[00:00:01] Speaker 00:
Case number 15 is 5202, Noble Energy Inc.

[00:00:05] Speaker 00:
Appellant versus Sally Jewell and her official capacity as Secretary of Interior at L. Mr. Rosenbaum for the appellant, Mr. McFadden for the appellate.

[00:00:34] Speaker 04:
May it please the court, we start this case with a given.

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As a matter of common law, the government's material breach discharged noble of its contractual obligation under section 22 of the lease to permanently plug the well.

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This court is so held.

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The question presented is, does that breach have the same impact with respect to the closely related regulatory plugging requirement?

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We believe there are key considerations that lead to the answer being yes and having a focused, proper, narrow effect.

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Number one, the relationship here is entirely a result of contract.

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The government went to the market and said, if you would like to enter into a lease with us, here are the terms.

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Absent that, NOVA would never have been on the premises, would never have brought a lease at all.

[00:01:31] Speaker 05:
But if you're right about that argument, we would not have remanded the case to the agency to interpret its regulation.

[00:01:38] Speaker 05:
I think that... Why would we have demanded?

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Because you still have to look at the regulations and ask the question, is there something in those regulations that is so inconsistent with the application of the discharge rule that the presumption

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that that rule applies should not apply to these circumstances.

[00:02:02] Speaker 05:
That's not what our first opinion said.

[00:02:03] Speaker 05:
Our opinion simply said we can't tell what the agency's view about this is, and so we're demanding it to interpret its regulation.

[00:02:12] Speaker 05:
And don't we just review that under our standard APA rule that, you know, we defer to an agency's interpretation of a regulation if it's reasonable?

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I don't think you do, but I don't think it's reasonable either.

[00:02:26] Speaker 04:
Let me make those two points separately.

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On the first issue of deference, the Supreme Court has said that the notion that a court should

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assume an intention that there be deference to an agency is a general presumption about congressional intent.

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That's what the Supreme Court said in the Martin case at 499 U.S.

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151.

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But here we have other presumptions.

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I mean, it's a presumption, but we have other presumptions here.

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Here we have a presumption that says that the common law principles here, the principle of discharge, is to be read into the regulation unless it is evident

[00:03:02] Speaker 05:
I'm just asking you, we have a case here where a previous panel remanded to the agency to do X, right?

[00:03:12] Speaker 04:
Yes.

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Okay.

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X seems to me to just interpret its regulation.

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Where in our earlier opinion did we tell it that it had a higher burden?

[00:03:23] Speaker 04:
I think you remanded because.

[00:03:25] Speaker 05:
Well, where did we say that?

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You said that the order did not even attempt to identify what it was in its regulations that it thought meant that the plugging requirement survived.

[00:03:39] Speaker 05:
But where in the order did we say, by the way, not only do you have to interpret it, but you have to show where you have to say that the regulation expressly

[00:03:49] Speaker 04:
It's not, it's not expressly.

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It's not in there, is it?

[00:03:53] Speaker 04:
Well, no, because that's not the test.

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The test is that it has to be, it has to directly, it has to

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speak directly to the question presented by the common law.

[00:04:06] Speaker 05:
When did we say that in our first interview?

[00:04:08] Speaker 04:
Well, I think it was because the court said that there was no indication that the considerations required by the Texas rule had been applied.

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That is the requirement of the Texas rule.

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There's nothing in the decision that indicates that the standard isn't precisely that which Texas articulates.

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But didn't we already know when we remanded what the regulation said?

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In other words, if we thought that there was a Texas rule to the effect that it could only be done if it was express, then we already knew what the regulations said, so there would have been no point to remand it.

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But I'm not suggesting the Texas rule is so strict that says it has to be express.

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What the Texas rule says, it has to

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that regulation has to speak directly to the question presented by the common law.

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But the earlier panel could have looked at the regulation and saw that it didn't speak directly to it.

[00:05:05] Speaker 05:
So what was the purpose of the remand?

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Because the agency was entitled, the panel could have done that, but the panel thought that the agency was entitled to identify the specific regulations

[00:05:15] Speaker 05:
Well, it's done that now.

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It says its own regulations clearly that regulatory obligations extend beyond the lease.

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It cites two provisions of the regulation for that.

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And it cites its own policy.

