Free Memorandum - District Court of Federal Claims - federal

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 1 of 102

IN THE UNITED STATES COURT OF FEDERAL CLAIMS

__________________________________________ BLUE LAKE FOREST PRODUCTS, INC., Plaintiff, v. THE UNITED STATES, Defendant. ) ) ) ) ) ) ) ) ) ) )

No. 01-570C (Judge Williams)

__________________________________________ TIMBER PRODUCTS COMPANY, Plaintiff, v. THE UNITED STATES, Defendant. ) ) ) ) ) ) ) ) ) ) )

No. 01-627C (Judge Williams)

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 2 of 102

CLR TIMBER HOLDINGS, INC., Plaintiff, v. THE UNITED STATES, Defendant.

) ) ) ) ) ) ) ) ) ) )

No. 04-501C (Judge Williams)

MEMORANDUM IN SUPPORT OF PLAINTIFFS' * MOTION FOR PARTIAL SUMMARY JUDGMENT

Gary G. Stevens SALTMAN & STEVENS, P.C. 1801 K Street, N.W. Suite M-110 Washington, D.C. 20006 (202) 452-2140 Counsel for Plaintiffs OF COUNSEL: Ruth G. Tiger Eric J. Pohlner SALTMAN & STEVENS, P.C. 1801 K Street, N.W. Suite M-110 Washington, D.C. 20006 (202) 452-2140 Dated: March 7, 2008

On September 28, 2007, the Court and the parties held a telephonic status conference establishing the briefing schedule for the cross-motions for summary judgment. At that conference plaintiffs' counsel requested permission for the parties to file briefs in excess of the page limits contained in RCFC 5.2(b). In response the Court stated that it would not impose a page limit on any of the briefs and that it wanted detailed briefing in this case. Accordingly, plaintiffs submit this brief without regard to the page limits contained in RCFC 5.2(b).

*

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 3 of 102

TABLE OF CONTENTS PAGE Table of Authorities ....................................................................................................................... iv Table of Contents of Appendix........................................................................................................x Table of Acronyms .................................................................................................................... xviii INTRODUCTION ...........................................................................................................................1 QUESTIONS PRESENTED............................................................................................................1 STATEMENT OF THE CASE........................................................................................................2 The Northwest Forest Plan And Survey Program................................................................2 The Administrative Structure Of The Northwest Forest Plan .............................................5 The Creation Of The Issue Resolution Team And Development Of The Category 2 Survey Interpretation "NEPA Decision Equals Implementation" And The Red Tree Vole Directive .......................................................................................6 Events Subsequent To The Issuance Of The Joint Forest Service/BLM Memoranda Adopting The Interpretation "NEPA Decision Equals Implementation" And The Red Tree Vole Directive...........................................................8 ARGUMENT.................................................................................................................................12 I. II. Standard of Review................................................................................................12 The Forest Service, As The Sole Drafter Of The Contracts, Assumed The Risk Of Liability To Plaintiffs When It Awarded The Timber Sale Contracts Without The Required Category 2 Surveys And Then Had To Suspend Plaintiffs' Timber Sale Operations In Order To Perform Those Surveys And Failed To Include Any Exculpatory Provisions Or Disclaimers In The Contracts Or Require Plaintiffs To Execute Any Waivers Of Liability ........................................................................12 The Forest Service Breached Its Implied Warranty Of Specifications..................24 A. The Law Of Implied Warranty Of Specifications......................................25

III.

i

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 4 of 102

B.

Plaintiffs' Timber Sale Contracts Are Contracts Of Adhesion That Contain Detailed Timber Harvesting Specifications Which They Must Follow......................................................................................26 The Forest Service's Obligation To Design Timber Sale Contracts In Conformity With Federal Environmental Law .....................27 Where Delay Is Caused By Defective Specifications, That Delay Is Presumed To Be Unreasonable ...................................................31

C.

D.

IV.

The Forest Service Breached The Contracts Because It Intentionally Failed To Disclose To Plaintiffs That Their Timber Sales Were On ONRC Action's "At-Risk" Lists And That The Forest Service Had Secret Agreements With ONRC Action Regarding The Award Of The Contracts And Because The Forest Service Falsely Represented To Plaintiffs That The Sales Were Not Threatened By The ONRC Action Litigation........................................................................................32 The Forest Service Breached Its Implied Duties To Cooperate And Not To Hinder ........................................................................................................42 A. The District Court Holding In ONRC Action That The Forest Service's Interpretation "NEPA Decision Equals Implementation" And The Red Tree Vole Directive Are Arbitrary, Capricious And Contrary To Law Establishes That The Forest Service Unreasonably Caused The Suspensions Of Plaintiffs' Sales ............................................43 The Forest Service Was Unreasonable In Causing The Suspension Of Plaintiffs' Sales Because It Awarded The Contracts Without Conducting Category 2 Surveys Despite Having Been Put On Notice Repeatedly Prior To Award That Its Legal Rationale For Not Conducting The Surveys Was Deficient.....................................................................................................51 1. The Issue Resolution Team's Concerns And The Development Of "NEPA Decision Equals Implementation" And The Red Tree Vole Directive .................................................53 Warnings To The Forest Service In Public Comments, ONRC Action's Administrative Appeals And In The ONRC Action Lawsuit...................................................................60

V.

B.

2.

ii

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 5 of 102

3.

Warnings To The Forest Service From The Department Of Justice And The Forest Service Regional Attorney After ONRC Action Was Filed......................................................63 The Forest Service Awarded Plaintiffs' Contracts Despite Its Secret Knowledge That If Plaintiffs' Sales Were Operated They Would Trigger Motions For Injunctive Relief..............................................................................................67

4.

VI.

This Case Is Ripe For Summary Judgment On Liability.......................................68 A. The Legal Standard For Breach Of The Implied Duties To Cooperate And Not To Hinder .............................................................69 Scott Timber Establishes That The Forest Service Can Breach Timber Sale Contracts Containing Clause C(T)6.01 If It Suspends Those Contracts Unreasonably, But Does Not Hold That The Question Of The Reasonableness Of The Suspension Precludes Summary Judgment On Liability ...........................71 Even Assuming The Cases Subsequent to Precision Pine Have Correctly Interpreted Scott Timber To Mean That Summary Judgment Is Rarely Appropriate In Cases Alleging Breach Of The Duties To Cooperate And Not To Hinder, The Instant Case, Like Precision Pine, Is A Case In Which Summary Judgment Is Appropriate ...........................................................77

B.

C.

VII.

