Free Memorandum of Contentions of Fact and Law - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS ) ) ) Plaintiff, ) ) v. ) ) ) THE UNITED STATES OF AMERICA, ) ) Defendant. ) __________________________________________) THE OSAGE TRIBE OF INDIANS OF OKLAHOMA,

Electronically Filed: January 26, 2006 No. 99-550L (into which has been consolidated No. 00-169L) Judge Emily C. Hewitt

DEFENDANT'S PRETRIAL MEMORANDUM OF CONTENTIONS OF FACT AND LAW

SUE ELLEN WOOLDRIDGE Assistant Attorney General BRETT BURTON United States Department of Justice Environment & Natural Resources Division Natural Resources Section MARTIN LALONDE KEVIN WEBB United States Department of Justice Environment & Natural Resources Division Natural Resources Section 601 D Street, N.W., 3rd Floor Washington, DC 20004 TEL: (202) 305-0247 / 0479 FAX: (202) 353-2021

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TABLE OF CONTENTS ISSUES OF FACT AND LAW I. ISSUES OF FACT TO BE DECIDED BY THE COURT . . . . . . . . . . . . . . . . . . . . . . . . 1 A. B. C. II. Plaintiff's Royalty Claims - Duty to Collect All Monies Due . . . . . . . . . . . . . . . . 1 Plaintiff's Investment Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

ISSUES OF LAW TO BE DECIDED BY THE COURT . . . . . . . . . . . . . . . . . . . . . . . . . 2 A. B. C. Issues Applicable to Both Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Plaintiff's Royalty Claims - Duty to Collect All Monies Due . . . . . . . . . . . . . . . . 3 Plaintiff's Investment Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

STATEMENT OF FACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 I. DEFENDANT'S CONTENTIONS OF FACT AND RESPONSES TO PLAINTIFF'S CONTENTIONS OF FACT - ROYALTY CLAIMS . . . . . . . . . . . . . . . . 4 A. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1. Sources of the Government's Duties Related to Plaintiff's Royalty Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 a. b. 2. 1906 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Applicable regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Methodology for payment of royalties under 1974 and 1990 regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 a. Determination of major purchasers and highest posted or offered price . . . . . . . . . . . . . . . . . . . . . . . . 8 Payment of royalties and submission of lessee and purchaser reports . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Agency Calculation and Verification -i-

b.

c.

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of Oil Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 d. B. Agency Monitoring of Lease Production . . . . . . . . . . . . . . . . . . . 15

Royalty payments and Agency verification related to Tranche One leases and months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 1. 2. The Tranche One Months and Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Verification of proper royalty payments on Tranche One Leases in Tranche One months . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Issue of multiple prices on same lease . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

3. C. D.

Interior Board of Indian Appeals Interpretation of Osage regulations . . . . . . . . 19 Tribe's Involvement and Knowledge of Osage Agency's Application of Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 1. 2. Historic involvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Tribe's active participation in formulation of regulatory policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Tribe's monitoring of royalty calculation and collection practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Tribe's contract staffing of Minerals Branch . . . . . . . . . . . . . . . . . . . . . . 24

3.

4. E.

The Osage Nation and the Federal Oil and Gas Royalties Management Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

II.

DEFENDANT'S CONTENTIONS OF FACT AND RESPONSES TO PLAINTIFFS' CONTENTIONS OF FACT - INVESTMENT CLAIMS . . . . . . . . . . . . 25 A. THE DEPOSIT OF ROYALTY RECEIPTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 1. 2. The BIA's Deposit Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 BIA's Efforts to Expedite Receipt and Deposit of Royalty Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Timing of Deposits of Royalty Receipts for the Tranche One Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 -ii-

3.

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B.

INVESTMENT OF OSAGE TRIBAL FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . 28 1. 2. Interior's investment practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Investment of Tranche One royalty receipts . . . . . . . . . . . . . . . . . . . . . . 31

C. D.

DISBURSEMENT OF OSAGE FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 TRIBE'S INVOLVEMENT IN AND KNOWLEDGE OF INTERIOR'S FUND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 APPLICABLE LEGAL PRINCIPLES AND CONTENTIONS OF LAW . . . . . . . 35

I.

BURDENS OF PROOF AND STANDARDS OF REVIEW . . . . . . . . . . . . . . . . . . . . . 35 A. Plaintiff bears the burden of showing the existence of a moneymandating duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Plaintiff bears the burden of showing the Government breached a money-mandating duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 1. Plaintiff bears the burden of proof of showing a breach of fiduciary duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Plaintiff retains the burden of proof as to damages, even in this fiduciary context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 The absence of an accounting does not shift the burden of proof to the Government to show the proper discharge of its duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

B.

2.

3.

A.

Standards of Review for Weighing Plaintiff's Case Against the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 1. Deferential standard to be applied to the Government's interpretation of its statutory and regulatory duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Standard of review to apply to Agency's discharge of its statutory and regulatory duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 The Court should decline to adopt Plaintiff's inappropriate "highest standard of care" . . . . . . . . . . . . . . . . . . . . . . . . 44

2.

3.

-iii-

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II.

LEGAL CONTENTIONS RELATED TO ROYALTY CLAIMS . . . . . . . . . . . . . . . . . 45 A. B. Duty to Verify Accuracy of Payments Made . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 The contours of the Government's duty to verify payments . . . . . . . . . . . . . . . . 45 1. 2. Requirements of regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 The Court should uphold the Osage Agency's interpretation of the pricing regulations . . . . . . . . . . . . . . . . . . . . . . . . . 46 A. The IBIA decision in Okie Crude provides the definitive interpretation of the pricing provision of the Osage regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 i. ii. iii. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Board's Discussion and Conclusions . . . . . . . . . . . . . . . . 48 The Agency's interpretation was correct . . . . . . . . . . . . . 51 a) Actual selling price / bona fide selling price . . . . . . . . . . . . . . . . . . . . . 52 Offered price . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

b) b.

