Thursday, July 7, 2016

Conservation Easements: A contract or a property right or ....?

A recent case on conservation easements from the Court of Federal Claims has got me thinking about a topic I have been mulling over for a while: how should we interpret conservation easements? Do we look at them like contracts? Like property interests? Like environmental protection instruments? And what does it matter – how do different characterization of conservation easements change attitudes or outcomes? Only a few have chimed in on this debate.

In Telzrow v. US, the plaintiffs brought a breach of contract action against the USDA asserting it did not uphold the end of its conservation easement bargain. The Telzrows participated in the USDA’s Wetlands Reserve Program. In 1997, the Telzrows conveyed a conservation easement to the USDA in exchange for $289,750. Note, this is a purchased conservation easement and there is no need for it to comply with requirements of the Internal Revenue. (In fact, it need not comply with state conservation easement law either.)

  • Before I even get into the details of the case, let’s try to figure out what law we look at? Do we look to state law of property? Generally, when considering property law, the rules of the state govern. However, this may not be true where the federal government is the holder of the property right (might the Property Clause of the Constitution come into play for federally held partial property rights?) or where the conservation easement arose as part of a federal scheme (see cases from North Dakota where feds were able to enforce conservation easements that did not comply with the state conservation easement enabling act because the CE was part of a federal scheme to protect habitat). If we instead look at the case as one involving contract law, then courts have applied federal law regarding government contracts (see Keydata case holding that a lease was a contract and therefore governed by federal law instead of Massachusetts property law).

Well, let me telling you a bit more about this particular dispute, and you can ruminate which law would be best. The conservation easement covered nearly 300 acres of land and granted the United States the “right to enter into the easement area to undertake, at its own expense or on a cost share basis with the landowner or other entity, any activities to [restore and manage] the wetland and other natural values of the easement area.” The deed also contained a cost-sharing clause, committing the landowners (in this case still the Telzrows) to pay “any and all real property and other taxes and assessments, if any, which may be levied against the land.”

Exercising its right to restore or enhance the wetland, the US contracted with H.K.Anders to engage in the work. Anders subcontracted part of the work to Landscape and Construction Solution. The restoration was completed, and Anders collected his money from the feds. He neglected, however, to pay the subcontractor who ultimately sought and obtained a mechanic’s lien on the Telzrows’ farm.

The Telzrows challenged the lien in state court while also appealing to the USDA for help. The USDA declined to pay the subcontractor or any costs incurred by the Telzrows in the dispute, but did turn over documents that the USDA believed would be helpful in the state case. The USDA was wrong though and the docs didn’t help. The state court recognized that there was a contract with Anders and the USDA but held that the presence of the contract did not relieve the Telzrows of their liability under Illinois’ mechanic lien law. The USDA recognized the Telzrows were not at fault but took the position that the USDA was but a bystander with no ability to intervene. The Telzrows then requested that the USDA “buy back the easement,” which it claimed it could not do unless there was a clear and compelling public need for the easement action and the action would leave the USDA in the same or better position regarding budget and ecological considerations.

  • As an aside, I am confused by this part of the case and would love to hear from any of you with more experience with the USDA or WRP conservation easements. The standard for easement amendment is clear from the regulations, but I am not sure how the USDA would be “buying back” a conservation easement. If the USDA is the holder, it seems to me that the landowners would be the ones seeking to buy it back. Perhaps it was just a sloppy description by the court or plaintiffs, but something is a little off here.

Telzrows then filed suit in federal court of claims alleging breach of contract and also sought to invalidate the contract. The court first held that it had jurisdiction to hear the breach of contract claim under the Tucker Act (seeking money damages based on an express contract with the United States), but no jurisdiction to hear the argument regarding invalidity of the contract . The United States filed a motion to dismiss the breach of contract claim.

To recover for breach of contract, the Telzrows must first demonstrate that (1) there is a valid contract with (2) obligations or duties arising from that contract (3) a breach of such an obligation or duty and (4) damages caused by the breach.

The court had no problem finding that a conservation easement deed is a valid contract. To ascertain breach, the court looked to the plain meaning of the terms in the conservation easement, explaining that we construe a contract by looking at the language of the document and looking at it as a whole. Thus, the court turned to federal contract law for canons of construction for interpreting the document. .

The conservation easement had a provision requiring that any ambiguities in the conservation easement be construed in favor of the United States and to effect the wetland and conservation purposes of the deed, but the court found the CE to be unambiguous. No cost of the restoration should have been imposed on the Terzlows but according to the complaint they had indeed incurred costs. Motion to dismiss denied. 

I think we all have a lot of sympathy for the homeowners here and expect the USDA to now settle the case. I am mostly intrigued with this case and how it views conservation easements. If they are contracts under federal law, we have another data point suggesting that conservation easements that are part of federal projects need not comply with state conservation easement acts to be enforceable.

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