                                               Revised: September 25, 2008

 United States Court of Appeals for the Federal Circuit
                                  2007-5047, -5082

           AMBER RESOURCES COMPANY, AERA ENERGY LLC,
       DELTA PETROLEUM CORPORATION, OGLE PETROLEUM, INC.,
 OLAC RESOURCES, LLC, POSEIDON PETROLEUM LLC, TOTAL E&P USA, INC.,
     PLAINS EXPLORATION & PRODUCTION CO., NOBLE ENERGY, INC.,
                     ANADARKO E&P COMPANY LP,
             and DEVON ENERGY PRODUCTION COMPANY, L.P.,

                                                     Plaintiffs-Cross Appellants,

                                         and

               NYCAL OFFSHORE DEVELOPMENT CORPORATION,

                                                     Plaintiff,


                                          v.


                                 UNITED STATES,

                                                     Defendant-Appellant.

        Steven J. Rosenbaum, Covington & Burling LLP, of Washington, DC, argued for
plaintiffs-cross appellants. With him on the brief were E. Edward Bruce, Thomas J.
Cosgrove, and Gina L. Paik.

       Thomas G. Hungar, Deputy Solicitor General, Commercial Litigation Branch, Civil
Division, United States Department of Justice, of Washington, DC, argued for
defendant-appellant. On the brief were Jeanne E. Davidson, Director, Patricia M.
McCarthy, Assistant Director, and Allison Kidd-Miller and Gregg M. Schwind, Trial
Attorneys.

Appealed from: United States Court of Federal Claims

Senior Judge Eric G. Bruggink
 United States Court of Appeals for the Federal Circuit


                                   2007-5047,-5082

           AMBER RESOURCES COMPANY, AERA ENERGY LLC,
       DELTA PETROLEUM CORPORATION, OGLE PETROLEUM INC.,
 OLAC RESOURCES, LLC, POSEIDON PETROLEUM LLC, TOTAL E&P USA, INC.,
     PLAINS EXPLORATION & PRODUCTION CO., NOBLE ENERGY, INC.,
                    ANADARKO E&P COMPANY LP,
            and DEVON ENERGY PRODUCTION COMPANY, L.P.,

                                               Plaintiffs-Cross Appellants,

                                         and

               NYCAL OFFSHORE DEVELOPMENT CORPORATION,

                                               Plaintiff,

                                          v.

                                  UNITED STATES,

                                               Defendant-Appellant.


 Appeal from the United States Court of Federal Claims in 02-CV-30, 04-CV-1822, and
                      05-CV-249, Senior Judge Eric G. Bruggink.

                          __________________________

                            DECIDED: August 25, 2008
                          ___________________________


Before LOURIE, BRYSON, and GAJARSA, Circuit Judges.

BRYSON, Circuit Judge.

      Over a period of years between 1968 and 1984, the federal government granted

a number of leases to private entities to explore for and develop oil and gas resources

in the outer continental shelf off the California coast.    Because of court decisions
construing a 1990 statute that was enacted after the leases were in place, the

government took action that had the effect of preventing the lessees from continuing

exploratory activities on the leased properties, at least temporarily. The owners of the

leases then filed suit in the Court of Federal Claims claiming that the government had

breached the lease agreements.         The Court of Federal Claims agreed with the

leaseholders, held that they were entitled to a restitutionary award as damages for the

breach, and awarded them restitution in the amount of the funds that had been paid for

the leases at the time the leases were executed.       The government has appealed the

finding of liability and the damages award. See Amber Res. Co. v. United States, 68

Fed. Cl. 535 (2005) (“Amber I”). The lessees have cross-appealed the trial court’s

denial of their request for additional damages attributable to costs incurred during the

development of the leases. See Amber Res. Co. v. United States, 73 Fed. Cl. 738

(2006) (“Amber II”). We affirm the trial court’s judgment in all respects.

                                             I

       Under the Outer Continental Shelf Lands Act (“OCSLA”), the federal government

has jurisdiction and control over the outer continental shelf, which is defined as

including all submerged land that is beyond the outer limits of state jurisdiction

(ordinarily three nautical miles from shore) and within the limits of national jurisdiction

(ordinarily 200 miles from shore). See 43 U.S.C. §§ 1331(a), 1332; see also id. § 1301

(defining navigable waters). The OCSLA allows the Secretary of the Interior to grant

leases for the development of various natural resources in those submerged lands. Id.

§§ 1337, 1344-46.




2007-5047,-5082                              2
       Once the Interior Department has granted a lease for the extraction of oil and gas

resources in the outer continental shelf, the lessee must submit an exploration plan to

the Secretary for approval before beginning exploration on the leased property. 43

U.S.C. § 1340(c)(1).      After successful exploration, the lessee may submit a

development and production plan, which is also subject to the Secretary’s approval

pursuant to statute. Id. § 1351. The leases are ordinarily set to expire in five years,

unless they begin to produce oil or gas within that period, in which case the leases

continue for as long as oil or gas is produced in paying quantities, or approved drilling or

well reworking is continuing on the properties. Id. § 1337(b)(2).

       If production has not started within the original term of the lease, the lessee can

request that the Secretary of the Interior grant a suspension of the lease. As the trial

court explained, “[l]essees frequently request suspensions to prevent lease expiration in

the face of ongoing exploration or development activities that have not yet resulted in

the production of oil in paying quantities.” Amber I, 68 Fed. Cl. at 538. Because the

lessee is entitled to continue preparatory activities on the leased property during a

granted suspension, the lessees in this case refer to granted suspensions as “green

light” suspensions. The effect of such a granted suspension is to extend the expiration

date of the lease for a period equal to the length of the suspension. See 30 C.F.R.

§§ 250.174, 250.180.

       The Interior Department also has the authority to direct suspensions under

circumstances specified by regulation, such as when the lessees’ activities “pose a

threat of serious, irreparable, or immediate harm or damage.” 30 C.F.R. § 250.172(b).




2007-5047,-5082                              3
During such “directed” suspensions, no offshore activity on the leases is permitted. For

that reason, the lessees refer to directed suspensions as “red light” suspensions.

       In 1972, Congress enacted the Coastal Zone Management Act (“CZMA”), which

is directed to conservation within the coastal zone. Pub. L. No. 92-583, 86 Stat. 1280,

codified at 16 U.S.C. § 1451 et seq. The coastal zone is defined as including the

coastal waters and the adjacent shorelands. In the Great Lakes, it includes all waters

extending to the international boundary between the United States and Canada, and in

other areas it includes all waters under state jurisdiction, generally up to three miles

from the shore.

       The CZMA directs the federal government to encourage coastal states to

develop coastal management plans. 16 U.S.C. § 1452. Once a state adopts a coastal

management plan, section 307(c)(1) of the CZMA sets forth the obligation of federal

agencies to act consistently with that plan. Id. § 1456(c)(1). At the time the leases at

issue in this case were granted, section 307(c)(1) required each federal agency

“conducting or supporting activities directly affecting the coastal zone” to do so “in a

manner which is, to the maximum extent practicable, consistent with approved state

management programs.” 16 U.S.C. § 1456(c)(1) (1982).

       A separate section of the CZMA, section 307(c)(3), provides that after the

Secretary of Commerce approves a state’s coastal management plan, any applicant for

a federal permit to conduct an activity that affects land or water uses in the state’s

coastal zone is required to certify that its activity complies with the enforceable policies

of the state’s approved program. 16 U.S.C. § 1456(c)(3). If the state objects to the

applicant’s certification, the activity can go forward only if the Secretary of Commerce




2007-5047,-5082                              4
determines that the activity is consistent with the objectives of the CZMA or is otherwise

necessary in the interest of national security. Section 307(c)(3) applies to the approval

of lessees’ exploration plans and to their development and production plans, but not to

the processing of requests for lease suspensions.