The ordinary meaning of "posted price" supports the Agency's application of gravity adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 The United States did not breach its duty to collect all royalties due to Plaintiff because it was subject to the price controls imposed under federal laws and regulations . . . . . . . . . . . . . . . . . . . . . . . 58 i. The Price Control Statutes Cannot be Properly Construed to Exempt the Department of Interior from Federal Price Controls . . . . . . . . . . . . . . . . 58 Plaintiff inappropriately misconstrue the 1977 Solicitor's Office memo and illogically rely upon judicial interpretations regarding a completely different statute to support its -iv-

c.

ii.

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proposed application of the EPAA . . . . . . . . . . . . . . . . . 62 iii. Plaintiff's Proposed Application of the EPAA Would Undermine the Very Purpose of the EPAA and Therefore, Must be Rejected . . . . . . . . . . . . . 64

d.

Plaintiff's construction of the pricing regulation is unreasonable and should be rejected . . . . . . . . . . . . . . . . . . . . . . 65

3.

The Court should uphold Interior's verification procedures established in the Osage regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 The Tribe's claims related to the interpretation and implementation of the regulations for determining royalty value are barred by laches or estoppel . . . . . . . . . . . . . . . . . . . . . . . . . . 70 a. The Tribe's Claims related to the Interpretation and Implementation of the Regulations for determining royalty value are barred by the equitable doctrine of Laches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Principles of Equity Demand that the Tribe be Estopped from bringing claims related to the Interpretation and Implementation of the Regulations for determining royalty value. . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

4.

b.

4.

The Agency properly applied the regulations . . . . . . . . . . . . . . . . . . . . . 75 a. b. c. Determination of highest posted price . . . . . . . . . . . . . . . . . . . . . 76 Verification of volumes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Verification of royalties paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

B.

Plaintiff is not entitled to late-payment penalties against the Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

III.

INVESTMENT CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 A. Standard of review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 1. 2. Determining the Appropriate Standard of Review . . . . . . . . . . . . . . . . . 78 Application of the abuse of discretion standard . . . . . . . . . . . . . . . . . . . . 80 -v-

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3.

The Court should reject Plaintiff's proposed maximization standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

B.

The Tribe Cannot Demonstrate That it Sustained Compensable Damages Because of Alleged Delays in Crediting Deposits to Tribal Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 1. Defendant followed reasonable practices for depositing receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 a. Standard for determining whether deposits are timely . . . . . . . . 85 i. ii. b. c. Treasury guidelines for deposit . . . . . . . . . . . . . . . . . . . . 85 Interior guidelines for deposits . . . . . . . . . . . . . . . . . . . . 88

Availability of a local depositary . . . . . . . . . . . . . . . . . . . . . . . . . 89 All but two of the royalty payments were deposited within two days of receipt . . . . . . . . . . . . . . . . . . . . . . 89

2. C.

Timeliness of investment of funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Investment Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 1. The Government properly exercised its discretion under 161a and 162a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Interior discharged its discretionary duty through investing in allowed instruments with appropriate maturities . . . . . . . . . . . . . . . . . . . 93 Interior discharged its discretionary duty through investing in a manner that comported with the prudent investor standard . . . . . . . . . 93

2.

3.

D.

Disbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 1. 2. Long-standing disbursement practice . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 Implementing a system that would have allowed the Government to calculate interest on disbursed funds prior to checks clearing would have been unreasonable and unduly burdensome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 Plaintiff would not be entitled to interest earned on uncleared -vi-

3.

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checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 4. Congress has accepted the federal agencies' practice of ceasing interest payments at the time of disbursement . . . . . . . . . . . . . . 99 The authorities on which Plaintiff relies do not support its disbursement lag time claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 DAMAGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

5.

-vii-

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TABLE OF AUTHORITIES FEDERAL CASES A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020, 1032 (Fed. Cir. 1992) . . . . -71Aeropres Corp. v. Dep't of Energy, 461 F. Supp. 1215 (D.La. 1978) . . . . . . . . . . . . . . . . . . . -59Air Transport Ass'n of America v. Federal Energy Office, 382 F. Supp. 437 (D.D.C. 1974) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -59--61-, -63Alabama Power Co. v. Gorsuch, 672 F.2d 1 (1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -63American Express Co. v. United States, 262 F.3d 1376 (Fed.Cir. 2001) . . . . . . . . . . . . . . . . -51American Fed'n of Gov't Employees, AFL-CIO v. Glickman, 215 F.3d 7, 10 (D.C. Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -51Amoco Prod. Co. v. Watson, 410 F.3d 722 (D.C. Cir. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . -73Andrus v. Glover Construction Co., 446 U.S. 608 (1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . -40Armstrong v. United States, 171 F. Supp. 835 (E.D. Pa. 1959) . . . . . . . . . . . . . . . . . . . -97-, -101Bailey v. United States, 59 Fed. Cl. 743 (2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -51Barnhart v. Sigmon Coal Co., Inc., 534 U.S. 438 (2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . -60Blankenship v. Boyle, 329 F.Supp. 1089 (D.D.C. 1971) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -82Bowers v. Baystate Technologies, 302 F.3d 1334 (Fed.Cir. 2002) . . . . . . . . . . . . . . . . . . . . . -57Brown v. United States, 42 Fed. Cl. 538 (1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -81Brown v. United States, 86 F.3d 1554 (Fed. Cir. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -84Brundage v. United States, 205 Ct. Cl. 502 (Ct. Cl. 1974) . . . . . . . . . . . . . . . . . . . . . . . . . . . -70Burlington Resources Oil & Gas Co. v. Department of Interior, 21 F.Supp.2d 1 (D.D.C. 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41Cammarano v. United States, 358 U.S. 498 (1959) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -55Cathedral Candle Co. v. United States Int'l Trade Comm'n, -viii-

