United States Ex Rel. Johnson v. Shell Oil Co.

ORDER HANNAH, District Judge. Before the Court is the Motion of the Texaco Defendants 1 (“Texaco”) to Dismiss the Relators’ Second Consolidated Complaint and the Complaint of the United States for Lack of Subject Matter Jurisdiction or, in the Alternative, on Primary Jurisdiction Grounds (Doc. # 270). After review of the motion, the response of the Relators and the Government, and the reply of Defendants, it is the opinion of the Court that the motion is not well taken and should be DENIED. Texaco asserts that this Court lacks subject matter jurisdiction over both the Rela-tors’ and the Government’s claims because of pending “administrative civil money penalty proceedings” against Texaco. According to Texaco’s reading of § 3730(e)(3) of the False Claims Act (“FCA”), these proceedings bar the Relators’ claims. Texaco also argues that the claims of both the United States and the Relators are barred under § 3730(e)(5) based on an election by the Minerals Management Service (“MMS”) to bring “administrative civil money penalty proceedings” against Texaco after the Relators’ Complaint was filed. Texaco, in this motion, also joins in the motion of their co-defendants to dismiss on primary jurisdiction grounds because the MMS has primary jurisdiction to decide, in the first instance, issues of oil valuation. DISCUSSION 31 U.S.C. § 3730(e)(3) prohibits a person from bringing a qui tam action “which is based upon allegations or transactions which are the subject of a civil suit or administrative civil money penalty proceeding in which the Government already is a party.” 31 U.S.C. § 3730(e)(3). Texaco asserts that the MMS was “prosecuting several administrative civil money penalty proceedings against Texaco at the time the complaint was filed” 2 which were based upon “both the allegations and many of the same transactions at issue in Relators’ Complaint.” 3 Texaco points out that the False Claims Act does not define the phrase, “administrative civil money penalty proceeding.” Texaco bases its argument on various letters Texaco received from the MMS having to do with two lease areas in California and North Dakota and relating to a nationwide audit of Texaco’s “practices and procedures relating to reporting and paying royalties] ... on Federal and Indian leases.” 4 The California dispute deals with onshore leases for the periods from January 1, 1986 *927 through June 30, 1987 and from July 1, 1987 through December 31, 1989. The North Dakota dispute deals with federal leases for the period October 1, 1989 through September 30, 1992. The “Phase IV” nationwide audit dispute covers the period from October 1, 1992 through December 31,1995. The letter from the MMS to Texaco which relates to the California dispute, dated July 29,1992 states, in pertinent part: [t]he California State Controller’s Office (State), in accordance with Section 205 of the Federal Oil and Gas Royalty Management Act of 1982 (FOGRMA), has reviewed Texaco Inc.’s (Texaco) California Federal onshore leases for the period February 1, 1983, through December 31, 1989. The State’s review indicates that Texaco underpaid royalties due the Minerals Management Service (MMS) by $20,375.59 for the period January 1, 1986, through June 30,1987, and continued to under pay royalties for the period through July 1, 1987, through December 31, 1989. The underpayment resulted from Texaco reporting crude oil sales at less than the gross proceeds accruing to Texaco. Texaco sells its oil to an affiliate, Texaco Refining and Marketing Inc. (Texaco Marketing), which then sells the oil to third parties pursuant to arms-length contracts. Texaco has paid royalties based upon the price received from Texaco Marketing. However, as shown below, royalties should have been paid on the gross proceeds received by Texaco, which includes proceeds accruing to its affiliate____ Based on the above, additional royalties are due on the value received by Texaco Marketing.... Section 109 of FOGRMA, promulgated in 30 C.F.R. § 241.51 (1991), authorizes MMS to assess civil penalties for failure or refusal to comply with the requirements of FOGRMA or any statute, regulation, rule, order, lease, or permit. Consequently, your failure to comply with the terms of this order may be considered a violation pursuant to 30 C.F.R. § 241.51 and could subject you to penalties of up to $5,000 per violation per day for each day such violation continues or up to $10,000 per violation each day if the violation is considered to be wilful. You have the right to appeal in accordance with the provisions of 30 CFR 290 (1991). 5 Texaco supplies a letter from the MMS regarding the North Dakota dispute which states that Texaco underpaid its royalties by $10,213.02 and that the under payments were due to “misallocation of oil sales from eom-munitization agreements, failure to pay step-scale royalty rates, failure to pay royalty on oil transferred, undervaluation of oil sold, and underalloeation of oil sales from a unit agreement.” 