Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-09-05157/USCOURTS-caDC-09-05157-0/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 January 21, 2010 Decided July 16, 2010 

No. 09-5157 

JICARILLA APACHE NATION, 

APPELLANT

v. 

UNITED STATES DEPARTMENT OF THE INTERIOR, ET AL., 

APPELLEES

Appeal from the United States District Court 

for the District of Columbia 

(No. 1:07-cv-00803) 

Steven D. Gordon argued the cause for appellant. With 

him on the briefs was Thomas J. McIntosh. Lynn E. Calkins

entered an appearance. 

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

argued the cause for appellee United States Department of the 

Interior. With him on the brief were John C. Cruden, Acting 

Assistant Attorney General, and Elizabeth A. Peterson, 

Attorney. Michael T. Gray, Attorney, and R. Craig 

Lawrence, Assistant U.S. Attorney, entered appearances. 

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 Charles L. Kaiser argued the cause for appellee Vastar 

Resources, Inc., et al. With him on the brief was Charles A. 

Breer. 

Before: GINSBURG, GARLAND and BROWN, Circuit 

Judges. 

 Opinion for the Court filed by Circuit Judge BROWN. 

BROWN, Circuit Judge: Jicarilla Apache Nation (Jicarilla) 

challenges the denial of its claim for additional royalties for 

natural gas leases in force from January 1984 through June 

1995. After the United States Department of the Interior 

(Interior) rejected the claim, Jicarilla filed this suit in the 

district court. The district court denied Jicarilla’s motion for 

summary judgment and, on its own motion, granted summary 

judgment to Interior. Jicarilla Apache Nation v. U.S. Dep’t of 

the Interior, 604 F. Supp. 2d 139 (D.D.C. 2009). Because we 

are persuaded Interior failed to consider an important aspect 

of the problem when it retrospectively applied regulations 

intended to have only prospective effect and failed to engage 

in reasoned decisionmaking when it made an 

unacknowledged volte-face on the applicability of the Jicarilla 

methodology, we reverse in part and remand the case to the 

district court for further proceedings consistent with this 

opinion. 

I 

Jicarilla is a federally recognized Indian Tribe with a 

reservation in northwest New Mexico (the Reservation). 

Jicarilla obtains royalty payments by leasing the rights to 

produce natural gas from Reservation lands. Lessees agree to 

pay Jicarilla royalties equal to one-sixth or one-eighth the 

value of the natural gas produced and sold from the 

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Reservation. Sometimes the price paid for Reservation gas 

does not reflect market value because the gas is not sold under 

arm’s-length contracts. To ensure full royalties in such 

instances, the leases contain a provision describing how to 

calculate the “value” of gas for royalty purposes by reference 

to a “major portion” price: 

“[V]alue” for the purposes hereof may . . . be 

calculated on the basis of the highest price paid or 

offered . . . at the time of production for the major 

portion of the . . . gas . . . produced and sold from the 

field where the leased lands are situated . . . . 

Oil and Gas Mining Lease—Tribal Indian Lands, ¶ 3(c) (Mar. 

7, 1952). The instant dispute over how the major portion 

price should be calculated under Interior’s regulatory 

authority arises because the leases do not define the term 

“major portion.” 

The Indian Mineral Leasing Act of 1938 (IMLA), 25 

U.S.C. §§ 396a-396g, permits an Indian Tribe, such as 

Jicarilla, to lease its lands for “mining purposes,” with the 

Secretary of the Interior’s (Secretary) approval and subject to 

the rules and regulations promulgated by the Secretary. Id. §§ 

396a, 396d. During all relevant times, Jicarilla’s leases were 

managed jointly by the Minerals Management Service (MMS) 

and the Bureau of Indian Affairs (BIA). Both agencies have 

regulations for computing the value of gas royalties by 

reference to a “major portion” price. Those regulations can 

be divided into two categories: first, MMS’ and BIA’s 

regulations in effect prior to 1988 (the “pre-1988 

Regulations”), and second, MMS’ revised regulations in 

effect beginning March 1, 1988 (the “1988 Regulations”). 

