U.S. ex rel. Grynberg v. Praxair, Inc.

• Decision Date: 28 March 2001
• Docket Number: No. 98-CV-16.,98-CV-16.
• Citation: 207 F.Supp.2d 1163
• Parties: UNITED STATES of America ex rel. Jack J. GRYNBERG, Plaintiff, v. PRAXAIR, INC. & NIELSON & ASSOCIATES, INC., Defendants.
• Court: U.S. District Court — District of Colorado

207 F.Supp.2d 1163

UNITED STATES of America ex rel. Jack J. GRYNBERG, Plaintiff, v. PRAXAIR, INC. & NIELSON & ASSOCIATES, INC., Defendants.

No. 98-CV-16.

United States District Court, D. Colorado.

March 28, 2001.

Michael S. Porter, Michael S. Porter Law Firm, Wheat Ridge, CO, for Jack J. Grynberg.

Michael Noone, Michael L. Beatty & Associates, PC, Denver, CO, Mark D. Colley, Craig Alan Holman, Holland & Knight LLP, Washington, DC, Michael Lance

Beatty, Michael L. Beatty & Associates, PC, Denver, CO, for Praxair, Inc.

Kerry N. Jardine, Burg, Simpson, Eldredge, Hersh & Jardine, P.C., Englewood, CO, Chris Dull Edwards, Simpson, Kepler & Edwards, LC, Cody, WY, for Nielson & Associates, Inc.

Stephen D. Taylor, U.S. Attorney's Office, Denver, CO, for USA.

ORDER

DANIEL, District Judge.

THIS MATTER is before the Court on Defendant Nielson & Associates, Inc.'s Motion for Summary Judgment filed April 6, 2000, and Defendant Praxair, Inc.'s Motion for Summary Judgment filed April 6, 2000. A hearing on these motions was held March 2, 2001; at that time, I took the motions under advisement. After extensive review of the record,¹ applicable law, and argument of the parties, I find that the motions should be GRANTED.

FINDINGS OF FACT

Procedural Background

1. Plaintiff Jack J. Grynberg ("Grynberg") commenced this action on January 7, 1998, as a qui tam relator under the U.S. False Claims Act (31 U.S.C. § 3729, et seq., "FCA" or "Act"). Grynberg alleges that Defendant Praxair, Inc. ("Praxair") and Nielson Associates, Inc. ("Nielson") are liable under the so-called "reverse false claim" provision at 31 U.S.C. § 3729(a)(7), for having made or caused to be made false records or statements for the purpose of decreasing royalty payments due under certain Federal leases.

2. Grynberg's initial Complaint, filed January 7, 1998, alleged that Praxair and Nielson had "knowingly...underreported, or caused others to underreport, the value of the natural CO₂ gas produced from" various Federal leases in the McCallum field in Northern Colorado. (Complaint ¶ 1.)

3. In an Amended Complaint filed October 23, 1998, Grynberg modified his allegations regarding gas undervaluing practices and added allegations that gas volume was underreported. (Amended Complaint, ¶¶ 1, 10, 17-20, 22-25.)

4. Pursuant to the Act, Grynberg's Complaint was filed under seal and remained sealed until December 1998, when the U.S. Department of Justice advised the Court that the Government would not intervene. See 31 U.S.C. § 3730(b)(2). At that time, the seal was lifted and the Amended Complaint was served on the defendants.²

5. After this Court denied Motions to Dismiss filed by both Praxair and Nielson, the parties engaged in lengthy discovery proceedings. Thereafter, on March 2, 2001, the Court heard oral argument on summary judgment motions filed by both Praxair and Nielson. Exhaustive briefs and exhibit submissions by all parties have provided the Court with an extensive factual record of the practices at issue in this case, as well as the Government's knowledge of and involvement in the defendants' activities.

The Defendants and Their Contracts

6. Defendant Nielson is a small, privately held Wyoming corporation that produces and sells oil, hydrocarbon liquids and CO₂ from the "McCallum" fields in northern Colorado pursuant to leases with the U.S. government.

7. The McCallum leases were originally entered into between Conoco, Inc. and the U.S. government. For many years, Conoco extracted and sold oil from the McCallum fields and simply vented to the atmosphere raw CO₂ gas that was produced in conjunction with the oil. There is no proximate pipeline that can transport CO₂ gas from the McCallum fields to locations where it can be sold and, for most of the history of the leases, there were no customers for the CO₂. It is undisputed that Conoco's CO₂ venting associated with oil production was known to and approved by Federal regulatory authorities, and that activity is not challenged in this action.

8. Conoco entered into a June 3, 1983, "Agreement for the Sale of Carbon Dioxide" ("Agreement") with Liquid Carbonic Corporation ("LCC"). (Praxair Mem. Ex. 13) Under the Agreement, LCC was obligated to construct a plant to process raw CO₂ gas produced and delivered by Conoco in order to purify and convert it into liquid CO₂. The gas produced by Conoco contained various impurities, including hydrocarbons and other non-CO₂ gases, which must be removed in order to yield 99.99+% pure "food-grade" CO₂ liquid suitable for beverages, food processing and other uses.

