author: JAMES M. FITZGERALD, Chief Judge.

text:
    MARATHON OIL COMPANY, Plaintiff, v. UNITED STATES of America; United States Department of the Interior, Donald Hodel, Secretary of the Interior; Esther Wunnicke, Commissioner of The Department of Natural Resources, State of Alaska; Cook Inlet Region, Inc., an Alaska Corporation, Defendants. COOK INLET REGION, INC., an Alaska Corporation, Counterclaimant, v. MARATHON OIL COMPANY, an Ohio Corp., Counterdefendant.
    Civ. No. A 83-208.
    United States District Court, D. Alaska.
    Feb. 20, 1985.

      Robert L. Richmond, Richmond & Associates, Anchorage, Alaska, Robert J. Kapelke, Gorsuch, Kirgis, Campbell, Walker & Grover, Denver, Colo., for plaintiff Marathon Oil.
    Michael Spaan, U.S. Atty., Anchorage, Alaska, Peter Schaumberg, U.S. Dept, of the Interior, Michael W. Reed, U.S. Dept, of Justice, Washington, D.C., for federal defendants.
    Steve C. Hillard, Munger, Tolies & Rickershauser, Anchorage, Alaska, William D. Temko, Munger, Tolies & Rickershauser, Los Angeles, Cal., for defendant Cook Inlet Region, Inc.
    Mark P. Worcester, Asst. Atty. Gen., Dept, of Law, Anchorage, Alaska, for defendant State of Alaska.
   JAMES M. FITZGERALD, Chief Judge.

Plaintiff Marathon Oil Company owns an undivided fifty percent working interest in certain oil and gas leases in the Kenai Field Unit in Alaska. Marathon and its working interest associate, Union Oil Company of California, discovered natural gas in the Kenai field in 1959, and production commenced in 1961.

During 1982, a representative year, the production of the Kenai field was delivered to a number of different purchasers. Approximately 16% was delivered to a liquefied natural gas (LNG) plant at Nikisi, Alaska owned by Marathon and Phillips Petroleum Company. Over 42% of Kenai field gas was delivered to an ammonia and urea plant at Mikisi owned by Collier Chemical Company, a subsidiary of Union Oil Company. Over 31% of production was sold to Alaska Pipeline Company under a long-term contract for distribution in the Anchorage market. About 9% of the gas was rented to the Swanson River Field Unit for pressure maintenance. A small portion of the gas was sold under contract to the City of Kenai, and a portion was used in production operations in the Kenai field.

Each of the defendants, the United States, the State of Alaska, and Cook Inlet Region, Inc. (CIRI), is entitled to receive royalties on gas produced in the Kenai field. There are both federal leases and state leases in the Kenai field. The leases are of four types: (a) leases which were originally federal leases covering lands later conveyed to the state pursuant to the Statehood Act; (b) leases which were originally federal leases covering lands later conveyed to CIRI pursuant to the Alaska Native Claims Settlement Act (ANCSA); (c) federal leases covering lands currently held by the United States; and (d) state leases covering lands currently held by the state. All of the federal leases provide that Marathon shall pay 12V2% royalty on the reasonable value of production from the leased lands. Alaska does not directly receive royalties from production attributable to the federal leases. However, under a provision of the Mineral Lands Leasing Act, Alaska is entitled to 90% of all royalties received by the United States from oil and gas production on federal lands in the Kenai field.

A dispute arose in 1977 between Marathon and the United States Geological Survey (USGS) as to the proper method of computing the reasonable value, for royalty purposes, of that part of gas production from federal leases delivered to the LNG plant. Gas delivered to the plant is cooled through a multi-step cooling process to transform it into a liquid. The liquefied natural gas (LNG) is then transported by tanker to Japan where it is sold to two utility companies. Marathon had been computing royalties on this gas on the basis of the price paid for Kenai field gas under the long-term contract with Alaska Pipeline Company. In 1977 USGS took the position that royalty value was to be established on the basis of the sales price for LNG in Japan less expenses.

To resolve the dispute, Marathon and the USGS entered into an agreement on February 6, 1981, retroactive to January 1, 1980. The settlement agreement provided that royalties were to be computed using the “Phillips formula” which had been developed for use by Phillips Petroleum Co. in computing royalties due the state of Alaska under state leases for gas delivered to the LNG plant at Nikisi. Under the Phillips formula, Marathon was to pay royalties based on 36% of the per MMbtu price received in Japan for the LNG (less certain adjustments). In addition, Marathon paid USGS $1,834,160.83 representing additional royalties due from January 1, 1980 through February 1981. The settlement agreement was, by its terms, effective “until such time as changes in market conditions, State or Federal law, or regulations adopted thereunder ... necessitate a revision in the method used to determine the wellhead value.”

On January 6, 1983, the Minerals Management Service (MMS) notified Marathon of MMS’s intention to redetermine the reasonable value for computing royalties on gas delivered to the LNG plant. The letter stated that the basic net back valuation theory by which the reasonable wellhead value was derived from the sales price in Japan was sound, but that adjustments were necessary to reflect changing costs and prices due to economic conditions. MMS proposed to update the coefficients in the Phillips formula to reflect current processing and transportation costs.

The letter also informed Marathon that MMS would hold a public hearing on the matter in Anchorage, and that Marathon had thirty days to file written comments, evidence, and legal argument. Moreover, Marathon would have an opportunity at the hearing to present its views to MMS. A public hearing was held in Anchorage on March 1, 1983, and at that time Marathon appeared and offered information on its own behalf.

Based on the hearing, written comments, and other materials, MMS on July 8, 1983 issued an order to Marathon directing the company to begin paying royalties as of August 1, 1983 based on the revised computations. Marathon did not comply but filed an appeal of the July 8 order. In substance, Marathon disputed MMS’s authority to redetermine the royalty basis, claiming that by notifying Marathon of the intended change in computation, MMS. had repudiated the settlement agreement based on the Phillips formula. Moreover, effective April 1, 1983, Marathon unilaterally rolled back the basis on which royalties on gas delivered to the LNG plant were computed to presettlement rates. That is, rather than following the formula of 36% of the price received in Japan, which had been in effect since January 1980, Marathon began to compute royalties based on the long-term contract price paid by Alaska Pipeline Company for Kenai field gas.

Under the July 8, 1983 order of MMS, Marathon was required for royalty purposes to compute the value for gas delivered to the LNG plant at $3.00/Mcf. By the terms of the settlement agreement based on sales of LNG in Japan, Marathon in the period immediately prior to April 1, 1983 computed the value of gas for royalty purposes at $1.71/Mcf. After that date, Marathon computed the value of gas at $.61/Mcf based on the contract price for Kenai field gas paid by Alaska Pipeline Company.

After MMS learned Marathon had unilaterally rolled back the price effective April 1, 1983, the agency issued a second order, dated October 5, 1983, directing Marathon to compute the value of gas for royalty purposes under the settlement or Phillips’ formula for the months of April through July 1983. Once again, Marathon did not comply with the MMS order. Finally, on June 11, 1984, the Department of the Interior (DOI) issued a third order directing Marathon to comply with the previous orders of MMS.