 

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In 1996, MMS and Jicarilla began developing an entirely 

new methodology for calculating the major portion for 

Jicarilla’s natural gas leases. Since no database contained all 

of the necessary information about arm’s-length gas sales for 

the Reservation, MMS decided to rely on data from Jicarilla’s 

own gas sales through its Royalty-in-Kind (RIK) program. 

Under the RIK program, Jicarilla received its royalty share 

from the gas leases “in kind” and then sold the gas in arm’slength transactions. MMS extrapolated the price Jicarilla 

earned selling its one-sixth or one-eighth RIK shares to 

establish the major portion price for the remaining five-sixths 

or seven-eighths shares of gas sold by lessees. This became 

known as the “Jicarilla methodology.” In 1998 and 1999, 

MMS used the Jicarilla methodology to compute the major 

portion prices for gas sold under Jicarilla’s leases during the 

period from January 1984 through June 1995 and then issued 

thirty-nine Orders to Perform, directing lessees to pay 

additional royalties for this period. 

Several companies appealed the Orders to Perform. In 

2000, Interior issued three similar decisions affirming Orders 

to Perform. Robert L. Bayless, MMS-98-0132-IND (Dec. 22, 

2000), Dugan Prod. Corp., MMS-98-0130-IND (Dec. 22, 

2000), Merrion Oil & Gas Corp., MMS-98-0228-IND (Dec. 

22, 2000) (collectively “Bayless”). In Bayless, Interior denied 

the lessees’ appeals, concluding the Jicarilla methodology was 

consistent with the 1988 Regulations and the major portion 

price was properly calculated. See, e.g., Bayless, MMS-98-

0132-IND, at 2–9. 

Then, in 2007, Interior overruled an Order to Perform in 

which MMS had directed Intervenors Vastar Resources, Inc., 

Union Texas Petroleum, and Unicon Producing Co. 

(collectively “Vastar”) to pay additional royalties to Jicarilla. 

Vastar Res., Inc., MMS-98-0131-IND (Mar. 28, 2007) 

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(“Vastar”). In Vastar, Interior determined the Jicarilla 

methodology was inconsistent with the 1988 Regulations and 

could not be used to determine the major portion price for gas 

sold from January 1984 through June 1995. Id. at 6–11. 

Interior granted Vastar’s appeal but noted MMS could 

recalculate the major portion price if it could do so consistent 

with the regulations. Id. at 12. The decision neither cited nor 

mentioned the contrary result reached in Bayless. 

Jicarilla promptly filed suit in the district court, 

challenging Vastar as arbitrary and capricious under the 

Administrative Procedure Act (APA) and as a violation of 

Interior’s trust responsibility. In its motion for summary 

judgment Jicarilla raised three arguments: (1) the Vastar 

decision departed from Bayless without explanation; (2) the 

decision erroneously concluded the 1988 Regulations were 

consistent with the major portion provision of Jicarilla’s 

leases and the Jicarilla methodology was inconsistent with 

both; and (3) the decision violated Interior’s fiduciary duty to 

protect Jicarilla’s interest in the gas leases. As an alternative 

to its second argument, Jicarilla noted Vastar’s reasoning 

could not apply to the period from January 1984 through 

February 1988 because the 1988 Regulations were not in 

effect until March 1, 1988. The district court rejected the 

three primary arguments but failed to address Jicarilla’s more 

limited alternative argument. After the district court’s sua 

sponte grant of summary judgment to Interior, Jicarilla filed a 

timely notice of appeal. 

II 

Before reaching the merits, we consider Interior’s 

argument that Jicarilla waived its current claim by failing to 

raise it before the district court and by failing to exhaust it 

before the agency. 