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400 F.3d 1352 (Fed. Cir. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -65Cavanagh v. United States, 12 Cl. Ct. 715 (1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -105Chapman Law Firm v. United States, 63 Fed. Cl. 519 (2005) . . . . . . . . . . . . . . . . . . . . . . . . -42Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) . . . . -96Cheyenne-Arapaho Tribes of Oklahoma v. United States, 966 F.2d 583 (10th Cir.1992) . . . -81Cheyenne-Arapaho Tribes of Oklahoma v. United States, 33 Fed. Cl. 464 (1995) . . . . . . . . . -81Cheyenne-Arapaho Tribes of Indians of Oklahoma v. United States, 512 F.2d 1390 (Ct. Cl. 1975) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -82Chugach Alaska Corp. v. Lujan, 915 F.2d 454 (9th Cir. 1990) . . . . . . . . . . . . . . . . . . . . . . . . -40Cities Service Co. v. Federal Energy Administration, 529 F.2d 1016 (Temp. Emer. Ct. App. 1975) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -58Cobell v. Norton, 428 F.3d 1070 (D.C. Cir. 2005) . . . . . . . . . . . . . . . . . . . . . . . . -40-, -81-, -98Colorado Department of Labor & Employment v. Department of Labor, 875 F.2d 791, 797 (10th Cir. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -49Confederated Tribes of The Warm Springs Reservation v. United States, 177 Ct.Cl. 184 (1966) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -80Confederated Tribes of Warm Springs Reservation v. United States, 248 F.3d 1365 (Fed. Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36-, -37Consumer Prod. Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102 (1980) . . . . . . . -38-, -39-, -58-, -60Cornetta v. United States, 851 F.2d 1372 (Fed. Cir. 1998) . . . . . . . . . . . . . . . . . . . . . . . -70-, -71D.O. Haynes & Co. v. Druggists' Circular, 32 F.2d 215 (2nd Cir. 1929) . . . . . . . . . . . . . . . -70Deering v. United States, 620 F.2d 242, 245 (Ct. Cl. 1980) . . . . . . . . . . . . . . . . . . . . . . . . . . -71Diaz v. United States Immigration & Naturalization Service, 648 F. Supp. 638 (E.D. Cal. 1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -48Erickson v. United States, 1 Cl. Ct. 163 (Cl.Ct. 1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -70-ix-

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Estate of Berg v. United States, 687 F.2d 377231 Ct. Cl. 466 (1982) . . . . . . . . . . . . . . . . . . -105Foster v. United States, 3 Cl. Ct. 440 (1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -70Frey v. Amoco Production Co., 943 F.2d 578 (5th Cir. 1991) . . . . . . . . . . . . . . . . . . . . . . . . -57Gasser Chair Co., Inc. v. Infanti Chair Mfg. Corp., 60 F.3d 770 (Fed. Cir. 1995) . . . . . . . . . -70Haynes v. United States, 891 F.2d 235 (9th Cir. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -40Hopland Band of Pomo Indians v. United States, 855 F.2d 1573 (Fed. Cir. 1988) . . . . . . . . -37HRI Inc. v. EPA, 198 F.3d 1224 (10th Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39In re Beaty, 306 F.3d 914 (9th Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -71In re Consupak, Inc., 87 B.R. 529 (Bankr. N.D.Ill. 1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . -103In re Jones, 141 F. Supp. 2d 577 (W.D. N.C. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . -74-, -75In re Unisys Savings Plan Litig., 74 F.3d 420 (3d Cir. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . -93In re: Guterl Special Steel Corp., 316 B.R. 843 (Bankr. W.D. Pa. 2004) . . . . . . . . . . . . . . . . -74Independent Petroleum Ass'n v. Babbitt, 92 F.3d 1248 (D.C. Cir. 1996) . . . . . . . . . . . . . . . . -41J.H. Rutter Rex. Mfg. Co. v. United States, 706 F.2d 702 (5th Cir.), cert. denied, 464 U.S. 1008 (1983) . . . . . . . . . . . . . . . . . . . . -96Jicarilla Apache Tribe v. Supron Energy Corp., 728 F.2d 1555 (10th Cir. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41Kansas City Southern Ry Co. v. Guardian Trust Co., 240 U.S. 166 (1916) . . . . . . . . . . . . . -74Kinnett Dairies, Inc. v. J.C. Farrow, 580 F.2d 1260 (5th Cir.1978) . . . . . . . . . . . . . . . . . . . . -96Kleppe v. Sierra Club, 427 U.S. 390 (1976) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -81LaForge & Budd Constr. Co. v. United States, 48 Fed. Cl. 566 (Fed. Cl. 2001) . . -70-, -71-,-73Laketon Asphalt and Refining, Inc. v. Dep't of Interior, 476 F. Supp. 668 (N.D. Ind. 1979) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -65Library of Congress v. Shaw, 478 U.S. 310 (1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -105-x-

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Louisiana Public Service Commission v. F.C.C., 476 U.S. 355 (1986) . . . . . . . . . . . . . . . . . -57Menominee Tribe of Indians v. United States, 97 Ct. Cl. 158 (1942) . . . . . . . . . . . . . . . . . . . -79Mitchell v. United States, 229 Ct.Cl. 1 (1981), aff'd, 463 U.S. 206 (1983) . . . . . . . . . . . . . . . -81Mitchell v. United States, 664 F.2d 265 (Ct. Cl. 1981) . . . . . . . . . . . . . . . . . . . . . . -43-,-83-, -84Mobil Oil Corp v. Federal Energy Admin., 566 F.2d 87 (Temp. Emer. Ct. App. 1977) . . . . . -61Mohawk Petroleum Corp., Inc. v. Dep't of the Navy, 395 F. Supp. 933 (C.D. Cal. 1975) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -60Montana v. Blackfeet Tribe of Indians, 471 U.S. 759 (1985) . . . . . . . . . . . . . . . . . . . . . . . . . -39Motor Vehicles Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) . . . . . . . -80Mountain Fuel Supply Co. v. United States Department of Energy, 656 F.2d 690 (Temp. Emer. Ct. of Appls. 1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -55Navajo Tribe of Indians v. United States, 624 F.2d 981 (Ct. Cl. 1980) . . . . . . . . . . . . . . . . . -43North Central Airlines, Inc. v. Continental Oil Company, 574 F.2d 582 (D.C. Cir. 1978) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -57Northern Paiute Nation v. United States, 9 Cl. Ct. 639 (1986) . . . . . . . . . . . . . . . . . . . . . . . -105Norton v. Southern Utah Wilderness Alliance, 542 U.S. 55 (2004) . . . . . . . . . . . . . . . . -40-, -98NVT Technologies, Inc. v. United States, 370 F.3d 1153 (Fed. Cir. 2004) . . . . . . . . . . -42-, -78Oglala Sioux Tribe of Indians v. Andrus, 603 F.2d 707 (8th Cir. 1979) . . . . . . . . . . . . . . . . . -41Oregon Dept. of Fish & Wildlife v. Klamath Indian Tribe, 473 U.S. 753 (1985) . . . . . . . . . . -39Osage Nation v. United States, 57 Fed.Cl. 392 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -99Oxy USA, Inc. v. Babbitt, 268 F.3d 1001 (10th Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . -73Pawnee v. United States, 830 F.2d 187 (Fed. Cir. 1987) . . . . . . -35-, -42-, -43-, -45-, -84-, -104Pepper v. United States, 8 Cl. Ct. 666 (1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -70-, -71Perrin v. United States, 444 U.S. 37 (1979) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -51-xi-

