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Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 1, 1996 Decided July 18, 1997 

No. 96-5030

AMOCO PRODUCTION COMPANY, ET AL.,

APPELLANTS

v.

THOMAS A. FRY, DIRECTOR, MINERALS MANAGEMENT

SERVICE, ET AL.,

APPELLEES

Appeal from the United States District Court 

for the District of Columbia 

(No. 93cv02163)

L. Poe Leggette argued the cause and filed the briefs for 

appellants.

Robert L. Klarquist, Attorney, U.S. Department of Justice, 

argued the cause for appellees. With him on the brief were 

Lois J. Schiffer, Assistant Attorney General, and David C. 

Shilton, Attorney.

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Before: EDWARDS, Chief Judge, SILBERMAN and TATEL, 

Circuit Judges.

Opinion for the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge: Appellants, companies holding federal leases for oil and gas production on the outer continental 

shelf, seek credits for hundreds of royalty overpayments 

made between 1990 and 1994. The Department of the Interior is withholding the overpayments pending resolution of its 

claims that the companies owe money from earlier royalty 

underpayments. The district court granted summary judgment for the Department, holding that neither the Outer 

Continental Shelf Lands Act nor the Debt Collection Act 

requires the Department to release the overpayments, and 

that because the companies have no constitutionally protected 

property interest in the overpayments, the Department's 

withholding does not violate the Due Process Clause. Concluding that temporary withholding is distinct from administrative offset and thus not subject to the Debt Collection Act, 

but that it does amount to a deprivation of a constitutionally 

protected property interest, we reverse and remand with 

instructions to ensure that the Department gives the companies the information needed to satisfy the requirements of 

due process.

I

Federal law divides the lands over which the federal government exercises mineral leasing authority into three broad 

classes: federal onshore lands, Indian lands, and outer continental shelf lands. See, e.g., 30 U.S.C. §§ 1701(b), 1702(1), 

(3), (10) (1994); 5 EUGENE KUNTZ, KUNTZ: A TREATISE ON THE 

LAW OF OIL AND GAS ch. 67 (1991). The Outer Continental 

Shelf Lands Act, 43 U.S.C. § 1331 et seq. (1994), authorizes 

the Secretary of the Interior to grant leases for oil and gas 

production on the outer continental shelf, id. § 1337, the 

submerged lands extending from three miles off the U.S. 

coast to the outer edge of the shelf, the point where the slope 

of the sea floor increases dramatically and "the continental 

mass drops off steeply toward the ocean deeps." H.R. REP.

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NO. 413, at 2 (1953), reprinted in 1953 U.S.C.C.A.N. 2177, 

2178; see 43 U.S.C. § 1331(a). Appellants, six oil companies, 

hold many of these leases, which are overseen by the Interior 

Department's Minerals Management Service (MMS). Offshore lessees make monthly royalty payments to the Department. Under section 10 of the Act, lessees believing they 

have overpaid royalties have two years to request repayment. 

43 U.S.C. § 1339(a). In response to timely requests, the 

Department determines whether overpayments have been 

made and, if so, certifies the amounts to the Treasury Department to allow repayment in the form of refunds or credits. 

Id. § 1339(a)-(b). The MMS requires lessees to await permission letters before taking credits for royalty overpayments, enforcing the system through $10,000/day fines on 

lessees taking credits without permission.

Beginning in December 1992 or January 1993, the MMS 

refused to issue permission letters for the companies that are 

appellants in this case to take credits for overpayments even 

though the companies had filed timely requests for credits 

and the agency had determined that the companies had in 

fact overpaid. As it explained at a July 1993 meeting with 

representatives of the companies, the MMS withheld the 

credits because the companies refused to pay amounts the 

MMS claimed they owed on earlier royalty underpayments. 

The MMS discovered the underpayments during an audit of 

lease accounts pursuant to the Federal Oil and Gas Royalty 

Management Act of 1982, 30 U.S.C. § 1701 et seq. (1994), 

which governs many aspects of the payment system for oil 

and gas leases on federal onshore, Indian, and outer continental shelf lands. See id. § 1711(c). The underpayments identified by the MMS related to leases the companies held on all 

three classes of land. By the end of March 1994, the withheld overpayments, running as far back as 1990, amounted to 

approximately $12.4 million.

The companies refused to comply with the Department's 

orders to pay amounts owed on the underpayments and sued 

in several federal district courts, challenging some of the 

underpayment claims on the merits and asserting that all 

claims were barred by the six-year statute of limitations on 

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contract claims brought by the United States. See 28 U.S.C. 

