Energy Law

Violations of Environmental Terms in Federal Oil and Gas Lease Insufficient to Support a Claim under the False Claims Act

By Clare Bienvenu

In Marcy v. Rowan Cos., Inc., No. 06-31238, 2008 WL 588745 (5th Cir. 2008), the Fifth Circuit Court of Appeals affirmed the district court’s decision to dismiss a qui tam action brought under the Federal Claims Act (FCA). The action alleged that the defendants violated the FCA by concealing the discharge of pollutants from an offshore drilling unit into the Gulf of Mexico.

The plaintiff, who claimed to have illegally dumped the pollutants at the direction of the defendants, asserted that the defendants made a false claim to the federal government by certifying Oil Record Books and MMS 133 reports omitting the discharges. He alleged that the defendants then received the benefit of continuing operations under a federal contract, the federal oil and gas lease. The plaintiff additionally alleged that, by failing to report the discharges, the defendants concealed an obligation to pay the government by fraudulently avoiding fines and penalties under several statutes, including the Federal Water Pollution Control Act, the Act to Prevent Pollution from Ships, the Outer Continental Shelf Lands Act, and the Oil Pollution Act of 1990. The Fifth Circuit, accepting the plaintiff’s factual allegations as true for purposes of the motion to dismiss, determined that the plaintiff failed to state a claim under the FCA, because: (1) any claim the defendants made for payment from the federal government was not a “material” claim; and (2) any obligation to pay the government as a result of violating environmental terms of the lease was merely a speculative obligation.

The Fifth Circuit first considered the plaintiff’s allegation that the defendants knowingly made a false claim for payment, pursuant to 31 U.S.C. §3729(a)(2). In determining this issue, the court looked to the materiality of the claim. In order for a claim to be material and, thus, fall within the scope of the FCA, the claim must be required in order to receive the government payment, or benefit. In this case, the court found that the accurate certification of the reports was not required to retain the lease, because the lease provided that failure to comply with its terms only results in cancellation of the lease at the option of the government. Due to the existence of other remedies that would allow continued operation under the lease despite violations of the terms of the lease, the environmental certifications were not required to retain the benefit of the government lease. 

The Fifth Circuit next considered the plaintiff’s allegation that the defendants knowingly concealed an obligation to pay the U.S. government, pursuant to 31 U.S.C. §3729(a)(7). The court found that the plaintiff would be unable to establish the defendants’ “obligation to pay” under the FCA, because the imposition of any fines or penalties resulting from environmental law violations depend solely upon the government’s discretion. Moreover, the speculative fines at issue did not arise directly out of the government lease, but arose out of general environmental laws. The court stated that allowing such general obligations to fulfill an FCA claim would extend the scope of the FCA far beyond its present interpretation.

Full post as published by The Energy Law Blog on March 12, 2008 (boomark / email).