CHAPTER 13 ADMINISTRATIVE APPEALS OF MINERALS MANAGEMENT SERVICE ORDERS INVOLVING ROYALTIES ON FEDERAL AND INDIAN LANDS

• Jurisdiction: United States

Federal & Indian Oil & Gas Royalty Valuation and Management II
(Feb 1998)
CHAPTER 13
ADMINISTRATIVE APPEALS OF MINERALS MANAGEMENT SERVICE ORDERS INVOLVING ROYALTIES ON FEDERAL AND INDIAN LANDS
Hugh V. Schaefer
Welborn Sullivan Meck & Tooley, P.C.
Denver, Colorado
Hugh E. Hilliard
Appeals Division
Minerals Management Service ^*
Washington, D.C.

TABLE OF CONTENTS

SYNOPSIS

I. History and Overview of Appeals Process for Federal and Indian Royalty Disputes

A. History of Appeals Processes for Royalty Disputes

B. Background on Current MMS Appeals Process

C. Description of the Current MMS Appeals Process

D. Recent Developments

E. Statistics on MMS Appeals

II. Findings and Recommendations of Royalty Policy Committee, Subcommittee on Appeals and Alternative Dispute Resolution

A. Establishment of Subcommittee

B. Subcommittee's Concerns about MMS Appeals Process

C. Subcommittee Recommendations

III. Future Plans for Reform of the Appeals Process

Appendix A Flowchart of Current MMS Appeals Process

Appendix B Flowchart of Proposed Redesigned Appeals Process

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I. History and Overview of Appeals Process for Federal and Indian Royalty Disputes

A. History of Appeals Processes for Royalty Disputes

Since the passage of Mineral Leasing Act of 1920 (MLA), the Department of the Interior has been responsible for collecting royalties and related payments on Federal and Indian Mineral leases.¹ In 1982, the Secretary of the Interior established the Minerals Management Service (MMS) and transferred the royalty collection function to it.²

Prior to 1942, the regulations of the U.S. Geological Survey (USGS) provided that its royalty payment demands were appealable to the Secretary.³ In 1942, the USGS revised its regulations, and specified that royalty issues would be appealable first to the Director, and that decisions made by the Director would be appealable to the Secretary.⁴

Decisions on appeals to the Secretary (either as a first level review or after an intermediate decision by the USGS Director) were signed by the Secretary or the Assistant Secretary responsible for the function. In 1947, the Secretary delegated this authority to the

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Office of the Solicitor. The Solicitor or an Assistant Solicitor would then sign final decisions for the Department.⁵

Both within the bureaus, at the first level of review, and in the Solicitor's office, at the second level of review, there was some, but not an absolute, division between: (1) the people responsible for taking actions in the first place, (2) those responsible for justifying those actions upon appeal, and (3) those responsible for making decisions on appeal. In 1953, the Department established a separate branch within the Office of the Solicitor to adjudicate appeals, thereby providing for a separation between the staff adjudicating appeals and the staff providing advice and advocacy support to the bureaus.⁶

However, this separation was not considered to be sufficient by many constituents outside the Department. A special commission established by Congress to investigate the regulations governing management of public lands described the situation as follows:

Perhaps the most consistent complaint ^*** was that the review procedures provided for by the administrative review systems of the Bureau of Land Management and the Forest Service were largely illusory because those who sat in judgement on "appeal" were part of the establishment that had made or participated in the initial decision. With respect to appeal of initial decisions^*** to the BLM Director, it was argued that the Director could hardly be expected to render an objective decision on appeal in a matter involving one of his subordinates who was carrying out official BLM policy. As noted later in this chapter, available evidence does not fully substantiate this claim.^***

Similar complaints were voiced with respect to appeals from the BLM Director to the Secretary. Since the appeal is in fact taken to the Office of the Solicitor,^*** it is claimed that an objective decision is made difficult because the Solicitor's office also serves as legal advisor to the BLM

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Director and field personnel. Although we recognize the fundamental difference between the administrative review function and a judical [sic] appellate system, we find that these complaints have merit."⁷

