Marathon Oil Co. v. U.S.
| Decision Date | 24 July 1986 |
| Docket Number | No. 85-3800,85-3800 |
| Citation | 807 F.2d 759 |
| Parties | MARATHON OIL COMPANY, an Ohio corporation, Plaintiff-Appellant, v. UNITED STATES of America; United States Department of the Interior; Donald Hodel, Secretary of the Interior; Esther Wunnicke, Commissioner of the Department of Natural Resources, State of Alaska; Cook Inlet Region, Inc., an Alaska corporation, Defendants-Appellees. COOK INLET REGION, INC., an Alaska corporation, Counterclaimant, v. MARATHON OIL COMPANY, an Ohio corporation, Counterdefendant. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Charles J. Meyers, Gibson, Dunn & Crutcher, Denver, Colo., for plaintiff-appellant.
Robert L. Klarquist, Dept. of Justice, Washington, D.C., William D. Temko, Munger, Tolles & Rickershauser, Los Angeles, Cal., for defendants-appellees.
Appeal from the United States District Court for the District of Alaska.
Before WRIGHT and WALLACE, Circuit Judges, and LEGGE, * District Judge.
Marathon Oil Company (Marathon) appeals from the district court's dismissal of its claims and from the entry of summary judgment and an injunction on the government's counterclaim that required it to pay production royalties on federal oil and gas leases based on a net back valuation formula. We have jurisdiction pursuant to 28 U.S.C. Sec. 1292(a)(1), and we affirm.
Marathon owns a 50% working interest in certain federal oil and gas leases in the Kenai Field Unit in Alaska. The leases require Marathon to pay 12 1/2% royalty on the reasonable value of production from the leased lands "computed in accordance with the Oil and Gas Operating Regulations (30 C.F.R. Pt. 221) [now codified in relevant part at 30 C.F.R. Sec. 206.103 (1985) ]." The statutory authorization for promulgating the Oil and Gas Operating Regulations is found at 30 U.S.C. Sec. 226(c). The government, the State of Alaska, and Cook Inlet Region, Inc. (Cook Inlet) are each entitled to receive a percentage of the royalties. Marathon transports about 16% of its share of the gas produced in the Kenai Field Unit to a liquefied natural gas plant owned by Marathon and Phillips Petroleum Company. After the gas is reduced to a liquid state, Marathon transports the liquefied natural gas in tankers to Japan where it is sold. Marathon computed royalties on the liquefied natural gas sold in Japan based on the price paid for Kenai Field Unit gas under a long-term contract it had to sell unliquefied gas to the Alaska Pipeline Company.
In 1977, the United States Geological Survey (USGS), which was responsible for managing federal oil and gas leases, concluded that the royalty value for the liquefied natural gas sold in Japan should reflect its sales price in Japan less expenses. Marathon objected to USGS's proposed net back valuation formula. In an effort to resolve the dispute, an agreement was entered into that required Marathon to pay royalties as computed according to the "Phillips formula." The Phillips formula required Marathon to pay royalties based on 36% of the price received in Japan for the liquefied natural gas, less certain adjustments. The agreement was to remain in effect until market conditions changed or applicable laws necessitated revision of the valuation method.
In 1983, the Mineral Management Service (the Service), which succeeded USGS as the government agency responsible for managing the involved leases, notified Marathon that it intended to redetermine the reasonable value of production of the Kenai gas delivered to the liquefied natural gas plant. The Service told Marathon that the basic net back approach as incorporated into the Phillips formula was sound, but that certain adjustments needed to be made to reflect current costs and prices. The new royalty valuation formula required subtraction of certain actual costs, instead of a fixed percentage, from the sales price of the liquefied natural gas.
Although it was not required to do so by statute, the Service held a public hearing at which Marathon appeared and was permitted to make comments, to state opinions, and to provide statements of facts concerning the new royalty valuation formula. The Service designated a 30-day period following the hearing for comments in which all interested parties could provide additional information or make additional arguments in favor of their position. After the 30-day period expired, the Service issued an order directing Marathon to pay royalties based on the revised royalty valuation formula. Marathon appealed the order to the Director of the Service, alleging that the Service had repudiated the settlement agreement entered into by Marathon and USGS. In addition, Marathon ceased paying royalties based on the agreed-to Phillips formula and began computing royalties based on the long-term contract price paid to the Alaska Pipeline Company.
