Opinion
Civil Action Number 01-11102-RGS
July 3, 2002
ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
After a fractious enforcement proceeding arising out of the Spalt brothers' entanglement with the federal fisheries laws, on January 30, 1998, the Spalts and the National Oceanic and Atmospheric Administration (NOAA), entered into an omnibus Settlement Agreement. The Agreement purported to resolve all claims and counterclaims then pending between the Spalts and NOAA.
The Spalts were represented throughout the enforcement action and settlement negotiations by James Coyne King, an able and experienced attorney.
At the time the Agreement was entered, the dispute had spawned three federal lawsuits in addition to the administrative proceeding.
In pertinent part, the Settlement Agreement stated as follows:
[2.] Upon execution of this Agreement, the Spalts shall forever cease all activity as dealers in any state or federally regulated or unregulated fishery without the consent of NOAA and its Office of General Counsel. Nothing in this Agreement shall require NOAA to give such written consent or preclude the Spalts from requesting such consent.
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[9.] On or before January 30, 2000, the Spalts shall cease to fish commercially in state-regulated or unregulated fisheries with the F/V Tropico and shall not thereafter participate directly or indirectly or have any interest in any commercial fishery, state or federal, regulated or unregulated, without the written consent of NOAA and its Office of NOAA General Counsel. Nothing in this paragraph or in this Agreement shall require NOAA to give such written consent or preclude the Spalts from requesting such consent.
In exchange for the Spalts' agreement to quit the fishing business, NOAA accepted $1.5 million in compromise of a $4.3 million civil assessment levied against the Spalts in the enforcement proceeding by an Administrative Law Judge (ALJ).
The bargain did not sit well with the Spalts. Thirty months after signing the Agreement, Peter Spalt sought NOAA's consent to apply for a permit to resume commercial fishing. An Enforcement Attorney in the Office of NOAA General Counsel wrote to Spalt stating that "[t]his office cannot and will not consent to your working in any fishery. The primary reason the Agency agreed to settle with you was that you would remain out of all fisheries for life." The Spalts demanded a hearing to press their case. The NOAA attorney responded that only applicants who had been denied a license were entitled to hearings. As NOAA saw it, because it had refused to give consent to any application by the Spalts, they had been denied nothing, and therefore there was nothing to be heard. The Spalts then brought this action contending that NOAA had deprived them of a property interest (commercial vessel operator's permits) without affording them the protections of procedural due process. The Spalts also maintain that NOAA's refusal to give consent violated the Settlement Agreement.
James Spalt filed a similar request on February 25, 2002 (also denied), although the request appears to have been motivated by the Spalts' litigating strategy rather than by any actual expectation that NOAA might relent.
The Spalts, while conceding that paragraph 2 of the Agreement bans them forever from dealing in fish, argue that paragraph 9 reads more flexibly. The word "indefinite" (as contrasted with the word "forever") is at the core of the Spalts' argument. The Spalts maintain that unlike paragraph 2 ("the Spalts shall forever cease all activity as dealers"), paragraph 9 did not in so many words bar them in perpetuity from commercial fishing (as NOAA's attorney stated), but that it rather "contemplated" their return to fishing "after an indefinite period of time." Spalt Memorandum, at 6. Moreover, because the underlying enforcement action was dismissed with prejudice, the Spalts contend that in deciding whether to give consent, NOAA is precluded from relying on the ALJ's liability findings, and must confine itself to the licensing standard applied to applicants generally by 15 C.F.R. § 904.301(a). Because this standard is permissive (it disqualifies only those who have violated fishery rules or who have failed to pay a civil assessment or criminal fine), the Spalts contend that they are entitled to the issuance of the permits, and therefore, to NOAA's permission to apply. Spalt Memorandum, at 13.
In ordinary usage, indefinite can mean indeterminate or unspecified; it can also mean unlimited.
The Spalts maintain that the dismissal with prejudice resulted in a final adjudication of the merits in their favor, thereby nullifying the liability findings made by the ALJ with regard to their many violations of fishing regulations. This may be true, at least in the sense that the dismissal precludes NOAA from reinstituting the enforcement action, but is somewhat besides the point. NOAA did not rest its ultimate refusal to give consent on the findings of the ALJ, but rather on the explicit terms of the Settlement Agreement. Moreover, whatever the effect of the dismissal, it cannot have been expected to wash away all institutional memory of the Spalts' infractions.
The Spalts additionally invoke the principle that "[e]very contract implies good faith and fair dealing between the parties to it." Warner Ins. Co. v. Commissioner of Ins., 406 Mass. 354, 362 n. 9 (1990). Thus, according to the Spalts, NOAA cannot withhold its consent arbitrarily or unreasonably. By this, the Spalts mean that NOAA must grant consent because of their perceived entitlement to the permits. The argument is based on a misapprehension of the covenant of good faith and fair dealing. The covenant operates to protect a party from conscious wrongdoing or a self-interested breach of duty that is intended to deprive another party to a contract of the benefit of its bargain. Hartford Acc. Indemnity Co. v. Millis Roofing Sheet Metal, Inc., 11 Mass. App. Ct. 998, 999-1000 (1981). The Spalts bargained, inter alia, for the right to seek NOAA's consent to apply for a fishing license. NOAA bargained for the unfettered discretion to refuse such consent. ("Nothing in this paragraph or in this Agreement shall require NOAA to give such a written consent"). There is nothing unsavory or heavy-handed in NOAA's insistence on its rights under the Agreement, hence there is no breach of the covenant of good faith and fair dealing.
