United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 15, 2008 Decided December 23, 2008
No. 07-5299
DEVON ENERGY CORPORATION,
APPELLANT
v.
DIRK KEMPTHORNE, SECRETARY OF THE INTERIOR,
APPELLEE
Appeal from the United States District Court
for the District of Columbia
(No. 04cv00821)
Deborah B. Haglund argued the cause for appellant. With
her on the briefs was Charles D. Tetrault.
Erik Milito and Michele Schoeppe were on the brief for
amicus curiae American Petroleum Institute in support of
appellant.
Sambhav N. Sankar, Attorney, U.S. Department of Justice,
argued the cause for appellee. With him on the brief was
Michael T. Gray, Attorney. R. Craig Lawrence, Assistant U.S.
Attorney, entered an appearance.
Before: BROWN, Circuit Judge, and EDWARDS and
SILBERMAN, Senior Circuit Judges.
2
Opinion for the Court filed by Senior Circuit Judge
EDWARDS.
EDWARDS, Senior Circuit Judge: The United States leases
the rights to extract and sell natural gas from lands owned by the
Government. In exchange, lessees, like appellant Devon Energy
Corporation (“Devon”), agree to pay the United States royalties
on the natural gas they are able to produce. This case arises
from a final order issued by the United States Department of the
Interior (“DOI” or “Interior”) requiring Devon retroactively to
recalculate royalties owed to the Government pursuant to its
lease to extract coalbed methane from federal land in Wyoming.
At issue is the agency’s interpretation of its “marketable
condition rule.” The rule was included as a part of DOI’s 1988
Revision of Gas Royalty Valuation Regulations, which establish
the framework for calculating the royalty value of coalbed
methane gas production. In its disputed order, DOI held that the
marketable condition rule precluded Devon from deducting
certain costs associated with compression and dehydration when
calculating the “gross proceeds” upon which royalties are owed.
DOI determined that gas cannot enter a pipeline and move to a
purchaser unless it meets the requirements of the pipeline, which
typically requires compression to raise its pressure and
dehydration to reduce its water content. Thus, DOI concluded
that if gas is not sufficiently compressed and dehydrated to be
deliverable to the point of purchase through the pipeline, it is not
in marketable condition. Devon filed suit in the District Court
to challenge Interior’s order. The District Court denied Devon’s
motion for summary judgment and granted the Secretary’s
cross-motion. On appeal, Devon argues that DOI’s order is
inconsistent with the plain language of the marketable condition
rule, and also inconsistent with DOI’s own prior interpretation
of the rule.
We affirm the judgment of the District Court. First, we find
that Interior’s interpretation of the marketable condition rule
3
reflects a perfectly reasonable construction of the rule. It is
clear that the agency’s order is not at odds with the plain
language of the rule, nor does it effectively “amend,” rather than
reasonably construe, the rule. Second, we reject Devon’s claim
that DOI’s order conflicts with a prior interpretation of the
marketable condition rule. Devon argues that its position finds
support in guidance documents distributed by agency personnel
after DOI’s promulgation of the 1988 regulations. However, as
Devon concedes, these contested guidance documents were
distributed by agency individuals who had no authority either to
amend the marketable condition rule or to issue authoritative
guidelines on behalf of the agency.
I. BACKGROUND
A. Statutory and Regulatory Framework
Through its Minerals Management Service (“MMS”),
Interior issues and administers leases authorizing the removal of
natural gas from federal land. The Mineral Leasing Act, 30
U.S.C. §§ 181 et seq. (2000), “was intended to promote wise
development of these natural resources and to obtain for the
public a reasonable financial return on assets that ‘belong’ to the
public.” California Co. v. Udall, 296 F.2d 384, 388 (D.C. Cir.
1961). Under the Mineral Leasing Act, the producer-lessees
must pay the government-lessor “a royalty at a rate of not less
than 12.5 percent in amount or value of the production removed
or sold from the lease.” 30 U.S.C. § 226(b)(1)(A). In the
Federal Oil and Gas Royalty Management Act, the Secretary of
the Interior was instructed by Congress to create a
comprehensive inspection, collection, accounting, and auditing
system to ensure that the government receives the royalties
owed. 30 U.S.C. § 1711(a) (1982).
