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Yee v. Jewell

United States District Court, District of Columbia

January 9, 2017

BETTY YEE, Controller, State of California, Plaintiff,
SALLY JEWELL, Secretary, United States Department of the Interior, Defendant.


          Randolph D. Moss United States District Judge

         The State of California brings this breach-of-contract suit against the United States Department of the Interior. The complaint identifies two bases for this Court's jurisdiction: the Declaratory Judgment Act, 28 U.S.C. § 2201, and the Mandamus Act, 28 U.S.C. § 1361. See Dkt. 1 at 1 (Compl. ¶ 2). The Department has moved to dismiss the complaint on the grounds that neither statute confers subject-matter jurisdiction here. Dkt. 7. California has also cross-moved for summary judgment. Dkt. 9.

         The Department is correct that the Declaratory Judgment Act is not jurisdiction-conferring, and, although the Mandamus Act can supply subject-matter jurisdiction in exceptional circumstances, the Court is not persuaded (at least on the present record) that this is such an occasion. But, because California's claim arises under federal law, the Court concludes that it has subject-matter jurisdiction under 28 U.S.C. § 1331. The Court will, accordingly, deny the Department's motion to dismiss.

         The more pertinent question-and the question that neither party has raised-is whether Congress has waived the sovereign immunity of the United States for present purposes. “Sovereign immunity is jurisdictional in nature, ” FDIC v. Meyer, 510 U.S. 471, 475 (1994), and this Court “ha[s] an obligation to address jurisdictional questions sua sponte, ” United States v. Baucum, 80 F.3d 539, 541 (D.C. Cir. 1996). As explained below, there is a significant question whether Congress has consented to government contract suits like this one in federal district court and whether this case should be transferred to the United States Court of Federal Claims as a result. The Court, accordingly, will deny California's summary judgment motion without prejudice as premature, and will order the parties to show cause why the case should not be transferred to the Court of Federal Claims or dismissed on grounds of sovereign immunity.

         I. BACKGROUND

         A. Regulatory Background

         The Department of the Interior may lease federal lands to private parties for the production of oil and gas. 30 U.S.C. § 226. Lessees must then pay the Department royalties for any oil or gas produced. Id. § 226(b)(1)(A). And, to “accurately determine” the amount of those royalties, the Department must “establish a comprehensive inspection, collection, and fiscal and production accounting and auditing system.” Id. § 1711(a).

         Under the Federal Oil and Gas Royalty Management Act (“FOGRMA”), the Department may then delegate its royalty-auditing duties to the leased lands' host state, id. § 1735(a), by means of a “cooperative agreement, ” id. § 1732(a). “Cooperative agreements” are legal instruments defined by statute. See 31 U.S.C. § 6305. They memorialize “relationship[s] between the United States Government and a State, ” where “the principal purpose of the relationship is to transfer a thing of value to the State . . . to carry out a public purpose, ” and “substantial involvement is expected” between governments. Id.

         Under the Department's FOGRMA regulations, such cooperative agreements may obligate the Department to reimburse the state “for up to 100 percent of the [eligible] costs of eligible activities, ” 30 C.F.R. § 1228.105(a)(1), where “eligible activities” are those activities agreed upon each year by the parties, id., and “eligible costs” are the costs “directly associated” with those activities, id. § 1228.107. Eligible costs include payment of salaries and benefits, travel and training costs, administrative expenses, and other costs “which can be shown to be in direct support of the activities covered by the agreement.” Id. That reimbursement, however, “may not exceed the reasonably anticipated expenditures that [the Department] would incur to perform the same function, ” id. § 1227.112(b), and must be “necessary for” and “directly related to [the state's] performance of a delegated function, ” id. § 1227.112(c).

         If the cooperative agreement provides for reimbursement, it must “contain detailed schedules identifying those activities and costs which qualify.” Id. § 1228.107. Each calendar quarter, the state must submit to the Department a “voucher for reimbursement of eligible costs incurred, ” id. § 1228.105(c), which the Department then pays using “appropriations specifically designated for th[at] purpose, ” id. § 1228.105(b).

         B. Factual Background

         In September 2010, the Department and California entered into a FOGRMA cooperative agreement (“the Agreement”). Dkt. 7-2 at 2. The Agreement delegated certain royalty-auditing duties to California for the period from October 1, 2010, to June 30, 2016, Dkt. 7-2 at 2, and as such the Agreement has now expired. The Agreement also provided that the Department would “reimburse the State up to 100 percent of allowable costs . . . not to exceed the amount approved for each fiscal year of this Agreement . . . and contingent upon appropriation of funds by Congress.” Id. at 6.

         At issue here is Agreement Paragraph 6.5.C, which provided for reimbursement of the costs of California's employees' fringe benefits. See Dkt. 1 at 2 (Compl. ¶ 7); Dkt. 7-2 at 16. “Fringe benefits” are “allowances and services provided by employers to their employees as compensation in addition to regular salaries and wages.” Cost Principles for State, Local, and Indian Tribal Governments (OMB Circular A-87), 70 Fed. Reg. 51, 910, 51, 914-15 (Aug. 31, 2005). Paragraph 6.5.C of the Agreement stated that “[f]ringe benefits shall be allowed in accordance with the State's established accounting system.” Dkt. 7-2 at 16 (Agreement ¶ 6.5.C).

         In July 2015, the Department took issue with California's method of calculating its salaries, fringe benefits, and other indirect costs. Dkt. 1 at 2-3 (Compl. ¶ 8). It sent California a draft “Attestation Report, ” Dkt. 9-4, which took the view that, broadly speaking, California had sought and obtained reimbursement based on its employees' “theoretical or estimated working hours, ” rather than their “[a]ctual working hours, ” id. at 4.[1] The Report concluded that, between October 2010 and September 2014, California had overcharged the Department by $296, 459.94. Id. at 8. California objected, see Dkt. 9-5, but the Department issued a final report declining to change its position, see Dkt. 7-4 at 11-12.

         In its final report, the Department stated that it would recover the missing $296, 459.94 by withholding monies from California's future FOGRMA vouchers. Id. at 12. That is, for each of the twelve monthly vouchers covering the period from July 2015 to June 2016, the Department would subtract $24, 705 from the amount California would otherwise have received, thereby recuperating the missing amount. Id. In addition, the Department stated that it would “make a one-time adjustment to recover overstated costs” for fiscal year 2015 by withholding an additional $1, 845.71 from the July 2015 voucher. Id. at 12-13. Finally, the Department requested that California adopt the Department's preferred method for calculating costs for the remaining months on the contract, id. at 10, although it is unclear whether California did so.

         C. The ...

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