Marathon filed a complaint in this court on April 14, 1983 challenging the revised valuation method proposed by MMS. The original complaint has been amended to challenge the three DOI orders issued after the complaint was filed. In its amended complaint, Marathon now seeks declaratory relief to resolve the actual controversy among the parties involving the proper method of determining the wellhead value of the natural gas for royalty purposes. Apart from that, Marathon seeks redress for breach of lease provisions, for an accounting, for restitution, and to secure Marathon’s rights under the United States Constitution and the Alaska Constitution.

The federal government in answer to the amended complaint denies that Marathon is entitled to relief for any of its claims and seeks to have the claims dismissed. In a counterclaim, the federal government contends that effective August 1, 1983, Marathon was required to compute royalties on production delivered to the LNG plant in accordance with the MMS orders. Under those orders, the reasonable value of gas at the wellhead is deemed to be $3.00/Mcf, as opposed to the $.61/Mcf value used by Marathon since April 1983. Moreover, the government requests that Marathon be required to pay $717,705 as unpaid royalties on production for the period from April through July 1983 computed using the Phillips formula. Since Marathon has persistently failed to comply with the applicable statutes, regulations, and terms of its leases, the government requests an order from this court cancelling the leases and requiring Marathon to account for all royalty payments due and for judgment in the proper amount.

On October 1, 1984, the federal government requested that a preliminary injunction issue in this case to compel Marathon to pay the royalties on production delivered to the LNG plant in accordance with the MMS orders. A conference was held on December 3, 1984 to expedite the case and a schedule was agreed to for the filing of motions addressing the merits. The federal government filed for summary judgment on December 17, 1984. The ruling on the government’s application for a preliminary injunction was deferred until the motion for summary judgment was heard. I now grant summary judgment and direct that Marathon comply with the MMS orders.

THE CLAIMS

Marathon’s amended complaint includes claims of contract impairment amounting to constitutional deprivation. Marathon argues that in the MMS letters of January 6, 1983 and February 28, 1983, the federal defendants gave clear indication of intention to breach and repudiate the terms of • the settlement agreement and provisions within the federal leases. By so doing, Marathon claims, the federal defendants violated Marathon’s constitutional rights, suggesting that only in federal court could Marathon obtain vindication of its constitutional rights. Alternatively, Marathon contended that the Administrative Procedure Act provided for immediate judicial review of the MMS orders.

So far as Marathon’s contract and constitutional claims are concerned, I conclude they are entirely without merit. Under the statutes and regulations providing for the administration of federal oil lease, MMS has the authority and the responsibility to determine the reasonable value of gas production for the purpose of computing royalties. The settlement agreement of February 6, 1981 can in no way restrict the proper exercise of the agencies’ statutory authority. Moreover, I conclude no constitutional impairment of contract or other constitutional deprivation is involved in this litigation.

Apart from Marathon’s constitutional claims, I do conclude that Marathon is entitled to judicial review of the MMS orders pursuant to § 704 of the Administrative Procedure Act without awaiting further administrative proceedings. The federal defendants at an earlier stage of this proceeding had urged that judicial review was now inappropriate because Marathon had failed to exhaust administrative remedies. The federal defendants have since withdrawn the claim of lack of administrative finality and have agreed that judicial review of the administrative proceedings is now appropriate, and I so hold.

SCOPE OF REVIEW

Since the federal defendants have moved for summary judgment in this case, the test is whether, with respect to any dispositive issue, there is any genuine issue as to any material fact. If not, I must decide whether, construing the evidence in the light most favorable to the plaintiff Marathon, the defendants are entitled to judgment as a matter of law.

Section 706 of the Administrative Procedure Act (APA) establishes the appropriate standard of judicial review of agency decision. Under that provision, the agency’s determination must be set aside if found to be arbitrary or capricious, or in violation of constitutional, statutory, or procedural requirements.

Given my earlier rejection of Marathon’s constitutional claims, I must now make a three-part determination. First, did the agency act within the scope of its statutory authority? In making this inquiry, I need only determine whether the agency was in substantial compliance with the applicable statute(s). Second, was the agency decision “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law”? As the Supreme Court has observed:

To make this finding the court must consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment. Although this inquiry into the facts is to be searching and careful, the ultimate standard of review is a narrow one. The court is not empowered to substitute its judgment for that of the agency.

Third, did the agency comply with all procedural requirements?

In reviewing an agency decision, the agency’s own interpretation of the applicable statutes is entitled to substantial deference. Deference is even more clearly in order where an administrative regulation, rather than a statute, is involved. According to the Supreme Court, “the ultimate criterion is the administrative interpretation, which becomes of controlling weight unless it is plainly erroneous or inconsistent with the regulation.”

To uphold the MMS orders, I need not find that the MMS’s interpretation of the statutes and regulations is the only reasonable interpretation, nor that it is the interpretation a court would reach if initially faced with the question. I need only find that it is a reasonable interpretation. I must ascertain whether MMS “articulate[d] a rational connection between the facts found and the choice made.”

DISCUSSION

Although Marathon has articulated a wide variety of claims and arguments in this case, the focus of the dispute centers upon whether MMS has the authority to use the net back theory of valuation for computing royalties on the gas delivered to the Nikisi LNG plant.

The Mineral Lands Leasing Act, enacted in 1920 and amended since, governs federal oil and gas leases. The Act was intended “to promote wise development of natural resources and to obtain for the public reasonable financial returns on assets belonging to the public.” The gas leases at issue in this case were granted under the authority of the Mineral Lands Leasing Act and by their terms are “subiect to the terms and provisions of” the Act.

Between 1976 and 1981, the General Accounting Office (GAO) issued several reports documenting problems in federal oil and gas royalty management and collection. The October 1981 report identified the shortcomings:

Historically, the Geological Survey has not placed a high priority on collecting oil and gas royalties. Because sufficient management attention has not been focused on correcting deficiencies previously reported, financial management problems existing 20 years ago persist today. As a result, the Geological Survey is not collecting all oil and gas royalties; hundreds of millions of dollars owed the Government may be going uncollected each year. Moreover, millions of dollars in royalty income are not collected when due, thus increasing the Government’s interest costs.

In July 1981, the Secretary of the Interi- or established the Commission on Fiscal Accountability of the Nation’s Energy Resources (known as the Linowes Commission) to investigate the problems. The Commission issued its lengthy report in January 1982, detailing 60 recommendations for revising the system. The report summarized:

Management of royalties for the Nation’s energy resources has been a failure for more than 20 years. Because the Federal government has not adequately managed this multibillion dollar enterprise, the oil and gas industry is not paying all the royalties it rightly owes. The government’s royalty recordkeeping for Federal and Indian oil and gas leases is in disarray. For this reason, the exact amount of underpayment is unknown. The results of individual audits, which have often uncovered large underpayments, suggest that hundreds of millions of dollars due the U.S. Treasury, the States, and Indian tribes are going uncollected every year.
The Nation can no longer afford mismanagement of royalties for its energy resources. The stakes are too high. With the rapid escalation of energy prices, oil and gas royalties have risen from less than $500 million in 1971 to more than $4 billion in 1981.
The government’s royalty management system needs a thorough overhaul.

