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July 16, 1998


The opinion of the court was delivered by: JACKSON


 This case is brought to determine the extent of certain obligations of plaintiff Burlington Resources, Inc. ("Burlington") *fn1" as lessee under a number of oil and gas leases of various Indian tribal and allotted lands *fn2" from which Burlington produces natural gas. Defendant United States Department of the Interior ("DOI"), principally through its agent the Minerals Management Service ("MMS"), administers the leases on behalf of Indian lessors.

 At issue is a final decision of DOI in May 1996, rejecting Burlington's appeal of orders issued by MMS in 1990 requiring Burlington to recompute royalties payable to the lessors dating as far back as 1970. Burlington brings this action pursuant to the Administrative Procedure Act ("APA"), 5 U.S.C. §§ 701-706, for declaratory relief.

 The parties have filed cross-motions for summary judgment, and the Jicarilla Apache Tribe ("Tribe"), a lessor and royalty owner of approximately 136 oil and gas mining leases, including several of which Burlington is the lessee, submitted a brief amicus curiae in support of defendant's motion. The Court finds sufficient material facts about the controversy to be undisputed to enable the case to be decided on the record.


 The contractual relations of the various tribes and lessees are governed by the provisions of Standard Lease Form 157 ("lease"), entered into on behalf of the tribes by DOI pursuant to federal statutes, see 25 U.S.C. § 396a et seq., and implementing regulations. See 25 C.F.R. Part 171 and 30 C.F.R. Part 221. Under the terms of the lease and the applicable statutes and regulations, DOI has the duty to determine whether the lessees are performing according to the terms and conditions of the leases, and to determine the "value" of any minerals produced for purposes of computing royalties to be paid by the lessees. This dispute concerns the proper calculation of "value" on certain leases.

 The gas produced from Burlington's leases generally contains heavier entrained liquid hydrocarbons (e.g., propane, butane, ethane), which are separated from dry methane (the "residue gas") by processing. Under a procedure called "dual accounting," the lessee must determine both (1) the value of the natural gas stream before it is processed to extract the heavier entrained liquid hydrocarbons ("wet gas"); and (2) the combined values of dry residue gas and separated liquid hydrocarbons, after processing of the natural gas stream, less allowed processing costs. The lessee then pays a royalty on the higher of the two values. In no event may the royalty be calculated on less than the lessee's "gross proceeds," i.e., the total consideration the lessee receives for the gas. *fn3"

 From 1950 until the late 1970's DOI construed the lease provisions and regulations to require dual accounting only by those lessees that also owned the processing plant or received additional income for the products of processing; lessees selling the wet gas as extracted in "arm's-length" transactions were not required to dual account. In 1979, however, the U.S. District Court for the District of New Mexico held that dual accounting was required of all lessees of Indian lands. Jicarilla Apache Tribe v. Supron Energy Corp., 479 F. Supp. 536 (D.N.M. 1979). The Tenth Circuit, en banc, ultimately affirmed the district court. See Jicarilla Apache Tribe v. Supron Energy Corp., 782 F.2d 855 (10th Cir. 1986) (en banc) ("Supron II"), rev'g 728 F.2d 1555 (10th Cir. 1984) ("Supron I "), adopting dissenting opinion in Supron I, cert. denied, 479 U.S. 970 (1986).

 Following the conclusion of the Supron litigation, MMS conducted reviews of the status of its other leases, which revealed that Burlington, apparently in keeping with DOI's pre-Supron practice, had not performed dual accounting when it sold gas under arm's-length contracts between January 1984 and December 1989. In an order issued on January 5, 1990 and amended on January 29, 1990 (collectively, the "MMS orders"), the MMS Dallas Area Compliance Office directed Burlington to review its royalty payments for all of its Indian leases for that period, perform the required dual accounting calculations for each lease for which it had not done so, and retroactively pay any royalties due.

 Burlington appealed the MMS orders to the MMS Director pursuant to 30 C.F.R. Part 290. On May 14, 1996, nearly six years after the appeal was taken, DOI's Assistant Secretary for Indian Affairs (the "Assistant Secretary") issued a decision upholding the MMS orders. Burlington filed suit here, under the Administrative Procedure Act, 5 U.S.C. § 706(2)(a), on August 21, 1996, claiming that the Assistant Secretary's decision to require dual accounting, both prospectively and retroactively, was arbitrary, capricious, an abuse of discretion, and not in accordance with law.


 DOI contends that Burlington is collaterally estopped to contest its obligation to recompute its liability for past royalties. The Court agrees. Southland Royalty Company -- Burlington's predecessor-in-interest -- was a party to Supron II, as were DOI and the Tribe. Supron II definitively held that dual accounting is required under all Indian leases. Under the doctrine of collateral estoppel, a litigant will be barred from relitigating an issue in a second proceeding if: (1) the issue was "actually litigated" in the first action, after a full and fair opportunity for litigation; (2) the issue was necessarily determined in the first action by a disposition that is sufficiently final, on the merits, and valid; (3) the subsequent litigation is between the same parties or their privies; and (4) there are no special considerations of fairness, relative judicial authority, or changes of law. See 18 Charles Wright and Arthur Miller, Federal Practice and Procedure § 4416, at 138 (2d ed. 1987); see also NOW v. Operation Rescue, 747 F. Supp. 760, 766 (D.D.C. 1990). Only the final factor remains in doubt here. *fn4"

 Burlington contends that Supron II's underlying reasoning has been rejected by subsequent decisions of the United States Supreme Court and the District of Columbia Circuit. In Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163, 179-80, 104 L. Ed. 2d 209, 109 S. Ct. 1698 (1989), the Supreme Court held that New Mexico could validly impose severance taxes on the same on-reservation production of oil and gas by non-Indian lessees as was subject to the tribe's own severance tax. Burlington argues that Cotton Petroleum implicitly rejects Supron II's rationale respecting the primacy of fiduciary considerations and the "best interests of the Indian tribe." 728 F.2d at 1567.

 Cotton Petroleum concerned primarily the difficult question of intergovernmental tax immunity -- whether a State has the authority to tax a lessee's oil production on Indian lands even though the financial burden of the tax may fall on the United States, or on its ward (the tribe). See Cotton Petroleum, 490 U.S. at 175-76. The Supreme Court acknowledged the presumption that a State may generally impose a nondiscriminatory tax on private parties with whom the United States or an Indian tribe does business, notwithstanding the fact that the ultimate taxpayer may be the United States or a tribe, unless Congress intended to grant them immunity. See id. at 175. In deciding whether the Indian Mineral Leasing Act of 1938 granted such immunity, the Supreme Court recognized that "a purpose of the 1938 Act is to provide Indian tribes with badly needed revenue," id. at 180, but that Congress did not intend to "remove all barriers to profit maximization." Id. The Supreme Court held that the statute's goal of enhancing tribal revenues was not sufficient evidence of Congress's intent to overcome the ...

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