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W&T Offshore Inc. v. Jewell

United States District Court, W.D. Louisiana, Lake Charles Division

February 23, 2018

W&T OFFSHORE, INC.
v.
S.M.R. JEWELL, SECRETARY, UNITED STATES DEPARTMENT OF INTERIOR; ET AL.

          REPORT AND RECOMMENDATION

          KATHLEEN KAY, UNITED STATES MAGISTRATE JUDGE

         Before the court are Motions for Summary Judgment [docs. 22, 26] filed, respectively, pursuant to Rule 56 of the Federal Rules of Civil Procedure by plaintiff W&T Offshore, Inc. (“W&T) and defendants S.M.R. Jewell, former Secretary of the United States Department of the Interior (“DOI”), and Gregory J. Gould, Director of the Office of Natural Resources and Revenue (“ONRR”) of the Department of the Interior (collectively, “federal defendants”). Both motions are opposed. Docs. 26, 90. Also before the court is W&T's Motion to Strike Extra-Record Material [doc. 97], pertaining to citations in the federal defendants' reply [doc. 96] to W&T's amended memorandum [doc. 90] in opposition to the federal defendants' Motion for Summary Judgment [doc. 26] and reply in support of its own Motion for Summary Judgment [doc. 22]. The federal defendants oppose the Motion to Strike. Doc. 99.

         For the following reasons, IT IS RECOMMENDED that the Motion to Strike [doc. 97] be GRANTED, that W&T's Motion for Summary Judgment [doc. 22] be GRANTED IN PART and DENIED IN PART, as described below, and that the federal defendants' Motion for Summary Judgment [doc. 26] likewise be GRANTED IN PART and DENIED IN PART.

         I.

         Background

         This case arises as a request for judicial review by W&T of a final decision (“final DOI decision”) by the Interior Board of Land Appeals (“IBLA”), W&T Offshore, Inc., 184 IBLA 272 (Feb. 11, 2014). Doc. 1. In that decision the IBLA affirmed the ruling of the Director of the ONRR, denying W&T's challenges to the methodology applied by DOI for resolving amounts owed from final delivery imbalances upon the end of W&T's participation in DOI's Royalty in Kind (“RIK”) program.

         Under the RIK program, which began following a series of pilot sales in 1998 and dramatically expanded until 2007, the Minerals Management Service (a DOI subagency and predecessor of ONRR) expanded its ability to receive royalties “in kind” rather than “in value” from oil and gas companies operating on federal leases.[1] WT001348-49.[2] Throughout the existence of the RIK program, DOI never promulgated regulations for its administration. However, it did provide guidance to participating companies, primarily through two “Dear Operator” letters issued in 2000 and 2005, respectively, and through a section of the Minerals Revenue Reporter Handbook issued by MMS in 2003. WT000009-10; see WT001426-38 (September 2000 letter); WT001526-32 (September 2005 letter); WT001124-28 (handbook section).

         W&T began participating in the RIK program as the Facility Measurement Point (“FMP”) operator of certain offshore leases, collectively known as the “EC373 Leases, ” in November 2001. WT000006, n. 7; see also doc. 1, p. 7. Over the course of its participation relative to the EC373 leases W&T overdelivered the volume of natural gas due in some months and underdelivered in others.[3] See, e.g., WT000006; WT001443-44; WT000184. DOI terminated its election to receive royalties in kind from the EC373 leases on October 31, 2008, reverting to receipt of royalty in value and causing the imbalance to become fixed for accounting purposes. E.g., WT000006; WT001443-44. In September 2009, the Secretary of the Interior announced the phase-out of the RIK program as a whole. WT000005.

         On March 16, 2010, MMS issued to W&T an order to pay $1, 649, 529.51 in additional royalties for the EC373 leases for production months February 2003 through October 2008. WT000198-203. The order stated that it was based on the Royalty Simplification and Fairness Act of 1996 and the Federal Oil and Gas Royalty Management Act of 1982, and that it superseded all Dear Operator letters “involving the resolution of operator imbalances on oil and gas production related to properties that are or have been in RIK.” Id. at WT000199. The order also indicated that MMS would compute late-payment charges (i.e., interest) and bill W&T accordingly after it had received payment under that order. WT000200. A second order was issued on December 7, 2010, by MMS's successor agency, ONRR, requiring W&T to pay an additional $74, 049.01 in royalties on the EC373 leases for production months February 2008 through September 2008. WT000347- 52. W&T filed an unsuccessful appeal of these orders with ONRR Director Gregory J. Gould. WT000037-60. The ONRR concluded that W&T paid the principal amount owed under the March 2010 order prior to the appeal but W&T was assessed $673, 516.99 in late-payment interest. WT000037. W&T appealed to the IBLA, which affirmed the ONRR Director's decision in the final DOI decision, referenced supra. WT00001-35.