Under Contract Clause C6.01, Even If The Forest Service Did Not Breach The Jack Heli Timber Sale Contract, Timber Products Is Entitled To Compensation For Its Increased Sale Operating Costs Incurred As A Direct Result Of The Forest Service's Suspension........................77

CONCLUSION..............................................................................................................................82

iii

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 6 of 102

TABLE OF AUTHORITIES CASES PAGE

Al Johnson Constr. Co. v. United States, 854 F.2d 467 (Fed. Cir. 1988)............................................................................................25 Anderson v. Liberty Lobby, Inc., 477 U.S. 422 (1988)...........................................................................................................12 Beauchamp Constr. Co., Inc. v. United States, 14 Cl. Ct. 430 (1988) .........................................................................................................31 Bighorn Lumber Co. v. United States, 49 Fed. Cl. 768 (2001) .......................................................................................................78 Brooks v. United States, 65 Fed. Cl. 135 (2005) .......................................................................................................12 Castle Constr. Co., ASBCA No. 28509, 84-1 BCA ¶ 17,045 (1984) ...............................................................25 Cedar Lumber, Inc. v. United States, 5 Cl. Ct. 539 (1984) ...............................................................................................13, 70, 71 Chaney and James Constr. Co. v. United States, 421 F.2d 728 (Ct. Cl. 1970) ...............................................................................................31 C.J. Betters Corp. v. United States, 25 Cl. Ct. 674 (1992) ...................................................................................................21, 22 Dep't of Natural Res. and Conservation of Montana v. United States, 1 Cl. Ct. 727 (1983) .....................................................................................................13, 22 Everett Plywood Corp. v. United States, 651 F.2d 723 (Ct. Cl. 1981) ...................................................................................22, 30, 31 GAF Corp. v. United States, 932 F.2d 947 (Fed. Cir. 1991), cert. denied, 502 U.S. 1071 (1992) ..................................33 George A. Fuller Co. v. United States, 69 F. Supp. 409 (Ct. Cl. 1947)...........................................................................................22

iv

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 7 of 102

Hall v. Aqua Queen Mfg., Inc., 93 F.3d 1548 (Fed. Cir. 1996)............................................................................................12 Helene Curtis Industries, Inc. v. United States, 312 F.2d 774 (Ct. Cl. 1963) .........................................................................................33, 40 Hercules, Inc. v. United States, 516 U.S. 417 (1996)...........................................................................................................25 H.N. Wood Products, Inc. v. United States, 59 Fed. Cl. 479 (2003) ............................................................................................... passim Huber, Hunt & Nichols, Inc., GSBCA No. GS-09B-C-7004-SF, 75-2 BCA ¶ 11,457 (1975) .........................................25 In re Gartside, 203 F.3d 1305 (Fed. Cir. 2000)..........................................................................................50 J.A. Jones Constr. Co. v. United States, 390 F.2d 886 (Ct. Cl. 1968) ...............................................................................................33 J.L. Simmons Co. v. United States, 412 F.2d 1360 (Ct. Cl. 1969) .............................................................................................25 John E. Gallno, AGBCA No. 97-146-1, 98-1 BCA ¶ 29,616 (1998) ..........................................................27 John Woods Trucking, AGBCA No. 97-1-158, 98-1 BCA ¶ 29,644 (1998) ..........................................................26 Laburnum Constr. Co. v. United States, 325 F.2d 451 (Ct. Cl. 1963) .........................................................................................26, 31 Louisiana Pacific Corp. v. United States, 656 F.2d 650 (Ct. Cl. 1981) ...............................................................................................26 Luria Bros. & Co., Inc. v. United States, 369 F.2d 701 (Ct. Cl. 1966) .........................................................................................26, 31 Maintenance Eng'rs v. United States, 50 Fed. Cl. 399 (2001) .......................................................................................................12 Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574 (1986)...........................................................................................................12 v

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 8 of 102

Miller Elevator Co. v. United States, 30 Fed. Cl. 662 (1994) .......................................................................................................41 Munn v. Secretary of Dept. of Health and Human Services, 970 F.2d 863 (Fed. Cir. 1992)............................................................................................50 Nicholson v. United States, 29 Fed. Cl. 180 (1993) .......................................................................................................12 Northcoast Environmental Center v. Glickman, 136 F.3d 660 (9th Cir. 1998) .............................................................................................50 Oregon Natural Resources Council Action v. United States Forest Service, 59 F. Supp. 2d 1085 (W.D. Wash. 1999)................................................................... passim Ozark Dam Constructors v. United States, 130 Ct. Cl. 354 (1955) .......................................................................................................21 Ozark Dam Constructors v. United States, 127 F. Supp. 187 (Ct. Cl. 1955).........................................................................................23 Pacific Rivers Council v. Thomas, 30 F.3d 1050 (9th Cir. 1994) .......................................................................................48, 49 Petrochem Services, Inc. v. United States, 837 F.2d 1076 (Fed. Cir. 1998)..........................................................................................33 Phyllis Wolf, AGBCA No. 96-102-1, 96-2 BCA ¶ 28,504 (1996) ..........................................................27 Poston Logging, AGBCA No. 97-168-1, 99-1 BCA ¶ 30,188 (1998), recons. denied, AGBCA No. 99-143-R, 00-1 BCA ¶ 30,829 (2000) .........................................................27 Precision Pine & Timber, Inc. v. United States, 50 Fed. Cl. 35 (2001) ................................................................................................. passim Precision Pine & Timber, Inc., AGBCA No. 99-160-1, 00-2 BCA ¶ 30,942 (2000) ..........................................................27 Prineville Sawmill Co. v. United States, 14 Ct. Cl. 186, rev'd on other grounds, 859 F.2d 905 (Fed. Cir. 1988) ............................30

vi

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 9 of 102

Pyramid Lake Paiute Tribe of Indians v. U.S. Dept. of Navy, 898 F.2d 1410 (9th Cir. 1990) ...........................................................................................50 Reidhead Bros. Lumber Mill, AGBCA No. 2000-126-1, 01-2 BCA ¶ 31,486 (2001), aff'd Reidhead Bros. Lumber Mill v. Veneman, 36 Fed. Appx. 426 (Fed. Cir. 2002)......................................................................................................77, 78, 79 Scott Timber Co. v. United States, 44 Fed. Cl. 170 (1990), aff'd 333 F.3d 1358 (Fed. Cir. 2003) ..........................................72 Scott Timber Co. v. United States, 333 F.3d 1358 (Fed. Cir. 2003)..................................................................69, 71, 72, 73, 76 Seaboard Lumber Co. v. United States, 41 Fed. Cl. 401 (1998) ................................................................................................. 22-23 Sergent Mechanical Systems, Inc. v. United States, 34 Fed. Cl. 505 (1995) .......................................................................................................31 Shawn Montee, Inc. dba Shawn Montee Timber Company, AGBCA Nos. 2003-132-1 through 2003-136-1, 04-1 BCA ¶ 32,564 (2004) ........................................................................21, 49, 69, 74, 75 Shawn Montee, Inc., AGBCA No. 1004-153-R, 04-2 BCA ¶ 32,755 (2004) .....................................................76 Silver v. Babbitt, 924 F. Supp. 976 (D.Ariz. 1995) .................................................................................48, 70 Southern California Edison v. United States, 58 Fed. Cl. 313 (2003) .......................................................................................................33 Spearin v. United States, 248 U.S. 132 (1918).........................................................................................24, 25, 31, 32 Superior Timber Co., Inc., IBCA No. 3459, 97-1 BCA ¶ 28,736 (1996) ...................................................29, 48, 68, 69 Sweats Fashions, Inc. v. Pannill Knitting Co., 833 F.2d 1560 (Fed. Cir. 1987)..........................................................................................12 Tamarack Mills, LLC, AGBCA Nos. 2003-115-1 and 2003-116-1, 04-1 BCA ¶ 32,591 (2004) ........21, 49, 69, 75 vii

