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On Tuesday, February 26, the Louisiana Legislature adjourned a special session called by newly-elected Governor Bobby Jindal in the hope of enacting sweeping changes to Louisiana ethics laws relating to elected officials and other state administrators. The session resulted in the passage of a number of bills designed to increase transparency with respect to state officials’ financials, to limit potential influence by lobbyists, and to reduce potential conflicts of interest in state officials’ dealings with state agencies.

Governor Jindal recently signed the last of these bills into law on March 10, highlighted by the following:

• Senate Bill 5: Requires the recusal of elected officials who have a conflict of interest from voting on legislation. The bill repealed an exception in the existing ethics code, thus ensuring that under no circumstances will an elected official vote where a conflict is present.
• Senate Bill 8: Places a $50 cap on purchase of food and beverages for public servants per occasion, thus eliminating the unlimited spending by lobbyists and special interests. In the past, Louisiana allowed unlimited spending on food and beverage for public officials and employees by lobbyists and those seeking contracts with the state.
• Senate Bill 3: Prohibits lawmakers and other elected officials from receiving free tickets to professional sports games, college sports games and big-money cultural events, as well as free fishing trips, hunting trips and golf games from lobbyists. Under the law, elected officials may still receive free tickets to civic, nonprofit, educational or political events when the official is part of the program as a speaker or panel member.
• Senate Bill 37: Requires online reports of all state spending by agency and function. Under the law, the Commissioner of Administration will post a monthly report of the appropriations and spending for each budget unit of state government. The website is supposed to be fully functional by January 2009.
• House Bill 1: Requires disclosure of income for elected or public officials. Spouses of the officials and candidates for elected offices are included.  The law breaks up the officials into three levels, with various required disclosures required for each level: the top tier is for the governor and the governor’s department secretaries and top staff, statewide elected officials, the superintendent of education, and the commissioner of higher education; the middle tier is for state legislators and anyone holding public office representing a voting district of 5,000 or more people; and the lowest tier is for people holding public office representing fewer than 5,000 people, and for members of smaller boards and commissions.
• Senate Bill 1: Prohibits public officials or their spouses from contracting with the State of Louisiana. The law allows current contracts to remain in effect until they expire, but disallows the signing any new contracts.

By Clare Bienvenu

In Marcy v. Rowan Cos., Inc., No. 06-31238, 2008 WL 588745 (5th Cir. 2008), the Fifth Circuit Court of Appeals affirmed the district court’s decision to dismiss a qui tam action brought under the Federal Claims Act (FCA). The action alleged that the defendants violated the FCA by concealing the discharge of pollutants from an offshore drilling unit into the Gulf of Mexico.

The plaintiff, who claimed to have illegally dumped the pollutants at the direction of the defendants, asserted that the defendants made a false claim to the federal government by certifying Oil Record Books and MMS 133 reports omitting the discharges. He alleged that the defendants then received the benefit of continuing operations under a federal contract, the federal oil and gas lease. The plaintiff additionally alleged that, by failing to report the discharges, the defendants concealed an obligation to pay the government by fraudulently avoiding fines and penalties under several statutes, including the Federal Water Pollution Control Act, the Act to Prevent Pollution from Ships, the Outer Continental Shelf Lands Act, and the Oil Pollution Act of 1990. The Fifth Circuit, accepting the plaintiff’s factual allegations as true for purposes of the motion to dismiss, determined that the plaintiff failed to state a claim under the FCA, because: (1) any claim the defendants made for payment from the federal government was not a “material” claim; and (2) any obligation to pay the government as a result of violating environmental terms of the lease was merely a speculative obligation.

The Fifth Circuit first considered the plaintiff’s allegation that the defendants knowingly made a false claim for payment, pursuant to 31 U.S.C. §3729(a)(2). In determining this issue, the court looked to the materiality of the claim. In order for a claim to be material and, thus, fall within the scope of the FCA, the claim must be required in order to receive the government payment, or benefit. In this case, the court found that the accurate certification of the reports was not required to retain the lease, because the lease provided that failure to comply with its terms only results in cancellation of the lease at the option of the government. Due to the existence of other remedies that would allow continued operation under the lease despite violations of the terms of the lease, the environmental certifications were not required to retain the benefit of the government lease. 

The Fifth Circuit next considered the plaintiff’s allegation that the defendants knowingly concealed an obligation to pay the U.S. government, pursuant to 31 U.S.C. §3729(a)(7). The court found that the plaintiff would be unable to establish the defendants’ “obligation to pay” under the FCA, because the imposition of any fines or penalties resulting from environmental law violations depend solely upon the government’s discretion. Moreover, the speculative fines at issue did not arise directly out of the government lease, but arose out of general environmental laws. The court stated that allowing such general obligations to fulfill an FCA claim would extend the scope of the FCA far beyond its present interpretation.

