Opinion ID: 770952
Heading Depth: 2
Heading Rank: 1

Heading: The Phillips III Decision

Text: 11 A brief summary of the Phillips III decision is in order. Phillips Petroleum Company (Phillips) breached its lease contract by unintentionally underpaying oil and gas royalties. After conducting an audit, the government discovered the breach and issued an order to pay. Phillips filed suit in federal district court, arguing that the government's order was issued more than six years after the breach and thus was untimely under 2415(a). The district court granted summary judgment to Phillips. On appeal, the government argued that (1) a cause of action for unpaid royalties under 2415(a) does not accrue until an audit is completed; and (2) the statute of limitations is tolled pursuant to 2416(c) until such time as the government timely completes an audit. 4 F.3d at 860. We rejected the government's first argument, holding that its right of action accrued on the date the contract was breached, which was the date the royalties were due and payable. Id. at 861. However, we went on to conclude that the statute of limitation should have been tolled until such time as the government could reasonably have known about Phillips' breach. Id. at 862. We then remanded the case to the district court to resolve issues of fact: whether the 'facts material to the government's right of action [were] not known and reasonably could not be known' without the audit, and whether the government's audit of Phillips was completed within a reasonable time after the deficient royalty payment. Id. at 863. 12 The disputed language in Phillips III appears at the beginning of the opinion. Before addressing the government's argument that no cause of action accrues until an audit is completed, we stated that [t]he parties agree that 28 U.S.C. 2415(a) is the applicable statute for determining when the government must commence its action to collect the royalty underpayment. Id. at 860. After quoting the text of the statute, we offered the following commentary in a footnote: 13 Both parties recognize, and we agree, that oil and gas leases are contracts. Thus, we likewise agree with the parties that 28 U.S.C. 2415(a) is the controlling statute of limitations as it applies to every action for money damages brought by the United States . . . which is founded upon any contract. 14 Id. at 860 n.1 (emphasis in original, citations omitted). Whether these statements in Phillips III constitute a holding is the threshold issue in this appeal, 6 for a panel of this Court is bound by a holding of a prior panel but is not bound by a prior panel's dicta. Bates v. Department of Corrections of the State of Kansas, 81 F.3d 1008, 1011 (10th Cir. 1996). 15 Decisions from this circuit and others provide working definitions of dicta. As we explained in Rohrbaugh v. Celotex Corp., 53 F.3d 1181 (10th Cir. 1995), dicta are statements and comments in an opinion concerning some rule of law or legal proposition not necessarily involved nor essential to determination of the case in hand. Id. at 1184 (quoting Black's Law Dictionary 454 (6th ed. 1990)). Put another way, dictum is a statement in a judicial opinion that could have been deleted without seriously impairing the analytical foundations of the holding that, being peripheral, may not have received the full and careful consideration of the court that uttered it. United States v. Crawley, 837 F.2d 291, 292 (7th Cir. 1988) (citation omitted); accord In re Cajun Elec. Power Coop., Inc., 109 F.3d 248, 256 (5th Cir. 1997). Using either of these definitions, it is well established that [b]road language in an opinion, which language is unnecessary to the court's decision, cannot be considered binding authority. Smith v. Orr, 855 F.2d 1544, 1550 (Fed. Cir. 1988) (citing Kastigar v. United States, 406 U.S. 441, 454-55 (1972)). 16 Our remarks in Phillips III regarding the applicability of 2415(a) plainly qualify as dicta, because they were neither necessary nor essential to the determination of that case. We determined in Phillips III when the government's claim for unpaid royalties accrued, and the significance of the date at which the government should 'reasonably' have known of Phillips' breach. 4 F.3d at 863. Whether the six-year statute of limitation governed the government's claim was not essential to our holding, because we could have assumed arguendo that 2415(a) applied and still found in the government's favor based on the tolling provision in 2416(c). In other words, even if 2415(a) applied, it would not have barred the claim for unpaid royalties against Phillips so long as the government conducted its audit in a reasonable manner. Similarly, it is abundantly clear that footnote 1 could be deleted from the Phillips III opinion without seriously impairing the analytical foundations of the holding. Indeed, deleting footnote 1 would leave the holding in Phillips III entirely intact: (1) the parties to the case implicitly agreed that the term action covered the government orders at issue; (2) the parties to the case agreed that 2415(a) was the applicable statute for determining when the government [could] commence its action to collect the royalty underpayment, id. at 860; (3) the government's right of action accrued on the date the contract was breached, id. at 861; and (4) the statute of limitation should have been tolled until such time as the government could reasonably have known about the breach. Id. at 862; cf. Mobil Exploration & Producing U.S., Inc. v. Department of Interior, 180 F.3d 1192, 1201-02 (10th Cir. 1999) (classifying as dictum language in Phillips III that was not directly related to the facts or holding of the case). 