Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-92-05241/USCOURTS-ca10-92-05241-0/pdf.json

Parties Involved:
Mesa Operating Limited Partnership
Appellant
United States Department of the Interior
Appellee

Document Text:

PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

MESA OPERATING LIMITED PARTNERSHIP, ) 

Plaintiff-Appellant, 

v . 

UNITED STATES DEPARTMENT OF THE 

INTERIOR, 

Defendant-Appellee. 

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'United St;l~ Court of Appeala 'renth Circ::it 

FEB 2 5 1994 

ROBERT L. HOE r.7ER t~ . . .,.. ....., __ 

\ :. . ... 

No. 92-5241 

Appeal from the United States District Court 

for the Northern District of Oklahoma 

{D.C. No . 92-C- 843-E} 

James P. Denvir (Stephen A. Wakefield and Jerry E. Rothrock, also 

of Akin, Gump, Strauss, Hauer & Feld, Washington, D.C.; Patrick D. 

O'Connor and Terry M. Thomas of Moyers, Martin, Santee, Imel & 

Tetrick, Tulsa, Oklahoma, with him on the briefs) for Plaintiff- Appellant. 

William B. Lazarus, Attorney, Department of Justice, Washington, 

D.C. (Myles E. Flint, Acting Assistant Attorney General; Bever- ly N. Nash, Lisa K. Hemmer and Robert L. Klarquist, Attorneys, 

Department of Justice, Washington, D.C.; F.L. Dunn, III, United 

States Attorney/ and Peter Bernhardt, Assistant United States 

Attorney, Tulsa, Oklahoma; Of Counsel: Peter J. Schaumberg and 

Geoffrey R. Heath, Office of the Sol icitor, Department of Interior1 Washington, D.C., with him on the brief) for DefendantAppellee. 

Before SEYMOUR/ Chief Judge, SETH and LOGAN, Circuit Judges. 

LOGAN, Circuit Judge. 

Appellate Case: 92-5241 Document: 01019657474 Date Filed: 02/25/1994 Page: 1 
Plaintiff Mesa Operating Limited Partnership appeals a district court order denying its motion for summary judgment and 

granting the summary judgment motion of the defendant Unite d 

States Department of the Interior. Plaintiff argues that defendant's claims for underpayment of royalties are barred by 28 

U.S.C. § 2415 because the government failed to file a complaint or 

count erclaim within the six- year statute of limitations period, 

and that the district court erred in concluding that plaintiff 

waive d the § 2415 statute of limitations defense by not raising it 

in earlier litigation in the Western District of Louisiana and the 

Fifth Circuit Court of Appeals. We review the district court's 

grant of summary judgment de novo. Phillips Petroleum Co. v. 

Lui an, 963 F.2d 1380, 1384 {lOth Cir. 1992 } . 

I 

Plaintiff is a lessee and royalty payor under numerous oil 

and gas leases with the defendant. On February 27, 1987, the Minerals Management Service (MMS}, operating under the auspices of 

defendant, issued an audit demand letter claiming that plaintiff 

had not paid royalties on c e rtain cost reimbursements that it had 

collec ted. The MMS letter ordered plaintiff to perform a sel faudit, compute the royalties due, and pay such royalties to defendant by April 20, 1987. Shortly before that due date plaintiff 

filed a n administrative appea l with defendant regarding the letter. Plaintiff argued that the MMS had no statutory authority to 

order a self-audit or to collect royalties on the designated cost 

reimbursements. On April 30, 1987, plaintiff requested a stay of 

the 11 pay" portion s of the February order pending a determination 

Appellate Case: 92-5241 Document: 01019657474 Date Filed: 02/25/1994 Page: 2 
of its administrative appeal. Plaintiff calculated the royalties 

that would be due under defendant's demand in May 1987. I Appellant's App. 169-72. In July 1987, MMS granted the stay but 

required plaintiff to post a bond for the amount of royalties and 

interest that plaintiff would owe in the event that the MMS demand 

was upheld. 1 On October 7, 1987, defendant issued a final decision denying plaintiff's administrative appeal and affirming the 

MMS determination that the disputed cost reimbursements were 

royalty-bearing payments. 