         W&T now seeks judicial review in this court of the final DOI decision through a complaint for declaratory and injunctive relief. Generally, it continues to challenge the methodology through which final imbalances were calculated upon termination of its participation in the RIK program. Id. It now moves for summary judgment, raising the following challenges in particular:

1. The final DOI decision unlawfully contradicts the OCSLA and DOI regulations.
2. Regardless of how RIK delivery imbalances are resolved, DOI must give W&T credit for all deliveries to DOI during the period of DOI's RIK election for the EC373 leases.
3. DOI's retroactive application of a new, industry-wide method for resolving RIK delivery imbalances violates APA rulemaking requirements and the fair notice doctrine 4. W&T has no liability to DOI for underdeliveries attributable to lease interests owned by other lease/unit owners 5. The final DOI decision is not supported by the administrative record.

Doc. 22, att. 2. The federal defendants likewise move for summary judgment, opposing all of the claims raised above. Doc. 26, att. 2. W&T also requests that this court strike exhibits in the federal defendants' reply brief, or alternatively take judicial notice of a pending administrative appeal. Doc. 97.

         II.

         Legal Standards

         A. Summary Judgment

         A court should grant a motion for summary judgment when the pleadings, including the opposing party's affidavits, “show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 106 S.Ct. 2548, 2553 (1986). The party moving for summary judgment is initially responsible for demonstrating the reasons justifying the motion for summary judgment by identifying portions of pleadings and discovery that show the lack of a genuine issue of material fact for trial. Tubacex, Inc. v. M/V Risan, 45 F.3d 951, 954 (5th Cir. 1995). The court must deny the moving party's motion for summary judgment if the movant fails to meet this burden. Id.

         Once the movant makes this showing, the burden then shifts to the non-moving party to set forth specific facts showing that there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 106 S.Ct. 2505, 2510 (1986). The burden requires more than mere allegations or denials of the adverse party's pleadings. The non-moving party must demonstrate by way of affidavit or other admissible evidence that there are genuine issues of material fact or law. Celotex, 106 S.Ct. at 2553. There is no genuine issue of material fact if, viewing the evidence in the light most favorable to the non-moving party, no reasonable trier of fact could find for the non-moving party. Tolan v. Cotton, 134 S.Ct. 1861, 1866 (2014). Furthermore, a court may not make credibility determinations or weigh the evidence in ruling on a motion for summary judgment. Reeves v. Sanderson Plumbing Prods., Inc., 120 S.Ct. 2097, 2110 (2000). However, the nonmovant must submit “significant probative evidence” in support of his claim. State Farm Life Ins. Co. v. Gutterman, 896 F.2d 116, 118 (5th Cir. 1990). If the evidence is merely colorable or is not significantly probative, summary judgment may be granted. Anderson, 106 S.Ct. at 2511.

         B. Review of Agency Determinations under the APA

         When a party seeks review of an agency action under the Administrative Procedure Act (“APA”), 5 U.S.C. § 551 et seq., the district court serves “as an appellate tribunal.” Am. Bioscience, Inc. v. Thompson, 269 F.3d 1077, 1083 (D.C. Cir. 2001). It is the agency's role to resolve factual issues and arrive at a decision supported by the administrative record, while the district court must determine whether, as a matter of law, “the evidence in the administrative record permitted the agency to make the decision it did.” Stuttering Found. Of Am. v. Springer, 498 F.Supp.2d 203, 207 (D.D.C. 2007) (quotations omitted). Thus, “[s]ummary judgment . . . serves as the mechanism for deciding, as a matter of law, whether the agency action is supported by the administrative record and otherwise consistent with the APA standard of review.” Id.

         Under the APA, in relevant part, a court will overturn an agency action if it is:

(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; (B) contrary to constitutional right, power, privilege, or immunity; (C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right; [or] (D) without observance of the procedure required by law.