Both the Secretary of the Interior and Congress responded to the Linowes Commission report. The Secretary reorganized the royalty management and collection functions of the Department under the newly-created Minerals Management Service, and revised the fiscal and production accounting system.

Congress, on December 21, 1982, enacted the Federal Oil and Gas Royalty Management Act of 1982 (FOGRMA). The express purpose of FOGRMA included:

(1) to clarify, reaffirm, expand, and define the responsibilities and obligations of lessees, operators, and other persons involved in transportation or sale of oil and gas from the Federal and Indian lands and the Outer Continental Shelf;
(2) to clarify, reaffirm, expand, and define the authorities and responsibilities of the Secretary of the Interior to implement and maintain a royalty management system for oil and gas leases on Federal lands, Indian lands, and the Outer Continental Shelf;
(3) to require the development of enforcement practices that ensure the prompt and proper collection and disbursement of oil and gas revenues owed to the United States and Indian lessors and those inuring to the benefit of States;

The legislative history of FOGRMA provides additional evidence that the law was intended to ensure that oil and gas royalties were accurately and promptly assessed and collected. In FOGRMA, Congress mandated that the Secretary audit oil and gas lease accounts and make additional collections as warranted. Furthermore, the statute states that “[t]he Secretary shall give priority to auditing those lease accounts identified by a State or Indian tribe as having significant potential for underpayment.”

Under the Minerals Lands Leasing Act, “[t]he Secretary of the Interior is authorized to prescribe necessary and proper rules and regulations and to do any and all things necessary to carry out and accomplish the purposes of [the Act].” These regulations have the force and effect of statutes when not in conflict with such statutes. The leases at issue in this case, in addition to being subject to the terms of the Mineral Lands Leasing Act, are also “subject ... to all reasonable regulations of the Secretary of the Interior now or hereafter in force” unless inconsistent with the leases themselves.

Administrative regulations governing MMS are found in 30 C.F.R. ch. II (1984). The particular regulation at issue in this case is 30 C.F.R. § 206.103, which provides:

§ 206.103 Value basis for computing royalties.
The value of production, for the purpose of computing royalty, shall be the estimated reasonable value of the product as determined by the Associate Director due consideration being given to the highest price paid for a part or for a majority of production of like quality in the same field, to the price received by the lessee, to posted prices, and to other relevant matters. Under no circumstances shall the value of production of any of said substances for the purposes of computing royalty be deemed to be less than the gross proceeds accruing to the lessee from the sale thereof or less than the value computed on such reasonable unit value as shall have been determined by the Secretary. In the absence of good reason to the contrary, value computed on the basis of the highest price per barrel, thousand cubic feet, or gallon paid or offered at the time of production in a fair and open market for the major portion of like-quality oil, gas, or other products produced and sold from the field or area where the leased lands are situated will be considered to be a reasonable value.

Under this regulation, royalties are to be based on “the estimated reasonable value of the product as determined by the Associate Director [for Royalty Management]” with the proviso that “[u]nder no circumstances shall the value of production of any of said substances for the purposes of computing royalty be deemed to be less than the gross proceeds accruing to the lessee from the sale thereof.”

The regulation enumerates several factors to be considered in determining reasonable value, but does not mandate that any particular formula be used to compute reasonable value. In fact, the Associate Director is expressly directed to consider, in addition to the enumerated factors, “other relevant matters.” The thrust of the regulation is that the value for royalty computation purposes set by the Associate Director must be reasonable. The only specific requirement in the regulation is that this value be no less than “gross proceeds.” Thus this regulation vests considerable discretion in the Associate Director to decide what the “reasonable value” for royalty purposes shall be.

The federal gas leases at issue in this case are by their own terms “subject to the terms and provisions of [the Mineral Lands Leasing Act] and to all reasonable regulations of the Secretary of the Interior now or hereafter in force, when not inconsistent with any express and specific provisions herein.” The leases also provide that the lessee shall pay the lessor “12 xk percent royalty on the production removed or sold from the leased lands computed in accordance with the Oil and Gas Operating Regulations.” The leases further state:

It is expressly agreed that the Secretary of the Interior may establish reasonable minimum values for purposes of computing royalty on any or all oil, gas, natural gasoline, and other products obtained from gas, due consideration being given to the highest price paid for a part of for a majority of production of like quality in the same field, to the price received by ' the lessee, to posted prices, and to other relevant matters and, whenever appropriate, after notice and opportunity to be heard.

Both the regulations and the leases, as discussed above, vest in the administrative agency the authority to establish the basis for computing royalties. The regulations require that the basis for royalty purposes “shall be the estimated reasonable value of the product as determined by the Associate Director.” The leases expressly provide that “the Secretary of the Interior may establish reasonable minimum values for purposes of computing royalty.”

As a preliminary matter, Marathon suggests that MMS by reason of prior agency action may well have been estopped from making the July 8 and October 5 orders. In support of this position, Marathon relies upon the February 6, 1981 settlement agreement and the September 10, 1979 “Duletsky Memo.”

As to the settlement agreement, it was by its terms effective “until such time as change in market conditions, State or Federal law, or regulations adopted thereunder ... necessitate a revision in the method used to determine the well-head value.” By January 1983, MMS determined that such changes in market conditions had occurred. In December 1982, Marathon executed a new contract with Alaska Pipeline Company (APL to sell its gas from the Kenai Unit and other nearby units at a base price of $2.32/Mcf. This price is in contrast to the $2.0149/Mcf Phillips formula price, and the $.586/Mef price under the 1975 APL contract. The higher prices being paid for Kenai gas under the new sales contracts were an indication to MMS that the settlement agreement no longer reflected the true value of the gas delivered to the LNG plant. I conclude that the terms of the provision in the settlement agreement expressly provided for revision in the event of a change in market conditions. Therefore, the February 6, 1981 settlement agreement in no way precluded MMS from later proposing a revised method of valuation.

Turning to the “Duletsky Memo,” I likewise conclude that this document did not bind the federal defendants to a fixed and unalterable position. This memorandum constituted the response of John Duletsky, Acting Chief, Conservation Division of USGS, to an internal inquiry about how to value Kenai gas for royalty purposes. Duletsky discussed the applicability of a net back method of valuation to satisfy the requirement that the value be not less than gross proceeds, and then concluded: “The term ‘gross proceeds’ ... in our opinion, would be impractical to administer with respect to the Marathon [LNG] situation.”

I interpret Duletsky’s position to be precisely as stated — that the use of the net back method was determined to be “impractical” when he authored the memorandum of September 10, 1979. Duletsky did not maintain that the gross proceeds regulation was not applicable to the LNG, nor could he rule out the possibility that the situation might change. In his memorandum Duletsky specifically noted that the agency “should also seek to establish a rational relationship between the landed value of the LNG in Japan and the value at the unit for royalty computation purposes so that the value for royalty purposes may be adjusted whenever there is an increase in the landed price.” In this statement, Duletsky acknowledged the relevance of the sales price in Japan to determination of value for royalty purposes. In fact, the settlement agreement of February 1981 established a basis for computing value for royalty purposes based on percentage of price paid in Japan for LNG.

