Seneca Sawmill Co. v. United States

SENECA SAWMILL COMPANY, Plaintiff, v. THE UNITED STATES OF AMERICA, Defendant.

No. 16-1001C

United States Court of Federal Claims

July 2, 2020

Keywords: Motion for Summary Judgment; Breach of Contract; Environmental Assessment; Supplemental Environmental Assessment; Timber Sale Contract; Res Judicata; Termination Provision; Mitigation of Damages; Compliance with Injunction.

Michael E. Haglund and Julie E. Weis, Haglund Kelley LLP, Portland, OR, for Plaintiff.

Daniel B. Volk, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, Washington, DC, for Defendant, with whom were Elizabeth M. Hosford, Assistant Director, Robert E. Kirschman, Jr., Director, and Joseph H. Hunt, Assistant Attorney General. Benjamin Hartman, Office of the General Counsel, United States Department of Agriculture, Portland, OR, Of Counsel, for Defendant.

OPINION AND ORDER

KAPLAN, Judge.

Plaintiff, the Seneca Sawmill Company ("Seneca"), brings this action seeking damages for breach of a timber sale contract it entered with the United States Forest Service. The timber sales were to be undertaken in connection with the Trapper Project, a landscape management effort in the Willamette National Forest in Oregon. The project was authorized following a 2003 environmental assessment ("2003 EA") which found it would have no significant environmental impact.

The alleged breach of the timber sale contract occurred in the wake of a successful suit environmental groups brought in 2010 alleging that—given new information and changed circumstances—the National Environmental Policy Act ("NEPA"), 42 U.S.C. §§ 4321, et seq., required the 2003 environmental assessment to be revisited. See Cascadia Wildlands v. U.S. Forest Serv., 791 F. Supp. 2d 979 (D. Or. 2011). The district court ordered the timber sale enjoined pending the preparation of a supplemental environmental assessment ("EA") and Decision Notice that addressed two issues: 1) the effect of the harvesting of timber on the northern spotted owl and its habitat, and 2) whether new information called into question the continued learning value of the project.

In response to the injunction, the Forest Service conducted new environmental surveys and prepared a revised EA and Decision Notice. The revised assessment addressed not only the issues that had been the subject of the district court's order; it also identified additional obstacles to the timber harvest arising out of, among other things, the presence of red tree vole nests. Based on the results of that revised assessment, the Forest Service removed all but twenty-seven of the approximately 150 harvestable acres that were the subject of the contract and invoked its authority under the contract to partially terminate it to comply with a court order.

Seneca alleges that the Forest Service breached the timber sale contract when it issued a new EA rather than a supplemental one limited to the issues identified in the court order. According to Seneca, the Forest Service's actions were not justified by the contractual provision authorizing terminations to comply with a court order. In addition, it argues, the Forest Service violated the duty of good faith and fair dealing implied in the contract by not limiting its response to the court order to the specific deficiencies the district court identified.

The government has moved for summary judgment. It argues that because Seneca was an intervenor in Cascadia Wildlands, res judicata precludes it from arguing that the Forest Service went further than necessary to comply with the district court's order. Second, the government contends that Seneca's interpretation of the contract's termination provision is erroneous. It argues that Seneca's good faith and fair dealing claim—which posits that the Forest Service had an obligation to attempt to minimize injury to Seneca in responding to the district court order—is without merit as a matter of law. The government further argues Seneca's breach claim has been waived because it actually performed under the modified contract. Finally, in the event that the Court does not grant summary judgment as to liability, the government moves for summary judgment regarding a proof of damages issue.

For the reasons that follow, the government's motion for summary judgment is denied-in-part and granted-in-part.

BACKGROUND

I. The Origins of the Trapper Project¹

As noted above, the Forest Service entered the timber sale contract at issue in this case as part of its implementation of the Trapper Project. That Project was a product of the Blue River Landscape Strategy ("BRLS") which the Forest Service initiated in 1998 pursuant to theNorthwest Forest Plan ("NWFP") for the Central Cascades Adaptive Management Area. Def.'s Summ. J. App. ("Def.'s App.") at 8-9, 15, 1005, ECF Nos. 48, 48-5. The Strategy involved experimental timber harvesting and other measures intended to replicate the results of wildfires for study by the Forest Service. Id. at 9. The Project involved, among other things, "using timber harvesting techniques, prescribed fire and snag creation methods to approximate stand structures resulting from historic high severity, stand-replacement fires and partial-stand replacement fires on 155 acres." Id. at 12.