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Qwest Communications International, Inc. v. FCC, 398 F.3d 1222 (10th Cir. 2005) . . . . . -100Ramah Navajo Chapter v. Lujan, 112 F.3d 1455 (10th Cir. 1997) . . . . . . . . . . . . . . . . . -39-, -40Red Lake Band v. United States, 17 Cl. Ct. 362 (Ct. Cl. 1989) . . . . . . . . . . . . . . . . . . . . . . . . -38Rice v. Rehner, 463 U.S. 713 (1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39Robbins v. United States, 86 Ct.Cl. 39 (1937) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -74-, -75Roth v. Sawyer-Cleator Lumber Company, 16 F.3d 915 (8th Cir. 1994) . . . . . . . -36-, -65-, -92Secretary of the Treasury, 1956 WL 3036 (Feb. 20, 1956) . . . . . . . . . . . . . . . . . . . . . . . . . . . -97Seldovia Native Ass'n, Inc. v. Lujan, 904 F.2d 1335 (9th Cir. 1990) . . . . . . . . . . . . . . . . . . . -40Seminole Nation v. United States, 316 U.S. 286 (1942) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44Short v. United States, 25 Cl. Ct. 722 (1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -79Shoshone Indian Tribe v. United States, 364 F.3d 1339 (Fed. Cir. 2004) . . . . . . . . . . . -69-, -104Shoshone Tribe of the Wind River Reservation v. United States, 56 Fed. Cl. 639 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -81Silva v. Senders, 600 F. Supp. 1008 (D. D.C. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -101Skelly Oil Co. v. Federal Energy Admin., 448 F. Supp. 16 (N.D. OK 1977) . . . . . . . . . -58-, -61Skidmore v. Swift & Co., 323 U.S. 134 (1944) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -57Solano Garbage Co. v. Cheney, 779 F. Supp. 477 (E.D. Cal. 1991) . . . . . . . . . . . . . . . . . . . . -48South Carolina v. Catawba Indian Tribe, 106 S.Ct. 2039 (1986) . . . . . . . . . . . . . . . . . . . . . . -39Stinnett et al. v. Colorado Interstate Gas Co. et al., 227 F.3d 247 (5th Cir. 2000) . . . . . . . . -75Syms v. Chrysler Corp. Loan Guarantee Bd., 670 F.2d 238 (D.C. Cir. 1981) . . . . . . . . . . . . -60Thompson v. Cherokee Nation, 334 F.3d 1075 (Fed. Cir. 2003) . . . . . . . . . . . . . . . . . . . -39-, -52Torch Operating Co. v. Babbitt, 172 F. Supp. 2d 113 (D.D.C. 2001) . . . . . . . . . . . . . . . . . . . -57Udall v. Tallman, 380 U.S. 1 (1965) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41-xii-

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United States Department of Energy v. Osborn, 760 F.2d 282 (Temp. Emerg. Ct. App. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -49United States v. Booker, 543 U.S. 220 (2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42United States v. King, 395 U.S. 1 (1969) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -45United States v. Mason, 412 U.S. 391 (1973) . . . . . . . . . . . . . . . . . . . . . . . . . . . . -77-, -83-, -84United States v. Mitchell, 463 U.S. 206, 219 (1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35United States v. Navajo Nation, 537 U.S. 488 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . -35-, -82United States v. Ron Pair Enters., 489 U.S. 235 (1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39United States v. Sherwood, 312 U.S. 584 (1941 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -45United States v. Unitank Terminal Service, 724 F. Supp. 1158 (E.D. Pa. 1989) . . . . . . . . . . -49United States v. White Mountain Apache Tribe, 537 U.S. 465 (2003) . . . . . . . . . . . . . . . . . . -43Warner-Lambert Co. v. Apotex Corp., 316 F.3d 1348 (Fed.Cir.2003) . . . . . . . . . . . . . . . . . . -53Wells v. United States Steel & Carnegie Pension Fund, Inc., 950 F.2d 1244 (6th Cir. 1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -71Wesreco, Inc. v. Dep't of Interior, 618 F. Supp. 562 (D. Utah 1985) . . . . . . . . . . . . . . . . . . . -61Williams v. Babbitt, 115 F.3d 657 (9th Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -40Wilson & Co. v. United States, 82 Ct. Cl. 261 (Ct. Cl. 1936) . . . . . . . . . . . . . . . . . . . . . . . . -75Work v. United States ex rel Lynn, 266 U.S. 161 (1924) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29Wyoming Refining Co. v. Dep't of Interior, 547 F. Supp. 297 (D. Wyo. 1982) . . . . . . . . . . . -61-

STATE CASES Hartmann et al. v. Bertelmann et. al, 39 Haw. 619 (Haw. 1952) . . . . . . . . . . . . . . . . . . . . . . -75In re D'Espinary-Durtal's Will, 4 A.D.2d 141 (N.Y.App.Div. 1957) . . . . . . . . . . . . . . . . . -103-

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Kamp v. Bank of America Nat'l Trust & Savings Ass'n, 204 Cal. App. 3d 819 (1988) -101--103Maryland National Bank v. Cummins, 588 A.2d 1205, 1206-07 (Md. 1991) . . . . . . . . . . . . -104-

