Introduction
CEO certification requirements
IPAA appeal
Bureau vacates notice
Introduction
On April 27 2012 Bureau of Safety and Environmental Enforcement Director James Watson vacated Notice to Lessees and Operators 2010-N05, originally issued on June 8 2010.(1) The bureau's action stems from an appeal filed by the Independent Petroleum Association of America (IPAA), which challenged the notice's requirement that chief executives of federal offshore operators had to certify – on short notice and under threat of administrative sanction and criminal penalty – that their companies complied with offshore regulations and had completed certain reviews of their operations.
The vacatur of the notice made assurances that the Department of the Interior (DOI) cannot take any administrative enforcement action against chief executives for any errors in the certifications.
CEO certification requirements
In the months following the loss of the Deepwater Horizon, the DOI issued several reports, directives and memoranda detailing safety recommendations for offshore operators. One of the recommendations was that the DOI, in conjunction with the Department of Homeland Security, "verify compliance by operators with existing regulations and [the] national safety alert". The national safety alert recommended that operators and drilling contractors inspect and review their control equipment, rig drilling/casing/completion practices and emergency shutdown procedures.
On June 8 2010 the DOI expanded these verifications and issued National Notice to Lessees and Operators of Federal Oil and Gas Leases, Outer Continental Shelf 2010-N05. The notice required that offshore operators certify that they were in compliance with various offshore regulations and had conducted specific reviews of their own operations in line with the national safety alert recommendations.
Related to those certifications, the notice required that chief executives also certify that they "understand that the submission of false statements to the United States is a criminal offence under Section 1001 of Title 18 of the United States Code".
Section 1001 of Title 18 of the United States Code contains harsh penalties, stating that:
"[A CEO] shall be fined under the title or imprisoned not more than five years who knowingly and willfully:
- falsifies, conceals,or covers up by any trick, scheme or device a material fact;
- makes any materially false, fictitious or fraudulent statement or representation; or
- makes or uses any false writing or document knowing the same to contain any materially false, fictitious or fraudulent statement or entry."
Chief executives were required to provide this certification within 20 days of the issuance of the notice on June 8 2010. If any chief executive failed to provide this certification, the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) would issue an incident of non-compliance to the operator, which could have resulted in a shut-in order. Notices of non-compliance(2) had to be corrected within 20 days; otherwise BOEMRE could have issued a notice of civil penalty in the amount of $500 per violation per day or, in this case, approximately $2,500 per day. If the violation was not corrected within 40 days, the penalty could have been increased up to $5,000 per violation per day, up to a maximum of $20,000 per day.(3)
IPAA appeal
The IPAA timely appealed to the Interior Board of Land Appeals concerning chief executive certifications, including the requirements that a chief executive execute the certifications under threat of civil liability and criminal penalty. The IPAA made two substantive arguments. First, chief executive certifications were substantive rules under the Administrative Procedure Act, which required BOEMRE to comply with notice and comment rulemaking requirements. Since BOEMRE had failed to comply with the notice and comment rulemaking requirements, the notice should be vacated. Second, if BOEMRE intended not to comply with notice and comment rulemaking requirements, it was required to provide a basis on which its failure to comply was subject to the good cause exception and include a finding and brief statement of reasons for why it did not comply. The IPAA argued that BOEMRE had failed to include this reasoning and, therefore, the notice should be vacated.
In response, BOEMRE filed a motion to dismiss, arguing that the issue was moot. BOEMRE initially argued that the notice was no longer in effect or being enforced because of the judgment in Ensco Offshore Company v Salazar,(4) in which the court held that:
"[the notice] imposes additional duties on operators and lessees; it mandates new certifications and safety inspections that were not in place before; it does not simply track statutory language or reiterate existing duties. It is, by its very thrust, substantive. Notice and comment were required by law. The government did not comply, and the [notice] is of no lawful force or effect."
Although the notice had not been vacated, BOEMRE advised that at that point, it had ceased enforcing it. Moreover, BOEMRE argued that three of the five certification requirements were superseded in October 2010 by a new rule: Oil and Gas and Sulphur Operations in the Outer Continental Shelf – Increased Safety Measures for Energy Development on the Outer Continental Shelf.(5)
BOEMRE's additional argument was that the board had no effective remedy with respect to potential criminal liability for a party which makes a false statement. Under Bryson v United States,(6) it argued that:
"whether [a statute or regulation] was unconstitutional or not is legally irrelevant to the validity of petitioner's conviction under Section 1001 [of Title 18 of the United States Code], the general criminal provision punishing the making of fraudulent statements to the government".
The IPAA responded, advising the board that even though the notice was not being enforced and had been partially replaced by the new rule, the certifications which chief executives had previously executed were still in force and effect. Thus, until the notice had been vacated, chief executives who executed certifications remained at risk for civil liabilities or criminal penalties.
In response to BOEMRE's second argument, the IPAA stressed to the board that it was not seeking the board to enjoin future prosecution under Section 1001 of Title 18 of the United States Code, but that chief executive certifications should never have been required in the first instance.
Bureau vacates notice
On April 20 2012 the board denied BOEMRE's motion to dismiss and directed it to show cause as to why the notice should not be vacated.
On April 27 2012 BOEMRE complied with the IPAA's request to vacate the notice. On that date, Watson issued a memorandum stating that he was "by this memo, vacating and rescinding the 'Safety NTL' (NTL No 2010-N05) of June 8 2010".
On May 3 2012 the board issued an order mooting the appeal based on the bureau's vacating of the notice.
For further information on this topic please contact L Poe Leggette or Jennifer Cadena at Fulbright & Jaworski LLP by telephone (+1 713 651 5151), fax (+1 713 651 5246) or email ([email protected] or [email protected]).
Endnotes
(1) The NTL was initially issued by the former Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE). After the IPAA filed its appeal, BOEMRE was reorganised. Responsibility for NTL No 2010-N05 was subsequently transferred to the bureau's jurisdiction.