Court Opinion

ID: 9492187
Source: CourtListenerOpinion
Date Created: 2023-08-05 14:34:22.44421+00
Date Added: 2024-06-11T17:55:09.836855
License: Public Domain

PAULINE NEWMAN, Circuit Judge,
dissenting.
This is a contract case. The Court of Federal Claims, determining that the contract between Marathon2 and the United States was made impossible of performance by governmental action, held that Marathon is entitled to recover what it paid the government for the now-barred contract rights, $156,000,000 paid up-front.
The legal issue is not complex. When one party to a contract prevents the other party from achieving the benefit for which it paid, the party who prevents the performance can not retain the consideration it accepted for the performance. It was not *1341a “failure to obtain the required permits” through fault of Marathon that barred the exploration of the Manteo tract; it was the change of government policy after the exploration rights had been sold and paid for. Marathon does not challenge the government’s change of policy; nor does Marathon seek damages, or specific performance, or other interesting things. Marathon just wants its money back.
The Court of Federal Claims, applying simple contract principles, ordered the government to return this payment. My colleagues now authorize the government to keep it. That is not the law, and it is not responsible government dealing. I must, respectfully, dissent.
DISCUSSION
Marathon and the government entered into a standard exploration and development contract under the Outer Continental Shelf Lands Act, for the Manteo and an adjacent tract of the Outer Banks, 48 miles offshore North Carolina. In accordance with the Act, 43 U.S.C. § 1337(b)(4) “entitle(s) the lessee to explore” its tracts. That entitlement was negated when the government refused to issue the requisite permits, barring all exploration. This refusal was at the behest of North Carolina, who obtained a congressional moratorium on exploration of the Outer Banks. When this moratorium ended in 1996 the federal government refused to override North Carolina’s objection, although it had that right by statute. This eliminated Marathon’s exploration right. While.it was the objection of North Carolina that led to the prohibition of exploration of the Outer Banks, first by state refusal to certify the exploration, then by enactment of the Outer Banks Protection Act, and then by the refusal of the Secretary of Commerce to override the state’s objection, this does not justify the federal government’s confiscation of Marathon’s payment for a contract entered into before any such objection arose.
The panel majority, legitimizing the government’s action, defines the issue as “the narrow issue of the impact of the Outer Banks Protection Act.” That is inaccurate, for Marathon did not through this Act acquire a risk of forfeiture of its payment for exploration. Indeed, the panel majority raises no issues of “sovereign action” or other discarded theory, and simply rules that Marathon bore the risk that there would arise intractable state objections in which the federal government would acquiesce. However, the exploration of the outer continental shelf was and is within the control of the federal government. When the government tardily decided to withdraw exploration rights for the Outer Banks, contract law and fair dealing require that Marathon’s payment for the right of exploration be returned. The issue is not whether Marathon can bear the risks of exploration, see maj. op. at 1339, but whether the government shall deal fairly and legally with its contracting partners.
The panel majority appears to misunderstand Marathon’s argument. For example, Marathon does not argue that every exploration plan it might have submitted must be approved (although the Department of the Interior described Marathon’s Manteo tract plan as “the most comprehensive exploration plan ever submitted to the agency”). As the Court of Federal claims recognized, the governmental obligation was to “timely and fairly consider” exploration plans that were properly submitted. Conoco Inc. v. United States, 35 Fed.Cl. 309, 327 (Fed. Cl.1996). The Outer Continental Shelf Lands Act set thirty days for this consideration. However, the Outer Banks Protection Act precluded action on Marathon’s exploration plan during the OCSLA time frame.
The Outer Banks Protection Act was enacted after the contract with Marathon *1342was made and paid for. These subsequent events were all outside of the control of Marathon. It is the government that prohibited performance of the contract. The common law of rescission and restitution, the statutory remedy of 43 U.S.C. § 1334(a)(2)(C), and precedent, all require remedy for this post-contract negation of the government’s promise.