§ 2415(a) (1994). Because the Government's ability to collect 

underpayments by administrative offset is not subject to the 

statute of limitations, the Department claims that it is withholding to preserve its ability to collect those underpayments 

that prove to be time-barred. The Government's position, 

confirmed at oral argument, is that it will cease withholding 

outer continental shelf overpayments if the companies waive 

their statute-of-limitations defenses to the Department's underpayment claims to the extent of their withheld outer 

continental shelf overpayments. See Defendants' Statement 

of Material Facts Not in Dispute, ¶ 19; see also 58 Fed. Reg. 

43,582, 43,585 (Aug. 17, 1993). Declining the Government's 

offer, the companies filed suit in the United States District 

Court for the District of Columbia, claiming the Department's 

refusal to authorize credits for their 1990-1994 overpayments 

violated section 10 of the Outer Continental Shelf Lands Act; 

the Debt Collection Act, 31 U.S.C. § 3701 et seq. (1994), and 

its implementing regulations, the Federal Claims Collection 

Standards, 4 C.F.R. pts. 101-05 (1997); and the Due Process 

Clause, U.S. CONST. amend. V. They sought declaratory and 

injunctive relief and, in the alternative, a writ of mandamus.

The District Court granted the Department's motion for 

summary judgment, concluding that the Department's withholding did not violate section 10 because its right to withhold 

was implicit in its common-law right of offset and section 10 

could not be read to abrogate that right. Finding that the 

Department's withholding was not an offset, but rather a 

temporary withholding in preparation for possible future 

offset once the litigation about the companies' earlier underpayments had been resolved, the District Court concluded 

that the Debt Collection Act's provisions concerning administrative offset do not apply to the Department's withholding. 

Determining that the companies had no property right in the 

credits withheld by the Department, the District Court found 

no due process violation. We review the district court's grant 

of summary judgment de novo. See, e.g., Association of 

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Flight Attendants, AFL-CIO v. USAIR, Inc., 24 F.3d 1432, 

1436 (D.C. Cir. 1994).

II

Before turning to the merits of the companies' claims, we 

must determine whether events occurring during the pendency of this appeal have rendered the case moot. After the 

companies filed their notice of appeal and before the submission of briefs, Congress amended both the Debt Collection 

Act, Omnibus Consolidated Rescissions and Appropriations 

Act of 1996, Pub. L. No. 104-134, tit. III, ch. 10, § 31001, 110 

Stat. 1321, 1321-361, and the Outer Continental Shelf Lands 

Act, Federal Oil and Gas Royalty Simplification and Fairness 

Act of 1996, Pub. L. No. 104-185, 110 Stat. 1700. The Outer 

Continental Shelf Lands Act amendments included a repeal of 

section 10. Id. § 8(b), 110 Stat. at 1717.

Although a statute's repeal normally renders moot a challenge to its validity, see, e.g., United States Dep't of the 

Treasury v. Galioto, 477 U.S. 556, 559-60 (1986); Kremens v. 

Bartley, 431 U.S. 119, 128-29 (1977), here the companies 

challenge not the validity of the statute itself, but government 

action under it, and Congress has made clear that it intends 

old section 10 to govern the lease payments at issue in this 

case. Section 8(b) of the Federal Oil and Gas Royalty 

Simplification and Fairness Act of 1996 provides, "Effective 

on the date of the enactment of this Act, section 10 of the 

Outer Continental Shelf Lands Act ... is repealed." Pub. L. 

No. 104-85, 110 Stat. at 1717. With certain exceptions not 

relevant here, section 11 provides that, "this Act, and the 

amendments made by this Act, shall apply with respect to the 

production of oil and gas after the first day of the month 

following the date of enactment of this Act." Id. In its 

section-by-section analysis of the Simplification Act, the 

House Report explains:

With respect to the repeal of section 10 of the Outer 

Continental Shelf Lands Act (OCSLA), the Committee 

intends the prospective elimination of the OCSLAimposed bar to lessees seeking refunds of overpayments 

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more than two years later and the establishment of the 

same limitations period for OCS leases as for onshore 

Federal leases. Therefore, royalties which may have 

been overpaid for OCSLA lease production prior to 

enactment of this Act are not affected by this section.

H.R. REP. NO. 104-667, at 21 (1996), reprinted in 1996 

U.S.C.C.A.N. 1442, 1450-51. As to the Simplification Act's 

effective date, the report states: "The Committee does not 

intend the provisions of this Act to alter rights or obligations 

of the Secretary of the Interior for production occurring prior 

to the date of enactment, unless expressly noted otherwise in 

the Act." Id.