17 That our comments in Phillips III regarding 2415(a) were not necessary to the outcome of the case is confirmed by our decision in Amerada Hess Corp. v. Department of Interior, 170 F.3d 1032 (10th Cir. 1999). As in this case, the government in Amerada Hess asserted that the limitation period set forth in 2415(a) was inapplicable to a claim for unpaid oil and gas royalties. We declined to decide the merits of the government's argument, noting that even were we to assume that 2415(a) did apply, it would not bar the claims made by the Secretary. Id. at 1036. This statement is significant for two reasons. First, it demonstrates that a finding regarding the applicability of 2415(a) is not necessary or essential when a dispute over timeliness can be resolved on other grounds. The Amerada Hess court assumed that 2415(a) governed but found in the government's favor based on the statutory meaning of complaint and action for money damages. Id. Second, our statement in Amerada Hess implicitly shows that footnote 1 in Phillips III does not constitute binding precedent. If Phillips III had established in this circuit that 2415(a) governs claims for unpaid royalties, we quickly could have rejected the government's argument in Amerada Hess. Instead, we chose to assume the statute applied, and then engaged in an extensive analysis of whether the government actually filed a complaint seeking money damages within a six-year period. Id. at 1033-34, 1036. The fact that we performed such an analysis rather than rejecting the government's argument out of hand strongly suggests that we did not consider footnote 1 in Phillips III to be controlling authority. 18 In addition, at least two other factors demonstrate that our statements in Phillips III concerning the applicability of 2415(a) do not constitute binding precedent. While neither of these factors standing alone would necessarily show that the statements in question are dicta, in combination with the foregoing they conclusively establish that our remarks in Phillips III do not control the outcome of the instant case. First, it is undisputed that the government did not contest the applicability of 2415(a) in Phillips III. See Shell Answer Brief at 17 (acknowledging that the government's briefs in Phillips III did not dispute that section 2415 applied to the MMS's order). As a result, the briefs submitted to the Phillips III panel were silent on the topic of whether orders seeking unpaid royalties should be subject to a six-year limitation period. 7 This is powerful support for not elevating our remarks in Phillips III to the level of a holding. See Director, Office of Workers' Compensation Programs, Dep't of Labor v. Greenwich Collieries, 512 U.S. 267, 277 (1994) (declining to follow a previous opinion in part because the parties to the earlier case considered the dispositive issue as an afterthought, devoting only one or two sentences to the question); United States v. Bennett, 100 F.3d 1105, 1110 (3d Cir. 1996) (classifying as dictum a statement from a prior case in which [n]either party had briefed or argued the pertinent issue); United States v. Orozco-Rodriguez, 60 F.3d 705, 708 (10th Cir. 1995) (citing Rohrbaugh's definition of dicta and distinguishing two prior cases in which the critical issue was conceded by the government); Crawley, 837 F.2d at 292-93 (stating that a court may refuse to giv[e] weight to a passage found in a previous opinion when the relevant issue was neither presented nor refined by the fires of adversary presentation); cf. United States v. Daniels, 902 F.2d 1238, 1241 (7th Cir. 1990) (Judicial assumptions concerning, judicial allusions to, and judicial discussions of issues that are not contested are not holdings.). 19 Second, our statements in Phillips III regarding the applicability of 2415(a) appear in a footnote and ignore critical portions of the statute. Surely it is not a coincidence that courts frequently categorize as dicta language that is relegated to footnotes. See, e.g., Greenwich Collieries, 512 U.S. at 277-78; Wainwright v. Witt, 469 U.S. 412, 422 (1985); UMLIC-Nine Corp. v. Lipan Springs Dev. Corp., 168 F.3d 1173, 1178 (10th Cir.), cert. denied, 120 S. Ct. 499 (1999); Bennett, 100 F.3d at 1109-10; Export Group v. Reef Indus., Inc., 54 F.3d 1466, 1471-73 (9th Cir. 1995); United States v. Ricks, 5 F.3d 48, 50 (3d Cir. 1993); Schwabenbauer v. Board of Educ. of the City Sch. Dist. of the City of Olean, 777 F.2d 837, 841-42 (2d Cir. 1985). Courts also classify as dicta inessential statements from previous opinions that were perhaps not as fully considered. Crawley, 837 F.2d at 292; see also Greenwich Collieries, 512 U.S. at 277 (noting in a related context that a cursory answer to an ancillary and largely unbriefed question does not warrant the same level of deference we typically give our precedents); UMLIC-Nine, 168 F.3d at 1178 (refusing to follow dicta from an earlier case that was unsupported by citation to relevant authority or statutory analysis). In Phillips III, our statement that 2415(a) was the controlling statute of limitation was unaccompanied by any discussion of the terms action and money damages. 4 F.3d at 860 n.1. Instead of considering the meaning of those terms, we simply acknowledged that oil and gas leases are contracts and moved on to the next issue. Id. 8 20 In sum, our comments in footnote 1 of Phillips III cannot be regarded as binding precedent. Those comments (1) were unnecessary to reach the desired result in that case; (2) addressed an issue that was conceded by the government; (3) addressed an issue that was not briefed by the parties; (4) were relegated to a footnote; (5) failed to address key portions of the statute the panel was attempting to interpret; and (6) have never been cited as controlling authority by this or any other circuit court.