I cannot agree with Marathon’s contention that the Duletsky memorandum constituted an “express finding that the [gross proceeds] clause has no application to Marathon’s LNG gas.” Given MMS’s ongoing responsibility to ensure collection of all royalties due, I conclude the Duletsky memorandum represented nothing more than the position adopted at that time limited to the precise circumstances then existing.

The doctrine of equitable estoppel is applied to the government only under unusual circumstances. Courts are especially reluctant to estop the government in cases involving rights to public lands. Estoppel will be applied only “if the government’s wrongful conduct threatens to work a serious injustice and if the public’s interest would not be unduly damaged.” In this case, Marathon has not alleged any “serious injustice” resulting from MMS’s decision to use the net back method to comply with the gross proceeds requirement in the regulation. Furthermore, the public treasury would suffer if these royalties due from gas leases on federal lands were not collected as due. I conclude that neither the 1981 settlement agreement nor the 1979 Duletsky memorandum precluded the agency from making its July and October orders. The question then becomes whether the valuation method adopted by MMS satisfies statutory and regulatory requirements and whether it is consistent with the leases.

The regulation requires that the value of production for royalty purposes be not less than “the gross proceeds accruing to the lessee from the sale thereof.” The phrase “gross proceeds” is not defined in the regulations. Marathon claims that the gross proceeds provision operates only to require that the value for royalty purposes include any additional sums, such as tax reimbursements, received by the lessee from the purchaser of the gas.

I do not agree that the phrase should be so narrowly interpreted. One treatise defines “proceeds” as “the money obtained by an actual sale.” Marathon differentiates between “proceeds” type royalty clauses and “wellhead value” royalty clauses. According to Marathon, the clause at issue here is a “wellhead value” royalty clause, and therefore the royalty value must be based on actual sales price in the field. I agree that the first sentence of the regulation directs the Associate Director to look to sales price in the field. However, the regulation does not end there. In the second sentence, it requires that the royalty basis be not less than the gross proceeds accruing to the lessee. Thus this regulation combines characteristics of a “wellhead value” royalty clause with characteristics of a “proceeds” type royalty clause. By its own language, the provision aims to ensure that the gross proceeds accruing to the lessee is the absolute minimum value for computation of royalties. In describing a “proceeds” type royalty clause, Professor Hemingway states: “Royalty payable upon the ‘proceeds’ of the sale of gas will be computed on the basis of aggregate gross receipts from all products less the costs of marketing and transportation.”

The gas Marathon delivers to the LNG plant is neither sold at the wellhead, nor at the LNG plant. Thus there is no simple way for MMS to value this production. The first arm’s-length transaction involving this gas is the sale of the LNG in Japan. Recent changes in economic conditions suggested to MMS that neither the contract price for gas sold to Alaska Pipeline Co., nor the Phillips formula set out in the 1981 settlement agreement, represented a “reasonable value” for royalty computation purposes. MMS gave “due consideration” to the various factors and information before it in arriving at its decision. To capture the true value of the LNG being sold in Japan, MMS determined it was necessary to look at the landed price in Japan and work back to arrive at a reasonable wellhead value. To do this, MMS proposed to make allowances for costs of liquefaction and transportation, and for a reasonable rate of return on the LNG plant. Deducting these allowances from the sales price in Japan would thus yield an estimated wellhead value for the gas.

Is there “good reason” supporting MMS’s decision to look to the sales price in Japan, rather than to open market contracts for the sale of other gas from the Kenai field? Again, I conclude yes. The regulation provides:

In the absence of good reason to the contrary, value computed on the basis of the highest price per ... thousand cubic feet ... paid or offered at the time of production in a fair and open market for the major portion of like-quality ... gas ... produced and sold from the field or area where the leased lands are situated will be considered to be a reasonable value.

Marathon contends that this provision should be followed to arrive at a reasonable value of gas delivered to the LNG plant for royalty purposes. I conclude, however, that there exists “good reason to the contrary” warranting use of another method.

By its terms, the provision refers to “the price ... paid or offered at the time of production in a fair and open market for the major portion of like quality ... gas ... produced and sold from the field or area.” This assumes that reasonable value can be ascertained based on arm’s-length' transactions negotiated by unrelated parties each acting in their own self interest in competition with others.

It is obvious that market value of gas in any field will vary depending upon a wide variety of factors. So far as the Kenai field is concerned, 42% of the gas produced in 1982 was delivered to the ammonia and urea plant at Nikiski owned by Collier Chemical, a subsidiary of Union Oil. An additional 16% of production was delivered to the LNG plant owned by Marathon and Phillips. Alaska Pipeline Company bought 31% of production for distribution in the Anchorage market and 9% of production was rented to the Swanson River Field Unit for pressure maintenance. The gas delivered to the LNG plant presents a special, unique situation. At the plant the gas is cooled until it becomes liquid, then transported to Japan, and there sold. To capture the true value of this gas, it is reasonable for MMS to look to the proceeds accruing to Marathon in Japan.

The regulation requires that “Under no circumstances shall the value of production ... for the purposes of computing royalty be deemed to be less than the gross proceeds accruing to the lessee from the sale ... or less than the value computed on such reasonable unit value as shall have been determined by the Secretary.” Did MMS satisfy the explicit requirement that the value for royalty purposes be not less than the “gross proceeds” accruing to Marathon from the sale of the gas? I conclude the answer is yes. In fact, MMS determined that the net back method was necessary to satisfy the gross proceeds requirement. I agree with this determination.

Obviously the February 1981 settlement agreement demonstrates that the price paid for gas by Alaska Pipeline on its long-term contract failed to provide reasonable value for purposes of computing royalty on that portion of the gas delivered to the LNG plant for sale in Japan. Even under the so called Phillips formula of 36% of the price received in Japan, the additional royalties from January 1, 1980 through February 1981 were computed to be $1,834,160.00. Thus Marathon’s argument that “the ‘gross proceeds’ received by the lessee from the sale of [the LNG] with its enhanced values in a distant market are not indicative of the value of the raw material feedstock gas produced at the lease” has a hollow ring. Since January 1, 1980, the effective date of the settlement agreement, Marathon paid royalties based on a “value” derived from the sales price in Japan. Marathon expressly agreed to this method in the February 1981 settlement agreement. Marathon cannot now credibly argue that landed sales price in Japan is irrelevant to the reasonable value for purposes of computing royalties.

Is MMS’s net back method consistent with the regulatory language directing the agency to determine the “value of production ” for royalty purposes? Marathon argues that this language requires that royalties be based on the value of production at the lease. I agree with this basic premise. However, nothing in the regulation precludes MMS from looking at the sales price in Japan as a means to determine the reasonable value of production at the lease. MMS has done just this by taking the landed sales price, making allowances for liquefaction and transportation costs, and thereby deriving a reasonable value at the lease. The regulation does not preclude such computations, but rather requires them to ensure that the value chosen is not less than the gross proceeds accruing to the lessee. Thus I conclude that in deriving a value for royalty purposes from the sales price in Japan, MMS complied with the regulatory requirement that, royalties be based on the “value of production.”

