BIOMASS HUB

The United States is not liable for breach of any express or implied warranties when the U.S. Forest Service suspended 14 contracts for timber harvesting in Arizona finds a U.S. federal circuit court judge.

The ruling reverses a trial court decision granting  Precision Pine & Timber damages, which entered into a series of contracts with the United States between 1991 and 1995 that required Precision Pine to cut and remove timber by the contract’s termination date.  In April 1993, the Fish and Wildlife Service listed the Mexican spotted owl as an endangered species triggering various statutory and regulatory obligations under the Endangered Species Act (“ESA”).  Specifically, the ESA requires federal agencies, like the Forest Service, to consult with the Fish and Wildlife Service to ensure that any action “authorized, funded or carried out by such agency is not likely to jeopardize the continued existence of any endangered species . . . or result in the destruction or adverse modification of habitat of such species.”  16 U.S.C. § 1536(a)(2); see also 50 C.F.R. § 402.01(b).

While such consultations are taking place, § 7(d) of the ESA prohibited the Forest Service from making any “irreversible or irretrievable commitment of resources” during the consultation process.  16 U.S.C. § 1536(d).  The Forest Service is the agency charged with administering and maintaining national forests throughout the United States.  National forests were created not only to conserve resources, but also to provide access to, and facilitate use of, their resources.  See Forest Reserve Act of 1891, 26 Stat. 1103, (codified as amended at 16 U.S.C. § 471), repealed by Federal Land Policy and Management Act, Pub. L. No. 94- 579 (Oct. 21, 1976); Forest Service Organic Administration Act, 30 Stat. 11 (June 4, 1897) (codified as amended at 16 U.S.C. §§ 473-478, 479-482, 551); Multiple Use – Sustained Yield Act of 1960, 74 Stat. 215 (June 12, 1960) (codified as amended at 16 U.S.C. §§ 528-531); see also National Forest Management Act of 1976, 90 Stat. 2949 (Oct. 22, 1976) (codified as amended at 16 U.S.C. §§ 1600-1614).

Consistent with this mission, national forests are used for timber, minerals, water, grazing, and recreation.  In its management capacity over national forests, the Forest Service has the authority to enter into timber harvesting contracts with private companies on behalf of the United States.  16 U.S.C. § 472a.

Although federal rules regarding the removal of “biomass” from U.S. federal forests vary depending on the specific legislation or tax code provision, project developers should note that the ruling indicates that the U.S. government may have the authority to suspend contracts in circumstances where suspensions are required to comply with federal law, in this case, ESA.  If so, contracting parties may not be able to claim damages for the breach of contract.  To protect their contract rights and ensure a long-term supply of feedstock, project developers relying on woody biomass from national forests should note that contract provisions should contain express language of incorporation for specific procedures under ESA in the event that the U.S. has the authority to suspend the contract.

A PDF of the decision is available here.