jurisdiction, explained the Assistant Secretary, the MMS "will
recognize the FERC tariff as the appropriate allowance, subject
to the requirements of 30 C.F.R. § 206.105(b)(5)." Id.
DOI's February 4, 1998, and September 28, 1998, decisions are
the final agency action challenged by plaintiffs in this suit.
III. DOI and Congress Battle Over Proposed Rulemaking
At approximately the same time that plaintiffs' appeals to the
Director of MMS were pending, DOI issued an Advance Notice of
Proposed Rulemaking, indicating that it was "considering
amending its regulations regarding the valuation of crude oil
produced from or allocated to federal and Indian leases." 60
Fed. Reg. 65610 (Dec. 20, 1995). Approximately one week after the
Associate Director of MMS' decision to remand the plaintiffs
appeals, on January 24, 1997, DOI issued a Notice of Proposed
Rulemaking proposing that the FERC exception, Section
206.105(b)(5) of its regulations, be eliminated. 62 Fed. Reg.
3741 (Jan. 24, 1997). Two days after the Assistant Secretary
issued his decision rejecting plaintiffs' appeals, on February
6, 1998, DOI issued a Supplementary Proposed Rule, adding
further changes to its proposed rules amending the royalty
valuation regulations. 63 Fed. Reg. 6113 (1998).
Then, on May 1, 1998, Congress blocked funding for the
proposed amendments. Congress enacted the 1998 Supplemental
Appropriations and Rescissions Act, Pub.L. No. 105-174 § 3009,
112 Stat. 58 (1998), which barred the use of any funds "to issue
a notice of final rule-making prior to October 1, 1998, with
respect to the valuation of crude oil for royalty purposes." On
October 28, 1998, Congress enacted yet another appropriations
bill, Pub.L. No. 105-277, § 130, 112 Stat. 2681 (1998),
extending the rule-making ban until June 1, 1999, or until there
was a negotiated agreement on the rule.
In 2000, after the filing of this lawsuit, DOI did
successfully revise its regulations through the formal notice
and comment rulemaking process and eliminated the FERC
exception. See 30 C.F.R. § 206.111 (as amended March 15, 2000,
effective June 1, 2000). The FERC exception was in place at all
times relevant to this lawsuit.
IV. Procedural History
Plaintiff Torch Operating Company filed suit against defendant
Bruce Babbitt, Secretary of the Interior, on April 4, 1998. Civ.
Action No. 98-884. Plaintiffs Chevron, Mobil, Exxon, and Texaco
filed Civil Action No. 98-1388 on June 2, 1998. Plaintiff Unocal
filed Civil Action No. 98-1398 on June 2, 1998. Plaintiffs
Amerada Hess and PennzEnergy filed Civil Action No. 98-1444 on
June 9, 1998. Plaintiff BPX filed Civil Action No. 98-2125 on
September 2, 1998. The five cases were consolidated on September
15, 1998, for purposes of pleading and arguments to the Court on
Pending before the Court are cross-motions for summary
judgment. Plaintiffs filed their joint motion for summary
judgment on common issues on March 5, 1999. Pls.' Joint Mot. for
Summ. J. on Common Issues (hereinafter "Pls.' Br."). Defendants
filed their motion for summary judgment and opposition to
plaintiffs' joint motion on April 27, 1999. United States' Mot.
for Summ. J. (hereinafter "Defs.' Br."). Plaintiffs filed their
opposition to defendants' motion and reply to defendants'
opposition on May 18, 1999. Defendants filed their reply on June
24, 1999. This Court heard oral argument from the parties on
October 29, 1999.
The Fifth Circuit recently decided the appeal of a case
raising a similar challenge to a denied FERC exception,
originally filed by Shell Offshore Inc. against the defendants
in the instant case in the Western District of Louisiana. See
Shell Offshore Inc. v. Babbitt, 238 F.3d 622 (5th Cir. 2001).
The Fifth Circuit in Shell Offshore held that DOI's denial of
the FERC exception to Shell violated the APA. This Court issued
an order to the parties in this case on January 23, 2001,
directing them to address the Shell Offshore decision.
Plaintiffs filed a joint brief on February 6, 2001. See Plfs.'
Fourth Supp. Submission, concerning "Shell Offshore" Decision
(hereinafter "Pls.' Shell Offshore Br."). Defendant responded
on February 14, 2001. See United States' Response to Pls.'
Fourth Submission, concerning "Shell Offshore" Decision
(hereinafter "Defs." Shell Offshore Br.).
