Nation v. United States Dep't Of The Interior ., No. 09-5157.

• Decision Date: 16 July 2010
• Docket Number: No. 09-5157.
• Parties: JICARILLA APACHE NATION, Appellant v. UNITED STATES DEPARTMENT OF The INTERIOR, et al., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

613 F.3d 1112

JICARILLA APACHE NATION, Appellant

v.UNITED STATES DEPARTMENT OF The INTERIOR, et al., Appellees.

No. 09-5157.

United States Court of Appeals,District of Columbia Circuit.

Argued Jan. 21, 2010.

Decided July 16, 2010.

COPYRIGHT MATERIAL OMITTED.

Appeal from the United States District Court for the District of Columbia (No. 1:07-cv-00803).

Steven D. Gordon argued the cause for appellant. With him on the briefs was Thomas J. McIntosh. Lynn E. Calkins entered an appearance.

John E. Arbab, Attorney, U.S. Department of Justice, argued the cause for appellee United States Department of the Interior. With him on the brief were John C. Cruden, Acting Assistant Attorney General, and Elizabeth A. Peterson, Attorney. Michael T. Gray, Attorney, and R. Craig Lawrence, Assistant U.S. Attorney, entered appearances.

Charles L. Kaiser argued the cause for appellee Vastar Resources, Inc., et al. With him on the brief was Charles A. Breer.

Before GINSBURG, GARLAND and BROWN, Circuit Judges.

Opinion for the Court filed by Circuit Judge BROWN.

BROWN, Circuit Judge:

Jicarilla Apache Nation (Jicarilla) challenges the denial of its claim for additional royalties for natural gas leases in force from January 1984 through June 1995. After the United States Department of the Interior (Interior) rejected the claim, Jicarilla filed this suit in the district court. The district court denied Jicarilla's motion for summary judgment and, on its own motion, granted summary judgment to Interior. Jicarilla Apache Nation v. U.S. Dep't of the Interior, 604 F.Supp.2d 139 (D.D.C.2009). Because we are persuaded Interior failed to consider an important aspect of the problem when it retrospectively applied regulations intended to have only prospective effect and failed to engage in reasoned decisionmaking when it made an unacknowledged volte-face on the applicability of the Jicarilla methodology, we reverse in part and remand the case to the district court for further proceedings consistent with this opinion.

I

Jicarilla is a federally recognized Indian Tribe with a reservation in northwest New Mexico (the Reservation). Jicarilla obtains royalty payments by leasing the rights to produce natural gas from Reservation lands. Lessees agree to pay Jicarilla royalties equal to one-sixth or one-eighth the value of the natural gas produced and sold from the Reservation. Sometimes the price paid for Reservation gas does not reflect market value because the gas is not sold under arm's-length contracts. To ensure full royalties in such instances, the leases contain a provision describing how to calculate the “value” of gas for royalty purposes by reference to a “major portion” price:

“[V]alue” for the purposes hereof may ... be calculated on the basis of the highest price paid or offered ... at the time of production for the major portion of the ... gas ... produced and sold from the field where the leased lands are situated....

Oil and Gas Mining Lease-Tribal Indian Lands, ¶ 3(c) (Mar. 7, 1952). The instant dispute over how the major portion price should be calculated under Interior's regulatory authority arises because the leases do not define the term “major portion.”

The Indian Mineral Leasing Act of 1938 (IMLA), 25 U.S.C. §§ 396a-396g, permits an Indian Tribe, such as Jicarilla, to lease its lands for “mining purposes,” with the Secretary of the Interior's (Secretary) approval and subject to the rules and regulations promulgated by the Secretary. Id. §§ 396a, 396d. During all relevant times, Jicarilla's leases were managed jointly by the Minerals Management Service (MMS) and the Bureau of Indian Affairs (BIA). Both agencies have regulations for computing the value of gas royalties by reference to a “major portion” price. Those regulations can be divided into two categories: first, MMS' and BIA's regulations in effect prior to 1988 (the “pre-1988 Regulations”), and second, MMS' revised regulations in effect beginning March 1, 1988 (the “1988 Regulations”).

In 1996, MMS and Jicarilla began developing an entirely new methodology for calculating the major portion for Jicarilla's natural gas leases. Since no database contained all of the necessary information about arm's-length gas sales for the Reservation, MMS decided to rely on data from Jicarilla's own gas sales through its Royalty-in-Kind (RIK) program. Under the RIK program, Jicarilla received its royalty share from the gas leases “in kind” and then sold the gas in arm's length transactions. MMS extrapolated the price Jicarilla earned selling its one-sixth or one-eighth RIK shares to establish the major portion price for the remaining five-sixths or seven-eighths shares of gas sold by lessees. This became known as the “Jicarilla methodology.” In 1998 and 1999, MMS used the Jicarilla methodology to compute the major portion prices for gas sold under Jicarilla's leases during the period from January 1984 through June 1995 and then issued thirty-nine Orders to Perform, directing lessees to pay additional royalties for this period.

