Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-11-05114/USCOURTS-caDC-11-05114-0/pdf.json

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 December 9, 2011 Decided March 2, 2012

No. 11-5114

NOBLE ENERGY, INC.,

APPELLANT

v.

KENNETH LEE SALAZAR, SECRETARY, UNITED STATES

DEPARTMENT OF INTERIOR, AND UNITED STATES

DEPARTMENT OF THE INTERIOR,

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(No. 1:09-cv-02013)

Steven J. Rosenbaum argued the cause for appellant. With

him on the briefs was Elliott Schulder. 

John Emad Arbab, Attorney, U.S. Department of Justice,

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

Elizabeth Ann Peterson, Attorney.

Before: GRIFFITH, Circuit Judge, and WILLIAMS and

RANDOLPH, Senior Circuit Judges.

Opinion for the Court filed by Senior Circuit Judge

RANDOLPH.

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Concurring opinion filed by Senior Circuit Judge

WILLIAMS.

RANDOLPH, Senior Circuit Judge: The Outer Continental

Shelf Lands Act authorizes the Secretary of the Interior to sell

and administer oil and gas leases on the submerged lands located

between state coastal waters and the high seas. 43 U.S.C. §§

1331(a), 1332, 1337(a). The Act also empowers the Secretary

to promulgate rules and regulations governing those leases. Id.

§ 1334(a). At issue here are regulations obligating lessees to

plug permanently and to abandon their oil wells.

On September 1, 1979, Noble Energy1

 acquired a lease to

drill for, develop, and produce oil and natural gas on roughly six

thousand acres of submerged lands off the coast of California.

Pursuant to the lease, Noble drilled an exploratory oil well in

1985 – “Well 320-2” – and discovered oil and gas in

commercially viable quantities. Before producing any oil or

gas, Noble temporarily plugged and abandoned the well, a

technique that seals the well but allows for re-entry after

additional testing or exploration.2 See 30 C.F.R. § 250.1721.

Twenty-seven years later, Well 320-2 remains temporarily

plugged and abandoned.

1

 For ease of reference, we refer to Noble Energy, Inc. and its

commercial predecessors as “Noble Energy.”

2

 In comparison, the permanent plugging and abandonment of

a well requires, among other things, the following steps: placing a

series of cement plugs in the borehole beneath the sea floor; removing

both the wellhead – the pressure containing access point at the sea

floor – and large portions of the well’s piping; and totally clearing the

well site. 30 C.F.R. §§ 250.1715, 250.1716.

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During the intervening years, suspensions of Noble’s lease

were common. A suspension – issued either at the lessee’s

request, after agency approval, or at the Interior Department’s

directive – has two principal effects: (1) it extends the life of a

lease, which typically has an initial term of five years; and (2) it

defers the lessee’s obligation to produce oil. 43 U.S.C. §§

1334(a)(1), 1337(b)(2) & (5); 30 C.F.R. §§ 250.105, 250.169.

Interior grants suspensions when, for example, a lessee needs

additional time to develop its lease, to obtain transportation

facilities, or to negotiate sales contracts. 30 C.F.R. §§ 250.174,

250.175. Absent a threat of immediate or irreparable harm,

suspensions generally do not interfere with a lessee’s ability to

explore, develop, or prepare its lease for oil production.

Noble requested and received its last suspension in 1999.

Two years into the suspension’s four-year term, a federal district

court in California set it aside. The court ruled that suspensions

had to comply with the 1990 amendments to the Coastal Zone

Management Act, 16 U.S.C. § 1451 et seq. Under those

amendments, “[e]ach Federal agency activity within or outside

the coastal zone that affects any land or water use or natural

resource of the coastal zone shall be carried out in a manner

which is consistent to the maximum extent practicable with the

enforceable policies of approved State management programs.” 

Id. § 1456(c)(1)(A); see California ex rel. Cal. Coastal Comm’n

v. Norton, 150 F. Supp. 2d 1046, 1053, 1057 (N.D. Cal. 2001),

affirmed 311 F.3d 1162, 1173 (9th Cir. 2002). Because Noble’s

suspension had not been assessed for consistency with

California’s coastal management plan, the court ordered it

revoked.