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And let me turn to those three particular items, Your Honor, if I could.

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Because there is also, of course, the issue of whether their interpretation is reasonable, even if it were to be given deference.

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I've expressed why I think that's not the case.

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But number one, they pointed the fact that the plug-in obligation survives the termination of the lease.

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From our perspective, that says nothing.

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Under the contract itself,

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The plugging requirement of Section 22 survives the termination of the lease.

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Both of them say you have to plug in a ban, plug within one year after termination of the lease.

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So to say the regulation says that is to say nothing beyond what the contract says itself.

[00:06:14] Speaker 01:
And let me make a little... Let me ask you this question.

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Has the lease been terminated or was the lease breached?

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Are those two things the same?

[00:06:22] Speaker 04:
No, they're not the same.

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Our view is the lease was materially breached.

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not terminated in the sense that the regulation has in mind.

[00:06:30] Speaker 01:
So why isn't that your argument?

[00:06:31] Speaker 04:
Well, that is ultimately our argument in the sense that, well, I mean, the point you're making is an important one which is

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The issue presented here is, do the regulations speak to what happens when the government materially breaches, not to what happens when a lease terminates?

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We are seeking application of the discharge rule, and the government's argument seems to be that, well, if anything about plugging survives termination, that somehow means the discharge rule doesn't apply.

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Those are different concepts.

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And especially here, because

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You never plug a well until you've stopped producing oil from it.

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By definition, if you plug the well, there's no oil coming up.

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Once you stop producing oil, the lease terminates.

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That's what section three says of the lease.

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The term of the lease is over once you stop producing.

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So you'll never be plugging wells, except after termination.

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So to point to a provision in the regulation that calls for plugging wells after termination, A, is stating an obvious fact, and B, says nothing we believe to whether the obligation survives a material breach.

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Second, the government points to the fact that the regulations make the original SE responsible for plugging, as well as the holder of operating rights.

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That is the common law.

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There is nothing in that that indicates an intention to do anything beyond the common law.

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That obligation would exist regardless of the regulations.

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We have in our brief cited copious decisions under the law of assignment that says an assignment does not absolve the assinor of his obligations.

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And that's what this regulations say.

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The regulation also refers to operate a holder of operating rights.

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But if one looks at the definition of operating rights, and this is 30 CFR 550.105 operating rights means any interest held in the lease.

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A lessee the term lessee is defined to include a holder of operating rights.

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There is nothing in that regulatory requirement that expands beyond the common law.

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So if there is nothing that expands beyond the common law, how can it be that the government has met its obligation to overcome the presumption that the common law should be read into the requirements of the regulation?

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Third, the government points out the fact that plugging in is environmentally important.

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To us, this is a strong man.

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We are not disputing the environmental importance of plugging.

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The question here, but by the same token, we are not seeking an injunction against somebody going out and plugging the well.

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The question here is, who has the responsibility to take on that obligation or that function once the government clearly breaches?

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We don't own drilling rigs.

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The government doesn't own drilling rigs.

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Whoever does it is going to hire a company with drilling rig is going to go out there and do it.

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And the government does this all the time, as we pointed out in their brief.

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They've done it hundreds of times because they own lands in some places in the western United States.

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We don't see the environmental importance as resolving the question.

[00:09:40] Speaker 03:
Can I just ask you a conceptual question?

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So I take it that if the regulation specifically said, even in the event of a material breach by the government, your client would or companies in that position would have the obligation to permanently plug.

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there would be no argument here, right?

[00:10:00] Speaker 03:
So all we're talking about, so there's no argument that the way the government construes the regulation is in tension with the statute.

[00:10:08] Speaker 03:
All we're talking about is whether the way the government construes its regulation is a reasonable interpretation of the regulation.

[00:10:15] Speaker 04:
Well, a reasonable interpretation, well, it has to be a reasonable interpretation against the standard established by Texas, which is a very high standard.

[00:10:23] Speaker 04:
That's to say, you have to show that it directly speaks to the question and that it overcomes the presumption that the regulation is read into, excuse me, that the criminal principle is read into it.

[00:10:34] Speaker 03:
I don't know if we need to get into this, but it's sort of interesting to me the way Texas interrelates with regulations, because what Texas tells us is,

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When we're trying to construe a statute, we're trying to figure out what Congress intended when it enacted the statute.