The statute's language and legislative history thus make 

clear that section 10's repeal concerns only new oil and gas 

production. Accordingly, section 10 continues to govern the 

royalty overpayments in this case, which were made based on 

oil and gas production that occurred long before enactment of 

the Simplification Act. As the Supreme Court has repeatedly 

affirmed concerning effective dates and applicability of statutory amendments, "where the congressional intent is clear, it 

governs." Kaiser Aluminum & Chemical Corp. v. Bonjorno,

494 U.S. 827, 837 (1990); see also Landgraf v. USI Film 

Products, Inc., 511 U.S. 244, 257, 264 (1994).

III

The central issue in this case is whether the Department of 

the Interior possesses legal authority to withhold refunds of 

or credits for the companies' overpayments. According to the 

Government, its power to withhold derives both from statutesection 10 of the Outer Continental Shelf Lands Act

and from the common law right of offset. Although rejecting 

the Government's statutory argument, we agree with it concerning the common law.

Section 10 provides in relevant part:

(a) Subject to the provisions of subsection (b) of this 

section, when it appears to the satisfaction of the Secretary that any person has made a payment to the United 

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States in connection with any lease under this subchapter 

in excess of the amount he was lawfully required to pay, 

such excess shall be repaid without interest to such 

person or his legal representative, if a request for repayment of such excess is filed with the Secretary within two 

years after the making of the payment.... The Secretary shall certify the amounts of all such repayments to 

the Secretary of the Treasury, who is authorized and 

directed to make such repayments....

(b) No refund of or credit for such excess payment 

shall be made until after the expiration of thirty days 

from the date upon which a report giving the name of the 

person to whom the refund or credit is to be made, the 

amount of such refund or credit, and a summary of the 

facts upon which the determination of the Secretary was 

made is submitted to the ... Senate and ... House of 

Representatives.

43 U.S.C. § 1339. Far from authorizing the withholding of 

refunds or credits for overpayments, section 10 affirmatively 

requires the granting of such refunds or credits once a lessee 

has filed a timely request, the Secretary has determined that 

the lessee made an overpayment, and Congress has had at 

least thirty days to review the Secretary's determination. 

The statute's repeated use of mandatory language makes this 

plain: overpayments "shall be repaid"; the Secretary of the 

Interior "shall certify" the overpayment amounts to the Treasury; the Secretary of the Treasury is "direct[ed]" to make 

the certified repayments. As in the district court, the Government concedes that with regard to the overpayments at 

issue in this case, each of section 10's three prerequisites for 

repayment was satisfied. See Defendants' Statement of Material Facts Not in Dispute ¶ 11; Plaintiffs' Statement of 

Material Facts Not in Dispute WW 5-7; Defendants' Resp. to 

Plaintiffs' Statement of Material Facts Not in Dispute WW 5-7. 

Thus, under the plain language of the Outer Continental Shelf 

Lands Act, the companies were entitled to refunds or credits 

for their overpayments.

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The Government argues that the Department may nonetheless withhold the overpayments as an exercise of its common 

law right of offset or setoff, which "allows entities that owe 

each other money to apply their mutual debts against each 

other, thereby avoiding 'the absurdity of making A pay B 

when B owes A.' " Citizens Bank of Md. v. Strumpf, 116 

S. Ct. 286, 289 (1995) (quoting Studley v. Boylston Nat'l 

Bank, 229 U.S. 523, 528 (1913)). Like private creditors, the 

federal government has long possessed the right of offset at 

common law. See, e.g., United States v. Munsey Trust Co.,

332 U.S. 234, 239 (1947); Gratiot v. United States, 40 U.S. 

336, 370 (1841). Acknowledging the Government's offset 

right, the companies contend that the Debt Collection Act 

imposes procedural requirements on the exercise of the right 

that the Interior Department failed to follow. At the time of 

the events in dispute, that Act provided:

(a) After trying to collect a claim from a person under 

section 3711(a) of this title, the head of an ... agency 

may collect the claim by administrative offset .... only 

after giving the debtor

(1) written notice of the type and amount of the claim, 

the intention of the head of the agency to collect the 

claim by administrative offset, and an explanation of the 

rights of the debtor under this section;

(2) an opportunity to inspect and copy the records of 

the agency related to the claim;

(3) an opportunity for a review within the agency of 

the decision of the agency related to the claim; and

(4) an opportunity to make a written agreement with 

the head of the agency to repay the amount of the claim.