For the first time, states and their coastal management

programs obtained a degree of influence over the suspension

process. This new-found influence arguably made it more

difficult for lessees to acquire suspensions. It undoubtedly

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interfered with ongoing leasehold activities – the government

directed many lessees to cease operations pending a review of

their prior suspension requests. Noble and other lessees sued in

the Court of Federal Claims, alleging that application of the

Coastal Zone Management Act to suspension requests

constituted a material breach of their lease agreements. The

Court of Federal Claims agreed; on appeal the Federal Circuit

affirmed. Amber Res. Co. v. United States, 538 F.3d 1358 (Fed.

Cir. 2008) (affirming 68 Fed. Cl. 535 (2005) and 73 Fed. Cl. 738

(2006)). The courts concluded that the government’s

compliance with the California court order made the

development of leased property more difficult and the pursuit of

suspensions more burdensome. Amber Res., 538 F.3d at 1373-

74. Thus, the government had effectively “repudiated the lease

agreements by putting into practice the new [court-mandated]

rules applicable to the availability of requested suspensions.” 

Id. at 1370.

The lessees received $1.1 billion in restitution damages and

were discharged from all obligations arising from their lease

agreements.3

 Noble’s share of the recovery was roughly $1.2

million. Among its discharged contractual duties was the

obligation to “remove all devices, works, and structures from the

premises no longer subject to the lease.”

This brings us to the current dispute: one year after the

Federal Circuit’s decision in the breach-of-contract litigation,

3

 Under the common law rule of discharge, one party’s

material breach of a contract will excuse the other party’s

performance. See RESTATEMENT (SECOND) OF CONTRACTS § 237

(1981); Costello v. Grundon, 651 F.3d 614, 640 (7th Cir. 2011); 3511

13th Street Tenants’ Ass’n v. 3511 13th Street, N.W., Residences, LLC,

922 A.2d 439, 445 (D.C. 2007); see also Amber Res., 68 Fed. Cl. at

548-49.

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the Minerals Management Service, at that time an arm of the

Interior Department, sent a letter to Noble ordering it to plug and

abandon Well 320-2 permanently. Because this controversy

arises directly from that letter, we quote it at length:

The purpose of this letter is to notify you of

outstanding decommissioning obligations that exist on

one of your OCS leases. Our records indicate that your

Well OCS P-0320, No 2, has not been permanently

abandoned. The Minerals Management Service

(MMS) has determined that there is no longer

justification for maintaining the well in temporarily

abandoned status. Therefore, as required by 30 CFR

250.1723, you must: promptly and permanently plug

the well according to 250.1715; clear the well site

according to 250.1740 through 250.1742; and perform

any additional activity necessary to fully satisfy your

decommissioning obligations.

The total cost of such tasks is estimated at more than $20

million.

Noble responded to the order by explaining “that the

Government’s material breach discharged the lessees from any

obligation to conduct, arrange or pay for the plugging and

abandonment of the 320 # 2 exploratory well.” Its letter to

MMS also announced that Noble had sued the Secretary of the

Interior and his agency for injunctive and declaratory relief. The

suit alleged that the plug and abandon order was arbitrary,

capricious, an abuse of discretion, and not in accord with the

law. See 5 U.S.C. § 706(2)(A).

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The district court first determined, correctly we believe, that

it had jurisdiction over Noble’s complaint.4 Noble Energy, Inc.

v. Salazar, 770 F. Supp. 2d 322, 328-29 (D.D.C. 2011). As to

the merits, the court ruled that the common law doctrine of

discharge did not relieve Noble of the regulatory obligation to

plug its well permanently, an obligation that the lease did not

itself create. Id. at 331-32. Our review is de novo. Ne. Hosp.

Corp. v. Sebelius, 657 F.3d 1, 4 (D.C. Cir. 2011).

