In a January 17, 2025 opinion in the cases of Montana Wildlife Federation et al. v. Deb Haaland et al. and Western Watersheds Project et al. v. Deb Haaland et al., the United States Court of Appeals for the Ninth Circuit examined a number of oil and gas leases in Idaho and Montana sold during the prior Trump administration, vacating some and overturning vacatur of others. The opinion offers insight into how a court may look to analyze improper agency action in instances where significant economic expenditure has already taken place.

In 2015, the Bureau of Land Management (BLM) amended a number of its land management plans with the goal of promoting rehabilitation of the greater sage grouse population. These plans sought to prioritize the development of oil and gas leases in areas outside of sage grouse habitat (the “2015 Plan”). BLM Instruction Memoranda (IMs) were subsequently issued which set forth the procedures to implement the 2015 Plan and, in part, addressed public participation in the lease sale process to achieve this objective. These IMs were revised in 2018 under the prior Trump administration with the new IMs reinterpreting the prioritization requirement. One such IM required that prioritization of leases outside of sage grouse habitat only applied in instances of a backlog in agency capacity to process expressions of interest in land, and another IM shortened the public comment period required under the National Environmental Policy Act (NEPA) and the public comment period for protecting lease sales under the Federal Land Policy and Management Act (FLPMA).

Various environmental groups challenged hundreds of leases issued in Idaho and Montana under this process, arguing that the re-interpreted IMs were inconsistent with the 2015 land management plans, NEPA, and the FLPMA. This effort led to a number of leases being struck down in 2020. Idaho’s district court found that lease sales violated NEPA and FLMPA’s public participation requirements. Montana’s district court found that certain lease sales violated FLMPA and were plainly inconsistent with the 2015 Plan.

The instant opinion resulted from the challenge of these 2020 holdings. The Ninth Circuit found that lease sales in the Idaho cases did violate NEPA’s public participation process, but that Idaho’s district court abused its discretion in vacating the subject leases due to the “disruptive consequences” of vacatur significantly outweighing the seriousness of agency error in granting the leases. The court further found that lease sales in the Montana cases violated the public participation requirements of FLMPA and were inconsistent with the 2015 Plan, and that Montana’s district court did not abuse its discretion when it determined that the seriousness of BLM’s errors outweighed the disruptive consequences on leaseholders, ultimately upholding vacatur of those Montana lease sales.

Although these findings are highly fact-specific, the heart of distinction between the Ninth Circuit’s findings in the Idaho and Montana cases centers on evaluation of the seriousness of the agency’s violation, and the economic harm resulting from BLM’s errors as determined through application of a test set forth in the 1993 Allied-Signal, Inc. v. U.S. Nuclear Regulatory Commission case. Allied-Signal, Inc. v. U.S. Nuclear Regul. Comm’n, 988 F.2d 146 (D.C. Cir. 1993). Specifically, the Allied-Signal case requires a court to effectively conduct a two-prong test in applying its discretion to remand a decision without vacatur while an agency corrects an error. First, the court must look to the seriousness of the agency’s error, and whether a different result may be reached on remand. Second, the court is required to consider the disruptive effect of vacatur, which allows for economic disruption to factor into this calculus (together, the “Allied-Signal Test”).

In the Idaho cases, the Ninth Circuit’s application of the Allied-Signal Test found that BLM’s errors were “less serious” and the economic harm in vacating the leases produced a significant disruptive effect. The court recognized that while deprivation of the public participation process is not insignificant, BLM’s compliance with NEPA would be more of a “bureaucratic formality” were the leases allowed. Additionally, the court found that the economic harm stemming from vacating the leases would require the government to return $125 million in lease revenue, disrupt investment interests, and require states to forfeit funds. Consideration of the Idaho leases was therefore remanded to the Idaho district court with the direction to vacate it vacatur and remand to BLM for further proceedings.

By contrast, in the Montana cases, the Ninth Circuit reached the opposite conclusion. The court found that in those cases, the seriousness of the agency error was significant because BLM would likely not be able to substantiate its position on remand and that some leased parcels could be offered under an updated IM consistent with the 2015 Plan. Next, the court found that the disruptive effect of vacatur, while significant, was warranted because the agency error was fundamental to the entire leasing process, thereby “infecting” the chain of events that followed. Moreover, the economic impact was found to be less significant in the Montana cases, requiring a return of about $36 million in lease revenue. As such, the Ninth Circuit found that the Montana district court did not abuse its discretion in vacating these leases.

Ultimately, the holding in this case offers insight into how courts may look to remedy agency errors, even after the agency’s action has resulted in significant economic investment.

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