In its attempt to recover gas and oil royalties through administrative orders, is MMS, a government agency, bound by the six-year statute of limitations that governs actions for money damages brought by the United States?
The Mineral Leasing Act of 1920, 30 U.S.C. 181 et seq., and other statutes charge the Secretary of the Interior with leasing federal and Indian lands for development of oil and gas resources. The Minerals Management Service ("MMS") administers the leases. In the wake of a dispute over royalties, the Minerals Management Service (“MMS”), sought to recover, through administrative order, contractual damages which arose more than six years beforehand. Petitioners, producers of natural gas, claim that the collection of these damages is barred by the limitations period set forth in 28 U.S.C. § 2415. MMS claims that this limitation period does not apply because the statute only applies to actions in court and not to administrative proceedings. The Supreme Court’s ruling will affect the parity of contractual relations between private citizens and the government with respect to the resolution of contract disputes.
Questions as Framed for the Court by the Parties
Whether - contrary to the decision below but consistent with decisions of the Tenth and Federal Circuits - the limitations period in 28 U.S.C. § 2415(a) applies to federal agency orders requiring the payment of money claimed under a lease or other agreement.
Under the Mineral Leasing Act of 1920, 30 U.S.C. 181 et seq. and other statutes, the Secretary of the Interior leases federal and Indian lands for development of oil and gas resources. Brief for Respondents at 2. Petitioner BP America Production Co. ("BP") is the successor in interest to oil and gas producers Amoco Production Company ("Amoco") and Atlantic Richfield Company and Vastar Resources, Inc. ("ARCO/Vastar") (“the producers”), each of which extracted gas from federal land through such lease agreements administered by the Minerals Management Service (“MMS”). Amoco Production Company v. Watson, 366 410 F.3d 722, 726 (D.C. Cir. 2005). Under the lease, the producers calculated and paid royalties to the government based on the gross proceeds from gas sales. Id. For purposes of the calculation, gross proceeds are the price a purchaser would pay for treated gas, whether or not the producers actually sold the gas in treated form. Id. The producers could deduct from gross proceeds the cost of transporting royalty-bearing products. Id. Finally, the producers could deduct the cost of transporting "waste products which have no value" because such products are considered part of the cost of bringing the gas to market. Id.
In 1996, MMS sent a letter (“the Payor Letter”) to the producers which set out guidelines for calculating royalties from coalbed methane and informed the producers that removing excess carbon dioxide is considered a cost of placing the gas in marketable condition. Id. The Payor Letter further specified that the producers could deduct the cost of piping the methane and the allowable two or three percent portion of carbon dioxide to the treatment center, but could not deduct the cost of transporting the excess carbon dioxide to be removed at the treatment center. Id. MMS then issued separate orders declaring the producers deficient in their royalty payments because, rather than paying royalties on the proceeds the producers would have received had they sold the gas in marketable condition, the producers had paid the sale price reduced to reflect the cost the purchasers would incur in transporting the gas to the treatment center. Id. The order stated that the producers owed money from payments stemming back to 1989 and that Amoco and ARCO owed $4,117,607 and $782,373 respectively. Id.
The producers challenged the orders before the Assistant Secretary for Land and Minerals Management on three grounds. Id. First, they challenged the substance on which they were required to pay royalties. Id. Second, they contended that the Payor Letter was a rule and that it failed to meet the Administrative Procedure Act’s notice and comment requirement. Id. Finally, the producers contended that the collection of royalties was barred by the six-year statute of limitations for government actions for money damages under 28 U.S.C. § 2415. Id.
The D.C. District Court granted MMS’s request for summary judgment against the producers; the D.C. Court of Appeals conducted a de novo review and affirmed the lower court’s judgment. Id.
Petitioner, BP American Production Company, contends that 28 U.S.C. § 2415 imposes its six-year limitations period on administrative orders. Petitioner advances two general arguments in favor of its position: (1) that the rules of statutory interpretation require administrative orders to be encompassed by the statute, and (2) that excluding administrative orders would be contrary to the purpose, origin and history of the statute. Brief for Petitioner at 12-15.
Petitioner BP maintains that the rules of statutory interpretation require administrative orders to be subject to the statute of limitations. Looking to the language of the statute, BP points to precedent for a broad reading of the term "action" Id. at 18. See West v. Gibson, 527 U.S. 212 (1999) (refusing to limit “action” to judicial proceedings). Petitioner argues, further, that the term “complaint” is used very often, in both statutes and judicial decisions, to describe the commencement of an administrative proceeding. Id. at 22. See 5 C.F.R. § 2423.20(a) (FLRA). Finally, Petitioner notes that when Congress seeks to limit a statute’s reach to judicial proceedings, it uses language confined to the judicial context such as “suits,” “civil actions,” or suits “in a court of competent jurisdiction.” Id. at 24.