Interior’s regulations require that lessees “[p]romptly and

permanently plug” their temporarily-abandoned oil wells if the

government so orders. 30 C.F.R. § 250.1723. Lessees must in

any event “permanently plug all wells on a lease within 1 year

after the lease terminates.” Id. § 250.1710; see also id. §

250.1703(b). As with other regulatory duties regarding the outer

Continental Shelf, these obligations accrue the moment an entity

drills a well or becomes a lessee, id. §§ 250.1701(a),

250.1702(a) & (d), and generally are discharged only when

satisfied, id. § 250.1701(a). The obligations expressly survive

4

 Although Noble did not go through any formal process to

relinquish its lease, see 30 C.F.R. § 556.76, the district court was

“inclined” to agree that the government’s material breach had the

effect of terminating the lease as a matter of law. This placed Noble’s

lawsuit squarely within the provision of the Outer Continental Shelf

Lands Act conferring jurisdiction on district courts over “controversies

arising out of, or in connection with . . . the cancellation, suspension,

or termination of a lease or permit under this [Act].” 43 U.S.C. §

1349(b)(1). Additionally, the court concluded that while the Tucker

Act grants exclusive jurisdiction to the Court of Federal Claims over

claims for more than $10,000 founded on a contract with the United

States, Noble’s claim, which did not seek monetary relief, turned

exclusively on whether MMS had authority to issue the plug and

abandon order. The government has not renewed its jurisdictional

objection on appeal.

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assignment, id. § 556.62(d); transfer, id. § 556.64(a)(5); and

termination of a lease, id. §§ 556.76, 250.1710.

Noble’s argument against application of the regulations

proceeds as follows. The government materially breached its

lease agreement when it applied the Coastal Zone Management

Act to suspension requests. Under the common law rule of

discharge, Noble’s remaining contractual obligations were

therefore excused, including any contractual duties to plug and

abandon Well 320-2. Because federal regulations impose

similar decommissioning obligations, and because those

regulations exist to govern contractual relationships, the

“common law rule of discharge applies to the regulatory plug

and abandonment requirement[s]” as well.

The argument relies in large measure on United States v.

Texas, 507 U.S. 529 (1993). In that case, the Court held that (1)

“[s]tatutes which invade the common law . . . are to be read with

a presumption favoring the retention of long-established and

familiar principles, except when a statutory purpose to the

contrary is evident,” id. at 534 (quoting Isbrandsten Co. v.

Johnson, 343 U.S. 779, 783 (1952)); and (2) “[i]n order to

abrogate a common-law principle, the statute must ‘speak

directly’ to the question addressed by the common law,” id.

(quoting Mobil Oil Corp. v. Higginbotham, 436 U.S. 618, 625

(1978)). Noble thinks these holdings require common law

principles of discharge to “be read into the OCS Lands Act and

regulations.”

The government’s main counter-argument is that neither

United States v. Texas, nor any of the other cases Noble invokes,

holds that “at common law a breach of contract by the United

States (or by a private party for that matter) discharges the nonbreaching party from compliance with its independent statutory

and regulatory obligations.”

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Resolution of this dispute depends on what the plugging

regulations mean. If the regulations impose an obligation to

plug Well 320-2 regardless of the government’s breach of the

lease contract, Noble’s argument fails. If the regulations release

the duty to plug once the government materially breaches the

lease agreement, then Noble prevails. Nothing in § 250.1710,

§ 250.1723, or any of the agency’s other regulations clearly

addresses this question.

It is important to remember that we are considering these

regulations in the context of judicial review of agency action

under the Administrative Procedure Act, 5 U.S.C. § 701 et seq.

The “agency action” here is MMS’s order, or as the government

calls it, MMS’s “decision letter.” Section 706 of the APA

instructs reviewing courts to “determine the meaning or

applicability of the terms of an agency action” when necessary.

But with respect to the decision letter, we are unable to perform

this duty with any confidence. We know that MMS issued the

letter about a year after the Federal Circuit ruled that the

government materially breached the lease. What we do not

know is whether MMS actually decided that the regulatory

obligation to plug Well 320-2 continued post-breach. There is

not a word in MMS’s letter indicating that it considered the

common law doctrine of discharge. And even if the letter was

the result of careful consideration regarding how the regulations

operate in light of the Amber rulings, MMS’s letter contains no

hint of the agency’s reasoning or the factors that it took into

account. We therefore cannot be sure whether MMS’s letter

embodied an interpretation of the regulations’ applicability after

breach. One might infer this, but as we have said in a similar

situation, “an implication is not an agency interpretation.”

