The Southwest Center for Biological Diversity and the Sierra Club (collectively "the Center") challenged the Department of Energy's (DOE) sale of Elk Hills to Occidental Petroleum (Occidental). Elk Hills, also known as National Petroleum Reserve 1 (NPR-1), is the seventh largest oil field in the United States and is home to at least four endangered animal species and one endangered plant species. The Center argued that DOE violated section 7 of the Endangered Species Act (ESA)[1] by failing to consult with the United States Fish and Wildlife Service (FWS) to ensure that the proposed sale would not jeopardize the existence of any endangered or threatened species. In an unpublished opinion, the District Court for the Eastern District of California held that the case was moot due to the completion of the sale and alternatively, that DOE's failure to consult did not violate section 7 of the ESA.[2] The Ninth Circuit affirmed the district court's judgment because Congress had waived section 7 consultation requirements as to DOE's sale of Elk Hills.

Section 7 of the ESA states that when an agency proposes an action in an area where an endangered species is present, the agency must determine whether its action may affect the endangered species or its habitat.[3] If so, the agency must formally consult with the Service that has jurisdiction over the species.[4] Since DOE took over operation of Elk Hills in 1976, it had consulted with FWS on three separate occasions. In the most recent consultation, in November 1995, FWS issued a biological opinion and incidental take statement to DOE, which required DOE to initiate another formal consultation with FWS prior to the sale of Elk Hills.[5]

In February 1996, Congress directed DOE to sell Elk Hills within two years of the effective date of the National Defense Authorization Act of 1996 (DAA).[6] The DAA also granted DOE permission to transfer the incidental take statement to the purchaser if DOE determined that a transfer was necessary to expedite the sale.[7] FWS, however, maintained that formal consultation was required on any proposed sale; DOE disagreed. In October 1997, DOE accepted Occidental's purchase offer, which included a transfer of the incidental take statement. Prior to the close of the sale, the Center filed suit and sought a preliminary injunction to stop the sale. The district court denied the injunction and granted Occidental's motion for summary judgment, holding that the close of the sale in February 1998 made moot the Center's claims. In the alternative, the district court held that DOE had not violated the substantive or procedural requirements of section 7.[8] The Center appealed.

The Ninth Circuit first held that the Center's claims were not moot due to the completion of the Elk Hills sale to Occidental: "Generally, the mere conveyance of property to another does not moot a dispute regarding the legality of the conveyance."[9] Occidental argued that because rescission of the sale would cause disruption and harm to both Occidental and DOE, preventing the restoration of the status quo, the appeal was moot. The Ninth Circuit determined, however, that a rescission of the sale could prevent the alleged harm to the environment and protected species, and therefore, the appeal was not moot. The court believed that the practical considerations raised by Occidental should be considered by a court when weighing the equities of a particular remedy.

DOE and Occidental also argued that when Congress passed the DAA it waived the section 7 consultation requirements for the Elk Hills sale. The Ninth Circuit agreed. The DAA required DOE to sell Elk Hills within two years from the effective date of the statute. It also allowed for transfer of the incidental take statement, which are generally nontransferable, to the purchaser. Although the DAA did not explicitly refer to section 7, the provision allowing transfer of the incidental take statement "reflects Congress's intent to permit the purchaser to continue operations under the same terms and conditions applicable to DOE without requiring DOE to reinitiate consultation with FWS and without requiring the purchaser to first obtain a permit pursuant to section 10 of the ESA."[10] The Ninth Circuit also determined that to require consultation with FWS prior to sale of Elk Hills would likely have conflicted with Congress's requirement that the land be sold within two years.

After considering the effect of the DAA, the Department of Interior Regional Solicitor (Solicitor) determined that the transfer provision also nullified the condition in the incidental take statement that re-consultation was required prior to sale. The Solicitor concluded that a new statement issued after consultation would have no purpose because DOE would no longer own Elk Hills and the purchaser would be governed by the 1995 biological opinion and incidental take statement. Further, the transferred statement would only remain in effect if the purchaser maintained activities in Elk Hills "identical to those evaluated in the 1995 biological opinion. [A]ny changes in operations . . . would require the purchaser to seek a section 10(a)(1)(B) permit prior to instituting the new activity."[11] The Ninth Circuit found the Solicitor's reasoning persuasive and supportive of its own reading of the DAA transfer provision.[12] Thus, the court concluded that Congress waived the section 7 requirement to reinitiate consultation with FWS prior to the Elk Hills sale and affirmed the district court's grant of summary judgment.