BNUMBER:  B-276561 
DATE:  September 30, 1997
TITLE: [Letter], B-276561, September 30, 1997
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B-276561

September 30, 1997

The Honorable Carolyn B. Maloney
House of Representatives

Dear Ms. Maloney:

Your letter of March 12, 1997, asked for our views about the authority 
of the Department of the Interior's Minerals Management Service (MMS) 
to settle certain disputes over royalties owed under federal leases.  
Specifically, you were concerned whether MMS settlement agreements 
with Exxon Company U.S.A. and Chevron U.S.A. Inc. in 1993 and 1994 
complied with the requirement under 31 U.S.C.  sec.  3711 for Department of 
Justice approval of agency compromise of claims of the Government 
exceeding $100,000. 

Under 31 U.S.C.  sec.  3711(a)(2), agencies have authority to compromise 
debt claims where the principal amount does not exceed $100,000, or 
such higher amount as the Attorney General may from time to time 
prescribe.  If the principal amount of the debt exceeds $100,000, only 
the Department of Justice has the authority to compromise.[1]  You 
asked that we determine, based on the two settlement agreements, 
whether the agreements should have been approved by the Department of 
Justice.  It is our view that the 1993 MMS settlement with Exxon 
should have been submitted to the Department of Justice for approval 
to the extent it compromised individual claims over $100,000.  The 
Department of Justice was a party to the 1994 Chevron settlement 
agreement, which was approved by an Associate Attorney General. 
 
BACKGROUND

Royalty Payments

The Department of the Interior, through its Minerals Management 
Service, issues and administers leases for offshore oil and gas 
production under the Outer Continental Shelf Lands Act,[2] for onshore 
production on federal lands under the Mineral Leasing Act[3] and the 
Mineral Leasing Act for Acquired Lands,[4] and for production on 
Indian tribal and allotted lands.[5]  MMS collects royalty payments 
from lessees in return for the right to extract oil and gas from the 
leased properties.  Royalties are calculated as a specified percentage 
of the value of production removed or sold from the lease.  MMS 
regulations provide that the royalty due on oil and gas production 
shall be the value, for royalty purposes, determined pursuant to 30 
C.F.R. part 206 multiplied by the royalty rate in the lease.[6]  

The Federal Oil and Gas Royalty Management Act (FOGRMA), 30 U.S.C.  sec.  
1701-1757, directs the Secretary to establish "a comprehensive 
inspection, collection and fiscal and production accounting and 
auditing system to provide the capability to accurately determine oil 
and gas royalties, interest, fines, penalties, fees, deposits, and 
other payments owed, and to collect and account for such amounts in a 
timely manner."[7]  The FOGRMA further provides that the Secretary 
"shall audit and reconcile, to the extent practicable, all current and 
past lease accounts for leases of oil or gas and take appropriate 
actions to make additional collections or refunds as warranted."[8]

MMS operates according to an honor system similar to the Internal 
Revenue Service's, in which the producing companies report their 
production and sales and then compute and pay the royalties they owe.  
MMS's role is primarily one of oversight--taking the actions necessary 
to reasonably ensure that mineral reports and payments by royalty 
payors comply with the various applicable laws and regulations.  The 
MMS enforcement process involves multiple steps and multiple stages of 
review.  An order to pay or perform certain work is first given by an 
operating division of the Royalty Management Program.  It may require 
the payment of a billed amount or may require performance of other 
compliance steps such as submitting revised royalty or production 
reports.

Decisions and orders issued by the MMS's Royalty Management Program 
are subject to administrative appeal to the Director of MMS, if 
federal lands are involved, or to the Commissioner of Indian Affairs, 
if Indian leases are at issue.[9]  Any party to a case adversely 
affected by a final decision of the Director, MMS, has a right of 
appeal to the Interior Board of Land Appeals in accordance with the 
procedures provided in 43 C.F.R. part 4.[10]  A decision issued by the 
IBLA is the final decision of the Department of the Interior.[11] 

Federal Debt Collection

The Federal Claims Collection Act of 1966, as amended and codified at 
31 U.S.C.  sec.  3711, provides the basic legal framework for agency 
collection of debts owed to the United States, with oversight by the 
Department of Justice.[12]  The Federal Claims Collection Standards, 
which implement the act, use the terms "debt" and "claim" 
interchangeably, and define "debt" as "an amount of money or property 
which has been determined by an appropriate agency official to be owed 
to the United States from any person, organization, or entity, except 
another Federal agency."[13]  The act requires each agency to attempt 
collection of all claims of the United States for money or property 
arising out of the activities of, or referred to, that agency.[14]  

