Environmentalism by Breach of Contract
posted by Nate Oman
Tim DeChristopher, a Utah-based environmental activist, has discovered a new tactic in the war on global warming: intentional breach of contract. The Washington Post reports:
Instead of joining his protester friends on the snowy sidewalk outside the Bureau of Land Management office in Salt Lake City, Tim DeChristopher took a seat inside. In a room milling with oil and gas men who knew one another by sight, he was the unknown in a red parka, registering as a bidder in an auction for the rights to drill on 149,000 acres of federal land. DeChristopher was handed a red paddle bearing the number 70.
Half an hour later, he was raising it.
“I leaned forward to one of my colleagues and said, ‘This guy behind us is just running up the prices,’ ” said David Terry, a Salt Lake City oil-land man who routinely attends the BLM auctions. “And my friend said, ‘Yeah, he’s going to get stuck with a tract.’ ”
The University of Utah economics student got stuck with 13. Promising the federal government $1.8 million he does not have, DeChristopher emerged holding leases on 22,000 acres in the scenic southeast corner of Utah.
DeChristopher, of course, is judgment proof. Unlike the strategy of say the Nature Conservancy, which seeks to preserve wilderness through purchase or other contractual arrangements, DeChristopher’s goal seems to have been disruption and the running up of oil lease prices. He’s also apparently under investigation by federal agents. Not being a government contracts geek, I don’t know what federal statutes he may have broken by participating in the auction on a bad-faith basis. As an ordinary matter of contract law, however, his case creates some interesting issues.
Normally, a bid at an auction is construed as an offer that the auctioneer may accept. When he does so, a contract is formed, and even though the obligations on both sides are purely executory — in this case the BLM’s obligation to provide the leases and DeChristopher’s obligation to pay — they are legally enforceable without either reliance or performance on either side. From the perspective of contract law, therefore, DeChristopher, by breaching his contract to the BLM, in effect deprives them of a $1.8 million entitlement. On the other hand, I suspect that for a lot of ordinary people, the intuitions run the other way. Since no one has relied on the contract, what is the big deal if both sides just back out and return to the status quo ante? Of course, the losers in the deal — and this is what DeChristopher really intended — are the gas developers that had to pay more to obtain leases by outbidding him.
It is an interesting question what claims might be made against DeChristopher. Clearly, the BLM could sue him for breach of contract. They also might be able to sue him on a theory of promissory fraud. What about the gas companies? It seems that they would have a difficult time arguing tortious interference with contract, as DeChristopher’s interference happened during the negotiation stage between the BLM and the companies, before there was any contract. He can always point out that if they thought they were paying too much they could have simply refused to bid on the leases. It’s not a bad argument in my opinion. Furthermore, while the BLM’s interests are adverse to DeChristopher as to the 13 leases he personally acquired, it ought to have no objection per se to his running up the price on the other leases. After all, it’s the BLM that gets to pocket the extra cash. Of course, the question of any civil remedies is academic. DeChristopher is not worth suing, except, perhaps, if someone wanted to harass him into bankruptcy in order to make an example of him. Hence, the feds’ investigation of possible criminal charges.
Were DeChristopher bidding with real money, I would actually find his tactics laudable. From an economic standpoint the reason why participation of someone like DeChristopher in the auctions is valuable is that it internalizes some more of the externalities involved in gas leases. On the other hand, if DeChristopher can drive up the price without actually having to pay for anything, then his incentive will be overbid. Another way of putting this is that so long as he is judgment proof, he is massively over-incentivized to breach. Furthermore, unlike the Nature Conservancy, DeChristopher’s actions will not ultimately stop the leases he purportedly purchased from being used. His failure to pay the $1.8 million will be material breach, relieving the BLM of the duty to convey rights to the land. The leases will simply be sold at the next auction.
Currently, DeChristopher is represented by Pat Shea, a local Utah lawyer who headed the BLM under Clinton. He’s trying to forestall prosecution. “I didn’t want to see somebody with that kind of virtue mangled by a Kafkaesque kind of system,” Shea said. “I think responsible civil disobedience has been forgotten since the ’60s and ’70s.” Of course, as originally conceptualized by Thoreau the notion of civil disobedience was that one broke the law and then took one’s punishment. It was a meant as a moral argument that justified ignoring the law, rather than a moral or legal argument against the enforcement of the law.
Indeed, given the inability of the private law to create optimal incentives for some like DeChristopher, a bit of guerilla bidding followed by a moderate jail sentence might not be such a bad solution. The best outcome would not be a sentence that utterly discouraged DeChristopher from participating in bids, but only one that encouraged him to consider the full costs of his actions. Indeed, getting a price that reflected the full costs of action, was what DeChristopher was purportedly aiming at to begin with.