Menkes v. DHS, 486 F.3d 1307, 1314 (D.C. Cir. 2007); see also

PDK Labs. Inc. v. DEA, 362 F.3d 786, 798 (D.C. Cir. 2004)

(“Yes, DEA did exercise discretion when it issued the order

here, but before doing so it necessarily had to decide what [the

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provision] meant. That is the issue the agency must reconsider

on remand . . . so that it can fill in the [interpretative] gap” left

unexplained.). Remand therefore is necessary.

Our reluctance to speculate about how MMS interpreted its

regulations follows from the principle laid down in a line of

cases reaching back at least to Prill v. NLRB, 755 F.2d 941 (D.C.

Cir. 1985). Those cases hold that on judicial review this court

will not choose between competing meanings of an ambiguous

law until the relevant agency weighs in.5

 Id. at 948; see also

Peter Pan Bus Lines, Inc. v. Fed. Motor Carrier Safety Admin.,

471 F.3d 1350, 1354 (D.C. Cir. 2006); Teva Pharm. USA, Inc.

v. FDA, 441 F.3d 1, 4 (D.C. Cir. 2006); PDK Labs., 362 F.3d at

798; Arizona v. Thompson, 281 F.3d 248, 259 (D.C. Cir. 2002);

Transitional Hosps. Corp. of La., Inc. v. Shalala, 222 F.3d 1019,

1029 (D.C. Cir. 2000); Alarm Indus. Commc’ns Comm. v. FCC,

131 F.3d 1066, 1072 (D.C. Cir. 1997). Put simply, “an agency

is entitled to construe its own regulations in the first instance.” 

Am. Petroleum Inst. v. EPA, 906 F.2d 729, 742 (D.C. Cir. 1990)

(per curiam). If we cannot tell whether it has done so, remand

is appropriate. See Menkes, 486 F.3d at 1313-15; Akzo Nobel

Salt, Inc. v. Fed. Mine Safety & Health Review Comm’n, 212

F.3d 1301, 1302, 1304-05 (D.C. Cir. 2000); Ohio v. U.S. Dep’t

of the Interior, 880 F.2d 432, 461 (D.C. Cir. 1989). Cf. Oil,

Chem. & Atomic Workers Int’l Union, AFL-CIO v. NLRB, 46

5

 The actual holding of Prill and the cases following it is this:

when an agency incorrectly concludes that Congress mandated a

particular regulatory interpretation of a statute – and the agency

therefore stops itself at Chevron step one – this court will vacate and

remand. Upon remand, the agency is required to bring its experience

and expertise to bear in parsing the statute and implementing an

appropriate regulatory response. 755 F.2d at 948. While that holding

does not apply here, the underlying principle, as explained in the text,

clearly does.

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F.3d 82, 93 (D.C. Cir. 1995); Int’l Longshoremen’s Ass’n, AFLCIO v. Nat’l Mediation Bd., 870 F.2d 733, 735-36 (D.C. Cir.

1989).

We acknowledge that judicial deference to an agency’s

interpretation of its own regulation may be appropriate even

though the interpretation appears for the first time in a legal

brief. See Auer v. Robbins, 519 U.S. 452, 462 (1997) (giving

deference to an interpretation contained in an amicus brief);

Drake v. FAA, 291 F.3d 59, 68-69 (D.C. Cir. 2002) (adversarial

brief). That said, we cannot find any definitive interpretation of

the plug and abandon regulations in the government’s brief. 

This may be attributable to the fact that MMS was abolished in

May 2010 – more than a year before the government filed its

brief in this proceeding. Area Energy LLC v. Salazar, 642 F.3d

212, 214 (D.C. Cir. 2011) (citing Sec’y of Interior, Secretarial

Order 3299 (May 19, 2010)). What we are left with is a brief

written by the Department of Justice, defending the actions of a

disbanded Interior Department office, without – as far as we can

tell – any consideration of the regulations by MMS’s successor.

This is not the stuff of Auer deference.