The Act also provides:

(b) Before collecting a claim by administrative offset 

under subsection (a) of this section, the head of an ... 

agency must prescribe regulations on collecting administrative offset....

31 U.S.C. § 3716 (1994).

As the companies point out, at the time the Department 

began withholding the overpayments at issue in this case, it 

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had not promulgated the regulations concerning administrative offset required by subsection 3716(b). Conceding this 

point, the Government argues that its failure to issue regulations has no effect on its right to withhold the contested 

payments for two reasons: the withholding in this case is only 

temporary and thus does not amount to an offset within the 

meaning of the Debt Collection Act; and the Act does not 

apply to the Government's common-law right of offset, only to 

the statutory right of offset created by the Act itself. Because we agree with the District Court that the first of these 

reasons is dispositive concerning the Debt Collection Act's 

applicability, we need not address the second.

Our agreement with the District Court that the Government's temporary withholding of money sufficient to satisfy 

claims it is seeking to resolve through litigation but which 

may be time-barred does not constitute administrative offset 

rests first and foremost on the plain language of the Debt 

Collection Act. The Act defines "administrative offset" as 

"withholding money payable by the United States Government to, or held by the Government for, a person to satisfy a 

debt the person owes the Government." Id. § 3701(a)(1) 

(emphasis added). Offset thus occurs when the Government 

actually applies money it is holding to satisfy a debt. This 

view of offset fits with the Act's authorization of agencies to 

"collect ... claim[s] by administrative offset." Id. § 3716(a) 

(emphasis added). The temporary retention of the money 

during the time it takes to determine whether the debt may 

be collected through judicial action is distinct from the subsequent satisfaction of the debt.

Although we are unaware of any decision drawing the 

distinction between withholding and offset under the Debt 

Collection Act, courts, Congress, and agencies have all drawn 

this distinction in related contexts. The Supreme Court, for 

example, recently held that the placing of an "administrative 

hold"in which a bank freezes a depositor's accountdoes 

not constitute a setoff under the Bankruptcy Code provision 

prohibiting creditors from taking setoffs of a bankrupt's debts 

that arose before the commencement of the bankruptcy proUSCA Case #96-5030 Document #285201 Filed: 07/18/1997 Page 9 of 13
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ceeding. In freezing the bankrupt's account, the Court explained, the bank refused to honor the bankrupt's demand for 

funds from the account "not permanently and absolutely, but 

only while it sought [judicial] relief" from the Bankruptcy 

Code's provision staying setoffs. Citizens Bank, 116 S. Ct. at 

289. Similarly, here the Department is withholding the companies' overpayments, not permanently and absolutely, but 

only during the pendency of litigation to resolve the debts it 

may ultimately use the withheld money to satisfy through 

offset.

In reaching its conclusion about requirements for setoff 

under the Bankruptcy Code, Citizens Bank relied in part on 

the definition of setoff developed in many states, under which 

"setoff has not occurred until three steps have been taken: (i) 

a decision to effectuate a setoff, (ii) some action accomplishing 

the setoff, and (iii) a recording of the setoff." Id. (citing 

Baker v. National City Bank of Cleveland, 511 F.2d 1016, 

1018 (6th Cir. 1975); Normand Josef Enters., Inc. v. Connecticut Nat'l Bank, 646 A.2d 1289 (1994)). Although the elements of this definition take their particular meaning from 

the world of banking, they suggest the more basic principle 

applicable here: setoff occurs only after the party holding the 

money acts to make its taking of the money permanent and 

indicates as much by canceling the other party's debt in the 

amount taken.

Not confined to banking, the distinction between withholding and offset has been recognized in the context of claims by 

and against the Government as well. See 1A JOHN C.

MCBRIDE ET AL., GOVERNMENT CONTRACTS § 7.70 (1995). The 

statute regulating resolution of claims against the Government, for example, directs the Comptroller General to withhold paying that part of a judgment against the U.S. equal to 

a debt the judgment creditor owes the Government. 31 

U.S.C. § 3728(a). If the judgment creditor agrees to "discharge a portion of the judgment equal to the debt," then the 

Comptroller General must take a "setoff," i.e. "discharge the 

debt." Id. § 3728(b). If the judgment creditor does not 

agree to the setoff, the statute directs the Comptroller General to initiate a civil action to recover the debt and requires 

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him to continue withholding payment of an amount equal to 

the debt plus a sum to cover legal expenses during the 

pendency of the litigation. Id. The statute thus clearly 

recognizes a distinction between temporarily withholding payment of a debt while judicial proceedings are under way to 

recover the debt and offset itself, actually discharging the 

debt. As the District Court noted, several courts have acknowledged this distinction in the context of administrative 

offsets of contract debts, see Tatelbaum v. United States, 10 

Cl. Ct. 207, 212 (1986), or of debts created through overpayment of government subsidies, see Doko Farms v. United 

States, 956 F.2d 1136, 1142-43 (Fed. Cir. 1992).

