F.R. § 223.116.⁵ Moreover, Reservation Ranch argued that the Chief lacked authority to cancel the POC Sale under these disputed contract provisions. Finally, Reservation Ranch argued that the Chief's decision to cancel the contract was arbitrary.

In its decision granting summary judgment in favor of the government, the Court of Federal Claims held that the USFS adoption of the challenged contract provisions was a proper implementation of it statutory charge under the National Forest Management Act ("NFMA"). 16 U.S.C. §§ 472a, 1604 (1994). Moreover, the court held the USFS had authority under the ESA to determine that harvesting the POC Sale in spotted owl habitat would likely jeopardize the continued existence of the owl. Finally, the court held that the jeopardy determination by the Chief was not arbitrary and supported cancellation of the POC Sale. Reservation Ranch appeals.

Discussion

A. Standard of Review

The interpretation of a contract, statue, or regulation by the Court of Federal Claims in the course of reaching a decision to grant summary judgment presents a question of law that we review de novo. See Costain Coal, Inc. v. United States, 126 F.3d 1437, 1440 (Fed. Cir. 1997). Whether or not the Court of Federal Claims properly granted the government's motion for summary judgment is also a question of law that we review de novo. See Dana Corp. v. United States, 174 F.3d 1344, 1347 (Fed. Cir. 1999).

B. Analysis

Our consideration of the appeal of Reservation Ranch proceeds in two steps. First, the validity of the challenged contract provisions must be considered. Next, if the challenged contract provisions are valid, then we must consider whether those provisions were properly exercised.

1. Validity of the Challenged Contract Provisions

Reservation Ranch argues that the USFS cannot enforce contract provisions §§ C8.2(2)(d) and C9.52 because it lacked the authority to adopt these provisions. In particular, Reservation Ranch alleges that those provisions are invalid because they are inconsistent with the governing USFS regulation, 36 C.F.R. § 223.116(a)(5), which allows cancellation of contracts for environmental degradation or resource damage but requires payment of market value damages.

We agree with the Court of Federal Claims that the USFS is authorized to adopt the challenged contract provisions and that those provisions are valid. The NFMA authorizes the USFS to sell timber from national forests, and it directs that contract terms shall promote orderly harvesting consistent with the different resource values of the forests, including fish and wildlife resources. See 16 U.S.C. §§ 472a, 1604 (1994); see also Peters v. United States, 694 F.2d 687, 693 (Fed. Cir. 1982) ("This delegation of authority to the Forest Service Chief to enter into such contracts [to sell timber] necessarily and inherently includes the authority to enter into modifications of them as well."). While the USFS must balance timber production, recreation, and fish and wildlife values in discharging its statutory duty, the NFMA provides that the management of any given area may protect one resource value to the exclusion of another value. See 16 U.S.C. §§ 529, 531(a) (1994) (recognizing that in managing national forests "some land will be used for less than all of the resources"). Moreover, when the USFS administers a contract, limitations on the promises and representations made by the agency, when within the ambits of its statutory charge under the NFMA and within the scope of the subject matter of the contract, can not be avoided by merely disclaiming the agency's [30 ELR 20096] authority when the contract reaches litigation. The USFS derives its authority to adopt contractual provisions and enter into these timber sales from the NFMA, and we give deference to the agency's reasonable interpretation of that statutory charge.

In the case at bar, contrary to Reservation Ranch's contention, the regulation at issue, 36 C.F.R. § 223.116, does not prescribe the exclusive circumstances under which the USFS may unilaterally cancel timber sale contracts. Instead, 36 C.F.R. § 223.116 contains permissive language reflecting the flexibility of parties to contract to different terms. For example, paragraph (a)(2) of § 223.116 provides that timber contracts may be canceled "upon application, or with the consent of the purchaser, when such action is advantage to the United States or not prejudicial to its interests." Thus, the cancellation regulation specifies that the parties may provide for cancellation for reasons not specifically enumerated in the regulation and the challenged contract provisions, in particular §§ C8.2(2)(d), C9.52, are therefore not inconsistent with 36 C.F.R. § 223.116. Accordingly, in view of this permissive language, we conclude that the challenged contract provisions are a reasonable and valid implementation of USFS's statutory charge under the NFMA mandate to manage the timber program in a manner that maintains wildlife diversity. See 16 U.S.C. §§ 529, 531(a), 472a(c), 1604(g)(3)(B) (1994).

2. USFS Exercise of the Species Contract Provision

Reservation Ranch also argues that, independent of the invalidity of the challenged contract provisions, the Chief lacked the authority to cancel the POC Sale contract. Reservation Ranch argues that the Chief improperly relied on § C8.2(2)(d) to cancel the POC Sale because the Chief does not have authority under that provision to make jeopardy findings. In Reservation Ranch's view, only the Regional Forester has the authority under § C8.2(2)(d) to make the requisite jeopardy or adverse impact determination necessary to limit compensation for such cancellation pursuant to § C9.52.