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 10 of 102

Trinity River Lumber Co. v. United States, 66 Fed. Cl. 98 (2005) ................................................................................................. passim United States v. Seckinger, 397 U.S. 203 (1970).....................................................................................................12, 22

STATUTES AND REGULATIONS 5 U.S.C. § 706(2)(A)......................................................................................................................44 16 U.S.C. § 472a ............................................................................................................................31 16 U.S.C. § 472a(a)........................................................................................................................27 16 U.S.C. § 472a(e)(2)...................................................................................................................16 16 U.S.C. § 475..............................................................................................................................27 16 U.S.C. § 528..............................................................................................................................27 16 U.S.C. § 1600 et seq.......................................................................................................... passim 42 U.S.C. § 4321 et seq.......................................................................................................... passim Section 318 of the Department of the Interior Appropriations Act of 1990, Pub. L. No. 101-121, 103 Stat. 701 (1989)........................................................................72 36 C.F.R. Part 223..........................................................................................................................31 36 C.F.R. § 223.1 ...........................................................................................................................27 36 C.F.R. § 223.88 .........................................................................................................................16 36 C.F.R. § 223.100 .......................................................................................................................16

MISCELLANEOUS 2 Childress and Davis, STANDARDS OF REVIEW (1986).................................................................50 11 Samuel Williston & Richard A. Lord, A TREATISE ON THE LAW OF CONTRACTS (4th ed. 1999) ...........................................................................................78

viii

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 11 of 102

BLACK'S LAW DICTIONARY (8th ed. 1999) ....................................................................................78 J. Cibinic, R. Nash, J. Nagle, ADMINISTRATION OF GOVERNMENT CONTRACTS (4th ed. 1995) ............................................................................................................... 25-26 M. Davis, A BASIC GUIDE TO STANDARDS OF JUDICIAL REVIEW, 33 S.D.L.Rev. 469 (1988)..................................................................................................50 Forest Service Manual ....................................................................................................................... § 2403.5 (eff. 8/8/96, amend 96-4) ....................................................................................27 § 2432.04b (eff. 4/28/95, amend 95-3) ..............................................................................29 § 2432.1 (eff. 4/28/95, amend 95-3) ..................................................................................28 § 2432.11 (eff. 4/28/95, amend 95-3) ................................................................................28 § 2432.13 (eff. 4/28/95, amend 95-3) ................................................................................28 § 2432.14 (eff. 4/28/95, amend 95-3) ................................................................................28 § 2432.2 (eff. 4/28/95, amend 95-3) ..................................................................................28 § 2432.22g (eff. 4/28/95, amend 95-3) ..............................................................................28 § 2432.23 (eff. 5/7/02, amend 2002-3) ..............................................................................28 RCFC 56(a)....................................................................................................................................12

ix

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 12 of 102

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 13 of 102

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 14 of 102

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 15 of 102

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 16 of 102

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 17 of 102

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 18 of 102

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 19 of 102

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 20 of 102

TABLE OF ACRONYMS AGBCA APA BLM CDA CO DN EA EIS ESA FONSI FS FWS or F&WS FY IBCA IMG IRT LRMP NEPA NFMA NFP NOS PPF REO RIEC ROD RTV Directive S&M SIR Department of Agriculture Board of Contract Appeals Administrative Procedures Act Bureau of Land Management Contract Disputes Act Contracting Officer Decision Notice Environmental Assessment Environmental Impact Statement Endangered Species Act Finding of No Significant Impact Forest Service Fish & Wildlife Service Fiscal Year Department of the Interior Board of Contract Appeals Intermediate Management Group Issue Resolution Team Land Resource Management Plan National Environmental Policy Act National Forest Management Act Northwest Forest Plan Normal Operating Season Plaintiffs' Proposed Findings of Uncontroverted Fact Regional Ecosystem Office Regional Interagency Executive Committee Record of Decision Red Tree Vole Directive Survey and Manage Supplemental Information Report xviii

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 21 of 102

INTRODUCTION In this case plaintiffs allege that the Forest Service ("FS") breached each of their timber sale contracts. Sections II-IV of this memorandum are premised on legal theories that require proof of the FS's erroneous acts or omissions but do not require inquiry by this Court into whether these acts or omissions were unreasonable. In Section V plaintiffs contend that the FS breached the contracts by violating its implied duties to cooperate and not to hinder. This legal theory, as articulated in Precision Pine & Timber, Inc. v. United States, 50 Fed. Cl. 35 (2001), and the cases which have followed, involves a determination that the FS failed to act reasonably. Each of the arguments in Sections II-V constitutes an independent ground for granting summary judgment on liability to plaintiffs. In addition, all four arguments may be considered together as another basis for granting summary judgment on liability to plaintiffs. In Section VI plaintiffs demonstrate that this case is ripe for summary judgment on liability to plaintiffs. Section VII addresses the issue of whether Timber Products may recover its additional operational costs resulting from the suspension of its Jack Heli timber sale pursuant to contract clause C6.01 which requires that the FS reimburse a purchaser for its out-of-pocket costs that directly result from a suspension of more than 30 days within the Normal Operating Season of the contract. QUESTIONS PRESENTED 1. Is the FS liable because as the sole drafter of the contracts it assumed the risk of

liability to plaintiffs when it awarded the timber sale contracts without Category 2 surveys and then had to suspend plaintiffs' timber sales to perform those surveys but failed to include any