MMS is charged with managing these national resources and ensuring that full royalties are levied and collected. Deriving an estimated wellhead value from the sales price of the LNG in Japan is, I conclude, a reasonable method of establishing a basis for computing royalties.

Furthermore, contrary to Marathon’s assertions, the MMS orders do not represent a “stark departure” from previous agency positions. As early as October 1977, the government took the position that to satisfy the gross proceeds provision, value for royalty purposes should be derived from the sales price in Japan.

Does the regulation permit MMS to look to the sales price of LNG, a liquefied substance, in determining the value for royalty purposes of the natural gas at the lease? I conclude it does. Marathon contends that the LNG sold in Japan is a manufactured product quite distinct from the natural gas at the wellhead. I am not persuaded. LNG is natural gas that has been cooled for purposes of storage or shipment. There is no alteration of the chemical properties of the gas. Regardless of whether liquefaction is termed “processing” or “manufacturing,” the fact remains that the LNG delivered in Japan is chemically identical to the natural gas at the lease. Therefore MMS did not violate the regulation when it directed that the royalty basis for the gas be derived from the sales price of the LNG in Japan.

For these reasons, I conclude that the MMS orders directing Marathon to use the net back method fall within the agency’s authority under the statutes and regulations. I also conclude that the orders neither violated nor were inconsistent with provisions of the leases. The leases by their express terms provide for a royalty to be paid “on the production removed or sold from the leased lands computed in accordance with the Oil and Gas Operating Regulations.” Marathon argues that like the regulatory language, this lease language requires royalties to be computed on value of production at the lease. However, I have concluded that the net back method is a valid means of estimating the value of production for royalty purposes. Moreover, the leases themselves provide that the Secretary of the Interior has the authority to establish reasonable values for computation of royalties. I conclude that the MMS orders did not violate the terms of the leases.

In addition to challenging the substance of the MMS orders, Marathon also argues that the orders are invalid because MMS was unduly influenced by CIRI. Marathon cites two Memoranda of Understanding (MOUs) between MMS and CIRI. Marathon claims that by entering into the MOUs with CIRI, MMS violated a provision of ANCSA preserving existing rights of lessees of federal lands conveyed to native corporations, and unlawfully delegated administrative authority and diseretionary decisionmaking to CIRI, a private party.

MOU I was executed by Robert E. Boldt, Associate Director of Royalty Management for MMS, on January 3, 1983. In the agreement, MMS made a partial waiver of administration of the leases to CIRI to enable CIRI to negotiate directly with Marathon and Union Oil Co., the lessees, to try to settle royalty and other disputes, and, if necessary, to bring suit in its own name. MOU I also provides that CIRI may request that MMS audit the leases, and that MMS shall consult with CIRI regarding any lease matters which might affect CIRI’s interests.

I conclude that in executing MOU I, MMS did not unlawfully delegate its authority or otherwise violate Marathon’s rights or interests. Paragraph 2 of the agreement lists areas of dispute between CIRI and the two lessees, Marathon and Union, primarily concerning royalties. The agreement itself states that “[this] partial waiver of administration is with regard to CIRI’s negotiation of CIRI’s interest in the Leases ... with respect to the unresolved issues listed in paragraph 2(a) through (e). By this partial waiver CIRI is empowered to enter into negotiations and effect a settlement of those issues____” ANCSA § 14(g) expressly authorizes the responsible agency to waive administration of leases on land conveyed pursuant to ANC-SA, such as the land on which these leases are located. The plain language of MOU I indicates that the purpose of the waiver was to enable CIRI to negotiate an out of court settlement of the royalty issues. MMS did not unlawfully transfer any decisionmaking authority to CIRI.

The provisions in MOU I providing that CIRI may request an audit, and that MMS shall consult with CIRI, likewise do not violate Marathon’s rights. ANCSA provides that the native land settlement process should be accomplished “with maximum participation by Natives in decisions affecting their rights and property.” Thus MMS is not only entitled but in fact expressly directed to communicate with CIRI concerning the leases. Furthermore, any private party has the right to make its opinions known to the government and to advocate positions which would be to its benefit.

But there is additional evidence to support my conclusion that MOU I did not improperly influence MMS’s decisionmaking process. In his sworn deposition testimony, Robert E. Boldt, MMS’s Associate Director for Royalty Management, state in response to several direct questions that MOU I did not influence or affect MMS’s decision to issue the royalty orders at issue here.

In MOU II, executed on August 9, 1983, MMS adopted several “administrative standards” governing the leases. Marathon argues that by adopting these standards, MMS unlawfully contractually committed itself to certain positions, thereby abdicating its responsibility for independent decisionmaking. However, the initial MMS order directing Marathon to use the net back method to compute royalties was issued on July 8, 1983, one month before MOU II was signed. Thus MOU II could hardly have influenced MMS’s decision to issue the July 8 royalty order. Furthermore, the July 8 order established the values to be used in the computation of royalties using the net back method. The decision to use that method had been made and so communicated to Marathon months earlier in the January 6, 1983 letter. The two subsequent MMS orders at issue in this case, dated October 5, 1983 and June 11, 1984, merely directed Marathon to comply with previous orders. These subsequent orders were thus similarly not the result of any improper influence caused by MOU II.

I thus conclude that the MOUs between MMS and CIRI did not unlawfully influence the issuance of the MMS royalty orders. MMS neither contracted to take action beyond that already mandated by law, nor agreed to refrain from exercising its independent decisionmaking authority. The MMS net back royalty orders to Marathon are not invalidated by the MOUs.

Marathon raises several other complaints about the procedure by which MMS issued its orders. Marathon objects to the Administrative Record compiled and submitted by the federal defendants. According to Marathon, there are documents in the record which should not be there, and certain documents are excluded which should be included. In particular, Marathon claims that “[m]uch of the so-called ‘record’ contains post hoc rationalizations,” and points to documents created after the MMS royalty order(s) had been issued.

In a case such as this, the court is reviewing the agency’s determination. There is no statutory requirement for formal rulemaking or adjudicatory proceedings. Therefore there is no formal agency record created to support the decision. Despite the absence of a formal record, it is the duty of the court to review the decision “based on the full administrative record that was before the [decisionmaker] at the time he made his decision.”

The federal defendants have compiled an admittedly voluminous administrative record in this ease. As explained in their memorandum, “[t]he Department ... accumulated all documents which it considered to have even the slightest relevance to the determination, seeking to avoid any controversy with regard to the record.” The response from Marathon was that the record was too voluminous.