The Mineral Leasing Act gives DOI the authority “to
prescribe necessary and proper rules and regulations and to do
any and all things necessary to carry out and accomplish the
4
purposes of” the Act. 30 U.S.C. § 189. Pursuant to this
directive, DOI has issued a number of regulations governing the
royalty valuation process. In 1988, DOI conducted a major
rulemaking that modified the then-existing gas royalty valuation
regulations. See Revision of Gas Royalty Valuation Regulations
and Related Topics, 53 Fed. Reg. 1230, 1272 (Jan. 15, 1988); 30
C.F.R. § 206.152 (1988). The 1988 regulations establish the
framework for calculating the royalty value of the coalbed
methane gas production at issue here. Under this regulatory
framework, royalties are calculated on the basis of the total
value a lessee receives for its production. The regulations
specify that the “value of production” should be no less “than
the gross proceeds accruing to the lessee for lease production,”
minus certain allowable deductions. 30 C.F.R. § 206.152(h); see
also Amoco Prod. Co. v. Watson, 410 F.3d 722, 725 (D.C. Cir.
2005), aff’d sub nom., BP Am. Prod. Co. v. Burton, 549 U.S. 84
(2006).
When calculating “gross proceeds,” DOI regulations have
long interpreted the Mineral Leasing Act to require lessees to
put the gas into marketable condition at no cost to the United
States – the so-called “marketable condition rule.” The 1988
regulations confirmed this requirement. See 30 C.F.R.
§ 206.152(i) (governing unprocessed gas); 30 C.F.R.
§ 206.153(i) (governing processed gas); see also California Co.,
296 F.2d at 387-88 (affirming marketable condition
requirement). Marketable condition is defined in the DOI
regulations as “lease products which are sufficiently free from
impurities and otherwise in a condition that they will be
accepted by a purchaser under a sales contract typical for the
field or area.” 30 C.F.R. § 206.151. If a lessee sells
“unmarketable” gas at a lower price, the gross proceeds are
“increased to the extent that the gross proceeds have been
reduced because the purchaser, or any other person, is providing
certain services” to place the gas in marketable condition. 30
C.F.R. § 206.152(i); Amoco, 410 F.3d at 725-26.
5
The 1988 regulations also provide that the lessee may
deduct its actual costs of transporting the gas from the wellhead
to the point of sale when gas produced from the lease is sold at
a market remote from the lease. 30 C.F.R. § 206.157(a)-(b).
This “transportation allowance” includes “only those costs
which are directly related to the transportation of lease
production.” 53 Fed. Reg. at 1261. A transportation allowance
is defined as “an allowance for the reasonable, actual costs of
moving [gas] to a point of sale or delivery off the lease . . . or
away from a processing plant.” 30 C.F.R. § 206.151.
B. Facts and Proceedings Below
Devon leases land from the United States in Wyoming’s
Powder River Basin, which contains the natural gas known as
coalbed methane. These leases cover three fields – Kitty,
Spotted Horse, and Rough Draw – each of which contains a
large number of individual gas-producing wells. The gas
produced from the wells is gathered at central delivery points
(“CDPs”) that have been approved by the Bureau of Land
Management as the points of measure for the royalty due on the
gas. After the gas leaves a CDP, it goes through a complex
series of compression and dehydration processes as it travels
“downstream” to the Buckshot processing plant in preparation
for eventual sale. See Valuation Determination for Coalbed
Methane Production from the Kitty, Spotted Horse, and Rough
Draw Fields, reprinted in Joint Appendix (“J.A.”) 57
(“Valuation Determination”); see also Chart, J.A. 460.
The production process varies slightly in the three fields,
but the differences are not material. Essentially, each CDP is
connected to a small diameter pipeline. Gas travels from the
CDP through the pipeline to one of several “screw
compressors,” which compress the gas to raise its pressure. The
gas then travels through the pipeline to a “field booster,” a
reciprocating compressor that further raises the pressure of the
gas. The gas then enters a dehydrator, which removes water.
