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Cloud Peak Energy Inc. v. United States Department of Interior

United States District Court, District of Wyoming

October 8, 2019

CLOUD PEAK ENERGY INC.; NATIONAL MINING ASSOCIATION; and WYOMING MINING ASSOCIATION, Petitioners,
v.
UNITED STATES DEPARTMENT OF THE INTERIOR; et al., Respondents. AMERICAN PETROLEUM INSTITUTE; Petitioner,
v.
UNITED STATES DEPARTMENT OF LHE INTERIOR; et al., Respondents. TRI-STATE GENERATION AND TRANSMISSION ASS'N, INC.; BASIN ELECTRIC POWER COOPERATIVE; and WESTERN FUELS-WYOMING, INC., Petitioners,
v.
DAVID BERNHARDT, in his official capacity as Secretary of the U.S. Department of Interior; et al. Respondents.

          ORDER GRANTING PARTIAL PRELIMINARY INJUNCTION

          Scott W. Skavdahl United States District Judge.

         These joined cases come before the Court on Petitioners' Joint Motion for Preliminary Injunction (Doc. 22[1]) and supporting memorandum (Doc. 23). Independent Petroleum Association of America filed an amicus curiae brief in support of the request for preliminary injunction (Doc. 47). Respondents filed an opposition to the motion (Doc. 58). The States of California and New Mexico, Intervenor-Respondents here, filed a joint opposition to preliminary injunction (Doc. 56). Intervenor-Respondents Natural Resources Defense Council, Northern Plains Resource Council, Powder River Basin Resource Council, The Wilderness Society, and Western Organization of Resource Councils (collectively, "Conservation Groups") also filed a joint opposition to a preliminary injunction (Doc. 57). Finally, Petitioner Tri-State Generation and Transmission Association, Inc. provided a notice of supplemental evidence (Doc. 59). The Court held an evidentiary hearing on the matter on September 4, 2019. (Doc. 62.) Having considered the evidence and written testimony presented, the arguments of counsel, and the record herein, the Court finds and concludes Petitioners' request for a preliminary injunction should be granted in part and denied in part.

         BACKGROUND

         Oil, gas, and coal producers often enter into leases with the federal government or Indian tribes to produce natural resources from federal lands, offshore areas, and Indian lands. The law generally requires lessees to value the fossil fuels they produce and pay royalties to the federal government on that production by the end of the calendar month following the production month. Respondent Office of Natural Resources Revenue ("ONRR") is a unit of the U.S. Department of Interior, which is statutorily tasked with collecting, verifying, and then disbursing the revenues associated with the production of natural resources on federal and Indian lands and the Outer Continental Shelf.

         In May 2011, ONRR published two advance notices of proposed rulemaking. The first sought public comments and suggestions concerning potential changes to how federal oil and gas were valued for royalty purposes. Federal Oil and Gas Valuation, 76 Fed. Reg. 30878 (May 27, 2011). The second requested public comments and suggestions regarding potential changes to how federal and Indian coal was valued. Federal and Indian Coal Valuation, 76 Fed. Reg. 30881 (May 27, 2011).

         Following the comment periods as well as six public workshops, ONRR published a proposed rule in January 2015 ("the Proposed Rule"), which sought to change how federal oil, gas, and coal as well as Indian coal would be valued when calculating royalties. Consolidated Federal OH & Gas and Federal & Indian Coal Valuation Reform, 80 Fed. Reg. 608 (Jan. 6, 2015). In July 2016, following an extended public comment period, ONRR then published the final rule ("the Valuation Rule"), which enacted most of the amendments first set forth by ONRR in its proposed rule. Consolidated Federal Oil & Gas and Federal & Indian Coal Valuation Reform Rule, 81 Fed. Reg. 43338 (July 1, 2016) (to be codified at 30 C.F.R, Parts 1202, 1206[2]). The Valuation Rule effectively changes how lessees calculate the value of the natural resources in order to pay royalties on oil, gas, and coal produced from federal lands and offshore leases as well as coal produced from Indian lands.

         On December 29, 2016, Petitioners originally filed challenges to the Valuation Rule in this Court.[3] However, those Petitions were voluntarily dismissed in November 2017 due to the "repeal" of the July 1, 2016 Valuation Rule. (16-CV-319, Doc. 23).

