Mobile Explor. v. Babbitt et al

• Decision Date: 23 October 2000
• Docket Number: Nos. 98-5222,98-5252 and 99-5098,s. 98-5222
• Citation: 230 F.3d 1178
• Parties: (10th Cir. 2000) OXY USA, INC., Plaintiff-Appellee, MOBIL EXPLORATION & PRODUCING U.S., INC., Plaintiff, v. BRUCE BABBITT, Secretary; BOB ARMSTRONG, Assistant Secretary, Land and Minerals Management; CYNTHIA QUARTERMAN, Director, Minerals Management Service; ERASMO GONZALES, Chief, Houston Compliance Division, Minerals Management Service; and GARY L. JOHNSON, Chief, Dallas and Tulsa Compliance Offices, Minerals Management Service, Department of the Interior, Defendants-Appellants. SHELL OIL COMPANY, Plaintiff-Appellee, v. BRUCE BABBITT, Secretary, Department of the Interior; BOB ARMSTRONG, Assistant Secretary, Land and Minerals Management, Department of the Interior; CYNTHIA QUARTERMAN, Director, Minerals Management Service, Department of the Interior; ERASMO GONZALES, Chief, Houston Compliance Division, Minerals Management Service, Department of the Interior; and GARY L. JOHNSON, Chief, Dallas and Tulsa Compliance Offices, Minerals Management Service, Department of the Interior, Defendants - Appellants
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1178

230 F.3d 1178 (10th Cir. 2000)

OXY USA, INC., Plaintiff-Appellee, MOBIL EXPLORATION & PRODUCING U.S., INC., Plaintiff, v. BRUCE BABBITT, Secretary; BOB ARMSTRONG, Assistant Secretary, Land and Minerals Management; CYNTHIA QUARTERMAN, Director, Minerals Management Service; ERASMO GONZALES, Chief, Houston Compliance Division, Minerals Management Service; and GARY L. JOHNSON, Chief, Dallas and Tulsa Compliance Offices, Minerals Management Service, Department of the Interior, Defendants-Appellants.

SHELL OIL COMPANY, Plaintiff-Appellee, v. BRUCE BABBITT, Secretary, Department of the Interior; BOB ARMSTRONG, Assistant Secretary, Land and Minerals Management, Department of the Interior; CYNTHIA QUARTERMAN, Director, Minerals Management Service, Department of the Interior; ERASMO GONZALES, Chief, Houston Compliance

Division, Minerals Management Service, Department of the Interior; and GARY L. JOHNSON, Chief, Dallas and Tulsa Compliance Offices, Minerals Management Service, Department of the Interior, Defendants - Appellants.

Nos. 98-5222, 98-5252 and 99-5098

UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT

October 23, 2000

APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OKLAHOMA. (D.C. Nos. 96-CV-1067-K and 96-CV-1078-K)

Sean H. Donahue, Attorney, Department of Justice, Environment & Natural Resources Division, Washington, D.C. (Peter Coppelman, Acting Assistant Attorney General; William B. Lazarus, Donna S. Fitzgerald, and Robert L. Klarquist, Attorneys, Department of Justice, Environment & Natural Resources Division, Washington, D.C., on the briefs in No. 98-5222; Lois J. Schiffer, Assistant Attorney General; William B. Lazarus, Donna S Fitzgerald, and Robert L. Klarquist, Attorneys, Department of Justice, Environment & Natural Resources Division, Washington, D.C., on the briefs in No. 98-5252 and 99-5098), for Defendants-Appellants.

Patricia Dunmire Bragg of Gardere & Wynne, L.L.P., Tulsa, Oklahoma (Stephen R. Ward of Gardere & Wynne, L.L.P., Tulsa, Oklahoma; Oliver S. Howard, Teresa B. Adwan, and Dennis C. Cameron of Gable & Gotwals, P.C., Tulsa, Oklahoma, with her on the brief in No. 98-5222), for Plaintiff-Appellee Oxy USA, Inc.

L. Poe Leggette of Fulbright & Jaworski L.L.P., Washington, D.C. (Nancy L. Pell of Fulbright & Jaworski L.L.P., Washington, D.C.; David L. Bryant, Tulsa, Oklahoma; and Michael E. Coney, Of Counsel, Shell Oil Company, New Orleans, Louisiana, with him on the brief in Nos. 98-5252 and 99-5098), for Plaintiff-Appellee Shell Oil Company.

Before BRISCOE and McKAY, Circuit Judges, and BROWN,^* Senior District Judge.

BRISCOE, Circuit Judge.

Through the Department of the Interior ("DOI"), Shell Oil Company ("Shell") and OXY USA, Inc. ("OXY") obtained a number of oil and gas leases in California. In late 1996, the Minerals Management Service ("MMS"), a bureau of the DOI, issued orders requiring Shell and OXY to pay additional royalties and interest on oil produced between 1980 and 1988. Shell and OXY challenged the orders in federal district court. Among other things, Shell and OXY asserted that the orders were barred by the six-year statute of limitation set forth in 28 U.S.C. 2415(a). The district court agreed, and entered summary judgment against the government. We exercise jurisdiction under 28 U.S.C. 1291, reverse the district court's order, and remand with directions.