Finally, and again as the District Court emphasized, treating temporary withholding as indistinguishable from administrative offset would effectively undermine the Government's 

ability to exercise its offset authority. If agencies were 

required to afford Debt Collection Act procedural protectionsnotice, access to records, an opportunity for administrative review, and a chance to resolve the debt through 

written agreementprior to withholding, they would have to 

release the money while they carried out the procedures, thus 

leaving them without funds either to withhold or, more important, to offset once the procedural steps had been completed. 

Temporary withholding thus serves as a necessary prerequisite for exercise of the authority to offset.

Because the Department's withholding does not constitute 

an administrative offset within the meaning of the Debt 

Collection Act, the Department had no obligation to afford 

the companies the procedural protections mandated by the 

Act. The companies contend that the Department's action 

was illegal nonetheless because it deprived them of property 

without the due process of law guaranteed by the Fifth 

Amendment. In assessing constitutional due process claims, 

we ask two questions: Did the Government deprive the party 

of a protected property interest? If so, what process was 

due? See, e.g., UDC Chairs Chapter, Amer. Ass'n of Univ. 

Professors v. Board of Trustees of the Univ. of the Dist. of 

Columbia, 56 F.3d 1469, 1471 (D.C. Cir. 1995). Answering 

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ed that the companies had no constitutionally protected property interest in the withheld lease overpayments for two 

reasons: the withholding was only temporary; and both the 

overpayments and the earlier underpayments the Department seeks to recover all formed "part of the same, continuing transaction." Amoco Production Co. v. Fry, Civ. No. 

93-2163, at 28 (D.D.C. Oct. 17, 1995). On both points, we 

respectfully disagree.

The Supreme Court has repeatedly held that "even temporary or partial impairments to property rights ... merit due 

process protection." Connecticut v. Doehr, 501 U.S. 1, 12 

(1991); see also, e.g., North Ga. Finishing, Inc. v. Di-Chem, 

Inc., 419 U.S. 601, 606 (1975). Although temporary, the 

Department's withholding is hardly brief, having now gone on 

for more than four years. Moreover, it completely deprives 

the companies of access to the withheld funds. The District 

Court's conclusion that the withheld overpayments and the 

earlier lease underpayments all form part of the same transaction conflicts with its own finding that many of the earlier 

underpayments stem from leases on Indian and federal onshore land rather than ones on the outer continental shelf. 

See Amoco Production Co., Civ. No. 93-2163, at 26. Regardless of whether the overpayments and underpayments may 

accurately be characterized as products of the same transaction, the mandatory language of section 10 of the Outer 

Continental Shelf Lands Act gave the companies an entitlement to the return of the overpayments once the statutory 

prerequisites were satisfied. See supra at 6-7. That language amounts to a "specific directive[ ] to the decisionmaker 

that if the [statute's] substantive predicates are present, a 

particular outcome must follow." Kentucky Dep't of Corrections v. Thompson, 490 U.S. 454, 463 (1989); see also, e.g., 

Washington Legal Clinic for the Homeless v. Barry, 107 F.3d 

32, 36 (D.C. Cir. 1997).

Because the Department's withholding amounts to a deprivation of a protected property interest, we must consider 

what process is due. Notice and a meaningful opportunity to 

challenge the agency's decision are the essential elements of 

due process. See, e.g., Mullane v. Central Hanover Bank &

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Trust Co., 339 U.S. 306, 313 (1950). As we read the companies' briefs, their only due process complaint is that they were 

deprived of information essential to their case: a complete list 

of the underpayments justifying the Department's withholding and the audit calculations supporting the underpayment 

determinations along with the facts or records upon which 

those calculations rest. We agree with the companies that 

they were entitled to such information for, without it, they 

cannot effectively question whether the Government is withholding more than the amount of alleged underpayments with 

regard to which the companies have asserted statute-oflimitations defenses. Because we cannot determine from the 

record whether the Department gave the companies the 

information, however, we remand to the District Court to 

resolve the issue and order whatever additional disclosures 

are needed.

So ordered.

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