Pennzoil Exploration and Production Co. v. Lujan

• Citation: 928 F.2d 1139
• Decision Date: 11 February 1991
• Docket Number: No. 5-128.,5-128.
• Parties: PENNZOIL EXPLORATION AND PRODUCTION COMPANY, Plaintiff-Appellant, v. Manuel LUJAN, Jr., Secretary, Department of the Interior, Barry A. Williamson, Director, Minerals Management Service, and Department of the Interior, Defendants-Appellees.
• Court: U.S. Temporary Emergency Court of Appeals Court of Appeals

928 F.2d 1139

PENNZOIL EXPLORATION AND PRODUCTION COMPANY, Plaintiff-Appellant, v. Manuel LUJAN, Jr., Secretary, Department of the Interior, Barry A. Williamson, Director, Minerals Management Service, and Department of the Interior, Defendants-Appellees.

No. 5-128.

Temporary Emergency Court of Appeals.

Argued November 14, 1990.

Decided February 11, 1991.

George J. Domas (Cheryl M. Kornick with him on the brief) of Liskow & Lewis, New Orleans, La., for plaintiff-appellant.

Albert M. Ferlo, Jr., Atty., Dept. of Justice (Richard B. Stewart, Asst. Atty. Gen., Lisa Hemmer, and Martin W. Matzen, Attys., Dept. of Justice, and Peter Schaumberg, Office of the Sol., Dept. of the Interior, with him on the brief), for defendants-appellees.

Before CHRISTENSEN, HOFFMAN and THORNBERRY,^* JJ.

CHRISTENSEN, Judge.

This is an appeal by plaintiff-appellant Pennzoil Exploration and Production Company ("Pennzoil") from summary judgment of the United States District Court for the Eastern District of Louisiana upholding an assessment of royalty by the Department of Interior ("DOI") on an offshore mining lease as against Pennzoil's contention that a Department of Energy (DOE) incentive program under the Emergency Petroleum Allocation Act operated to reduce the amount of that royalty.

Agreeing with the district court's ruling "that the DOE incentive program did not implicitly overrule the DOI regulation and that general policy considerations ... are not sufficiently compelling to overrule the Secretary of the Interior's explicit statutory authority to determine the value of production for royalty purposes," Pennzoil Exploration & Prod. Co. v. Lujan, 751 F.Supp. 602, 606 (E.D.La.1990), and being of the view that the sole contested issue decided below was one over which this Court has exclusive appellate jurisdiction, we affirm.

The DOI through its Minerals Management Service leases mineral rights on the outer continental shelf pursuant to the Outer Continental Shelf Lands Act, 43 U.S.C. § 1331 et seq. Lessees are to be assessed royalty based on the "value of the production saved, removed, or sold" from the lease. 43 U.S.C. § 1337(a)(1)(A). The minimum value for royalty purposes is interpreted by the DOI as not less than the "gross proceeds accruing to the lessee from the disposition of the produced substances." 30 C.F.R. § 250.64 (1979), later redesignated as 30 C.F.R. § 206.150, with modifications thereafter not affecting this minimum royalty value based on gross proceeds.

By its complaint in the district court, Pennzoil challenged the DOI's interpretation of these provisions because the royalty administratively determined to be due on its lease on the basis of gross proceeds had been enhanced by production sales at unregulated prices authorized in lieu of regulated prices by the Tertiary Incentive Program ("TIP") administered by the Department of Energy ("DOE") pursuant to the Emergency Petroleum Allocation Act, 15 U.S.C. § 751 et seq. (1973), as amended by the Energy Conservation and Production Act, 42 U.S.C. § 6801 et seq. (1976) (hereinafter collectively referred to as "EPAA" unless otherwise indicated) and by 10 C.F.R. § 212.78. Calculating "gross proceeds" of production sales on the basis of the unregulated prices actually received by Pennzoil during the period in question, as was done by the DOI, increased the royalty assessed against Pennzoil by the $159,602.94 in dispute here.

The appellees insist that this Court has no jurisdiction because allegedly the district court neither had before it nor decided any issue arising under the EPAA. Our jurisdiction, of course, is limited to appeals in cases and controversies arising under the EPAA or regulations or orders issued thereunder. Economic Stabilization Act of 1970, 12 U.S.C. § 1904 note, as incorporated in section 5(a)(1) of the EPAA, 15 U.S.C. § 754(a)(1).

The only issue the district court adjudicated, appellees argue, was the scope of the statutory authority of the Secretary of the Interior to calculate royalty payments due on federal oil leases on the basis of its "gross proceeds" rule, and the DOI's decision to include revenue based on the full price actually received under the TIP was no more than an application of that DOI rule. They dismiss as mere "dicta" the district court's denial of weight to Pennzoil's claim that the TIP regulations promulgated by the DOE implicitly overruled the Secretary of the Interior's implementation of his regulations governing the determination of the value of oil for royalty purposes, stating:

Clearly, then, to the extent that the district court addressed the applicability of the tertiary incentive program, it was not adjudicating an issue under the EPAA, but was considering whether the ability of the Secretary of the Interior to administer the federal oil and gas leasing program could be affected by regulations issued by the Secretary of Energy.

