Chevron U.S.A., Inc. v. U.S., Nos. 90-5053

• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit
• Writing for the Court: Before NIES, Chief Judge, LOURIE and RADER; RADER
• Citation: 923 F.2d 830
• Parties: CHEVRON U.S.A., INC., Pennzoil Co., Pogo Producing Co., Phillips Petroleum Co., Shell Offshore, Inc., Mobil Oil Corp., Mobil Oil Exploration & Producing Texas & New Mexico, Inc., Mobil Exploration & Producing North America Inc., Exxon Company, U.S.A., a Division of Exxon Corporation, Amoco Production Company and Columbia Gas Development Corporation, Conoco, Inc., Plaintiffs-Appellees, v. The UNITED STATES, Defendant-Appellant.
• Docket Number: Nos. 90-5053,90-5151
• Decision Date: 16 January 1991

Page 830

923 F.2d 830 CHEVRON U.S.A., INC., Pennzoil Co., Pogo Producing Co.,
Phillips Petroleum Co., Shell Offshore, Inc., Mobil Oil
Corp., Mobil Oil Exploration & Producing Texas & New Mexico,
Inc., Mobil Exploration & Producing North America Inc.,
Exxon Company, U.S.A., a Division of Exxon Corporation,
Amoco Production Company and Columbia Gas Development
Corporation, Conoco, Inc., Plaintiffs-Appellees,
v.
The UNITED STATES, Defendant-Appellant. Nos. 90-5053, 90-5151. United States Court of Appeals,
Federal Circuit. Jan. 16, 1991.
Rehearing Denied April 4, 1991.

Page 831

Thomas J. Eastment, Baker & Botts, Washington, D.C., argued for plaintiffs-appellees. With him on the brief were Michael E. Coney, Shell Offshore, Inc., J. Berry St. John, Jr. and George J. Domas, Liskow & Lewis, Marshall Taylor Darden, Milling, Benson, Woodward, Hillyer, Pierson & Miller, New Orleans, La., and Ernest

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J. Altgelt, III, Conoco, Inc., Houston, Tex. Of counsel was Drew J. Fossum, Baker & Botts, Washington, D.C.

Elizabeth Ann Peterson, Dept. of Justice, Washington, D.C., argued for defendant-appellant. With her on the brief were Richard B. Stewart, Asst. Atty. Gen., George W. Van Cleve, Acting Asst. Atty. Gen., Margaret M. Sweeney, and John A. Bryson. Also on the brief was Howard W. Chalker, Dept. of the Interior, Washington, D.C., of counsel.

Before NIES, Chief Judge, LOURIE and RADER, Circuit Judges.

RADER, Circuit Judge.

The United States appeals from the judgment of the United States Claims Court, Chevron U.S.A., Inc. v. United States, 17 Cl.Ct. 537 (1989), granting the claims of appellee natural gas producers for refunds of excessive royalties paid on Government leases. The Government asserts that the Claims Court erroneously overturned the final decision of the Department of Interior Board of Land Appeals holding that all of the asserted requests for refunds were untimely under the Outer Continental Shelf Lands Act (43 U.S.C. Secs. 1331-1356 (1982) (OCSLA)). This court reverses and remands.

BACKGROUND

Plaintiffs-appellees are natural gas producers who leased submerged lands on the Outer Continental Shelf. The Minerals Management Service (MMS) of the Department of the Interior leases these lands for offshore oil and gas development. MMS collects royalties on each lease.

In 1978, the Natural Gas Policy Act (NGPA) set maximum prices for natural gas. 15 U.S.C. Sec. 3301-3432 (1982). Under the NGPA, the Federal Energy Regulatory Commission (FERC) enforces those ceiling prices. MMS linked lease royalties to the ceiling prices. A change in the prices thus changed the royalty.

Before the NGPA, the "wet rule" governed gas measurements and pricing. The "wet rule" assumed that water vapor in the natural gas reduced its energy content. FERC Order No. 93 changed the gas measurement standard to the "dry rule." This new rule measured the energy content of gas without reference to water vapor content. Order No. 93, F.E.R.C. Stats. & Regs. [Regs. Preambles, 1977-81] (CCH) p 30,172 (July 16, 1980); Order No. 93-A, 15 F.E.R.C. (CCH) p 61,075 (April 24, 1981). The ceiling price under the "dry rule" exceeded the "wet rule" ceiling. Appellees therefore paid higher royalties when the "dry rule" was in effect.

Several gas purchasers sought judicial review of FERC's order. In 1983, the United States Court of Appeals for the District of Columbia Circuit vacated FERC's order. Interstate Natural Gas Ass'n of Am. v. F.E.R.C., 716 F.2d 1 (D.C.Cir.1983), cert. denied, 465 U.S. 1108, 104 S.Ct. 1615, 80 L.Ed.2d 144 (1984) (INGAA ). The D.C. Circuit determined that FERC lacked authority to abandon the "wet rule." Furthermore, the court ordered FERC to reinstate the "wet rule." This order retroactively reduced prices. Due to the reduction in prices, the lease royalties also fell. Therefore, for the period from late 1978 through 1984 (when the D.C. Circuit's order became final), lessees had overpaid royalties.

FERC ordered gas producers to refund to gas pipeline and distribution companies the difference between "wet rule" and "dry rule" prices. The producers then sought reimbursement from MMS for excess royalty payments. The producers in the case at bar filed a refund application within two years of the D.C. Circuit's decision, but not within two years of the payment of royalties to MMS.

MMS denied all requests for refunds of payments made prior to November 9, 1981 and filed after November 9, 1983 on the ground of untimeliness under Sec. 1339(a) of the OCSLA. Refund Procedures and Order to Pay Royalties, 49 Fed.Reg. 31779, Aug. 8, 1984 (Refund Procedures). Section 1339(a) requires gas producers to file for refunds "within two years after the making of the payment." 43 U.S.C. Sec. 1339(a). MMS, however, made an exception for

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those lessees who filed "proper notice with MMS which tolled the 2-year statute." Final Order, on Royalty Refund Requests Resulting from FERC Orders 93/93A, 49 Fed.Reg. 47120, Nov. 30, 1984 (Final Order).

The Department of Interior Board of Land Appeals (IBLA) affirmed MMS's decision. The IBLA held that Sec. 1339(a) gives a lessee two years from the payment of royalties to apply for a refund. Shell Offshore, Inc., 96 IBLA 149, 165 (1987). The Claims Court ruled that OCSLA's two-year limitation on refund applications did not begin to run until the D.C. Circuit vacated FERC's "dry rule" order. The Government appeals from the decision of the Claims Court.

DEC ...