As a fundamental principle of contract interpretation, a court will not construe a contract in such a way as to divest a party of all the benefit of a reciprocal bargain. See, e.g., National Labor Relations Board v. Magnavox Co., 415 U.S. 322, 328 (1973) (Stewart, J., concurring in part and dissenting in part) (fundamental contract considerations require that parties be held to their reciprocal promises); Kinan v. Cohen, 268 F.3d 27, 33 (1st Cir. 2001) (in enforcing a settlement agreement, the court properly required plaintiff to dismiss the action so long as the government honored its undertakings); United States v. Kingsley, 851 F.2d 16, 21 (1st Cir. 1988) (using contractual analysis to enforce a plea agreement and award a defendant the "benefit of the bargain").
A contract is presumed to be a rational instrument reflecting the mutual interests of the parties. NOAA bargained, and paid a considerable price for, the right to keep the Spalts marooned for as long as it deemed necessary. The consideration extended ($2.8 million in foregone civil penalties and dismissal of the enforcement action with prejudice) is sufficient to give NOAA an enforceable interest in the bargain. See Pandiscio v. Atkinson, 54 Mass. App. Ct. 482, 486 (2002) ("A party who abandons a claim made in good faith in order to settle a dispute over that claim provides sufficient consideration to support the settlement agreement even though the claim ultimately might have been unsuccessful."). See also Richardson v. Dep't. of Revenue, 423 Mass. 378, 380 (1996); Margolies v. Hopkins, 401 Mass. 88, 91 (1987). The Spalts' entitlement argument, if accepted, would render worthless any benefit to NOAA from the discretionary right that it negotiated in paragraph 9.
Because there is nothing ambiguous about the meaning of paragraph 9 of the Settlement Agreement, I have given no weight to the extrinsic evidence offered by the Spalts and their attorney recounting conversations attendant to the negotiation of the Agreement purporting to qualify the explicit terms of paragraph 9. "[P]arol evidence may not be used to `create ambiguity where none otherwise exists.'" Rey v. Lafferty, 990 F.2d 1379, 1385 (1st Cir. 1993). Rather, the "parties are bound by the plain terms of their contract." Hiller v. Submarine Signal Co., 325 Mass. 546, 550 (1950).
The Spalts' due process argument fails for a similar reason. As the Spalts acknowledge, a due process interest exists only where a person has a protected property interest in a government-conferred benefit. "To have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it." Board of Regents v. Roth, 408 U.S. 564, 577 (1972). A person has an entitlement to a license or permit where a "law or regulation limits the issuing authority's discretion to restrict or revoke the permit by requiring that the permit issue upon compliance with terms and conditions prescribed by statute or ordinance." Bituminous Materials, Inc. v. Rice County, Minn., 126 F.3d 1068, 1070 (8th Cir. 1997). The Spalts ground their due process argument on the same firmament as their contract argument, that is, because NOAA must issue them the permits under their reading of the regulation, their claim to these permits rises above that of mere expectancy to an entitlement. That might be the case if it were not for the provision in the Settlement Agreement permitting NOAA to refuse to give consent to any application by the Spalts for no reason at all. "As a general rule, when State or Federal law entitles an individual meeting certain eligibility criteria to the receipt of a State or federally funded benefit, the individual has a property interest in the benefit. . . . However, to the extent the agency or other entity responsible for awarding the benefit possesses discretion to decide whether to grant or withhold the benefit, it becomes less likely that a potential recipient will be found to have a constitutionally protected property interest." Madera v. Sec. of Exec. Off. of Communities Development, 418 Mass. 452, 459 (1994). And where a property interest does not exist, the Due Process Clause provides no protection from the loss of an expectancy. Fireside Nissan, Inc. v. Fanning, 30 F.3d 206, 219 (1st Cir. 1994).
The Spalts in this regard confuse the general absence of discretion on NOAA's part to deny a permit to an ordinary applicant, with the unbridled discretion conferred on NOAA by the Settlement Agreement to refuse to permit the Spalts (no ordinary applicants) to apply in the first place. ("Nothing in this paragraph or in this Agreement shall require NOAA to give such written consent. . . ."). Because the Spalts can show no protected property interest in the permits, it follows that there was no process due and, therefore, no constitutional wrong in denying them a hearing.
"Nothing" means "not anything," that is, no reason at all. While the Spalts argue that their entitlement theory is based on the regulation, and not the Agreement, the regulation applies only if the Spalts are permitted to apply, a circumstance that paragraph 9 authorizes NOAA to prevent.
ORDER
For the foregoing reasons, plaintiffs' motion for summary judgment is DENIED. Defendant's motion for summary judgment is ALLOWED.
SO ORDERED.