I. BACKGROUND

This dispute focuses on the DOI's administration of mineral leases. The DOI issues leases authorizing private parties to search for and produce oil and gas on public lands, see 30 U.S.C. 226, lands acquired by the federal government, see 30 U.S.C. 352, and the submerged lands of the Outer Continental Shelf. See 43 U.S.C. 1337. The DOI requires each lease recipient to pay a "royalty" a percentage of the "amount or value of the production" removed or sold from the lease. 30 U.S.C. 226(b)(1)(A); 43 U.S.C. 1337(a)(1)(A), (b)(3). The DOI has the power to take either a royalty share of the production itself or the cash value of the production. See 30 U.S.C. 192; 43 U.S.C. 1353(a). The MMS is responsible for determining the value of production.¹ The usual practice is for each lessee to track and report its own production and to calculate the appropriate royalty payment, subject to a compliance audit by the MMS. See 30 C.F.R. 217.50, 218.50.

The Federal Oil and Gas Royalty Management Act ("FOGRMA") directly pertains to the collection of royalties from mineral leases. The FOGRMA directs the Secretary of the Interior ("Secretary") to "establish a comprehensive inspection, collection and fiscal and production accounting and auditing system to provide the capability to accurately determine oil and gas royalties, interest, fines, penalties, fees, deposits, and other payments owed, and to collect and account for such amounts in a timely manner." 30 U.S.C. 1711(a). In particular, the statute instructs the Secretary to "audit and reconcile, to the extent practicable, all current and past lease accounts for leases of oil or gas and take appropriate actions to make additional collections or refunds as warranted." 30 U.S.C. 1711(c)(1). The FOGRMA requires each lessee to maintain records relevant to royalty computations "for 6 years after the records are generated unless the Secretary notifies the record holder that he has initiated an audit or investigation involving such records and that such records must be maintained for a longer period." 30 U.S.C. 1713(b).²

Through the 1980s, Shell and OXY paid royalties on production in California under their oil and gas leases. With respect to Shell's payments, the MMS determined that the posted prices established by Shell were the proper royalty value for 97 percent of the oil. In 1991 and 1993, MMS officials audited and approved Shell's royalty payments. Similarly, the MMS audited the royalties paid by OXY on its California production several times in the 1980s and early 1990s.

In 1996, however, the MMS altered the way it calculated the two companies' royalty payments. Using a new method of computation (which is based on the price of crude oil from the Alaskan North Slope rather than the posted prices originally used by Shell and OXY),³ the MMS determined that Shell and OXY owed additional royalties. By orders dated October 18, 1996 and December 20, 1996, the MMS instructed Shell to pay more than $50 million in royalties, plus estimated interest of over $126 million, on production between January 1980 and February 1988. After acknowledging a computational error, the MMS lowered its demand to approximately $28 million in royalties plus an estimated $70 million in interest. In another order dated October 18, 1996, the MMS instructed OXY to pay approximately $354,000 in additional royalties and $562,000 in interest. The MMS subsequently withdrew this order and, in a separate order dated December 20, 1996, instructed OXY to pay over $551,000 in royalties, and an estimated $1.7 million in interest, on production from January 1980 through September 1983.

Shell and OXY filed complaints seeking declaratory relief in federal district court. Among other things, Shell and OXY alleged that the "orders to pay" issued by MMS were barred by the statute of limitation set forth in 28 U.S.C. 2415(a). Section 2415(a) provides in relevant part:

Subject to the provisions of section 2416 of this title, and except as otherwise provided by Congress, every action for money damages brought by the United States or an officer or agency thereof which is founded upon any contract express or implied in law or fact, shall be barred unless the complaint is filed within six years after the right of action accrues or within one year after final decisions have been rendered in applicable administrative proceedings required by contract or by law, whichever is later . . . .

The government did not assert any tolling defenses under 28 U.S.C. 2416(c).⁴ Nor did the government assert that its claims had not accrued when the companies' royalty payments originally became due between January 1980 and February 1988. Instead, the government contended that 2415(a) was inapplicable to orders directing oil and gas lessees to pay royalties. After considering the parties' cross-motions for summary judgment, the district court concluded that Phillips Petroleum Co. v. Lujan, 4 F.3d 858, 860 & n.1 (10th Cir. 1993) ("Phillips III") established as binding precedent that 2415(a) applies to government actions to collect royalty payments. On that basis, the district court rejected the government's argument and entered judgment as a matter of law in favor of Shell and OXY.

II. DISCUSSION

We review a grant of summary judgment de novo. See United States v. Hess, 194 F.3d 1164, 1170 (10th Cir. 1999). Summary judgment is appropriate if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). We likewise review de novo "questions of law turning on the interpretation and application of a federal statute." Burlington Northern R.R. Co. v. Huddleston, 94 F.3d 1413, 1416 (10th Cir. 1996).

The government's position on appeal is twofold.⁵ First, the government challenges the district court's conclusion that Phillips III held as a matter of law that 2415(a) applies to agency orders seeking royalty payments. Second, the government contends that the MMS orders directing Shell and OXY to pay additional royalties are not subject to the six-year limitation period because those orders do not constitute "actions," do not seek "money damages," and are not "founded upon contract" within the meaning of 2415(a). The government also argues that 2415(a) is inapplicable because Congress "otherwise provided" a comprehensive scheme for the collection of royalties by enacting the FOGRMA. Shell...