6 The letter also states, Section 109 of FOGRMA, promulgated in 30 C.F.R. § 241.51 (1991), authorizes MMS to assess civil penalties for failure or refusal to comply with the requirements of FOGRMA or any statute, regulation, rule, order, lease, or permit. Consequently, your failure to comply with the terms of this order may be considered a violation pursuant to 30 C.F.R. § 241.51 and could subject you to penalties of up to $5,000 per violation per day. 7 Exhibit 3 to Defendants’ motion is another letter from the MMS to Texaco, addressed to the assistant comptroller in Exploration and Production Accounting Department, informing Texaco that the MMS, Houston Compliance Division, was initiating an audit of Texaco’s practices and procedures related to reporting and paying royalties. The audit would include parent and subsidiary companies and cover the period from October 1, 1992 through December 31, 1995. The letter includes this paragraph, The regulations at 30 C.F.R. § 241.20 and 241.51 (1994) authorize MMS to assess civil penalties for failure or refusal to comply *928 with the requirements of FOGRMA or any statute, regulation, rule, order, lease, or permit. Consequently, your failure to comply with the record retention and access requirements may be considered a violation subjecting you to penalties of up to $10,000 per violation per day. 8 Defendants’ exhibits show that the MMS’ investigation of the California oil royalties underpayment in December, 1996 resulted in a letter/invoice from the MMS to Texaco demanding payment of $8,393,796.69. It is these transactions between the MMS and Texaco that Texaco contends are “allegations or transactions which are the subject of a civil suit or administrative civil money penalty proceeding in which the Government already is a party.” 31 U.S.C. § 3730(e)(3). The United States and the Relators both respond that the above transactions or proceedings between the MMS and Texaco are not civil money penalty proceedings which would bar the Relators’ qui torn suit under the provisions of 31 U.S.C. § 3730(e)(3). The Court agrees. While none of the parties have supplied the Court with any authority which would define the term “civil money penalty proceedings,” and the Court could find none, it is clear that a few payment demands and an audit of Texaco’s royalties practices do not constitute the type of proceedings which the provisions of 31 U.S.C. § 3730(e)(3) addresses. The Government points to the Senate Report on the 1986 amendments, which states that the new provision: [ejlarifies that the Government, once it intervenes and takes over a false claim suit brought by a private individual, may elect to pursue any alternative remedy for recovery of the false claim which might be available under the administrative process. S.Rep. 99-345 at 27 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5292. The orders to pay do not assert that Texaco knowingly underpaid royalties and do not seek civil monetary penalties. 30 C.F.R. § 241.51(a)(c) indicates that a civil penalty proceeding can be initiated by a “notice of noncompliance.” Penalty notices may also be issued according to the same regulation. Texaco has tendered no notice of noncompliance or penalty notices for underpayment of royalties. Texaco argues that FOGRMA authorizes the MMS to impose the IRS interest rate on late payment of royalties rather an the standard Treasury rate, which has been considered to punitive, and Texaco is already in a dispute with the MMS and is therefore subject to paying these “penalties,” Texaco insists that it is “already a party to administrative civil money penalty proceedings.” 9 This argument fails. All that the orders to pay do is to inform Texaco of the possible assessment of civil penalties under FOGRMA only if Texaco fails to comply with the order to pay. It is the burden of the movant, Texaco, to show that the allegations or transactions which form the basis of the False Claims Act suit are the same as those which are “the subject of a civil suit or an administrative civil money • penalty proceeding in which the Government is already a party.” Texaco has failed to convince the Court that the payment demands and audit letters it has received from the MMS are an election of the Government as contemplated by 31 U.S.C. § 3730(e)(3) or § 3730(c)(5) which would be a bar to this suit. The Court has previously denied the motion to dismiss upon primary jurisdiction grounds brought by Texaco’s co-defendants. There is nothing in Texaco’s motion which requires us to revisit that issue. Accordingly, IT IS ORDERED that the Motion of the Texaco Defendants (“Texaco”) to Dismiss the Relators’ Second Consolidated Complaint and the Complaint of the United States for Lack of Subject Mater Jurisdiction or, in the Alternative, on Primary Jurisdiction Grounds (Doc. # 270) is DENIED. Footnotes [1] The Texaco Defendants are: Texaco Inc., Texaco Exploration & Production, Inc., Texaco Trading & Transportation, Inc., Texaco Oil Trading & Supply Co., Texaco Production Inc., Texaco Refining & Marketing, Inc., and Four Star Oil & Gas Co. [2] Texaco’s Motion to Dismiss (Doc. # 270) at page 2. [3] Id. [4] Id. at page 5. [5] Motion and Memorandum to Dismiss the Realtors’ Second Consolidated Complaint and the Complaint of the United States for Lack of Subject Matter Jurisdiction or, in the Alternative, on Primary Jurisdiction Grounds at Exhibit 1. [6] Id at Exhibit 2. [7] Id. [8] Id. at Exhibit 3. [9] Id. at page 8.