Pennzoil Exploration & Production Co. v. Lujan

928 F.2d 1139, 1991 U.S. App. LEXIS 2269, 1991 WL 16244

• Court: Temporary Emergency Court of Appeals
• Decided: February 11, 1991
• Docket: No. 5-128
• Status: Published

Opinions

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 consid eration 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 commin

gled 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 rev-enue____ DOE’s interpretation of 10 CFR 212.78 cannot negate the basis established by the Department of the Interior in 30 CFR 250.64 for determining the value of production any more than a lessee can by declaring what the price of the resource is [citation omitted],

IBLA 84-816, Pennzoil Oil and Gas, Inc., June 8, 1989, I Administrative Record, Tab 13, at 147-159.

Pennzoil’s complaint in the district court appropriately claimed jurisdiction under the EPAA⁴ and stated:

Pennzoil, during the months of August 1980 through January 1981, [the only period for which the amount of royalty is in question in this case] obtained tertiary incentive revenue equal to the difference between the regulated price and the deregulated price for oil produced from lease OCS-G 2115 attributable to its working interest. Pennzoil used this tertiary incentive revenue to recoup the “allowed expenses” of its tertiary enhanced recovery project on another oil producing property [and] ... sold the oil attributable to the lessor’s royalty interest produced from lease OCS-G 2115 at the then current regulated prices and paid its royalty based upon the regulated price.

Plaintiff’s complaint 20-21, supplemental appendix 7.

Pennzoil expressly rested its claim in the district court upon the contention that: [T]he DOI does not have authority to impose royalties based on gross proceeds to the extent that those gross proceeds include tertiary incentive revenue; ...

[t]he decision is contrary to the regulations and interpretations issued by the DOE regarding the tertiary incentive crude oil program that is set forth in 10 C.F.R. § 212.78 (1981); ... [t]he decision frustrates and is contrary to the congressional purpose espoused in the Emergency Petroleum Allocation Act of 1973, as amended, to create an incentive for investment in enhanced oil recovery projects by producers; ...

Id. at 9-10.

In its memorandum decision the district court, after interpreting in accordance with the view of the DOI the gross proceeds rule which Pennzoil did not question apart from the EPAA issue it had raised, turned decisively to the latter issue:

As for Plaintiff’s argument that the DOE incentive program should implictly overrule the DOI regulation, the court finds that there is no legal basis for such a holding. Pennzoil’s position is based mainly upon general policy considerations, and the court finds that these considerations are not sufficiently compelling to overrule the Secretary of the Interior’s implicit statutory authority to determine the value of production for royalty purposes.

We agree with Pennzoil that its claim arose under regulations promulgated pursuant to the EPAA and that its right, if any, to relief stemmed from the alleged mandate of the TIP. But we also agree with the district court’s rejection of that claim as insufficient in law to preclude the application and enforcement of the DOI’s gross proceeds rule as interpreted by the district court and except for its EPAA claim otherwise conceded by Pennzoil.

Our jurisdiction to decide the issue of this case does not depend upon which way it is decided, the depth or effectiveness of the trial court’s analysis, if any, or whether the EPAA claim is overwhelming, substantial, unpersuasive or even frivolous. Nor does it depend for a foundation upon a statute other than the EPAA. Appellees’ reliance for the contrary upon Texaco, 616 F.2d at 1197-98, and Atlantic Richfield Co., 769 F.2d at 778-79, is misplaced. The situation there involved the authority of certain agencies of the DOE to make orders as to which the 1977 Department of Energy Organization Act, 42 U.S.C. § 7192, made no provision for appeals to the TECA. As found by the majority in Texaco, 616 F.2d at 1198:

The sole basis of the district court’s decision and the sole concern on the appeal is the lower court’s holding that FERC had review authority. The propriety of that holding, as the defendants concede, is not an EPAA question. It is a question which arises solely under the DOE Act.

