Amax Land Co. v. Quarterman
| Decision Date | 16 July 1999 |
| Docket Number | No. 98-5367,98-5367 |
| Citation | 181 F.3d 1356 |
| Parties | (D.C. Cir. 1999) Amax Land Company, Appellee v. Cynthia Quarterman, Director, Minerals Management Service, et al.,Appellants |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
[Copyrighted Material Omitted] Appeal from the United States District Court for the District of Columbia(96cv01839)
Robert L. Klarquist, Attorney, United States Department of Justice, argued the cause for appellants. With him on the briefs were Lois J. Schiffer, Assistant Attorney General, and Andrew C. Mergen, Attorney.
Thomas R. Lundquist argued the cause and filed the brief for appellee.
Harold P. Quinn, Jr., L. Poe Leggette, and Glenn S. Benson were on the brief for amicus curiae National Mining Association.
Before: Silberman, Henderson, and Garland, Circuit Judges.
Opinion for the Court filed by Circuit Judge Silberman.
Amax Land Company, a lessee of federally owned coal-containing land, challenges the legality of a regulation adopted by the Minerals Management Service (MMS) and a payment order issued pursuant there to. The regulation assesses interest on late coal lease payments at a higher rate than the government can earn on investments of its short term operating cash, and was interpreted by MMS in the payment order to allow that higher rate to fluctuate from month to month and to authorize the assessment of compound interest (i.e., interest on interest). The district court concluded the regulation was ultra vires insofar as it established the higher rate, and set aside the regulation and the payment order. We disagree and hold that the general rulemaking provisions found in MMS' organic statutes countenance assessing the higher rate so long as that rate satisfies the criteria imposed by those general rulemaking provisions; we remand for the district court to make this determination. We agree, however, with the district court's conclusions on the questions of shifting interest rates and compound interest. The Debt Collection Act (DCA) plainly forbids the utilization of shifting interest rates, and its implementing regulations (the Federal Claims Collection Standards), while perhaps not as unambiguous on the matter of compound interest, are most sensibly interpreted to preclude that practice as well.
Under the Mineral Lands Leasing Act of 1920 (MLLA) and other statutes, MMS (a subdivision of the Department of the Interior) leases federal and Indian lands containing coal, oil, and other resources to private entities for exploration and extraction.1 In exchange, lessees of federal land remit royalties and other rental payments to the government, of which 50% is disbursed to the state in which the land is located (90% in the case of Alaska). 30 U.S.C. S 191 (1994). Lessees of Indian land remit similar payments to the government, acting as trustee for the Indians; the entirety is then conveyed to the Indians. Gov't Br. 11 n.7. The size of the royalty payments is determined by statutory formulae. On coal leases, for example, lessees must pay "a royalty in such amount as the Secretary shall determine of not less than 121/2 per centum of the value of coal as defined by regulation, except the Secretary may determine a lesser amount in the case of coal recovered by underground mining operations."30 U.S.C. S 207(a) (1994).
The agency's determination of that amount not surprisingly gives rise to disputes from time to time (mainly appeals to higher levels of the agency) between MMS and the lessee. If the dispute is resolved favorably to MMS after the due date, and if the lessee has timely remitted only a payment based on its own estimate of the coal's value, the lessee will be late on part of its royalty payment obligation--to fully compensate MMS and the states or Indians, the lessee would have to remit the late portion plus interest on that amount. On the other hand, if the lessee were to pay the full amount demanded by the agency prior to appeal and subsequently win the appeal (hence making an overpayment), the lessee would receive a refund only of the excess portion, not interest on that amount. That is because Congress has not expressly provided by statute or contract for recovery of interest against the government, and in the absence of such a waiver of sovereign immunity, interest cannot be awarded against the United States. See Library of Congress v. Shaw, 478 U.S. 310, 314-17 (1986). Recognizing this asymmetry, lessees involved in a good-faith royalty dispute typically will timely pay only their lower estimate of the royalty payment.
To address the typical underpayment situation, MMS in 1980 adopted regulations assessing interest on under payments on leases of resource-containing lands at the current value of funds (CVF) rate. See 45 Fed. Reg. 84,762, 84,764 (1980) (interim regulations); 47 Fed. Reg. 22,524, 22,527 (1982) (final regulations). The CVF rate is a rate prescribed by the Treasury Department, by reference to prevailing market rates, for short-term investments of the federal government's operating cash. See 31 U.S.C. S 323 (1994). Consequently, an award based on the CVF rate compensates the government for its lost opportunity to make short-term investments due to the late payment of a debt.