FEDERAL STATUTES 15 U.S.C. § 751(b) (1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-, -5915 U.S.C. § 753(a) (1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-, -6015 U.S.C. § 753(e) (1976) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6015 U.S.C. § 760(h) (1976) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-, -1515 USC § 753(b)(1)(G) (1976) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6425 U.S.C. 162a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ibid 25 U.S.C. § 161a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ibid 25 U.S.C. § 4011(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3728 U.S.C. § 149 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4528 U.S.C. 2516(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10529 Stat. 179 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8630 U.S.C. § 1702(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2530 U.S.C. § 1701 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2530 U.S.C. § 1757 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2531 U.S.C. 321 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8531 U.S.C. 3302(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8531 U.S.C. 3334(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10031 U.S.C. 3334(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10031 U.S.C. § 3302(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -85-xiv-

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41 Stat. 1249 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9341 Stat. 1250 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-, -8043 Stat. 1008-1009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-, -8043 Stat. 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4464 Stat. 215 (1950) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -764 Stat. 832 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9564 Stat. 835 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9664 Stat. 836 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9687 Stat. 627 (1973) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-, -5887 Stat. 628 (1973) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1089 Stat. 871 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-, -6090 Stat. 1125 (1976) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1092 Stat. 1660 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -498 Stat. 1729 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7998 Stat. 494 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -86101 Stat. 552 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-, -99107 Stat 1379 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -100118 Stat. 2809 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38Act of June 28, 1906, 34 Stat. 539 ("1906 Act")Act of June 28, 1906, 34 Stat. 539 . . . . . . . ibid Act of October 21, 1978, Pub. L. No. 95-496, 92 Stat. 1660 . . . . . . . . . . . . . . . . . . . . . . . . . . -4Pub L. 98-369 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -86Pub. L. No. 100-86 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-

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Pub. L. No. 101-644 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -79Pub. L. No. 108-447 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38Pub. L. No. 548 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7Pub. L. No. 66-360 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -93Pub. L. No. 93-159 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-, -58Pub. L. No. 94-163 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-, -60Pub. L. No. 95-496 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4Pub. L. No. 98-146 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -79Pub. L. No. 98-451 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -79Pub.L. No. 103-138 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -100Pub.L. No.100-86 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -99-

FEDERAL REGULATIONS 10 C.F.R. 212.54(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6625 C.F.R. Part 183 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -525 C.F.R. Part 226 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ibid 25 C.F.R. § 115.809 (2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -81-, -9230 C.F.R. § 206.103 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8131 C.F.R. 206.5(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8731 C.F.R. Part 206 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -87-

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On January 12, 2006, Plaintiff Osage Tribe ("Osage" or "the Tribe") submitted its pretrial memorandum of contentions of fact and law and filed a corrected version of its pretrial memorandum of contentions of fact and law on January 13, 2006. Pursuant to RCFC, Appendix A, ¶ 14(b), Defendant hereby submits its responsive pretrial memorandum of contentions of fact and law. ISSUES OF FACT AND LAW I. ISSUES OF FACT TO BE DECIDED BY THE COURT The Court should resolve the following issues of fact as they relate to Plaintiff's royalty and investment claims based on the Tranche One leases for the Tranche One months. A. 1) 2) Plaintiff's Royalty Claims - Duty to Collect All Monies Due Whether the Osage Agency correctly calculated the highest posted prices. Whether the Osage Agency's practices related to the verification of oil volumes

complied with its regulatory and statutory duties, properly construed. 3) volume. 4) Whether the Osage Agency appropriately applied the regulations, properly construed, Whether the Osage Agency collected royalty payments based on the correct oil

to verify that royalty payments were based on the correct price. 5) 6) 7) Whether the Osage Agency collected royalty payments based on the correct price. Whether the United States collected the late fees that were due. Whether the Osage Nation was extensively involved in the promulgation,

amendment, and implementation of the Osage regulations. B. Plaintiff's Investment Claims

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1) 2) 3) 4)

Whether the Osage Agency deposited Osage royalty receipts in a timely fashion. Whether Interior invested the Osage royalty receipts in a timely fashion. Whether Interior abused its discretion in the investment of the royalty receipts. Whether Interior abused its discretion in following the Government practice of

ceasing to earn interest or other investment returns on Osage funds after they were disbursed to headright owners. C. 1) found. 2) II. The appropriate interest rate to apply in calculating any such damages. Damages The appropriate manner in which to calculate interest as a component of any damages

ISSUES OF LAW TO BE DECIDED BY THE COURT The Court should resolve the following issues of law as they relate to Plaintiff's royalty and

investment claims based on the Tranche One leases for the Tranche One months. A. 1) Issues Applicable to Both Claims Whether Plaintiff bears the burden of proving its claims that the Government breached

identified money-mandating duties. 2) Whether the Government should be granted deference in its interpretation of the

statutes and regulations that form the basis of its duties to the Osage Tribe.1/ 3) Whether a reasonableness standard applies to Interior's discharge of its duties related

As explained in Defendant's Motion in Limine to Preclude Plaintiff from Challenging Interior's Interpretation of Osage Regulations In Okie Crude Co. V. Muskogee Area Director, being filed herewith, the Court should accept as established Interior's interpretation of the pricing regulations set forth in Okie Crude v. Muskogee Area Director, 23 IBIA 174 (1993). -2-

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to the calculation of the appropriate Osage royalties and to the deposit of Osage royalty receipts, and whether the abuse of discretion standard applies to Plaintiff's investment claims. B. 1) Plaintiff's Royalty Claims - Duty to Collect All Monies Due Whether, in Okie Crude v. Muskogee Area Director, Bureau of Indian Affairs, 23 IBIA

174 (1993) the Interior Board of Indian Appeals correctly construed the meaning of the terms "actual selling price," "bona fide selling price," "highest posted price," and "offered price" in the Osage regulations. The legal interpretation of these terms informs the scope of the Government's duties to collect the royalty payments based on the appropriate price of the oil, or royalty value. 2) Whether the term "posted price" in the Osage regulations is properly interpreted to

require or allow the Government's practice of allowing gravity adjustments in determining the appropriate price of the oil, or royalty value. 3) Whether the Government's volume verification procedures set forth in the Osage

regulations should be upheld. 4) Whether the Emergency Petroleum Allocation Act, Pub. L. No. 93-159, 87 Stat. 627

