Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-98-05367/USCOURTS-caDC-98-05367-0/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 May 10, 1999 Decided July 16, 1999

No. 98-5367

Amax Land Company,

Appellee

v.

Cynthia Quarterman, Director,

Minerals Management Service, et al.,

Appellants

Appeal from the United States District Court

for the District of Columbia

(96cv01839)

Robert L. Klarquist, Attorney, United States Department

of Justice, argued the cause for appellants. With him on the

briefs were Lois J. Schiffer, Assistant Attorney General, and

Andrew C. Mergen, Attorney.

Thomas R. Lundquist argued the cause and filed the brief

for appellee.

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Harold P. Quinn, Jr., L. Poe Leggette, and Glenn S.

Benson were on the brief for amicus curiae National Mining

Association.

Before: Silberman, Henderson, and Garland, Circuit

Judges.

Opinion for the Court filed by Circuit Judge Silberman.

Silberman, Circuit Judge: Amax Land Company, a lessee

of federally owned coal-containing land, challenges the legality of a regulation adopted by the Minerals Management

Service (MMS) and a payment order issued pursuant thereto.

The regulation assesses interest on late coal lease payments

at a higher rate than the government can earn on investments

of its short term operating cash, and was interpreted by

MMS in the payment order to allow that higher rate to

fluctuate from month to month and to authorize the assessment of compound interest (i.e., interest on interest). The

district court concluded the regulation was ultra vires insofar

as it established the higher rate, and set aside the regulation

and the payment order. We disagree and hold that the

general rulemaking provisions found in MMS' organic statutes countenance assessing the higher rate so long as that

rate satisfies the criteria imposed by those general rulemaking provisions; we remand for the district court to make this

determination. We agree, however, with the district court's

conclusions on the questions of shifting interest rates and

compound interest. The Debt Collection Act (DCA) plainly

forbids the utilization of shifting interest rates, and its implementing regulations (the Federal Claims Collection Standards), while perhaps not as unambiguous on the matter of

compound interest, are most sensibly interpreted to preclude

that practice as well.

I.

A.

Under the Mineral Lands Leasing Act of 1920 (MLLA) and

other statutes, MMS (a subdivision of the Department of the

Interior) leases federal and Indian lands containing coal, oil,

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and other resources to private entities for exploration and

extraction.1 In exchange, lessees of federal land remit royalties and other rental payments to the government, of which

50% is disbursed to the state in which the land is located (90%

in the case of Alaska). 30 U.S.C. s 191 (1994). Lessees of

Indian land remit similar payments to the government, acting

as trustee for the Indians; the entirety is then conveyed to

the Indians. Gov't Br. 11 n.7. The size of the royalty

payments is determined by statutory formulae. On coal

leases, for example, lessees must pay "a royalty in such

amount as the Secretary shall determine of not less than 121/2

per centum of the value of coal as defined by regulation,

except the Secretary may determine a lesser amount in the

case of coal recovered by underground mining operations."

30 U.S.C. s 207(a) (1994).

The agency's determination of that amount not surprisingly

gives rise to disputes from time to time (mainly appeals to

higher levels of the agency) between MMS and the lessee. If

the dispute is resolved favorably to MMS after the due date,

and if the lessee has timely remitted only a payment based on

its own estimate of the coal's value, the lessee will be late on

part of its royalty payment obligation--to fully compensate

MMS and the states or Indians, the lessee would have to

remit the late portion plus interest on that amount. On the

other hand, if the lessee were to pay the full amount demanded by the agency prior to appeal and subsequently win the

appeal (hence making an overpayment), the lessee would

receive a refund only of the excess portion, not interest on

that amount. That is because Congress has not expressly

provided by statute or contract for recovery of interest

against the government, and in the absence of such a waiver

of sovereign immunity, interest cannot be awarded against

the United States. See Library of Congress v. Shaw, 478

U.S. 310, 314-17 (1986). Recognizing this asymmetry, lessees

__________

1 See MLLA, 30 U.S.C. ss 181 et seq. (1994); Mineral Leasing

Act for Acquired Lands, 30 U.S.C. ss 351 et seq. (1994); 25 U.S.C.

ss 396, 396a-396g (1994) (Indian allotted and tribal lands).

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involved in a good-faith royalty dispute typically will timely

pay only their lower estimate of the royalty payment.

To address the typical underpayment situation, MMS in

1980 adopted regulations assessing interest on underpayments on leases of resource-containing lands at the current

value of funds (CVF) rate. See 45 Fed. Reg. 84,762, 84,764

(1980) (interim regulations); 47 Fed. Reg. 22,524, 22,527

(1982) (final regulations). The CVF rate is a rate prescribed

by the Treasury Department, by reference to prevailing

market rates, for short-term investments of the federal government's operating cash. See 31 U.S.C. s 323 (1994). Consequently, an award based on the CVF rate compensates the

government for its lost opportunity to make short-term investments due to the late payment of a debt.