It is hornbook law that when a contract becomes impossible of performance through events outside the control of a party, restitution is an appropriate remedy. See 5 Corbin on Contracts § 1112 at 549 (1964) (“a party who is excused from performance by supervening impossibility is not privileged to keep something for nothing, and restitution is an available remedy against him”); Restatement (Second) of Contracts § 272 (discussing forms of relief such as rescission when contract performance becomes impracticable), § 264 (governmental regulation can render performance impracticable and be subject to relief), § 377 (remedy of restitution is appropriate in cases of impracticability and frustration of contractual purpose).
In addition, the Outer Continental Shelf Lands Act provides that the Secretary of the Interior can disapprove an exploration plan based on perceived harm to the environment, and that when environmental harm or other causes of disapproval can not be avoided by the exploration, the Secretary may cancel the lease, but in such event “the lessee shall be entitled to compensation.” 43 U.S.C. § 1334(a)(2)(C). Potential causes of disapproval are listed in § 1334(a)(2)(A.)(i), viz., “(i) continued activity pursuant to such lease or permit would probably cause serious harm or damage to life (including fish and other aquatic life), to property, to any mineral (in areas leased or not leased), to the national security or defense, or to the marine, coastal, or human environment.” Environmental objections were raised by North Carolina. The government has not, however, cancelled Marathon’s lease, although it has rendered exploration impossible by refusing the necessary permits, despite the Interior Department’s ruling that Marathon’s Plan of Exploration and environmental report were “approvable in all respects.” Marathon’s conceded compliance with the federal environmental criteria raises, at a minimum, issues of fair dealing when state objections are relied on for withdrawal of the federal right without return of the federal consideration.
A wealth of precedent illustrate the remedies of rescission and restitution when performance of a contract is rendered impossible. E.g., Stone Forest Industries v. United States, 973 F.2d 1548 (Fed.Cir.1992) (restitution of sums paid when intervening environmental legislation prevented performance of a timber contract); Aero-jet-General Corp. v. Askew, 453 F.2d 819, 831 (5th Cir.1971) (“The failure to render a promised performance may not be a breach of contract for the reason that performance has become impossible without fault; but it is nonetheless a failure of consideration discharging the other party from his duty to make the agreed return and giving him a right to the restitution of payments already made or other benefits already conferred.”) (quoting 6 Corbin on Contracts, § 1255); E.H. Boly & Son, Inc. v. Schneider, 525 F.2d 20, 23-24 (9th Cir.1975) (“Any voluntary affirmative act of a party which renders substantial performance of his contractual duties impossible, or apparently so constitutes a total breach and warrants a suit seeking cancellation and restitution.... When one party repudiates a contract or commits a total breach thereof, the injured party has an election to pursue one of three remedies; he may treat the contract as at an end and sue for restitution, he may sue for damages, or he may sue for specific performance in certain cases.”) (citations omitted).
The panel majority, authorizing the United States to keep Marathon’s payment, explains that there is “no principled *1343distinction” between payment for a right of exploration that has been performed but failed to find oil or encountered adversity such as weather, and payment for a right of exploration that has not been performed because it was prohibited by the government after it was paid for. According to the panel majority, in either case the government is entitled to retain the payment for the exploration right. This analysis is not supportable by any legal or equitable theory. What Marathon paid for was the right of exploration. Marathon bore the risk that the exploration might fail to find oil or gas, but Marathon did not bear the risk that exploration would be entirely barred, especially by the same party from whom it bought the right.
I do not fault the decision now to bar exploration of the Outer Banks; I fault the refusal to give back what Marathon paid for the right to explore the Outer Banks. Whatever the government’s power to avoid its contractual obligations, this does not also entail the right to retain the consideration paid in contract. The Court of Federal Claims correctly analyzed the issues, applied the correct law, and reached a proper and just conclusion. That decision should be affirmed.

. I use "Marathon” to include both appellees, Marathon and Mobil.