B-244911, Jul 25, 1991

B-244911: Jul 25, 1991

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DIGEST: Claims Group is advised not to certify payment from the Judgment Fund. Of a compromise settlement negotiated by the Departments of Justice and Interior because the claim which is the subject of the settlement is not against the United States. Z-2910063 (B-244911): This is (we hope) a unique case. Your Z-file is returned as an attachment to this memorandum. The facts are as follows: Woods Petroleum Corporation secured the right to drill for oil on lands privately owned by some individual Indians. Was unable to convince the judge to order Interior and the Indians to reinstate its contract. The court had ordered the oil royalties which were accruing on account of Thomlinson's drilling activities to be paid into the court's registry. it ruled against Woods.

B-244911, Jul 25, 1991

DIGEST: Claims Group is advised not to certify payment from the Judgment Fund, 31 U.S.C. Sec. 1304 (1988), of a compromise settlement negotiated by the Departments of Justice and Interior because the claim which is the subject of the settlement is not against the United States, but rather between private parties (some individual Indians and an oil drilling contractor, Thomlinson Properties, Inc.) who happen to be co defendants with the United States in a lawsuit. Judgment Fund Manager - Ken Schutt Attorney-Advisor - Neill Martin-Rolsky

Woods Petroleum Corp. v. United States/Compromise with Thomlinson Properties, Inc., Z-2910063 (B-244911):

This is (we hope) a unique case. As explained below, we recommend against certifying payment of this settlement from the Judgment Fund, 31 U.S.C. Sec. 1304 (1988). Your Z-file is returned as an attachment to this memorandum.

The facts are as follows: Woods Petroleum Corporation secured the right to drill for oil on lands privately owned by some individual Indians. However, Woods failed to initiate drilling activities on those lands before his right to do so expired. Woods tried to convince the Indians and the Department of the Interior to give it more time to initiate drilling, but neither the Indians nor Interior would agree. After Woods' time ran out, another contractor, Thomlinson Properties Inc., offered to pay the Indians some "up-front" money and a share of the future oil royalties in return for the right to drill for oil on their lands. The Indians readily agreed (or so Thomlinson thought). Under federal laws created to protect Indians, such arrangements require the approval of the Interior Department. Interior approved Thomlinson's arrangements, but took four years to do so, and when it did so, Interior either neglected or chose not to make its approval retroactive. Woods brought a lawsuit in federal court, but was unable to convince the judge to order Interior and the Indians to reinstate its contract. Previously, at Woods' request, the court had ordered the oil royalties which were accruing on account of Thomlinson's drilling activities to be paid into the court's registry. it ruled against Woods, the court also ordered the royalties in the court's registry to be distributed to Thomlinson and the Indians. However, the judge held that, since Thomlinson's contract didn't take effect until it was approved by Interior, the royalties for the first four years belonged exclusively to the Indians, with no share for Thomlinson. Thomlinson asked the judge to clarify his order to make clear that Thomlinson was really entitled to a share of the royalties for the first four years since it had paid the Indians cash for those rights. At this point, however, some of the Indians repudiated their agreement. While they acknowledged entering into the agreements and being paid by Thomlinson, they maintained that they hadn't realized that they were giving up their rights to the royalties. Thomlinson, the Indians, and Interior were all co-defendants in Woods' lawsuit. Justice was defending Interior in the lawsuit, but it did not represent the Indians or Thomlinson. The two agencies feared that squabbling amongst the co defendants would distract from and weaken their defense of Woods' lawsuit, as well as cost the government a great deal of money for additional litigation costs. Interior and Justice offered to pay Thomlinson $37,500 if it would drop its claims to either a share of the first four years of royalties or a refund of the cash it paid for the rights to those royalties. Thomlinson agreed to this, subject to the condition that it retains the right to sue the Indians later for the balance of the cash it paid them-- if Woods ultimately won its lawsuit and invalidated Thomlinson's contracts. The agencies now request GAO certify payment of the money promised to Thomlinson from the Judgement Fund.

Here, then, is our quandary: The real issues of this case concern a disagreement amongst private parties-- those being Thomlinson and the Indians. Thomlinson has never made a monetary claim against the government in this matter. In fact, Thomlinson has never made any kind of claim against the government in this matter. Neither Thomlinson nor the Indians are even represented by the government. The settlement which Justice and Interior negotiated does not finally settle anything between anybody. Nevertheless, Justice and Interior believe that this agreement furthers the interests of the United States, protects the Indians, and is cheaper than having the entire matter litigated. David Moran (208-4361) of Interior's Solicitor's Office has told me that he believes payment from the Judgment Fund would be proper. Gerald Fish (272-6437) of the Justice Department, who helped arrange this settlement, has told me that Justice tends to doubt that payment from the Fund would be proper. The AUSA, Kent Anderson (405-231-5281), admits that he doesn't know whether payment should be made from the Fund or not. After considerable contemplation and consultation, we find ourselves inclined to the view that payment from the Judgment Fund in this matter would not be authorized under 31 U.S.C. Sec. 1304. This settlement simply does not meet the fundamental requirements of the act. However, the AUSA reports that Thomlinson has become anxious to receive its money. We have told Justice and Interior that, if one of them chooses to pay the settlement from its own appropriations immediately (as either a litigation cost or a program expense), we would be willing to consider a detailed submission later explaining why the Judgment Fund should reimburse the agency.

Interior has indicated that it will probably do so, and it has requested that Claims Group provide it with a brief note to formally confirm that GAO's certification under section 1304 is being withheld in this case. Interior asks that this letter be prepared as soon as possible and sent via FAX to Mr. Moran (208-5048). A copy of that letter should also be FAXed to Mr. Fish (272-6815). Please expedite your action on this matter. Should you have any questions about this matter, please do not hesitate to contact me.