In 1983, Congress imposed a higher rate by statute--but

only for oil and gas leases, not geothermal or solid mineral

leases (such as coal leases). See Federal Oil and Gas Royalty

Management Act (FOGRMA), Pub. L. No. 97-451, Title I,

s 111(a), 96 Stat. 2447, 2455 (1983) (codified at 30 U.S.C.

s 1721(a) (1994)). (Congress explicitly deferred legislation on

coal leases until MMS studied the matter and filed a report,

see id. at s 303, 96 Stat. at 2461 (codified at 30 U.S.C.A.

s 1752 note (1986)).) The rate chosen for oil and gas leases

was the so-called "IRS rate" already in use for underpayment

of taxes pursuant to 26 U.S.C. s 6621(a)(2) (1994): the marketable rate for treasury bonds of less than three years

maturity, to be determined monthly, plus three percentage

points. Roughly speaking, this rate tends to be 3% higher

than the CVF rate. The agency adopted a new implementing

regulation for oil and gas leases assessing interest at the IRS

rate, see 49 Fed. Reg. 37,336, 37,346-47 (1984) (codified at 30

C.F.R. ss 218.54, 218.55 (1999)), while continuing to assess

interest on coal lease underpayments at the CVF rate.

By 1993, the agency came to view the CVF rate as an

inadequate response to the underpayment problem on coal

leases. Not only did the agency see that rate as insufficient

to compensate it and the states or Indians for lost investment

income on the late portion of the royalty payments on the

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leases, it believed the CVF rate actually caused underpayment in the first place because the lessee had an incentive to

withhold payment, invest the amount withheld, and remit

payment to MMS at a later date, pocketing the spread

between the lessee's investment rate of return and the CVF

rate. A higher rate was thought necessary, and following the

model of its regulation on oil and gas leases, the agency

settled on the IRS rate, which would "serve as an effective

deterrent to discourage late and underpayments" and "fairly

compensate the Federal Government ... States, Indian

tribes and allottees, and other recipients ... for the lost time

value of money." 59 Fed. Reg. 14,557, 14,557 (1994) (codified

at 30 C.F.R. s 218.202(c)-(d) (1999)). As authority, the agency invoked the general rulemaking provisions found in the

several organic statutes it administers, particularly MLLA

s 32, which provides that "[t]he Secretary of the Interior is

authorized to prescribe necessary and proper rules and regulations and to do any and all things necessary to carry out

and accomplish the purposes of this chapter." 30 U.S.C.

s 189 (1994).2

B.

Amax Land Company is the successor-in-interest to a 1965

lease of certain federal coal-containing lands in Wyoming.

__________

2 See also 30 U.S.C. s 359 (1994) ("The Secretary of the

Interior is authorized to prescribe such rules and regulations as are

necessary and appropriate to carry out the purposes of this chapter,

which rules and regulations shall be the same as those prescribed

under the mineral leasing laws to the extent that they are applicable."); 25 U.S.C. s 396 (1994) ("[T]he Secretary of the Interior is

authorized to perform any and all acts and make such rules and

regulations as may be necessary for the purpose of carrying the

provisions of this section into full force and effect[.]") (leases of

allotted Indian lands); 25 U.S.C. s 396d (1994) ("All operations

under any oil, gas, or other mineral lease issued pursuant to the

terms of sections 396a to 396g of this title or any other Act affecting

restricted Indian lands shall be subject to the rules and regulations

promulgated by the Secretary of the Interior.") (leases of unallotted

Indian lands).

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Amax's troubles began in 1985 when the agency invoked its

right under the lease to readjust the royalty rate from one

based on the weight of the coal produced (171/2 cents per ton)

to one based on the value of the coal produced (121/2% of the

value of the coal produced by strip or auger methods and 8%

of the value of coal produced by underground methods).3

The switch from weight to value as the metric for computing

royalty payments created uncertainty for Amax, which had

begun to utilize coal drying processes to increase the BTU

content (and hence the value) of the coal it mined. Amax

explained its methodology for determining value to MMS in a

1989 letter and submitted payments accordingly. But in

1994, the agency informed Amax that the coal had been

revalued and that additional royalties would be assessed

retroactively for the period between January 1989 and July

1993. On September 23, 1994, Amax paid the principal

underpayment amount of $35,706.38. Then, in a payment

order, MMS assessed Amax $9,044.78 in interest on this

principal, calculated as follows: Between March 1989 and

April 1, 1994, MMS employed the CVF rate (which fluctuated

from month to month), in accordance with the regulation in

force at the time, computed as simple interest. Between

April 1, 1994--the effective date of MMS' regulation adopting

the IRS rate for coal leases--and the payment of the principal on September 23, 1994, the agency charged interest at the

IRS rate (which again fluctuated from month to month),

compounded daily.

After an unsuccessful administrative appeal, Amax filed

suit in the district court, seeking invalidation of the 1994

regulation and the payment order. See Amax Land Co. v.

Quarterman, Civ. Act. No. 96-1839, 1998 WL 306582 (D.D.C.

__________

3 The agency's modification of the lease was in response to the

Federal Coal Leasing Amendments Act, Pub. L. No. 97-377, s 6(a),

90 Stat. 1083, 1087 (1976) (codified at 30 U.S.C. s 207(a)), which

amended the MLLA to provide that "[a] lease shall require payment of a royalty in such amount as the Secretary shall determine

of not less that 121/2 per centum of the value of the coal as defined by

regulation, except the Secretary may determine a lesser amount in

the case of coal recovered by underground operations."