I cannot agree with Marathon. I do not find deficiencies in the administrative record that would require an evidentiary hearing on the issue of the composition of the record. The omission Marathon complains of is that the appeal documents it filed with the agency were not included in the record. The federal defendants have since supplemented the record to include those documents. As to Marathon’s claim that documents were included which were created after the initial royalty order was issued, I find no prejudice to Marathon. According to the federal defendants, these documents were included because they support the subsequent orders and the Notice of Noncompliance issued to Marathon. Such additions do not invalidate agency action unless substantial prejudice is shown to result. Beyond the complaint that the record is too large, Marathon has not alleged that it suffered any substantial prejudice from the inclusion of these documents. Additional explanatory information is permitted to supplement the record.

Marathon also claims that the MMS orders may have been improperly influenced by communications from congressional representatives. However, Mr. Boldt, in his deposition, stated that any such communications occurred in April or May of 1984, almost a year after MMS issued its first royalty order. Thus congressional communications could not have affected MMS’s decision to issue the disputed royalty order.

In another claim, Marathon contends that by using different methods for valuing Marathon’s gas delivered to the LNG plant and Union Oil Company’s gas delivered to its ammonia/urea plant, MMS has violated Marathon’s equal protection rights. I do not agree. As discussed earlier, LNG is natural gas that has been cooled for shipment and storage purposes. It is chemically identical to the gas produced at the well. At least in this connection, it differs from ammonia or urea which are quite different products from LNG. But in each case, MMS is required to follow the regulation and determine the reasonable value for royalty purposes, with gross proceeds as the required minimum. There is no requirement that the gas delivered to the LNG plant be valued by the same method as the gas delivered to the ammonia/urea plant so long as the agency complies with the regulation.

Marathon claims that MMS irrevocably waived administration of one of CIRI’s leases in the Kenai unit, Lease Ar028142. In support, Marathon cites an August 1982 letter from MMS to Union Oil Co. In this letter, MMS notified Union that the lands covered by part or all of three leases had been conveyed to CIRI pursuant to ANC-SA. As to the two leases which had been only partially conveyed, MMS explicitly stated that administration would remain with MMS and that lease records were to be retained by MMS.

As to the third lease, the letter stated: Lease A-028142 has been transferred in its entirety to the Cook Inlet Region Inc. ... [ANCSA § 14(g) provides that the United States may waive administration of a lease containing lands which have been conveyed in their entirety. Pursuant to the above, your case file will be transfered ... to: Cook Inlet Region, Inc. ... Further correspondence concerning these leases should be made to [CIRI].

Although in the letter MMS stated that the United States “may” waive administration as to this lease, there is no language indicating that the United States has in fact waived administration. The applicable regulation provides that the agency may retain administration of a lease conveyed in its entirety if the agency finds it to be in the interest of the United States. Marathon contends that no such finding has been made, but offers no evidence in support of this contention. The regulation does not require that such a finding be made in a formal written document. In oral argument, counsel for the federal defendants suggested that MMS has continued to administer this lease.

The August 1982 letter provided that the lease had been transferred in its entirety, and that the case file would be transferred to CIRI. MMS did not state, however, that it was waiving administration. Because the terms used are prospective, I conclude that MMS has not waived administration as to this lease. Therefore the MMS royalty orders are effective as to this lease.

CONCLUSION

For the reasons stated I upheld the orders issued by MMS to Marathon requiring computation of royalties using the net back method. Based on this holding, I GRANT the federal defendants’ Motion for Summary Judgment and Partial Dismissal. Marathon’s claims against the federal defendants are accordingly DISMISSED. I further find that the federal defendants are entitled to an injunction. Marathon is accordingly ORDERED to comply with the terms of the three MMS royalty orders. I DENY Marathon’s Motion for a Preliminary Injunction and Judicial Stay of Administrative Action. I GRANT the federal defendants’ prayer for an accounting to determine royalties due from Marathon. I retain jurisdiction to enter judgment for the United States when the amount has been ascertained, and to determine any remaining matters.

The federal defendants shall, within five days, serve and file a proposed Order consistent with this Opinion. Because I order Marathon to comply with the royalty orders, this decision is appealable as an injunction under 28 U.S.C. § 1292(a). Enforcement of this injunction is stayed for a period of ten days from the date the Order is signed and filed to enable Marathon to apply to the Court of Appeals for a stay pending appeal.

      . Pub.L. No. 85-508, 72 Stat. 339 (1958).

      . 43 U.S.C. §§ 1601-1628 (1982).

      . 30 U.S.C. § 191 (1982).

      . The responsibility for management of federal oil and gas leases is now held by the Minerals Management Service (MMS) of the Department of the Interior (DOI).

      . Letter of Oct. 31, 1977 from Rodney A. Smith, USGS, to John R. South, Marathon Oil Co., Administrative Record (A.R.) 100.

      . Letter of February 6, 1981 from James P. Murphy, Marathon Oil Co., to Barry A. Boudreau, USGS, A.R. 145.

      . Id. at 3.

      . Letter of Jan. 6, 1983 from Robert E. Boldt, MMS, to Al Mechler, Jr., Marathon Oil Co., A.R. 47.

      . See A.R. 39.

      . Letter of July 8, 1983 from William H. Feldmiller, MMS, to Curtis Dowden, Marathon Oil Co., A.R. 8.

      . Letter of Oct. 5, 1983 from Milton K. Dial, MMS, to DJ. Durham, Union Oil Co. (as agent for Marathon Oil Co.), A.R. 9.

      . Letter of June 11, 1984 from Assistant Secretary for Land and Minerals Management, Department of the Interior, to William F. Swales, Marathon Oil Co., and Ray A. Burke, Union Oil of California, A.R. 11.

      . Marathon amended its complaint on October 7, 1983, and again on September 4, 1984.

      . 5 U.S.C. § 704 (1982).

      . Fruehauf Corp. v. Royal Exchange Assurance of America, Inc., 704 F.2d 1168, 1171 (9th Cir.1983).

      . 5 U.S.C. § 706(2)(A)-(D). Subsections (2)(E) and (2)(F) of § 706 apply only under a limited set of circumstances not relevant here. See Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 414-15, 91 S.Ct. 814, 822-23, 28 L.Ed.2d 136 (1971).

      . Overton Park, 401 U.S. at 415-17, 91 S.Ct. at 823-24, Arizona Past and Future Foundation, Inc. v. Lewis, 722 F.2d 1423, 1425 (9th Cir.1983).

      . MarkAir, Inc. v. Civil Aeronautics Board, 744 F.2d 1383, 1385 (9th Cir.1984).

      . 5 U.S.C. § 706(2)(A).

      . Overton Park, 401 U.S. at 416, 91 S.Ct. at 823 (citations omitted).

      . In this case, Marathon does not challenge the MMS orders on the basis of procedural error.

      . Chevron, U.S.A., Inc. v. NRDC, — U.S. -, 104 S.Ct. 2778, 2782-83, 81 L.Ed.2d 694 (1984); Blum v. Bacon, 457 U.S. 132, 141-42, 102 S.Ct. 2355, 2361-62, 72 L.Ed.2d 728 (1982); MarkAir, Inc. v. Civil Aeronautics Board, 744 F.2d 1383, 1385 (9th Cir.1984); Olivares v. Immigration and Naturalization Service, 685 F.2d 1174, 1177 (9th Cir.1982).