Thereafter, on February 22, 1988, plaintiff filed suit for 

declaratory and injunctive relief in the Western District of Louisiana, challenging defendant's interpretation of the royalty regul ations and requesting that defendant be enjoined from collecting 

royalties on the disputed cost reimbursements. 2 Defendant did not 

file a counterclaim demanding payment of the royalties but did 

file a summary judgment motion supporting its interpretation of 

the royalty regulations; this was granted by the district court. 

Plaintiff appealed that judgment to the u.s. Court of Appeals for 

the Fifth Circuit, and on May 15, 1991, the court affirmed the 

1 Plaintiff's self-audit in May calculated "the royalty and 

interest that would be due in the event the MMS may lawfully collect royalties on the cost reimbursements which [plaintiff] 

receives under Section 110 of the Natural Gas Policy Act from its 

natural gas purchasers" as $1,133,254.98. I Appellant's App. 172. 

Defen dant audited the schedule and adjusted the figure to 

$1,179,631 .3 0 due to mathematical errors in plaintiff's calculations. Id. Defendant then required plaintiff to post a bond in 

the amount of $1,509,529.88 to represent the 11 principal plus 

interest that will accrue through July 31, 1988. 11 Id. at 173. 

2 The litigation commencing with plaintiff's suit in the Western 

District of Louisiana and continuing through the subsequent Fifth 

Circuit appeal has been designated by both parties to this appeal 

as the "Lake Charles litigation." 

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Appellate Case: 92-5241 Document: 01019657474 Date Filed: 02/25/1994 Page: 3 
district court's holding that defendant properly interpreted the 

royalty regulations· as applicable to the disputed cost reimbursements. See Mesa Operating Ltd. Partnership v. Department of the 

Interior, 931 F.2d 318 (5th Cir. 1991), cert. denied, 112 S. Ct. 

934 (1992). 

When plaintiff did not pay the royalties, the MMS informed 

p l aintiff on September 10, 1992, that if it did not pay the royalties and interest due within ten days defendant would issue a 

notice of noncompliance pursuant to 30 U.S.C. § 1719, which would 

expose plaintiff to civil penalties ot" up to $10,000 per day for 

knowing failure to make royalty payments as specified in the 

l ease. 

Shortly thereafter plaintiff filed the instant case in the 

Northern District of Oklahoma for injunctive relief and declaratory judgment, arguing that the defendant cannot enforce the MMS 

administrative order to pay because it failed to file suit or 

counterclaim against plaintiff at any point during the administrative review process or the Lake Charles litigation, and thus, 

through inaction, allowed the § 2415 six-year statute of limitations to extinguish defendant's claim. 

The parties filed cross motions for summary judgment. The 

district court held that plaintiff "failed to raise the appl ication of § 2415 in a timely manner, therefore its motion for summary judgment must be denied. 11 II Appellant's App. 530. The 

court granted defendant 1 S motion but did not make a specific 

determination as to when the statute ran on the defendant's 

claims. The court stated 11 [i]t will suffice, for the purposes of 

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Appellate Case: 92-5241 Document: 01019657474 Date Filed: 02/25/1994 Page: 4 
this analysis, to determine that the statute began to run prior to 

or during the pendency of the Lake Charles litigation." Id. at 

529. 

II 

Apparently defendant's claim arose from a Federal Energy Regulatory Commission (FERC) order establishing allowances for gas 

production-related activities. The FERC order was to be retroactive to July 25, 1980, and eligibility criteria were defined in 

February 3, 1983 orders, see 48 Fed. Reg. 5178, 5190 (Feb. 3, 

1983), with a final order effective Oct . 31, 1983. See 48 Fed . 

