Justia U.S. Federal Circuit Court of Appeals Opinion Summaries

Articles Posted in Energy, Oil & Gas Law
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Taylor's leases for the Outer Continental Shelf (OCS), set to expire in 2007, incorporated Outer Continental Shelf Lands Act (OCSLA), 43 U.S.C. 1301, regulations. They required Taylor to leave the leased area “in a manner satisfactory to the [Regional] Director.” Taylor drilled 28 wells, each connected to an oil platform. In 2004, Hurricane Ivan toppled Taylor’s platform, rendering the wells inoperable. Taylor discovered leaking oil but took no action. In 2007, Taylor was ordered to decommission the wells within one year. Taylor sought extensions. The government required Taylor to set aside funds for its decommissioning obligations. For Taylor to receive reimbursement, the government must confirm the work was conducted “in material compliance with all applicable federal laws and . . . regulations" and with the Leases. The resulting Trust Agreement states that it “shall be governed by and construed in accordance with the laws of" Louisiana. Taylor attempted to fulfill its obligations. The government approved a departure from certain standards but ultimately refused to relieve Taylor of its responsibilities.Taylor filed claims involving Louisiana state law: breach of the Trust Agreement; request for dissolution of the trust account based on impossibility of performance; request for reformation for mutual error; and breach of the duty of good faith and fair dealing. The Federal Circuit affirmed the dismissal of the complaint. OCSLA makes federal law exclusive in its regulation of the OCS. To the extent federal law applies to a particular issue, state law is inapplicable. OCSLA regulations address the arguments underlying Taylor’s contract claims, so Louisiana state law cannot be adopted as surrogate law. View "Taylor Energy Co. LLC v. United States" on Justia Law

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The plaintiffs each own a wind farm that was put into service in 2012. Each applied for a federal cash grant based on specified energy project costs, under section 1603 of the American Recovery and Reinvestment Tax Act of 2009. The Treasury Department awarded each company less than requested, rejecting as unjustified the full amounts of certain development fees included in the submitted cost bases. Each company sued. The government counterclaimed, alleging that it had actually overpaid the companies.The Claims Court and Federal Circuit ruled in favor of the government. Section 1603 provides for government reimbursement to qualified applicants of a portion of the “expense” of putting certain energy-generating property into service as measured by the “basis” of such property; “basis” is defined as “the cost of such property,” 26 U.S.C. 1012(a). To support its claim, each company was required to prove that the dollar amounts of the development fees claimed reliably measured the actual development costs for the windfarms. Findings that the amounts stated in the development agreements did not reliably indicate the development costs were sufficiently supported by the absence in the agreements of any meaningful description of the development services to be provided and the fact that all, or nearly all, of the development services had been completed by the time the agreements were executed. View "California Ridge Wind Energy, LLC v. United States" on Justia Law

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Alternative Carbon claimed nearly $20 million in energy tax credits meant for taxpayers who sell alternative fuel mixtures under 26 U.S.C. 6426(e)(1). The Internal Revenue Service determined that Alternative Carbon should not have claimed these credits and demanded repayment, with interest and penalties. Alternative Carbon paid back the government, in part, and then filed a refund suit. The Claims Court decided that Alternative Carbon failed to establish that it properly claimed the credits or that it had reasonable cause to do so and granted the government summary judgment. The Federal Circuit affirmed. Although the product at issue, a feedstock/diesel mixture, was a “liquid fuel,” it was not “sold” by Alternative Carbon; the transaction was more of a transfer for disposal. Alternative Carbon cannot show it had reasonable cause for claiming the alternative fuel mixture credits. View "Alternative Carbon Resources, LLC v. United States" on Justia Law

