On April 28, litigators Jamie Auslander, Peter Schaumberg, and Matt Schneider in Beveridge & Diamond’s Washington, DC, office secured a $1.3 million victory against the United States in the U.S. Court of Federal Claims for payment of interest on royalty overpayments on federal oil and gas lease production. BP America Production Co. v. U.S., No 18-607C (Ct. of Fed. Claims, filed April 28, 2020). The Court’s order held that Congress’ passage of the Fixing America’s Surface Transportation (FAST) Act in 2015, which struck prior statutory provisions allowing for payment of overpayment interest, did not rescind the government’s obligation to pay interest that had accrued prior to the FAST Act. Moreover, after the FAST Act, the Judgment Fund remained the only available source of appropriate funds to discharge the United States’ obligation. The Court twice rejected the government's motion to dismiss the case on various grounds, including failure to exhaust administrative remedies before filing suit. 

Since 1996, the Federal Oil and Gas Royalty Management Act (FOGRMA) required lessees to pay interest on royalty underpayments, but lessees also received interest on any overpayment until the date the overpayment was repaid. The Office of Natural Resources Revenue (ONRR) is the Interior Department’s royalty collection agency responsible for auditing and crediting royalty payments. In this case, ONRR had allowed a requested credit for overpayment interest on December 8, 2015 relating to overpayments for which BP already had recovered the principal amount. But at the time neither ONRR nor lessees knew that a provision buried in the FAST Act, enacted four days earlier on Dec. 4, 2015, repealed the FOGRMA overpayment interest authority and the agency’s source of funds to pay that interest. When ONRR later realized it had lost legal authority to pay that overpayment interest, it sent BP a demand to repay the overpayment interest. ONRR sent similar demands and guidance to other royalty payors. ONRR to this day maintains that it has no legal authority to pay overpayment interest that accrued before Dec. 4, 2015.

B&D filed a complaint in the U.S. Court of Federal Claims asserting that when Congress repealed the overpayment interest provision in FOGRMA and effectively “took away ONRR’s checkbook” on Dec. 4, 2015, lessees still were entitled to overpayment interest that had accrued on royalty overpayments occurring before that date. In other words, Congress couldn't silently and retroactively legislate away an accrued federal financial obligation. The Government unsuccessfully argued that the Court lacked jurisdiction to hear the case on the grounds that lessees must first undertake a futile administrative appeal and that ONRR somehow retained post-FAST Act authority to credit or pay royalty overpayment interest. The Court ruled against the United States on its motion to dismiss and on cross-motions for summary judgment.

Law360 covered this case in the article "BP Wins $1.3M Judgment From Royalty Interest Claim" (subscription required).

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