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And one interpretive canon that we build into it is that we don't ordinarily assume that Congress means to breach the common law.

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But when we're trying to construe a regulation,

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It's different because the agency could tell us what the regulations means.

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You can't write a letter to Congress and ask Congress what it meant in a statute.

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Courts don't orderly do that.

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But with a regulation, we're just trying to figure out what the regulation means.

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And that was the purpose of the remand.

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We sent it back precisely so that the agency could tell us what the regulation means.

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And then we're trying to figure out whether what they tell us about what they think the regulation means is reasonable.

[00:11:19] Speaker 04:
Well, but once again, the reasonableness has to be in the context of have they overcome the presumption that the discharge rule, have they pointed to regulations.

[00:11:28] Speaker 05:
But is there a discharge, is there a common law rule that a material breach of a contract discharges regulatory responsibilities?

[00:11:36] Speaker 05:
Is that what?

[00:11:38] Speaker 04:
No, but none of the, I mean, this is of course.

[00:11:42] Speaker 04:
So what's the common law rule here?

[00:11:43] Speaker 04:
Judge Williams did address that issue explicitly, where he said that insofar as the government's argument as the common law principle have an effect on regulation, it offers no distinction.

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In both cases, and he was talking about AMRO and AMACO specifically, there was no claim the common law principle directly applied to regulatory obligations.

[00:12:04] Speaker ?:
Right.

[00:12:04] Speaker 04:
What the argument was that the regulations should be read in light of the common law principles.

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And that is how the Texas rule operates.

[00:12:12] Speaker 05:
But what's the common law principle at work here?

[00:12:15] Speaker 04:
At work here is that when there are bilateral obligations established between two parties and one party fails to comply, fails to carry out its obligations, the other party is discharged of its obligations.

[00:12:25] Speaker 05:
Right, under the contract.

[00:12:27] Speaker 04:
Well, under the contract.

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But every case in which a common law principle has been applied, and I think we identified 13 different cases of different common law principles that have been incorporated under Texas in the statutory or regulatory requirement.

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In every case, those common law principles were developed in the context of non-regulatory, non-statutory relationships.

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And yet, the courts have found those to be incorporated.

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If I could make one, two additional points.

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The statute here, the Adler-Kinonell-Self Lands Act, is entirely geared, entirely, not partly, entirely geared toward leasing.

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That leasing meaning contracts.

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1337A1 authorizes the secretaries to grant oil and gas leases.

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And the regulations, which we're talking about here, are promulgated pursuant to 1334A,

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which says that the Secretary may issue regulations which shall apply to all operations conducted under a lease.

[00:13:30] Speaker 04:
So, Your Honor, I hope that's responsive to your point in the sense that we're not – if there were ever – this is the clearest case in the sense that we're not talking about some sort of general regulatory requirement.

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We're talking about a regulatory requirement that applies specifically

[00:13:50] Speaker 05:
If you were right about that, why did we remand to the East?

[00:13:56] Speaker 04:
I think you remain into the agency because you wanted them to step forth, not through their lawyers arguments, but set through it through a decision.

[00:14:04] Speaker 04:
What provisions of the regulations it thought were so inconsistent with his charge?

[00:14:08] Speaker 04:
Well, the discharge rules should not apply.

[00:14:10] Speaker 01:
Didn't, um, majority opinion in the first opinion say that it wasn't going to give difference our difference to arguments made in the briefs.

[00:14:23] Speaker 04:
Well, they did.

[00:14:25] Speaker 01:
So that was the reason why to send it back because they weren't going to accept the post hoc arguments, so to speak, of the agency in its briefs.

[00:14:37] Speaker 04:
Yes, that's correct.

[00:14:39] Speaker 04:
But we have two separate views.

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arguments why we think we win.

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One is, we think their explanations are not reasonable.

[00:14:46] Speaker 04:
For the reasons I've given, you cannot point to any of these three provisions and say, oh, yes, that must mean that the obligation continues not within the material breach.

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We also have the view that that in a case of this nature where

[00:14:59] Speaker 04:
where deference to an agency has been described by the Supreme Court as a presumption of congressional intent, and we're here under the Texas rule, you have conflicting presumptions, then we think there is far less of any deference to you.