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WestRock’s Virginia paper mill was fueled by steam from boilers that burned various fuels, including fossil fuels. In 2013, WestRock placed into service a cogeneration facility that burns open-loop biomass, material not originally intended for use as fuel. Steam from a new biomass-fired boiler and an old paper mill boiler are comingled and fed into a steam turbine generator. Electricity is generated after WestRock diverts some steam to the paper mill for use in the industrial paper process. In 2013, WestRock submitted an American Recovery and Reinvestment Act of 2009 Section 1603 application seeking a grant; it claimed that its qualifying property cost $286,191,571 and requested $85,857,471. The National Renewable Energy Laboratory determined that WestRock used only 49.1 percent of the steam energy to produce electricity and that fossil fuel still comprised about 0.22 percent of its boiler fuel. The Department of Treasury reduced the cost basis by 51.2 percent and awarded WestRock $38,881,758—30 percent of the cost of what Treasury deemed qualifying property. The Claims Court affirmed, finding that Section 1603 provides for reimbursement of only costs associated with electricity production at WestRock’s facility. The court afforded deference to nonbinding Treasury guidance, which provides for allocation of the cost basis between qualifying and non-qualifying activities. The Federal Circuit affirmed. Section 1603 provides for a grant in the amount of 30 percent of the basis or cost of any qualified property that is used as an integral part of a facility that uses open-loop biomass to produce electricity. View "WestRock Virginia Corp. v. United States" on Justia Law

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Sunoco blends ethanol with gasoline to create alcohol fuel mixtures. Sunoco filed consolidated tax returns, 2004-2009, claiming the Mixture Credit under 26 U.S.C. 6426 as a credit against its gasoline excise tax liability for the years 2005-2008. In 2013, Sunoco changed its tax position by submitting both informal and formal claims with the IRS to recover over $300 million based on excise-tax expenses for the years 2005-2008, claiming that it erroneously reduced its gasoline excise tax by the amount of Mixture Credit it received, which had the effect of including the Mixture Credit in its gross income. In its view, Sunoco was entitled to deduct the full amount of the gasoline excise tax under section 4081— without regard to the Mixture Credit—and keep the Mixture Credit as tax-free income. In 2015, the IRS issued a statutory notice of disallowance denying Sunoco’s claims. Sunoco filed a refund suit. The Federal Circuit affirmed the Claims Court in upholding the disallowance. The alcohol fuel mixture credit must first be applied to reduce a taxpayer’s gasoline excise-tax liability, with any remaining credit amount treated as a tax-free payment. View "Sunoco, Inc. v. United States" on Justia Law

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The American Recovery and Reinvestment Act of 2009 provides a cash grant to entities that “place[] in service” certain renewable energy facilities. The amount is determined using the basis of the tangible personal property of the facility. Alta placed windfarm facilities into service and sought $703 million in grants. The government awarded $495 million. Alta filed suit, seeking an additional $206 million. The government counterclaimed, asserting that it had overpaid $59 million. The difference was attributable to the calculation of basis. The portion of the purchase prices attributable to grant-ineligible tangible property (real estate, transmission equipment, and buildings) must be deducted: Alta argued that the entire remainder can be allocated to grant-eligible tangible personal property, with none allocated to intangibles. The Claims Court found in favor of Alta, rejecting the government’s argument that basis must be calculated using the residual method of 26 U.S.C. 1060, which applies to the acquisition of a business. The court reasoned that no intangible goodwill or going concern value could have attached to the windfarms at the time of the transaction.The Federal Circuit vacated. The Alta purchase prices were well in excess of their development and construction costs (book value), and the transactions involved numerous related agreements, such as the leasebacks and grant-related indemnities. Goodwill and going concern value could have attached, so those assets constitute a “trade or business” within the meaning of section 1060; the transactions count as “applicable asset acquisitions.” View "Alta Wind v. United States" on Justia Law

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The power companies allege that they were overcharged for electricity during several months in 2000–2001 and sought to recover the overcharges from the federal government based on sales by the federal Western Area Power Administration (WAPA) and Bonneville Power Administration (BPA). The California Power Exchange (Cal-PX) and the California Independent System Operator (Cal-ISO) were responsible for acquiring and distributing electricity between producers and consumers in California and setting prices for the electricity. The power companies argued that a contract existed between all consumers of electricity (including themselves) and all producers of electricity (including the government agencies) in California. The government argued that the contracts were only between the middleman entities—Cal-PX and Cal-ISO—and the consumers and producers individually. The Claims Court dismissed for lack of standing. The Federal Circuit affirmed. The companies lack privity of contract or any other relationship with the government that would confer standing. Under the Tucker Act, the Claims Court has jurisdiction over contract cases in which the government is a party, 28 U.S.C. 1491(a)(1); normally a contract between the plaintiff and the government is required to establish standing. The court noted that the companies may have claims against the parties with whom they are in contractual privity, the electricity exchanges. View "Pacific Gas & Elec. Co. v. United States" on Justia Law