The Commission went on to note that the advisory and adjudicatory functions of the Solicitor's office were carried out by different branches of the Solicitor's office (at least for appeals from BLM and the USGS). Nevertheless, the Commission felt that this did not "fully mitigate the appearance that a single office of the Secretariat baldly serves as both advocate and judge in the same case, and appearances are important, whatever the reality may be."⁸

Thus, the Commission recommended "that Congress provide for Secretarial review adequately insulated from management officials and legal advisors who have participated in decisions below, except for direct, open presentation of argument in support of their decisions."⁹

One month after publication of the Commission's report (and based on Interior Department participation in deliberations of the Commission), the Department of the Interior published delegations of authority for the Office of Hearings and Appeals and its constituent boards, including the Interior Board of Land Appeals (IBLA).¹⁰ This made the second level of review within the Department of the Interior, for decisions made by the Director of the USGS (as well as the BLM Director and Deputy Commissioner for Indian Affairs) more independent, both in form and appearance, than it previously had been.

Accordingly, the USGS amended its regulations in 1973 such that appeals of decisions by the USGS Director (or the Commissioner of Indian Affairs for matters involving Indian leases) were to be made to the IBLA rather than to the Secretary.¹¹ The 1973 version of the regulations remains intact today in MMS' rules at 30 C.F.R. Part 290 (though of course the Director now is of MMS, rather than USGS). It should be noted, however, that the creation of the IBLA was motivated primarily with dissatisfaction with the process for adjudicating BLM appeals, not USGS appeals, and that there was no change to the process for adjudicating appeals at the first stage within the USGS.

The USGS maintained a staff reporting to the Chief of the Conservation Division to advise the USGS Director, who made decisions at the first stage of the appeals process. When the functions were transferred to MMS in 1982, MMS established a separate Division of Appeals to perform this job.

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B. Background on Current MMS Appeals Process

The MMS Appeals Division currently reports to the MMS Associate Director for Policy and Management Improvement.¹² The reporting structure is designed to keep some degree of independence between the staff preparing appeals decisions and the staff responsible for the actions being appealed (who generally report to the Associate Director for Royalty Management).

The vast majority of appeals to the MMS Director stem from actions taken by MMS' Royalty Management Program to collect additional royalties, rentals, interest, or assessments from companies holding Federal or Indian oil, gas, or solid minerals leases. A small percentage of appeals stem from actions taken by MMS' Offshore Minerals Management program, such as civil penalty assessments, lease suspension denials, and unitization decisions. This paper focuses on appeals involving mineral revenue disputes, though the process is similar for appeals of actions taken by the Offshore Minerals Management program.

The purposes of the MMS appeals process are as follows:

• To provide companies with a process to have MMS reconsider its actions.

• To ensure that an adequate record is established, including all necessary documents both from the appellants and MMS, before the case proceeds to the IBLA or to Federal court.

• To provide the MMS Director with the opportunity to decide which actions of subordinate officials to uphold (and thus defend if further appealed) and which actions to overturn or modify. This also provides an opportunity for the Director to ensure consistency in application of law and policy to specific circumstances and to communicate to MMS staff and to lessees the Director's views as to how law and policy apply to specific circumstances.

While the MMS process is designed to ensure a fair review of appellant's arguments, it is not designed to be fully independent. The Appeals Division, though subordinate to the MMS Director, is independent from the Royalty Management and Offshore Minerals Management programs. However, the Director and the Associate Director for Policy and Management Improvement (who is delegated the authority to sign appeals decisions on behalf of the Director, or to forward to BIA for signature appeals decisions involving Indian leases) are not restricted to following the advice of the Appeals Division. The officials authorized to render decisions on appeals may rely on input from the Royalty Management Program (RMP), from states or tribes that conduct audits under delegated authority from MMS, or from the Solicitor's office. Draft

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decisions typically are circulated for comment before they are put in final form.¹³ Thus, the Director or person signing the decision may choose whether to follow the advice of the Appeals Division or some other officials in MMS (or in states or tribes with delegated audit authority), including parties who may have participated in the original action leading to the appeal. In almost all cases, however, the final call on whether to issue a decision (or forward it for signature in BIA) is made by someone independent from both the RMP and the Solicitor's office.¹⁴

C. Description of the Current MMS Appeals Process

There are two types of MMS...