[00:15:15] Speaker 05:
Thank you.

[00:15:16] Speaker 05:
Okay, thanks.

[00:15:23] Speaker 02:
Good morning, Your Honors, and may it please the Court, Lane McFadden for the Federal Appellees.

[00:15:28] Speaker 02:
This Court's remand opinion in Noble 2 was quite clear and quite straightforward.

[00:15:32] Speaker 02:
It said at page 1245 that nothing in the agency's other regulations has clearly addressed this question and asked the agency to address it in the first instance, as is the agency's right when interpreting its own regulations.

[00:15:46] Speaker 02:
You now have a decision from the Bureau of Safety and Environmental Enforcement, it's a JA-155, and that explains the agency's reasoning, which is twofold.

[00:15:55] Speaker 02:
One, it reviewed the regulations in their entirety and found that the entire regulatory scheme is premised on the idea that the regulatory obligations accrued by LSE are independent of their status as a current LSE.

[00:16:09] Speaker 01:
I don't understand that argument because the regulations are promulgated pursuant to 1344.

[00:16:19] Speaker 01:
That's what Part 250 says is the authority.

[00:16:25] Speaker 01:
1344 applies to administration of leases.

[00:16:31] Speaker 01:
Well, none of these none of these provisions apply to anything unless somebody's got a lease, right?

[00:16:40] Speaker 02:
Right.

[00:16:40] Speaker 02:
The Yes, your honor.

[00:16:42] Speaker 02:
The obligations are accrued once someone takes a lease.

[00:16:46] Speaker 01:
So how can you say that the obligations are independent of of the lease or of the contract?

[00:16:54] Speaker 02:
Because in numerous places, the decommissioning obligations, which are exercised not just of 1334, but also section 1348 of the Outer Continental Shelf Lands Act, which governs conservation of the oceans.

[00:17:08] Speaker 01:
Regulations don't cite 1348, they cite 1344.

[00:17:11] Speaker 02:
Okay, well then, we'll stick to 1344.

[00:17:15] Speaker 01:
Are you disputing that?

[00:17:18] Speaker 02:
No, Your Honor, I'm not.

[00:17:22] Speaker 02:
those regulations are constructed in such a way that the regulatory obligations for decommissioning, which we're talking about specifically, accrue at the outset of taking a lease or drilling a well or the conduct of other activities by lessees.

[00:17:36] Speaker 02:
And then 30 CFR 250.1701 says, does obligations continue until they are met?

[00:17:45] Speaker 02:
And as

[00:17:46] Speaker 02:
counsel for noble pointed out in the normal course of events, you don't still have a lease when you're permanently decommissioning a well and There are a number of other parties who are former lessees or other holders of rights But they don't have a lease in their hand, but that still have some regulatory duty to decommission a well There are a number of circumstances in which that is the case and there are no contrary circumstances There's no part of the regulation that says

[00:18:11] Speaker 02:
These obligations are met once you are no longer the leaseholder.

[00:18:15] Speaker 01:
Is a breach of the contract same as termination of a contract?

[00:18:19] Speaker 02:
No, they are different.

[00:18:21] Speaker 02:
But they are different for purposes of contractual regulations.

[00:18:24] Speaker 01:
But your regulation says decommissioning obligations are pursuant to the termination of a contract.

[00:18:29] Speaker 01:
That's what the regulation says.

[00:18:30] Speaker 02:
There's a regulation that says that they continue after termination.

[00:18:34] Speaker 02:
There's a regulation that says they continue after assignment.

[00:18:36] Speaker 02:
There is no regulation, unfortunately, that addresses material breach.

[00:18:39] Speaker 01:
Then that seems to answer the question in the negative with respect to what we have to find under USV taxes, doesn't it?

[00:18:48] Speaker 02:
No, Your Honor, because the common law principle that is being urged by Noble here is exclusive to performance of duties under an exchange of promises.

[00:18:57] Speaker 02:
It is strictly a contract theory.

[00:18:59] Speaker 02:
It's stated in the Second Restatement of Contracts in Section 237.

[00:19:03] Speaker 02:
And it is quite exclusive to those exchange for promises.