1

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 22 of 102

valid exculpatory provisions or disclaimers in the contracts or require plaintiffs to execute any waivers of liability excusing FS fault? 2. Is the FS liable to plaintiffs because it breached its implied warranty of

specifications when it had to suspend plaintiffs' operations in order to reevaluate whether the original specifications governing timber harvesting, road building and other ground-disturbing activities were adequate to protect Category 2 species? 3. Is the FS liable because it breached its obligation to plaintiffs to disclose its

superior knowledge that (a) the timber sales were on ONRC Action's "at-risk" lists and (b) the FS had secret agreements with ONRC Action regarding the award of plaintiffs' contracts, and because the FS falsely represented to plaintiffs that the sales were not threatened by the ONRC Action litigation? 4. Is the FS liable to plaintiffs because it breached its duties to cooperate and not to

hinder by suspending plaintiffs' sales because it failed to conduct Category 2 surveys on those sales prior to contract award? 5. Is Timber Products entitled to be compensated by the FS under contract clause

C6.01 for the additional timber sale operational costs it incurred as a direct result of the FS's suspension of Jack Heli for more than 30 days during the Normal Operating Season? STATEMENT OF THE CASE The Northwest Forest Plan And Survey Program In April 1994, the Secretary of the United States Department of Agriculture on behalf of the FS and the Secretary of the United States Department of the Interior on behalf of the Bureau of Land Management ("BLM") issued a Record of Decision ("ROD") for "amendments to Forest

2

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 23 of 102

Service and [BLM] planning documents within the range of the Northern Spotted Owl." Plaintiffs' Proposed Findings of Uncontroverted Fact ("PPF") ¶ 13. This document amended the Land and Resource Management Plans ("LRMPs") governing the operation of the National Forest and BLM lands in Washington, Oregon and northern California where it was believed that populations of Northern spotted owls existed. This amendment became known as the Northwest Forest Plan ("NFP"). Id. The Klamath National Forest in California on which plaintiff Blue Lake's Happy Thin sale and plaintiff Timber Products' Jack Heli sale were located was included within the area governed by the NFP. Id. The NFP also governed the Siskiyou National Forest in Oregon where plaintiff CLR's Too Wild sale was located. Id. The fundamental purpose of the NFP was to permit a predictable and sustainable level of timber sales and use of non-timber resources that would not degrade or destroy the environment or endanger the viability of a variety of species of plants and animals present on NFP federal forests. Id. As part of the NFP ROD, Survey and Manage ("S&M") Standards and Guidelines were developed as mitigation measures for over 400 old growth-related species where there was a concern for the continued persistence of these species across the landscape but where little knowledge existed of the species themselves. PPF ¶ 14. The NFP identified four survey strategies for the S&M species: (1) manage known sites; (2) survey prior to ground-disturbing activities; (3) conduct extensive surveys to find high priority sites for management; and (4) conduct general regional surveys to acquire additional information to determine necessary levels of protection. PPF ¶ 15. S&M species fall into one or more of these categories, also sometimes called "components" or "strategies." Id.

3

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 24 of 102

The Oregon red tree vole, five species of salamanders, and the Canada lynx were initially designated as Category 2 species. PPF ¶ 16. Prior to the award of the Happy Thin, Jack Heli, and Too Wild timber sale contracts to plaintiffs, the Canada lynx was removed from the Category 2 species by the Regional Interagency Executive Committee ("RIEC") under a provision of the NFP which allowed for such a modification. Id. Surveys for the red tree vole and the five salamanders in Category 2 were required for certain timber sales as of October 1, 1996. Id. Approximately 71 invertebrate species, including certain bryophytes, lichens, fungi, mollusks, and vascular plants, were also designated as Category 2 species. Surveys for those species were required for certain timber sales as of October 1, 1998. Id. The Category 2 surveys required by the NFP were important to the environmental evaluation of the sales. It was important to have survey information before the issuance of a decision document approving the sales as being in compliance with the National Environmental Policy Act ("NEPA"), 42 U.S.C. § 4321 et seq., and to comply with the substantive requirements of the National Forest Management Act ("NFMA"), 16 U.S.C. § 1600 et seq. PPF ¶ 17. Category 2 surveys were "designed to address the high-risk species (persistence concerns) for which survey protocols exist or could be developed reasonably soon." PPF ¶ 18. "High-risk" species refers to the risk of extirpation as does the phrase "persistence concerns." For Category 2 species, it was necessary that surveys be conducted prior to ground-disturbing activities which could result in the destruction or impairment of habitat necessary for those species' survival. The Category 2 surveys were the most restrictive of the NFP S&M surveys in terms of the potential impact on federal lands, including from FS timber sales. Id.

4

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 25 of 102

As more time passed after the NFP was adopted in April 1994 and more activities such as timber sales were undertaken prior to the implementation of the Category 2 surveys, the risk of extirpation to Category 2 species in all or part of the NFP area increased. PPF ¶ 19. A critical purpose of the Category 2 surveys was to help insure the viability of the species that were being surveyed by acquiring a sufficient knowledge base in order to have a better idea of the degree of risk of extirpation to species prior to the initiation of ground-disturbing activities on projects like timber sales. PPF ¶¶ 20-21. For this reason one of the important objectives of the NFP was to develop as soon as possible the protocols necessary for the Category 2 "prior to grounddisturbing activities" surveys which the NFP directed were to be implemented for six vertebrate species as of October 1, 1996 and for 71 invertebrate species as of October 1, 1998. PPF ¶ 22. The Administrative Structure Of The Northwest Forest Plan Under the NFP there were several government groups with various levels of authority for recommending and determining the intent and meaning of the NFP S&M requirements. PPF ¶ 24. At least as early as the spring-summer of 1994, there existed a "Survey and Manage Working Group" composed of representatives from the FS, the BLM and other agencies. Id. Among other things, the purpose of the Survey and Manage Working Group was to develop working definitions and directions for the implementation of NFP wildlife and plant surveys and to recommend the adoption of certain definitions and interpretations to higher levels of authority within the management structure of the NFP. Id. At various times from at least December 1994 through 1998, the team leaders of this Group included Cheryl McCaffrey of the BLM and Randy Hickenbottom of the FS. Id.

5

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 26 of 102

There was an Intermediate Management Group ("IMG") immediately above the Survey and Manage Working Group in the NFP administrative hierarchy. PPF ¶ 25. This Group included representatives of the FS and the BLM at what was determined to be the intermediate management level. Id. One purpose of the IMG was to act on and approve the recommendations from the Survey and Manage Working Group with regard to definitions, directions and interpretations of the survey requirements under the NFP when, in the view of the IMG members, such decisions could be made without referring the matter to the next higher level of authority, the Regional Interagency Executive Committee ("RIEC"). Id. The RIEC represented the highest level of agency authority at the regional level within the NFP administrative hierarchy. PPF ¶ 26. The RIEC included the Regional Foresters of Regions 5 (California) and 6 (Oregon and Washington) of the FS and the Director of the Oregon State Office of the BLM or their designated representatives. Id. As part of the administrative structure for the NFP, there existed a Regional Ecosystem Office ("REO") under the direction of Donald Knowles, Executive Director, which functioned as the staff of the RIEC coordinating certain agency actions and reporting thereon to the RIEC. PPF ¶ 27. Mr. Knowles and other members of the REO from time to time worked with other administrative levels under the NFP including the Survey and Manage Working Group and the IMG. Id. The Creation Of The Issue Resolution Team And Development Of The Category 2 Survey Interpretation "NEPA Decision Equals Implementation" And The Red Tree Vole Directive By at least January 1996, a group called the Issue Resolution Team ("IRT") was added to the NFP administrative structure. PPF ¶ 31. This Team was charged with, among other things,