In accordance with section 7 of the Endangered Species Act, the Forest Service formally consulted with the U.S. Fish and Wildlife Service ("FWS") concerning the Project. The FWS issued a Biological Opinion in September 1998 that found that the project was "not likely to jeopardize the continued existence of the spotted owl or result in the destruction or adverse modification of spotted owl critical habitat." Id. at 70.

In May of 2003, relying on this Opinion, among other things, the Forest Service issued an EA and a Decision Notice and Finding of No Significant Impact for the Trapper Project ("2003 FONSI"). Id. at 177-96. The district ranger concluded that the project was "not a major Federal action that would significantly (40 CFR 1508.27) affect the quality of the human environment (40 CFR 1508.14)." Id. at 194. Citing the FWS Opinion, the district ranger determined that the project "may effect, but [was] not likely to adversely affect" the northern spotted owl—a determination that served as partial justification for the Trapper Project without preparing an environmental impact statement. Id. at 192; see also id. at 194-95 (reporting under the heading "Finding of No Significant Impact" that "Biological Evaluations . . . for . . . Threatened . . . species . . . indicated that the proposed project will have no significant effects or adverse impacts to any species or their habitats").

II. The Timber Sale Contract

The Forest Service conducted an auction on October 14, 2003 and awarded the Trapper Timber Sale Contract No. 000533 to Seneca on October 23, 2003. Id. at 222. The contract granted Seneca the right to harvest timber, primarily from mature Douglas fir trees of 140 years in age, over an area approximately 149 or 155 acres in size. Id. at 162-72; 178.²

The contract contains a number of provisions that afford the Forest Service the right to suspend the contract or partially terminate it in the event that environmental issues arise during contract performance that affect its continued viability. The provision relevant to this case is CT8.24, entitled "Termination." Id. at 331, ECF No. 48-1. It statesin pertinent part that the Chief of the Forest Service may, by written notice, terminate the contract in whole or in part:

(a) To comply with a court order, regardless of whether this timber sale is named in such an order, upon determination that the order would be applicable to the conditions existing on this timber sale or

(b) upon a determination by the Chief that the continuation of all or part of this contract would:

(i) Cause serious environmental degradation or resource damage;

(ii) Be significantly inconsistent with land management plans adopted or revised in accordance with Section 6 of the Forest and Rangeland Renewable Resources Planning Act of 1974, as amended;

(iii) Cause serious damage to cultural resources pursuant to BT6.24;

(iv) Cause serious damage to cave resources pursuant to BT6.26; or

(v) Adversely affect species listed as threatened or endangered under the Endangered Species Act, 16 USC 1531, et seq., or a sensitive specifies identified by the Regional Forester pursuant to BT6.25.

Id. (hereinafter "provision CT8.24" or "CT8.24").

The contract also specifies the remedies available to Seneca where the Forest Service exercises its rights to terminate under CT8.24. As pertinent to this case, it states that "[c]ompensation for termination under paragraph (a) [to comply with a court order] shall be calculated pursuant to CT9.53." That section states in turn as follows:

CT9.53 — SETTLEMENT FOR ADMINISTRATIVE APPEAL (07/2001)

In the event of termination of this contract, in whole or in part, by the Chief as a result of an administrative appeal or litigation of the decision to sell timber included in this contract or pursuant to CT8.24, paragraph (a), Purchaser agrees that its sole and exclusive remedy shall be reimbursement for Out-of-Pocket Expenses, as defined by BT6.02. Purchaser agrees to provide receipts or other documentation to Contracting Officer that clearly identify and verify actual expenditures.

In the event of modification by Contracting Officer or partial termination, changes to the contract shall be limited to those determined by Contracting Officer to be necessary for correction of the deficiencies raised by the appeal or lawsuit. Changes to the contract shall be limited to requirements with which Purchaser can reasonably comply.

Id. at 335 (hereinafter "provision CT9.53" or "CT9.53").³

III. Intervening Developments

Although the contract was awarded in 2003, Seneca did not attempt to begin performance for some time thereafter. In addition, in accordance with CT9.110, Seneca's right to perform under the contract was suspended...