6
Valuation Determination, J.A. 61. At this point, the gas enters
a 24-inch high-pressure gas pipeline, which begins at what is
known as the Landeck Station and runs 126 miles to the
Buckshot Gas Plant. Approximately 30 miles from the Landeck
Station, the gas enters a large compressor called the “MTG
Booster,” which compresses the gas to raise the pressure from
450-500 pounds per square inch (“psi”) to approximately 1,200
psi. The gas travels the remaining 96 miles to the Buckshot Gas
Plant, losing approximately one-third of its pressure on the way.
Id. at 66.
When the gas arrives at the Buckshot Gas Plant, excess
carbon dioxide is removed, the gas is dehydrated, and the gas is
compressed from approximately 800 psi to 1,100 psi. At that
pressure, Devon delivers the treated gas into one of two lateral
pipelines. The gas is transported to various purchasers through
these pipelines. Id.
On November 2, 1995, DOI and MMS personnel serving on
a group called the Royalty Policy Board met to discuss how the
royalty calculation regulations should be applied to coalbed
methane production. See Royalty Policy Board Meeting
Minutes, Nov. 2, 1995, reprinted in J.A. 102. Subsequently, on
December 7, 1995, and December 8, 1995, the then-Deputy
Director of MMS issued two documents captioned “Coalbed
Methane Valuation and Reporting Guidelines” and
“Compression Guidance,” respectively. See Coalbed Methane
Valuation and Reporting Guidelines, Dec. 7, 1995, reprinted in
J.A. 157; Compression Guidance, Dec. 8, 1995, reprinted in J.A.
160 [hereinafter, along with the “Dear Operator” letter, infra,
“guidance documents”]. These documents were memoranda
from the Deputy Director to the Associate Director for Royalty
Management and the Associate Director for Policy and
Management Improvement. J.A. 83. Although they were not
promulgated pursuant to the notice-and-comment procedures of
the Administrative Procedure Act (“APA”), 5 U.S.C. § 553
7
(2000), the guidance documents nonetheless suggested that
certain costs of compression and dehydration after the gas leaves
the CDP were deductible as transportation costs.
Subsequently, on April 22, 1996, MMS’s Associate
Director for Royalty Management distributed a “Dear Operator”
letter detailing how to calculate royalties on coalbed methane
production. The letter stated:
If you sell your coalbed methane at the tailgate of a carbon
dioxide removal or other treating facility . . . [y]ou can
include costs of dehydration occurring after metering at the
royalty measurement point in your transportation allowance
but you cannot deduct costs of dehydration occurring at the
wellhead. You can include costs for compression occurring
downstream of the royalty measurement point, to the extent
the compression is necessary for transportation. This
includes compression at the CDP and in the transportation
system to the [carbon dioxide] removal facility.
MMS Dear Operator Letter, Apr. 22, 1996, reprinted in J.A.
162, 164 [hereinafter, along with the “Coalbed Methane
Valuation and Reporting Guidelines” and the “Compression
Guidance,” supra, “guidance documents”].
From 1995 to 2002, Devon deducted the following costs as
transportation allowances: the cost of compressing the gas at the
screw compressors, the field boosters, the MTG Booster, and the
Buckshot Gas Plant, as well as the cost of dehydrating the gas.
Devon apparently assumed that these expenses were deductible
transportation costs under the guidance documents. On January
11, 2002, however, Devon sought guidance from MMS to
confirm that it was properly deducting (as part of its
transportation allowance) dehydration and compression costs
incurred after the gas leaves the CDPs. Request for Valuation
Determination, Jan. 11, 2003, reprinted in J.A. 166. On October
9, 2003, the Acting Assistant Secretary issued a decision
8
rejecting Devon’s reliance on the guidance documents. See
Valuation Determination, J.A. 57.
In its Valuation Determination, the agency found that
statements in the guidance documents were either ambiguous,
J.A. 84-85, or reflected an incorrect application of the
marketable condition rule, J.A. 84, or were simply
“inconsistent” with the rule, J.A. 85. The DOI Valuation
Determination held that Devon’s deductions of the costs of
dehydration and of compression performed at the screw
compressors, the reciprocating compressors, and the Buckshot
Plant were inconsistent with the marketable condition rule,
because the compression and dehydration functions were
necessary to put the production into marketable condition.