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June 3, 1998). Amax contended that MMS lacked authority

to assess the IRS rate of interest, to allow the rate to shift

from month to month, and to charge compound interest. The

district court agreed. The court first held that the regulation

was ultra vires insofar as it adopted the IRS rate, reasoning

that Congress' 1982 legislation imposing the IRS rate only on

oil and gas lease underpayments, while deferring legislation

on coal leases until MMS had studied the matter and proposed or requested new legislation (which never occurred),

implies that Congress understood MMS to possess authority

merely to assess the CVF rate on coal lease underpayments.

The court concluded that although neither the MLLA nor

FOGRMA expressly speaks to the issue of interest on late

coal lease payments, the agency's reading of MLLA s 32 was

unreasonable under step II of Chevron U.S.A. Inc. v. Natural

Resources Defense Council, Inc., 467 U.S. 837, 842-45 (1984).

See Amax Land Co. 1998 WL 306582, at *6. The district

court next turned to the question of MMS' authority to

employ shifting rates and to assess compound interest, which

the court thought answered by the Standards (regulations

establishing uniform cash management practices for all federal agencies) promulgated under the Debt Collection Act of

1982 (DCA), Pub. L. No. 97-365, 96 Stat. 1749 (codified as

amended at 31 U.S.C. ss 3701 et seq. (1994 & Supp. II 1996)),

which provide that "[t]he rate of interest, as initially assessed,

shall remain fixed for the duration of the indebtedness" and

that "[i]nterest should not be assessed on interest," 4 C.F.R.

s 102.13 (c) (1999). See id. at *6-7. Accordingly, the district

court granted summary judgment in favor of Amax, invalidating the regulation and the payment order.

II.

The agency urges us to defer under Chevron to its interpretation of the general rulemaking provisions of its organic

statutes as providing ample authority to assess the IRS rate,

to allow that rate to shift over time, and to assess compound

interest. Amax responds that Congress' 1982 enactment

concerning oil and gas leases, the common law of interest, or

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both, indicate Congress' unambiguous intent to limit the

agency to a compensatory rate (which Amax assumes to be

the CVF rate). Moreover, it is argued that the agency has

departed from its earlier interpretation of its organic statutes

without sufficient explanation, and--even apart from the alleged switch--that the agency's current approach is arbitrary

and capricious. And Amax submits that the questions of

shifting rates and compound interest are readily resolved, as

the district court concluded, by reference to the Debt Collection Act and the implementing Standards.

We think Amax's common law argument-that the federal

common law permits the government to recover no more than

a compensatory rate (Amax argues the IRS rate is a punitive

rate), and hence constrains the agency's otherwise broad

authority under its organic statutes--can be disposed of handily. Assuming the common law imposes a restraint on an

agency's statutory interpretation in a post-Chevron era, see

Michigan Citizens for an Indep. Press v. Thornburgh, 868

F.2d 1285, 1292-93 (D.C. Cir.) (distinguishing canons that

embody a policy choice and should not be employed by a

reviewing court at Chevron step I or II from canons designed

to discern Congress' intent that are appropriately used at

Chevron step I), aff'd by an equally divided Court, 493 U.S.

38 (1989), and assuming the common law rule is as Amax

describes it (the government characterizes the common law

rule as applying only to a federal court's equitable powers,

not to interest demands grounded in an administrative regulation), it is an anachronism to speak of the federal common

law of interest since Congress' enactment of the DCA in 1982.

That statute "changed the common law" by making mandatory the federal government's common law right to assess

interest on private persons' overdue obligations to the government. United States v. Texas, 507 U.S. 529, 534 n.4

(1993). It also "speak[s] directly," United States v. Bestfoods,

118 S. Ct. 1876, 1885 (1998) (quoting Texas, 507 U.S. at 534),

to the question of setting an interest rate, thereby supplanting any guidance the common law may have provided on this

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point: "The head of an executive, judicial, or legislative

agency shall charge a minimum annual rate of interest on an

outstanding debt on a United States Government claim owed

by a person that is equal to [the CVF rate]." 31 U.S.C.

s 3717(a)(1) (Supp. II 1996) (emphasis added).4 Thus, the

DCA plainly provides authority for an agency to decide what

rate is compensatory or even to impose a greater-thancompensatory rate.

To be sure, MMS did not rely on the DCA when it

published the regulation challenged here (perhaps because

that could have negative consequences with respect to the

agency's claimed exemption from the DCA regarding the

compound interest and shifting rate issues, which we discuss

below), and its response before us to Amax's common law

argument likewise does not rely on the DCA. But the

government does claim that the common law does not apply

to it, and our reading of Texas and the DCA--which of course

have been cited to us in other respects--convinces us that

these authorities obviously support the government's claim.

Whether or not a federal court should exercise its discretion

to entertain a logically antecedent legal claim not made by a

party, see United States Nat'l Bank v. Independent Ins.

Agents of Am., Inc., 508 U.S. 439 (1993), a court may certainly consider any legal authority that bears on an argument

that is made, see Independent Ins. Agents of Am., Inc. v.