The Service issued a second order directing Marathon to compute royalties according to the Phillips formula from the date Marathon began computing royalties based on the terms of the long-term contract to the effective date of the order requiring compliance with the revised royalty valuation formula. Marathon did not comply with this second order either. The Department of the Interior (the Department) then issued a third order, at the direction of the Secretary of the Interior (the Secretary), directing Marathon to comply with the previous two orders.
Marathon filed a declaratory relief action, 28 U.S.C. Sec. 2201, in district court seeking, among other things, a determination of the proper method of valuing the royalty for natural gas which was liquefied and sold in Japan. The government sought to have Marathon's claims dismissed and counterclaimed to enforce the previous orders and to recover unpaid royalties. The government requested a preliminary injunction to compel Marathon to comply with the Service's orders, and moved for summary judgment. The district court deferred ruling on the government's request for a preliminary injunction until the motion for summary judgment was heard. The district court then granted the government's motion for summary judgment on its counterclaim, dismissed Marathon's claims and issued an injunction ordering Marathon to comply with the orders. The district court retained jurisdiction, however, until an accounting to determine royalties due from Marathon had been completed. A more extensive statement of the facts appears in the district court opinion, see Marathon Oil Co. v. United States, 604 F.Supp. 1375, 1376-78 (D. Alaska 1985) (Marathon ).
Marathon's complaint requested a declaratory judgment to determine the proper method of valuing production for royalty purposes. The Declaratory Judgment Act, 28 U.S.C. Sec. 2201, however, does not create an independent jurisdictional basis for actions in federal court. See Fiedler v. Clark, 714 F.2d 77, 79 (9th Cir.1983) (per curiam); Alton Box Board Co. v. Esprit de Corp., 682 F.2d 1267, 1274 (9th Cir.1982). Therefore, we must decide whether the administrative orders that required Marathon to pay production royalties based on the net back valuation formula were final agency actions reviewable by the district court pursuant to the jurisdictional grant of section 10(c) of the Administrative Procedures Act, 5 U.S.C. Sec. 704. See FTC v. Standard Oil Co., 449 U.S. 232, 238, 101 S.Ct. 488, 492, 66 L.Ed.2d 416 (1980).
The Supreme Court has instructed us to interpret "pragmatically the requirement of administrative finality, focusing on whether judicial review at the time will disrupt the administrative process." Bell v. New Jersey, 461 U.S. 773, 779, 103 S.Ct. 2187, 2191, 76 L.Ed.2d 312 (1983). The third order issued by the Department, which required Marathon to comply with the previous two orders issued by the Service, contained the following language: "This order is issued at the direction of the Secretary and, accordingly, constitutes a final decision by the Department pursuant to 43 C.F.R. Section 4.5(a)." Section 4.5(a) indicates that the Secretary retains the power to take jurisdiction "at any stage of any case before any employee or employees of the Department ... and render the final decision in the matter." 43 C.F.R. Sec. 4.5(a) (1985). The Secretary exercised this power and issued a final decision that required Marathon to comply with the previous two orders. Therefore, the district court had jurisdiction pursuant to section 10(c) of the Administrative Procedures Act to act on Marathon's claim for declaratory judgment and to decide the validity of the orders.
That does not answer the question, however, of whether we have jurisdiction to review the district court's entry of summary judgment, partial dismissal and injunction. Section 1292(a)(1) provides us with jurisdiction to review "interlocutory orders of the district courts of the United States ... granting ... injunctions." After concluding that the Service's orders were appropriate and that the government was entitled to summary judgment and dismissal of Marathon's claims as a matter of law, the district judge issued an injunction that required Marathon to comply with the orders. The entry of summary judgment and partial dismissal, however, was not a final judgment within the meaning of 28 U.S.C. Sec. 1291 because the district court retained jurisdiction to conduct an accounting. See Warehouse Restaurant, Inc. v. Customs House Restaurant, Inc., 726 F.2d 480, 481 (9th Cir.1984); Hain Pure Food Co. v. Sona Food Products Co., 618 F.2d 521, 522 (9th Cir.1980) (per curiam). Therefore, the injunction, although permanent in nature, is an interlocutory order appealable under section 1292(a)(1). See Smith v. Eggar, 655 F.2d 181, 184-85 (9th Cir.1981); Ackerman-Chillingworth, Division of Marsh & McLennan, Inc. v. Pacific Electrical Contractors Association, 579 F.2d 484, 489 (9th Cir.1978), cert. denied, 439 U.S. 1089, 99 S.Ct. 872, 59 L.Ed.2d 56 (1979); 16 C. Wright, A....
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