Independent Petroleum Ass'n of America v. Babbitt

Decision Date25 July 1997
Docket NumberCivil Action No. 94-2123 (RCL).,Civil Action No. 93-2544 (RCL).
PartiesINDEPENDENT PETROLEUM ASSOCIATION OF AMERICA, et al., Plaintiffs, v. Bruce BABBITT, et al., Defendants. SAMEDAN OIL CORPORATION, Plaintiff, v. Ada E. DEER, et al., Defendants.
CourtU.S. District Court — District of Columbia

L. Poe Leggette, Thad S. Huffman, Jackson & Kelly, Washington, DC, for Plaintiffs.

Michael Reed, Asst. Chief (Trial Atty.), Dept. of Justice, Environ. and Nat. Resources Div., Gen. Lit. Section, Washington, DC, Lisa K. Hemmer, Dept. of Interior, Office of Solicitor, Washington, DC, for Defendants.

MEMORANDUM OPINION

LAMBERTH, District Judge.

This matter comes before the court on plaintiff Independent Petroleum Association of America et al. ("IPAA") and Samedan Oil Corporation's ("Samedan") motion for entry of order implementing mandate of the court of appeals, defendants' motion for entry of order implementing mandate of the court of appeals, and Samedan's motion for entry of permanent injunctive relief. For the reasons stated below, IPAA's motion for entry of order will be denied, and its case dismissed. Samedan's motion for entry of order will be granted in part and denied in part, and defendants' motion will be granted in part and denied in part. Samedan's motion for entry of a permanent injunction will be granted, in accordance with the opinion below.

BACKGROUND

This contentious litigation began in West Virginia in 1993, when IPAA, a large trade association of petroleum businesses and organizations, and others, filed suit against the government after the Department of the Interior ("DOI") altered its policies as to the way in which it planned to collect royalties on natural gas take-or-pay settlements — as discussed at length in IPAA v. Babbitt, 92 F.3d 1248 (D.C.Cir.1996). The case was transferred to the United States District Court for the District of Columbia, and through an agreement between oil companies and the government, a specified number of companies were ordered to pay royalties on the natural gas payments in question as a mechanism to test the validity of the department's new "rule" on nonrecoupable take-or-pay settlement payments. A payment involving Samedan Oil Corporation served as one of these test cases, and Samedan was assessed $20,000 in royalties. Samedan filed suit.

The district court upheld the government's new policy — not as a rulemaking, but as an interpretation of an existing rule, to which courts must give due deference. The United States Court of Appeals for the District of Columbia Circuit reversed, finding DOI's decision to assess royalties on nonrecoupable take-or-pay payments to be the result of its arbitrary and capricious reading of its own rules, as will be discussed in further detail below. Now, the parties have come back before this court seeking to implement the court of appeals' mandate. What exactly this entails raises serious questions about the scope and extent of the circuit's decision in IPAA.

At its most basic level, IPAA and Samedan simply seek to have the court of appeals' decision apply to them. But this would preclude the government from collecting royalties on nonrecoupable take-or-pay settlements on federal and Indian oil and gas leases — covering a large percentage of the natural gas industry and having nationwide effect. In addition to relief from actual payments, plaintiffs further seek to enjoin DOI from requiring companies to prepare reports, post sureties, etc. in connection with claims by the government for royalties on nonrecoupable take-or-pay settlements.

The government, fearing a broad gutting of its practices with respect to its assessment of royalties on these settlement payments, essentially seeks to exclude IPAA from the appellate decision in IPAA, limiting the reach of the decision solely to Samedan. DOI argues that relief should be granted only to this single oil company, and only within this single circuit. To this end, the government has mounted a multi-front attack against IPAA's claims. First, it argues that IPAA never properly invoked jurisdiction before the court in either its or Samedan's case, and is entitled only to dismissal with prejudice of its claim that the agency engaged in an improper rulemaking, now that the courts have ruled DOI's royalty policy does not rise to the level of reviewable final agency action. Second, DOI argues that even if IPAA could claim an entitlement to additional relief, standing and collateral estoppel questions which would arise in its quest for nationwide relief cannot be determined on the record presently before this court. Third, the government argues the proposed relief exceeds and conflicts with the decision of the court of appeals in IPAA. Finally, with respect to plaintiff Samedan, the government objects to any grant of relief or summary judgment other than setting aside the overturned order that it pay $20,000 in royalties.