Clarke, 955 F.2d 731, 743 (D.C. Cir. 1992) (Silberman, J.,

dissenting) (discussing Kamen v. Kemper Fin. Servs., Inc.,

__________

4 When Texas was decided, the DCA provided that the term

" 'person' does not include an agency of the United States Government, of a State government, or of a unit of general local government." 31 U.S.C. s 3701(c) (1994). The Supreme Court held that

Congress' explicit limitation of the DCA in this manner did not

indicate that Congress had directly spoken to the common law rule

allowing the federal government to recover compensatory interest

from a local government as debtor, see, e.g., Board of Comm'rs of

Jackson County v. United States, 308 U.S. 343 (1939), and hence

that this aspect of the common law did survive the DCA. See

Texas, 507 U.S. at 535. The DCA has since been amended to

include states and local governments. See Pub. L. No. 104-134,

s 31001(d)(1), 110 Stat. 1321, 1321-359 (1996).

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500 U.S. 90 (1991)), rev'd on other grounds, 508 U.S. 439

(1993), especially when such legal authority has already been

brought to the court's attention, cf. Carducci v. Regan, 714

F.2d 171, 177 (D.C. Cir. 1983).

The FOGRMA statute, on which the district court relied,

presents more difficult questions. Obviously if FOGRMA,

properly construed, revealed a congressional intent that the

agency not be authorized to charge the IRS rate it could not

be thought "necessary and proper" under MLLA s 32 to do

so. The government properly objects to the district court's

conclusion that "FOGRMA ... makes it clear that Congress

itself did not believe that the MLLA ever provided sufficient

authority for the department to charge the IRS rate." (emphasis added). That assertion runs afoul of the principle that

a later Congress' interpretation of what an earlier Congress

intended carries no particular weight--when used for that

purpose alone. A later Congress' views can be relevant,

however, in interpreting the meaning of its own duly enacted

legislation. See generally United States ex rel. Long v. SCS

Bus. & Tech. Inst., Inc., 173 F.3d 870, 881 n.15 (D.C. Cir.

1999) (collecting cases). And this seems to be the nature of

Amax's argument, i.e., that the FOGRMA Congress' understanding of the agency's interest authority under the MLLA

illuminates what the FOGRMA Congress intended in restricting FOGRMA to oil and gas leases and deferring legislation

on coal leases until the agency's completion of a report. If we

agreed with Amax's interpretation of FOGRMA, that statute

itself--wholly apart from the MLLA--would limit the agency's interest authority on coal leases.

We start with FOGRMA's text. Section 111(a) provides

that "[i]n the case of oil and gas leases where royalty payments are not received by the Secretary on the date that such

payments are due, or are less than the amount due, the

Secretary shall charge interest on such late payments or

underpayments at the [IRS rate]." 30 U.S.C. s 1721(a) (1994

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& Supp. II 1996) (emphasis added). Here, and indeed

throughout FOGRMA, Congress spoke only to oil and gas

leases, notwithstanding that the original Senate bill would

have extended to leases of all mineral resources. See S. Rep.

No. 97-512, at 11 (1982) (noting that Senate bill had been

amended in committee to cover only oil and gas leases).

Reading s 111 together with Congress' stated purpose to

"expand ... the authorities and responsibilities of the Secretary of the Interior to implement and maintain a royalty

management system for oil and gas leases on Federal lands,"

30 U.S.C. s 1701(b)(2) (emphasis added), Amax infers that

Congress demonstrated that legislation was necessary to

authorize the agency to impose the IRS rate on oil and gas

lease underpayments, and that Congress' omission of such

legislation for coal leases evinces its intent to prohibit the

agency from assessing the IRS rate in that context.

Amax also directs us to the one provision of FOGRMA

where Congress did address coal leases. That section provides:

The Secretary shall study the question of the adequacy

of royalty management for coal, uranium and other energy and nonenergy minerals on Federal and Indian lands.

The study shall include proposed legislation if the Secretary determines that such legislation is necessary to

ensure prompt and proper collection of revenues owed to

the United States, the States and Indian tribes or Indian

allottees from the sale, lease or other disposal of such

minerals.

s 303(a), 96 Stat. at 2461 (codified at 30 U.S.C.A. s 1752 note

(1986)). In Amax's view, this section expresses Congress'

understanding (and therefore its intent) that MMS lacks the

authority independently to adopt royalty management measures (including charging interest at the IRS rate) similar to

those imposed by FOGRMA on the agency for oil and gas

leases. Such authority on coal leases, we are told, could only

come from Congress, and presumably only after the requested report on coal royalty management had been submitted

pursuant to s 303. (The agency's 1984 report concluded that

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no such legislation was necessary. See U.S. Department of

the Interior, Report to the Congress of the United States on

the Adequacy of Royalty Management For Solid Minerals 18

(1984).)

Amax bolsters its textual arguments with an excerpt of

legislative history. The House Report, in describing the preFOGRMA state of affairs, explained that "[t]he Federal royalty management system lacks adequate enforcement tools.

Under the present system, the MMS has very limited authority to impose penalties (beyond ordinary interest charges)

even for gross, repeated underpayments of royalties." H. R.

