within the same time period. Century Offshore, 111 F.3d at 446-47. Again, the issue before the court was whether the lump-sum settlement payment was "properly attributable to 'the amount or value of the production [of natural gas] saved, removed or sold' under § 1337 of the Outer Continental Shelf Lands Act, 43 U.S.C. §§ 1331-1356 (1996)." Century Offshore, 111 F.3d at 445.
In this case, the court did find that the challenged settlement payment was linked to gas production saved, removed or sold, and that the royalties were therefore properly assessed by the MMS auditors. Id. at 449. The court determined that the replacement contracts were best characterized as "substituted contracts," in that they were, by their very terms, intended to "replace and supercede" the terminated contracts. Id. at 448. Equally important was the fact that Enron purchased virtually all of the gas identified in the earlier contracts. The court noted that "though this gas was not make-up gas, it is analogous to make-up gas in the sense that though it is paid after the payment at issue, it provides a link to production." Id. at 449-50 (also remarking that "the lump sum payment contemplated and was the cause of new gas sales to be delivered in the future.") Therefore, "the lump sum payment behaved as an advance payment under a substituted requirements contract. As a result, the payment was for production sold under the statute, and the royalty was payable when the gas was produced." Id. at 449. To the extent that the lump-sum payment was allocable to gas taken, royalty payments were due on the lump-sum payment.
Finally, the Sixth Circuit noted that IPAA I did not compel a different result because in that case, the gas in the original contract was sold to a third party. Consequently, the dispositive "nexus with production did not exist." Id. at 451.
C. IPAA II.
IPAA II involved implementation of the mandate of the court of appeals from IPAA I. Three aspects of this court's holding are noteworthy in light of the issues under consideration here. First, this court agreed with the Sixth Circuit that there was no conflict between the holdings in IPAA I and Century Offshore, finding that the factual circumstances underlying the two transactions were sufficiently distinct such that determining that royalties were not owed in the former yet were properly assessed in the latter was not inconsistent. See IPAA II, 971 F. Supp. at 32-33. Second, this court held that plaintiff IPAA had no jurisdictional basis on which to sue. This court determined that because the court of appeals held that the May 3, 1993 "Dear Payor" letter was not an agency statement with binding effect, IPAA was not appealing from any final agency action. Furthermore, this court concluded that the mere futility of pursuing administrative remedies could not, without more, create "final agency action," as finality is distinct from exhaustion, and the former is a jurisdictional requirement. See id. at 26-30.
Finally, this court addressed whether the court of appeals' mandate as applied to Samedan Oil was broader than simply overturning the single challenged order to pay; namely, whether it covered present or future attempts to assess royalties against Samedan in this circuit or elsewhere. IPAA II, 971 F. Supp. at 31-35. This court held that as to the other pending (and therefore non-final) Samedan administrative appeals, defendants were collaterally estopped from pursuing the royalty claims, and Samedan's motion for a permanent injunction was granted. In reaching this conclusion, this court noted that "it appears that the court of appeals meant to include other circumstances -- other than simple buyouts -- where logic would dictate the exact same result." Id. at 32. The court noted that all four pending Samedan appeals appeared to deal with buyouts -- in which the purchaser of the gas completely and permanently walks away from the contract and never receives any gas -- and therefore, the challenged transactions "clearly fall under the shadow of IPAA." Id. at 32. However, in granting the permanent injunction, this court did not conclude that there was no possible contractual arrangement or device under which settlement payments could be royalty bearing, only that such a contractual arrangement did not appear to be presented in the four Samedan appeals. See id. at 32-33. Rather, permanent injunctive relief was demanded under collateral estoppel principles on account of the government' express intent to relitigate the same issue on virtually identical facts in various circuits around the country. Id. at 33-34 (citing United States v. Stauffer Chemical Co., 464 U.S. 165, 78 L. Ed. 2d 388, 104 S. Ct. 575 (1984).
A. Plaintiffs Must Exhaust Administrative Remedies Before Challenging the Administrative Action in Court
In its complaint, Shell challenges the ten royalty assessment orders issued by the Houston Compliance Division (HCD) of MMS in April 1997. Shell has filed administrative appeals of these orders and these appeals are currently pending. Defendants' Motion to Dismiss as to counts one and two of the ten suits asserts that because the appeals have not been ruled upon, there is no "final agency action" such that this court may exert jurisdiction over these cases.
Shell's complaints acknowledge that jurisdiction over this matter arises under the Administrative Procedure Act, 5 U.S.C. §§ 701-06. When a party seeks to challenge an agency policy or practice by which they are adversely affected or aggrieved in the courts, that party may seek judicial review under section 10(a) of the APA. See 5 U.S.C. § 702. When review is not sought pursuant to specific authorization in a substantive statute, but only under the general review provisions of the APA, the action in question must be "final agency action." See 5 U.S.C. § 704; Lujan v. National Wildlife Federation, 497 U.S. 871, 881-84, 111 L. Ed. 2d 695, 110 S. Ct. 3177 (1990). When a party seeks judicial review under section 10(c) of the APA, that party is required to exhaust all administrative remedies mandated either by statute or agency rule. See Darby v. Cisneros, 509 U.S. 137, 147, 153, 125 L. Ed. 2d 113, 113 S. Ct. 2539 (1993) (requiring exhaustion of available administrative appeals prior to judicial review if that remedy is required by statute or agency rule and the effect of the initial decision is inoperative during the period of appeal).
With regard to the issuance of orders to pay royalties by DOI under the Outer Continental Shelf Lands Act ("OCSLA"), the administrative process operates in the following manner. The Federal Oil and Gas Royalty Management Act of 1982, 30 U.S.C. § 1701 et seq., directs DOI to ensure the "prompt and proper collection and disbursement of oil and gas revenues owed to the United States and Indian lessors . . . ." 30 U.S.C. § 1701(b)(3). When auditors find royalties to be due and unpaid, MMS Regional Compliance Divisions issue orders to pay or to recalculate royalties pursuant to specified instructions. These orders to pay are appealable to the MMS director, see 30 C.F.R. § 290; in fact, DOI rules specifically require that lessees permit the agency to adjudicate all royalty valuation issues prior to seeking judicial review.
"In order to exhaust administrative remedies, a decision or order of MMS's Royalty Management Program must be appealed pursuant to 30 CFR part 290 to the Director . . . and subsequently to the Interior Board of Land Appeals under 30 CFR part 290.7 and 43 CFR part 4 . . .