Under 31 U.S.C.  sec.  3711(a)(2), agencies have authority to compromise 
debt claims where the principal amount does not exceed $100,000, or 
such higher amount as the Attorney General may from time to time 
prescribe.  In the claims context, "compromise" means accepting in 
full satisfaction of the claim less than the full amount owed.  If the 
principal amount of the debt exceeds $100,000,[15] only the Department 
of Justice may compromise, unless the agency has its own 
agency-specific or program-specific compromise authority.  Although 
the Department of the Interior does currently have specific statutory 
authority to compromise oil and gas claims, at the time of the matters 
at issue here Interior did not have its own authority.[16]  

The Federal Claims Collection Act does not authorize accepting a 
lesser amount merely for the sake of closing out the claim.  Rather, 
evaluation and acceptance of compromises are governed by criteria 
found in the Federal Claims Collection Standards, specifically 4 
C.F.R. part 103, and the Department of the Interior standards for the 
compromise of claims in 344 Departmental Manual 4.1 to 4.5.  The 
standards provide for the compromise of a claim based on inability to 
pay, litigation probabilities, cost of claim collection, or for more 
than one of these reasons. 

DISCUSSION

As agreed with your office, we have reviewed a copy of two MMS 
settlement agreements: a settlement agreement with Exxon Company 
U.S.A. for $44 million, entered into in 1993, and one for $150 million 
with Chevron U.S.A. Inc., entered into in 1994.  You were concerned 
whether these agreements complied with the requirement under 31 U.S.C.  sec.  
3711 for Department of Justice approval of agency compromise of claims 
of the Government exceeding $100,000.  We are basing our views on a 
review of these two documents and a letter to your office dated July 
23, 1997, from the U.S. Department of Justice, addressing issues you 
raised about these settlements in a March 12, 1997, letter to the 
Justice Department.

Our review of these documents shows that the Department of Justice was 
a party to the 1994 Chevron settlement agreement, which was approved 
by an Associate Attorney General.  Thus, to the extent that the 
Chevron settlement involved agency compromise of claims of the 
Government exceeding $100,000, MMS received the Department of Justice 
approval required by 31 U.S.C.  sec.  3711(a)(2).[17] 

It is our view that the 1993 MMS settlement with Exxon should have 
been submitted to the Department of Justice for approval to the extent 
it compromised individual claims over $100,000.  This settlement 
involved the appeals of dozens of issues, including those concerning 
royalty payments determined by the Department of the Interior to be 
owed by Exxon.  Under the settlement agreement, MMS agreed to accept 
$44 million from Exxon, an amount apparently less than the amounts 
claimed in the appealed orders.  

The Federal Claims Collection Standards in effect at the time defined 
"claim" and "debt" as "an amount of money or property which has been 
determined by an appropriate agency official to be owed to the United 
States . . . ."  The term "appropriate agency official" was not 
defined in the Standards.  The "appropriate agency official" 
establishing the debt needs to be identified based on the agency's 
delegations of authority and governing regulations.

Interior Order No. 3087, as amended, assigned all functions of the 
Secretary related to royalty and mineral revenue, including 
collections, to MMS.[18]  The Order provides that MMS reports to an 
Assistant Secretary, who exercises Secretarial direction and 
supervision over the MMS.  Interior's regulations further provide that 
the Associate Director, MMS, is responsible for the functions related 
to royalty management, including determining royalty liability, audits 
of royalty payments, and collections of royalties:

     "The Associate Director is responsible for the collection of 
     certain rents, royalties, and other payments; for the receipt of 
     sales and production reports; for determining royalty liability; 
     for maintaining accounting records; for any audits of the royalty 
     payments and obligations; and for any and all other functions 
     relating to royalty management on Federal and Indian oil and gas 
     leases."[19] 

In our view, the Associate Director, who has been delegated the 
authority to determine royalty claims owed to the Department of the 
Interior, is an "appropriate agency official" to establish a debt or 
claim under the Federal Claims Collection Standards.

Interior's regulations also establish an appeals system, under which 
decisions of officers of MMS may be reviewed, and new decisions 
issued, by higher levels within the Department.[20]  During the 
appeals process, a higher level official within the Department may 
redetermine, based on applicable law and facts, the amount of the 
claim.[21]  While the settlement agreement does not recite which 
agency official made the initial claim determination, the claims were 
on appeal and presumably were determined by the Associate Director, 
MMS, or another official otherwise delegated responsibility.

