235 F.3d 588 (D.C. Cir. 2001), 98-5131, Indepentant Prtroleum Assoc. v. Babbitt

Docket Nº:98-5131
Citation:235 F.3d 588
Party Name:Independent Petroleum Association of America, et al., Appellants v. Bruce Babbitt, Secretary of the Interior, et al., Appellees
Case Date:January 05, 2001
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit

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235 F.3d 588 (D.C. Cir. 2001)

Independent Petroleum Association of America, et al., Appellants


Bruce Babbitt, Secretary of the Interior, et al., Appellees

No. 98-5131

United States Court of Appeals, District of Columbia Circuit

January 5, 2001

Argued November 1, 2000

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[Copyrighted Material Omitted]

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Appeal from the United States District Court for the District of Columbia (No. 93cv02544)

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L. Poe Leggette argued the cause for appellants. With him on the briefs were Laura S. Morton and Stephen M. McNabb. E. Edward Bruce, Nancy L. Pell and Thad S. Huffman entered appearances.

Ronald M. Spritzer, Attorney, U.S. Department of Justice, argued the cause for appellees. With him on the brief were James F. Simon, Acting Assistant Attorney General, and Sean H. Donahue, Attorney.

Before: Sentelle, Randolph and Rogers, Circuit Judges.

Opinion for the Court filed by Circuit Judge Sentelle.

Sentelle, Circuit Judge:

In the consolidated cases of Independent Petroleum Association of America v. Babbitt and Samedan Oil Corp. v. Deer, 92 F.3d 1248 (D.C. Cir. 1996), we held that (1) a policy letter written by an Associate Director of the Minerals Management Service clarifying the royalty consequences of take-or-pay settlement payments was not a rule subject to the notice-and-comment requirements of the Administrative Procedure Act; and (2) the decision of an Assistant Secretary of the Department of the Interior in Samedan Oil Corp., MMS-94-0003-IND (Sept. 16, 1994), was arbitrary and capricious. On remand, the District Court granted in part Samedan Oil Corporation's ("Samedan") motions for entry of an order implementing the mandate of this Court and for injunctive relief, Independent Petroleum Ass'n of Am. v. Babbitt, 971 F.Supp. 19, 35-36 (D.D.C. 1997), but denied a similar motion made by the Independent Petroleum Association of America ("IPAA"), see id. at 30, 35. The District Court concluded that IPAA was not a party to Samedan's case and that IPAA's remaining claim--a "general challenge to the authority of [the Department of the Interior] to charge" royalties on nonrecoupable take-or-pay settlement payments--did not challenge final agency action. Id. at 26. Accordingly, the District Court held that it lacked jurisdiction over IPAA's claim and therefore dismissed its complaint. IPAA now returns to this Court asking us to reverse the lower court's decision. For the reasons set forth below, we affirm.


The instant appeal continues a long history of litigation focusing on whether the Department of the Interior ("DOI") should be permitted to collect royalties from gas-producing companies that lease land from DOI when those companies receive payments based on their take-or-pay settlement agreements with gas pipelines.1 DOI initially took the position that under its gross proceeds rule, see 30 C.F.R. §§ 206.151, .152(h), .153(h) (1987), gas producers owed royalties for receiving such payments. In 1988, the Fifth Circuit rejected this position, holding that "[r]oyalty payments are due only on the value of minerals actually produced, i.e., physically severed from the ground. No royalty is due on take-or-pay payments unless and until gas is actually produced and taken." Diamond Shamrock Exploration Co. v. Hodel, 853 F.2d 1159, 1168 (5th Cir. 1988). DOI subsequently amended the gross proceeds rule to reflect this holding, "remov[ing] the requirement to pay royalties on take-or-pay payments at the time the payment is made" but continuing to require royalties "when make-up gas is taken." Revision of Gross Proceeds Definition in Oil and Gas Valuation Regulations, 53 Fed. Reg. 45,082, 45,083 (Nov. 8, 1988). In a May 3, 1993 letter, the Associate Director of DOI's Minerals Management Service ("MMS") sought to clarify the gross proceeds rule, stating that "some or all of a settlement payment is or will become royalty bearing if production to

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which specific money is attributable occurs." Letter from James W. Shaw, Associate Director for Royalty Management, MMS, addressed to "Payor" (May 3, 1993) [hereinafter May 1993 letter]. In other words, according to the letter, "the only relevant question is whether or not the gas which was originally spoken for in the settled contracts is eventually sold to someone." Independent Petroleum Ass'n of Am. v. Babbitt ("IPAA I"), 92 F.3d 1248, 1253 (D.C. Cir. 1996) (emphasis in original).

In August 1993, the Independent Petroleum Association of America, an association of roughly 5,000 independent explorers and producers of natural gas and oil, responded to the letter by filing a suit seeking injunctive relief to prevent DOI from collecting royalties on unrecoupable take-or-pay settlement payments. IPAA's complaint argued, inter alia, that (1) DOI adopted a new rule through the May 1993 letter without following the notice-and-comment procedures required by the Administrative Procedure Act ("APA"), 5 U.S.C. § 553, and (2) DOI's efforts to collect royalties based on the settlement agreements violated the statutes governing the royalties owed under DOI leases. In 1994, in an effort to "simplify ... some of the procedural aspects of [ ] the IPAA Litigation," DOI and IPAA entered an agreement whereby MMS would issue up to 10 orders to companies to pay royalties based on their settlement agreements. Agreement, Independent Petroleum Ass'n of Am. v. Babbitt, No. 93-2544 (D.D.C. Feb. 4, 1994). The companies could then appeal these orders to an Assistant Secretary of DOI, who would issue decisions that could become "appropriate vehicles to seek judicial review on the merits of the May [1993] Letter." Id. at 5.

Later that year, MMS issued an order to Samedan Oil Corporation requiring it to pay royalties on settlement payments made by Southern Natural Gas Company. Samedan appealed the order to DOI's Assistant Secretary for Indian Affairs. The Assistant Secretary upheld the order based on the policies articulated in the May 1993 letter. See Samedan Oil Corp., MMS-94-0003-IND (Sept. 16, 1994). Samedan appealed to the District Court seeking judicial review of the Assistant Secretary's decision. Then, as we explained in IPAA I, "the District Court consolidated Samedan's challenge with IPAA's challenge to the May 1993 letter." IPAA I, 92 F.3d at 1255. After the District Court granted summary judgment for DOI in both cases, Samedan and IPAA appealed to this Court.

On appeal, we reversed the District Court's granting of summary judgment, holding that (1) the May 1993 letter was not a "rulemaking requiring APA notice-and-comment procedures," id. at 1256, and (2) the Assistant Secretary's Samedan decision was "arbitrary and capricious in light of DOI's adoption of the Diamond Shamrock holding," id. at 1260. Accordingly, we held that DOI was precluded from collecting royalty payments from Samedan. See id.

On remand, IPAA and Samedan filed motions with the District...

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