6

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 27 of 102

developing and recommending interpretations of the NFP Category 2 survey requirements, including the interpretation of when Category 2 surveys were required to be performed. Id. The IRT members principally involved in developing that interpretation and memoranda recommending that interpretation for adoption by the RIEC were Tom Hussey (FS) and Larry Larsen (BLM). Randy Hickenbottom (FS) also played a major role in this effort with Messrs. Hussey and Larsen. Id. Beginning at least in the summer of 1996 and continuing as late as October 1996, Messrs. Larsen, Hussey and Hickenbottom collaborated in an effort which ultimately led to a recommendation to the RIEC that it officially adopt the interpretation of the requirement for Category 2 surveys, "NEPA decision equals implementation." PPF ¶¶ 38. By this it was meant that the NFP ROD was interpreted to mean that Category 2 surveys would not be required for FS timber sales where NEPA decision documents signifying approval of the environmental analyses preparatory to offering the sales to the public were signed by either October 1, 1996 or October 1, 1998.1 PPF ¶ 44. The former date, the first day of fiscal year ("FY") 1997, was the trigger date for requiring Category 2 surveys for five salamanders and the red tree vole; the October 1, 1998 date, the first day of FY 1999, was the trigger date for requiring Category 2 surveys for 71 invertebrate species. PPF ¶ 16. The interpretation "NEPA decision equals implementation" and
1

NEPA requires the FS to prepare a decision document approving the environmental analyses before offering timber for sale to the public. A decision document can be either a Decision Notice ("DN") or a ROD. A DN is the decision document issued as part of the NEPA process where only an Environmental Assessment ("EA") is required. (An EA is the form of environmental analysis prepared for most FS timber sales.) A ROD is the decision document issued as part of the NEPA process where an Environmental Impact Statement ("EIS") is required. (An EIS is a more extensive undertaking than an EA.) Oregon Natural Resources Council Action v. United States Forest Service ("ONRC Action"), 59 F. Supp. 2d 1085, 1092 n.4 (W.D. Wash. 1999). In this case, the FS's decision documents which authorized the sale of Happy Thin, Jack Heli and Too Wild were DNs. App. Tabs 40, 140, 195. 7

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 28 of 102

the RTV Directive were adopted by the RIEC effective October 1, 1996 and then readopted on September 11, 1998 to apply to October 1, 1998. PPF ¶¶ 73, 75. The adoption of the "NEPA decision equals implementation" interpretation meant that if NEPA decision documents for planned timber sales were signed prior to the trigger dates Category 2 surveys would not have to be performed. PPF ¶¶ 48, 76, 80. This would be true regardless of whether those timber sales were offered to the public and awarded months or even years later. PPF ¶¶ 48, 76, 80, 85. The effect of this interpretation was to exempt numerous FS and BLM timber sales from Category 2 surveys. ONRC Action, 59 F. Supp. 2d at 1093. Randy Hickenbottom of the FS and others were involved in developing the November 4, 1996 Interim Guidance for Survey and Manage Component 2 Species: Red Tree Vole (the "RTV Directive"). App. Tab 36. The RTV Directive was an interpretation of the Category 2 survey requirements that employed various parameters which resulted in exempting approximately 90% of the red tree vole habitat and all of the red tree vole habitat in California from the survey requirements. The rationale for this interpretation was the Forest Service's belief that red tree vole surveys were not necessary where red tree vole habitat was abundant. Id. at 1094. The RTV Directive was in direct conflict with the specific direction in the NFP ROD that red tree vole surveys must be conducted "within the species' `known or suspected ranges and within the habitat types or vegetation communities associated with it." Id. at 1095. Events Subsequent To The Issuance Of The Joint Forest Service/BLM Memoranda Adopting The Interpretation "NEPA Decision Equals Implementation" And The Red Tree Vole Directive Various environmental groups and members of the public began filing administrative appeals of the FS and the BLM decision documents which did not include Category 2 surveys

8

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 29 of 102

based upon the interpretation "NEPA decision equals implementation" and the RTV Directive. See, e.g., App. Tabs 88, 94. Such administrative appeals were filed for each of plaintiffs' sales, Happy Thin, Jack Heli and Too Wild. PPF ¶¶ 151, 173; see App. Tab 128 at A-1101, A-1107. The ONRC Action lawsuit was filed on July 8, 1998, challenging, among other things, the FS's adoption of the interpretation "NEPA decision equals implementation" and the RTV Directive. PPF ¶ 81. The allegations of the complaint directed to both of these points were spelled out in further detail in a September 25, 1998 letter from ONRC Action to the Department of Justice. PPF ¶ 83. Edward (Ted) Boling, the chief trial lawyer for the government in ONRC Action, was initially "leery" of the FS's rationale for these two Category 2 survey interpretations. PPF ¶ 93. On or about November 25, 1998, Mr. Boling briefed his superior, Assistant Attorney General for the Environment and Natural Resources Lois Schiffer, and her immediate deputy Peter Coppleman, on the ONRC Action allegations regarding "NEPA decision equals implementation." PPF ¶ 84. Ms. Schiffer told Mr. Boling that "NEPA decision equals implementation was nonsense." PPF ¶¶ 84, 91. Ms. Schiffer indicated that she was concerned the FS would rush to sign decision documents in order to have timber sales offered to the public without Category 2 surveys. PPF ¶ 85. Mr. Coppleman agreed with Ms. Schiffer. PPF ¶¶ 8485, 91. The views of Ms. Schiffer and Mr. Coppleman were communicated to agency attorneys for the FS and upper level management personnel for the FS in November and December of 1998. PPF ¶¶ 84, 87, 89-91. In April 1998, the FS and the BLM approached the RIEC with a request to consider a one-year delay of survey implementation for several Category 2 species from FY 1999 (October