In short, it is up to MMS’s successor to interpret its

regulations in the first instance and to determine whether they

apply in situations like Noble’s. If they do, the agency must

explain why. See Int’l Longshoremen’s Ass’n, 870 F.2d at 735-

37. We therefore vacate the judgment and send the case back to

the district court with instructions to vacate Interior’s order and

to remand to the Secretary for further proceedings consistent

with this opinion.

So ordered.

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WILLIAMS, Senior Circuit Judge, concurring: I concur in 

the court’s opinion and judgment but write separately to 

express doubt whether the Interior Department, on remand, 

will be able to offer an interpretation that is both reasonable 

and supportive of its action here. 

Noble has invoked the rule in United States v. Texas, 507 

U.S. 529 (1993), which, as the court’s opinion notes, creates a 

presumption “favoring the retention of long-established and 

familiar principles” of the common law, rebuttable by an 

evident statutory purpose to the contrary. Id. at 534, quoted 

ante at 7. The variant of that rule that Noble needs in order to 

win is very narrow: that when the government behaves as a 

market actor, and promulgates statutes or regulations 

governing the relationship between it and private-sector 

market actors in a manner parallel to what in the private sector 

would be controlled by contract or the common law, the 

statutes or regulations are presumptively subject to the sort of 

implied caveats and qualifications that apply to comparable 

contract language or common law understandings. 

The government ventured into oil-and-gas production as a 

rather standard market actor—a lessor of property potentially 

productive of oil or gas. It promulgated regulations that 

exactly match the set of parties governed by its leases: itself 

and those lessees. The regulations cover all such lessees—

and no other private parties whatsoever. 30 C.F.R. 

§ 250.1701. The lease’s text is short, only four pages, Joint 

Appendix (“J.A.”) 82-85, shorter than many leases used in the 

private sector, and much shorter what might be expected of a 

private lease prepared by a lessor with anything like the 

government’s “bargaining power.” See NANCY SAINT-PAUL,

5 SUMMERS OIL AND GAS § 59:10 (3d. ed. 2009). The 

regulations plainly function as a supplement to the lease, and 

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the specific ones at issue here directly complement a lease 

provision. Section 22 of the lease, governing “Removal of 

Property on Termination of Lease,” provides: 

Within a period of one year after termination of 

this lease in whole or in part, the Lessee shall 

remove all devices, works, and structures from 

the premises no longer subject to the lease in 

accordance with applicable regulations and 

orders of the Director. However, the Lessee 

may, with the approval of the Director, 

continue to maintain devices, works, and 

structures on the leased area for drilling or 

producing on other leases. 

J.A. 85. The disputed regulations essentially repeat the terms 

of § 22 in more detail, providing when and how a lessee must 

decommission a well. See, e.g., 30 C.F.R. § 250.1710-1716; 

id. § 250.1725-1728. Using regulations to amplify the lease 

terms saves paper (though of course it may have other 

purposes). 

As a market actor the government is subject to the normal 

common law rules of contract, unless a law “speak[s] directly 

to the question addressed by the common law.” Texas, 507 

U.S. at 534. The government argues that the regulations have 

no explicit provision that total breach by a party (here the 

government) has the effect of discharging the other party from 

its obligations. Quite true. Neither does the lease itself. Yet 

common law courts have found the principle implicit in 

contracts generally, presumably filling in what the parties 

would likely have specified had they addressed the issue. See 

PETER LINZER, 6 CORBIN ON CONTRACTS § 26.2.A. (Joseph 

M. Perillo ed., 2010) (in filling gaps “the court quite properly 

asks what the parties would have done if the issue had been 

raised when the contract was being negotiated.”); see also 

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RESTATEMENT (SECOND) OF CONTRACTS § 204 cmt. d (1981). 

Of course the government had the authority to insist on a 

contract reversing the implication. The question posed by this 

case is whether it did so, silently. The Texas principle 

suggests a negative answer. 

Of cases applying the Texas concept, two are very similar 

to this case: ABN AMRO Bank v. United States, 34 Fed. Cl. 