Rep. No. 97-859, at 18 (1982), reprinted in 1982 U.S.C.C.A.N.

4268, 4272. Equating "ordinary interest charges" with the

compensatory CVF rate, appellee views this excerpt as quite

supportive of its interpretation.

The government, for its part, observes that s 111(a) is

phrased as a mandatory command--"the Secretary shall

charge interest [at the IRS rate]," 30 U.S.C. s 1721(a) (emphasis added)--rather than as a grant of authority. Thus,

Congress may have intended to require the IRS rate for oil

and gas leases, while leaving to the agency's discretion which

rate to impose for coal leases. The government responds

similarly to appellee's reliance on the study-and-report provision in s 303, reading that section to mean that if the agency

wanted mandatory royalty management measures imposed

on it by Congress (including the IRS rate), it could submit

such a request in the report. Accordingly, the study-andreport command does not imply anything regarding the agency's authority to impose such measures on itself by regulation.5 And whereas appellant focuses on Congress' stated

purpose to "expand" the agency's authority regarding royalty

management for oil and gas leases, see 30 U.S.C. s 1701(b)(2)

("It is the purpose of this chapter to clarify, reaffirm, expand,

__________

5 The agency appeared to assume this interpretation of s 303 in

the 1984 report submitted to Congress. See U.S. Department of

the Interior, supra, at 18 ("[A]ny additional authorities determined

to be necessary can and will be developed through modification of

internal procedures, new lease terms, or by rulemaking.").

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and define the authorities and responsibilities of the Secretary of the Interior to implement and maintain a royalty

management system for oil and gas leases on Federal

lands...."), the government highlights the words "clarify"

and "reaffirm," and submits that in the context of a statute

addressing so many aspects of oil and gas lease royalty

management, it is far from clear that Congress meant to link

the word "expand" in this general statement of purposes to

the one specific provision mandating assessment of the IRS

rate. Finally, the government points to FOGRMA s 304,

which provides that "[t]he penalties and authorities provided

in this chapter are supplemental to, and not in derogation of,

any penalties or authorities contained in any other provision

of law," 30 U.S.C. s 1753(a) (1994). While there may be

disagreement as to the scope of those "authorities contained

in any other provision of law," the government urges that this

section must at least mean that Congress intended FOGRMA

to have no effect on them.

Amax's s 111(a) argument, by itself, would be based on a

use of the expressio unius est exclusio alterius canon in a

context, where, as we have indicated before, it is rather

tenuous. See Cheney R.R. Co. v. ICC, 902 F.2d 66, 69 (D.C.

Cir. 1990) ("[T]he contrast between Congress's mandate in

one context with its silence in another suggests not a prohibition but simply a decision not to mandate any solution in the

second context, i.e., to leave the question to agency discretion.") (emphasis in original); see also Shook v. District of

Columbia Fin. Responsibility & Management Assistance

Auth., 132 F.3d 775, 782 (D.C. Cir. 1998). But the explicit

mention of coal leases--the "alterius"--in the study-andreport command makes the negative implication somewhat

stronger. And we agree that the legislative history is at least

supportive. Still, we cannot say that Congress directly addressed the issue before us as the first step of Chevron

requires. So we must defer to the agency's interpretation, if

reasonable. We think that, particularly in light of s 304, the

agency's interpretation passes that test, and therefore we

disagree with the district court's conclusion.

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III.

Amax alternatively argues that MMS' present view of its

rulemaking authority contradicts an earlier position taken by

Interior's Board of Land Appeals (a body that reviews the

MMS Director's adjudicatory decisions) in Shell Offshore,

Inc., 115 I.B.L.A. 205 (1990). This contention, if true, would

not of itself defeat Chevron deference, see Paralyzed Veterans of Am. v. D.C. Arena L.P., 117 F.3d 579, 586 (D.C. Cir.

1997) (citing Chevron, 467 U.S. at 863), cert. denied sub nom.

Pollin v. Paralyzed Veterans of Am., 118 S. Ct. 1184 (1998),

but would, under Motor Vehicle Mfrs. Ass'n of United States,

Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 46-57

(1983), require the agency to provide a reasoned explanation

for the changed interpretation, see Smiley v. Citibank, N.A.,

517 U.S. 735, 742 (1996); Arent v. Shalala, 70 F.3d 610, 616

n.6 (D.C. Cir. 1995) (citing Rust v. Sullivan, 500 U.S. 173,

186-87 (1991)).6

__________

6 We recognize that there is some inconsistent language in the

Supreme Court's cases on the proper level of deference due an

agency's revised interpretation of a statute it administers. Compare, e.g., INS v. Cardoza-Fonseca, 480 U.S. 421, 446 n.30 (1987)

("An agency interpretation of a relevant provision which conflicts

with the agency's earlier interpretation is 'entitled to considerably

less deference' than a consistently held agency view." (quoting Watt

v. Alaska, 451 U.S. 259, 273 (1981))), with Rust, 500 U.S. at 186-87

("This Court has rejected the argument that an agency's interpretation 'is not entitled to deference because it represents a sharp break

with prior interpretations' of the statute in question." (quoting

Chevron, 467 U.S. at 862)). See generally Comment, Chevron, Take

Two: Deference to Revised Agency Interpretations of Statutes, 64

U. Chi. L. Rev. 681 (1997). Although we have cited CardozaFonseca approvingly in dicta, see Huls America, Inc. v. Browner,