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Netzer owns the 496 patent, entitled “Process for the Coproduction of Benzene from Refinery Sources and Ethylene by Steam Cracking,” which describes a process for the coproduction of ethylene and purified benzene from refinery mixtures. The district court entered summary judgment of noninfringement. The court did not formally construe the claims, but, implicitly agreed with defendant (Shell) that “fractionating” does not include extraction. The court found no literal infringement, reasoning that “Netzer’s method does not include extraction and does not yield benzene of 99.9% purity” and that “[t]o infringe, Shell would have to eliminate the extraction step and still produce benzene purified to at least 80%.” The court also found no infringement under the doctrine of equivalents because Netzer is barred by “specific exclusion, prosecution-history estoppel, and prior art.” The Federal Circuit affirmed; no reasonable jury would find that the accused process performs substantially the same function in substantially the same way to obtain substantially the same result. View "David Netzer Consulting, LLC v. Shell Oil Co." on Justia Law

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Under the 1887 General Allotment Act and the 1934 Indian Reorganization Act, the U.S. is the trustee of Indian allotment land. A 1996 class action, filed on behalf of 300,000 Native Americans, alleged that the government had mismanaged their Individual Indian Money accounts by failing to account for billions of dollars from leases for oil extractions and logging. The litigation’s 2011 settlement provided for “historical accounting claims,” tied to that mismanagement, and “land administration claims” for individuals that held, on September 30, 2009, an ownership interest in land held in trust or restricted status, claiming breach of trust and fiduciary mismanagement of land, oil, natural gas, mineral, timber, grazing, water and other resources. Members of the land administration class who failed to opt out were deemed to have waived any claims within the scope of the settlement. The Claims Resolution Act of 2010 ratified the settlement and funded it with $3.4 billion, The court provided notice, including of the opt-out right. Challenges to the opt-out and notice provisions were rejected. Indian allotees with interests in the North Dakota Fort Berthold Reservation, located on the Bakken Oil Shale (contiguous deposits of oil and natural gas), cannot lease their oil-and-gas interests unless the Secretary approves the lease as “in the best interest of the Indian owners,” 122 Stat. 620 (1998). In 2013, allotees sued, alleging that, in 2006-2009, a company obtained Fort Berthold allotment leases at below-market rates, then resold them for a profit of $900 million. The Federal Circuit affirmed summary judgment for the government, holding that the allotees had forfeited their claims by failing to opt out of the earlier settlement. View "Two Shields v. United States" on Justia Law

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The Nuclear Waste Policy Act of 1982 authorized the Department of Energy (DOE) to contract with power utilities for a planned national nuclear waste disposal system, 42 U.S.C. 10222. Utilities were to pay into a Nuclear Waste Fund; the government was to dispose of their spent nuclear fuel beginning by January 31, 1998.. Under the Standard Contract, utilities must provide “preparation, packaging, required inspections, and loading activities necessary for the transportation … to the DOE facility.” DOE is responsible for “arrang[ing] for, and provid[ing], a cask(s) and all necessary transportation … to the DOE facility.” In 1983, System Fuels entered Standard Contracts concerning the Grand Gulf and Arkansas Nuclear One power stations. The government has yet to begin accepting spent nuclear fuel. System Fuels obtained damages for costs incurred through August 31, 2005 (Grand) and June 30, 2006 (Arkansas), including costs to construct Independent Spent Fuel Storage Installations (ISFSIs) and later successfully sought damages for continued breach. The Claims Court denied costs incurred to load spent fuel into storage casks at the ISFSIs by first loading it into canisters, then loading those canisters into dry fuel storage casks and welding the casks closed. The Federal Circuit reversed, noting that under the Standard Contracts, DOE cannot accept any of the canistered fuel as is, so System Fuels will incur costs to unload the casks and canisters and to reload fuel into transportation casks if and when DOE performs. View "System Fuels, Inc. v. United States" on Justia Law