[00:19:07] Speaker 02:
And so we have, consistent with that principle, absolved them of their contractual duties, which are not just Section 222's obligation to decommission, but also annual rent payments, the obligation to produce oil or discover it at a certain frequency.

[00:19:22] Speaker 02:
Those are all no longer their obligations.

[00:19:24] Speaker 02:
And we have paid them restitution as a result of the breach.

[00:19:27] Speaker 02:
So the common law principle of contractual discharge of the duty to render performances

[00:19:32] Speaker 02:
as it is more accurately described, because that is the principle, has been fulfilled.

[00:19:37] Speaker 02:
But the government is not exclusively a private actor in the market.

[00:19:41] Speaker 02:
And while courts have held that its contractual relationships with lessors should be construed consistent with the common law governing contracts, and no one disputes that,

[00:19:50] Speaker 02:
The government is also, at the same time, sovereign, with authority over activities conducted on the Outer Continental Shelf.

[00:19:57] Speaker 01:
Okay, but you are relying upon 30 CFR 250 1710, right?

[00:20:04] Speaker 02:
Yes, in part, yes.

[00:20:06] Speaker 02:
That's the you must decommission within one year of termination.

[00:20:11] Speaker 01:
It says you must permanently plug all wells in the lease within one year after the lease terminates.

[00:20:17] Speaker 01:
Correct.

[00:20:18] Speaker 01:
When did this lease terminate?

[00:20:19] Speaker 02:
This lease wasn't terminated.

[00:20:21] Speaker 01:
And how does this regulation have anything to do with the obligation you're seeking to impose on it?

[00:20:29] Speaker 02:
It was cited by the Bureau of Safety and Environmental Enforcement in its description of the regulatory scheme.

[00:20:34] Speaker 02:
The appropriate regulation, and I don't have the number afforded me, is a later regulation in that subchapter that allows the Department of the Interior to direct a party to permanently decommission a well.

[00:20:47] Speaker 02:
And that is the authority under which the order was issued.

[00:20:55] Speaker 05:
What's your answer to

[00:21:00] Speaker 05:
to Nobles, Texas, that, as I understand their argument, that this was a remand not under the normal standards for reviewing agency interpretations of their own regulations, but that Texas put an increased burden on the agency to explain where its regulation directly aggregated.

[00:21:30] Speaker 02:
I don't think this court's opinion reflects that.

[00:21:35] Speaker 02:
This court used very basic APA principles in its remand, stating that in the general sense, an agency is entitled to interpret regulations in the first instance.

[00:21:45] Speaker 02:
and that while this court might normally owe some deference to that regulation's interpretation, you did not at the time have any interpretation before you.

[00:21:52] Speaker 02:
The regulations were silent as to this particular factual circumstance, and the agency's order letter that you were reviewing at the time was issued by the prior agency, the Minerals Management Service, didn't specifically address any interpretation of the regulations.

[00:22:05] Speaker 05:
And this court, under basic APA principles... Well, the Texas is a Supreme Court decision.

[00:22:10] Speaker 05:
I mean, it applies in any event.

[00:22:15] Speaker 05:
What do you think?

[00:22:18] Speaker 05:
Did the agency, I guess my question is this, in the agency's interpretation, is it your position that there is no common law rule here that relieves a party of regulatory obligations and therefore, Texas just doesn't apply?

[00:22:33] Speaker 02:
That is the position, Your Honor.

[00:22:35] Speaker 02:
There's no applicable common law principle.

[00:22:38] Speaker 02:
And so there was nothing that the regulations needed to expressly address.

[00:22:43] Speaker 02:
The admonition in Texas that Congress has to explicitly abrogate a common law principle, and it can't do so by implication, doesn't apply when there's no common law principle that governs this particular set of factual circumstances.

[00:22:54] Speaker 01:
Then why did we remand?

[00:22:56] Speaker 01:
I mean, that seems to like completely ignore the first holding of this court.

[00:23:01] Speaker 02:
Well, no, Your Honor, I mean, this Court said we have before us a situation that is unlike those explicitly addressed.

[00:23:07] Speaker 02:
Termination, as you pointed out, and assignation are addressed, but a breach of contract that results in the contract no longer being valid is not explicitly addressed, and we would like the agency to explain what its regulations describe as the outcome.