83 F.3d 445, 450 n.6 (D.C. Cir. 1996), we more frequently articulate

and apply the standard in analogous terms to those chosen by the

Supreme Court in its most recent statement (albeit in dicta) of the

issue in Smiley, 517 U.S. at 742, see Independent Bankers Ass'n of

Am. v. Farm Credit Admin., 164 F.3d 661, 668 (D.C. Cir. 1999)

(citing Smiley); Paralyzed Veterans, 117 F.3d at 586; BushQuayle '92 Primary Comm., Inc. v. FEC, 104 F.3d 448, 453-55

(D.C. Cir. 1997); Arent, 70 F.3d at 616 n.6, and we do so here.

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But no such change has occurred here. In Shell Offshore,

the agency's Board of Land Appeals was presented with the

question whether MMS could assess interest at the IRS rate

on delinquent oil and gas lessees for periods of time prior to

Congress' explicit authorization of the IRS rate for oil and

gas leases in FOGRMA. The Board of Land Appeals held

that the MMS could only assess interest at the CVF rate for

such periods:

Although prior to the passage of 30 U.S.C. s 1721 (1982),

MMS was authorized by equity to assess interest in

order to compensate the Department for the time value

of money, the interest rate authorized by 30 U.S.C.

s 1721 (1982) is greater than necessary to compensate

for the time value of money.... Thus, although MMS

was authorized to assess interest prior to passage of

FOGRMA, it was not authorized to assess interest at the

rate specified by FOGRMA....

Shell Offshore, 115 I.B.L.A. at 212 (emphasis added) (citations

and footnote omitted). That interpretation of the agency's

interest authority may be dubious insofar it is grounded in

general notions of "equity." (Agencies, of course, are totally

creatures of statute.) But in any event, as the government

points out, the Board of Land Appeals in Shell Offshore did

not consider that MLLA s 32 or the other general rulemaking provisions might furnish the authority for the agency to

assess the IRS rate. MMS' 1994 rulemaking, which expressly relied on those provisions, see 59 Fed. Reg. at 14,557-58,

accordingly cannot be deemed a departure.

So it is that MLLA s 32 gives the agency the authority to

reach the subject matter of interest. But not without limits:

Section 32, it will be recalled, requires that any regulations

adopted by MMS be "necessary and proper ... to carry out

and accomplish the purposes of this chapter." 30 U.S.C.

s 189. Amax, supported by the National Mining Association

as amicus curiae, contends that MMS' regulation is arbitrary

and capricious, see 5 U.S.C. s 706(2)(A) (1994)--which is

more or less the same as saying that the agency has ignored

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the "necessary and proper" command.7 It is argued, for

example, that the degree of underpayment on coal leases

pales in comparison to the magnitude of underpayment on oil

and gas leases that prompted FOGRMA, so that the IRS rate

is not "necessary" to deter late payments; that the CVF rate

is adequate to deter late payments because the coal mining

industry's return on assets is lower than the CVF rate; that

most late payments result from coal lessees losing good-faith

administrative appeals rather than engaging in strategic investment behavior; and that the agency has failed to consider

an important aspect of the late payment problem, i.e., the

agency's leisurely processing of administrative appeals

(which, it is feared, may get worse once the agency stands to

receive a higher interest rate). The agency's response is

somewhat anemic. In its rulemaking statement, it dismissed

complaints about the length of the administrative appeals

process with the brusque assertion that "[t]his issue is beyond

the scope of this rulemaking" and a promise to streamline the

appeals process. 59 Fed. Reg. at 14,557. And in its brief,

the agency ignores most of the contentions advanced by

Amax and its amicus and simply says that $27 million in lost

interest revenue is not so insubstantial a sum as to make the

agency's corrective measure unnecessary or improper.

__________

7 Whether MMS' regulation is "necessary and proper" is not so

much a Chevron statutory interpretation question as an arbitrary

and capricious issue. That standard is more fitting here given the

breadth of the "necessary and proper" command. See National

Ass'n of Regulatory Util. Comm'rs v. ICC, 41 F.3d 721, 727 (D.C.

Cir. 1994) ("When Congress' instructions are conveyed at a high

level of generality, an agency is not likely to consider its action as

an 'interpretation' of the authorizing statute, nor is that action likely

to be challenged as a 'misinterpretation.' "). Still, we have also

recognized a significant overlap between Chevron step II and APA

arbitrary or capricious review. See, e.g., Republican Nat'l Comm.

v. FEC, 76 F.3d 400, 407 (D.C. Cir. 1996); Arent, 70 F.3d at 616 n.6;

Regulatory Util. Comm'rs, 41 F.3d at 728. At bottom, the label put

on the reviewing framework is not so important in this case: it is

not much different to ask whether MMS' regulation is "necessary

and proper" than to ask whether it is "arbitrary [or] capricious."