Reg. 44,496 (Sept. 29, 1983). Plaintiff apparently received the 

large majority of reimbursements after the Fifth Circuit upheld 

the PERC orders in August 1985, see Texas Eastern Transmission 

CohP. v. FERC, 769 F.2d 1053 (5th Cir. 1985), cert. denied, 476 

u.s. 1114 {1986), and received the last such payment in February 

1987. II Appellant's App. 634 , 637. The MMB audit demand letter 

issued to plaintiff on February 27, 1987. 

Our recent decision in Phillips Petroleum Company v. Lujan, 4 

F.3d 858 (lOth Cir. 1993), ruled that the statute of limitations 

commences to run in an action by the government to recover unpaid 

royalties from oil and gas leases when the government knew or 

should have known about the deficiency. Id. at 863. The district 

court's order and judgment recited that the earliest possible 

accrual date from which to measure the statute of limitations was 

July 25, 1980, and the parties agreed that the latest date for the 

commencement of the running of the statute of limitations was 

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Appellate Case: 92-5241 Document: 01019657474 Date Filed: 02/25/1994 Page: 5 
between the district court decision in the Lake Charles litigation, August 23, 1989, and the Fifth Circuit's affirmance, May 15, 

1991. Order & Judgment of October 15, 1992, II Addendum to Appellant's App. 526 n.2. 

28 U.S.C. § 2415 states in pertinent part that 

every action for money damages brought by the United 

States . . . shall be barred unless the complaint is 

filed within six years after the right of action accrues 

or within one year after final decisions have been rendered in applicable administrative proceedings required 

by contract or by law, whichever is later . . . . 

If we were to apply the earliest possible date recited by the district court, July 25, 1980, the six-year statute arguably would 

have run on some claims by the April 30, 1987, date when plaintiff 

requested a stay of the "pay" provisions of the MMS audit demand 

letter. The statute of limitations would have been a defense to 

payment, and the issue that some of defendant's claims were unenforceable was not raised by plaintiff in either the administrative 

proceeding or the Lake Charles litigation that followed. We 

believe principles of claim preclusion, res judicata, operate to 

bar any defense to payment that could have been raised in the litigation but was not. See, ~. Nevada v. United States, 463 U.S. 

110, 129-30 (1983). 

If the latest dates agreed upon by the parties are applicable 

the six-year statute has not yet run. Plaintiff asserts that the 

statute commenced to run as it received past reimbursements 

between February 1984 and February 1987, so that the statute has 

now run on many of the claims. Like the district court, however, 

we hold that we need not decide the precise date the statute did 

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Appellate Case: 92-5241 Document: 01019657474 Date Filed: 02/25/1994 Page: 6 
commence. By filing the administrative appeal challenging plaintiff's liability for the payments, and putting up a bond in · July 

1987, a time during which the government was entitled to recover 

under plaintiff's theory and that covered t he payments plus interest defendant asserted were due, in order to stay the 11 payn order, 

plaintiff in effect promised to make the payments if it lost the 

litigation. 

Plaintiff's suit in district court in the Lake Charles litigation appears to be too late to be considered an appeal from the 

final administrative decision. But the suit sought injunctive 

relief against defendant's collection of the royalties. Plaintiff 

has continued its bond and increased it to cover additional interest, as we understand. See II Appellant's App. 487 {as of 

July 31, 1992, bond was $2,549,500). Plaintiff having now lost 

its appeal at all levels, it would seem unjust in the extreme to 

permit the delay through litigation initiated by plaintiff and 

supported by a bond sufficient to cover the payments in the 

amounts claimed by defendant to give plaintiff the cover of the 

statute of limitations to avoid payment of the royalties. We know 

of no authority that would require a separate suit or counterclaim 

in the circumstances before us, and we agree with the district 

cou rt that we should not create a procedural trap for the unwary. 

Qt. Arch Mineral Corp. v. Lujan, 911 F.2d 408, 414-15 n.3 {lOth 

Cir. 1990) (compulsory counterclaim rule inapplicable to unpaid 

r oyalties on coal leases) . 

AFFIRMED. 

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Appellate Case: 92-5241 Document: 01019657474 Date Filed: 02/25/1994 Page: 7