9

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 30 of 102

1, 1998) to FY 2000 (October 1, 1999). A procedure for such changes was authorized in the NFP ROD, but a change of this type required compilation of an EA or EIS before the ROD could be amended. Preparing such EAs or EISs typically require several months of effort. The FS and the BLM could have used, but chose not to use, this procedure to delay any or all of the 71 invertebrate Category 2 surveys rather than adopt the interpretation "NEPA decision equals implementation" without environmental analysis. PPF ¶¶ 69-71. After the filing of ONRC Action, the Department of Justice and the ONRC Action plaintiffs entered into settlement negotiations and several lists of "at-risk" or "problem sales" were provided by the ONRC Action plaintiffs to the FS through the Department of Justice. PPF ¶ 109. The purpose of these lists of sales (which were not mentioned in the ONRC Action complaint (PPF ¶ 108)) was to put the FS on notice initially that if it awarded any of the listed sales, the ONRC Action plaintiffs would immediately seek a temporary restraining order or a preliminary injunction. Id.; PPF ¶¶ 104-05. Later, the FS secretly agreed with the ONRC Action plaintiffs that certain of the at-risk or problem sales could be awarded but that ONRC Action reserved the right to file a motion for a temporary restraining order or preliminary injunction if any ground-disturbing operations occurred on those sales. PPF ¶¶ 139-41, 143, 189-90. These secret lists, agreements and negotiations were not revealed to the public and in particular not to plaintiffs Blue Lake, Timber Products or CLR. PPF ¶¶ 106-08, 138-39, 189, 202. Representations were made by FS personnel to plaintiffs both explicitly and by implication that Happy Thin, Jack Heli and Too Wild were not under threat of injunction in the ONRC Action litigation when in fact they were under explicit threat of injunction if any ground-disturbing operations took place after contract award. PPF ¶¶ 137, 157-58, 161, 163, 182, 184, 189, 191-

10

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 31 of 102

92, 203. The FS awarded Jack Heli on March 2, 1999, Too Wild on May 14, 1999 and Happy Thin on July 6, 1999. PPF ¶¶ 165, 188, 204. The district court's decision granting summary judgment to the ONRC Action plaintiffs and enjoining the FS from allowing operations on nine specified timber sales was issued on August 2, 1999. By order dated August 26, 1999, the district court expanded the injunction to preclude the FS from allowing operations on other timber sales, including Happy Thin, Jack Heli and Too Wild. PPF ¶ 96. The FS suspended sale operations on Happy Thin, Jack Heli and Too Wild on or about August 27, 1999. PPF ¶¶ 166, 193, 207. Edward Boling recommended that the government not appeal the ONRC Action decision because the agencies' rationale for the interpretation "NEPA decision equals implementation" was weak and the RTV Directive was in obvious tension with the explicit direction in the ROD. PPF ¶ 146. In December 1999 the FS and the BLM through the Department of Justice settled the ONRC Action lawsuit. Pursuant to this settlement agreement, the complaint was dismissed and the injunction dissolved; however, the FS agreed to continue its suspensions of all affected timber sales, including Happy Thin, Jack Heli and Too Wild, until applicable Category 2 surveys had been completed and the ONRC Action plaintiffs had been given an opportunity to review and object to Supplemental Information Reports ("SIRs") on those surveys. PPF ¶¶ 147, 166, 169, 193-94, 207-08. The government also agreed as part of that settlement to pay ONRC Action's attorneys' fees pursuant to the Equal Access to Justice Act. Id. Plaintiffs Blue Lake, Timber Products and CLR filed timely claims under the Contract Disputes Act for the damages they incurred as a result of the FS's suspensions of their timber sales. PPF ¶¶ 167, 195, 209.

11

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 32 of 102

ARGUMENT I. Standard of Review

Summary judgment is proper when no genuine issues of material fact are in dispute and the moving party is entitled to judgment as a matter of law. RCFC 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 422 (1986). "An issue is genuine only if, on the entirety of the record, a reasonable jury could resolve a factual matter in favor of the non-movant, while the materiality of the fact is determined by reference to applicable legal standards." Nicholson v. United States, 29 Fed. Cl. 180, 186 (1993) (citing Sweats Fashions, Inc. v. Pannill Knitting Co., 833 F.2d 1560, 1562, 1567 (Fed. Cir. 1987)). An outcome-determinative fact is a material fact. Brooks v. United States, 65 Fed. Cl. 135, 140 (2005) (citing Liberty Lobby, 477 U.S. at 248). When the record could not lead a rational trier of fact to find for the nonmoving party, there is no need for the parties to undertake the time and expense of a trial, and the moving party should prevail without further proceedings. Hall v. Aqua Queen Mfg., Inc., 93 F.3d 1548, 1553 n.3 (Fed. Cir. 1996); Maintenance Eng'rs v. United States, 50 Fed. Cl. 399, 408 (2001) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). II. The Forest Service, As The Sole Drafter Of The Contracts, Assumed The Risk Of Liability To Plaintiffs When It Awarded The Timber Sale Contracts Without The Required Category 2 Surveys And Then Had To Suspend Plaintiffs' Timber Sale Operations In Order To Perform Those Surveys And Failed To Include Any Exculpatory Provisions Or Disclaimers In The Contracts Or Require Plaintiffs To Execute Any Waivers Of Liability

When the government is the sole drafter of a contract the courts will strictly construe that contract against the government and in favor of the contractor. See United States v. Seckinger, 397 U.S. 203, 210 (1970) (stating that contracts are "construed most strongly against the drafter"). This is particularly appropriate where the contractor has been damaged by delay or 12

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 33 of 102

cost increases resulting from events within the government's control, and the government, as the sole drafter of the contract, has failed to protect itself with a valid exculpatory provision or effective disclaimer language in the contract. Dep't of Natural Res. and Conservation of Montana v. United States, 1 Cl. Ct. 727, 734 (1983); see Cedar Lumber, Inc. v. United States, 5 Cl. Ct. 539, 552 (1984). That is precisely the situation in the instant case involving each of the plaintiffs' timber sale contracts. The FS had a fundamental obligation under each of plaintiffs' contracts to make the timber available to plaintiffs to harvest during the Normal Operating Season ("NOS") within the terms of each contract as awarded. App. Tabs 93 at A-611, 111 at A-791, 124 at A-997 ("Forest Service agrees to sell and permit Purchaser to cut and remove and Purchaser agrees to purchase, cut and remove Included Timber"). The FS breached each of plaintiffs' contracts because it failed to fulfill this basic obligation and was not excused from doing so by any valid exculpatory clause or disclaimer or by any other provision in plaintiffs' contracts, including standard FS contract clause C(T)6.01. Beginning as early as 1996, the FS was fully aware there were serious legal risks involved in awarding timber sale contracts without Category 2 surveys based upon the interpretation "NEPA decisions equals implementation." In 1996, the members of the IRT considered this legal risk for several months while they developed the interpretation "NEPA decision equals implementation." Larry Larsen, a BLM employee who worked with Tom Hussey and Randy Hickenbottom of the FS as the primary developers of the interpretation "NEPA decision equals implementation," observed to his colleagues in drafts he produced that there were legal risks to the FS and the BLM in not performing Category 2 surveys on timber

