Evaluating Recent Legislative Efforts to Reform Oyster Leasing in Virginia

In January of 2016, the Virginia Marine Resources Commission, concerned about reports of conflicts in the Lynnhaven River system between oyster farmers harvesting from leased grounds and upland property owners, boaters, and other users and about proposed legislation that would have instituted a moratorium on new leases within that river system, formed a working group to review the matter and make recommendations about how to address the conflicts.  Very quickly, it became apparent that most of the issues that were being raised were not specific to the Lynnhaven River.  Thus, while the report that was issued made certain recommendations specific to the Lynnhaven, it also pointed out problems that would need to be addressed by legislation or regulation throughout the oyster growing region of Virginia.  In August 2018, the governor announced the creation of the "Governor’s Work Group to Promote Sustainable Growth of Virginia’s Clam and Oyster Economy” (the blog created by the Waterfront Property Law practice group at Pender & Coward documented the workings of this second group). 

In the time since, little has been accomplished to meaningfully address one of the main problems in this area:  namely, that practically all of the ideal oyster growing grounds in the state have been leased, leading new entrants to try to lease less desirable ground or grounds that are in more heavily used waters.  Our Waterfront Property Law practice group has explained in its blog how the policies adopted in Virginia have led to a large sprawl of unproductive oyster grounds instead of compact, high-producing, oyster grounds appropriately located amid large areas of unleased bottomland available for public use and enjoyment.  These policies, in turn, lead to more contested leasing hearings before the VMRC, which, along with the sheer volume of applications that have flooded the agency in recent years, is responsible for the backlog in lease applications that persists to this day.  The General Assembly has imposed better notice requirements for lease applications in Va. Code § 28.2-606, requiring notice to be posted on the agency’s website and sent by registered or certified mail to, among others, nearby riparian property owners, and has made explicit in Va. Code § 28.2-607 the VMRC’s obligation to consider the same public trust factors it considers in permitting cases when deciding whether to assign leases.  These changes, while helping to make the landowner aware of problematic lease applications before they are issued, do little to discourage the inefficient use of ideal grounds that make such problematic applications necessary in the first place.  In addition, it has changed the process for renewing leases, but those changes likely will do little to address the inefficient use of currently leased ground and, in any event, will do nothing in the near-term, although they may help address the problem of “spite” leases (i.e. leases sought by those who intend to block another activity, such as a proposed dredging project, or are simply sought to deny access to a competing oystering operation).  

The changes in this area are codified in Va. Code § 28.2-613.  The term of the leases remains 10 years, and the leases can still be renewed at the end of their terms.  If there has been significant oyster production, reasonable plantings of shellfish, or a significant oyster aquaculture operation on the leased ground during any portion of the lease term, the renewal is automatic once the owner submits a renewal form.  If not, then the VMRC may still renew the lease if there was good cause for that failure.  Before the amendment, that decision required consideration of the prevalence of the diseases MSX and Dermo and whether the ground has traditionally produced commercial quantities of oysters.  Now, in addition, the Commission is required to also consider whether the renewal will be in the public interest by considering the public trust factors required to be considered in permitting decisions.  However, this is likely to be largely ineffective in making renewals more difficult to obtain over inefficiently used grounds because it will only arise in those instances where no significant use was made of the leased grounds at any point during the ten-year lease term.  Under that standard, a lessee could potentially plant on the leased grounds for a single season and still secure automatic approval.  In addition, the General Assembly directed the VMRC to set a fee structure for lease renewals.  That fee, currently set at $150 in 4 Va. Admin. Code § 20-1350-30(B), is designed mainly to help defray the agency’s costs and is not a significant expense, so it is also unlikely to reduce the number of renewals. 

Even if these reforms were more impactful, they would still take significant time to actually take effect.  After all, the leases that are in effect now are contracts between the state and the lessees.  Those contracts are governed by the terms of the statutes and regulations in effect when they are executed.  Any legislative change that comes after the execution of the contract is presumed to apply prospectively only—in other words, the new law will only apply to lease contracts entered into after the effective date of the statute unless the General Assembly makes its intention to the contrary clear.  See Bailey v. Spangler, 289 Va. 353, 359, 771 S.E.2d 684, 686 (2015) (“For this reason, we interpret statutes to apply prospectively ‘unless a contrary legislative intent is manifest.’” (quoting Bd. of Supervisors v. Windmill Meadows, LLC, 287 Va. 170, 180, 757 S.E.2d 837, 843 (2014))).  The General Assembly did not make any such intention clear in the bill amending § 28.2-613, so the amendments will likely only apply prospectively to leases entered into after the effective date of the amendment.  This means that the impact of the provisions will only be felt in about ten years when the leases entered into after the effective date of the amendment begin expiring. 

This, of course, raises the question:  why did the General Assembly fail to include retroactivity language in the amendments?  The likely answer is that doing so could lead to legal challenges brought under the Contracts Clause of the federal Constitution.  Whether such a challenge would be successful will depend largely on how severely any retroactive amendment changes the deal between the state and the leaseholder and whether the change is reasonable and necessary to serve a public purpose.  See Baltimore Teachers Union v. Mayor of Baltimore, 6 F.3d 1012, 1014-1022 (4th Cir. 1993) (upholding a city’s reduction in teacher pay as reasonable because it did not reject other methods to secure the public purpose of reducing its budget nor did it impose a more drastic impairment of its contractual obligations than was needed to secure that purpose).  While the state could certainly prevail in such a challenge, again, depending on the nature of the particular amendment, the General Assembly likely viewed it as better to avoid the costs and uncertainty of any potential challenge. 

Until such time as it does decide to try to impose amendments retroactively, the General Assembly’s options to address the issue are limited.  This means that conflicts between lessees, on the one hand, and riparian property owners and other users of the state’s waterways, on the other, are likely to continue to increase.  Riparian property owners could formerly respond to oyster leases that were too close to their shores by securing a portion of their waterfront as a riparian planting ground assignment if they met the other requirements of the statute, but recent amendments to Va. Code § 28.2-600 that give the VMRC discretion at least as to the location and size of such assignments make this tool somewhat less effective.  See Va. Code § 28.2-600(A) (“The Commissioner shall assign to him only a riparian planting ground that the Commissioner, in his discretion, deems appropriate to encompass as much as one-half acre of ground, subject to the Commissioner’s discretion with respect to the precise location ....”).  The owner’s best option is to take advantage of the new notice procedures, hire counsel, and make his or her case before the VMRC that the lease is not in the public interest. 

Matt Hull is a Pender & Coward attorney focusing his practice on waterfront law and eminent domain matters.