      In the series of transactions from which this case arose, the Mineral Management

Service (“MMS”) of the Department of the Interior granted a total of 40 leases off the

coast of California to a number of separate operators. Thirty-five of those leases are at

issue in this appeal. With one exception, the leases were all granted between 1979 and

1984; the one exception was a lease granted in 1968.          The leases authorized the

grantees to explore and develop oil and gas resources under the OCSLA.                  In

consideration for their exploration and development rights, the lessees paid upfront

“bonuses” to the government. Approximately $1.1 billion was paid as consideration for

the leases at issue in this case. In addition, the lease agreements provided that the

lessees would make annual rental payments and would pay royalties to the federal

government on any resources produced.           The plaintiffs in this case are either the

original lessees or their successors-in-interest.    Section 1 of each lease agreement

incorporated by reference those statutes that were in effect at the time the lease

agreements were executed. Except for the one lease granted in 1968, the incorporated

statutes included the CZMA and the National Environmental Policy Act (“NEPA”), Pub.

L. No. 91-190, 83 Stat. 852 (1970), codified at 42 U.S.C. § 4331 et seq.

      The Interior Department initially held auctions for the oil and gas leases without

making a determination under the CZMA that the sales were consistent to the maximum

extent practicable with California’s coastal management program. The Department did




2007-5047,-5082                             5
so because it regarded the sales of leases in the outer continental shelf as not “directly

affecting” the coastal zone and therefore not triggering the provisions of the then-

applicable version of section 307(c)(1) of the CZMA. The State of California filed suit in

federal court challenging the Department’s interpretation of the statute.        That issue

ultimately reached the Supreme Court, and in 1984 the Court upheld the Department’s

position in Secretary of the Interior v. California, 464 U.S. 312 (1984).

       In 1990, Congress amended section 307(c)(1) of the CZMA, changing the statute

in ways that are of central importance to this case. First, Congress altered the coverage

of the statute from applying to activity that “directly affect[s]” the coastal zone to

applying to “each . . . activity within or outside the coastal zone that affects any land or

water use or natural resource of the coastal zone.”         16 U.S.C. § 1456(c)(1).     The

Conference Report on the amendments indicated that the change was designed to

overturn the Supreme Court’s decision in the California case and “to make clear that the

outer Continental Shelf oil and gas lease sales are subject to the requirements of

section 307(c)(1).” H.R. Rep. No. 101-964, at 970 (1990) (Conf. Rep.), as reprinted in

1990 U.S.C.C.A.N. 2374, 2675.         The Conference Report added:           “The amended

provision establishes a generally applicable rule of law that any federal agency activity

(regardless of its location) is subject to the CZMA requirement for consistency if it will

affect any natural resources, land uses, or water uses in the coastal zone. No federal

agency activities are categorically exempt from this requirement.”          Id. (emphasis in

original).

       The 1990 amendments also required each federal agency carrying out an activity

subject to section 307(c)(1) to provide a “consistency determination” to the relevant




2007-5047,-5082                              6
state agency before final approval of the federal activity. 16 U.S.C. § 1456(c)(1)(C).

Under regulations promulgated pursuant to the 1990 amendments, the state agency

has 60 days within which to submit a response to the federal consistency determination,

detailing any objections the state may have to that determination.              15 C.F.R.

§§ 930.36(b)(1), 930.41, 930.43. If the state agency objects, the federal agency must

attempt to reconcile the differences, id. §§ 930.43(d), 930.44 (mediation mechanisms),

but in any event the federal agency can ultimately submit a final notice explaining its

conclusion that the activity in question is consistent with the state’s coastal

management plan, id. § 930.43(d). At that point, the state’s recourse, if it is dissatisfied

with the federal agency’s response, is to sue to enjoin the federal agency from

proceeding with the federal activity in question. The court must then determine whether

the federal activity is in compliance with the statutory requirement that the federal

activity in question be carried out in a manner consistent with state management

programs to the maximum extent practicable. If the court finds that the federal activity

does not satisfy that requirement, the activity can continue only if the President, upon

written request from the Secretary of the Interior, exempts the challenged elements of

the federal agency activity from compliance with the statutory requirement.            That

override procedure can be employed only if the President determines that the proposed

activity in question “is in the paramount interest of the United States.”        16 U.S.C.

§ 1456(c)(1)(B).

       Following the enactment of the 1990 CZMA amendments, both MMS and the

lessees took the position that, although consistency determinations were now required

prior to the sale of leases authorized by the OCSLA, consistency determinations were




2007-5047,-5082                              7
not required before granting lease suspensions under the OCSLA. Accordingly, in the

early 1990s the lessees continued their development activities on the leased properties,

which included preparing and submitting both exploration plans and development and

production plans to MMS for its approval. Throughout the period following the execution

of the leases, the terms of the leases were extended by numerous suspensions, some

requested by the operators and some directed by MMS.             In 1992, MMS directed

suspensions in order to conduct the California Offshore Oil and Gas Energy Resources

(“COOGER”) study, which was designed to help MMS evaluate the operators’

exploration and development plans, as well as to provide local governmental entities in

California with information regarding activities on the leased properties. The lessees

paid two-thirds of the cost of that study, and MMS paid the rest. When the COOGER

study was nearing completion in December 1998, MMS informed the lessees that the

directed suspensions would end on June 30, 1999, and it instructed them to submit any

further requests for suspensions by May 15, 1999.

       The operators submitted suspension requests for each of the leases, and on

November 12, 1999, MMS granted suspensions for most of the leases that are at issue

in this case.   The suspensions ranged from 19 to 45 months in length.               MMS

determined that four of the leases had expired by 1999. That decision was challenged

through an administrative appeal to the Interior Board of Land Appeals, and those four

leases are therefore not involved in this appeal. According to the trial court, none of the

leases at issue here have produced oil or gas in paying quantities. Amber I, 68 Fed. Cl.

at 540.




2007-5047,-5082                             8
      Immediately after MMS granted the requested suspensions, the State of

California filed suit against the Secretary of the Interior in the United States District

Court for the Northern District of California. The state alleged that the Secretary could

not lawfully grant lease suspensions under the OCSLA without first performing the

consistency determination required by the 1990 amendments to section 307(c)(1) of the

CZMA. On June 20, 2001, the district court ruled that the 1990 CZMA amendments

required the Secretary of the Interior to perform a consistency determination prior to

granting the requested suspensions. California v. Norton, 150 F. Supp. 2d 1046, 1053

(N.D. Cal. 2001) (“Norton I”). The court also held that MMS was required to provide an

explanation of why it did not have to prepare an environmental assessment or an

environmental impact statement under NEPA. Id. at 1057. As a remedy, the district

court in Norton I ordered MMS to set aside its approval of the requested suspensions of

the 36 leases as to which MMS had issued suspensions and to direct suspensions of

those leases “for a time sufficient for it to provide the State of California with a

consistency determination in compliance with CZMA § 1456(c)(1) and its implementing

regulations.” Id. at 1057-58. The court also ordered that “before again granting these

lease suspensions, MMS shall provide a reasoned explanation for its reliance on the

categorical exclusion [from the provisions of NEPA] and the inapplicability of the

extraordinary circumstances exceptions.” Id. at 1058.

      MMS complied with the district court’s order on July 2, 2001, by revoking the

granted suspensions and replacing them with directed suspensions, which resulted in

the cessation of all activities at the lease locations. Notwithstanding that action, MMS

maintained that it was not required to perform consistency determinations and issue




2007-5047,-5082                            9
NEPA explanations before granting the requested lease suspensions, and it undertook

to appeal the district court’s ruling to the Ninth Circuit.

       MMS informed the lessees by letter that it would begin work on the consistency

determinations and that, given the 90-day notice requirement under the regulations

before an agency can take final action, the earliest it could expect the process to be

completed was by December 2001.             MMS subsequently reconsidered its position,

however, and decided not to prepare the consistency determinations and the NEPA

explanations pending resolution of the appeal of the Norton I decision. The lessees

protested that course of action by letter on August 31, 2001, and again on September

21, 2001. Over the lessees’ objections, however, MMS decided that it would not take

those steps until the appeal was resolved.