I. Standard of Review
Summary judgment should be granted pursuant to Federal Rule of
Civil Procedure 56 only if there are no genuine issues of
material fact and the moving party is entitled to judgment as a
matter of law. See Celotex Corp. v. Catrett, 477 U.S. 317,
322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Aka v. Washington
Hosp. Ctr., 116 F.3d 876, 879 (D.C.Cir.), reh'g en banc
granted, 124 F.3d 1302 (1997). In ruling upon cross-motions for
summary judgment, the Court shall grant summary judgment only if
one of the moving parties is entitled to judgment as a matter of
law upon material facts that are not genuinely disputed. See
Rhoads v. McFerran, 517 F.2d 66, 67 (2d Cir. 1975).
II. Issues Presented
This case presents three basic issues. The first is whether
DOI's interpretation of the language "approved by [FERC]" in §
206.105(b)(5) is plainly erroneous, and therefore violates the
APA. If DOI's denial of the FERC exception stretches the
language of the regulation too far, then the Court will enter
judgment for the plaintiffs. If DOI's interpretation of that
language is permissible, the Court must then turn to whether
DOI's interpretation is a significant modification of an earlier
interpretation so as to require notice and comment rule-making
procedures under the APA. This too could be a determinative
issue. However, if DOI did not impermissibly change positions
with respect to its interpretation of § 206.105(b)(5), the Court
must then address whether DOI's decision was arbitrary and
capricious in violation of the APA.
The parties have presented arguments to the Court addressing
many issues beyond the three described above. In particular, the
parties strongly disagree as to the proper interpretation of the
FERC decisions with respect to FERC jurisdiction over OCS
pipelines. Because the above issues are dispositive, the Court
need not reach the substantive arguments related to FERC
III. DOI's Orders to Plaintiffs Contravene the Plain
Language of the MMS Regulation in violation of the APA.
The controversy in this case centers around the words
"approved by [FERC]." § 206.105(b)(5). The MMS regulations state
that the FERC exception for the transportation allowance
calculation will only be granted if the lessee DOI has "a tariff
for the transportation system approved by [FERC] . . ." §
206.105(b)(5). In denying plaintiffs' FERC exception requests,
DOI interpreted the language "approved by [FERC]" to require not
only that a tariff be filed with FERC, but also
that the lessee obtain from FERC an affirmative statement of
jurisdiction.*fn4 See No. 98-1388 (Chevron) AR Tab. 1A; No.
98-1388 AR Tab 1A (Exxon); No. 98-1388 AR Tab 1A (Mobil); No.
98-1388 AR Tab 1A (Texaco); No. 98-1398 AR Tab 1A (Unocal); No.
98-1444 AR Tab 1A (Amerada Hess); No. 98-1444 AR Tab 1A
(PennzEnergy); No. 98-2125 AR Tab 1(BPX) (substantially the same
decision issued on November 11, 1998). The Court holds that
DOI's interpretation stretches the meaning of "approved by" too
Plaintiffs challenge DOI's interpretation under the
Administrative Procedure Act (APA), 5 U.S.C. § 551 et seq. The
APA commands reviewing courts to "hold unlawful and set aside"
agency action that is "arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law."
5 U.S.C. § 706(2)(A). Although agencies are generally given a substantial
amount of discretion under the APA when interpreting their own
regulations, there is a limit to that discretion. See, e.g.,
Wyoming Outdoor Council v. United States Forest Serv.,
165 F.3d 43, 52 (D.C.Cir. 1999). Agency interpretations of their own
regulations are consistently afforded deference by federal
reviewing courts and are upheld unless "plainly erroneous or
inconsistent" with the regulation. Thomas Jefferson Univ. v.
Shalala, 512 U.S. 504, 512, 114 S.Ct. 2381, 129 L.Ed.2d 405
(1994); Paralyzed Veterans of America v. D.C. Arena L.P.,
117 F.3d 579, 584 (D.C.Cir. 1997). In other words, a reviewing court
must defer to an agency's interpretation unless an "alternative
reading is compelled by the regulation's plain language or by
other indications of the Secretary's intent at the time of the
regulation's promulgation." Thomas Jefferson Univ., 512 U.S.
at 512, 114 S.Ct. 2381 (quoting Gardebring v. Jenkins,
485 U.S. 415, 430, 108 S.Ct. 1306, 99 L.Ed.2d 515 (1988)). The
plainly erroneous standard creates the "outer limit to that
deference imposed by the Administrative Procedure Act."
Paralyzed Veterans, 117 F.3d at 584.
DOI argues that understanding "approved by" to include a
requirement of an affirmative statement of jurisdiction is
reasonable given the FERC procedures for handling tariff
applications. DOI argues that tariffs are simply filed with and
"accept[ed]" by FERC: "FERC `accepts' the tariff but does not
further investigate, approve, or, in any manner, examine, the
tariffs unless someone files a protest against the tariff."