         In early 2017, ONRR postponed the Valuation Rule's effective date and then undertook the rulemaking process to pass another rule ("the Repeal Rule") that repealed the Valuation Rule, leaving the former valuation methods unchanged. Repeal of Consolidated Federal Oil & Gas and Federal & Indian Coal Valuation Reform, 82 Fed. Reg. 36934 (Aug. 7, 2017). However, in October 2017, the States of California and New Mexico, joined by the Conservation Groups as intervenor-plaintiffs, filed suit in the Northern District of California to challenge the Repeal Rule under the APA. State of Cal v. USDOI, No. C 17-5948 SBA (N.D. Cal. Oct. 17, 2017). On March 29, 2019, the Northern District of California granted summary judgment in the plaintiffs' favor, vacating the Repeal Rule after finding ONRR violated the APA when adopting it. Id. at Doc. 72. This effectively reinstated the now-not-repealed Valuation Rule. On June 13, 2019, ONRR issued a "Dear Reporter" letter that announced the Valuation Rule applies to "all federal oil and gas lessees and all federal and Indian coal lessees" from January 1, 2017 forward, and requires full compliance to occur by January 1, 2020. (Doc. 23-3 at p. 1.) "This means that lessees must come into compliance [with the new royalty calculation methods] retrospectively for the last two and a half years and prospectively by January 1, 2020." (Doc. 23 at p. II.[4])

         The several petitioners before this Court find the Valuation Rule problematic and burdensome. They seek to set it aside under the Administrative Procedures Act ("APA"), 5 U.S.C. § 706, arguing it is arbitrary and capricious and exceeds ONRR's authority. Immediately before the Court is Petitioners' request for a preliminary injunction, which would prevent them from having to comply with the Valuation Rule during the pendency of this litigation, thus relieving Petitioners from the "substantial and unnecessary burden" of calculating the royalties owed to the federal government for the development of federal resources under the new valuation methods.

         PRELIMINARY INJUNCTION STANDARD

         Preliminary injunctions in this judicial review of administrative action are permitted under the APA, 5 U.S.C. § 705, as well as Federal Rule of Civil Procedure 65(a).

A preliminary injunction has the limited purpose of preserving the relative positions of the parties until a trial on the merits can be held. It is an extraordinary remedy never awarded as of right. A party may be granted a preliminary injunction only when monetary or other traditional legal remedies are inadequate, and the right to relief is clear and unequivocal.
Under Rule 65 of the Federal Rules of Civil Procedure, a party seeking a preliminary injunction must show: (1) the movant is substantially likely to succeed on the merits; (2) the movant will suffer irreparable injury if the injunction is denied; (3) the movant's threatened injury outweighs the injury the opposing party will suffer under the injunction; and (4) the injunction would not be adverse to the public interest.

DTC Energy Grp., Inc. v. Hirschfeld, 912 F.3d 1263, 1269-70 (10th Cir. 2018) (internal citations and quotation marks omitted).

         DISCUSSION

         "'[B]ecause a showing of probable irreparable harm is the single most important prerequisite for the issuance of a preliminary injunction, the moving party must first demonstrate that such injury is likely before the other requirements' will be considered." Id. at 1270 (quoting First W. Capital Mgmt. Co. v. Malamed, 874 F.3d 1136, 1141 (10th Cir. 2017)).

         1. Petitioners have shown likely irreparable harm,

         "Our frequently reiterated standard requires plaintiffs seeking preliminary relief to demonstrate that irreparable injury is likely in the absence of an injunction." Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 22 (2008) (emphasis in original). "It is also well settled that simple economic loss usually does not, in and of itself, constitute irreparable harm; such losses are compensable by money damages." Schrier v. Univ. of Colo., 427 F.3d 1253, 1267 (10th Cir. 2005) (quoting Heideman v. S. Salt Lake City, 348 F.3d 1182, 1189 (10th Cir. 2003)).