       On January 9, 2002, the lessees filed this action in the Court of Federal Claims,

asserting that the application of the 1990 CZMA amendments to their leases constituted

a material breach of the lease agreements that entitled them to rescission of the leases

and restitution of the payments they had made under the lease agreements. Several

months after that action was filed, the Ninth Circuit affirmed the district court’s decision

in Norton I. California v. Norton, 311 F.3d 1162 (9th Cir. 2002) (“Norton II”). Following

the appellate court’s decision, the case was remanded to the district court.           After

additional briefing, the district court issued an injunction requiring MMS to perform the

consistency determinations that the Ninth Circuit had held to be required under the

CZMA before granting the requested suspensions.               At MMS’s request the lessees

provided the requisite information for the consistency determinations that MMS was

ordered to perform in the Norton I case.




2007-5047,-5082                                10
      In 2005, MMS determined that the updated suspension requests were consistent

with California’s coastal management plan.      However, California objected to MMS’s

consistency determinations and pointed out a number of alleged deficiencies underlying

those determinations.      During the same year, MMS prepared environmental

assessments in response to the district court’s ruling on the NEPA challenge to the

granted suspensions.     In those environmental assessments, MMS found that the

requested suspensions had no significant impact on the environment.               Several

environmental groups challenged the adequacy of the analysis in the environmental

assessments, and in August 2005 the district court held MMS’s analysis to be

insufficient and required MMS to conduct an “adequate NEPA analysis on lease

suspension,” which the trial court in this case interpreted to require MMS to prepare an

environmental impact statement relating to the granting of the requested suspensions.

      Shortly after the district court’s ruling in August 2005, the Court of Federal Claims

granted partial summary judgment of liability with respect to 36 of the offshore leases at

issue in this case. The court ruled that Congress’s enactment of the 1990 amendments

to the CZMA constituted an anticipatory repudiation of the lease agreements. The court

reached that conclusion because it found that the 1990 amendments established new

statutory requirements that deviated significantly from the procedures and standards

that were in effect when the leases were executed, and that the statutory imposition of

new procedures and standards violated section 1 of the lease agreements.

      According to the court, the government breached the lease agreements in 2001

when it revoked the requested suspensions and replaced them with directed

suspensions. That breach was material, the court found, because the effect of the new




2007-5047,-5082                            11
procedures and standards was to order an indefinite suspension of the lessees’

activities on the leased properties, with no indication as to when, if ever, exploratory and

preparatory activities could resume under the lessees’ requested suspensions.

Although the court acknowledged that, “even before the Norton decisions, the lessees

were not guaranteed every suspension they requested,” the court explained that the

lessees “were entitled to have such requests acted upon by MMS pursuant to the

OSCLA and its implementing regulations,” as set forth in section 1 of the leases. Amber

I, 68 Fed. Cl. at 547.

       Because it found that the 1990 CZMA amendments constituted a repudiation of

the contracts, the trial court invoked the general rule in repudiation cases that the non-

repudiating party is entitled to restitution “for any benefit that he has conferred on the

repudiating party.”      Amber I, 68 Fed. Cl. at 544, quoting Restatement (Second) of

Contracts § 373 (1981). As a remedy, the trial court ordered the government to pay

restitution to the plaintiffs in the amount of more than $1.1 billion dollars. The judgment

represented the return of the funds the plaintiffs or their predecessors-in-interest had

paid in the form of upfront bonus payments as consideration for the rights associated

with the offshore leases.      The trial court, however, denied the lessees’ request to

recover additional sums representing the sunk costs that the plaintiffs or their

predecessors-in-interest had paid to exploit the leases before work was stopped by the

directed suspensions that were ordered following the district court’s ruling in the Norton

litigation. The court ruled that those costs did not confer any benefit on the government




2007-5047,-5082                             12
and could be recovered, if at all, only on a reliance or expectancy theory of damages,

which the plaintiffs had chosen not to advance. Amber II, 73 Fed. Cl. at 747-52. 1

                                             II

       The government does not dispute that MMS entered into commercial contracts

with the lessees, and it does not invoke any special rule applicable to government

contract cases, such as the “sovereign acts doctrine,” that would entitle the government

to treatment different from that accorded to private contracting parties. Accordingly, the

government’s rights and duties under its contracts with the lessees in this case “are

governed generally by the law applicable to contracts between private individuals.”

Mobil Oil Exploration & Producing Se., Inc. v. United States, 530 U.S. 604, 607 (2000),

quoting United States v. Winstar Corp., 518 U.S. 839, 895 (1996) (plurality opinion).

Nonetheless, the government contends that under the law applicable to contracts

between private individuals, (1) Congress’s enactment of the 1990 CZMA amendments

did not constitute a repudiation of the existing lease agreements regarding oil and gas

rights off the California coast, and (2) no governmental conduct constituted a breach of

the lease agreements that entitles the plaintiffs to restitution of the entirety of the funds

that they or their predecessors paid for the leases. 2



       1
            Although the trial court entered summary judgment relating to 36 of the 40
leases on which this action was brought, the government subsequently moved for
reconsideration as to one of the leases, and administrative proceedings are still pending
as to the remaining four. A final judgment under Rule 54(b) of the Rules of the Court of
Federal Claims was therefore entered only as to 35 leases.
       2
           The leases at issue in this case have not been affected by the moratoriums
on offshore drilling because they do not apply to existing leases. See, e.g., Pub. L. No.
110-161, Div. F, Title I, §§ 104-05, 121 Stat. 1844, 2118 (2007); Statement on Outer
Continental Shelf Oil and Gas Development, 26 Weekly Comp. Pres. Doc. 1006 (June
26, 1990).


2007-5047,-5082                              13
       Repudiation is defined as a “statement by the obligor to the obligee indicating

that the obligor will commit a breach that would of itself give the obligee a claim for

damages for total breach.” Restatement (Second) of Contracts § 250. “Total breach,”

in turn, is defined as a breach that “so substantially impairs the value of the contract to

the injured party at the time of the breach that it is just in the circumstances to allow him

to recover damages based on all his remaining rights to performance.” Id. § 243; see

Mobil Oil, 530 U.S. at 608.

       In finding that the enactment of the 1990 CZMA amendments effected a

repudiation of the government’s obligations under the lease agreements, the trial court

followed the reasoning of the Supreme Court in Mobil Oil, which involved offshore oil

and gas leases similar to those at issue here. In Mobil Oil, two oil companies that had

leases off the coast of North Carolina sought restitution of their upfront bonus payments

of about $156 million, contending that the enactment of the Outer Banks Protection Act

(“OBPA”) constituted a repudiation of their lease agreements. 530 U.S. at 607, 613.

Under the original agreements, the Department of the Interior had to approve any

exploration plan that satisfied the OCSLA’s requirements within 30 days. The OBPA,

however, placed a temporary moratorium on any further offshore work for at least 13

months and required new analysis reports to be completed. Id. at 614. The Supreme

Court ruled that section 1 of the lease agreements constituted a promise by the

government not to impose any requirements on the exploitation of the leases beyond

those contained in the statutes that were in effect when the leases were executed and

regulations were promulgated under those statutes. Id. at 616. Because the OBPA

imposed new requirements inconsistent with the terms to which the parties had agreed




2007-5047,-5082                              14
in section 1 of the lease agreements, the Supreme Court held that the lease

agreements had been breached. Id. at 618. The breach was material, the Court held,

because it constituted a “modification” of the procedures incorporated by reference into

the lease agreements that was “not technical or insubstantial.” Id. at 621.