5 U.S.C. § 706(2).

         The party challenging the agency's action bears the burden of showing that the agency's determination was arbitrary and capricious. La. Pub. Serv. Comm'n v. F.E.R.C., 761 F.3d 540, 558 (5th Cir. 2014). As the federal defendants emphasize, arbitrary and capricious review is “narrow” and we may not substitute our own judgment for that of the agency. City of Arlington, Tex. v. F.C.C., 668 F.3d 229, 260 (5th Cir. 2012). Instead, “[w]e limit our review to whether the agency articulated a rational connection between the facts found and the decision made, and it is well-settled that an agency's action must be upheld, if at all, on the basis articulated by the agency itself.” Id. (quoting Hayward v. U.S. Dep't of Labor, 536 F.3d 376, 380 (5th Cir. 2008)). Nonetheless, the agency is still required to “examine the relevant data and articulate a satisfactory explanation for its action.” Motor Vehicle Manf. Ass'n of the U.S. v. State Farm Mutual Auto. Ins. Co., 103 S.Ct. 2856, 2866 (1983); see Harris v. United States, 19 F.3d 1090, 1096 (5th Cir. 1994).

         III.

         Application

         A. Motion to Strike

         The Motion to Strike relates to two exhibits attached by the federal defendants to their reply in support of their Motion for Summary Judgment. See doc. 96. Exhibit 1 contains correspondence between a W&T employee and MMS employees from March and April 2009. See doc. 96, att. 1. Exhibit 2 is a communication from an MMS employee to a W&T employee dated December 2008. See doc. 96, att. 2. Both are cited in the reply memorandum to show that W&T was aware of and complied with portions of the methodology for resolving RIK imbalances prior to its alleged unveiling in the orders to pay at issue here. See doc. 96, pp. 6-7, n. 2. In their opposition to the Motion to Strike, the federal defendants contend that these documents show that W&T accepted the agency's methodology for resolving RIK imbalances when it benefitted W&T to do so, W&T now moves to strike the exhibits as extra-record evidence or, in the alternative, for this court to take judicial notice of its pending administrative appeal ONRR's 2015 denial of a refund demand issued by W&T. Doc. 97, att. 1. The Administrative Procedure Act, supra, only permits non-statutory judicial review of final agency actions. Veldhoen v. U.S. Coast Guard, 35 F.3d 222, 225 (5th Cir. 1994) (citing 5 U.S.C. § 704). Under the “record rule, ” review of agency action in a district court is generally limited to the administrative record before the agency. Sierra Club v. Peterson, 185 F.3d 349, 369-70 (5th Cir. 1999); see State of Louisiana ex rel. Guste v. Verity, 853 F.2d 322, 327 n. 8 (5th Cir. 1988) (“Agency action is to be upheld, if at all, on the basis of the record before the agency at the time it made its decision.”) (citation omitted). The final agency action in this matter is the final DOI decision. Here, therefore, the record is a matter of what was before the IBLA when it rendered its decision in 2014.

         The federal defendants do not refute that their exhibits are extra-record material, but instead offer that the court may consider them as an exception to the record rule in order “to provide context in understanding the scope of inconsistencies found in W&T's arguments, as opposed to the agency's consistent application of the statute.” Doc. 99, p. 2. They rely on the Fifth Circuit recognition of certain exceptions to the record rule, including when the court needs “to supplement the record with ‘background information' in order to determine whether the agency considered all of the relevant factors.” Medina County Environmental Action Association v. Surface Transport Board, 602 F.3d 687, 706 (5th Cir. 2010) (citing Am. Wildlands v. Kempthorne, 530 F.3d 991, 1002 (D.C. Cir. 2008)) (emphasis added). The government fails to show, however, that W&T's inconsistent acceptance of its methodologies is sufficiently relevant to the DOI's considerations on review of this matter. Accordingly, the Motion to Strike should be granted as to Exhibits 1 and 2 to Docket Entry 96 and portions of that memorandum citing to those exhibits. Having recommended that W&T's Motion to Strike be granted, we decline to consider its alternative request for judicial notice of a pending administrative appeal.

         In its opposition to the Motion to Strike, the federal defendants request that the court “strike and disregard all portions of W&T's briefs citing to extra-record materials.” Doc. 99, p. 4. The request does not provide us with sufficient information to identify the extra-record information or arguments based on same at issue. Moreover, it was cursorily asserted for the first time in a response to W&T's motion to strike and therefore is not properly before the court due to the federal defendants' failure to raise it in a separate motion. See, e.g., Santoli v. Village of Walton Hills, 2015 WL 1011384, *8 n. 3 (N.D. Ohio Mar. 3, 2015). Accordingly, this request is not addressed.

         B. Motions for ...


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