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A 

Interior’s waiver argument rests on the faulty premise 

that Jicarilla has raised only one claim on appeal. Interior 

says that “Jicarilla waived its sole claim in this Court,” which, 

“[a]lthough variously phrased,” is “that Vastar is ‘arbitrary 

and capricious’ (or inconsistent with the agency’s fiduciary 

duty) to the limited extent that Vastar applied the 1988 MMS 

regulations to reject the so-called ‘Jicarilla methodology’ as to 

the MMS ‘Orders to Perform’ that covered natural gas 

produced only between January 1984 and February 1988.” 

Interior Br. at 22. To the contrary, Jicarilla has presented 

three analytically distinct arguments: (1) Vastar is arbitrary 

and capricious because Interior failed to consider an important 

part of the problem when it applied the 1988 Regulations to 

the period from January 1984 through February 1988; (2) 

Vastar is arbitrary and capricious because Interior failed to 

engage in reasoned decisionmaking when it departed from the 

agency’s precedent, Bayless, without adequate explanation; 

and (3) Vastar is a violation of Interior’s fiduciary duty to 

Jicarilla. 

We conclude Interior has only argued waiver as to the 

first of these arguments. Moreover, Interior would be hardpressed to argue Jicarilla had waived its second and third 

arguments because they were raised in the complaint and the 

summary judgment briefing, and addressed in the district 

court’s decision. See Complaint ¶¶ 8–10, 22, 24, 33–34, 

Jicarilla v. U.S. Dep’t of the Interior, No. 07-cv-00803-RJL 

(D.D.C. May 2, 2007); Pl.’s Mem. Supp. Summ. J. (“Mot. 

Summ. J.”) at 13–16, 19–24, Jicarilla Apache Nation v. U.S. 

Dep’t of the Interior, No. 07-cv-00803-RJL (D.D.C. Jan. 22, 

2008); Jicarilla, 604 F. Supp. 2d at 143–44, 145–47. Thus, 

the only waiver issue we consider is whether Jicarilla waived 

its argument that Vastar is arbitrary and capricious because 

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Interior impermissibly applied the 1988 Regulations to the 

January 1984 through February 1988 period. 

Ordinarily, we will not accept an argument first raised on 

appeal, “for while review of the grant of summary judgment 

is de novo, this court reviews only those arguments that were 

made in the district court, absent exceptional circumstances.” 

Potter v. District of Columbia, 558 F.3d 542, 547 (D.C. Cir. 

2009) (citations omitted). However, in this case, Jicarilla did

present the argument to the district court. Contrary to 

Interior’s suggestion that Jicarilla presented only the skeleton 

of an argument in a single sentence, Jicarilla in fact raised the 

argument in three sections of its summary judgment brief—

the “Statement of Facts,” the “Summary of Argument,” and 

the “Argument.” See Mot. Summ. J. at 5–6; id. at 12; id. at 

19. We therefore hold Jicarilla did not waive the argument by 

failing to raise it in the district court. 

B 

Interior also says Jicarilla forfeited its first argument 

because it did not present it to the agency during the Vastar

proceeding. Interior has conveniently overlooked the fact that 

it did not present its failure-to-exhaust argument to the district 

court—arguably forfeiting its claim of exhaustion. See 

Potter, 558 F.3d at 547; see also Cutler v. Hayes, 818 F.2d 

879, 891 (D.C. Cir. 1987) (noting “the exhaustion 

requirement may be waived by the agency”). And Interior 

has not asserted, nor could it, that its argument here is based 

on a jurisdictional limit that cannot be waived. See Hettinga 

v. United States, 560 F.3d 498, 503 (D.C. Cir. 2009) 

(distinguishing non-waivable jurisdictional exhaustion limit 

imposed by statute from non-jurisdictional exhaustion limit 

imposed by court). 

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In any event, Interior’s exhaustion argument is meritless. 