Devon could not meet the requirements of any of its sales
contracts without compressing the gas to the pressure
necessary to get it into those [pipe]lines . . . . That is the
pressure that would enable the gas to be “accepted by a
purchaser under a sales contract typical for the field or
area,” in the words of the definition [of the marketable
condition rule] at 30 C.F.R. § 206.151. In other words, to
meet the requirements of the “sales contract[s] typical for
the field or area,” Devon had to compress the gas to
pipeline pressure.
Id. at 88.
Both before and after the 1988 regulations, the lessee’s
obligation is to dehydrate gas to the water content required
for delivery to the pipeline (as necessary for sale under
contracts that are typical for the disposition of gas produced
from the field or area). . . .
Devon has not shown that the dehydration performed after
the reciprocating compressors and at the Buckshot Plant is
for anything other than what is required to put the
9
production into marketable condition and what is necessary
for it to meet pipeline and purchaser requirements.
Id. at 91.
Devon’s request for reconsideration of the DOI Valuation
Determination was denied in March 2004. Final Order to
Perform Restructured Accounting and Pay Additional Royalties
(“Final Order”), Mar. 19, 2004, reprinted in J.A. 46. The DOI
Final Order largely reaffirmed the reasoning and conclusions
reached in the DOI Valuation Determination. Devon was
instructed to “perform a restructured accounting and pay
additional royalties on the coalbed methane produced from the
Federal leases” that were the subject of the DOI Valuation
Determination. J.A. 55. Devon was also instructed that, in the
future, it was to “report and pay royalties under the regulations
and guidelines discussed” in the DOI Final Order. Id.
Devon filed suit in the District Court seeking to overturn the
Final Order. The District Court denied Devon’s motion for
summary judgment and granted Interior’s cross-motion for
summary judgment. Devon Energy Corp. v. Norton, No 04-Civ-
0821, 2007 WL 2422005 (D.D.C. Aug. 23, 2007). This appeal
followed.
II. Analysis
A. Standard of Review
“In a case like the instant one, in which the District Court
reviewed an agency action under the APA [5 U.S.C. § 706], we
review the administrative action directly, according no particular
deference to the judgment of the District Court.” Holland v.
Nat’l Mining Ass’n, 309 F.3d 808, 814 (D.C. Cir. 2002); see also
Troy Corp. v. Browner, 120 F.3d 277, 281 (D.C. Cir. 1997); Gas
Appliance Mfrs. Ass’n, Inc. v. Dep’t of Energy, 998 F.2d 1041,
1045 (D.C. Cir. 1993). We will uphold the contested agency
action unless we find it to be “arbitrary, capricious, an abuse of
10
discretion, or otherwise not in accordance with law.” 5 U.S.C.
§ 706(2)(A).
An agency’s interpretation of its own regulation is entitled
to “substantial deference,” unless “plainly erroneous or
inconsistent with the regulation.” Thomas Jefferson Univ. v.
Shalala, 512 U.S. 504, 512 (1994) (internal quotation marks
omitted). However, an agency may not “evade [the] notice and
comment requirements [of § 553 of the APA, 5 U.S.C.
§ 553(b)(A),] by amending a rule under the guise of
reinterpreting it.” Envtl. Integrity Project v. EPA, 425 F.3d 992,
995 (D.C. Cir. 2006) (quoting Molycorp, Inc. v. EPA, 197 F.3d
543, 546 (D.C. Cir. 1999)); see also Am. Hosp. Ass’n v. Bowen,
834 F.2d 1037, 1044-48, 1052-57 (D.C. Cir. 1987). In
determining whether an agency action effectively “amends” a
rule without adhering to the requirements of the APA, we must
consider, inter alia, whether the agency officials involved in the
disputed actions had the authority to issue binding regulations or
otherwise act with the force of law on behalf of the agency. See
generally HARRY T. EDWARDS & LINDA A. ELLIOTT, FEDERAL
STANDARDS OF REVIEW – REVIEW OF DISTRICT COURT
DECISIONS AND AGENCY ACTIONS 130-35 (2007).