As discussed above, Department of the Interior officials now have 
statutory authority to compromise oil and gas claims.  However, at the 
time the settlements at issue here were signed, an Interior Department 
official could not compromise a claim of over $100,000 that had been 
determined by another "appropriate agency official," i.e., accept less 
than the full amount owed in full satisfaction of the claim without 
first obtaining Department of Justice approval.  Claims of lesser 
amounts could have been compromised if the Government could not 
collect the full amount because of the debtor's inability to pay the 
full amount within a reasonable time, if the cost of collecting the 
claim did not justify the enforced collection of the full amount, or 
if there was a real doubt concerning the Government's ability to prove 
its case in court for the full amount claimed, either because of the 
legal issues involved or a bona fide dispute as to the facts.[22]

You note the Department of the Interior represented to you its belief 
that at the  time of the Exxon settlement, it had authority under the 
FOGRMA to compromise.  The Department's view is that the authority to 
collect and the authority to adjudicate disputes at administrative 
levels within the agency necessarily implies the authority to 
compromise and settle matters in dispute before the agency.  We 
disagree.  While the term "settlement" in the litigation context means 
compromise, it has a different meaning in the administrative claims 
context.  The Supreme Court has defined the term "settlement" as 
denoting the appropriate administrative determination with respect to 
the amount due.[23]  Thus, to settle a claim means to administratively 
determine the validity of that claim.[24]  Settlement includes the 
making of both factual and legal determinations.  20 Comp. Gen. 573, 
577.  The authority to settle and adjust claims does not, however, 
include the authority to compromise.[25]  In the claims context, 
compromise means accepting less than the full amount owed in full 
satisfaction of the claim. 
 
The 1993 MMS settlement with Exxon is a $44 million global agreement 
encompassing dozens of issues that were the subject of ongoing 
administrative proceedings.  Although the agreement is entitled 
"Compromise and Settlement Agreement," and states that it is made for 
the purpose of compromising and settling claims and disputes, the 
agreement does not provide the amount of any individual claim or the 
Department of the Interior's rationale for deciding to accept an 
amount less than the amount it had asserted that Exxon owed.  
Therefore, we cannot say definitively whether Interior compromised 
claims in excess of $100,000, or whether, instead, Interior actually 
determined on the merits that Exxon owed lesser amounts.  However, the 
agreement states that the Department of the Interior, in good faith, 
contends that Exxon is liable with respect to the royalty computations 
and payments involved, and that Exxon, in good faith, contends that it 
is not liable with respect to Interior's claims.  Based on the 
language and amount of the settlement agreement, it is likely that 
some claims in excess of $100,000 were settled for less than the 
amount Interior believed that Exxon owed, i.e., were compromised.
  
CONCLUSION

Although the Department of the Interior currently has specific 
statutory authority to compromise oil and gas claims, at the time of 
the matters at issue here, Interior did not have agency-specific or 
program-specific compromise authority.  As discussed above, the 1994 
MMS settlement agreement with Chevron U.S.A. Inc. received the 
Department of Justice approval required by 31 U.S.C.  sec.  3711(a)(2).  To 
the extent the 1993 MMS settlement agreement with Exxon Company U.S.A. 
compromised claims exceeding $100,000, that agreement should have been 
referred to the Department of Justice for approval.

We hope that you find this analysis useful.  If we can be of further 
assistance, please let us know.

Sincerely yours,

Robert P. Murphy
General Counsel   

B-276561

September 30, 1997

DIGEST

Although the Department of the Interior currently has specific 
statutory authority to compromise oil and gas claims, at the time of 
the matters at issue here, Interior did not have agency-specific or 
program-specific compromise authority.  To the extent that a 1993 
Minerals Management Service settlement agreement with Exxon Company 
U.S.A. compromised royalty claims exceeding $100,000, that agreement 
should have been referred to the Department of Justice for the 
approval required by the Debt Collection Act, 31 U.S.C.  sec.  3711.

1. Several agencies have their own agency-specific or program-specific 
compromise authority.  See, for example, 62 Comp. Gen. 489 (1983) 
(Economic Development Administration); 28 Comp. Gen. 638 (1949) 
(insured mortgage claims by predecessor of Department of Housing and 
Urban Development).

2. 43 U.S.C.  sec.  1331 et seq.