Interior concedes its regulations excluded Jicarilla from 

participating in the Vastar proceeding. Interior Br. at 30 & 

n.10. Nevertheless, Interior maintains Jicarilla could have 

raised its argument before the agency pursuant to a 

“cooperative agreement” Jicarilla executed with MMS. See 

id. at 30–33. Whatever its terms, the cooperative agreement 

does not alter Jicarilla’s lack of status in relation to the Vastar

proceeding and thus does not count against Jicarilla for 

exhaustion purposes. Simply put, a party challenging agency 

action does not fail to exhaust an argument when the only 

opportunity for presenting its position to the agency is an ex 

parte contact. See De Jesus Ramirez v. Reich, 156 F.3d 1273, 

1277 (D.C. Cir. 1998) (“[The exhaustion of administrative 

remedies] requirement pertains only to administrative 

remedies actually available to a party. There is no support, in 

law or in logic, for the proposition that ‘A’ can be held to 

have failed to exhaust remedies available only to ‘B.’”); see 

also CSX Transp. v. STB, 584 F.3d 1076, 1078–79 (D.C. Cir. 

2009) (judicial review not precluded where party had no 

opportunity to raise argument until after agency issued final 

rule). Our exhaustion doctrine is tied to the procedural 

remedies actually available to interested parties, not to 

informal encounters between the agency and the general 

public. A contrary rule might unfairly penalize a party that 

had complied with the agency’s regulations but neglected to 

avail itself of an off-the-record meeting with an agency 

official. We consequently reject Interior’s failure-to-exhaust 

argument and turn to the merits. 

III 

On appeal from the district court’s grant of summary 

judgment, we review Interior’s decision de novo, applying the 

familiar APA standard, which requires us to set aside agency 

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action that is “arbitrary, capricious, an abuse of discretion, or 

otherwise not in accordance with law,” 5 U.S.C. § 706(2)(A); 

see Am. Wildlands v. Kempthorne, 530 F.3d 991, 997–98 

(D.C. Cir. 2008). Our review of agency action under the 

arbitrary and capricious standard is “narrow,” and we refuse 

to “substitute [our] judgment for that of the agency.” See

Motor Vehicle Mfrs. Ass’n of the U.S., Inc. v. State Farm Mut. 

Auto. Ins. Co., 463 U.S. 29, 43 (1983) (“State Farm”). 

Nevertheless, under State Farm, if the agency has committed 

a “clear error of judgment” or has “failed to consider an 

important aspect of the problem” before it, we will hold the 

agency action to be arbitrary and capricious. Id. In addition, 

the agency’s explanation for its decision must be “sufficient 

to enable us to conclude that [it] was the product of reasoned 

decisionmaking,” id. at 52. 

 

Although Vastar encompasses royalties paid under 

Jicarilla’s gas leases for the entire period from January 1984 

through June 1995, Jicarilla has narrowed its challenge before 

this court to the period from January 1984 through February 

1988. We correspondingly limit our review to those four 

years. 

A 

First, Jicarilla argues Vastar is arbitrary and capricious 

because Interior applied the 1988 Regulations to reject the 

Jicarilla methodology for computing gas royalties for the 

period from January 1984 through February 1988, even 

though the 1988 Regulations were not in effect until March 1, 

1988. Jicarilla asserts Interior failed to consider an important 

part of the problem when it applied the 1988 Regulations to 

the pre-March 1, 1988 period. 

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Interior acknowledges MMS promulgated the 1988 

Regulations with the intent that they apply prospectively, 

beginning March 1, 1988. Interior Br. at 34 n.11. This is 

unsurprising since the regulations so declare. See 53 Fed. 