B. Plain Language
Under the 1988 DOI regulations, “marketable condition” is
defined to mean “lease products which are sufficiently free from
impurities and otherwise in a condition that they will be
accepted by a purchaser under a sales contract typical for the
field or area.” 30 C.F.R. § 206.151. The marketable condition
rule requires lessees to put gas into marketable condition at no
cost to the United States. At issue here is DOI’s interpretation
of the rule to include the costs of compression and dehydration
incurred after the gas leaves the CDPs to allow it to move
through the pipelines that serve the market in which the gas is
typically sold. Devon argues that this interpretation is
inconsistent with the plain language of the regulations, because
11
it improperly focuses the inquiry on the market where the gas is
actually sold, as opposed to the requirements of a sales contract
typical for the field or area.
In its Valuation Determination and Final Order, DOI held
that costs associated with compression and dehydration are not
deductible if their primary function is to prepare the gas to move
through the pipelines to the point where gas is purchased.
However, the parties disagree as to what “sales contract typical
for the field or area” requires. DOI found that “typical” sales
contracts require that gas be delivered to the purchaser at the
terminus of a specified pipeline. Under this view, a producer
must provide the compression and dehydration necessary to
allow the gas to be delivered through the pipeline. Therefore,
the agency reasonably found that Devon “could not meet the
requirements of any of its sales contracts without compressing
the gas to the pressure necessary to get it into” the pipelines,
J.A. 88, and that Devon had “not shown that the dehydration
performed . . . [was] for anything other than what is required to
put the production into marketable condition . . . to meet
pipeline and purchaser requirements.” J.A. 91.
It is true that the DOI marketable condition rule is
ambiguous, and Devon’s preferred interpretation of the rule is
not unreasonable. In other words, we assume that the costs of
dehydration and compression can reasonably be interpreted to
fall within the compass of “transportation costs.” However, we
are obliged to afford “substantial deference to an agency’s
interpretation of its own regulations.” Thomas Jefferson Univ.,
512 U.S. at 512 (citations omitted). On this record, we find that
DOI’s contested construction of the marketable condition rule
is reasonable. Indeed, DOI’s interpretation of the marketable
condition rule is consistent with an interpretation that this court
approved in Amoco, 410 F.3d 722.
In Amoco, we addressed DOI’s interpretation of the
marketable condition rule as it related to the cost of transporting
12
excess carbon dioxide to the treatment plant. The court held that
the marketable condition rule did not require DOI to
“understand typical sales contracts – and thus marketable
condition – as relating to transactions at the leasehold or
immediately nearby.” Id. at 729. “The regulation stipulating
that producers are to place gas in marketable condition at no cost
to the government does not contain a geographic limit.” Id.
Therefore, DOI’s interpretation of the marketable condition rule
to require lessees to compress and dehydrate gas to meet the
requirements of the pipelines that serve its typical purchasers is
not “plainly erroneous or inconsistent with the regulation.”
Thomas Jefferson Univ., 512 U.S. at 512. And as the court
noted in Amoco, the deference that we owe to an agency’s
interpretation of its own regulations “is particularly appropriate
in the context of a complex and highly technical regulatory
program, in which the identification and classification of
relevant criteria necessarily require significant expertise and
entail the exercise of judgment grounded in policy concerns.”
410 F.3d at 729 (citations and quotations omitted).
C. The Requirements of a Typical Sales Contract
Devon argues that there is no record support for the
agency’s conclusion that the typical sales contract for the field
or area required Devon to compress its gas to 1,100 psi and
dehydrate it in order to put the gas in marketable condition.
However, although DOI provided Devon an opportunity to
supplement the record after the first valuation determination,
Devon merely asserted that it “believes that its working interest
partner, Redstone Resources, Inc., sells gas to unrelated third
parties in the field at pressures less than 1200 psi [sic] under
contracts typical for the field or area.” Request for
Reconsideration and/or Clarification, reprinted in J.A. 194, 196.
