CHAPTER 13 ADMINISTRATIVE APPEAL OF FEDERAL VALUATION AND COLLECTION DECISIONS
| Jurisdiction | United States |
(Mar 1988)
ADMINISTRATIVE APPEAL OF FEDERAL VALUATION AND COLLECTION DECISIONS
Davis, Graham & Stubbs
Denver, Colorado
The administrative appeals process provides a critical framework for determining the respective rights and obligations of the federal government and federal mineral lessees. Consequently, the Department of the Interior's ("Department") administrative process is the focus of substantial commentary, much of it directed to technical aspects of the procedures governing administrative appeals.1 This paper will explore practical approaches to pursuing administrative 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 minerals produced from federal or Indian lands.2 In the exercise of that authority,
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MMS royalty valuation and collection decisions are typically rendered by the Associate Director for Royalty Management and his Royalty Management Program delegees.3 These decisions are subject to a two-step administrative appeals process.4 First, royalty valuation and collection decisions may be appealed to the MMS Director if they involve production from federal lands5 or to the Commissioner of Indian Affairs6 if they involve production from Indian lands.7 Second, decisions of the MMS Director or the Commissioner of Indian Affairs may be appealed to the Interior Board of Land Appeals ("IBLA").8 This two-step process, although similar to that used by MMS's predecessor agency for royalty management, the Conservation Division of the United States Geological Survey, is inconsistent with that employed by sister agencies such as the BLM9 where decisions rendered by authorized officers may be appealed directly to the IBLA without review by the BLM Director.10
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II. THE RECIPIENT OF AN ADVERSE ROYALTY VALUATION OR COLLECTION DECISION SHOULD TAKE A NUMBER OF CRITICAL STEPS BEFORE INITIATING AN ADMINISTRATIVE APPEAL.
Administrative appeals are always time consuming,11 may be expensive, and statistically are unsuccessful more times than not.12 Consequently, care should be taken and alternatives pursued before initiating an administrative 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, even if unsuccessful, 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 company's response to the issue letter, a draft demand letter, and other enforcement action documents.13 These materials, as well as instruction 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 Reach Agreement On Each Party's Obligations If The MMS Prevails And On How The Matter Should Be Pursued. Although it is clear in
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many cases who is responsible if MMS prevails and who shoulders the responsibility for making decisions relevant to any appeal that may be prosecuted, exceptions frequently arise, particularly in these times when many companies are financially distressed. For instance, it is not uncommon for an operator or a participant to go out of business leaving other participating parties to cope with an adverse royalty valuation or collection decision. The recipient of an adverse MMS decision should examine the BLM lease file and pertinent MMS materials to determine all parties that may be potentially responsible in light of the fact that the Department views all lessees of record, whether or not they have benefited from production, as jointly and severally liable for back royalties, interest, or other penalties that the MMS may allege are owing.14 All potentially responsible parties should agree on their respective liabilities if the MMS prevails and who should bear the responsibility for pursuing the appeal. If one or more potentially responsible parties are financially distressed and the MMS demand is for a substantial sum of money, the parties may wish to require that monies in dispute be placed in an interest-bearing escrow account.
3. Evaluate The Materials Obtained From The MMS. All materials that support the MMS decision should be systematically and comprehensively evaluated by expert company personnel and consultants. This evaluation should not be made only by lawyers; accountants, production analysts, land managers, and other knowledgeable professionals should review the materials independently. All reviewers should make individual reports to the group and the group should jointly assess the MMS decision. A collective decision should be made whether to appeal from the MMS decision.
4. Determine Whether An Appealable Decision Has Been Rendered. The MMS Director has rendered only one decision on the appealability of an MMS decision, holding that a preliminary royalty underpayment determination by a state conducting an audit is not appealable.15 The absence of significant authority on this question may well suggest that MMS procedures for designating decisions that are ripe for appeal work well. Decisions ripe for appeal include final royalty collection decisions, final royalty valuation decisions, and orders that a lessee perform a "self audit."16
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5. Meet With The MMS. If the MMS appears to have erred in rendering its decision,17 request a meeting with appropriate MMS representatives to discuss the matter and to seek withdrawal or modification of the MMS decision.18 The meeting should be informal, should be attended only by those with knowledge necessary to present the company's position, and should be chaired by that company representative who can best articulate how the MMS erred. If the MMS agrees to withdraw or substantially modify its decision, the need to pursue an appeal will be obviated. Even if unsuccessful, however, the parties will better understand each other's positions and the administrative record will likely be supplemented in a way favorable to the company. Moreover, merely participating in such a meeting may well begin anew the thirty (30) day period within which a notice of appeal must be filed, as the MMS has observed.19
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6. Supplement The Record. If the meeting with the MMS is not successful, prepare a letter to the MMS summarizing the points made by the company at the meeting and request that the letter be inserted in the administrative record. This letter should also clearly frame the areas of dispute and state the questions required for proper resolution of the matter from the company's perspective.
7. Consider Meeting With Senior MMS Representatives In Denver Or Washington. If the MMS official who rendered the decision appears to have clearly erred, if the matter involves an issue of significant import to the Royalty Management Program, or if a substantial sum of money is at issue, consider taking the matter before senior MMS officials in Denver or Washington. A meeting with senior MMS officials should be significantly more formal than a meeting with the authors of the MMS decision. So that senior MMS officials will be in a position to render a decision and not merely seek to understand the company's position, a briefing paper should be prepared in advance of the meeting, should be circulated to all who will attend, and should be sent to the author of the MMS decision, along with a note stating that the company welcomes his attendance at the meeting. If legal issues are raised, a Solicitor's Office representative should attend the meeting.
8. Establish The Scope Of The Administrative Record. If these informal efforts are unsuccessful, take steps to establish the scope of the administrative record on which the MMS acted. File a Freedom of Information Act20 request with pertinent MMS offices requesting all documents on which the MMS decision is based save the documents that the company has already obtained informally.21 In all likelihood the MMS's reply will indicate that the company has already been provided all documents on which the MMS relied in rendering its decision. That reply may prove valuable in preparing statements of reason and in resisting agency efforts to supplement the record before the courts.
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III. THE RECIPIENT OF THE ADVERSE DECISION SHOULD DETERMINE WHETHER TO PROCEED BY PURSUING ADMINISTRATIVE REMEDIES OR BY TAKING THE MATTER DIRECTLY TO A COURT OF LAW.
As a general rule a person adversely affected by a federal agency decision may not initiate judicial review proceedings until he has exhausted all available administrative remedies.22 That general rule, however, is not without exception.23 Where, for instance, an agency renders a full force and effect decision, an adversely affected party may bring an action for judicial review without pursuing administrative remedies.24
MMS royalty valuation and collection decisions are clearly full force and effect decisions.25 Consequently, as a matter of law an adversely affected party may initiate a lawsuit for judicial review of the MMS decision without exhausting administrative remedies unless the Department stays the requirement for compliance. The question presented in any given
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