Turning to the interpretive rule that all statutory language should be considered to be important, Petitioner notes the phrase, in section 2415(i), that the six-year statute of limitations “shall not prevent the United States or an officer or agency thereof from collecting any claim of the United States by means of administrative offset.” Id. at 27 (quoting 28 U.S.C.§ 2415(i)). Here Petitioner argues that if administrative proceedings were already excluded by section 2415, there would be no need for section 2415(i). Id. Thus, allowing such a construction would render the section superfluous and would not be sound analysis. Id.
Lastly, Petitioner turns to the canon requiring a court to “interpret [a] statute as a symmetrical and coherent regulatory scheme …and fit, if possible, all parts into an harmonious whole.” Id. at 31 (quoting FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133). Section 2415, as a whole, subjects to a six-year limit judicial actions to coerce payment of money, and it subjects to a longer limit judicial actions to withhold money. Id. Petitioner argues that it would therefore be illogical for administrative actions to coerce payment to be subject to no limit at all. Id. Furthermore, Petitioner explains that, not coincidentally, the six-year limit in Section 2415 corresponds to a statutory record-keeping requirement of six years. Construing the statute in a way that allows administrative proceedings to be brought indefinitely would thus break the equivalence that Congress created between limitation period and recordkeeping requirements, as well as that between private and government limitation periods. Id. at 33.
Finally, Petitioner argues that excluding administrative orders would be contrary to the purpose, origin and history of the statute. Id. at 40. Petitioner notes that Congress enacted section 2415 after the Government Operations Committee reported, in response to the potential abuse and delays of administrative proceedings, that in the interest of fairness a statute of limitations should be established. Id. at 42. Certainly, then, the ensuing statute cannot be understood to exclude the proceedings that it was enacted to improve. Furthermore, Petitioner argues that excluding administrative actions from the limitation defeats Congress’s purpose in establishing a tolling provision. Id. at 43. Section 2415 sets out that when “administrative proceedings [are] required by contract or law” the government must bring suit “within one year after final decisions have been rendered.” Id. at 43 (quoting 28 U.S.C. § 2415(a)). Allowing administrative actions to be brought at any time would “eliminat[e] any limitations period even as to judicial actions: Any time administrative proceedings are mandatory, the government would have forever to begin those proceedings, plus a year from their completion to file a lawsuit.” Id.
Respondent advances a textual argument based on three claims. Resp’t Brief at 9–10. (1) That the ordinary meanings of the statutory terms refer to a suit in court. Id. (2) That the context of the statute demonstrates that Congress intended to limit the six-year limitation period to suits in court. Id. (3) That the legislative history of the statute demonstrates that Congress intended for it to refer only to actions in court. Id. Finally, Respondent refutes Petitioner’s policy argument that Congress intended to level the playing field between private citizens and government agencies with respect to statutes of limitations by arguing that the purpose of the statute is largely irrelevant given its clear textual meaning. Id.
Respondent first argues that all of the definitions of the relevant language in Section 2415 demonstrate that the statute applies only to actions in court—not to administrative actions. Brief for Respondent at 9. First, Respondent notes that the words “an action for money damages,” strongly connote an action brought in court, not an administrative action. Second, Respondent points out that the statute distinguishes between an action, something done in court, and an “administrative proceeding,” with administrative proceedings triggering the time bar, not being limited by it. Id. at 9. Refuting Petitioner's reading of the statute, Respondent remarks that “Congress could not have meant to give the government one year from the end of administrative proceedings to commence administrative proceedings.” Id. at 18.
Next, Respondent makes a contextual argument that Congress included Section 2415 in Title 28 of the U.S.C., which is entitled “Judiciary and Judicial Procedure”, because it intended the statute to govern only suits in court. Id. at 25. Furthermore, “every other provision in Chapter 161 applies only to procedures in court, not to administrative proceedings.” Id. at 10. With respect to legislative history, Respondent essentially rebuts Petitioner’s argument that subsection (i), which makes an exception for administrative offset, explaining that Congress added this section later because they wanted to exclude certain types of administrative actions that were previously included in the section. Id. at 11. Respondents argue that an amendment added 16 years after the original statute was enacted is not a basis for disregarding the text or context of the original statute and that Congress could not possibly have intended to change the meaning of the statute by adding Section (i). Id.
Respondent’s final argument counters Petitioner’s argument that Congress’s intent was to put Citizens on a level playing field with the government and have the same time limit apply to the government that applies to private citizens with respect to recovering money for contractual claims. Respondents essentially argue that even if that was Congress’s intent, “it frustrates, rather than effectuates, legislative intent simplistically to assume that whatever furthers the statute’s primary objective must be the law.” Id. at 35 (quoting Rodriguez v. United States, 480 U.S. 522, 525–526 (1987).
Statutes of limitations (deadlines for taking legal action) are controversial fixtures of our legal system. Some see the mechanism as unfair, bestowing windfalls to would-be defendants while stripping the right to recover from those with valid claims. Objection to these statutes is particularly strong when a potential defendant is suspected of repeatedly and stealthily attempting to evade their obligations. In these cases, much time and money must be spent to persistently scrutinize the actions of these parties in order to preserve all claims. However, the statutes are widely accepted as ensuring the best evidence and “promot[ing] repose by giving security and stability to human affairs”. Brief for Petitioner at 35. Furthermore, in the business context, relevant statutes of limitations provide guidelines as to how long a business should go about the costly exercise of maintaining records and funds which may be needed in case of legal action.