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The district court saw no need to reach this issue given its

resolution of the antecedent question of the agency's authority in favor of Amax. See Amax Land Co., 1998 WL 306582,

at *3. That, of course, does not bar us from doing so: these

are questions of law, which were presented to the district

court, and we sit in the same posture as the district court in

reviewing an administrative regulation or adjudication. See,

e.g., Associated Builders & Contractors, Inc. v. Herman, 166

F.3d 1248, 1254 (D.C. Cir. 1999); Marshall County Health

Care Auth. v. Shalala, 988 F.2d 1221, 1225 (D.C. Cir. 1993).

Still, since the issue has not been fully briefed, and since both

Amax (paradoxically) and MMS request us to remand to the

district court for consideration of this issue, we will do so,

notwithstanding the amicus' preference that we resolve it

here and now. Cf. Narragansett Indian Tribe v. National

Indian Gaming Comm'n, 158 F.3d 1335, 1338 (D.C. Cir. 1998)

(declining to consider an argument advanced by an amicus

but not by any party).

IV.

Whether the benchmark rate is the CVF rate or the IRS

rate, there remains the issue of MMS' authority to allow the

rate to shift over time and to assess compound interest (i.e.,

interest on interest). The regulation itself is silent on these

matters, but the agency interpreted it in the payment order

issued to Amax as authorizing the assessment of compound

interest (compounded daily), apparently reasoning that the

regulation adopts the IRS rate set forth in 26 U.S.C.

s 6621(a)(2), which contemplates shifting interest rates, see

id. s 6621(b), and that an adjacent provision in the Internal

Revenue Code provides that the rate shall be compounded

daily, see id. s 6622(a).8

__________

8 MMS also advanced its interpretation of the regulation as

authorizing compound interest in the regulation's preamble. See 59

Fed. Reg. at 14,558 ("The IRS rate is compounded daily, as

contrasted to the CVF rate which is calculated as simple interest.").

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Amax does not claim these are misinterpretations of the

agency's own regulation, 30 C.F.R. s 218.202, but rather

submits that the DCA and the implementing Standards place

an external constraint on the agency's authority to assess

compound interest or to employ shifting rates. The DCA

provides, in relevant part,

s 3717. Interest and penalty on claims

(a)(1) The head of an executive, judicial, or legislative

agency shall charge a minimum annual rate of interest on

an outstanding debt on a United States government

claim owed by a person that is equal to the average

investment rate for the Treasury tax and loan accounts

for the 12-month period ending on September 30 of each

year, rounded to the nearest whole percentage point ...

...

(c) The rate of interest charged under subsection (a) of

this section--

...

(2) remains fixed at [the rate in effect on the date

from which interest begins to accrue] for the duration of

the indebtedness.

31 U.S.C. s 3717 (emphasis added). MMS defends its authority to employ shifting rates by contending that

s 3717(c)(2)'s apparently plain prohibition of shifting rates

applies only when an agency chooses to impose the "minimum" CVF rate and not when an agency exerts its authority,

drawn from these provisions or others, to assess a higher

rate. Even aside from the fact that we owe no deference to

MMS' interpretation of a statute it does not administer, see,

e.g., Scheduled Airlines Traffic Offices v. Department of

Defense, 87 F.3d 1356, 1361 (D.C. Cir. 1996); OPM v. FLRA,

864 F.2d 165, 171 (D.C. Cir. 1988); the DCA is unambiguous

on this issue. 31 U.S.C. s 3717(a)(1) requires agencies to

assess interest on overdue obligations and sets a floor on the

rate chosen at the CVF rate. The ceiling is established by 5

U.S.C. s 706(2)(A): the agency may not choose an arbitrary

or capricious rate. See also 4 C.F.R. s 102.13(c) ("An agency

may set a higher rate if it reasonably determines that a

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higher rate is necessary to protect the United States."). Any

rate within this spectrum is "the rate of interest charged

under subsection (a)" for purposes of 31 U.S.C. s 3717(c), and

hence must remain "fixed ... for the duration of the indebtedness." We therefore firmly reject the government's argument.

As to compound interest, the DCA is silent but Amax

invokes the Standards, which expressly disfavor the practice

of charging compound interest.

The rate of interest shall be the [CVF rate]. An agency

may assess a higher rate of interest if it reasonably

determines that a higher rate is necessary to protect the

interests of the United States. The rate of interest, as

initially assessed, shall remain fixed for the duration of

the indebtedness, except that where a debtor has defaulted on a repayment agreement and seeks to enter into a

new agreement, the agency may set a new interest rate

which reflects the current value of funds to the Treasury

at the time the new agreement is executed. Interest

should not be assessed on interest, penalties, or administrative costs required by this section.

4 C.F.R. s 102.13(c) (emphasis added). The government's

response echos its unsuccessful attempt to evade the DCA's

prohibition on shifting rates. We are told that the "interest

should not be assessed on interest" command applies only in

the case of "interest ... required by this section," that the

only interest required by s 102.13 is the CVF rate, and hence

that the rule against compound interest does not apply when

the agency imposes a rate higher than the CVF rate. We

think that is a rather implausible reading of the regulation.