      Section 1 of the lease agreements at issue in this case is identical to section 1 of

the lease agreements at issue in Mobil Oil.       Consequently, applying the Supreme

Court’s analysis of that provision of the leases, we treat the lease agreements as

incorporating by reference any statutes or regulations that were in effect at the time of

the leases’ execution and any regulations promulgated pursuant to those statutes.

Because the last of the subject leases was executed in 1984, all of the leases (except

for the one executed in 1968) incorporated the CZMA by reference, but none of them

incorporated the 1990 CZMA amendments. With reference to the Supreme Court’s

analysis in Mobil Oil, we therefore must determine whether the 1990 CZMA

amendments are sufficiently similar to the provisions of the OBPA that were at issue in

Mobil Oil so as to render the 1990 CZMA amendments, and MMS’s conduct pursuant to

those amendments, either a repudiation of the lease agreements at the time of

enactment or a total breach of those agreements at the time MMS revoked the granted

suspensions in July 2001.

                                            A

      The government first contends that the 1990 CZMA amendments did not

constitute a repudiation of the lease agreements because the parties did not treat the

amendments as such immediately upon their enactment.           For that proposition, the

government cites Dingley v. Oler, 117 U.S. 490 (1886), which characterized repudiation




2007-5047,-5082                            15
as a “distinct and unequivocal absolute refusal to perform the promise” that “must be

treated and acted upon as such by the party to whom the promise was made.” Id. at

503; see also United States v. DeKonty Corp., 922 F.2d 826, 828 (Fed. Cir. 1991). The

government points out that both MMS and the lessees took the position throughout the

1990s that the 1990 CZMA amendments did not apply to the lessees’ suspension

requests, and thus this case does not satisfy the requirements that the repudiation must

be an unequivocal refusal to perform and must be treated as such by the promisee.

       Reasoning by analogy from the Supreme Court’s decision in Mobil Oil, the trial

court viewed the 1990 CZMA amendments as a repudiation of the lease agreements,

just as the Supreme Court in Mobil Oil treated the enactment of the OBPA as a

repudiation of the lease agreements in that case. In Mobil Oil, the Supreme Court

pointed out that the OBPA required the Department of the Interior “to impose the

contract-violating delay.” 530 U.S. at 618. Moreover, promptly after the enactment of

the OBPA, the Department of the Interior advised the lessees that it intended to follow

the prescriptions of that Act, thereby expressly “communicating its intent to violate the

contracts.” Id. at 620.

       With regard to the issue of repudiation by legislation, this case is different from

Mobil Oil in an important respect. Not only had the parties in this case been performing

under the lease agreements for years before the 1990 CZMA amendments were

enacted, but they continued to perform under the lease agreements for another 11

years after the enactment of the 1990 amendments on the assumption that the 1990

amendments did not apply to lease suspensions.




2007-5047,-5082                            16
      Unlike in Mobil Oil, where the effect of the new statute was obvious and was

recognized by the government immediately, in this case it was not until the district court

entered its injunction in Norton I that MMS responded (as it was compelled to do) by

revoking the granted suspensions. That was the first time the 1990 CZMA amendments

had any effect on the parties’ performance under the lease agreements. In fact, in their

complaint in this case, the plaintiffs allege that the 1990 enactment “did not clearly

communicate the Government’s intent to deviate significantly from the existing

procedures and standards so as to materially delay or interfere with the lessees’

operations.” To the contrary, according to the complaint, “[w]hen the 1990 amendments

were enacted, neither the Government nor the Lessees believed that the Amendments

had such an effect, or that the Amendments would have any impact on the Lessees’

right to obtain lease suspensions.” For that reason, it would be unrealistic to treat the

1990 CZMA amendments as a governmental repudiation of the lease agreements as of

the time of enactment.

      The government—in the person of MMS—continued to perform under the lease

agreements as if the CZMA amendments did not apply to the suspensions at all. The

trial court made essentially the same point when it observed that it “would have been

absurd for the plaintiffs to have treated the adoption of the amendments as a breach in

1990” because even MMS “agreed with plaintiffs through at least 1999 that the

amendment should not be construed to apply to lease extensions.” Amber II, 73 Fed.

Cl. at 750. Because the parties to the lease agreements all treated the agreements as

unaffected by the 1990 CZMA amendments, we conclude that the 1990 enactment itself

did not constitute either a breach or an anticipatory repudiation that gave the lessees a




2007-5047,-5082                            17
right to restitution at that time.   It was not until the court’s decisions in the Norton

litigation that the effect of the 1990 amendments became clear and that MMS began

treating the amendments as affecting its suspension decisions. It was only at that point

that the government can be said to have repudiated the lease agreements by putting

into practice the new rules applicable to the availability of requested suspensions.

       While court decisions construing statutes are typically viewed as not changing

the law but merely announcing what the law has meant since its enactment, that

characterization of a court’s role in statutory interpretation does not provide useful

practical guidance in a case such as this one. It would ignore the reality of the situation

in this case to suggest that the interpretation of the 1990 CZMA amendments, as

ultimately announced by the courts more than a decade later, was clear to the parties

from the moment of enactment or that the governing principles of contract law should be

applied as if it were. The fact of the matter is that, right or wrong, the parties interpreted

the 1990 CZMA amendments in a way that would not have resulted in a breach. Only

after the rulings of the district court and the court of appeals in the Norton litigation did it

become apparent to the parties that the 1990 CZMA amendments applied to requests

for suspensions of the leases at issue in this case.           Therefore, we think the best

characterization of the sequence of events is that the central act on which this case

turns is not the enactment of the 1990 CZMA amendments, but the injunction entered

by the district court effectively requiring MMS to apply the provisions of the 1990 CZMA

amendments to the leases in question and MMS’s implementation of the decision of the

district court, as affirmed by the court of appeals. For that reason, we disagree with the

trial court that the enactment of the 1990 CZMA amendments constituted a repudiation




2007-5047,-5082                               18
of the lease agreements by the government and that the lessees are entitled to the

remedy of restitution because of that act of repudiation.

       That conclusion does not, however, establish that the remedy of restitution was

unjustified. The trial court based its decision to grant restitution as a remedy at least in

part on its conclusion that the government’s subsequent conduct, in July 2001, when it

revoked the requested suspensions and replaced them with directed suspensions,

constituted a repudiation or a total breach of the lease agreements. If that is so, the trial

court’s restitution remedy could be justified on that ground without regard to the

correctness of the court’s ruling on the issue of anticipatory repudiation in 1990. We

therefore now turn to the question whether MMS’s conduct in July 2001 constituted a

repudiation of the lease agreements or a total breach of the government’s obligations

under those agreements.

                                             B

       The trial court held that the post-agreement statutory requirement that MMS

perform consistency determinations before granting suspension requests resulted in a

total breach of those agreements when, as a result of the decision in Norton I, MMS

revoked the requested suspensions and imposed directed suspensions in their place.

The government advances several arguments as to why the 1990 statutory change, as

construed and implemented by the courts, did not have that effect, and why there was

no breach of the lease agreements in this case.

       The linchpin of each of the government’s arguments is that the lessees had no

“clear, unqualified right” to be granted suspensions before the 1990 CZMA

amendments, and that the 1990 amendments did not abrogate any such right. See




2007-5047,-5082                              19
Cienega Gardens v. United States, 331 F.3d 1319, 1334 (Fed. Cir. 2003). The lessees

had no clear, unqualified right to the requested suspensions, the government argues,

because from the time the lease agreements were entered MMS had discretion to deny

requests for suspensions if it concluded that the suspensions were not “in the national

interest.” 43 U.S.C. § 1334(a)(1); see also 30 C.F.R. § 250.12(b)(3)(i) (1980) (requiring

MMS to determine if a lease suspension was in the national interest after considering

“[a]ll known significant national benefits and national costs”); 30 C.F.R. § 250.110

(1999) (permitting lease suspensions at the request of the lessee if the suspension “is in

the national interest” and is necessary (1) to “facilitate proper development of a lease”;

(2) to allow lessees reasonable time for construction, drilling, and arrangement of sales

contracts; (3) to avoid the requirement of continued operations that would result in

premature abandonment of a well; or (4) to ensure that the operation is economical).