Reg. 1230, 1230 (“These regulations will apply prospectively 

to gas production on or after [March 1, 1988].”). However, 

Interior has no response to Jicarilla’s argument that Vastar’s 

application of the 1988 Regulations to the four-year period 

before March 1, 1988 is arbitrary and capricious. In fact, 

Interior virtually concedes this point in its brief when it states 

it is “proceed[ing] on the premise that Vastar is erroneous 

insofar as it applied the 1988 MMS regulations to reject the 

‘Jicarilla methodology’ as to the MMS ‘Orders to Perform’ 

that covered the January 1984-February 1988 time-frame.” 

Interior Br. at 34 n.11. 

Our review of Vastar confirms Interior’s apparent 

concession of error. In Vastar, Interior noted the MMS 

Orders to Perform under review concerned Jicarilla’s gas 

leases “for the period January 1984 through June 1995.” 

Vastar, at 2. Interior then observed that section 

206.152(a)(3)(i) of the 1988 Regulations “became effective 

on March 1, 1988.” Id. at 3. Even so, Interior proceeded to 

evaluate the Jicarilla methodology for the entire period from 

January 1984 through June 1995 in light of section 

206.152(a)(3)(ii), the “major portion” provision of the 1988 

Regulations. See id. at 6–11. In doing so, Interior “failed to 

consider an important aspect of the problem,” State Farm, 

463 U.S. at 43, namely that section 206.152(a)(3)(ii) was not 

in effect for the period from January 1984 through February 

1988. We therefore hold Vastar is arbitrary and capricious 

with regard to this four-year period. 

In a footnote, Jicarilla further suggests the APA 

forecloses retroactive application of the 1988 Regulations to 

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royalties on gas produced from January 1984 through 

February 1988. Jicarilla Br. at 22 n.16 (citing Chadmoore 

Commc’ns, Inc. v. FCC, 113 F.3d 235, 240 (D.C. Cir. 1997)). 

Even if Jicarilla properly preserved this argument below, 

which is doubtful, we do not find it necessary to reach the 

issue. When MMS promulgated the 1988 Regulations, it 

explicitly declared the regulations “w[ould] apply 

prospectively to gas production on or after [March 1, 1988].” 

53 Fed. Reg. 1230, 1230. By definition, the natural gas at 

issue in this appeal was produced prior to March 1, 1988. 

Thus, the agency’s own statement establishes that Interior 

should not have applied the 1988 Regulations to the preMarch 1, 1988 period, and it is unnecessary for us to decide 

whether Interior also contravened retroactivity principles 

under the APA. 

B 

Jicarilla also argues Vastar is arbitrary and capricious 

because Interior failed to provide a reasoned explanation for 

departing from precedent. Jicarilla explains Bayless upheld 

MMS’ Orders to Perform, which applied the Jicarilla 

methodology to the period from January 1984 through 

February 1988, while Vastar reached a contrary result without 

justifying the about-face or even acknowledging Bayless. 

Jicarilla contends Interior’s failure to adhere to precedent or 

to provide a reasoned explanation for departing from it is 

arbitrary and capricious with respect to this four-year 

period—an argument to which Interior does not respond. 

The district court, addressing the issue on summary 

judgment, disagreed with Jicarilla. The district court 

observed that “while Interior did not mention [Bayless] by 

name in Vastar, neither did Interior sidestep or gloss over 

without discussion the key issues underlying [Bayless]. 

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Rather, Interior faced them head on and provided a reasoned 

explanation for why and how it came to different 

conclusions.” Jicarilla, 604 F. Supp. 2d at 143. The district 

court further noted, “While a citation to [Bayless] may have 

made the agency’s about-face more explicit, the Vastar

decision’s analysis left no uncertainty as to the reasoning 

underlying Interior’s new determination.” Id. at 144. The 

district court held that “despite Interior’s failure to mention or 

distinguish [Bayless] by name, the agency provided the 

requisite reasoned explanation for its determination in Vastar

that the Jicarilla methodology upheld in [Bayless] violated 

Interior’s regulations.” Id. The court consequently refused to 

overturn Vastar on this ground. 

