Opinion ID: 187267
Heading Depth: 2
Heading Rank: 4

Heading: Prior Inconsistent Interpretation

Text: Finally, Devon argues that the agency's interpretation of the marketable condition rule (embodied in the DOI Valuation Determination and Final Order) must be vacated because it was issued without notice-and-comment rulemaking required by § 553 of the APA. At bottom, Devon's central claim is that it acted in reliance on the guidance documents and this reliance interest is protected by the APA. Appellant's Br. at 16. Devon's argument runs as follows: The marketable condition rule does not prohibit the deduction of transportation costs, and it does not attempt to differentiate between deductible transportation costs and nondeductible marketable condition costs. Because the regulations do not expressly address the issue, the Royalty Policy Board was called upon to interpret the regulations. [ Id. ] [The Board's] decision gave rise to [the guidance documents] which were consistently followed by Interior from 1995 until 2003. [ Id. ] Devon followed Interior's publicly-announced guidelines and instructions when it deducted its post-CDP dehydration and compression costs. [ Id. ] Interior's decision in this case wrongly assumes that Interior was not bound by its 1995 guidelines and instructions because they were not embodied in a formal regulation. This Court has long recognized that an agency interpretation can be authoritatively adopted even if it was not embodied in a rule that was adopted through a notice and comment rulemaking. [ Id. at 17.] An agency's consistent advice  and here it was instruction  to the regulated community can evidence the agency's authoritative adoption of a regulatory interpretation. Such an interpretation can be changed only through a notice and comment rulemaking. [ Id. ] DOI's description of the situation is quite different. According to the agency, there was no official or binding Royalty Policy Board action taken to address the issues now before the court. Rather, DOI contends that [n]otice and comment rulemaking was... not required for Interior to change its interpretation of its regulation from how it had been applied as a result of ambiguous guidance documents. This Court has held that the very same guidance documents were not binding on the agency. [ See Amoco, 410 F.3d at 732.] If they were not binding, then they are not evidence of a definitive agency interpretation and Interior can change its interpretation without going through notice and comment rulemaking.... Absent a definitive interpretation, the APA does not require notice and comment rulemaking to effect a change in that interpretation. Appellee's Br. at 15-16. For the reasons stated below, we agree with DOI. First, it is telling that the agency's disputed Valuation Determination and Final Order came only after Devon sought confirmation from the agency that it was properly deducting the dehydration and compression costs (as part of its transportation allowance) incurred after the gas leaves the CDPs. This request for confirmation was made in 2002, long after the issuance of the guidance documents upon which Devon now relies. It is perplexing, to say the least, that Devon was seemingly confused over the propriety of its royalty accounting if, in its view, the matters at issue had been authoritatively resolved over five years earlier. In other words, there is much force to DOI's argument that, in fact, the guidance documents were far from conclusive in what they said. Second, implicit in Devon's prior-inconsistent-interpretation argument is a claim that the judgments reached in DOI's Valuation Determination and Final Order do not reflect a supportable interpretation of the marketable condition rule. As we have already explained in part II.B, supra, we find no merit in this claim. Although the marketable condition rule is ambiguous and Devon's preferred construction of the rule is not unreasonable, we are obliged to defer to the agency's reasonable construction of the rule. Thomas Jefferson Univ., 512 U.S. at 512, 114 S.Ct. 2381 (holding that an agency's interpretation of its own regulation is entitled to substantial deference, unless plainly erroneous or inconsistent with the regulation). Third, and most important, Devon is mistaken in its argument that the guidance documents constituted authoritative and binding interpretations of the marketable condition rule. In rejecting Devon's argument, we start with the principle that agency actions do not have the force of law unless they mark the consummation of the agency's decisionmaking process and either determine rights or obligations or result in discernible legal consequences for regulated parties. Bennett v. Spear, 520 U.S. 154, 177-78, 117 S.Ct. 1154, 137 L.Ed.2d 281 (1997). The Dear Operator letter certainly does not satisfy this standard. Indeed, this court has previously considered a different aspect of the very same Dear Operator letter that is at issue in this case. See Amoco, 410 F.3d at 732. In Amoco, coalbed methane producers challenged an Assistant Secretary's decision that cited the April 22, 1996 letter, arguing that it constituted a new rule that the agency could promulgate only through notice-and-comment rulemaking. Citing Independent Petroleum Ass'n of America v. Babbitt, 92 F.3d 1248, 1256-57 (D.C.Cir. 1996), the court rejected Amoco's argument because the letter was not binding on the agency: As in Babbitt, the Payor Letter here is not an agency statement with future effect because nothing under DOI regulations vests the Letter's author  in Babbitt and this case MMS's Associate Director for Royalty Management  with the authority to announce rules binding on DOI. Id. at 1256. The letter is not an agency rule at all, legislative or otherwise, because it does not purport to, nor is it capable of, binding the agency. Id. at 1257. . . . . The sort of workaday advice letter[s] that agencies prepare countless times per year in dealing with the regulated community, Indep. Equip. Dealers Ass'n v. EPA, 372 F.3d 420, 427 (D.C.Cir.2004) (internal quotation marks omitted), do not retroactively become agency rules whenever they are referenced in an agency decision. Amoco, 410 F.3d at 732. In response to the Amoco holding, Devon says that it does not contend that the 1996 Dear Operator letter in and of itself was a binding rule. Rather, Devon contends that the regulatory interpretation it relied on was authoritatively adopted by the agency through the cumulative effect of a number of agency actions, including but not limited to, the issuance of the 1996 Dear Operator letter. Devon Reply Br. at 14. There are two problems with this argument. First, it assumes that the two internal memoranda written by the Deputy Director of the Minerals Management Service in 1995 to the Associate Director for