      . Udall v. Tallman, 380 U.S. 1, 16-17, 85 S.Ct. 792, 801-802, 13 L.Ed.2d 616 (1965).

      . Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414, 65 S.Ct. 1215, 1217, 89 L.Ed. 1700 (1945); see also Hoover & Bracken Energies, Inc. v. United States Department of the Interior, 723 F.2d 1488, 1489 (10th Cir.1983) (according considerable deference to Department of Interior’s interpretation of what is now 30 C.F.R. § 206.-103), cert. denied, — U.S. -, 105 S.Ct. 93, 83 L.Ed.2d 39 (1984).

      . American Paper Institute, Inc. v. American Electric Power Service Corp., 461 U.S. 402, 422-23, 103 S.Ct. 1921, 1932-33, 76 L.Ed.2d 22 (1983).

      . Bowman Transportation, Inc. v. Arkansas-Best Freight Systems, Inc., 419 U.S. 281, 285, 95 S.Ct. 438, 441, 42 L.Ed.2d 447 (1974); Kunaknana v. Clark, 742 F.2d 1145, 1151 (9th Cir.1984).

      . 30 U.S.C. §§ 181-287 (1982).

      . Mountain States Legal Foundation v. Andrus, 499 F.Supp. 383, 392 (D.Wyo.1980).

      . See leases reprinted in A.R. 14.

      . See GAO, Oil and Gas Royalty Collections— Longstanding Problems Costing Millions (Oct. 29, 1981), A.R. 56; GAO, Oil and Gas Royalty Collections — Serious Financial Management Problems Need Congressional Attention (April 13, 1979), A.R. 57; GAO Indian Natural Resources — Part II: Coal, Oil, and Gas, Better Management Can Improve Development and Increase Indian Income and Employment (Mar. 31, 1976), A.R. 58.

      . A.R. 56 at 1.

      . A.R. 55.

      . Id. at xv.

      . 30 U.S.C. §§ 1701-1757 (1982).

      . Id. § 1701(b).

      . See H.R.Rep. No. 859, 97th Cong., 2d Sess., reprinted in 1982 U.S.Code Cong. & Ad.News 4268-4300; see also legislative history materials reprinted in A.R. 54.

      . 30 U.S.C. § 1711(c)(1).

      . Id.

      . 30 U.S.C. § 189.

      . California Co. v. Seaton, 187 F.Supp. 445, 449 (D.D.C.1960), aff’d sub nom. California Co. v. Udall, 296 F.2d 384 (D.C.Cir.1961).

      . See leases reprinted in A.R. 14.

      . See Continental Oil Co. v. United States, 184 F.2d 802, 821 (9th Cir.1950).

      . See, e.g., Lease No. 028056 at 1, attached as Exhibit A to Marathon’s Amended Complaint (filed Sept. 4, 1984).

      . Id. at 2.

      . Id.

      . Letter of Feb. 6, 1981 from James P. Murphy, Marathon Oil Co., to Barry A. Boudreau, USGS, A.R. 145.

      . Id. at 3.

      . See Federal Defendants' Memorandum of Points and Authorities in Support of Motion for Summary Judgment and Dismissal at 21-24 (filed Dec. 17, 1984) [hereinafter cited as Federal Defendants' Memorandum in Support]. Although Marathon refers to this discussion of contract prices as “post hoc rationalization,"Marathon does not allege that the facts cited by MMS are incorrect. See Memorandum of Marathon in Opposition to Motion of Federal Defendants for Summary Judgment and Partial Dismissal at 54-55 (filed Jan. 2, 1985) [hereinafter cited as Memorandum of Marathon in Opposition].

      . Memorandum of Sept. 10, 1979 from John Duletsky, Acting Chief, Conservation Division, USGS, to Oil and Gas Supervisor, Anchorage, Alaska, A.R. 124.

      . Id. at 2.

      . Id. at 4.

      . See Marathon’s Supplemental Memorandum in Opposition to the Federal Defendants’ Motion for Summary Judgment and Partial Dismissal at 14 (filed Jan. 16, 1985) [hereinafter cited as Marathon's Supplemental Memorandum in Opposition].

      . Union Oil Co. v. Morton, 512 F.2d 743, 748 n. 2 (9th Cir.1975).

      . Id.

      . Id. (quoting United States v. Lazy FC Ranch, 481 F.2d 985, 989 (9th Cir.1973)).

      . 30 C.F.R. § 206.103 (1984).

      . Marathon’s Supplemental Memorandum in Opposition, supra note 52, at 8-9.

      . 8 H. Williams & C. Meyers, Oil & Gas Law: Manual of Oil & Gas Terms 572 (1982).

      . Memorandum of Marathon in Opposition, supra note 48, at 17-19.

      . R. Hemingway, The Law of Oil and Gas § 7.4, at 351- (2d ed. 1983).

      . See Transcript of Deposition of Robert E. Boldt, Dec. 13, 1984 [hereinafter cited as Boldt Deposition],

      . See Memorandum of Marathon in Opposition, supra note 48, at 22-24.

      . Marathon's Supplemental Memorandum in Opposition, supra note 52 at 9.

      . See id. at 7-8.

      . See Memorandum of Marathon in Opposition, supra note 48, at 7-8.

      . See Letter of Oct. 31, 1977 from Rodney A. Smith, USGS, to John R. South, Marathon Oil Co., A.R. 100.

      . See Memorandum of Marathon in Opposition, supra note 48, at 37-41.

      . See 8 H. Williams & C. Meyers, Oil & Gas Law: Manual of Oil & Gas Terms 405 (1982).

      . See Lease No. 028056 at 2, attached as Exhibit A to Marathon’s Amended Complaint (filed Sept. 4, 1984).

      . Marathon's Supplemental Memorandum in Opposition, supra note 52, at 4-7.

      . See Memorandum of Marathon in Opposition, supra note 48, at 24-31; Marathon’s Supplemental Memorandum in Response to Reply Memorandum of Cook Inlet Region, Inc. at 2-11 (filed Jan. 23, 1985).

      . Memorandum of Understanding Between Minerals Management Service & Cook Inlet Region, Inc. (Jan. 3, 1983), A.R. 17 [hereinafter cited as MOU I]; Memorandum of Understanding II Between Minerals Management Service and Cook Inlet Region, Inc. (Aug. 9, 1983), A.R. 18 [hereinafter cited as MOU II].

      . ANCSA § 14(g), 43 U.S.C. § 1613(g) (1982).

      . See MOU I, A.R. 17.

      . Id. ¶¶ 2, 3.

      . Id. ¶¶ 4, 6, 7. In addition, paragraph 5 of the agreement stated that the determinations in USGS letters dated October 1, 1979 and November 6, 1979 were withdrawn and rescinded insofar as they affected CIRI’s interests. The administrative record contains several letters from USGS to Union Oil Company bearing these dates, see A.R. 126, 128, 129, but only one letter to Marathon. See Letter of Nov. 6, 1979 from Rodney A. Smith, USGS, to Marathon Oil Co., A.R. 127. As the federal defendants and CIRI point out, this November 6 letter was expressly rescinded by USGS one month later. See Letter of Dec. 11, 1979 from Rodney A. Smith, USGS, to Marathon Oil Co., A.R. 130. Marathon has not refuted this, and therefore has not explained how paragraph 5 of MOU I could have adversely affected its interests.