(1973) (codified at 15 U.S.C. § 751 et seq. (1976 and Supp. 1985)), was applicable to the royalty values established for Osage royalty payments. 5) 6) Whether the penalty provision for late payments applies to the United States. Whether the Osage Nation's extensive involvement in the promulgation, amendment,

and/or implementation of the Osage regulations forms a sufficient basis to bar its claims, in whole or in part, under the doctrines of laches or quasi-estoppel. C. 1) Plaintiff's Investment Claims Whether Government-wide standards for receipt and deposit of funds apply to Osage

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royalty payments. 2) Whether Interior's exercise of discretion in investing Osage royalty receipts is

informed by the parameters set forth in 25 U.S.C. §§ 161a and 162a, and the prudent investor standard. 3) Whether Government-wide practices for disbursement of funds apply to Osage

headright payments. STATEMENT OF FACTS I. DEFENDANT'S CONTENTIONS OF FACT AND RESPONSES TO PLAINTIFF'S CONTENTIONS OF FACT - ROYALTY CLAIMS A. Background 1. Sources of the Government's Duties Related to Plaintiff's Royalty Claims a. 1906 Act

The Osage Tribe, at the turn of the last century, occupied a reservation which now constitutes Osage County, Oklahoma. By virtue of the 1906 Act, the surface interests were allotted to individual tribal members. Section 3 of the 1906 Act reserved "the oil, gas, coal, and other minerals covered by the lands for the selection and division of which provision is herein made are hereby reserved to the Osage Tribe for a period of twenty-five years from and after the eighth day of April, nineteen hundred and six . . . ." The ownership of the minerals by the Osage Tribe has been extended from time to time and was last extended in perpetuity by the Act of October 21, 1978, Pub. L. No. 95-496, 92 Stat. 1660. The 1906 Act provides that leases are to be made by the Osage Tribal Council and approved by the Bureau of Indian Affairs ("BIA"). The Act also created a trust fund consisting of proceeds from the sale of Osage lands in Kansas and income from the Osage mineral estate. See H.R. Rep. No. 92-963. -4-

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The history of the 1906 Act shows that the Tribe sought this legislation and was closely involved in its formulation. By 1906, the Osage Tribe of Indians had, for several years, "been considering the question of asking the Government to divide its lands and moneys among the members of the tribe." House Committee on Indian Affairs, Division of Lands and Funds of Osage Indians, Oklahoma, H.R. Rep. No. 59-3219. In 1906, the Tribe had agreed on a plan to divide its lands and moneys. Id. The final bill enacted by Congress "was submitted to the Osages at [a] general election held by them, and it was adopted by all factions of the tribe. It was brought to Washington by delegates representing those factions, submitted to the Secretary of the Interior for his consideration, and the committee has given the measure very careful consideration and recommends its passage . . . ." Id. b. Applicable regulations

During the first five Tranche One months, regulations promulgated in 1974 defined the responsibilities of the lessee, the purchaser, the Osage Tribe, and the Osage Agency ("Agency") of the Bureau of Indian Affairs ("BIA"). 25 C.F.R. Part 183, later redesignated as 25 C.F.R. Part 226 ("1974 regulations"). For the 1990 Tranche One month, amended regulations at 25 C.F.R. Part 226 defined the responsibilities of these parties ("1990 regulations"). The regulations are explicitly applicable to, and incorporated into leases, for oil recovered from the Osage mineral estate ("Osage oil"). Each of the Tranche One leases provides that (1) they are subject to the Osage regulations existing at the time the leases were entered; and (2) that any subsequent amendments to the regulations that are not agreed to by the parties to the lease do not affect the term of the lease, rate of royalty, rental or acreage. See, e.g., Stanley Stringer Lease at 1920; May 23 Tr. at 37-39; 25 C.F.R. § 226.5.

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The regulations provide the following: (a) Royalty on oil ­ (1) Lessee shall pay or cause to be paid to the Superintendent, as royalty, the sum of not less than 16 b percent of the gross proceeds from sales after deducting the oil used by Lessee for development and operation purposes on the lease . . . The Osage Tribal Council may, upon presentation of justifiable economic evidence by Lessee, agree to a revised royalty rate subject to approval by the Superintendent, applicable to additional oil produced from a lease or leases by enhanced recovery methods, which rate shall not be less than 12 ½ percent of the gross proceeds from sale of oil produced by enhanced recovery processes, . . . (2) Unless the Osage Tribal Council, with approval of the Secretary, shall elect to take the royalty in kind, payment shall be made at the time of sale or removal of the oil, except where payments are made on division orders, and settlement shall be based on the actual selling price, or the highest posted or offered price by a major purchaser in the Kansas-Oklahoma area whichever is higher on the day of the sale or removal. 25 C.F.R. § 226.11.2/ "Major Purchaser" is defined as "any one of the minimum number of purchasers taking 80 percent of the oil in the Kansas-Oklahoma area." 25 C.F.R. § 226.1(h). In August 1990, subsection 226.11(a)(2) was amended to provide as follows: Unless the Osage Tribal Council, with approval of the Secretary, shall elect to take the royalty in kind, payment is owing at the time of sale or removal of the oil, except where payments are made on division orders, and settlement shall be based on the highest of the bona fide selling price, posted or offered price by a major purchaser (as defined in s 226.1(h)) in Osage County, Oklahoma, who purchases production from Osage oil leases. 25 C.F.R. 226.11(2) (1991). "Major Purchaser" was defined as "any one of the minimum number of purchasers taking 95 percent of the oil in Osage County, Oklahoma." Id. at § 226.1(h). Section 226.13 of the regulations provides that: (a) Royalty payments due may be paid by either purchaser or Lessee. Unless otherwise provided by the Osage Tribal Council and approved by the Superintendent, all payments shall be due by the 25th day of each month and shall cover the preceding month. Failure to make such payments shall subject Lessee or purchaser, whoever is responsible for royalty payment, to a late charge at the rate of not less than 1 ½