How could the CVF rate be the only "required" rate when

the second sentence contemplates a higher rate? The "interest ... required by this section" sensibly means either the

CVF rate (as described in the first sentence) or a higher rate

(as described in the second sentence). It may be that the

government's reading, while weak, is nonetheless reasonable.

But even assuming it is reasonable (we express no view), we

owe no deference to MMS' interpretation of a regulation that

it did not promulgate and does not administer, Martin v.

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OSHRC, 499 U.S. 144, 152-53 (1991). Left to proceed de

novo, we of course pick what we think is the best interpretation of the regulation.

The government, however, points to an introductory provision of the Standards that says: "The standards set forth in

this chapter shall apply to the administrative handling of civil

claims of the Federal Government for money or property but

the failure of an agency to comply with any provision of this

chapter shall not be available as a defense to any debtor." 4

C.F.R. s 101.8 (emphasis added). Unfortunately, this claim

comes too late.9 The government concedes that it did not

present this contention to the district court, and it cannot be

heard to do so now. See Singleton v. Wulff, 428 U.S. 106, 120

(1976). Whether it can timely assert this "defense" on remand, see R.G. Johnson Co. v. Apfel, 172 F.3d 890, 895 (D.C.

Cir. 1999) (citing Peralta v. U.S. Attorney's Office, 136 F.3d

169, 173 (D.C. Cir. 1998)), and, if so, the proper outcome on

the merits, are matters we leave to the district court to decide

in the first instance.10

* * * *

That disposes of Amax's challenge to the regulation itself,

but there is one last wrinkle concerning Amax's challenge to

__________

9 Our treatment of this claim as waived differs from our earlier

willingness to consider the impact of the DCA on the common law

notwithstanding the government's failure to make the argument.

There is a good reason. Unlike the DCA, which provided an

additional argument supporting the government's already asserted

claim that the common law does not apply to it, the government's

citation of 4 C.F.R. s 101.8 here is surely a new claim, akin to a

statute of limitations defense.

10 It may be that 4 C.F.R. s 101.8, while preventing a debtor

from invoking the Standards as a "defense" to the government

agency's "administrative handling of civil claims," does not preclude

a challenge--wholly aside from a dispute over a particular debt--to

the legality of an agency's regulation. Here Amax challenges both

MMS' payment order and MMS' regulation, 30 C.F.R. s 218.202.

See Complaint for Declaratory and Set Aside Relief p 1, Civ. Act.

No. 96-839 (D.D.C. Aug. 6, 1996).

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the payment order. Although we hold that the DCA and the

Standards forbid the use of shifting interest rates or the

assessment of compound interest, the DCA comes with two

exemptions. The one invoked by the agency provides that 31

U.S.C. s 3717 does not apply "to a claim under a contract

executed before October 25, 1982, that is in effect on October

25, 1982." 31 U.S.C. s 3717(g)(2); see also 4 C.F.R.

s 102.13(i)(1)(ii) (identical exemption from operative subsections of 4 C.F.R. s 102.13). The parties disagree as to

whether Amax's lease agreement is such a pre-1982 contract.

Amax is the successor-in-interest to a 1965 lease. Section

2(c) of the original lease required the lessee to remit royalties

based on the weight of the coal produced (171/2 cents per ton

for the first 10 years and 20 cents per ton for the remainder

of the first 20-year period), and s 3(d) reserved to MMS the

right "reasonably to readjust and fix royalties payable hereunder and other terms and conditions at the end of 20 years

from the date hereof and thereafter at the end of each

succeeding 20-year period during the continuance of this

lease...." In 1985, the agency, invoking s 3(d), readjusted

the lease terms to provide that "the royalty shall be 121/2

percent of the value of the coal produced by strip or auger

methods and 8 percent of the value of the coal produced by

underground mining methods."

Amax insists that the 1985 readjustment of the royalty rate

effected a novation of the 1965 lease agreement and a consummation of a new agreement going forward. The government responds that the 1985 readjustment was explicitly

contemplated by the original 1965 lease, and therefore is

properly characterized as an assertion of rights under the

original contract, not a novation. Since Amax, as the party

challenging the payment order, has not cited any authority in

support of its view, we are inclined to agree with the government's characterization, see Carducci, 714 F.2d at 177, which

seems the more reasonable one in any event. Accordingly,

we hold that the DCA imposes no constraint on MMS vis-avis underpayments on this particular lease, and unless it is

determined on remand that shifting rates or compound interest are not "necessary" within the meaning of MLLA s 32 as

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regards this particular lease, the payment order is valid. See

30 U.S.C. s 189 ("The Secretary of the Interior is authorized

... to do any and all things necessary to carry out and

accomplish the purposes of this chapter.").

* * * *

For the foregoing reasons, we reverse the district court

and uphold MMS' regulation, 30 C.F.R. s 218.202, except

insofar as the agency has interpreted it to allow for shifting

interest rates and compound interest. We remand the case

for the district court to consider Amax's claim that the

regulation, insofar as it adopts the IRS rate, is not "necessary

and proper" within the meaning of MLLA s 32. And we

uphold the payment order in all respects, subject to the

possibility that Amax may demonstrate on remand that compound interest and shifting rates are not "necessary" within

the meaning of MLLA s 32 as regards Amax's particular

lease.

So ordered.

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