381 F. Supp. 3d 1153
N.D. Cal.2019Background
- ONRR (DOI) promulgated a consolidated Valuation Rule in 2016 to update how royalties for oil, gas, and coal on federal and Indian lands are valued; it would increase royalty collections and replace a decades-old "benchmark" system for non-arm's-length transactions.
- After industry litigation and a short postponement, ONRR published a 30-day Proposed Repeal and an ANPRM in April 2017 proposing to repeal the Valuation Rule and reinstate the pre-Rule regulations; ONRR cited "defects," cost/implementation concerns, and Executive Order 13783 as rationales.
- Plaintiffs (California and New Mexico) sued under the APA challenging the Final Repeal (Aug. 2017), alleging (1) lack of a reasoned explanation, (2) failure to consider alternatives, and (3) inadequate notice-and-comment; they also asserted statutory claims later abandoned.
- The administrative record shows ONRR had conducted an extensive five-year rulemaking (including a 120-day comment period) before adopting the Valuation Rule, but used a much shorter process and deferred substantive comment when seeking repeal.
- The Court granted summary judgment to Plaintiffs on APA claims, finding the Final Repeal arbitrary and capricious and that ONRR violated notice-and-comment requirements; declaratory relief and vacatur of the Final Repeal were ordered.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether ONRR provided a reasoned explanation for repealing the Valuation Rule | Plaintiffs: repeal contradicted ONRR's prior factual findings and lacked a reasoned reconciliation for changing course | Defendants: ONRR identified defects, relied on internal review, Exec. Order, and will consult Royalty Policy Committee; change is permissible with "good reasons" | Held: Arbitrary and capricious — ONRR failed to explain inconsistencies with prior findings and relied in part on future, speculative actions |
| Whether ONRR considered reasonable alternatives short of full repeal | Plaintiffs: ONRR failed to evaluate less drastic fixes and gave only conclusory cost-based rationale for complete repeal | Defendants: repeal would avoid higher aggregate costs of implementation then fixing problems | Held: Arbitrary and capricious — ONRR did not adequately analyze or justify rejection of obvious alternatives |
| Whether ONRR complied with APA notice-and-comment for repeal | Plaintiffs: Proposed Repeal lacked factual/legal basis detail and effectively limited substantive comment by deferring merits to an ANPRM and using a short 30-day period | Defendants: ONRR solicited comments and considered submissions from both notices; no forbidden content restriction | Held: Violated APA — notice failed to fairly apprise public of the agency's reasoning and deprived the public of meaningful opportunity to comment |
| Appropriate remedy for APA violations | Plaintiffs: declaratory relief and vacatur of Final Repeal | Defendants: vacatur would be disruptive; agency should get chance to brief | Held: Vacatur and declaratory relief appropriate — agency errors were serious and disruptive consequences insufficient to deny vacatur |
Key Cases Cited
- Motor Vehicle Mfrs. Ass'n v. State Farm, 463 U.S. 29 (agency must articulate satisfactory explanation for action)
- FCC v. Fox Television Stations, 556 U.S. 502 (agency changing course must show awareness, permissibility, belief new policy is better, and provide good reasons, especially when prior facts are contradicted)
- Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117 (same standard for reasoned explanation when changing agency policy)
- Organized Village of Kake v. U.S. Dep't of Agric., 795 F.3d 956 (9th Cir. 2015) (agency must reconcile new findings with prior contrary factual findings)
- North Carolina Growers' Ass'n v. United Farm Workers, 702 F.3d 755 (4th Cir. 2012) (impermissible content restriction and inadequate opportunity to comment on suspension/repeal)
- Prometheus Radio Project v. FCC, 652 F.3d 431 (notice must permit meaningful public participation)
- California v. Azar, 911 F.3d 558 (9th Cir. 2018) (failure to follow notice-and-comment requires setting aside rule)
- NetCoalition v. SEC, 615 F.3d 525 (agency cannot rely on conclusory or unsupported suppositions)
- Becerra v. U.S. Dept. of the Interior, 276 F. Supp. 3d 953 (N.D. Cal. 2017) (prior related ruling that ONRR's postponement violated APA)