This cursory assertion is not sufficient to render DOI’s
interpretation unreasonable.
13
D. Prior Inconsistent Interpretation
Finally, Devon argues that the agency’s interpretation of the
marketable condition rule (embodied in the DOI Valuation
Determination and Final Order) must be vacated because it was
issued without notice-and-comment rulemaking required by
§ 553 of the APA. At bottom, Devon’s central claim is that it
acted in reliance on the guidance documents and this “reliance
interest is protected by the APA.” Appellant’s Br. at 16.
Devon’s argument runs as follows:
The marketable condition rule does not prohibit the
deduction of transportation costs, and it does not attempt to
differentiate between deductible transportation costs and
nondeductible marketable condition costs. Because the
regulations do not expressly address the issue, the Royalty
Policy Board was called upon to interpret the regulations.
[Id.]
[The Board’s] decision gave rise to [the guidance
documents] which were consistently followed by Interior
from 1995 until 2003. [Id.]
Devon followed Interior’s publicly-announced guidelines
and instructions when it deducted its post-CDP dehydration
and compression costs. [Id.]
Interior’s decision in this case wrongly assumes that
Interior was not bound by its 1995 guidelines and
instructions because they were not embodied in a formal
regulation. This Court has long recognized that an agency
interpretation can be authoritatively adopted even if it was
not embodied in a rule that was adopted through a notice
and comment rulemaking. [Id. at 17.]
An agency’s consistent advice – and here it was instruction
– to the regulated community can evidence the agency’s
authoritative adoption of a regulatory interpretation. Such
14
an interpretation can be changed only through a notice and
comment rulemaking. [Id.]
DOI’s description of the situation is quite different.
According to the agency, there was no official or binding
Royalty Policy Board action taken to address the issues now
before the court. Rather, DOI contends that
[n]otice and comment rulemaking was . . . not required for
Interior to change its interpretation of its regulation from
how it had been applied as a result of ambiguous guidance
documents. This Court has held that the very same
guidance documents were not binding on the agency. [See
Amoco, 410 F.3d at 732.] If they were not binding, then
they are not evidence of a definitive agency interpretation
and Interior can change its interpretation without going
through notice and comment rulemaking. . . . Absent a
definitive interpretation, the APA does not require notice
and comment rulemaking to effect a change in that
interpretation.
Appellee’s Br. at 15-16. For the reasons stated below, we agree
with DOI.
First, it is telling that the agency’s disputed Valuation
Determination and Final Order came only after Devon sought
confirmation from the agency that it was properly deducting the
dehydration and compression costs (as part of its transportation
allowance) incurred after the gas leaves the CDPs. This request
for confirmation was made in 2002, long after the issuance of
the guidance documents upon which Devon now relies. It is
perplexing, to say the least, that Devon was seemingly confused
over the propriety of its royalty accounting if, in its view, the
matters at issue had been authoritatively resolved over five years
earlier. In other words, there is much force to DOI’s argument
that, in fact, the guidance documents were far from conclusive
in what they said.
15
Second, implicit in Devon’s prior-inconsistent-
interpretation argument is a claim that the judgments reached in
DOI’s Valuation Determination and Final Order do not reflect
a supportable interpretation of the marketable condition rule. As
we have already explained in part II.B, supra, we find no merit
in this claim. Although the marketable condition rule is
ambiguous and Devon’s preferred construction of the rule is not
unreasonable, we are obliged to defer to the agency’s reasonable
construction of the rule. Thomas Jefferson Univ., 512 U.S. at
512 (holding that an agency’s interpretation of its own
regulation is entitled to “substantial deference,” unless “plainly
erroneous or inconsistent with the regulation”).
Third, and most important, Devon is mistaken in its
argument that the guidance documents constituted authoritative
and binding interpretations of the marketable condition rule. In
rejecting Devon’s argument, we start with the principle that
agency actions do not have the force of law unless they “mark
the consummation of the agency’s decisionmaking process” and
either determine “rights or obligations” or result in discernible
“legal consequences” for regulated parties. Bennett v. Spear,
520 U.S. 154, 177-78 (1997). The “Dear Operator” letter
certainly does not satisfy this standard. Indeed, this court has
previously considered a different aspect of the very same “Dear
Operator” letter that is at issue in this case. See Amoco, 410
F.3d at 732.
