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Environmental Law Update: Louisiana First Circuit Reaffirms State’s Lack of Liability for Oyster Lease Claims Related to a Coastal Restoration Project

Beaux Jones -  Posted on by Baldwin, Haspel, Burke & Mayer

In Bayou Canard, Inc. v. State of Louisiana, through CPRA, 2017-CA-1067, (La. App. 1 Cir. May 14, 2018), the Louisiana First Circuit overturned a decision by the 19th Judicial District Court, which previously ruled in favor of an oyster company’s challenge to the Coastal Protection and Restoration Authority’s (“CPRA”) interpretation of the Oyster Lease Acquisition and Compensation Program (“OLACP”).[1] The OLACP is a program that allows CPRA to acquire state-issued oyster leases in the footprint of coastal projects prior to undertaking the construction. In this particular case, CPRA was acquiring rights for the Shell Island West Restoration Project.

Unlike previous cases testing the limits of the state’s shield from suits by oyster leaseholders challenging coastal restoration activities[2], this suit did not stem from physical harm to the lease. In this case, Bayou Canard was challenging CPRA’s methodology in determining the value of the lease acreage acquired through the program. CPRA paid $107,205.31 for 10.15 percent of the total acreage of the subject leases. Bayou Canard challenged CPRA’s application of the so called “harvest efficiency ratio,” which resulted in a significant reduction in the value of the acquisitions. Bayou Canard argued (successfully at the 19th JDC) that CPRA’s uniform application of the ratio amounted to a formal “rule” and they were required to follow proper rulemaking procedures under the Louisiana Administrative Procedure Act (“LAPA”),[3] which they did not. Bayou Canard sought summary judgment to declare the state’s informal rulemaking invalid and was successful.

On appeal, the First Circuit declined to overturn the District Court’s decision that CPRA adopted a rule without proper LAPA promulgation. However, the court quickly moved to the state’s third assignment of error, which asserted that under the terms of the oyster lease agreements, Bayou Canard never had a right to bring the suit in the first place. On this point, the First Circuit handed CPRA a sweeping victory. In short, the court ruled that the language of the oyster leases in question (which are materially-similar to all state-issued oyster leases) bars “all claims against CPRA by an oyster lessee resulting from a coastal restoration project, which includes the claims brought by Bayou Canard herein.”

Each state-issued oyster lease contains two clauses that are of paramount importance to the state’s ability to conduct integrated coastal protection projects. The first, the “Coastal Wetlands Restoration Advisory provides that:

[T]he State as Lessor hereby conveys to Lessee a limited interest in the water bottom which is described in this lease, subject to the conditions that: (1) this lease is subservient to the State’s past, present or future coastal restoration projects; (2) the State’s coastal restoration projects may cause adverse effects in the area of this lease; and, (3) the State is only issuing this lease based upon the mutual understanding of both the State and Lessee that Lessee’s property interest conveyed by this lease shall not include any right whatsoever to make claims against the State as a result of freshwater diversion or any other coastal restoration projects ….

The second, the “Allocation of Risk and Liability, and Indemnification” clause further provides:

Lessee shall assume all liability and risk of loss, and agrees that this lease is subservient to all past, present or future activities as described above. Lessee also agrees to indemnify and hold . . . the State of Louisiana, the Wildlife and Fisheries Commission, the United States, and any agency, agent, contractor, or employee thereof, harmless from and for, all loss, damage, costs and/or expense in any way associated with this oyster lease and the oysters, cultch, reefs and beds located therein, including any loss, sustained by the Lessee … arising out of, connected with, incident to, or directly or indirectly resulting from or related to . . . any other action taken for the purpose of coastal protection, conservation, or restoration undertaken by the State of Louisiana, the Wildlife and Fisheries Commission, political subdivisions of the state, the United States, and any agency, agent, contractor, or employee thereof. Damages include, but are not limited to, oyster mortality, oyster disease, damaged oyster beds or decreased oyster production, loss of revenue and/or loss of income ….

As previously noted, the allegations made by Bayou Canard were not related to a coastal restoration project insofar as that project had dumped sediment on their oyster beds or otherwise physically damaged their investments, but nevertheless, the First Circuit found that “[t]his lawsuit results from a coastal restoration project.” And “[t]he language of the lease eliminates any right whatsoever of Bayou Canard to make any claims against CPRA as a result of the Shell Island Restoration Project. The court relied on Avenal v. State, which related to physical damage caused by the Caernarvon Freshwater Diversion, thereby significantly extending the interpretation of the immunities and limitations of liability contained in state-issued oyster leases in favor of coastal restoration and protection.

It is unlikely that the Louisiana First Circuit will have the last word on Bayou Canard or how far the coastal protection immunity can stretch. However, if this decision stands, it could have a significant impact on how CPRA acquires oyster leases or whether they continue to acquire oyster leases at all. It is becoming more challenging to read Bayou Canard, Avenal, and the language of each state-issued oyster lease without wondering under what authority the OLACP program continues to exist and how the payments under the program do not constitute prohibited donations under Article VII, § 14 of the Louisiana Constitution. If an oyster lease is a “limited interest in the water bottom” that “is subservient to the State’s past, present or future coastal restoration projects,” and lessees are prevented from even challenging the OLACP’s application, then why would the state dedicate taxpayer money to acquire oyster leases when it is under no legal or contractual obligation to do so?

Read the full decision here.

[1] La. R.S. 56:432.1.

[2] See Avenal v. State, 2003-3521 (La. 10/19/04), 886 So. 2d 1085. “In Avenal, oyster fisherman holding oyster leases in the Breton Sound area claimed they suffered a compensable taking under the Louisiana Constitution as a result of a coastal restoration project. The Louisiana Supreme Court reversed the lower courts’ judgments awarding compensation, and held that the vast majority of the oyster fisherman were not entitled to compensation because their leases contained clauses holding the State harmless from any loss or damage resulting from the coastal diversion project. The Court further found that the claims of the oyster fisherman whose leases did not contain hold harmless clauses were prescribed. Avenal, 886 So.2d at 1088.” Bayou Canard, pg.12.

[3] La. R.S. 49:951, et seq.



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