2/

Herein, the Government will cite to Part 226. -6-

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percent for each month or fraction thereof until paid. (b) Lessee shall furnish certified monthly reports by the 25th of each following month covering all operations, whether there has been production or not, indicating therein the total amount of oil, natural gas, casinghead gas, and other products subject to royalty payment. (c) Failure to remit payments or reports shall subject Lessee to further penalties as provided in §§ 226.42 and 226.43 . . . . Section 226.13(a) was amended in August 1990 with the following additional language: "The Osage Tribal Council, subject to the approval of the Superintendent, may waive the late charges." 25 C.F.R. § 226.13(a). The regulations further provide that the lessee shall require the purchaser of oil from his lease or leases to furnish the Superintendent, no later than the 25th day of each month, a statement reporting the gross barrels of oil purchased during the preceding month. The Superintendent may authorize an extension of time, not to exceed 10 days, for furnishing this statement. 25 C.F.R.§ 226.14(b).3/ 2. Methodology for payment of royalties under 1974 and 1990 regulations

The regulations require the lessee to pay royalties, which are calculated using the following formula: Royalty = Royalty Rate x Royalty Volume x Royalty Value (price). The royalty rate is determined by either the United States or, after 1950, Pub. L. No. 548, 64 Stat. 215 (1950), by the Tribe. The rate is either 1/8 (12 ½ percent) or 1/6 (16 2/3 percent) of the value of production, as defined in each lease. Royalty rates may vary for a particular lease depending on volumes produced, the oil pool from which the oil is produced, or the area from which the oil is

3/

Prior to the August 1990 amendment, the regulations required that the lessee shall require the purchaser of oil from his lease or leases to furnish the Superintendent, no later than the 15th day of each month, a statement reporting the gross barrels of oil sold during the preceding month. 25 C.F.R. § 226.14(b)(1990). -7-

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produced. The royalty volume is based on the volume of oil produced and sold from each lease or each portion of the lease having a separate royalty rate after deducting the volume of oil used by lessee for development and operational purposes on the lease. See 25 C.F.R. 226.11(a). The royalty value is based on the lessee's gross proceeds from its sales. Specifically, this value is based on the higher of the price that the lessee actually received (actual selling price or bona fide selling price) for the production, or on the highest posted or offered price of a major producer. These prices are to be calculated on the day of the sale or removal of the oil. The following explains the manner in which the Agency applied the regulations to assist the lessees and purchasers in paying the correct royalty and then in verifying the accuracy of the payments. a. Determination of major purchasers and highest posted or offered price

Under the 1974 regulations, for each month, the Osage Agency obtained a listing of crude oil purchasers from state authorities in Kansas and Oklahoma, which indicated the amount of oil each purchaser bought in that State for the most recent month for which data was available. . The lists would be used to rank each purchaser in descending order according to the total amount of oil they purchased in both states during the subject month, both as an absolute volume, and as a percentage of the volume purchased in the Kansas and Oklahoma area. The Agency also calculated the cumulative total percent of volume purchased in order to determine the major (top 80%) purchasers. The same methodology was used after September 1990, except the Agency determined the major purchasers by only considering the top 95% of purchasers in Osage County. Moreover, the Agency did not need to obtain production information from the States. Instead, the Agency identified -8-

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the major purchasers from the Agency's own monthly production summaries. Under both the 1974 and the 1990 regulations, the Agency simultaneously obtained crude oil posted prices from companies that published crude oil price bulletins (postings) for the subject month. These postings delineated different prices for different qualities and types of crude oil . The postings typically provided a price for 40 degree API crude oil and a gravity4/ schedule showing how much the company would reduce the price for oil that was lower than 40 degree API. Based on this data, the Agency calculated the highest posted price paid by major purchasers at all degrees of API gravity oil for each day or periods of days during the production month. The Agency completed the highest posted price analysis by issuing a pricing letter and an attached pricing schedule by gravity to all lessees and purchasers early in the month following the month of production so that payment could be based on the higher of the posted or actual sales prices. The letters set forth the highest posted price for each day or range of days for the production month for crude oil purchased in the Kansas and Oklahoma area (and for Osage County after September 1990). It required that oil royalty due must be based on the higher of the posted price for the appropriate gravity of oil or the actual selling price and, if the API gravity was different than 40 degree API oil, then the Agency referred purchasers and lessees to an attached pricing schedule that set out the highest posted price for lower-gravity oil. It also required that royalty payments were due by the 25th of the month following the month of sale. For particular time periods, the Tribal Council and the Superintendent granted lessees an extension of ten days from the 25th of the month following sales to pay any additional royalty. During the first three Tranche One months (January 1976, May 1979, and November 1980),

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prices for oil were subject to price and allocation controls, promulgated under the Emergency Petroleum Allocation Act ("EPAA") and subsequent amendments. EPAA, Pub. L. No. 93-159, 87 Stat. 628 (1973) (codified as amended at 15 U.S.C. § 751 et seq. (1976 and Supp. 1985)). In

response to the Middle Eastern oil embargo, Congress, through the EPAA, sought to minimize any adverse impacts that shortages of crude oil, residual fuel oil and refined petroleum products might have on the domestic economy. Id. at § 2(b) (15 U.S.C. § 751(b) (1982)). Specifically, Congress directed the President to establish controls over the pricing and allocation of all crude oil, residual fuel oil and refined petroleum produced in or imported into the United States. Id. at § 4(a)(1973) (15 U.S.C. § 753(a) (1982)). The EPAA was extended by the Energy Policy and Conservation Act of 1975 ("EPCA of 1975") which, among other things, called for the expiration of the EPAA on September 30, 1981. EPCA of 1975, Pub. L. No. 94-163, Title IV, § 461, 89 Stat. 871, 955 (15 U.S.C. § 760(h) (1976)).5/ Pursuant to EPAA, the President issued several versions of price regulations that set out mandatory price controls. The regulations established maximum lawful prices for different categories of oil, depending on certain factors, such as when the production had commenced and the volume of oil produced. Initially, the regulations established price ceilings for two categories of oil, "old oil" and "new oil." In 1976, the two categories were changed to "lower-tier oil" and "upper-tier oil." Unregulated, or "exempt" oil was not subject to price controls. One category of unregulated oil, for certain time periods, was "stripper oil," which was produced from a well with an average daily

