# Petition for Writ of Certiorari — Devon Energy Energy Corp. v. Salazar (No. 08-1404)

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386017_0518%3A1

## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 2009

## Text

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en Secession
d 625,
632 (9th Cir. 2004) (“{[N}Jo notice and comment
rulemaking is required to amend a_ previous
interpretive rule.”); Chief Probation Officers v.
Shalala, 118 F.3d 1327, 1337 (9th Cir. 1997) (White,

15

Retired Justice, sitting by designation) (“If an agency
maintains that a rule, not held out as having the
force of law, is mandated by statute, it will be
legislative ... only if it is inconsistent with an
existing regulation. In other words, the rule would
have to be inconsistent with another rule having the
force of law, not just any agency interpretation
regardless of whether it had been codified.”) (citation
omitted).

In addition to the attention it has received in the
courts of appeals, the Paralyzed Veterans principle
has garnered favorable mention from members of
this Court. Justice Stevens, in a dissent joined by
Justices Souter, Thomas, and Ginsburg, has
referenced “the APA’s’” requirement of new
rulemaking when an agency substantially modifies
its interpretation of a regulation.” Geter v. Am.
Honda Motor Co., 529 U.S. 861, 912 (2000) (Stevens,
J., dissenting) (citing Paralyzed Veterans). Justice
Alito, writing for the Third Circuit as a member of
that court, applied the Paralyzed Veterans principle
in vacating an agency’s rule. Caruso v. Blockbuster-
Sony Music Entm’t Ctr., 174 F.3d 166, 175—77 (3d
Cir. 1999) (citing Paraiyzed Veterans), vacated, 193
F.3d 730 (3d Cir. 1999). This important issue of
administrative law, which has divided the courts of
appeals, is now worthy of the full Court’s attention.

2. In applying its circuit-splitting Paralyzed
Veterans principle to the facts of Petitioner’s case,
the D.C. Circuit has created a further division among
those courts that recognize the principle. The
decision below squarely conflicts with Shell Offshore
Inc. v. Babbitt, 238 F.3d 622 (5th Cir. 2001), another

16

case involving MMS’s contradictory interpretations
of its royalty-calculation regulations. The result is a
three-way split between circuits that reject the
Paralyzed Veterans principle, circuits that apply the
principle narrowly, and circuits that apply it broadly.

The D.C. Circuit continues to employ the
Paralyzed Veterans. principle when _ agencies
reinterpret their own legislative rules without using
notice-and-comment procedures. See, e.g., MetWest
Inc. v. Sec’y of Labor, 560 F.3d 506, 509-11 (D.C. Cir.
2009); Envtl. Integrity Project v. EPA, 425 F.3d 992,
997-98 (D.C. Cir. 2005). But the D.C. Circuit has
now diverged from a sister circuit in its application of
the principle. The decision below held that MMS
was not required to use notice and comment to
promulgate its 2003 interpretation of the market
condition rule because the contrary interpretation
reflected in various guidance documents, as well as
the agency’s consistent practice over a seven-year
period, purportedly did not constitute a _ binding
agency interpretation.®

6 (See Pet. App. 17a 20a (citing Amoco Prod, Co. v. Watson, 410
F.3d 722, 725 (D.C. Cir. 2005) (Roberts, J.), and Indep.
Petroleum Ass'n v. Babbitt, 92 F.3d 1248, 1256—57 (D.C. Cir
1996), for the proposition that the MMS documents at issue in
this case did not bind the agency).) The delegations of
authority previously described, supra at 3-4, were not
discussed in Amoco or Independent Petroleum, presumably
because they were not raised by the parties in those cases.

Le

The Fifth Circuit reached the opposite conclusion
in Shell, on facts less favorable to the regulated
entity. Shell involved an MMS regulation providing
that an “approved” FERC tariff could be used as the
cost of transporting crude oil for purposes of
calculating royalty payments due the United States.
For five years, MMS had followed an unwritten but
consistent practice of treating tariffs filed with FERC
as having been approved by FERC, and thus
allowable for purposes of royalty calculations,
regardless whether FERC had affirmatively
approved the tariff. 238 F. 3d at 624-26. MMS then
purported to change its interpretation to require
affirmative FERC approval. /d. at 628—29.