[00:23:22] Speaker 03:
I thought the basis for the revamp was that if

[00:23:24] Speaker 03:
If the Texas rule governs contract and the regulation does nothing more than the contract, then the Texas rule governs the regulation too, right?

[00:23:32] Speaker 03:
So the question is, does the regulation do anything more than the contract?

[00:23:35] Speaker 03:
If it does do more than the contract, then Texas is not binding on the regulation.

[00:23:40] Speaker 03:
But if it does the same thing as the contract, we already know what Texas does to the contract, ergo it must do the same thing to the regulation.

[00:23:46] Speaker 02:
That's correct.

[00:23:47] Speaker 02:
There was that question asked of the agency to determine whether its regulations were independent of the contract, to use this court's language, and the agency concluded that indeed they were for the reasons given.

[00:23:58] Speaker 02:
And I do want to point out that the description of the regulatory scheme, which over

[00:24:04] Speaker 02:
sort of overlays the contract.

[00:24:05] Speaker 02:
There has been the suggestion that the first there is the contract and the regulations are a supplement, but that is the reverse of how it works.

[00:24:12] Speaker 02:
You have regulatory duties, like for example, to provide a bond before you can even enter into a contract.

[00:24:17] Speaker 03:
So you still have to identify the regulation if we accept that.

[00:24:21] Speaker 03:
And in the colloquy with Judge Wilkins earlier, he asked the question about which particular regulation, and in addition to the one that deals with one year post

[00:24:31] Speaker 03:
And what is the regulation?

[00:24:33] Speaker 02:
It's 250.1711, Your Honor.

[00:24:35] Speaker 02:
It's what?

[00:24:36] Speaker 02:
30 CFR 250.1711.

[00:24:39] Speaker 02:
Allows the Bureau of Safety and Environment Enforcement now to order a well being permanently plugged if it poses a hazard to safety in the environment or is not useful for leave operations or is not capable of production in paying quantities.

[00:24:51] Speaker 02:
Is that one cited in the order?

[00:24:53] Speaker 02:
It is, Your Honor.

[00:24:53] Speaker 02:
It's JA 158 in the middle of the page.

[00:24:57] Speaker 01:
It's not cited in your brief.

[00:24:59] Speaker 02:
Well, there was never any question raised by Noble as to the authority of the agency either to promulgate these regulations or to impose them.

[00:25:09] Speaker 02:
The question presented in the appellant's brief was merely whether they are excused from that duty because of a contractual discharge theory.

[00:25:19] Speaker 02:
No one has ever suggested that the agency has improperly exercised its regulatory authority here.

[00:25:24] Speaker 02:
And the regulatory authority is plainly cited in the agency's order to Noble Energy.

[00:25:30] Speaker 05:
anything else.

[00:25:33] Speaker 05:
Okay thank you.

[00:25:34] Speaker 05:
Thank you your honor.

[00:25:35] Speaker 05:
Did Mr. Roosevelt have any time left?

[00:25:38] Speaker 05:
No he did not.

[00:25:38] Speaker 05:
You can take one minute if you'd like it.

[00:25:51] Speaker 04:
The mere fact that the duty to plug and abandon our plug survives termination is no different than, for example, a non-compete clause in a contract, which typically will survive the termination of the underlying agreement.

[00:26:04] Speaker 04:
It says nothing about what the effect is of a material breach by the other party.

[00:26:09] Speaker 04:
We do believe that the court in this court previously specifically said that one of the reasons for the remand was there was no word in MMS's letter indicating that it considered the common law doctrine of discharge.

[00:26:23] Speaker 04:
That seems to us, following discussion of the Texas doctrine, to indicate an acceptance that the Texas doctrine does apply.

[00:26:30] Speaker 04:
And the question is whether or not the government could come up with an explanation why the requirements it imposed were inconsistent with discharge.

[00:26:38] Speaker 04:
The obligation is no clearer in the regulation than it is in the contract, and yet everyone concedes the contractual obligation has been initiated.

[00:26:49] Speaker 04:
Under those conditions, there is simply nothing in the regulations that indicates that discharges ought to apply.

[00:26:55] Speaker 05:
Okay.

[00:26:56] Speaker 05:
Thank you.

[00:26:57] Speaker 05:
Case is submitted.

[00:26:58] Speaker 05:
Thank you both.