Because MMS had discretion to deny lease suspensions even before 1990, the

government claims that the lessees cannot demonstrate that the 1990 CZMA

amendments voided any clear, unqualified right to such suspensions, even if the 1990

amendments added significantly to the burdensomeness of the procedure necessary to

obtain the requested suspensions. The government contends that, unlike in the instant

case, the breach in Mobil Oil concerned just such a “clear” right, i.e., the lessees’ right

to have MMS issue “within thirty days” an approval of a submitted exploration plan that

satisfied the OCSLA’s requirements. Because the lessees in this case had no such

clear right to have their suspension requests granted, the government argues, the

breach analysis in Mobil Oil is inapplicable here.




2007-5047,-5082                             20
      We reject the government’s argument because it is based on what we regard as

an incorrect interpretation of Mobil Oil. The Supreme Court in Mobil Oil acknowledged

that the lease agreements in that case did not give the lessees any ultimate rights to

develop the leases or produce oil and gas, and that granting permission for ongoing

exploration and development was clearly a matter subject to the discretion of the

Department of the Interior. See 530 U.S. at 620. Nonetheless, the Mobil Oil Court

concluded that section 1 of the leases in that case, which was identical to section 1 of

the leases in this case, contained a guarantee as to what procedures the Interior

Department would follow in exercising that discretion, and that a change in those

procedures deprived the lessees of an important benefit of their bargain.

      The Mobil Oil Court observed that section 1 of the leases provided that the lease

agreement would not be “subject to future regulations promulgated under other statutes,

such as new statutes like OBPA.” 530 U.S. at 616. Otherwise, the Court explained,

“[w]ithout some such contractual provision limiting the Government’s power to impose

new and different requirements, the companies would have spent $158 million to buy

next to nothing.” Id. Section 1 of the lease agreements at issue in this case promised

the same thing. Because the 1990 CZMA amendments, as interpreted by the courts in

the Norton litigation, imposed significantly more burdensome requirements for granting

lease suspensions, the new statute in this case breached the lease agreements in the

same way as the new statute in Mobil Oil.

      It is true, as the government contends, that the Court in Mobil Oil devoted

considerable attention to the requirement of the OCSLA that the government act on the

lessees’ exploration plans within 30 days.        That requirement, which the Court




2007-5047,-5082                             21
characterized as in effect incorporated into the lease agreements, was identified as a

right of the lessees that was clearly breached by the enactment of the OBPA. The

government is incorrect, however, in asserting that the Supreme Court’s analysis of the

breach in Mobil Oil focused solely on the 30-day approval provision, or that the Court

suggested that without the violation of that right there would have been no breach.

      By itself, the 30-day approval requirement in Mobil Oil was not what the lessees

bargained for. Instead, they bargained for a right to explore for and extract oil and gas

from the leases, subject to a particular statutory regime. It was the overall change in

that regime, not just the overriding of the 30-day approval provision, that the Court

regarded as the breach, as the Court’s opinion makes clear.

      In Mobil Oil, the government made an argument closely analogous to the one it is

making in this case, and the Supreme Court rejected that argument for reasons that are

equally applicable here. The government argued that even before the enactment of the

OBPA, MMS could have invoked its broad regulatory authority to postpone

consideration of the lessees’ exploration plans, notwithstanding the 30-day approval

period set forth in the OCSLA. The Court explained that the contracts in Mobil Oil

contained “certain other statutory provisions and regulations that, in the Government’s

view, granted Interior the legal authority to refuse to approve the submitted Exploration

Plan, while suspending the leases instead.” 530 U.S. at 615. However, the Court

refused to view those other sources of statutory and regulatory authority broadly and in

the abstract, so as to negate the pre-OBPA right to a prompt decision on the lessees’

exploration plans.   In particular, the Court pointed out that the “fatal flaw” in the

government’s argument arose out of the Interior Department’s determination that the




2007-5047,-5082                            22
exploration plan “fully complies” with pre-OBPA legal requirements, including the

requirements of the OCSLA. Id. at 618. Moreover, the Court observed that, when it

imposed the lengthy approval delay in Mobil Oil, the Interior Department “did not rely

upon any of the regulations to which the Government now refers.” Id.

      This case is like Mobil Oil in both of those respects. Although the government

cites the OCSLA and its regulations as authorities on which it could have based its

refusal to grant the lessees’ requested suspensions, the revocation of the suspensions

was in fact based on the 1990 CZMA amendments, not on the preexisting version of the

OCSLA. And, as in Mobil Oil, the Interior Department had already determined that the

suspensions in this case satisfied the “national interest” requirements of the OCSLA

because MMS had granted the suspensions under the OCSLA, and it revoked those

suspensions only after the district court held that the 1990 CZMA amendments applied

to the grant of suspensions. Thus, the Supreme Court’s analysis in Mobil Oil compels

us to conclude that the hypothetical authority of MMS to invoke other grounds to deny

requested suspensions is not sufficient to avoid a finding of breach. That is so at least

where the actual ground for revoking the granted suspensions and imposing directed

suspensions in their place was the 1990 CZMA amendments which, like the provisions

of the OBPA in Mobil Oil, were not incorporated into the lease agreements.

      There is a further problem with the government’s argument that the decision in

Mobil Oil turned on the breach of the “clear, unqualified right” to have the agency

approve a compliant exploration plan within 30 days. The Supreme Court justified its

conclusion that the enactment of the OBPA resulted in a breach not only because of the

violation of the 30-day approval provision of the OCSLA, but also because the OBPA




2007-5047,-5082                            23
“changed pre-existing contract-incorporated rights in several ways.” 530 U.S. at 619. In

particular, the court wrote that the OBPA

      delayed approval, not only of an Exploration Plan but also of Development
      and Production Plans; and it delayed the issuance of drilling permits as
      well. It created a new type of Interior Department environmental review
      that had not previously existed, conducted by the newly created
      Environmental Sciences Review Panel; and, by insisting that the Secretary
      explain in detail any differences between the Secretary’s findings and
      those of the Panel, it created a kind of presumption in favor of the new
      Panel’s findings.

Id. Those changes, the Court wrote, “were changes of a kind that the contracts did not

foresee.   They were changes in those approval procedures and standards that the

contracts had incorporated through cross-reference.” Id.

      The changes effected by the 1990 CZMA amendments are of the same kind and

had the same effect of creating a more burdensome regime for obtaining granted

suspensions, even though granted suspensions were potentially of great importance to

preserving the value of the leases. First, the CZMA amendments required the Interior

Department to conduct consistency determinations in connection with requested

suspensions under a new and more exacting standard (consistency “to the maximum

extent practicable with the enforceable policies of approved State management

programs”).   Moreover, even if the Interior Department could readily complete the

consistency determinations, the Department would have had no control over whether

California would object to the consistency determinations and ultimately pursue its rights

to contest the grant of suspensions by bringing suit under the Administrative Procedure

Act, thereby completely derailing the lessees’ ability to apply for and receive lease

suspensions. The government counters that California has always had the option to

sue under the Administrative Procedure Act to seek to enjoin the granting of the



2007-5047,-5082                             24
requested suspensions.        The point, however, is that before the 1990 CZMA

amendments, California could not have sued to block the lease suspensions on the

ground that the consistency determinations were contrary to the state’s coastal

management plan. The 1990 CZMA amendments therefore effectively gave California

significantly greater substantive rights in challenging the suspensions based on alleged

inconsistency with its coastal management plan.         By enhancing California’s right to

challenge the requested suspensions, the 1990 amendments limited the lessees’

prospects of obtaining those suspensions. The procedures put into place by the 1990

CZMA amendments thus altered the lessees’ rights in a way that, when put into effect

by the injunction in the Norton case, resulted in a breach of the original lease

agreements.

