BP America Production Co., et al. v. Watson, Rebecca (12/11/2006)

Question presented: Whether the six-year limitations period of 28 U.S.C. 2415(a) governs the issuance of administrative orders, as opposed to the government's filing of a complaint in court?

BY MAX FOLLMER, MEDILL NEWS SERVICE

In 1920, Congress authorized federal officials to grant private companies the right to extract valuable natural resources from mineral-rich federal lands in exchange for royalty payments that go back into the government's coffers.

Since the 1980s, large amounts of coalbed methane gas have been pumped from the San Juan Basin, a vast area that straddles northwestern New Mexico and Southwestern Colorado. The federal government is a large landowner in the San Juan Basin, and it leased the right to pump coalbed methane gas on federal lands to numerous private companies.

Both Amoco (now BP America) and Atlantic Richfield Company (also known as ARCO/Vastar) negotiated leases to pump some of the methane gas.

Coalbed methane gas can contain more than ten percent carbon dioxide, which is largely absent from conventional natural gas. The government requires all lease-holders to remove the excess carbon dioxide in order to put the coalbed methane gas into "marketable condition."

Nevertheless, in 1996, a dispute surfaced between the government and the private sector over how the process that renders the gas "marketable" affects the amount of royalties owed the government.

The Interior Department's Minerals Management Service (MMS) responded in 1996 to "inquiries about how to calculate royalties on coalbed methane in the San Juan Basin" by telling private companies that the amount of the royalties cannot be reduced by the process of putting the gas into "marketable condition."

Placing gas in marketable condition, "includes, but is not limited to, carbon dioxide removal," MMS advised in its letter to the private sector, dated April 22, 1996.

The State of New Mexico audited the royalty calculations issued by Amoco and ARCO/Vastar. Based on the results of those audits, in May 1997, MMS told Amoco that it owed the government an additional $4.1 million. ARCO/Vastar was ordered to pay an additional $782,000.

The Interior Department concluded that between January 1989 and August 1996, the companies had been vastly underpaying the government by "improperly" deducting the costs of rendering the coalbed methane gas "marketable" from their royalty calculations.

Both Amoco and ARCO/Vastar challenged the orders, known as "payor letters" before the Assistant Secretary of the Interior for Land and Minerals Management.

The companies took issue with the government's formula for calculating royalties. In addition, they also argued that the collection of the unpaid royalties was barred by the six-year statute of limitations for government actions for money damages.

The Assistant Secretary rejected the companies' arguments. Amoco and ARCO/Vastar took their claims to the District Court for the District of Columbia, which also sided with the government.

In June 2005, the Court of Appeals for the District of Columbia Circuit again sided with the government.

Writing for the unanimous court, then-Circuit Judge John G. Roberts rejected any challenge to the government's formula for calculating royalty payments. Roberts also said that the six-year statute of limitations only applied to lawsuits seeking money damages, not administrative orders (such as the payor letters) from federal agencies.

"It strains legal language to construe this administrative compliance order as a ‘complaint' for money damages in any ordinary sense of the term," Roberts wrote.

The D.C Circuit thus joined the 5th Circuit Court of Appeals, which found in Phillips Petroleum Co v. Johnson that MMS orders are not "actions for money damages" initiated by the filing of a complaint in court.

However, those two decisions stand in direct conflict with the 10th Circuit Court of Appeals, which concluded in OXY USA, Inc. v. Babbitt that MMS orders are definitely "actions" covered by the statute of limitations.

In responding to the companies' petition to the U.S. Supreme Court, the Solicitor General's Office asked the court to take the case in order to clear up the confusion between the three conflicting lower court rulings.

The Jicarilla Apache Nation, an Indian Tribe located in the San Juan Basin (and in the 10th Circuit) filed a friend of the Court brief in favor of the government's position that the statute of limitations question needed to be resolved.

Writing on behalf of the Jicarilla Apache Nation, attorney Jill Elise Grant said that "applying the six-year statute of limitations to MMS orders to pay royalties results in a windfall to the oil and gas industry and decreased revenues for the Jicarilla Apache Nation, and other tribes."

On April 17, 2006, the Court accepted the case for review, limited to the second question in BP America Production's petition regarding the six-year statute of limitations. Chief Justice John Roberts and Justice Stephen Breyer took no part in the decision to accept the case.

On Dec. 11, 2006, the Court unanimously affirmed, agreeing with Chief Justice Roberts, whose majority opinion when he was an appeals court judge had held that the 6-year statute of limitations applies only to court actions, not to the administrative payment orders involved in this case.

Justice Samuel Alito wrote the Court's opinion. Neither Chief Justice Roberts nor Justice Stephen Breyer took part in the decision.