A long line of our case law has established that consensual contract provisions must be enforced. See, e.g., Seaboard Lumber Co. v. United States, 903 F.2d 1560, 1564-65 (Fed. Cir. 1990), cert. denied, 499 U.S. 919 (1991) (enforcing contractual waiver of both Article III and Seventh Amendment rights over contractor's objection). In the instant case, the clear, explicit, and unambiguous language of the POC Sale contract undermines Reservation Ranch's argument because the pertinent provision provides:

§ C8.2-Termination. (12/89) The Chief, Forest Service, by written notice, may terminate this contract, in whole or in part, (1) to comply with a court order, regardless of whether this sale is named in such an order, upon a determination that the order would be applicable to the conditions existing on this sale; or (2) upon a determination that the continuation of all or part of this contract would:

. . .

(d) jeopardize the continued existence of Federally listed threatened species or, cause unacceptable adverse impacts on sensitive species, identified by the appropriate Regional Forester.

Compensation for termination under this provision shall be calculated pursuant to C9.5 except; compensation for termination under (1) shall be calculated pursuant to C9.51 when included in this contract and compensation for termination under (2)(d) shall be calculated pursuant to C9.52 when included in this contract.

This language envisioned cancellation of the POC Sale contract upon the Chief's determination that the continuation of all or part of this contract would jeopardize the continued existence of the northern spotted owl, a federally listed threatened species under the ESA in 1990 or a sensitive species identified by the Regional Forester in 1978. The reference to the Regional Forester in § C8.2(2)(d) is limited to the Regional Forester's duty to identify sensitive species under the NFMA and the USFS sensitive species policy. See 36 C.F.R. § 219 (1999); FSM § 2670 (1995), this reference in § C8.2(2)(d) does not, however, place the authority to make the jeopardy or adverse impact finding solely in the Regional Forester as Reservation Ranch alleges. Accordingly, the Chief was authorized to make the requisite jeopardy determination necessary to cancel the POC Sale.

Reservation Ranch's other arguments that (1) the ESA vests the power to issue jeopardy determinations in the FWS, (2) the USFS may not act contrary to an FWS no jeopardy determination by finding jeopardy and canceling its proposed action and (3) the USFS articulated no reason for making its own jeopardy determination, are also not persuasive. The Court of Federal Claims properly disposed of those arguments in its comprehensive opinion and we need not repeat the analysis here. See Reservation Ranch, 39 Fed. Cl. at 713, 716-19. Finally, Reservation Ranch argues that it was entitled to rely on § C6.25, which stated that the sale area did not encompass any known owl sites and that if such sites were later discovered, the USFS could cancel under § C8.2 or modify the contract if other areas were discovered or new species were designated as threatened or endangered on the ESA list. Reservation Ranch concludes that the cancellation was improper because new owl sites were not discovered and new species were not added to the ESA list. We reject this argument because the USFS properly canceled the POC Sale contract under § C8.2 independent of § C6.25.

Because the aforementioned reasons are sufficient to affirm the decision of the Court of Federal Claims, we need not address whether the alternate grounds found by the Court of Federal Claims also sustain the cancellation of the POC Sale contract.

Conclusion

We agree with the Court of Federal Claims that the challenged contract provisions are valid, and that the Chief properly relied on those provisions to cancel the POC Sale. Because the decision of the Court of Federal Claims is thorough, well-reasoned, and in accordance with applicablelaw, we

AFFIRM.

1. Forest Service Manual § 2660.5(19) defines sensitive species as "those plant and animal species identified by a Regional Forester for which population viability is a concern as evidenced by:

a. Significant current or predicted downward trends in population numbers or density.

b. Significant current or predicted downward trends in habitat capability that would reduce a species' existing distribution."

2. A threatened species is "any species which is likely to become an endangered species within the foreseeable future throughout all or a significant portion of it [sic] range." 16 U.S.C. § 1532(20) (1994).

3. The pertinent portion of § C8.2 provides as follows:

Termination. (12/89) The Chief, Forest Service, by written notice, may terminate this contract, in whole or in part, . . . (2) upon a determination that the continuation of all or part of this contract would: . . . (d) jeopardize the continued existence of Federally listed threatened and endangered species or, cause unacceptable adverse impacts on sensitive species, identified by the appropriate Regional Forester. Compensation for termination under this provision shall be calculated pursuant to C9.5, except; compensation for termination under (1) shall be calculated pursuant to C9.5 when included in this contract and compensation for termination under (2)(d) shall be calculated pursuant to C9.52 when included in this contract.

4. The pertinent portion of § C9.5 provides as follows:

Settlement, (10/77) If this contract is terminated by Forest Service under C8.2, Purchaser agrees that the liability of the United States shall be limited to the sum of (1) the value of unused Purchaser Credit; (2) the estimated expenditures for felling, bucking, lopping, skidding, and decking any products so processed, but not removed from Sale Area because of the termination action; (3) out-of-pocket expenses involved in acquiring and holding the contract such as maintaining performance bonds and cash deposits, and (4) the difference between (a) Current Contract rates for the remaining uncut volume, and (b) the rates paid for comparable timber on the same National forest during the preceding 6-month period multiplied times the remaining uncut volume.

5. Section 223.116(a)(2), (5) provide:

(a) Timber sale contracts and permits may be canceled:

(2) Upon application, or with the consent of the purchaser, when such action is of advantage to the United States or not prejudicial to its interest.

(3) Upon determination by the Chief, Forest Service, that operations thereunder would result in serious environmental degradation or resource damage and with reasonable compensation to the purchaser for unrecovered costs incurred under the contract and the difference between the current contract value and the average value of comparable National Forest timber sold during the preceding 6-month period.