Several companies appealed the Orders to Perform. In 2000, Interior issued three similar decisions affirming Orders to Perform. Robert L. Bayless, MMS-98-0132-IND (Dec. 22, 2000), Dugan Prod. Corp., MMS-98-0130-IND (Dec. 22, 2000), Merrion Oil & Gas Corp.,

MMS-98-0228-IND (Dec. 22, 2000) (collectively “ Bayless ”). In Bayless, Interior denied the lessees' appeals, concluding the Jicarilla methodology was consistent with the 1988 Regulations and the major portion price was properly calculated. See, e.g., Bayless, MMS-98-0132-IND, at 2-9.

Then, in 2007, Interior overruled an Order to Perform in which MMS had directed Intervenors Vastar Resources, Inc., Union Texas Petroleum, and Unicon Producing Co. (collectively “Vastar”) to pay additional royalties to Jicarilla. Vastar Res., Inc., MMS-98-0131-IND (Mar. 28, 2007) (“ Vastar ”). In Vastar, Interior determined the Jicarilla methodology was inconsistent with the 1988 Regulations and could not be used to determine the major portion price for gas sold from January 1984 through June 1995. Id. at 6-11. Interior granted Vastar's appeal but noted MMS could recalculate the major portion price if it could do so consistent with the regulations. Id. at 12. The decision neither cited nor mentioned the contrary result reached in Bayless.

Jicarilla promptly filed suit in the district court, challenging Vastar as arbitrary and capricious under the Administrative Procedure Act (APA) and as a violation of Interior's trust responsibility. In its motion for summary judgment Jicarilla raised three arguments: (1) the Vastar decision departed from Bayless without explanation; (2) the decision erroneously concluded the 1988 Regulations were consistent with the major portion provision of Jicarilla's leases and the Jicarilla methodology was inconsistent with both; and (3) the decision violated Interior's fiduciary duty to protect Jicarilla's interest in the gas leases. As an alternative to its second argument, Jicarilla noted Vastar's reasoning could not apply to the period from January 1984 through February 1988 because the 1988 Regulations were not in effect until March 1, 1988. The district court rejected the three primary arguments but failed to address Jicarilla's more limited alternative argument. After the district court's sua sponte grant of summary judgment to Interior, Jicarilla filed a timely notice of appeal.

II

Before reaching the merits, we consider Interior's argument that Jicarilla waived its current claim by failing to raise it before the district court and by failing to exhaust it before the agency.

A

Interior's waiver argument rests on the faulty premise that Jicarilla has raised only one claim on appeal. Interior says that “Jicarilla waived its sole claim in this Court,” which, “[a]lthough variously phrased,” is “that Vastar is ‘arbitrary and capricious' (or inconsistent with the agency's fiduciary duty) to the limited extent that Vastar applied the 1988 MMS regulations to reject the so-called ‘Jicarilla methodology’ as to the MMS ‘Orders to Perform’ that covered natural gas produced only between January 1984 and February 1988.” Interior Br. at 22. To the contrary, Jicarilla has presented three analytically distinct arguments: (1) Vastar is arbitrary and capricious because Interior failed to consider an important part of the problem when it applied the 1988 Regulations to the period from January 1984 through February 1988; (2) Vastar is arbitrary and capricious because Interior failed to engage in reasoned decisionmaking when it departed from the agency's precedent, Bayless, without adequate explanation; and (3) Vastar is a violation of Interior's fiduciary duty to Jicarilla.

We conclude Interior has only argued waiver as to the first of these arguments.

Moreover, Interior would be hard-pressed to argue Jicarilla had waived its second and third arguments because they were raised in the complaint and the summary judgment briefing, and addressed in the district court's decision. See Complaint ¶¶ 8-10, 22, 24, 33-34, Jicarilla v. U.S. Dep't of the Interior, No. 07-cv-00803-RJL (D.D.C. May 2, 2007); Pl.'s Mem. Supp. Summ. J. (“Mot.Summ. J.”) at 13-16, 19-24, Jicarilla Apache Nation v. U.S. Dep't of the Interior, No. 07-cv-00803-RJL (D.D.C. Jan. 22, 2008); Jicarilla, 604 F.Supp.2d at 143-44, 145-47. Thus, the only waiver issue we consider is whether Jicarilla waived its argument that Vastar is arbitrary and capricious because Interior impermissibly applied the 1988 Regulations to the January 1984 through February 1988 period.

Ordinarily, we will not accept an argument first raised on appeal, “for while review of the grant of summary judgment is de novo, this court reviews only those arguments that were made in the district court, absent exceptional circumstances.” Potter v. District of Columbia, 558 F.3d 542, 547 (D.C.Cir.2009) (citations omitted). However, in this case, Jicarilla did present the argument to ...