One of the core tenets of reasoned decisionmaking 

announced in State Farm is that “an agency changing its 

course . . . is obligated to supply a reasoned analysis for the 

change.” 463 U.S. at 42. We have held that “[r]easoned 

decision making . . . necessarily requires the agency to 

acknowledge and provide an adequate explanation for its 

departure from established precedent,” and an agency that 

neglects to do so acts arbitrarily and capriciously. Dillmon v. 

NTSB, 588 F.3d 1085, 1089–90 (D.C. Cir. 2009) (citing FCC 

v. Fox Television Stations, Inc., 129 S. Ct. 1800, 1811 

(2009)). 

Of course, this rule of reasoned decisionmaking has 

limits. For instance, we do not require an agency to grapple 

with every last one of its precedents, no matter how 

distinguishable. LeMoyne-Owen College v. NLRB, 357 F.3d 

55, 60 (D.C. Cir. 2004) (“An agency is by no means required 

to distinguish every precedent cited to it by an aggrieved 

party.”). We “permit agency action to stand without elaborate 

explanation where distinctions between the case under review 

and the asserted precedent are so plain that no inconsistency 

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appears.” Bush-Quayle ’92 Primary Comm., Inc. v. FEC, 104 

F.3d 448, 454 (D.C. Cir. 1997). At the same time, we have 

never approved an agency’s decision to completely ignore 

relevant precedent. See LeMoyne-Owen College, 357 F.3d at 

61 (“[W]here . . . a party makes a significant showing that 

analogous cases have been decided differently, the agency 

must do more than simply ignore that argument.”). Like a 

court, “[n]ormally, an agency must adhere to its precedents in 

adjudicating cases before it.” Consol. Edison Co. of N.Y., Inc. 

v. FERC, 315 F.3d 316, 323 (D.C. Cir. 2003). Thus, “[a]n 

agency’s failure to come to grips with conflicting precedent 

constitutes ‘an inexcusable departure from the essential 

requirement of reasoned decision making.’” Ramaprakash v. 

FAA, 346 F.3d 1121, 1125 (D.C. Cir. 2003) (quoting 

Columbia Broad. Sys. v. FCC, 454 F.2d 1018, 1027 (D.C. Cir. 

1971)). 

In this case, the district court lamented Vastar’s failure to 

address Bayless but concluded this was a forgivable oversight 

because Vastar’s reasoning clearly explained why the agency 

was changing course. We do not agree that the agency’s 

failure to address Bayless is excusable. Jicarilla says Bayless

directly conflicts with Vastar, and Interior agrees. See 

Interior Br. at 2 (“The [Jicarilla] methodology rejected in 

Vastar, however, had previously been upheld by [Interior] in 

[Bayless].”). Under these circumstances, Interior should have 

confronted this conflicting precedent. Instead, Vastar does 

not even acknowledge Bayless’ existence, let alone explain 

why the agency chose to depart from it. Silence in the face of 

inconvenient precedent is not acceptable. Greater Boston 

Television Corp. v. FCC, 444 F.2d 841, 852 (D.C. Cir. 1970) 

(“[I]f an agency glosses over or swerves from prior 

precedents without discussion it may cross the line from the 

tolerably terse to the intolerably mute.”). 

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Intervenor Vastar argues Bayless is the only departure 

from precedent and Vastar is consistent with more than a 

dozen other decisions Interior has issued since Bayless. 

Vastar Br. at 30 & n.18. This may very well be true. But 

because Vastar does not cite these other precedents nor 

address Bayless at all, Vastar’s argument is merely “appellate 

counsel’s post hoc rationalizations for agency action,” which 

we “may not accept.” State Farm, 463 U.S. at 50. If Bayless

is an aberration, it is Interior’s responsibility to so declare, not 

ours. We hold Interior’s failure in Vastar to address Bayless, 

a decision reaching a contrary result on similar facts, renders 

Vastar arbitrary and capricious. 