Appellees' brief at 14.

Appellant Pennzoil responds that its claim plainly arises under a regulation promulgated pursuant to the EPAA, viz. the TIP; that its right to relief stems from the mandate implicit in that program that only qualified producers are entitled to tertiary incentive revenue, and that the TIP takes precedence over attempts by the DOI to interpret its regulations to permit the sharing of the TIP proceeds under the guise of "royalty."

The Temporary Emergency Court of Appeals of course is a court of special and limited jurisdiction, MGPC, Inc. v. Department of Energy, 673 F.2d 1277, 1280 (Em.App.1982). In determining whether it has jurisdiction we have articulated two principal inquiries: whether resolution of the litigation requires the application or interpretation of the EPAA or its regulations and whether any EPAA issue presented to this Court has been adjudicated in the court below. Francis Oil and Gas, Inc. v. Exxon, 687 F.2d 484, 487 (Em.App.) cert. denied, 459 U.S. 1010, 103 S.Ct. 365, 74 L.Ed.2d 400 (1982); Texaco, Inc. v. Department of Energy, 616 F.2d 1193, 1198 (Em.App.1979). See also Coastal States Marketing, Inc. v. New England Petroleum Corp., 604 F.2d 179, 184-87 (2nd Cir.1979). When an appeal involves issues only part of which arise under the EPAA, this Court will decide only those arising under the EPAA, Sector Refining, Inc. v. Enterprise Refining Co., 771 F.2d 496, 502 (Em.App.1985); Texaco, 616 F.2d at 1198; see also Atlantic Richfield Co. v. U.S. Dept. of Energy, 769 F.2d 771, 778 (D.C.Cir.1984), unless a meaningful ruling requires consideration of the issues as a whole, Citronelle-Mobile, Etc. v. Gulf Oil Corp., 591 F.2d 711, 716 (Em.App.), cert. denied, 444 U.S. 879, 100 S.Ct. 168, 62 L.Ed.2d 109 (1979), the construction of the EPAA will control the litigation, M. Spiegel & Sons Oil Corp. v. B.P. Oil Corp., 531 F.2d 669, 670-71 (2d Cir.1976); see also Francis Oil, 687 F.2d at 487, the issues are so commingled as to render separate treatment impractical, Rainey v. Union Oil Co. of California, 732 F.2d 1563, 1564 n. 1 (Em.App.1984), or the non-EPAA issues are subsidiary, preliminary or threshold to an EPAA issue, MGPC, 673 F.2d at 1281; Quincy Oil, Inc. v. Federal Energy Administration, 620 F.2d 890, 893 (Em.App.1980); see also Atlantic Richfield, 769 F.2d at 779. When discrete EPAA and non-EPAA issues otherwise are involved on appeal, review must be bifurcated between the TECA and the United States Court of Appeals, Sector Refining, 771 F.2d at 502; Associated General Contractors v. Laborers International Union, 476 F.2d 1388 (Em.App.1973); see also 489 F.2d 749; Atlantic Richfield, 769 F.2d at 778.

From the beginning an EPAA issue has been central in this case; indeed there has been no other issue at all in dispute. Pennzoil has never questioned the DOI's interpretation of its gross proceeds rule or the royalty which Pennzoil was assessed except for its assertion of the controlling effect of the TIP regulations and the policy implicit therein.

It seems unnecessary to further explore the spectrum of our decisions on jurisdiction over the years beyond noticing that this case falls at its most fundamental beginning. Unless their generally utilitarian view of our limited jurisdiction is to be frittered away at this late date and the basis of numerous prior decisions recanted, it must of necessity extend to an EPAA claim constituting the sole contested issue presented to the district court and decided by it.¹ This will be made clear by a review of the administrative proceedings and the complaint and proceedings before the district court, as well as by the arguments before this court during which counsel for Pennzoil reiterated that except for the claimed impact of the DOE's TIP it questioned neither the amount nor validity of the DOI's royalty assessment. Paraphrasing a statement of Justice O'Connor in a recent decision of different context,² it fairly may be said that the appellees' argument that the EPAA claim is irrelevant to the district court's decision because all that is at issue is the DOI royalty regulation misses the point, which is that without Pennzoil's EPAA claim as adjudicated by the district court there simply is no cause of action (and likely not even a case or controversy).

In the administrative proceedings, Pennzoil premised its contention upon the elimination from the "value" on which its royalty payment was to be computed its "bonus" or "recoupment of allowed expenses" to which it was entitled from being permitted to charge the higher market price rather than the regulated price for oil covered by the TIP. The acting director of Minerals Management Service squarely addressed that contention and rejected it.³ In the final decision of the administrative law judge, this rejection of Pennzoil's position was affirmed:

Gross proceeds looks to the actual consideration received from the oil produced from the lease.... In this case that included Pennzoil's tertiary incentive revenue.... DOE's interpretation of 10 CFR 212.78 cannot

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