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.
January 13, 2009 at 11:16 am
Posted in: Contract Law & Beyond, Environmental Law
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Responses (14)
David Schraub - January 13, 2009 at 1:13 pm
DeChristopher’s strategy becomes even more clever if one imagines it as a delaying action. Not only do the gas companies have to pay higher prices on the sites they won, but DeChristopher might have figured that some of the sites he won may be taken off the table in the new Obama administration (who will have taken office by the time the new auction starts), thus scoring an even bigger victory for conservation.
Waldo - January 13, 2009 at 2:54 pm
In many jurisdictions it is fraud to enter into a contract when one does not intend to honor that contract.
A.W. - January 13, 2009 at 3:57 pm
I will expect that following this article, that the police will arrest him for fraud, right?
Well, they probably won’t but they would have the right to do so, and they should.
Its idiots like this that gave us $4 a gallon gas last summer. But of course we are going to have at least 2 years of democrats making the energy situations worse not better. i hope i am wrong, but i don’t believe i am.
Long - January 13, 2009 at 4:41 pm
Not that my heart is not with DeChristopher, but….
1. DeChristopher’s strategy should only work once, at least in theory, since the seller should be able to obtain permanent injunction preventing him from participating in the future. The legal remedies are inadwquate, and a clever lawyer should be able to frame an adequate pleading here. If nothing else, it imposed additional cost on DeChristopher.
2. The seller should require all bidder, as a condition for participating in the bidding, to provide a bond to cover a certain percentage of their potential bids. The bond would be returned to them if they are unsuccessful in the bidding or if they pay the contract price. This would provide a gatekeeping function and deterrence to the likes of DeChristorpher.
3. I think one should be a little more creative in thinking about whether there is a contract which DeChristopher has interfered with. The entire bidding process might be viewed as a contract between the seller and those potential bidder who are actually in attendance. Everyone has implicitly agreed to conduct themselves in a certain manner, and DeChristopher has breach that agreement. If one does not think there is c contract or quasi contract here, then that can be address by having the seller have a simply contract that all potential bidders must signed as a condition for bidding, stating that they certify that they will only submit bid which they are in a financial position to honor. DeChristopher would not be able to satisfy that condition.
As I said, my heart may be with DeChristopher…but civil disobedience should not be costless.
Quidpro - January 13, 2009 at 8:41 pm
DeChristopher entered into several contracts that he never intended to perform. That is fraud. That such “civil disobedience” is celebrated by so-called “conservationists” is ridiculous.
DeChristopher’s juvenile antics merely expose the intellectual (and moral) bankruptcy of much of the enviornmental-leftist agenda on “global warming”.
Miriam Cherry - January 15, 2009 at 4:24 am
Since when do you go to jail for breaching a contract?
Patrick S. O'Donnell - January 15, 2009 at 9:47 am
“Its [sic] idiots like this that gave us $4 a gallon gas last summer.”
Oh, I understand now: it was environmental activists cooking up clever legal and illegal strategies and tactics as part of their fight on issues dear to them, that helped drive up the price of gas.
Nate,
I think you’re absolutely on point as regard Thoreau’s conception of civil disobedience. At the now defunct and sorely missed Law and Society blog I critized animal rights activists who likewise have a curious conception of civil disobedience, one that was not too civil nor in the tradition of civil disobedience that runs from Thoreau through Gandhi and King last century, including reliance on legal pleadings and defenses designed to avoid accepting punishment for deliberately breaking the law. Back in the days when we fought against the siting of PG & E’s Diablo Canyon Nuclear Power plant, not a few of my Abalone Alliance comrades planned to trespass and then invoke a “necessity” defense so as to avoid prosecution: they still thought that this was civil disobedience (because nonviolent and owing to the fact that the law enforcement authorities were informed in advance of their plans, etc.; I vigorously argued to the contrary, claiming they/we were not acting in the tradition of a long-standing if not persuasive model of civil disobedience and that therefore their actions would, in the end, both diminish favorable publicity for our cause and confuse the public as to the meaning of civil disobedience, among other things; cf.: http://www.lawsocietyblog.com/archives/288.). I’m hoping to find the time to write a paper on this before the end of this year.
A.W. - January 15, 2009 at 10:43 am
Patrick
> Oh, I understand now: it was environmental activists cooking up clever legal and illegal strategies and tactics as part of their fight on issues dear to them, that helped drive up the price of gas.
Yes, that is exactly what it was, among other factors. If we drilled in ANWR we wouldn’t have had $4 a gallon gas. if we built a new refinery, same outcome. if we retrieve our shale oil, or use coal, etc.
Maybe you think environmentalism is a good thing. Fine. But it is not a costless thing. Again, you are fooling no one.
Patrick S. O'Donnell - January 15, 2009 at 10:51 am
I’m so utterly disappointed and rather depressed now that I’ve learned, yet again, I’ve failed to fool anyone.
A.W. - January 15, 2009 at 1:10 pm
Ah, well, to be fair, I do see alot of self-deception on your part. Does that cheer you up?
Patrick S. O'Donnell - January 15, 2009 at 1:22 pm
No…but the brilliance of your intelligence, the sparkling of your wit and the dazzling display of psychological discernment are blinding: I’m in hasty retreat to the comforting confines of the Platonic cave.
tired anon - January 15, 2009 at 1:27 pm
Miriam: he didn’t just breach a contract; he entered into a contract without any intention to perform. This is a classic common-law fraud. I am quite sure it’s also a criminal fraud, but I don’t have time to search this stuff now. For common-law fraud, see, e.g., here:
http://books.google.com/books?id=k-AnAAAAYAAJ&pg=PA4684&lpg=PA4684&dq=fraud+not+intended+to+perform+contract&source=web&ots=xVj60i5t3j&sig=Qr4F7QOhTSsnlDqDFQddgUCIJaM&hl=en&sa=X&oi=book_result&resnum=1&ct=result
k. If a promise to perform some act in the future is made with the design and intention of the promisor to disregard it, and with no intention to perform it, and is made to deceive and entrap the other party, then such promise, in case the refusal to perform take place, will amount to actual fraud. Anderson v. Red, L.R.A. 1916B, 862, 20 N.M. 202, 148 Pac. 502.
l. the procuring of property upon a promise which the party, at the time, does not intend to perform, is a fraud. Cerny v. Paxton & G. Co. 10 L.R.A (N.S.) 640, 78 Neb. 134, 110 N.W. 882.
And, for our non-lawyer friends, a very simple non-technical summary:
http://onlineessays.com/essays/politics/a-fraud-lawsuit-under-california-law-2.php
False Promise. A claim of fraud may arise if a defendant entered into a contract and made promises that it never intended to perform. The elements of a false promise claim are:
a. The defendant made a promise.
b. The promise was important to the transaction.
c. At the time he or she made the promise, the defendant did not intend to perform it.
d. The defendant intended the victim to rely upon the promise.
e. The victim reasonably relied upon the promise.
f. The defendant did not perform the promise.
g. The victim was harmed as a result of defendant not carrying out his or her promise.
h. The victim’s reliance on the defendant’s promise was a substantial factor in causing the victim’s harm.
A.W. - January 15, 2009 at 1:37 pm
Patrick
Ironically, i think you told the truth, hidden by a veneer of sarcasm.
eric - January 16, 2009 at 1:40 pm
Ironically, A.W. is right, but misses the actual irony and actual truth in Patrick’s comments.
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