C 

Because we hold Vastar is arbitrary and capricious on the 

two independent grounds discussed above, we decline to 

consider Jicarilla’s third argument—that Vastar’s rejection of 

the Jicarilla methodology to compute gas royalties for the 

period from January 1984 through February 1988 also 

violates Interior’s fiduciary duty to Jicarilla. 

IV 

Finally, Interior argues that even if we decide Vastar is 

arbitrary and capricious for the period from January 1984 

through February 1988, we nonetheless should uphold 

Interior’s decision because any error is harmless. In this 

regard, Interior contends Jicarilla has not satisfied its burden 

of demonstrating prejudicial error because it has not explained 

how its interests are harmed by the agency’s mistake. 

Courts reviewing agency action under section 

706(2)(A)’s “arbitrary and capricious” standard must take 

“due account . . . of the rule of prejudicial error.” 5 U.S.C. § 

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706. The harmless error rule applies to agency action because 

“[i]f the agency’s mistake did not affect the outcome, if it did 

not prejudice the petitioner, it would be senseless to vacate 

and remand for reconsideration.” PDK Labs., Inc. v. U.S. 

DEA, 362 F.3d 786, 799 (D.C. Cir. 2004). The burden to 

demonstrate prejudicial error is on the party challenging 

agency action. See Air Canada v. DOT, 148 F.3d 1142, 1156 

(D.C. Cir. 1998). However, the harmless error rule is “not . . . 

a particularly onerous requirement,” Shinseki v. Sanders, 129 

S. Ct. 1696, 1706 (2009), and the Supreme Court has 

cautioned courts applying the rule against “us[ing] mandatory 

presumptions and rigid rules rather than case-specific 

application of judgment, based upon examination of the 

record.” Id. at 1704–05. If prejudice is obvious to the court, 

the party challenging agency action need not demonstrate 

anything further. Id. at 1706. 

Here, the prejudice to Jicarilla from the errors in Vastar is 

obvious. If, on remand, Interior reverses its decision in 

Vastar and applies the Jicarilla methodology to compute gas 

royalties for the period from January 1984 through February 

1988, Jicarilla likely will receive additional revenue from its 

lessees. And this outcome is certainly conceivable because it 

was the result reached in Bayless. See PDK Labs., 362 F.3d 

at 798–99 (declining to hold agency’s erroneous departure 

from precedent without explanation was harmless where, on 

remand, agency might decide to follow precedent). The 

errors in Vastar therefore cannot be said to be harmless. 

Interior and Vastar devote substantial portions of their 

briefs to the argument that Vastar’s errors are harmless 

because the Jicarilla methodology for computing gas royalties 

would be invalid under the pre-1988 Regulations and because 

Bayless was flawed. These are issues for Interior, not this 

court, to consider in the first instance. See SEC v. Chenery 

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Corp., 332 U.S. 194, 196 (1947) (“[A] reviewing court, in 

dealing with a determination or judgment which an 

administrative agency alone is authorized to make, must judge 

the propriety of such action solely by the grounds invoked by 

the agency.”). As we explained above, in Vastar, Interior 

erroneously applied the 1988 Regulations to conclude the 

Jicarilla methodology was invalid for the period from January 

1984 through February 1988 and failed to explain Vastar’s 

departure from Bayless. Interior’s and Vastar’s assertions 

here are nothing more than merits arguments disguised as a 

discussion of harmless error. 

V 

We hold Vastar is arbitrary and capricious with respect to 

the time period from January 1984 through February 1988. 

For the reasons discussed above, Interior’s decision fails to 

consider an important aspect of the problem and does not 

reflect the reasoned decisionmaking required of an agency. 

We therefore reverse in part the district court’s grant of 

summary judgment and remand the case to the district court 

with instructions to vacate Vastar in part and remand the 

decision to Interior for proceedings consistent with this 

opinion. 

So ordered.

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