In Amoco, coalbed methane producers challenged an
Assistant Secretary’s decision that cited the April 22, 1996
letter, arguing that it constituted a new rule that the agency could
promulgate only through notice-and-comment rulemaking.
Citing Independent Petroleum Ass’n of America v. Babbitt, 92
F.3d 1248, 1256-57 (D.C. Cir. 1996), the court rejected
Amoco’s argument because the letter was not binding on the
agency:
16
As in Babbitt, the Payor Letter here is not an agency
statement with future effect because nothing under DOI
regulations vests the Letter’s author – in Babbitt and this
case MMS’s Associate Director for Royalty Management
– with the authority to announce rules binding on DOI. Id.
at 1256. “The letter is not an agency rule at all, legislative
or otherwise, because it does not purport to, nor is it capable
of, binding the agency.” Id. at 1257.
....
The sort of “workaday advice letter[s] that agencies prepare
countless times per year in dealing with the regulated
community,” Indep. Equip. Dealers Ass’n v. EPA, 372 F.3d
420, 427 (D.C. Cir. 2004) (internal quotation marks
omitted), do not retroactively become agency rules
whenever they are referenced in an agency decision.
Amoco, 410 F.3d at 732.
In response to the Amoco holding, Devon says that it “does
not contend that the 1996 Dear Operator letter in and of itself
was a binding rule. Rather, Devon contends that the regulatory
interpretation it relied on was authoritatively adopted by the
agency through the cumulative effect of a number of agency
actions, including but not limited to, the issuance of the 1996
Dear Operator letter.” Devon Reply Br. at 14. There are two
problems with this argument. First, it assumes that the two
internal memoranda written by the Deputy Director of the
Minerals Management Service in 1995 to the Associate Director
for Royalty Management and the Associate Director for Policy
and Management Improvement were final and binding agency
interpretations of the marketable condition rule. Second, it
assumes that the guidance documents have the force of law
because Devon followed the advice contained in the documents.
There is no merit to these contentions.
17
Devon argues that these 1995 documents were conclusive
because they reflected the actions of the Royalty Policy Board,
as if to suggest that the Board had authority to adopt regulations
or guidelines that bind the agency. But when questioned about
this at oral argument, Devon’s counsel readily conceded that the
Royalty Policy Board had no authority to issue authoritative
guidelines, and that the guideline documents did not have the
force of law. This concession is unsurprising, because there is
nothing in the record here to indicate that the guidance
documents purported to have the force of law.
At the very least, a definitive and binding statement on
behalf of the agency must come from a source with the authority
to bind the agency. See Ctr. for Auto Safety v. Nat’l Highway
Traffic Safety Admin., 452 F.3d 798, 810 (D.C. Cir. 2006)
(holding that Associate Administrator for Safety Assurance had
no authority to issue guidelines with binding effect on agency);
Ass’n of Am. R.Rs. v. DOT, 198 F.3d 944, 948 (D.C. Cir. 1999)
(holding a letter and two emails from lower level officials did
not amount to an authoritative agency interpretation); Paralyzed
Veterans of Am. v. D.C. Arena L.P., 117 F.3d 579, 587 (D.C.
Cir. 1997) (stating that a speech of a mid-level official of an
agency “is not the sort of ‘fair and considered judgment’ that
can be thought of as an authoritative departmental position”)
(citing Auer v. Robbins, 519 U.S. 452, 462 (1997)); Amoco, 410
F.3d at 732 (noting “Dear Operator” letter not binding on
agency because not authored by official with authority to
announce binding rules). The guidance documents at issue here
do not satisfy this standard.