       There is some appeal to the government’s contention that because the lessees

had no enforceable right to granted suspensions before the 1990 CZMA amendments,

that enactment did not deprive the lessees of any rights and thus did not breach the

lease agreements.     That argument, however, is not only contrary to the approach

employed by the Supreme Court in Mobil Oil, but reflects an overly formalistic view of

the value of the lease agreements to the lessees. As the government made clear at

oral argument, it would take the same position if the 1990 CZMA amendment made it

essentially impossible to obtain granted suspensions under any circumstances, even

though the likelihood of obtaining suspensions under the pre-1990 administrative regime

may have been a significant consideration inducing the lessees to enter into the leases.

It does not reflect the realities of the situation to say that the lessees were not worse off

with respect to their interest in obtaining suspensions after the 1990 CZMA




2007-5047,-5082                              25
amendments than they were before. We think the trial court put the matter well when it

summarized the effect of the 1990 statute as follows:

      We recognize that, even before the Norton decisions, the lessees were
      not guaranteed every suspension they requested. At that time, however,
      the lessees were entitled to have such requests acted upon by MMS
      pursuant to the OCSLA and its implementing regulations. The lessees
      bargained for these procedures and standards by incorporating them into
      the leases via Section 1. . . . Section 1 erects the gateway through which
      the lessees must pass in order to suspend their leases and preserve their
      rights. The applicability of the amendments to § 307(c)(1) has narrowed
      this gateway.

Amber I, 68 Fed. Cl. at 547-58.

      The 1990 CZMA amendments thus made it more difficult for the lessees to

continue the exploration and development of their leases.      As the Mobil Oil Court

explained, “under the contracts, the incorporated procedures and standards amounted

to a gateway to the companies’ enjoyment of all other rights. To significantly narrow

that gateway violated material conditions in the contracts.”   530 U.S. at 621.    The

gateway here has likewise been narrowed because the procedure for obtaining the

granting of lease suspensions was made subject to another environmental assessment

standard—the consistency determinations required by CZMA.         For that reason, we

agree with the trial court that the 1990 CZMA amendments, as applied at the time of the

revocations of the requested suspensions in July 2001 and thereafter, amounted to a

breach of the lease agreements at issue in this case.

                                           C

      The government next argues that even if it breached the lease agreements, the

breach was not sufficiently material to justify the remedy of restitution because the

lessees would have experienced the same delays that they faced in this case even if




2007-5047,-5082                           26
section 307(c)(1) of the CZMA had never been amended. The government’s argument

focuses on its obligations under NEPA, which provided part of the rationale for the

courts’ rulings in the Norton litigation.   The delays in this case, according to the

government, “are just as attributable to NEPA as they are to the amended section

1456(c)(1).”

      The government points out that MMS is authorized under its regulations to direct

lease suspensions where such suspensions are necessary to complete NEPA

environmental impact statements or to implement judicial decrees.             30 C.F.R.

§§ 250.110(b)(4), (7). Because the decision in Norton I was predicated not only on the

1990 CZMA amendments but also on the requirements of NEPA, which MMS had not

satisfied, the government contends that the lessees would have been no better off in

2001 even if the 1990 CZMA amendments had never been enacted.

      The trial court rejected the government’s NEPA-based argument, concluding that

the government had “failed to demonstrate any meaningful redundancy between the

procedures of consistency determinations and NEPA analysis for lease suspension

requests.” Amber I, 68 Fed. Cl. at 553. Although acknowledging that the procedures

required by amended section 307(c)(1) of the CZMA and by NEPA both require “some

type of environmental assessment,” 68 Fed. Cl. at 553, the trial court noted that NEPA

does not require compliance with state coastal management plans. Thus, according to

the court, despite the preexisting requirements of NEPA, the enactment of amended

section 307(c)(1) of the CZMA created “new ‘procedures and standards’ that ‘deviate

significantly’ from those already in existence” at the time the leases were executed, and

therefore gave rise to a material breach under the analysis used by the Supreme Court




2007-5047,-5082                             27
in Mobil Oil. Id. That conclusion is further supported by regulations promulgated by the

Department of Commerce, which state that “a Federal agency’s federal consistency

obligations under the [CZMA] are independent of those required under NEPA and are

not necessarily fulfilled by the submission of a NEPA document.” 15 C.F.R. § 930.37.

      With respect to the government’s argument that the requirements of NEPA have

been as responsible as amended section 307(c)(1) of the CZMA for the revocation of

the requested suspensions and the ensuing delay, the trial court stated that even

assuming the delay resulting from the section 307 procedures is no longer than the

delay caused by NEPA, any parallel delay “does not lessen the material impact of

§ 307(c)(1) on lease suspension procedures.” Amber I, 68 Fed. Cl. at 553. The trial

court noted that under amended section 307(c)(1), the MMS, before granting a

suspension request, “must now comply with new consistency determination

procedures.” Id. Furthermore, the court observed, “the agency’s decision to grant a

suspension request is subject to a stricter standard—whereas the decision to suspend

was once solely the agency’s, now such a decision is subject to the scrutiny of the

relevant coastal state.” Id. Finally, the court stated that the change in procedures

resulting from the 1990 CZMA amendments “has created a new risk for lease

cancellation.” Id. Therefore, even though the decisions of the courts in the Norton

litigation were based on NEPA as well as on section 307(c)(1), the court concluded that

“the applicability of § 307(c)(1) has created an additional impediment to the grant of a

requested suspension” and for that reason the application of section 307(c)(1) materially

breached the lease agreements. Id.




2007-5047,-5082                            28
      The government’s argument is essentially one of causation. The breach in issue

cannot be material, according to the government, because there is no showing that it

would have led to more adverse consequences for the lessees than the NEPA

requirements imposed by the courts in Norton.        There are two problems with that

argument, however. First, there is no showing that the burdens imposed on the lessees

by the NEPA requirements identified by the courts in the Norton case are equivalent to

(or more restrictive than) the burdens imposed by section 307(c)(1). In fact, as the trial

court pointed out, NEPA on its face imposes significantly fewer restrictions on the

agency than the amended version of section 307(c)(1). As noted, NEPA is merely a

procedural statute—it requires the agency to consider the environmental effects of its

actions, but does not grant rights to the states or anyone else to affect or alter agency

action. By contrast, section 307(c)(1) accords states the right to object to the granting

of a requested suspension on substantive grounds, as it gives the states the right to a

judicial remedy under the Administrative Procedure Act if the agency’s activity has not

been “carried out in a manner which is consistent to the maximum extent practicable”

with state coastal management programs. 16 U.S.C. § 1456(c)(1)(A).

      Second, the government’s causation argument is quite similar to the causation

analysis that this court employed in its decision in the Mobil Oil case and that the

Supreme Court rejected when it reversed this court’s judgment in that case. In our

opinion, we held in part that the lessees in that case were not entitled to relief because

we concluded that the enactment of the OBPA had essentially no effect on the lessees.

That was because the lessees did not establish that they would have been able to

obtain the necessary approvals for drilling and production even in the absence of the




2007-5047,-5082                            29
OBPA. Marathon Oil Co. v. United States, 177 F.3d 1331, 1338 (Fed. Cir. 1999). The

Supreme Court in Mobil Oil expressly rejected that analysis, holding that because the oil

companies were not seeking damages for breach of the lease agreements, but instead

were seeking restitution of their initial payments based on the government’s repudiation

of the agreements, “the law entitles the companies to that restitution whether the

contracts would, or would not, ultimately have produced a financial gain or led them to

obtain a definite right to explore.” 530 U.S. at 623-24.