DISCUSSION
A. RELIEF AVAILABLE TO IPAA

Does IPAA have any issues before the court?

The government argues that IPAA challenged only a May 3, 1993 letter by the Associate Director of the Minerals Management Service ("MMS") setting forth a policy on how MMS auditors should proceed to audit gas contract settlement payments received by lessees of federal and Indian oil and gas leases. Def.'s Mot. for Entry of Def.'s Order, March 24, 1997, at 1. By agreement of the parties, a procedure was established to bring test cases for judicial review to determine the validity of the new policy. DOI levied a royalty fee against Samedan pursuant to the new policy as set forth in the May 3 letter, which Samedan then challenged.

Three issues were brought before the district court: (1) whether the May 3, 1993 letter constituted a rulemaking subject to APA notice-and-comment requirements; (2) what the appropriate standard was for reviewing the Assistant Secretary for Indian Affairs' — Ada E. Deer's — decision on September 16, 1994 to uphold the MMS policy as outlined in the May 3 letter; and (3) whether her decision could survive that standard. This court determined that (1) the May 3 letter was not an agency statement with binding effect, but that Deer's decision to apply the policies contained within that letter was entitled to deference under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843, 104 S.Ct. 2778, 2781-82, 81 L.Ed.2d 694 (1984). Given that deference, (2) the interpretation need be only reasonable and consistent with regulations or governing statutes. Nuclear Information Resource Serv. v. NRC, 969 F.2d 1169, 1173 (D.C.Cir.1992). Finally, (3) Deer's decision to interpret "gross proceeds" as a result of natural gas drilling over which royalty payments may be taxed as inclusive of nonrecoupable take-or-pay settlements satisfied that interpretive standard. IPAA, 1995 WL 431305 at *12.

The court of appeals reversed. In doing so, however, it agreed that the May 3 letter did not constitute a rulemaking, and therefore had no binding effect. IPAA, 92 F.3d at 1256. The court of appeals continued, though, that Deer's decision to assess royalty payments against Samedan did not constitute an internal interpretation of department regulations, but rather served as an interpretation of the Fifth Circuit's decision in Diamond Shamrock Exploration Co. v. Hodel, 853 F.2d 1159 (5th Cir.1988), a decision which the agency had agreed to be bound by through its regulations. Revision of Gross Proceeds Definition in Oil and Gas Valuation Regulations, 53 Fed.Reg. 45,082, 45,083 (Nov. 8, 1988); IPAA, 92 F.3d at 1257. The court of appeals examined the question in this light, ultimately determining that the September 16, 1994 decision of Assistant Secretary Deer upholding the agency's December 2, 1993 order that Samedan pay royalties was arbitrary and capricious "in light of DOI's adoption of the Diamond Shamrock holding." IPAA, 92 F.3d at 1260. The court then pronounced that "[n]either take-or-pay settlement payments are royalty bearing unless and until they are credited toward the purchase of make-up gas." Id.

The government strenuously argues that IPAA joined in Samedan's case only insofar as a ruling determining the status of the May 3, 1993 letter was concerned. As the government states, "[t]he only matter with respect to which the IPAA association plaintiffs had sought to invoke the [c]ourt's jurisdiction in its case — the May 3 letter — is not `final agency action.' The necessary consequence of that determination by the court of appeals is that the associations are entitled to no relief, because their challenge was rejected." Def.'s Mem. in Supp. of Def.'s Mot. for Entry of Def.'s Order, at 2. In other words, the government argues that IPAA and its collective members had a case, and it has been decided: they lost.

What, in fact, is the extent of IPAA's role in both civil action no. 93-2544 — the complaint transferred from West Virginia, and civil action 94-2123, the case filed by Samedan Oil, both of which were eventually consolidated?

1. Scope of IPAA's Challenge

IPAA's complaint, filed August 13, 1993 (and later amended) in the United States District Court for the Northern District of West Virginia, contains numerous allegations. Contrary to the government's assertions, IPAA went much further than merely challenging the May 3, 1993 letter. IPAA, in paragraph 4 of its complaint, sought a declaration that royalties are not owed on nonrecoupable natural gas contract settlement payments. Comp., at 3. In IPAA's first cause of action, plaintiffs sought a ruling that those payments were not part of the gross proceeds which lessees received from the disposition of natural gas from the leases, and that the government's efforts to collect royalties on these sums violated federal statutes. Id. at 18. It is only in IPAA's second cause of action that it...

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