Telzrow v. US

U.S. Court of Federal Claims, No. 15-1359C, May 26, 2016: Trial may proceed on US liability for failure to remove mechanic’s lien.

This decision is about procedural matters but is reported here as an illustration of a problem that may not be addressed by the provisions commonly found in most historic preservation and conservation easements: mechanics liens.

The United States Department of Agriculture, acting through the Natural Resources Conservation Service (“Conservation Service” or “government”), purchased a conservation easement on Telzrows’ land under the Wetlands Reserve Program for the purpose of restoring and protecting wetlands. Food Security Act of 1985, Pub. L. No. 99-198, Title XII, § 1237, 99 Stat. 1354 (1985), as added by Pub. L. No. 101-624, Tit. XIV, § 1438 (formerly codified at 16 U.S.C. § 3837), repealed by Agricultural Act of 2014, Pub. L. No. 113-79, § 2703(a), 128 Stat. 767 (2014).

The easements generally allow federal officers and their contractors to enter the land and perform wetlands restoration work. This particular deed of easement granted the United States, “the right to enter unto the easement area to undertake, at its own expense or on a cost share basis with the [l]andowner or other entity, any activities to restore, protect, manage, locate and mark the boundaries, maintain, enhance, and monitor the wetland and other natural values of the easement area.”

The US awarded a contract for restoration work on the Telzrows’ land to a contractor who did the work using materials purchased on credit from a subcontractor. The government paid the contractor but he then filed for bankruptcy and never paid his subcontractor. The subcontractor then obtained a mechanic’s lien on the Telzrows’ farm pursuant to Illinois law. The Telzrows asked the Conservation Service to pay the subcontractor’s claim but it refused. Ultimately the Telzrows sued the government in federal court for breach of contract (the conservation easement), demanding damages.

The procedural argument arose because the government failed to answer the Telzrows’  complaint by the deadline imposed by the Rules of the Court of Federal Claims (“RCFC”). The Telzrows filed a motion for the government to lose by default, and the government opposed the entry of default and asked for additional time to respond to the complaint. The government also asked the court to dismiss the Telzrows’ claim for a couple of reasons, including failure to state a claim under applicable procedural federal rules.

The court allowed the government additional time to respond but to rule on the government’s motion to dismiss, the court had to decide if the Telzrows had plausibly alleged a breach of contract, assuming the facts were as alleged by the Telzrows.

The court then had to interpret the contractual language of the conservation easement. It found that the easement language contemplates that restoration work is “undertake[n]” by the United States at its sole option and does not give the landowner any rights or responsibilities in the restoration work, citing a Ninth Circuit decision holding that this form of Conservation Service deed “nowhere grants [a landowner] the power to veto a conservation plan of which it disapproves.” Big Meadows Grazing Ass’n v. United States ex rel. Veneman, 344 F.3d 940, 943 n.4 (9th Cir. 2003). The court interpreted Big Meadows to mean that the United States “can and does assume sole responsibility to perform and pay for restoration.” The court said that is follows from that that landowners “are or should be shielded from the burdens of restoration absent a separate and further agreement.”

Based on the facts alleged by the Telzrows, the court found that in this instance part of the cost of restoration ultimately was imposed on the Telzrows, despite the United States’ obligation to pay for such costs. The court held that is sufficient to state a plausible claim for breach of contract, either in terms of breach of warranty or failure to perform an affirmative obligation. Accordingly the court denied the government’s motion to dismiss for failure to state a claim, which means that a trial on the merits may proceed.

Decision available at https://ecf.cofc.uscourts.gov/cgi-bin/show_public_doc?2015cv1359-14-0.

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