       Applying that aspect of the Supreme Court’s analysis to this case, we reach the

same conclusion: because the decisions in the Norton litigation, and MMS’s conduct

pursuant to those decisions, constituted a governmental repudiation of the lease

agreements, and because the lessees are seeking restitution of their initial payments,

not expectancy damages, it is irrelevant that other causes may also have prevented

them from obtaining the requested suspensions. As the Supreme Court explained, in

this context the lessees are not required to show that they would have been successful

in obtaining the right to drill and would ultimately have profited from the leases.

                                              D

       The government further argues that the lessees elected to continue performance

under the lease agreements despite the enactment of the 1990 CZMA amendments and

the initial ruling in the Norton I litigation, and therefore have waived their right to sue for

restitution. As we have noted, the breach did not occur until after the decision in Norton

I. Consequently, any actions taken by the lessees between 1990 and the 2001 ruling in

Norton I cannot be understood as reflecting continued post-breach performance by the

lessees or constituting an election to continue performance in spite of a breach.




2007-5047,-5082                               30
       Immediately after Norton I, the lessees sent MMS several letters asking the

agency to perform the consistency analyses ordered by the district court, but MMS did

not do so.    That conduct also does not constitute an election, because it is well

established that merely requesting assurance from the other party that it does not intend

to breach the agreement does not constitute an election to continue performance and to

forgo the right to sue the other party for breach. Restatement (Second) of Contracts §

257 (“The injured party does not change the effect of a repudiation by urging the

repudiator to perform in spite of his repudiation or to retract his repudiation.”).

       The government next contends that the lessees made an election through their

actions after the Ninth Circuit affirmed the district court’s ruling in Norton I. On remand,

the State of California and other plaintiffs in that case sought to force the Department of

the Interior to perform the consistency analyses required by the 1990 CZMA

amendments. Several of the lessees who had previously intervened in that case on the

side of the Interior Department filed a motion in response to the government’s

opposition to the injunction, explaining their position that the Department “should have

expeditiously issued” the consistency analysis required by the 1990 CZMA amendments

“upon the Court’s June 2001 decision.” The government argues that the position the

lessees took in their briefs at that time amounted to an election. The government’s

position is that the lessees were essentially asking the district court in the Norton

litigation to order continued performance under their lease agreements. The district

court subsequently entered the injunction, and MMS sent further requests to the lessees

for information MMS claimed it needed in order to perform the analyses. The lessees

submitted the information under protest.




2007-5047,-5082                               31
      The trial court found that the lessees’ actions did not constitute an election, and

we agree. The lessees maintained a consistent position throughout the proceedings in

the Norton litigation. They explained in their response to the Department’s opposition to

the injunction that they “allege that the United States is in material breach, and seek

relief that the Leases be rescinded, and the United States provide restitution to the

lessees.” None of those filings manifested an intention to continue performance under

the leases. The subsequent cooperation of the lessees after the Norton I injunction also

does not qualify as continued performance, given that the lessees made clear that they

were cooperating under protest. The doctrine of election does not allow court-ordered

performance to count as an election, because the term “election” connotes a voluntary

acceptance of a change in the contract.

                                           E

      At the end of the day, we are persuaded that the Mobil Oil case is sufficiently

similar to this one that the Supreme Court’s analysis in that case governs this case and

requires that we affirm the trial court’s judgment. To be sure, as the government has

pointed out and as we have discussed above, there are differences between this case

and Mobil Oil that in some ways make this case a stronger case for the government

and, correspondingly, a less compelling one for the lessees. In particular, the breach in

Mobil Oil was at least somewhat more clear-cut, and unlike in Mobil Oil the parties in

this case had performed for many years under the lease agreements before the

statutory interpretation that led to the breach. Nonetheless, we are persuaded that the

Supreme Court’s analysis in Mobil Oil extends to the circumstances of this case. If we

are wrong, and the differences between this case and the Supreme Court’s decision in




2007-5047,-5082                            32
Mobil Oil are significant enough to call for a different result, we think it is preferable for

the members of that Court to distinguish or limit the scope of their precedent than for us

to do it for them.

                                             III

       In a challenge to the amount of the restitution award, the government argues that

the trial court’s order requiring the return of the full amount of the upfront lease bonus

payments should be overturned. The government argues that restitution is a “limited

remedy” that exists primarily to make “the non-breaching party whole.” Glendale Fed.

Bank, FSB v. United States, 239 F.3d 1374, 1380 (Fed. Cir. 2001). Accordingly, the

government contends that the restitutionary award in this case should be limited to the

amount of money that the current lessees paid to purchase the lease agreements rather

than the amount the original lessees paid as upfront bonus payments. To award the

current lessees the upfront bonus payments, according to the government, would be an

unfair “windfall,” contrary to this court’s precedent in Admiral Financial Corporation v.

United States, 378 F.3d 1336 (Fed. Cir. 2004); Hansen Bancorp, Inc. v. United States,

367 F.3d 1297 (Fed. Cir. 2004); and LaSalle Talman Bank, F.S.B. v. United States, 317

F.3d 1363 (Fed. Cir. 2003).

       The return of upfront payments is ordinarily appropriate in cases of repudiation

and was explicitly endorsed in Mobil Oil: “The oil companies do not seek damages for

breach of contract.     They seek restitution of their initial payments.       Because the

Government repudiated the lease contracts, the law entitles the companies to that

restitution. . . .” 530 U.S. at 623; see also E. Allan Farnsworth, Farnsworth on Contracts

§ 12.19 (3d ed. 2004) (“Restitution as remedy for breach . . . is limited to cases in which




2007-5047,-5082                              33
the injured party has a claim for damages for total breach.”); John E. Murray, Jr., Corbin

on Contracts § 1104 (rev. ed. 2007) (“In the case of a repudiation there is no doubt that

the injured party has a choice of remedies: (1) an action for damages . . . [or] (2)

restitution of such value as he may have already conferred upon the repudiator.”). The

only question before us is whether restitution of the entire upfront bonus award is

improper for plaintiffs who were not the original purchasers of the leases.

       The trial court ruled, and we agree, that the new leaseholders “stand in the

shoes” of the original lessees.      See Farnsworth on Contracts § 11.8; Corbin on

Contracts § 51.1 (“Among the axiomatic phrases in contract law, the clear victor in the

law of assignments is, ‘The assignee stands in the shoes of the assignor.’”).         The

government argues, however, that the new leaseholders do not deserve restitution of

the full amount of the upfront bonuses because they bought leases at a discount, and

restitution would award them significantly more than they paid for the leases. That

argument carries no weight, however, if the new leaseholders stand in the shoes of the

original lease owners, as general principles of contract law dictate that they do.

       The cases on which the government relies to support its “windfall” argument are

not to the contrary, because they do not address the impact of a prior assignment on an

award of restitution. See Admiral Financial, 378 F.3d at 1345 (noting that restitution

would be a “windfall” where there were indications that the non-breaching party would

have failed financially regardless of the breach); Hansen, 367 F.3d at 1318 (directing

lower court to consider whether an award of restitution would make the non-breaching

party better off than if the breach had not occurred); LaSalle, 317 F.3d at 1376-77

(affirming trial court’s refusal to award damages on a restitution theory when the




2007-5047,-5082                             34
benefits to the breaching party were alleged to include accounting costs). Because we

agree with the trial court that any benefits that would not have been a windfall to the

original lessees cannot be considered a windfall to the assignees who are entitled to

assert all the rights of the original lessees, we do not need to reach the lessees’

argument that it would be an impermissible windfall to the government to allow it to

retain a portion of the upfront bonus payments simply because the original lessees had

transferred their interests in the leases for less than the amount they had originally paid

for them.

       The government makes the further argument that the trial court did not have

jurisdiction to award restitution because equitable remedies against the government are

not available under the Tucker Act, 28 U.S.C. § 1491(a). We have held, however, that

because an award of restitution in a breach of contract case is a standard contract-

based remedy, the Court of Federal Claims has jurisdiction to grant that form of relief.