By Katie Caswell

The House Ways and Means Committee has introduced HR 5351, the Renewable Energy and Energy Conservation Tax Act of 2008, which eliminates the manufacturing tax credit for major oil and gas companies and locks the credit at six percent for other producers and refiners. Further, this bill would force oil and gas companies to change the manner in which foreign tax credits are calculated and claimed for resources extracted overseas. HR 5351 would raise taxes on current energy companies by $17.5 billion and transfers the funds to energy sources such as wind, solar, geothermal, ethanol, and other renewable energy sources in the form of tax credits and bonds.

http://www.govtrack.us/congress/billtext.xpd?bill=h110-5351

In Bowden v. Phillips Petroleum Co., No. 03-0824 (Feb. 15, 2008), the Texas Supreme Court again addressed the propriety of class actions for gas royalty claims.  The class affirmed the denial of two subclasses, but reversed the denial of a third subclass of royalty claimaints.  The Court followed its prior holding in Yzaguirre in concluding that an “implied duty to market claim” is not susceptible to class treatment in a class containing both “market-value” and “proceeds” type leases.  The Court also addressed the nature of the implied duties in oil and gas leases, whether the ambiguity of the underlying agreement precludes class treatment, and the extent to which class representatives may abandon individualized claims in order to preserve class treatment for common claims.

The Bowden case involved claims against Phillips Petroleum company in connection with its natural gas marketing through affiliate companies.

The first subclass involved gas sold from the Fort Bend and Brazoria county areas through an affiliate of Phillips at prices.  Claimants argued that Phillips sold gas to its affiliate at below market prices, breaching its implied duty to market.  The class was limited to leases containing a “proceeds” clause — in recognition of the Yzaguirre holding that the implied duty exists only in proceeds-type leases.  The Court upheld the denial of class treatment.  Among its reasons was its conclusion that the implied duty to market does not exist in all “proceeds” leases; specifically, it does not exist in those leases in which their is an explicit obligation of marketing.  Second, the Court found that the proof of market value would require individualized determinations for different wells, in different locations, etc.

The second subclass involved royalty owners in the Panhandle region whose royalty was paid under identically worded Gas Royalty Agreements (“GRA”).  The lower court had found that class treatment was inappropriate because the GRA was unambiguous, thus requiring individualized jury trials of intent between the parties.  The Supreme court reversed, finding that the GRA was not ambiguous, thus susceptible of class-wide interpretation.  This issue is significant because the Court strongly suggests that ambiguous contracts are not susceptible of class treatment.

The final subclass involved royalty owners, under a multitude of different form leases, whose gas was sold by Phillips to an affiliate under Percentage of Proceeds (“POP”) contracts, with the claimants asserting that Phillips failed in its implied “duty to manage and administer” the leases.  The Court, however, concluded that the generalized implied duty to prudently manage is equivalent to the implied duty to market, which cannot be imposed upon a “market-value” lease.  Thus, under its Yzaguirre holding, class treatment was inappropriate.

The Texas Supreme Court, through a series of rulings over the last several years, has made class certification of royalty claims difficult, and has typically found that individualized questions of intent and market value predominate over claims based on generalized duties implied in oil and gas leases.  The Bowden case continues that trend, although it does explore the issues more closely and does indicate that, in the right circumstances, class treatment may be appropriate.

Click here for a copy of the opinion

By Jana Grauberger:

A recent Interior Board of Land Appeals (“IBLA”) ruling, ATP Oil & Gas Corp., 173 IBLA 250 (2008), affirms an MMS denial of a Suspension of Operations (“SOO”) where the lessee submitted an revised exploration plan (“EP”) and permit to drill (“APD”) just days before the lease’s 10-year primary term expired, but was unable to conduct lease activities before the expiration date. The lessee, ATP, acquired its interest in the lease located in the Mississippi Canyon Area, Offshore Louisiana a little more than two months before expiration of its primary term, which the IBLA described as a “risky venture.” Due to weather conditions and the limitations of ATP’s contracted drilling rig, ATP was unable to get a well drilled prior to the lease expiration date.

In denying ATP’s request for an SOO, the MMS relied upon its Notice to Lessees No. 2006-G02, which requires a lessee “to show that a drilling rig was scheduled to commence operations prior to lease expiration and to have an approved plan (in this case , the EP) and APD.” The MMS found that, even in the absence of weather conditions, ATP would have been unable to commence drilling operations prior to expiration of the lease because of its failure to meet the regulatory requirements of an approved EP and APD. The IBLA affirmed determining that ATP waited too long to submit its revised EP: “The rules required an approved revised EP before lease activities could occur, and anticipated 30 days, at a minimum, for MMS to approve an EP.” The IBLA further concluded that ATP’s APD, submitted on the same date as its request for an SOO, was not submitted so that drilling operations could begin before the lease expiration date, but rather for the purpose of obtaining an SOO. The IBLA also rejected ATP’s argument email communications between ATP and an MMS employee constituted approval or a de facto suspension stating that “[a] set of email communications cannot supplant the approved lease activity that MMS’ detailed regulations require.”

In a footnote, the IBLA clarified statements made in relation to 30 C.F.R. § 250.175(a) concerning the ability of lessees to perform little to no operations on an OCS lease for up to 180 days for any or no reason made in Kerr-McGee Oil & Gas Corp., 172 IBLA 195 (2007): The IBLA stated that it was not its intention in Kerr-McGee “to hold that a lessee that has never engaged in any lease activities is entitled to an additional 180 days after the primary lease term before it must seek an SOO or SOP.”