In 1983, Congress imposed a higher rate by statute--but only for oil and gas leases, not geothermal or solid mineral leases (such as coal leases). See Federal Oil and Gas Royalty Management Act (FOGRMA), Pub. L. No. 97-451, Title I, S 111(a), 96 Stat. 2447, 2455 (1983) (codified at 30 U.S.C. S 1721(a) (1994)). (Congress explicitly deferred legislation on coal leases until MMS studied the matter and filed a report, see id. at S 303, 96 Stat. at 2461 (codified at 30 U.S.C.A. S 1752 note (1986)).) The rate chosen for oil and gas leases was the so-called "IRS rate" already in use for underpayment of taxes pursuant to 26 U.S.C. S 6621(a)(2) (1994): the marketable rate for treasury bonds of less than three years maturity, to be determined monthly, plus three percentage points. Roughly speaking, this rate tends to be 3% higher than the CVF rate. The agency adopted a new implementing regulation for oil and gas leases assessing interest at the IRS rate, see 49 Fed. Reg. 37,336, 37,346-47 (1984) (codified at 30 C.F.R. §§ 218.54, 218.55 (1999)), while continuing to assess interest on coal lease under payments at the CVF rate.
By 1993, the agency came to view the CVF rate as an inadequate response to the underpayment problem on coal leases. Not only did the agency see that rate as insufficient to compensate it and the states or Indians for lost investment income on the late portion of the royalty payments on the leases, it believed the CVF rate actually caused underpayment in the first place because the lessee had an incentive to withhold payment, invest the amount withheld, and remit payment to MMS at a later date, pocketing the spread between the lessee's investment rate of return and the CVF rate. A higher rate was thought necessary, and following the model of its regulation on oil and gas leases, the agency settled on the IRS rate, which would "serve as an effective deterrent to discourage late and underpayments" and "fairly compensate the Federal Government ... States, Indian tribes and allottees, and other recipients ... for the lost time value of money." 59 Fed. Reg. 14,557, 14,557 (1994) (codified at 30 C.F.R. S 218.202(c)-(d) (1999)). As authority, the agency invoked the general rulemaking provisions found in the several organic statutes it administers, particularly MLLA S 32, which provides that "[t]he Secretary of the Interior is authorized to prescribe necessary and proper rules and regulations and to do any and all things necessary to carry out and accomplish the purposes of this chapter." 30 U.S.C. S 189 (1994).2
Amax Land Company is the successor-in-interest to a 1965 lease of certain federal coal-containing lands in Wyoming. Amax's troubles began in 1985 when the agency invoked its right under the lease to readjust the royalty rate from one based on the weight of the coal produced (171/2 cents per ton) to one based on the value of the coal produced (121/2% of the value of the coal produced by strip or auger methods and 8% of the value of coal produced by underground methods).3The switch from weight to value as the metric for computing royalty payments created uncertainty for Amax, which had begun to utilize coal drying processes to increase the BTU content (and hence the value) of the coal it mined. Amax explained its methodology for determining value to MMS in a 1989 letter and submitted payments accordingly. But in 1994, the agency informed Amax that the coal had been revalued and that additional royalties would be assessed retroactively for the period between January 1989 and July 1993. On September 23, 1994, Amax paid the principal underpayment amount of $35,706.38. Then, in a payment order, MMS assessed Amax $9,044.78 in interest on this principal, calculated as follows: Between March 1989 and April 1, 1994, MMS employed the CVF rate (which fluctuated from month to month), in accordance with the regulation in force at the time, computed as simple interest. Between April 1, 1994--the effective date of MMS' regulation adopting the IRS rate for coal leases--and the payment of the principal on September 23, 1994, the agency charged interest at the IRS rate (which again fluctuated from month to month), compounded daily.
After an unsuccessful administrative appeal, Amax filed suit in the district court, seeking invalidation of the 1994 regulation and the payment order. See Amax Land Co. v. Quarterman, Civ. Act. No. 96-1839, 1998 WL 306582 (D.D.C. June 3, 1998). Amax contended that MMS lacked authority to assess the IRS rate of interest, to allow the rate to shift from month to month, and to charge compound interest. The district court agreed. The court first held that the...
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