Fourth, resting on its “reliance” theory, Devon suggests that
the agency is bound by the guidance documents because, for a
number of years, regulated parties followed the advice contained
in the documents. This argument fails. In Center for Auto
Safety, 452 F.3d 798, a case very much on point, the court held
that policy guidelines issued by the Associate Administrator of
18
the National Highway Traffic Safety Administration did not
amount to a binding rule. The contested guidelines, which
related to automakers’ voluntary regional recalls, were found not
binding because the Associate Administrator had no authority to
issue binding regulations or make a final determination on the
issue. Importantly, the court also rejected the petitioner’s
argument that, merely because the agency and automakers had
followed the guidelines for seven years, the guidelines had
binding “legal consequences.” In addressing this point, the
court said:
The flaw in appellants’ argument is that the “consequences”
to which they allude are practical, not legal. It may be that,
to the extent that they actually prescribe anything, the
agency’s guidelines have been voluntarily followed by
automakers and have become a de facto industry standard
for how to conduct regional recalls. But this does not
demonstrate that the guidelines have had legal
consequences. The Supreme Court’s decision in Bennett
makes it quite clear that agency action is only final if it
determines “rights or obligations” or occasions “legal
consequences.” 520 U.S. at 178. (citation and internal
quotation marks omitted). Circuit case law cannot obviate
the holding of Bennett.
Ctr. for Auto Safety, 452 F.3d at 811. See also Nat’l Ass’n of
Home Builders v. Norton, 415 F.3d 8, 15 (D.C. Cir. 2005) (“[I]f
the practical effect of the agency action is not a certain change
in the legal obligations of a party, the action is non-final for the
purpose of judicial review.”).
Devon argues that our decisions in Alaska Professional
Hunters Ass’n v. FAA, 177 F.3d 1030 (D.C. Cir. 1999), and
Paralyzed Veterans of America, 117 F.3d 579, should control
the disposition of this case. We disagree. In Alaska
Professional, the court found that thirty years of uniform advice
by the Alaskan regional office of the FAA “became an
19
authoritative departmental interpretation” binding on the agency.
The case is plainly distinguishable, however, because the
disputed agency advice in that case had been upheld in a formal
adjudication by the Civil Aeronautics Board, FAA’s predecessor
agency. See Alaska Prof’l, 177 F.3d at 1034 (discussing
Administrator v. Marshall, 39 C.A.B. 948 (1963)). Indeed, the
decision in Alaska Professional acknowledges that an
interpretation or advice by an official without authority to bind
the agency alone would not amount to an authoritative
interpretation. Alaska Prof’l, 177 F.3d at 1035; see also Hudson
v. FAA, 192 F.3d 1030, 1036 (D.C. Cir. 1999) (distinguishing
Alaska Professional as concerning a binding interpretation on
the basis of the formal adjudication upon which the longstanding
practice was based); Ass’n of Am. R.Rs., 198 F.3d at 949 (same).
In this case, by contrast, the guidance documents have never
been upheld in an agency adjudication, nor have they ever been
endorsed in any other agency action having the force of law.
Paralyzed Veterans also lends no support to Devon’s
position. In that case, we held that Advisory Board guidelines
that were not clearly adopted by the Department of Justice and
a speech by a mid-level official did not amount to a binding
interpretation of its regulation implementing the Americans with
Disabilities Act. 117 F.3d at 588. The court noted that if the
Department itself had adopted the Board’s interpretation of the
regulation the outcome might have been different. Id. The case
surely does not stand for the proposition that guidance
documents written by persons without authority to bind an
agency and released with no indication that the documents
purported to have the force of law may be taken as binding
interpretations of an agency regulation.
In sum, we find no merit in Devon’s claim that it acted in
reliance on the 1995 and 1996 guidance documents and that this
“reliance interest is protected by the APA.” As noted above, the
guidance documents were far from conclusive in what they said.
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In any event, on the record here, it is plain that the contested
guidance documents did not come from sources who had the
authority to bind the agency. Therefore, it does not matter
whether the appellant, or others, followed the advice that was
offered in these documents. These documents did not amount
to a binding interpretation of the marketable condition rule, so
the Agency was free to adopt the interpretation at issue in this
case without providing an opportunity for notice and comment.
III. CONCLUSION
For the reasons indicated above, we deny Devon’s
challenge to DOI’s Final Order and affirm the District Court’s
judgment in favor of the agency.