W & T Offshore, Incorporated v. David Bernhardt, e, 946 F.3d 227

Background

W&T Offshore operated federal offshore gas leases that participated in the DOI’s royalty-in-kind pilot; operators frequently had monthly over- and underdeliveries.
DOI issued "Dear Operator" guidance allowing make-up deliveries, agreed schedules, or cash payments; in October 2008 DOI began requiring cash and ended the pilot.
In 2010 DOI issued orders demanding a final cash payment from W&T to resolve cumulative imbalances from Feb 2003–Oct 2008, using a contracted-sales-price valuation method.
W&T exhausted administrative appeals (ONRR/IBLA) and sued; the district court vacated the orders and remanded in part, granting W&T credit for prior overdeliveries under equitable recoupment.
The Fifth Circuit affirmed DOI’s statutory authority to demand cash (Chevron deference), reversed the district court on the APA ground (finding DOI promulgated a substantive rule without notice-and-comment), and affirmed application of equitable recoupment to credit W&T’s deliveries; case remanded.

Issues

Issue	W&T’s Argument	DOI’s Argument	Held
Whether DOI exceeded authority by switching from payment-in-kind to cash for past-due months	"Amount or value" is disjunctive; once DOI elected in-kind for a month it cannot later demand cash for that month	Statute grants DOI discretion; it may change its election and require cash to satisfy outstanding obligations	DOI’s interpretation permissible under Chevron; DOI may require cash to resolve past imbalances
Whether DOI’s orders were substantive rules subject to APA notice-and-comment	The cash-resolution method and valuation constitute a new substantive rule and required notice-and-comment	The orders were adjudications or interpretive and need not follow notice-and-comment	Orders implemented a new, industry-wide substantive rule; APA notice-and-comment required (agency violated APA)
Whether DOI had to follow valuation regulations (30 C.F.R. pt. 1206) valuing gas at lessee’s received price	DOI must apply existing valuation regs, not its contracted-sales-price methodology	DOI applied a uniform methodology to compute cash outs of imbalances	Court need not resolve on appeal because APA invalidation of the new methodology was dispositive (district court’s valuation holding not sustained on this basis)
Whether statute of limitations barred crediting overdeliveries before Feb 2003	Equitable recoupment permits crediting pre-limit overdeliveries as a defense to DOI’s timely claim	Section 1724(b)(1) bars pursuit of obligations outside 7-year window, precluding crediting	Equitable recoupment applies; DOI must credit W&T’s prior overdeliveries despite the limitations period

Key Cases Cited

Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (Sup. Ct.) (framework for deference to reasonable agency statutory interpretations)
Phillips Petroleum Co. v. Johnson, 22 F.3d 616 (5th Cir.) (agency internal valuation procedure constituted a substantive rule requiring notice-and-comment)
Shell Offshore Inc. v. Babbitt, 238 F.3d 622 (5th Cir.) (agency-adjudication that implemented a new industry-wide policy is effectively a substantive rule)
United States v. W. Pac. R.R., 352 U.S. 59 (Sup. Ct.) (equitable defenses not barred by statutes of limitations applicable to affirmative suits)
Eddie Parker Interests, Inc. v. Distrib. Servs., Ltd., 897 F.2d 811 (5th Cir.) (doctrine of equitable recoupment allows defendant to offset plaintiff’s claim by related demands)
Rothensies v. Elec. Storage Battery Co., 329 U.S. 296 (Sup. Ct.) (recoupment examines the single contract or transaction as a whole)
Bull v. United States, 295 U.S. 247 (Sup. Ct.) (equitable recoupment available where main action is timely)