With misdeeds in the oil and gas leasing biz much in the news this week, we are pleased to report that the 10th Circuit has ruled in favor of Bobby Maxwell, a former auditor with the Interior Department, who had filed a false claims case (a.k.a. qui tam action) against Kerr-McGee.
Maxwell had accused the oil and gas producer of defrauding the government by underpaying royalties for federal offshore oil leases. A jury returned a verdict of $7.5 million in Maxwell's favor, but the lower court judge then ruled that since the information underlying the suit had previously been disclosed, there was no jurisdiction under the False Claims Act. Under 1986 amendments to the law, Congress had sought to encourage more lawsuits to be filed by citizens but to discourage any that were founded in revelations already made public by reports or hearings.
The case began in 2002 when Maxwell, a senior auditor in the Minerals Management Service (MMS) of Interior, was assigned to a team investigating royalty reporting by Kerr-McGee regarding crude oil produced from federal offshore leases. The investigation concluded that Kerr-McGee "had substantially underpaid its federal oil royalties" by about $10 million. In November 2002, Maxwell sent a letter to Kerr-McGee with that determination, which the company disputed. But when Maxwell drafted an order for payment of additional royalties, his bosses at the MMS did not issue the order.
Bobby Maxwell was just doing his job, trying to do the right thing without engaging in drugs or sex with the industry. But his finding that Kerr-McGee owed millions to the defrauded U.S. taxpayer was ignored.
So, in June 2004, Maxwell filed his lawsuit alleging that "Kerr-McGee knowingly made false and/or fraudulent statements on the monthly royalty reports submitted to the MMS and 'understated and underpaid' its federal royalties." The False Claims Act provides for the Justice Department to intervene in and essentially take over the plaintiff's role in whistleblowers' lawsuits that it deems worthy, but in the Maxwell case, the Department had declined to intervene.
Unfortunately, after the jury had found in Maxwell's favor, the trial judge reversed his earlier ruling and decided that when another MMS employee had emailed a Louisiana State employee, saying that "we have done a lot of work at Kerr and found numerous problems which will result in a significant underpayment," that that somehow constituted a public disclosure!
Fortunately, the appeals court disagreed, holding "that the limited disclosure of information to a government official under a duty of confidentiality is not a public disclosure," and concluded: "We hold that insofar as the communication does not release the information into the public domain such that it is accessible to the general population, it is not."
We are so relieved to learn that occasionally, even in the world of oil and gas leasing, common sense can triumph. However, we are unable to refrain from pointing out that, contrary to the long-running soap opera of the Justice Department’s lawsuit against POGO, in this case the appellate judges found it perfectly fine for a government employee to serve as relator in a qui tam case and to receive a portion of the proceeds ordered by the court to be disgorged by the company.
-- Beverley Lumpkin