13

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 34 of 102

sales for which NEPA decision documents were signed prior to October 1, 1996 but for which contracts were not to be awarded until after that date. PPF ¶ 54. Tom Hussey has acknowledged that the IRT was always aware that there was a risk of lawsuits by environmental activists challenging any interpretation that favored the FS's timber sale program goals over its species protection goals. PPF ¶ 60. Such lawsuits could lead to injunctions and suspensions of the timber sale contracts, and therefore contract claims by purchasers. Similarly, Randy Hickenbottom has acknowledged that the IRT members and other government personnel working on the development of the interpretation "NEPA decision equals implementation" understood there was a risk of legal challenge to that interpretation. PPF ¶ 45. Field personnel of the FS and BLM also expressed concern that adopting the interpretation "NEPA decision equals implementation" could result in a substantial number of timber sale contracts being awarded without Category 2 surveys and therefore increased the risk of legal challenge and biological risk to the species. PPF ¶¶ 45, 50-51, 53. There was so much concern within the REO about the possible adverse consequences of exempting many timber sales from Category 2 surveys that Don Knowles, director of that Office, approached Richard Holthausen, the leader of the Species Analysis Team, to inquire if it was possible to do an assessment of the potential impact of the different implementation dates for surveys required under the NFP. PPF ¶ 49. Mr. Holthausen told Mr. Knowles "that in general, one could reasonably assume that delay of implementation of surveys would result in some negative effect for some species, but it would be virtually impossible to specify either the level of that effect or the species that would undergo negative effects." Id. In short, there was no way of knowing whether delaying the Category 2 surveys would or would not cause the extirpation of

14

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 35 of 102

a species. PPF ¶ 49. Virtually all of those involved in developing the interpretation "NEPA decision equals implementation" understood that there were serious risks of legal challenges and potential liability to purchasers of timber sales that were not surveyed if the FS and BLM adopted that interpretation. PPF ¶¶ 45, 54, 58, 60. On July 8, 1998, the ONRC Action lawsuit was filed, and the likelihood of a legal challenge to timber sales dependent on the interpretation "NEPA decision equals implementation" and the RTV Directive became a reality. When he first reviewed ONRC Action's allegations regarding the interpretation "NEPA decision equals implementation," Edward Boling, lead counsel for the government in the ONRC Action lawsuit, became concerned about the litigation risk associated with this interpretation. PPF ¶ 82. Mr. Boling told Owen Schmidt, the principal FS lawyer for the ONRC Action litigation, that he was "leery" of the FS's legal rationale for the interpretation "NEPA decision equals interpretation." PPF ¶ 83.2

Edward Boling reiterated his view that the FS's rationale for its interpretation "NEPA decision equals implementation" was very weak and stated that the RTV Directive seemed clearly inconsistent with the NFP ROD in his memorandum to Lois Schiffer, Assistant United States Attorney for the Environment and National Resources, recommending settlement of the ONRC Action litigation, dated November 18, 1999. App. Tab 136. In that memorandum Mr. Boling recommended against appeal of the district court's decision in ONRC Action because the likelihood of "success on appeal is not great because the agencies' interpretations are clearly in tension with the text of the ROD and the common meaning of the words `implemented' and `survey.'" Id. at A-1141 to A-1142. Further, Mr. Boling noted that when the interpretation "NEPA decision equals implementation" was adopted "many units [FS and BLM personnel] had interpreted other ROD text (`surveys conducted prior to ground-disturbing activities') as allowing the authorization of projects [timber sales] without surveys and signed NEPA decisions with the intention to survey prior to the contract offering." Id. at A-1138. As to the RTV Directive, Mr. Boling stated that it "effectively excluded much of the red tree vole's habitat from survey, which is inconsistent with the ROD requirements to survey `all' ground-disturbing activities `within the known or suspected ranges and within the habitat types or vegetation communities associated with the species.' ROD C-5." Id. at A-1139. 15

2

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 36 of 102

Soon after ONRC Action was filed, in a memorandum dated July 29, 1998, Robert Simmons, the Regional Attorney for Region 5 of the FS (California), advised the Regional Forester for Region 5 (which includes the Klamath National Forest and the Happy Thin and Jack Heli timber sales) and the Regional Forester for Region 6 (which includes the Siskiyou National Forest and the Too Wild timber sale) that if certain timber sales threatened by the ONRC Action lawsuit were to be offered to the public, the FS should take specific precautions: Should you proceed with the auction of these sales [some of the "sales of concern" identified by the ONRC Action plaintiffs], you should notify all purchasers prior to the opening of the bids that the plaintiffs in this lawsuit [ONRC Action] have identified the sale and have contended that the Forest Service has violated the Northwest Forest Plan in preparing the sale.[3] You should also notify the bidders that you will be including language in the contract limiting the government's liability in case of cancellation to the holding costs, and that, if this is not acceptable to the bidders, they should withdraw their bids at that time. All bidders should be given the opportunity to withdraw their bids simply because of the litigation. Finally, you should take action to make sure the appropriate language is in the contract. PPF ¶ 99 (emphasis added). For the contracts at issue in this action no direction was given regarding FS liability for suspensions. Nothing at all was said in the prospectuses or instructions to bidders for each contract about possible suspensions or about any language being included in the contracts to limit the FS's liability in the event of suspension. PPF ¶¶ 155, 175, 203. No "appropriate language" was included in these contracts. On or about November 25, 1998, Edward Boling briefed his superior, Assistant Attorney General for the Environment and Natural Resources Lois Schiffer, and her immediate subordinate Peter Coppelman on the ONRC Action litigation and ONRC Action's challenge to

Award of FS timber sale contracts follows the opening of sealed bids and often an oral auction conducted by the FS to determine the high bidder. See 16 U.S.C. § 472a(e)(2); 36 C.F.R. §§ 223.88; 223.100. 16

3

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 37 of 102

the interpretation "NEPA decision equals implementation." At this meeting Ms. Schiffer told Mr. Boling that "NEPA decision equals implementation was nonsense." Ms. Schiffer was concerned that the "NEPA decision equals implementation" interpretation would allow the FS and the BLM to authorize timber sales without having first conducted Category 2 surveys even though the sale contracts might not be offered or awarded until months or even years later. This was exactly the allegation raised by the ONRC Action plaintiffs. Mr. Coppelman shared Ms. Schiffer's concerns. PPF ¶¶ 84-85, 91. Ms. Schiffer indicated that she would need to have further discussions with high level officials within the Department of Agriculture and the Department of the Interior before deciding whether the Department of Justice would defend the "NEPA decision equals implementation" interpretation in court. PPF ¶¶ 84, 87. The substance of this meeting and Ms. Schiffer's statements were communicated by Edward Boling to Sue Zike, the FS litigation coordinator for the ONRC Action litigation, and Ms. Zike in turn communicated the substance of this meeting to Robert Devlin, the Director of Natural Resources within the FS for Region 6. PPF ¶¶ 84-87, 89-91. Also on or about November 25, 1998, FS attorney Owen Schmidt called Nancy Graybeal, Deputy Regional Forester for Region 6, to communicate the substance of Ms. Schiffer's evaluation. Ms. Graybeal reported, "Owen Schmidt, OGC [Office of General Counsel], called this morning to say that Ted Boling reported a non-decision from Lois Schiffer. Lois wants to talk to an Asst Sec (I don't know which one) before deciding course of action. I agreed we'd delay award of any sales until December 3. Bob [Devlin] - please let Forest [contracting officers] know." PPF ¶ 87. Thus, months before the award of plaintiffs' timber sale contracts the FS was aware that lead trial counsel for the Department of Justice in ONRC Action and the

