CHAPTER 12 PROSECUTING ADMINISTRATIVE AND JUDICIAL APPEALS FROM FEDERAL ROYALTY VALUATION AND COLLECTION DECISIONS1
| Jurisdiction | United States |
(Jan 1992)
PROSECUTING ADMINISTRATIVE AND JUDICIAL APPEALS FROM FEDERAL ROYALTY VALUATION AND COLLECTION DECISIONS1
Davis, Graham & Stubbs
Denver, Colorado
TABLE OF CONTENTS
Page
I. AN OVERVIEW OF THE ADMINISTRATIVE APPEALS PROCESS FOR ROYALTY VALUATION AND COLLECTION DECISIONS
II. THE PAYOR SHOULD TAKE A NUMBER OF CRITICAL STEPS UPON RECEIPT OF AN ADVERSE ROYALTY VALUATION OR COLLECTION DECISION
1. Obtain The Materials Upon Which The MMS Decision Is Based
2. Determine All Potentially Responsible Parties And Seek To Reach Agreement On How The Matter Should Be Pursued And On Each Party's Obligation If The MMS Prevails
3. Evaluate The Materials Obtained From The MMS
4. Determine Whether An Appealable Decision Has Been Rendered
5. Meet With The MMS
6. Supplement The Record
7. Consider Meeting With Senior MMS Representatives In Denver Or Washington
8. Establish The Scope Of The Administrative Record
III. THE RECIPIENT OF AN ADVERSE DECISION SHOULD DETERMINE WHETHER TO PROCEED BY PURSUING ADMINISTRATIVE REMEDIES OR BY TAKING THE MATTER DIRECTLY TO COURT
A. The Dispute Whether A Payor May Immediately Prosecute An Action For Judicial Review From A Typical Royalty Valuation And Collection Decision
B. Other Exceptions To The General Rule That Administrative Appeals Must be Exhausted
1. Futility
2. Decisions of the Secretary, an Assistant Secretary, or the Director of the Office of Hearings and Appeals
C. Assuming Judicial Review Is Immediately Available, Should It Be Pursued?
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IV. THE FIRST-LEVEL ADMINISTRATIVE APPEAL—APPEAL TO THE MMS DIRECTOR OR TO THE COMMISSIONER OF INDIAN AFFAIRS
1. Determine Whether An Appeal To The MMS Director Or The Commissioner of Indian Affairs Is Necessary
2. File A Notice Of Appeal
3. Either Pay The Demand Amount Or Post A Bond
4. File A Statement Of Reasons
a. Time For Filing
b. Content
5. Obtain A Copy Of The MMS Decision Officer's Response And Recommendations
6. Consider Requesting A Hearing
7. Evaluate The Decision Rendered
V. THE SECOND LEVEL OF ADMINISTRATIVE APPEAL—APPEAL TO THE IBLA
1. Determine Whether An Appeal To The IBLA Is Proper
2. File A Notice Of Appeal
a. Where
b. Denomination
c. Content
d. Time for Filing
e. Effect Of Filing
f. Service
3. Obtain A Copy Of The Administrative Record Forwarded To The IBLA
4. Obtain Other Pertinent Information
5. Consider Filing Appropriate Motions
6. File A Statement Of Reasons
a. Facts/Testimony
b. Legal Issues
(1) Constitutional Issues
(2) Rules
c. Standard of Review
d. Other Matters
e. Exhibits
f. Time
g. Service
7. Answer
8. Request For Hearing
9. Reply
10. Evaluate The Decision
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VI. POST-IBLA DECISION CONSIDERATIONS
1. Reconsideration
2. Invocation Of The Office Of Hearings And Appeals Director's Authority
3. Invocation Of The Secretary's Authority
VII. JUDICIAL REVIEW OF AN ADVERSE DEPARTMENTAL DECISION
1. Determine Whether To Proceed With An Action For Judicial Review
2. Determine Where The Action Should Be Filed
a. The Court
b. Venue
3. Prepare And File The Complaint
4. Obtain A Stay Of Decision
5. Participate In The Pre-trial Conference With The Court
6. Collect The Administrative Record
7. Exceptions To Review On The Record
a. When Necessary To Explain The Agency Action
b. When The Agency Has Relied On Factors Not Of Record
c. To Inform The Court On Technical Or Complex Matters
d. When There Is Bad Faith Or Misconduct By The Agency
e. When Evidence Develops Subsequent To The Agency Action
8. Move For Summary Judgment
a. The Motion
b. The Supporting Memorandum
9. File A Reply
10. Oral Argument
11. The District Court's Decision
12. Court of Appeals Review
13. Supreme Court Review
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Heralded in a decade ago by release of the Linowes Commission Report2 and by enactment of the Federal Oil and Gas Royalty Management Act3 ("FOGRMA"), heightened attention has been focussed on proper payment of royalties for production of minerals from federal and Indian lands. Royalty valuation and collection decisions rendered by the Department of the Interior ("Department") have increased ten-fold in the last decade, both in the number of decisions issued and in the dollar values assessed.4 Administrative and judicial appeals from those decisions have correspondingly increased.5 Under those circumstances it comes as little surprise that administrative and judicial review procedures have been the subject of substantial
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commentary, much of it directed to technical aspects of the appeals process.6 This paper seeks to supplement that commentary by exploring practical approaches to prosecuting administrative and judicial appeals from royalty valuation and collection decisions rendered by the Department.