These conflicting interests lie in the background of BP America Production Co. v. Burton. In this case, the Minerals Management Service (“MMS”), a lessor of gas-rich land, seeks to recover years of unpaid royalty payments from BP America Production Company ("BP"), the lessee of the land. While BP wants to ensure that complete and fair evidence is available in defending against MMS’s claims, MMS does not want to lose its right to recover all of the money it believes it is owed. If such collection were sought in court, by the filing of a complaint and commencement of an action, MMS would be constrained by a six year statute of limitations. 28 U.S.C. § 2415. This would mean that any royalty claim more than six years old would be lost. However, in this situation, MMS sought to collect through administrative orders instead of through the court system. The Supreme Court will thus be asked to determine whether 28 U.S.C. § 2415(a), which sets out a six-year statute of limitations when the government seeks to exact money from parties in court, also limits the government when it seeks to exact money from parties through administrative orders.
Section 2415 of Title 28 was originally enacted to place the government on more equal footing with private parties, who have always been subject to a statute of limitations, in the resolution of contract disputes. Brief for Petitioner at 33. It states that “Every action for money damages… shall be barred unless the complaint is filed within six years after the right of action accrues”. 28 U.S.C. §2415(a). Thus, in order for § 2415 to apply in this case, administrative orders must be interpreted as “action[s].” Currently, the Circuit Courts disagree with one another regarding the interpretation of this statute. In 2001, the 10th Circuit decided that administrative orders are “actions” under Section § 2415 and as such are subject to the six year statute of limitations. OXY USA, Inc v. Babbitt, 268 F.3d 1001, 1010 (10th Cir. 2001). The 5th Circuit, on the other hand, decided that administrative orders are not “actions” under Section § 2415 and as such are not subject to the six year statute of limitations. Phillips Petroleum Co. v. Johnson, 155 F.2d 185, 189 (5th Cir. 1994). The DC Circuit, in Amoco Production Co. v. Watson (now BP American Production Co. v. Burton), agreed with the 5th Circuit and held that administrative orders are not actions, and are not subject to the statute of limitations set out in §2415. Amoco Production Co. v. Watson, et al., 410 F.3d 722 (D.C. Cir. 2005). The Supreme Court will now have the opportunity to settle the Circuit Courts' dispute.
Petitioner BP argues that exempting administrative orders from the statute of limitations would force parties in contracts with the government to maintain records and set aside funds indefinitely in preparation for any future action. This would result in great financial burden. Respondent Burton would likely reply that the gas producers’ incentive to purposefully underpay royalties justifies subjecting them to action beyond the statutory six years.
If the Supreme Court finds that Section 2415 does apply to administrative orders, MMS will only be able to collect unpaid royalties which were ordered no more than six years after they became due. Any claims that MMS has to earlier unpaid royalties would be lost, and the money would be kept by BP America Production Co. This outcome could have a severe financial impact on Indian tribes. Royalties paid to the tribes from oil and gas production on leases such as this provide about half of all the revenue used to pay for essential government services on the tribes’ reservations, including police, tribal courts, health care and education. Tribes could find themselves in serious financial trouble if deprived of royalties beyond the six-year limitations period. Brief of Amicus Curiae Jicarilla Apache Nation et al. in Support of Respondents. Such a decision would also undermine the role of MMS in enforcing royalty obligations, harming states and tribes who have relied on MMS oversight. Id.
If, however, the Supreme Court finds that Section 2415 does not apply to administrative orders, MMS will be able to collect all unpaid royalties, even those which were ordered more than six years after they became due. A finding that administrative orders are not subject to the six-year limitation will mean that those in contractual relationships with the government will need to start keeping records of tangible evidence indefinitely. This will impose a significant cost on these parties. Furthermore, intangible evidence, such as the recollections of the parties, may be lost with the passage of time. This decision would be beneficial for the government in that the increased power of the government might lessen the appeal of attempting to avoid contractual obligations, helping the government more effectively enforce its contracts. If, on the other hand, the Supreme Court decides that administrative orders are subject to the six-year limitation, the government would be on more equal footing with the private parties with which it contracts. Such a decision would allow the parties to maintain a more reasonable and less costly six-year record-keeping period.
With the MMS’s attempt to recover lease royalties, the Supreme Court will have to decide between a compelling policy argument on the side of the petitioners and a textual argument by the Respondents. Arguably, Congress did intend to level the playing field between government agencies and private citizens when it enacted Section 2415. Allowing government agencies to seek the past due amounts through administrative actions would seem to provide a means for an end run around the statute. However, Congress used language that seems to limit the scope of the statute to actions in court. In the end, this decision will either represent a victory for citizens rights’ in their dealings with government agencies, or a victory for strict textual interpretation of Congressional legislation.