17

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 38 of 102

Assistant Attorney General for the Environment and Natural Resources and her deputy had, at a minimum, very serious doubts about whether the interpretation "NEPA decision equals implementation" was even defensible. Following the filing of the ONRC Action litigation and prior to the award of Happy Thin, Jack Heli and Too Wild, plaintiffs' timber sales were named on lists of "at-risk" sales provided by the ONRC Action plaintiffs to the government. The FS kept the identity of the sales on these lists, including plaintiffs' sales, secret from the public, including plaintiffs. PPF ¶¶ 106-08, 138, 189, 202. By providing these lists of "at-risk" sales to the government, the ONRC Action plaintiffs were putting the FS on notice that if it allowed harvesting or any other kind of grounddisturbing activities to proceed on these sales the ONRC Action plaintiffs would immediately seek injunctive relief. PPF ¶¶ 139-40, 189-90. The FS contracting officer ("CO") for Blue Lake's Happy Thin sale and Timber Products' Jack Heli sale specifically understood when those contracts were awarded that harvesting or ground-disturbing operations would likely prompt a motion for a temporary restraining order or a preliminary injunction. PPF ¶¶ 111-12, 131, 134, 153, 191. Despite this knowledge the FS did not include clear and direct disclaimer or exculpatory language in the contracts to protect itself from liability in the event that plaintiffs' timber sales were suspended because of the FS's failure to perform Category 2 surveys. In addition, the FS knew that it faced serious liability to purchasers if it awarded timber sales that later had to be suspended for the completion of Category 2 surveys. Sue Zike, for example, warned that awarding such sales "May create $$ liability to govt if lose case." PPF ¶ 129. When it was considering the prospect of having to survey sales that had been awarded, the FS would "vigorously argue against such surveys" because "The Forest Service has no

18

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 39 of 102

provision in its timber sale contracts that allow for suspension for survey and/or discovery of survey and manage species." PPF ¶¶ 130, 132-33; App. Tab 82 (Memorandum from Paul Brouha, Associate Deputy Chief of the FS, to the Deputy Under Secretary for Natural Resources and the Environment for the Department of Agriculture and others (the "Brouha Memorandum")). The Jack Heli timber sale contract was awarded on March 2, 1999. PPF ¶ 188. The Too Wild timber sale contract was awarded on May 14, 1999. PPF ¶ 204. The Happy Thin timber sale contract was awarded on July 6, 1999. PPF ¶ 165. All of these awards occurred months after the filing of ONRC Action and after the FS knew of the Department of Justice's serious doubts about the legal defensibility of the FS's Category 2 survey interpretations. Nevertheless, none of these contracts contain any language referencing the ONRC Action litigation and no language clearly and directly disclaiming FS liability for suspensions resulting from the FS's failure to conduct Category 2 surveys. Each of these contracts were contracts of adhesion, all the terms and conditions of which were drafted unilaterally by the FS except for the price term which was a result of the purchaser being selected as the high bidder at a FS bid opening. PPF ¶ 7. The award letters for these contracts also contained no reference to the ONRC Action lawsuit, and the FS did not impose as a condition of plaintiffs' receipt of award any requirement that the purchasers waive any rights to damages in the event that their timber sales were suspended due to the FS's failure to conduct Category 2 surveys. In the absence of any clear and direct exculpatory language in the contract itself or at a minimum, clear and direct language requiring the purchaser to waive any potential damages claim as a condition of its receipt of contract award, the FS must be deemed to have assumed the

19

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 40 of 102

risk of liability if the plaintiffs' timber sales were suspended because the FS elected not to perform Category 2 surveys before making contract award. It appears that defendant will attempt to argue that standard timber sale contract clause C(T)6.01 permitted the FS to suspend sale operations with limited liability to the purchasers, even where, as here, FS fault caused the suspension.4 Precision Pine and all the cases subsequently dealing with allegations that the FS breached its implied duties to cooperate and not to hinder by suspending timber sales under

The Jack Heli contract contains clause C6.01. Both the Happy Thin and Too Wild contracts contain clause CT6.01. Clauses C6.01 and CT6.01 are substantively the same. The slight differences in the clauses are immaterial to the issues in this case. See, e.g., Precision Pine, 50 Fed. Cl. at 40, 67 n.37. Clause C6.01 provides: C6.01 ­ Interruption or Delay of Operations. (10/96) Purchaser agrees to interrupt or delay operations under this contract, in whole or in part, upon the written request of Contracting Officer: (a) To prevent serious environmental degradation or resource damage that may require contract modification under C8.3 or termination pursuant to C8.2; (b) To comply with a court order, issued by a court of competent jurisdiction; or (c) Upon determination of the appropriate Regional Forester, Forest Service, that conditions existing on this sale are the same as, or nearly the same as, conditions existing on sale(s) named in such an order as described in (b). Purchaser agrees that in event of interruption or delay of operations under this provision, that its sole and exclusive remedy shall be (i) Contract Term Adjustment pursuant to B8.21, or (ii) when such an interruption or delay exceeds 30 days during Normal Operating Season, Contract Term Adjustment pursuant to B8.21, plus out-of-pocket expenses incurred as a direct result of interruption or delay of operations under this provision. Out-of-pocket expenses do not include lost profits, attorney's fees, replacement cost of timber, or any other anticipatory losses suffered by Purchaser. Purchaser agrees to provide receipts or other documentation to the Contracting Officer which clearly identify and verify actual expenditures. App. Tab 93 at A-657 (Jack Heli contract); see App. Tab 111 at A-870 to A-871 (clause CT6.01 in Too Wild); App. Tab 124 at A-1037 (CT6.01 in Happy Thin contract). 20

4

Case 1:01-cv-00570-MCW

Document 182

Filed 03/07/2008

Page 41 of 102

clause C(T)6.01 to satisfy pre-award environmental obligations have held that this clause is not a valid exculpatory clause.5 Trini