3. 30 U.S.C.  sec.  181 et seq.

4. 30 U.S.C.  sec.  351 et seq.

5. 25 U.S.C.  sec.  396, 396a-396g.

6. 30 C.F.R.  sec.  202.100, 202.150.

7. 30 U.S.C.  sec.  1711(a). MMS has recently published a supplementary 
proposed rule regarding valuation of crude oil produced from federal 
leases.  See 62 Fed. Reg. 36030 (1997).

8. 30 U.S.C.  sec.  1711(c)(1).

9. 30 C.F.R. part 290.  In cases where the Director issues or concurs 
in Royalty Management Program decisions or orders, an appeal to the 
Director is precluded, and the matter must go to the Interior Board of 
Land Appeals for administrative review.  30 C.F.R.  sec.  290.2.  MMS has 
recently proposed rules in response to the 
33-month deadline on deciding appeals involving federal oil and gas 
leases enacted in section 4 of the Federal Oil and Gas Royalty 
Simplification and Fairness Act, Pub. L. 104-185, 110 Stat. 1700.  See 
61 Fed. Reg. 55607 (1996). 

10. 30 C.F.R.  sec.  290.7.

11. 43 C.F.R.  sec.  4.1(b)(3).

12. The General Accounting Office Act of 1996, Pub. L. No. 104-316,  sec.  
115(g), eliminated the Comptroller General's responsibility to 
prescribe, with the Attorney General, claims collection standards 
governing collection and compromise of claims in favor of the Federal 
Government.  The act left authority for the standards with the 
Attorney General.   

13. 4 C.F.R.  sec.  101.2(a).  The original Federal Claims Collection Act 
(FCCA) did not include a definition of claim.  The Debt Collection Act 
of 1982, Pub. L. No. 97-365, which amended the FCCA, defined the term 
"claim," and used the terms "claim" and "debt" interchangeably.  At 
the time of the MMS settlements, "claim" was defined as including 
"amounts owing on account of loans insured or guaranteed by the 
Government and other amounts due the Government."  The Debt Collection 
Improvement Act of 1996, Pub. L. No. 104-134,  sec.  31001(z)(1)(B), has 
since amended the term "claim" by providing that:  "the term 'claim' 
or 'debt' means any amount of funds or property that has been 
determined by an appropriate official of the Federal Government to be 
owed to the United States by a person, organization, or entity other 
than another Federal agency . . . ."

14. 31 U.S.C.  sec.  3711(a)(1).

15. A debtor's liability arising from a particular transaction is 
considered a single claim for purposes of the $100,000 limit.  An 
agency may not subdivide a claim to avoid the monetary limit.  4 
C.F.R.  sec.  101.6.

16. Section 4 of the Federal Oil and Gas Royalty Simplification and 
Fairness Act of 1996, Pub. L. No. 104-185, 110 Stat. 1700, amended 
FOGRMA to provide that the "Secretary and the State concerned may take 
such action as is appropriate to compromise and settle a disputed 
obligation . . . ."    

17. We did not review the reasoning behind the Department of Justice's 
approval.

18. 48 Fed. Reg. 8983 (1983).

19. 30 C.F.R.  sec.  201.100.

20. 43 C.F.R. part 4.

21. 43 C.F.R.  sec.  4.5 provides that:  "Nothing in this part shall be 
construed to deprive the Secretary of any power conferred upon him by 
law.  The authority reserved to the Secretary includes, but is not 
limited to: (1) The authority to take jurisdiction at any stage of any 
case before any employee or employees of the Department, including any 
administrative law judge or board of the Office . . . and (2) the 
authority to review any decision of any employee or employees of the 
Department, including any administrative law judge or board of the 
Office . . . ."  See Chevron Oil Co. v.  Andrus, 588 F.2d 1383 (5th 
Cir.), reh'g denied, 591 F.2d 1343, cert. denied, 444 U.S. 879 (1979) 
(designation of an agency official as an authorized officer does not 
deprive the Secretary of the Interior the power to review or revise 
the officer's determination).

22. 4 C.F.R. part 103.

23. Illinois Surety Co. v. United States ex rel. Peeler, 240 U.S. 214, 
219-221 (1916).

24. Id.; Cooke v. United States, 91 U.S. 389, 399 (1875); Antrim 
Lumber Co. v. Hannan, 18 F.2d 548, 549 (8th Cir. 1927); 20 Comp. Gen. 
573 (1941).

25. B-200112, May 5, 1983.