Such a situation is in sharp contrast to the case here, where the district court’s opinion did not refer to the Organization Act, the sole basis of Pennzoil’s case was the claimed effect of the EPAA and its regulations and, aside from the essential statement of its context with DOI regulations, the only contested issue decided by the district court was that such claimed effect did not invalidate the DOI assessment of royalty in question. In the present case, the district court held that neither EPAA policy nor any EPAA regulation was sufficiently compelling to overrule the Secretary of Interior’s statutory authority to determine the value of production for royalty purposes. A district court decision based solely upon claimed EPAA policy already has been accepted as jurisdictionally sufficient by both the TECA and the Supreme Court. Isla Pet. Corp. v. P.R. Dept. of Cons. Affairs, 811 F.2d 1511 (Em.App.1986), cert. granted, 484 U.S. 814, 108 S.Ct. 65, 98 L.Ed.2d 29 (1987), rev’d on other grounds, 485 U.S. 495, 108 S.Ct. 1350, 99 L.Ed.2d 582 (1988).

If this Court could not review the ruling of the district court because its decision was in the context of the DOI leasing program and the Fifth Circuit could not do so because the dispute involves solely the effect of the EPAA issue, our position would be reminiscent of the fabled ordinance providing that each of two motorists approaching an intersection at the same time must stop and let the other pass.

We conclude with respect to the merits of the controlling issue, as the district court did, that neither the EPAA and its regulations, nor any policy considerations arising therefrom, precluded acceptance of the DOI’s interpretation and application of its gross proceeds rule, and that the judgment of the district court to this effect is correct. This seems to us all this appeal is about. Whether there could be thought more is unimportant or moot since no appeal was taken to the Fifth Circuit.

Accordingly, the judgment of the district court is AFFIRMED.

1 . The narrowness of some of our jurisdictional rulings already has been the subject of criticism. In Sector Refining, Inc. v. Enterprise Refining Co., 771 F.2d 496, 502 (Em.App.1985), with reference to our refusal to exercise jurisdiction over issues not arising under the EPAA even though these issues may be joined in the same action with other issues or claims that do arise under the EPAA, we stated:

We fear this construction of TECA’s jurisdiction, however, is overly narrow and results in the wasteful volleying of cases between the TECA and the courts of appeal:

We must wonder as to the wisdom and necessity of creating a special court such as TECA. Approximately thirty percent of TECA's cases are decided upon jurisdictional grounds. [Texaco v. Department of Energy, supra, 616 F.2d at 1199 (Hoffman, J., dissenting).]

Judge Hoffman was addressing the majority decision in Texaco which he deemed unduly restrictive.

2 . McClendon argues that the pension plan is irrelevant to the Texas cause of action because all that is at issue is the employer’s improper motive to avoid its pension obligations. The argument misses the point, which is that under the Texas court’s analysis there simply is no cause of action if there is no plan. Ingersoll-Rand Co. v. McClendon, — U.S. —, 111 S.Ct. 478, 112 L.Ed.2d 474 (1990).

3 . Pennzoil has taken the position that the royalty due the Minerals Management Service (MMS) should be based on the regulated ceiling price established by DOE pursuant to section 8(a) of the Emergency Petroleum Allocation Act (EPAA) (15 U.S.C. 757). Pennzoil argues that, under the Energy Conservation and Production Act (ECPA) (42 U.S.C. 6801 etseq. (1976)), royalty interest owners must be paid with reference to the otherwise applicable EPAA ceiling price in order to prevent the diversion of limited tertiary incentive revenue to royalty owners who did not incur the expense of investing in enhanced oil recovery projects. Pennzoil also contends that the amount of the tertiary incentive revenue allowed by DOE to be recovered from the sale of the oil simply has no relation to the value of that oil. Instead, the amount of tertiary incentive revenue is related only to the amount of "allowed expenses" incurred by the producer elsewhere in connection with its tertiary enhanced recovery projects.

In conclusion ... royalty value could properly be based on the proceeds received by the lessee and DOE lacked authority to abrogate DOI regulations pertaining to royalty value determinations.

Ruling on appeal in MMS-81-D028-DC5, Pennzoil Oil and Gas, Inc., Appellant, I Administrative Record, Tab 2, Ex. A at 1-2, 5.

4 . General federal question jurisdiction also was asserted. The complaint added that "[tjhis Court also has jurisdiction under Section 23(b)(1) of the Outer Continental Shelf Lands Act (“OCSLA”), 43 U.S.C. § 1349(b)(1).” However, nowhere in the complaint did Pennzoil contend, apart from the asserted impact of the EPAA, that the DOI interpretation was invalid.