5/

Congress passed other statutes that also affected the price and allocation of petroleum and crude oil between 1973 and 1981 such as the Energy Conservation and Production Act ("ECPA"), 90 Stat. 1125 (1976) (codified at 42 U.S.C. § 6801 et seq. (1976)). EPCA modified the crude pricing formula under EPAA and exempted crude oil from "stripper" wells (those producing ten barrels per day or less) from regulatory controls. Id. at §§ 121, 122. -10-

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production of less than 10 barrels. Finally, after 1978, oil from "marginal property" was subject to pricing based on a percentage of both unregulated and upper-tier pricing. See Ronnie Martin Supplemental Expert Report, January 12, 2006, at 6-7 (Def.'s Ex. 2340). During this price control era, the Agency would list the highest posted prices on exempt oil for particular time periods, including information such as effective dates and the price being paid for 40 degree oil. The Agency would also list the posted prices for categories of regulated oil (upper and lower tier) that matched the maximum price that could be legally obtained for each corresponding category of oil. In the mid-1970s, the Agency followed a practice of informing purchasers of instances where a major purchaser had offered a bonus above the highest posted price for unregulated oil (such bonuses could not be offered for regulated categories of oil). The Agency requested other purchasers to match the higher offers. b. Payment of royalties and submission of lessee and purchaser reports

The regulations required the lessee or purchaser to pay royalties by the 25th of the month following the month of sale. The highest posted price letter reminded purchasers and lessees of this obligation. For particular time periods, however, the Tribal Council and the Superintendent granted lessees an extension of ten days from the 25th of the month following sales (production) to pay the additional royalty. Additional royalty was owed when royalty based on the highest posted price exceeded royalty based on the actual sales price; either the lessee or the purchaser (whoever was responsible for royalty payments) had to pay this additional royalty. Sometimes purchasers or lessees paid this additional royalty by the 25th of the month as part of their overall royalty payment and sometimes they submitted the additional royalty separately to the Agency. -11-

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The lessees or purchasers were required to pay royalties based on the higher of the actual selling prices the lessees received (e.g., the actual price paid by the purchaser) or the highest posted or offered price of a major purchaser for the gravity of oil produced. During the price control era (1973-1981), the Department of the Interior ("Interior") based royalty value on the regulated prices for particular categories of oil, which practice was followed by the Agency for Osage royalty payments. Thus, the lessee or purchaser based its royalty on the maximum price the lessee could receive (or the purchaser could pay) for its category of regulated oil. Generally, by the 25th of the month following production by the lessee (or following sales to a purchaser), lessees submitted Lessee's Reports to the Agency.6/ The Lessee's Reports were prepared on the Agency's standard forms (Oil Lessee's Monthly Report), and included information such as purchasing company, barrels of oil sold, royalty amount (on some forms), and barrels of oil produced. The Lessee's Report was based on a purchaser's statement. The lessee, or a producer on its behalf, would verify the volumes in the purchaser statement with daily volumes set out in the lessee's or producer's gauge books. Some Lessee's Reports also included prior month adjustments and noted the regulated category of oil. The Lessee reports contained a certification line on which an officer of the company would place his or her signature attesting to the truth and accuracy of the report. Purchasers of oil from the Osage mineral estate were also required to file monthly purchaser's statements (sometimes referred to as purchase reports or run statements) with the Superintendent by the 15th of each month, reporting all purchases from the previous month. The 1990 revision of the

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Often, a lessee would engage another company to operate its wells. In this case, the operator, or producer, would provide the lessee report. -12-

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regulations changed this reporting deadline to the 25th day of the month following the month of sales. The Superintendent was also empowered to authorize up to a 10-day extension of time for furnishing this statement. This was a unique reporting requirement for leases on the Osage mineral estate. The MMS did not require a monthly purchaser's statement from purchasers setting out the information below for Indian and Federal leases. The purchaser's statements were not prepared on a standard Agency form, but rather were prepared and submitted on forms or statements prepared by the purchasing companies. Some purchasers provided a separate report for the royalty amount, but most purchasers listed the royalty amounts on the purchaser's statement. Purchaser's statements varied by the company, but typically contained information such as property description and name, production operator, purchaser, net barrels, API gravity, price per barrel, gross value, and net value. Some statements also contained the royalty rate and royalty amount. Further, the Osage Agency and lessees received a copy of the purchaser's statement. The information in a purchaser statement was either derived from a gauge ticket (also referred to as a run ticket) or a lease automatic custody transfer ("LACT") unit. A gauge ticket provides the volume and "quality"7/ of oil purchased from a tank. A gauger would measure the level of oil in a tank before and after a withdrawal. The difference between the two measurements indicated the volume of oil sold. From these measurements, the purchaser's agent determined the volume of API quality barrels of oil in any given tank. The measurements were subsequently entered on a gauge ticket, typically indicating information such as the date and time of the sale, the name of the lessee,

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The gauger determined the API gravity or density, the temperature, and basic sediment and water (BS&W) content of the oil. -13-

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the number and location of the lease, and the number and size of the oil tank. A copy of the gauge ticket was distributed to both the lessee and to the Agency The volume of crude oil sold from some of the Tranche One leases was measured by a LACT unit. A LACT unit is used to measure volume (through a meter) and quality of oil (through sampling). LACT units are typically calibrated for accuracy by an independent third party on a periodic basis. c. Agency Calculation and Verification of Oil Royalties

After receipt of the lessee's reports and purchaser's statements, the Agency compared the volumes and values reflected in them. If the volume and value data did not match, the Agency contacted either the Lessee or Purchaser to reconcile the difference, file corrected reports, and adjust payment if necessary. The Agency also verified the accuracy of royalty rates, volumes sold, and royalty value and determined whether it had received the correct royalty payment. If not, the Agency calculated the additional royalty due and sought an additional payment and any late fee. Royalty payment data was maintained on IBM computer systems and includ