Defs.' Br. at 5. Because FERC only accepts the filed tariffs,
DOI argues, requiring the additional affirmative step of
affirming jurisdiction prior to recognizing FERC approval is
DOI's interpretation of "approved by" ignores the fact that
the FERC procedures, authorized by the OCA and reflected in
FERC's regulations, were in place at the time the FERC exception
was created in 1988. The Supreme Court has said that a reviewing
court should defer to an agency interpretation unless an
"alternative reading is compelled by the regulation's plain
language or by other indications of the Secretary's intent at
the time of the regulation's promulgation." Thomas Jefferson
Univ., 512 U.S. at 512, 114 S.Ct. 2381 (emphasis added). Here,
defendant's suggestion that the "approved by" language in the
FERC exception refer to anything other than the procedures that
were in place at FERC at the time the FERC exception was created
is implausible. The ICA requires that carriers post tariffs with
FERC for public inspection prior to using those tariffs,
49 U.S.C. app. § 6. ICA also requires that those tariffs will be
applicable to that pipeline unless a protest is filed with FERC
during the notice period, id. at § 15(7), or a complaint is
successfully pursued. Id. at § 13. The carriers who post
tariffs are required to adhere to those tariffs unless they have
been successfully challenged. Neither the ICA nor the FERC
regulations have ever required an advance jurisdictional
determination prior to tariffs being given effect. These were
the procedures in effect when DOI created the FERC exception
that includes the "approved by" language, and these procedures
are sufficient "other indications of the Secretary's intent at
the time of the regulation's promulgation" to compel an
alternative reading than the one that DOI has attempted to give.
Thomas Jefferson Univ., 512 U.S. at 512, 114 S.Ct. 2381;
Gardebring v. Jenkins, 485 U.S. 415, 430, 108 S.Ct. 1306, 99
L.Ed.2d 515 (1988).
Furthermore, DOI's argument ignores the binding effect given
to tariffs filed with FERC. Once a tariff is filed with FERC,
the notice period elapses without challenge. If no one files a
complaint challenging jurisdiction, carriers must comply with
the terms of the tariff. The distinction between action and
inaction that DOI has attempted to draw here is unpersuasive. An
agency need not take affirmative steps in order to give
something the force of law the tariffs filed with FERC are valid
and binding on pipelines unless a successful protest or
challenge has been filed. FERC need not take any further
affirmative action for the tariff to be considered "approved."
The defendant concedes the fact that no protests or challenges
prevented plaintiffs' tariffs from being given effect by FERC.
That binding effect constitutes the approval of which the DOI
DOI further argues that given the uncertainty over FERC's
jurisdiction, created, in DOI's opinion, by certain FERC
administrative decisions, DOI could no longer conclude that
unchallenged tariffs filed with FERC were "approved by" FERC
without an affirmative statement of jurisdiction. Whether or not
FERC has jurisdiction over a certain pipeline is a question for
FERC to decide, not DOI. See Amerada Hess Pipeline Co. v.
FERC, 117 F.3d 596, 600 (D.C.Cir. 1997). DOI's argument,
dressed up in the guise of deferring to FERC's jurisdictional
decisions, is actually predicated on DOI's independent
assessment that FERC jurisdiction over plaintiffs' tariffs was
called into question. DOI made this decision despite the fact
that FERC in no way ever questioned its jurisdiction over
plaintiffs' tariffs.*fn6 FERC accepted plaintiffs' filed
tariffs without challenge years after the FERC administrative
decisions that DOI claims threw
FERC's jurisdiction into question.*fn7
Furthermore, DOI's interpretation of "approved by" as
requiring lessees to petition FERC for an affirmative statement
of jurisdiction is undermined by other language in the
regulation which requires MMS to petition FERC with objections.
Section 206.105(b)(5) outlines the specific reasons that MMS may
deny a FERC exception to an applicant. The procedures for
rejecting some applicants require that MMS petition FERC:
If there are no arm's-length transportation charges,
MMS shall deny the exception request if: (i) No FERC
or State regulatory agency cost analysis exists and
the FERC or State regulatory agency, as applicable,
has declined to investigate pursuant to MMS' timely
objection upon filing . . .
§ 206.105(b)(5) (emphasis added). This language arguably
reflects a preference for MMS petitioning FERC with objections
rather than requiring the plaintiffs to do so. Had DOI
originally intended that "approved by" include a requirement
that someone petition FERC for an affirmative statement of
jurisdiction, it could have easily included such a requirement
in the regulation. While this language requiring MMS to petition
FERC regarding its objections is not conclusive with respect to
the question of ambiguity in the regulation, it certainly lends
support to the argument that DOI's interpretation contravenes
the "Secretary's intent at the time of the regulation's
promulgation." Thomas Jefferson Univ., 512 U.S. at 512, 114
S.Ct. 2381; Gardebring v. Jenkins,