Interesting legal case

From Concurring Opinions, a college student has tried a tactic for discouraging drilling for oil and gas -- he bids the price up, and if he has the winning bid, he defaults.  And of course, he's judgment proof.

Tim DeChristopher, a Utah-based environmental activist, has discovered a new tactic in the war on global warming: intentional breach of contract. The Washington Post reports:

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"I leaned forward to one of my colleagues and said, 'This guy behind us is just running up the prices,' " said David Terry, a Salt Lake City oil-land man who routinely attends the BLM auctions. "And my friend said, 'Yeah, he's going to get stuck with a tract.' "

The University of Utah economics student got stuck with 13. Promising the federal government $1.8 million he does not have, DeChristopher emerged holding leases on 22,000 acres in the scenic southeast corner of Utah.DeChristopher, of course, is judgment proof. Unlike the strategy of say the Nature Conservancy, which seeks to preserve wilderness through purchase or other contractual arrangements, DeChristopher's goal seems to have been disruption and the running up of oil lease prices. He's also apparently under investigation by federal agents. Not being a government contracts geek, I don't know what federal statutes he may have broken by participating in the auction on a bad-faith basis. As an ordinary matter of contract law, however, his case creates some interesting issues.

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Were DeChristopher bidding with real money, I would actually find his tactics laudable. From an economic standpoint the reason why participation of someone like DeChristopher in the auctions is valuable is that it internalizes some more of the externalities involved in gas leases. On the other hand, if DeChristopher can drive up the price without actually having to pay for anything, then his incentive will be overbid. Another way of putting this is that so long as he is judgment proof, he is massively over-incentivized to breach. Furthermore, unlike the Nature Conservancy, DeChristopher's actions will not ultimately stop the leases he purportedly purchased from being used. His failure to pay the $1.8 million will be material breach, relieving the BLM of the duty to convey rights to the land. The leases will simply be sold at the next auction.