126 (1995), and Amoco Production v. Fry, 904 F. Supp. 3 

(D.D.C. 1995). In the first, an individual deposited a check 

purportedly issued by the federal government and payable to a 

supermarket chain. 34 Fed. Cl. at 127. The depository bank, 

ABN AMRO, accepted the check and presented it to the 

federal government for payment. Id. It turned out that the 

government had not issued the check and that the individual 

depositing the check was not in fact a representative of the 

supermarket chain. This combination made the case one of 

“double forgery.” Id. at 128. ABN AMRO invoked the 

traditional common law rule in such cases, namely that the 

drawee bank, here the government, would be liable for the 

loss. The government claimed that its regulations superseded 

that rule. Id. at 130 n.2 (quoting 31 C.F.R. § 240.5). The 

court, while acknowledging that the regulations were “fairly 

comprehensive” and apparently accepting the government’s 

argument that their literal language would abrogate the 

common law, nevertheless held that the regulations did not 

“make evident” an intent to displace the double forgery rule. 

Id. at 131, 132. It thus rejected the government’s theory. Id. 

Amoco Production applies similar reasoning to the Outer 

Continental Shelf Lands Act, the statute supporting the 

regulations here. Plaintiffs, oil and gas producers on offshore 

federal leases, paid royalties to the federal government on oil 

and gas they produced. 904 F. Supp. at 7. The oil and gas 

producers frequently overpaid, and the statute provided that in 

such a case, on lessee’s request and after confirmation of such 

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excess by the Interior Secretary and a delay for congressional 

review, “‘such excess shall be repaid without interest.’” Id. at 

7 (quoting 43 U.S.C. § 1339(a)). Lessees could alternatively 

have the excess applied as a credit on future royalty payments. 

Id. An audit determined that the producers had in fact 

underpaid at some points in the past, and the Minerals 

Management Service (“MMS”) ordered the producers to “pay 

royalties the audit determined to be due.” Id. The producers 

refused, and the MMS responded by withholding written 

permission for the producers’ overpayment credits. Id. at 7-8. 

In doing so the MMS invoked the general common law right 

of offset, “the right of a creditor to use money it owes to a 

debtor to satisfy the debt owed to it.” Id. at 9. The court 

found that the statute’s command that “excess [royalty 

payments] shall be repaid” expressed no intent to abrogate 

MMS’s common law right of offset or to otherwise 

“invalidate[] the MMS’s procedures.” Id. at 9. The oil and 

gas producers appealed the district court decision but not its 

ruling that the MMS’s common law offset right survived the 

statute. Brief for Appellants at 1-2, Amoco Production v. 

Fry, 118 F.3d 812 (D.C. Cir. 1997) (No. 96-5030). 

In both ABN AMRO and Amoco Production positive law 

stated a general rule but did not address a specific eventuality 

for which the common law provided an exception. Both 

courts concluded that the statute or regulations in question, 

expressing no explicit intent to displace the common law 

exception, in fact had no such effect. It therefore prevailed 

against the statutory or regulatory language. 

At oral argument we tried to extract from counsel the 

government’s theory for distinguishing these two cases. 

Counsel responded that Noble had failed to identify a 

common law principle allowing “discharge from regulatory 

obligations.” Oral Arg. at 28:30. This seems to mix two 

ideas, neither of them helpful to the government. Insofar as it 

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notes that neither ABN AMRO nor Amoco involved 

“discharge,” it is a distinction but a pointless one; both 

involved the relation between the common law and a statute 

or regulation; the specific common law principle at issue 

seems unimportant. Insofar as the government’s argument 

asks that the common law principle have an effect on a 

regulation, it offers no distinction at all. In both the cases the 

party invoking the common law made no claim that there was 

a common law principle directly applying to “regulatory 

obligations”; they argued simply that the regulations, despite 

their literal language, should be read in light of the common 

law principles that governed parallel transactions in the 

private sector. Here too the government was performing the 

kind of ordinary business transactions that a private party 

might have performed. Accordingly, the Texas case similarly 

calls for applying common law principles as an interpretive 

gloss on the parallel regulation’s literal language. Noble 

acknowledges that Interior possessed legal authority to issue 

regulations displacing the common law; nothing in the current 

regulations seems to have exercised that authority. 

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