9. The Agreement provided that Conoco would be paid based on a price per ton of finished product shipped from the plant, with LCC reporting to Conoco the quantity shipped each month. (PHN Tab D, Agreement at §§ VI.A. and VIII.)

10. The base price per ton under the Agreement was subject to adjustments. The price would be adjusted annually according to the market prices received by LCC for its sales of the plant's finished product. (PHN Tab D, Agreement at § VI.A.) The monthly price paid was also subject to adjustments based on the quality of the raw CO₂ gas delivered to the plant by Conoco. One adjustment would reduce the price when additional oxygen was required to process the raw gas "in the event any of the hydrocarbons, other than methane, rise above the levels specified" in the Agreement. (PHN Tab D, Agreement at § IX.C.³)

11. The Agreement provided that LCC would normally return to Conoco 80% of all vent gases produced from the processing plant, and that Conoco would provide the pipeline to permit the return of those gases. (PHN Tab D, Agreement at § V.E.) Conoco was charged in the Agreement with responsibility to pay all royalties on CO₂ delivered to LCC. (PHN Tab D Agreement at § XIV.A.)

12. In 1994, Nielson purchased certain assets from Conoco, including the McCallum leases, and succeeded Conoco as seller under the Agreement.

13. In 1996, LCC merged into Praxair, making Praxair the Buyer under the Agreement.

14. It is undisputed that neither Praxair, nor its predecessor LCC, have ever been affiliated with Nielson or Conoco. Nor has Praxair or LCC ever been a party to the McCallum leases. (PHN Tab C.)

15. It is also undisputed that Nielson and Praxair (and formerly LCC) have no material relationship other than the Agreement. (PHN Tab C.) There is no allegation or evidence of any conspiracy, sidedeal or other arrangement among the defendants.

Government Communications, Investigations and Approvals

16. On October 22, 1984, Conoco transmitted the Agreement to the Department of Interior's Minerals Management Service ("MMS") and asked that MMS approve the arrangement with LCC. Conoco explained that it would supply the raw CO₂ to LCC for processing, and receive payment based on a price per ton of finished product shipped from the plant. Conoco also advised that its plan was for plant vent gases to be returned, "run through a separator to remove any available [hydrocarbon] condensate for sale," and reinjected into one of the wells. Conoco's transmittal to the MMS included a schematic showing that some gas would be flared from LCC's plant, while some gas would be returned to a Conoco separator and then reinjected. (PHN Tab K, Praxair Mem. Ex. 58.)

17. Alerted to the fact that the volume of Conoco's CO₂ gas production would be measured for royalty purposes based on the LCC plant's output—or, in other words, at the plant "tailgate"—the MMS wrote Conoco on March 14, 1985 and inquired about the impact on royalties relative to volume measurement at the wellhead: "We are concerned that, if royalty is to be paid on the volume of gas leaving the plant, there could be significant differences, due to plant losses, from the volumes the [wellhead] allocation meters indicate." (PHN Tab L, Praxair Mem. Ex. 60.)

18. On March 22, 1985, Conoco responded to the March 14th MMS letter (and to a later phone conversation with MMS representatives) and explained that the plant's vent gas losses would diminish once operations stabilized. Conoco also advised that there would nevertheless continue to be unavoidable CO₂ gas loss because of the quality of the raw CO₂ delivered to the plant and the anticipated plant efficiency: "only about 76% of the produced gas can actually be liquefied and sold as liquid CO₂." Conoco reiterated its plan, "once the plant is on stream," to pipe vent gas from the plant through a separator and then reinject remaining gas. Conoco noted that the arrangement with LCC finally provided a means to sell CO₂ reserves previously shut-in or simply flared in connection with oil production. (PHN Tab M, Praxair Mem. Ex. 61.)

19. MMS approved Conoco's arrangement with LCC on April 4, 1985.⁴ More specifically, MMS acknowledged and accepted the pricing provisions in the Agreement, both the base price and the adjustments related to market prices and CO₂ quality. After noting that "[t]he contract contains provisions for decreased prices in the event[s] any hydrocarbons, other than methane, exceed specified levels..." (i.e. the oxygen use adjustment), MMS stated that "[t]he price reduction provisions are accepted as part of the arm's length contract." MMS directed that royalties must never be based "upon less than the gross proceeds accruing to Conoco from the sale of the CO₂." To that end, MMS concluded that no processing allowances could be deducted from the gross proceeds, and that royalties would be due on additional "up-front" payments or tax and/or royalty reimbursements. The MMS findings noted Conoco's plan to recover plant vent gases, separate condensates, and reinject gas remaining. (Praxair Mem. Ex. 14, Vanderwal Dep. at 172:1-172:4; Grynberg Opp. Ex. R-19, Vanderwal Dep. at 299:19-300:19.) Ultimately, Conoco did not install the piping necessary to permit return to it of all plant vent gas and did not reinject that gas into a well. MMS also found that Conoco and LCC were unaffiliated, that the...