See Acme Process Equip. Co. v. United States, 347 F.2d 509, 530 (Ct. Cl. 1965), rev’d

on other grounds, 385 U.S. 138 (1966) (restitution characterized as “an alternative

remedy for breach of contract in an effort to restore the innocent party to its precontract

status quo, and not to prevent the unjust enrichment of the breaching party”).

       Finally, the government argues that the original lessees could not have assigned

the “right” to restitution because no breach occurred prior to the assignment of the

contracts. The Restatement of Contracts acknowledges that it may not be permissible

to assign “future” rights not yet possessed by the assignor. Restatement (Second) of

Contracts § 321(2) (“a purported assignment of a right expected to arise under a

contract not in existence operates only as a promise to assign the right when it arises




2007-5047,-5082                             35
and as a power to enforce it.”). That principle does not apply in this context, however,

because the right to enforce a contract does not come into existence upon breach.

Even if breach is regarded as a condition precedent to the existence of the right to seek

contract enforcement, such a conditional right is considered to pass along with the

assignment. See, e.g., Nashville Lodging Co. v. Fed. Deposit Ins. Corp., 934 F. Supp.

449, 456 (D.D.C. 1996); Restatement (Second) of Contracts § 320 (“The fact that a right

is . . . conditional does not prevent its assignment before the condition occurs.”). Thus,

the assignment of a contract includes the assignment of the right to enforce the

contract, which entitles the assignee to pursue all available contract remedies.

                                            IV

      In their cross-appeal, the appellees argue that the trial court erred by ruling that

they could not recover any damages beyond the upfront bonus payments. The lessees

sought return of their “sunk costs” of approximately $727 million that they expended in

developing the offshore leases.     We agree with the trial court that lessees cannot

receive compensation for those “sunk costs” under a restitution theory of recovery.

      The trial court initially denied recovery of the lessees’ sunk costs on the ground

that such a remedy would amount to recovery under a “reliance” theory. If the lessees

elected that remedy, the court held, the government would be entitled to defend by

showing that the leases would not have been profitable.         The lessees accordingly

elected not to pursue any damages based on their expectancy interests. Amber II, 73

Fed. Cl. at 740. After surveying various sources that describe the ways in which the

restitution interest can be measured, the trial court concluded that it would be

appropriate to grant restitution to the extent that the government received a “benefit.”




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The court found that none of the sunk costs qualified as a benefit to the government,

however, because even though those costs were “foreseeable and incurred pursuant to

the contract,” they “did not directly benefit the government in the same way as the up-

front [lease bonus] payments.” Id. at 746. The trial court reasoned that without knowing

whether the leases would ultimately be revenue-generating, there would not be any way

of knowing whether the exploratory activities actually conferred a benefit on the

government.

       On appeal, the lessees urge us to adopt a more expansive approach to the

concept of “benefit.”    They argue that sunk costs “do constitute benefits to the

Government for purposes of restitution by a breaching party, because they were

incurred in fulfillment of contractual obligations.” The contractual obligations that the

lessees identify are those provisions of their leases that required them to act with “due

diligence” in developing the oil and gas resources.        See 43 U.S.C. §§ 1337(b)(4)

(describing “due diligence” requirements), 1344(b)(4); 30 C.F.R. subpart 250B. Failure

of a lessee to act with due diligence could have resulted in lease cancellation or

ineligibility to obtain future leases. 43 U.S.C. §§ 1334(c), 1334(a)(2)(C)(ii)(II), 1337(d).

The lessees argue that their efforts to satisfy the due diligence requirements benefited

the government because, if the efforts had been successful, the government would

have received royalties from the resulting production.

       The government responds that the due diligence requirements of the leases are

not a sufficient basis for a restitution award because they do “not require the

performance of any specific tasks or the expenditure of any specific amounts for

exploration.”   The government argues that “at most, ‘due diligence’ requires only




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efficient and orderly exploration of a lease upon an agreed-upon schedule, as opposed

to contractually required tasks and costs.”

        This court has previously explained that “restitution is proper only where the

contribution that the non-breaching party is seeking to recover was made in exact

conformity with the literal terms of the contract; recovery may not be had where the

plaintiff acted voluntarily, even if the action was taken with the intent to effectuate the

spirit of the agreement.” Hansen, 367 F.3d at 1306, describing Landmark Land Co. v.

Fed. Deposit Ins. Corp., 256 F.3d 1365, 1375 (Fed. Cir. 2001). It appears clear that due

diligence was a contractual obligation of the leases, and that the lessees’ performance

was therefore not strictly voluntary. The lessees had to perform ongoing exploratory

activities pursuant to the requirements of the lease. Consequently, they can attempt to

recover those costs even though the leases themselves did not specify precisely what

actions the lessees were required to take. See Landmark, 256 F.3d at 1373 (where

contract specified that plaintiffs had to make an initial contribution of “not less than” $20

million to the trust, plaintiffs were allowed to collect entire amount of initial contribution,

not just the $20 million explicitly mentioned in the contract).

        Nonetheless, while the lessees may have been required to perform due diligence

activities under their leases, the question remains as to how to value those activities.

The lessees argue that restitution should be measured by the costs of the due diligence

activities.   As the trial court noted, however, there are different ways to measure

restitution, including two methods that this court has recognized as appropriate. See,

e.g., Landmark, 256 F.3d at 1372 (describing “two alternative measures of relief in

restitution,” either the “value of the benefits received by the defendant due to the




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plaintiff’s performance,” or “the cost of the plaintiff’s performance”); see also

Restatement (Third) of Restitution § 49(2) (Tentative Draft No. 5, 2007) (listing four

alternative measures of restitution where property has been transferred, including

market value and value based on agreement); Restatement (Second) of Contracts §

344(c) (defining “restitution interest” as “having restored . . . any benefit . . . conferred

on the other party”).

       While in some cases actual cost would be an appropriate measure of restitution,

the facts of this case do not support such an award. To return the sunk costs to the

lessees would be an attempt to restore them to the status quo ante, which is one

purpose of restitution. The trial court explained, however, that a return to the status quo

ante in this case is impossible given that the lessees cannot return the leases to the

government in the same condition in which they received them. See, e.g., Hansen, 367

F.3d at 1315 (“[S]ection 384 of the [Second] Restatement [of Contracts] precludes

restitution when the non-breaching party cannot return ‘any interest in property that he

has received in exchange in substantially as good condition as when it was received by

him. . . .’”). Moreover, both the government and the lessees invested a significant

amount of time and resources in developing the leases before the implications of the

1990 CZMA amendments became clear.                Under these circumstances, where both

parties have participated in apparent good faith for the better part of 20 years, the

purpose of restitution is adequately served by having the government return the initial

payments; it is not clear that the net effect of the parties’ performance during the

pendency of the leases has been to confer a benefit on the government at the expense

of the lessees.




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       The only benefit even arguably received by the government for the lessees’ due

diligence activities was informational in nature. In a similar situation where the non-

breaching party sought restitution damages but the valuation of allegedly conferred

benefits was too uncertain, this court remanded for a determination of actual costs

under a reliance theory of damages. See Glendale Fed. Bank, FSB, 239 F.3d at 1382-

83 (denying restitution on the basis that the only benefit arguably conferred on the

government–time–was not amenable to valuation); see also LaSalle Talman Bank, 317

F.3d at 1376 (noting that “when restitution damages are based on recovery of the

expenditures of the non-breaching party in performance of the contract, the award can

be viewed as a form of reliance damages”). In this case, however, the lessees have

already elected not to pursue reliance damages by choosing to forgo any damages

based on their expectancy interests. Thus, the lessees are left with only the option of

pursuing damages under a restitution theory. Given the inherently uncertain nature of

calculating the benefit conferred by the lessees’ due diligence activities, we conclude

that the trial court did not err in denying any additional award of damages attributable to

the lessees’ activities in seeking to develop the leases.

       Each party shall bear its own costs for these appeals.

                                       AFFIRMED.




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