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Independent Petroleum Ass'n of Am. v. Babbitt

ELR Citation: 28 ELR 20010
Nos. 93-2544 (RCL), 94-2123 (RCL), 971 F. Supp. 19/(D.D.C., 07/25/1997)

The court holds that a D.C. Circuit ruling that the U.S. Department of the Interior's (DOI's) decision to assess royalties on nonrecoupable take-or-pay payments was an arbitrary and capricious reading of DOI's own rules applies to an oil company that was assessed with such royalties, but not to a petroleum trade association. DOI's decision to assess royalties on nonrecoupable take-or-pay payments was set forth in a May 3, 1993, letter. A petroleum trade association challenged this new policy, and through an agreement between oil companies and the government, a specified number of companies were ordered to pay the royalties to "test" DOI's new policy. One of the test companies was assessed $20,000 in royalties, and subsequently filed suit. The oil company's and the association's actions were consolidated.

The court first holds that it is without jurisdiction to grant the association relief. Although the association maintained an interest that the courts declare that royalties are not owed on nonrecoupable settlements, and it pursued that interest, it must have jurisdiction to mount this broad-based challenge to the government's royalty policy. The Administrative Procedure Act permits judicial review only of final agency action. An agency action may be deemed final if it is sufficiently direct and immediate and has a direct effect on day-to-day business. It appears that the May 3 policy does not itself adversely affect the association but only affects its rights adversely on the contingency of future administrative action—the very definition of nonfinal agency action. Presumably, if DOI tried to implement the procedure struck down by the D.C. Circuit through an administrative adjudicatory process, the targeted companies would then be faced with final agency action and could sue for appropriate relief.

The court next holds that the oil company is entitled to injunctive relief preventing the government's efforts at taxing unlawful royalties. Unlike the association which only suffered the effects of the May 3 letter, deemed not to be final agency action, the oil company bore the brunt of an assessment order and a DOI decision upholding that assessment of royalties. Thus, the oil company has had its final agency action, and it is entitled by law to estop the government from relitigating this case elsewhere, even if it reaches beyond the borders of the D.C. Circuit. Therefore, the court dismisses the pending administrative appeals against the oil company, and will enjoin further attempts to collect royalties from the oil company in a manner inconsistent with the D.C. Circuit's ruling. This relief extends to any corollary matter whose only purpose is to assist the government in relitigating these issues with respect to the oil company. The court's injunction, however, would not extend to attempts to collect royalties on nonrecoupable take-or-pay monies that result from a new rulemaking.

Counsel for Plaintiffs
L. Poe Leggette
Jackson & Kelly
2401 Pennsylvania Ave. NW, Ste. 400, Washington DC 20037
(202) 973-0200

Counsel for Defendants
Michael Reed
Environment and Natural Resources Division
U.S. Department of Justice, Washington DC 20530
(202) 514-2000