I. AN OVERVIEW OF THE ADMINISTRATIVE APPEALS PROCESS FOR ROYALTY VALUATION AND COLLECTION DECISIONS.
The Secretary of the Interior ("Secretary") has delegated to the Minerals Management Service ("MMS") primary responsibility for assessing and collecting royalties on production of oil, gas, coal, and other non-locatable minerals produced from federal or Indian lands.7 In the exercise of that authority, MMS may issue decisions and orders for payment of royalty deficiencies, rentals, bonuses, interest, penalties, royalty-in-kind contract payments, or other assessments. Royalty valuation and collection decisions are typically rendered by Royalty Management Program compliance or valuation officers within the MMS Royalty Compliance Division, the Royalty Valuation and Standards Division, and the Fiscal Accounting Division.8 These
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decisions require a lessee to pay additional sums already computed by the MMS or to recalculate royalties for a particular class of leases and to remit any additional royalties due.
Royalty valuation and collection decisions are subject to a two-step administrative appeals process.9 First, those decisions may be appealed to the MMS Director if they involve production from federal lands10 or to the Commissioner of Indian Affairs11 if they involve production from Indian lands.12 Second, decisions of the MMS Director or the Commissioner of Indian Affairs may be appealed to the Interior Board of Land Appeals ("IBLA").13 Whether the benefits of better decisions that may result from a two-step administrative appeal process outweigh the corresponding disadvantages in delay has been the subject of debate for many years.14
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II. THE PAYOR SHOULD TAKE A NUMBER OF CRITICAL STEPS UPON RECEIPT OF AN ADVERSE ROYALTY VALUATION OR COLLECTION DECISION.
Administrative and judicial appeals are always time consuming,15 may be expensive, and statistically are unsuccessful more times than not.16 Consequently, care should be taken and alternatives pursued before prosecuting an appeal from an adverse royalty valuation or collection decision. The steps identified below should be taken expeditiously after receipt of an adverse royalty valuation or collection decision so that an appeal may be timely perfected within thirty (30) days.
1. Obtain The Materials Upon Which The MMS Decision Is Based. The MMS decision, although frequently summary in nature, is typically rendered on the basis of findings and conclusions articulated in supporting documents. For instance, MMS decisions rendered after audits are performed are supported by workpaper files, an issue letter prepared by the lead auditor, the royalty payor's response to the issue letter, a draft demand letter, and other enforcement action documents.17 These materials, as well as internal memoranda or other authority on which the MMS relies, should be obtained informally by the recipient of an adverse royalty valuation or collection decision.
2. Determine All Potentially Responsible Parties And Seek To Reach Agreement On How The Matter Should Be Pursued And On Each Party's Obligation If The MMS Prevails. In many cases it is clear who is responsible if the MMS decision is sustained. However, where a lease is jointly owned and one party is designated the royalty payor on behalf of others, difficulties may arise.18 The IBLA has concluded that the MMS may hold the designated royalty payor responsible for all royalty due for production from a lease, including that attributable to the interests of
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co-lessees.19 However, co-lessees are not relieved of their lease obligations because lease provisions, Departmental regulations, and the terms of most operating agreements establish joint and severable liability for back royalties, interest, and/or other penalties that the MMS may allege are owing.20 In all events, potentially responsible parties should be informed of the MMS decision and should agree on (i) who should bear the responsibility for prosecuting the appeal and (ii) their respective liabilities if the MMS prevails. In these times when one or more potentially responsible parties may be financially distressed, the parties may also wish to agree among themselves that monies in dispute will be placed in an interest-bearing escrow account pending outcome of the appeal.
3. Evaluate The Materials Obtained From The MMS. All materials that support the MMS decision should be systematically and comprehensively evaluated by payor personnel and consultants. This evaluation should not be undertaken only by lawyers; accountants, production analysts, land managers, and other knowledgeable professionals should review the materials as well. All reviewers should make individual reports to the group, and the group should jointly assess the MMS decision. Consideration should include, along with economic and other factors, (i) whether an...
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