Relying on Alaska Professional Hunters and
Paralyzed Veterans, the Fifth Circuit held that MMS
was obliged to use notice-and-comment procedures in
promulgating its amended interpretation. Id. at
629-30; see also Torch Operating Co. v. Babbitt, 172
F. Supp. 2d 113, 124-28 (D.D.C. 2001) (following
Shell in a factually similar case).

The conflict between the D.C. Circuit and the
Fifth Circuit is clear. The Fifth Circuit held that a
five-year period of MMS practice, unaccompanied by
any written guidance from the agency, was
sufficiently authoritative to warrant notice-and-
comment procedures under Paralyzed Veterans.
Shell, 238 F.3d at 628-29 (“([T]he new ‘rule’ that
Shell asserts violates the APA is not a change from a
written policy statement or regulation. Rather, it is
an alteration of an existing practice.”). The D.C.
Circuit, by contrast, held that a seven-year period of
MMS practice, even when combined with written

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pronouncements by agency officials, was _ not
authoritative and therefore did not demand notice-
and-comment procedures under Paralyzed Veterans.
(Pet. App. 17a—20a.).

One might expect the opposite result in this pair
of cases — if the facts of Shell support notice-and-
comment rulemaking, Petitioner’s facts should make
for an even stronger case under Alaska Professional
Hunters and Paralyzed Veterans. In addition to the
seven-year period of consistent agency practice,
Petitioner could also point to written agency
instructions couched in unmistakably mandatory
language. Cf. Gen. Elec. Co. v. EPA, 290 F.3d 377,
384 (D.C. Cir. 2002) (“To the applicant reading the
Guidance Document the message is clear: in
reviewing applications the Agency will not be open to
considering approaches other than those prescribed
in the Document.”); Appalachian Power Co. v. EPA,
208 F.3d 1015, 1023 (D.C. Cir. 2000) (“[T]he entire
Guidance, from beginning to end — except the last
paragraph — reads like a ukase. It commands, it
requires, it orders, it dictates.”); United States v.
Chrysler Corp., 158 F.3d 1350, 1356 (D.C. Cir. 1998)
(“[A]n agency is hard pressed to show fair notice
when the agency itself has taken action in the past
that conflicts with its current interpretation of a
regulation.”). It appears MMS’s procedural
obligations under the APA vary according to the
forum in which judicial review is sought.

Juxtaposition of Shell with the decision below
shows that the D.C. Circuit has aggravated the
Paralyzed Veterans controversy into a three-way
circuit split. In some circuits, Itke the First Circuit

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and the Ninth Circuit, an agency is always at liberty
to reinterpret its legislative rules without notice and
comment. In the D.C. Circuit, the agency’s
interpretive freedom depends on the authorship of its
written interpretations. Meanwhile, in the Fifth
Circuit, an agency is bound by the interpretations
reflected in its consistent practice, regardless
whether such interpretations have been reduced to
written form.

ne * *

As shown above, the courts of appeals are divided
on whether the Paralyzed Veterans principle is good
law and, if so, on how to employ it when an agency
takes more than one bite at the interpretational
apple. Such a division of authority leaves agencies
uncertain about the necessary level of procedural
formality, and deprives’ regulated parties of
information about applicable regulations that they
might otherwise use in structuring their affairs. The
conflicting decisions of the courts of appeals on this
important question of administrative law can only be
harmonized by a decision from this Court.

II. Retroactive Application Of The Agency’s
Changed Interpretation Of Its Regulation
Cannot Be Reconciled With This Court’s
Precedent.

The court of appeals upheld an MMS rule
“requiring Devon retroactively to recalculate royalties
owed to the Government.” (Pet. App. 2a (emphasis
added).) In so doing, the decision below ran afoul of
the strong anti-retroactivity principle reflected in the

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decisions of this Court. Review is warranted to
address this departure from precedent.

’

“Retroactivity is not favored in the law,” and so
in the absence of express statutory authorization, an
administrative agency lacks the power to engage in
retroactive rulemaking. Bowen v. Georgetown Univ.
Hosp., 488 U.S. 204, 208 (1988). The presumption
against retroactive legislation, by Congress and by
the agencies to which it delegates authority, has
constitutional underpinnings and a long pedigree.
See, e.g., Landgraf v. USI Film Prods., 511 U.S. 244,
266, 286 (1994) (describing expression of the
“presumption against statutory retroactivity” in the
Constitution’s Ex Post Facto, Contracts, Takings,
Attainder, and Due Process Clauses); Kaiser
Aluminum & Chem. Corp. v. Bonjorno, 494 U.S. 827,
855 (1990) (Scalia, J., concurring) (“The principle
that the legal effect of conduct should ordinarily be
assessed under the law that existed when the
conduct took place has timeless and_ universal
human appeal.”). The APA lends further support to
the presumption against retroactivity in the
administrative law context. See Bowen, 488 U.S. at
224 (Scalia, J., concurring).