         Petitioners first contend they face inevitable, irreparable harm because they "must expend significant sums to attempt full compliance with the [Valuation] Rule by ONRR's prescribed January 1, 2020 date," including the purchase of new or reprogrammed software and the need to hire and/or train personnel to recalculate royalties and re-submit reports from prior years. (Doc. 23 at p. 17.) The parties disagree drastically concerning the extent of the costs of compliance. Gregory Gould, the Director of ONRR, testified via declaration that "ONRR estimates the annual cost of rereporting across reporters will be $401, 000." (Doc. 58-1 at p. 9.) In stark contrast, Dan Naatz, a Senior Vice President of the Independent Petroleum Association of America ("IPAA," an amicus in this litigation) testified via declaration that the IPAA estimates each of its member-companies faces compliance costs of $100, 000 to $330, 000 for "lost employee time or direct expense for outside consultants to perform the retrospective reversing and rebooking," with all IPAA members incurring a collective compliance cost of at least $100 million. (Doc. 47-2 at p. 6.)

         While each side in this case has tried to paint the issue as black or white, courts are split on the question of whether compliance costs alone can constitute irreparable harm. Some federal circuit courts have said that economic outlays cannot amount to irreparable harm:

• Third Circuit: "Any time a corporation complies with a government regulation that requires corporation action, it spends money and loses profits; yet it could hardly be contended that proof of such an injury, alone, would satisfy the requisite for a preliminary injunction."
-A. O. Smith Corp. v. F. T. C, 530 F.2d 515, 527 (3d Cir. 1976).
• Seventh Circuit: "In addition, injury resulting from attempted compliance with government regulation ordinarily is not irreparable harm."
-Am. Hosp. Ass'n v. Harris, 625 F.2d 1328, 1331 (7th Cir. 1980) (citing A O. Smith Corp., 530 F.3d at 527).
• Second Circuit: "However, ordinary compliance costs are typically insufficient to constitute irreparable harm."
-Freedom Holdings, Inc. v. Spitzer, 408 F.3d 112, 115 (2d Cir. 2005) (finding the loss of interest on escrowed funds did not amount to irreparable harm) (citing Am. Hosp. Ass'n, 625 F.2d at 1321, and A O. Smith Corp., 530 F.2d at 527-28).

         Other circuits have taken a more relaxed approach when the movants are barred from the possibility of recovering their monetary costs down the road:

• Eighth Circuit: "The threat of unrecoverable economic loss, however, does qualify as irreparable harm."
-Iowa Utilities Bd. v. F.C.C., 109 F.3d 418, 426 (8th Cir. 1996).
• Eleventh Circuit: "In the context of preliminary injunctions, numerous courts have held that the inability to recover monetary damages because of sovereign immunity renders the harm suffered irreparable."
-Odebrecht Constr., Inc. v. Sec'y, Fla. Dep't of Transp., 715 F.3d 1268, 1289 (11th Cir. 2013) (collecting cases).
• Fifth Circuit: "The tremendous costs of the emissions controls impose a substantial financial injury on the petitioner power companies which, in this circuit, 'may also be sufficient to show irreparable injury.' Enter. Int'l lnc. v. Corp. EstatalPetrolera Ecuatoriana, 762 F.2d 464, 472-73 (5th Cir. 1985). Indeed 'complying with a regulation later held invalid almost always produces the irreparable harm of nonrecoverable compliance costs.' Thunder Basin Coal Co. v. Reich, 510 U.S. 200, 220-21, 114 S.Ct. 771, 127 L.Ed.2d 29 (1994) (Scalia, J., concurring in part and in the judgment). When determining whether injury is irreparable, 'it is not so much the magnitude but the irreparability that counts....' Enter. Int'l, 762 F.2d at 472. No mechanism here exists for the power companies to recover the compliance costs they will incur if the Final Rule is invalidated on the merits."
-Texas v. United States Envtl. Prot. Agency, 829 F.3d 405, 433-34 (5th Cir. 2016) (emphasis added).
• Ninth Circuit: "Economic harm is not normally considered irreparable. However, such harm is irreparable here because the states will not be able to recover monetary damages connected to the IFRs [interim final rules]."
-California v. Azar, 911 F.3d 558, 581 (9th Cir. 2018), cert, denied sub nom. Little Sisters of the Poor Jeanne Jugan Residence v. California,139 ...

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