Royalty Management and the Associate Director for Policy and Management Improvement were final and binding agency interpretations of the marketable condition rule. Second, it assumes that the guidance documents have the force of law because Devon followed the advice contained in the documents. There is no merit to these contentions. Devon argues that these 1995 documents were conclusive because they reflected the actions of the Royalty Policy Board, as if to suggest that the Board had authority to adopt regulations or guidelines that bind the agency. But when questioned about this at oral argument, Devon's counsel readily conceded that the Royalty Policy Board had no authority to issue authoritative guidelines, and that the guideline documents did not have the force of law. This concession is unsurprising, because there is nothing in the record here to indicate that the guidance documents purported to have the force of law. At the very least, a definitive and binding statement on behalf of the agency must come from a source with the authority to bind the agency. See Ctr. for Auto Safety v. Nat'l Highway Traffic Safety Admin., 452 F.3d 798, 810 (D.C.Cir.2006) (holding that Associate Administrator for Safety Assurance had no authority to issue guidelines with binding effect on agency); Ass'n of Am. R.Rs. v. DOT, 198 F.3d 944, 948 (D.C.Cir.1999) (holding a letter and two emails from lower level officials did not amount to an authoritative agency interpretation); Paralyzed Veterans of Am. v. D.C. Arena L.P., 117 F.3d 579, 587 (D.C.Cir.1997) (stating that a speech of a mid-level official of an agency is not the sort of `fair and considered judgment' that can be thought of as an authoritative departmental position) (citing Auer v. Robbins, 519 U.S. 452, 462, 117 S.Ct. 905, 137 L.Ed.2d 79 (1997)); Amoco, 410 F.3d at 732 (noting Dear Operator letter not binding on agency because not authored by official with authority to announce binding rules). The guidance documents at issue here do not satisfy this standard. Fourth, resting on its reliance theory, Devon suggests that the agency is bound by the guidance documents because, for a number of years, regulated parties followed the advice contained in the documents. This argument fails. In Center for Auto Safety, 452 F.3d 798, a case very much on point, the court held that policy guidelines issued by the Associate Administrator of the National Highway Traffic Safety Administration did not amount to a binding rule. The contested guidelines, which related to automakers' voluntary regional recalls, were found not binding because the Associate Administrator had no authority to issue binding regulations or make a final determination on the issue. Importantly, the court also rejected the petitioner's argument that, merely because the agency and automakers had followed the guidelines for seven years, the guidelines had binding legal consequences. In addressing this point, the court said: The flaw in appellants' argument is that the consequences to which they allude are practical, not legal. It may be that, to the extent that they actually prescribe anything, the agency's guidelines have been voluntarily followed by automakers and have become a de facto industry standard for how to conduct regional recalls. But this does not demonstrate that the guidelines have had legal consequences. The Supreme Court's decision in Bennett makes it quite clear that agency action is only final if it determines rights or obligations or occasions  legal consequences. 520 U.S. at 178, 117 S.Ct. 1154. (citation and internal quotation marks omitted). Circuit case law cannot obviate the holding of Bennett. Ctr. for Auto Safety, 452 F.3d at 811. See also Nat'l Ass'n of Home Builders v. Norton, 415 F.3d 8, 15 (D.C.Cir.2005) ([I]f the practical effect of the agency action is not a certain change in the legal obligations of a party, the action is non-final for the purpose of judicial review.). Devon argues that our decisions in Alaska Professional Hunters Ass'n v. FAA, 177 F.3d 1030 (D.C.Cir.1999), and Paralyzed Veterans of America, 117 F.3d 579, should control the disposition of this case. We disagree. In Alaska Professional, the court found that thirty years of uniform advice by the Alaskan regional office of the FAA became an authoritative departmental interpretation binding on the agency. The case is plainly distinguishable, however, because the disputed agency advice in that case had been upheld in a formal adjudication by the Civil Aeronautics Board, FAA's predecessor agency. See Alaska Prof'l, 177 F.3d at 1034 (discussing Administrator v. Marshall, 39 C.A.B. 948 (1963)). Indeed, the decision in Alaska Professional acknowledges that an interpretation or advice by an official without authority to bind the agency alone would not amount to an authoritative interpretation. Alaska Prof'l, 177 F.3d at 1035; see also Hudson v. FAA, 192 F.3d 1031, 1036 (D.C.Cir.1999) (distinguishing Alaska Professional as concerning a binding interpretation on the basis of the formal adjudication upon which the longstanding practice was based); Ass'n of Am. R.Rs., 198 F.3d at 949 (same). In this case, by contrast, the guidance documents have never been upheld in an agency adjudication, nor have they ever been endorsed in any other agency action having the force of law. Paralyzed Veterans also lends no support to Devon's position. In that case, we held that Advisory Board guidelines that were not clearly adopted by the Department of Justice and a speech by a mid-level official did not amount to a binding interpretation of its regulation implementing the Americans with Disabilities Act. 117 F.3d at 588. The court noted that if the Department itself had adopted the Board's interpretation of the regulation the outcome might have been different. Id. The case surely does not stand for the proposition that guidance documents written by persons without authority to bind an agency and released with no indication that the documents purported to have the force of law may be taken as binding interpretations of an agency regulation. In sum, we find no merit in Devon's claim that it acted in reliance on the 1995 and 1996 guidance documents and that this reliance interest is protected by the APA. As noted above, the guidance documents were far from conclusive in what they said. In any event, on the record here, it is plain that the contested guidance documents did not come from sources who had the authority to bind the agency. Therefore, it does not matter whether the appellant, or others, followed the advice that was offered in these documents. These documents did not amount to a binding interpretation of the marketable condition rule, so the Agency was free to adopt the interpretation at issue in this case without providing an opportunity for notice and comment.