In this case, MMS gave its regulations a new
interpretation in 2003 and compelled Petitioner to
recalculate previously incurred royalties, which had
already been calculated in accordance with the
agency's existing interpretation. (Pet. App. 10a; C.A.
App. 55.) At the time Petitioner incurred its royalty
obligations, MMS allowed lessees to deduct certain
compression and dehydration costs from the royalty
base for coalbed methane gas. MMS turned back the

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clock and demanded additional payment based on a
royalty base from which compression’ and
dehydration costs had not been deducted.

This case thus poses the question identified but
left unresolved in Smiley v. Citibank (S.D.), N.A.,
517 U.S. 735, 744 n.3 (1996). In Smiley, a case
involving deference to an agency’s interpretation of a
statute under Chevron U.S.A., Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837 (1984),
a party argued “that deferring to the regulation in
this case involving antecedent transactions would
make the regulation retroactive, in violation of
[Bowen}.” Smiley, 517 U.S. at 744 n.3.

This Court rejected the argument because there
had been no agency guidance as to the meaning of
the statute when the regulated conduct occurred. 7d.
(“Where ... a court is addressing transactions that
occurred at a time when there was no clear agency
guidance, it would be absurd to ignore the agency’s
current authoritative pronouncement of what the
statute means.”). The Court noted, however, that
Bowen’s presumption against retroactivity might
have been in play had the agency announced a
contrary interpretation contemporaneous with the
regulated conduct. Jd. (“There might be substance to
this point if the regulation replaced a prior agency
interpretation — which, as we have discussed, it did
not.”). See also Long Island Care at Home, Ltd. v.
Coke, 551 U.S. 158, 127 S. Ct. 2339, 2349 (2007)
(“[W]je concede that the Department may have
interpreted these regulations differently at different
times in their history. ... But as long as interpretive
changes create no unfair surprise — and the

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Department’s recourse to notice-and-comment
rulemaking in an attempt to codify its new
interpretation ... makes any such surprise unlikely
here — the change in interpretation alone presents
no separate ground for’ disregarding the
Department’s present interpretation.”) (citing Bowen,

488 U.S. at 212).

MM%S’s attempt to rewrite the rules after the
game has ended presents the scenario described in
Smiley. Although Petitioner complained _ of
retroactivity in the questions presented in its
appellate brief, the court of appeals did not address
the problem of administrative retroactivity, and the
decision below failed to account for Petitioner’s
justifiable reliance on the agency’s interpretation of
its own regulation. See Landgraf, 511 U.S. at 265
(“Elementary considerations of fairness dictate. that
individuals should have an opportunity to know
what the law is and to conform their conduct
accordingly; settled expectations should not be
lightly disrupted.”); cf. FCC v. Fox Television
Stations, Inc., No. 07-582, slip op. at 11-12 (U.S. Apr.
28, 2009) (noting that an agency must “provide a
more detailed justification ... when its prior policy
has engendered serious reliance interests that must
be taken into account’).

The decision below was thus at odds with this
Court’s retroactivity precedent, and review is
warranted for this reason. “The largest category of
cases in which we have applied the presumption
against statutory retroactivity has involved new
provisions affecting contractual or property rights,
matters in which predictability and stability are of

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prime importance.” Landgraf, 511 U.S. at 271. That
is precisely the case here.

CONCLUSION
The petition for a writ of certiorari should be
granted.
Respectfully submitted,
Of Counsel: STEVEN J. ROSENBAUM
MARK B. MCDANIEL Counsel of Record
ANDREA S. MILES E. EDWARD BRUCE
Devon Energy Corporation JAMES P. SULLIVAN
20 North Broadway COVINGTON & BURLING LLP

Oklahoma City, OK 73102 1201 Pennsylvania Ave., NW
Washington, DC 20004
(202) 662-5568

Counsel for Petitioner
May 2009

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386017_0518%3A1. Public record. Not legal advice.