      . 43 U.S.C. § 1613(g) (1982).

      . Id. § 1601(b).

      . Boldt Deposition, supra note 61, at 42, 46, 69, 96, 98, 110.

      . A.R. 18.

      . Id. ¶¶ 3, 4.

      . See Letter of July 8, 1983 from William H. Feldmiller, MMS, to Curtis Dowden, Marathon Oil Co., A.R. 8.

      . See Letter of October 5, 1983 from Milton K. Dial, MMS, to D.J. Durham, Union Oil Co. (as agent for Marathon Oil Co.), A.R. 9; Letter of June 11, 1984 from Assistant Secretary for Land and Minerals Management, Department of the Interior, to William E. Swales, Marathon Oil Co. and Ray A. Burke, Union Oil of California, A.R. 11.

      . See Memorandum of Marathon in Opposition, supra note 48, at 32-37.

      . Id. at 35.

      . Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 420, 91 S.Ct. 814, 825, 28 L.Ed.2d 136 (1971).

      . Federal Defendants’ Reply to Plaintiffs Opposition to Motion for Summary Judgment at 11 (filed Jan. 11, 1985) [hereinafter cited as Federal Defendants’ Reply Memorandum].

      . See Notice of Lodging Supplement to Administrative Record (filed Jan. 22, 1985).

      . See Federal Defendants’ Reply Memorandum, supra note 87, at 12.

      . United States v. Pierce Auto Freight Lines, Inc., 327 U.S. 515, 530, 66 S.Ct. 687, 695, 90 L.Ed. 821 (1946).

      . Kunaknana v. Clark, 742 F.2d 1145, 1149 (9th Cir.1984); Asarco, Inc. v. United States Environmental Protection Agency, 616 F.2d 1153, 1158-60 (9th Cir.1980).

      . See Memorandum of Marathon in Opposition, supra note 48, at 45.

      . See Boldt Deposition, supra note 61, at 116.

      . See Memorandum of Marathon in Opposition, supra note 48, at 48-51.

      . Marathon’s Supplemental Memorandum in Opposition, supra note 52, at 21-22.

      . Letter of Aug. 25, 1982 from Jimmy W. May-berry, MMS, to Wayne Hunt, Union Oil Co. of California, included in A.R. 15.

      . Id. at 2.

      . Id. at 3.

      . 43 C.F.R. § 2650.4-3 (1983).

      . Reporter’s Transcript of Oral Argument on Motions at 83 (Jan. 4, 1985).


source: Caselaw Access Project

author: STUART, Chief Judge.

license: Public Domain

text:
    IOWA SOCIALIST PARTY, Libertarian Party of Iowa, Citizens Party of Iowa, and Alfred Joseph Marron, Plaintiffs, v. Thomas S. SLOCKETT, Individually and in his official capacity as Auditor of Johnson County, Iowa, Defendant.
    Civ. No. 83-190-D-1.
    United States District Court, S.D. Iowa, Davenport Division.
    March 1, 1985.
    Mark W. Bennett, Iowa Civil Liberties Union, Des Moines, Iowa, for plaintiffs.
    Mary L. McCollum, Asst. Johnson Co. Atty., J. Patrick White, Johnson Co. Atty., Iowa City, Iowa, for defendant.
   RULING AND ORDER

STUART, Chief Judge.

This is a civil rights action, brought under 42 U.S.C. § 1983, in which plaintiffs challenge the constitutionality of § 48.27 of the Iowa Code. Plaintiffs are three minor political parties and Alfred Marrón, a member of one of the parties. Iowa Code § 48.27, provides in part that mobile deputy registrars are to be selected from lists of nominees submitted by the county chairmen of the two political parties receiving the highest number of votes in that county in the last preceding general election. Defendant Slockett, in his capacity as commissioner of registration for Johnson County, is among those responsible for the administration of § 48.27.

Following the filing of cross-motions for summary judgment, a hearing was held at which the parties agreed to submission on the merits.

Chapter 48 of the Iowa Code governs the permanent registration of voters in Iowa. Three methods of registration are provided: (1) by personally submitting a completed voter registration form to the county commissioner of registration; (2) by mailing a completed registration form to the commissioner of registration; and (3) by submitting a completed registration form to a mobile deputy registrar. Only the last method is in issue here.

There are two kinds of mobile deputy registrars — temporary and permanent. Both are appointed by the county commissioner of registration from lists of nominees submitted by the county chairmen of the two political parties receiving the highest number of votes in that county in the last preceding general election. When submitting the list of nominees, each of the two major political parties may request up to one temporary mobile deputy registrar for every eleven hundred county residents. The county commissioner must make the requested number of appointments. The term of a temporary mobile deputy registrar commences “not more than 180 days prior to any general election or not more than 120 days prior to any primary ... election” and expires no later than 5:00 p.m. on the tenth day before a general or primary election or the eleventh day before any other election. The county commissioner of registration must also appoint one person from each of the two major political parties for every 10,000 residents to serve on a permanent board of mobile deputy registrars. If a party chairman does not submit a list of nominees for the permanent mobile deputy registrar board, the county commissioner of registration must appoint persons known to be members of that political party to serve on the board. The term of a permanent mobile deputy registrar commences no later than January 31 of each year and continues until December 31 of that year. Both temporary and permanent mobile deputy registrars serve without compensation from any source. Iowa Code § 48.27.

Plaintiffs contend that appointment of mobile deputy registrars from persons nominated by the county chairmen of the two major political parties violates plaintiffs’ rights to freedom of association, due process, and equal protection under the First and Fourteenth Amendments to the United States Constitution.

The Court is aware of only two cases in which closely analogous issues were considered. Those cases reached different results. In Bishop v. Lomenzo, 350 F.Supp. 576 (E.D.N.Y.1972), plaintiffs sought an injunction against provisions of the New York Election Law that required volunteer deputy registrars to serve in teams consisting of one member of each of the two political parties which at the next preceding general election cast the highest and next highest number of votes. Plaintiffs contended that these provisions violated their rights under the First Amendment, the Equal Protection Clause, and the Voting Rights Act Amendments of 1970. The three-judge district court disagreed:

[W]e are not here dealing with the citizen’s fundamental right to vote, but with the right to act as a registrar of voters. Although independents, Conservatives and Liberals are not permitted by New York to function as registrars, qualified electors will still be afforded ample opportunity to register____
Although some state restrictions upon the formation and registration of new political parties have been struck down as flagrantly invidious and unjustifiedly discriminatory, Williams v. Rhodes, 393 U.S. 23, 89 S.Ct. 5, 21 L.Ed.2d 24 (1968), nothing in the Constitution or in the Voting Rights Act Amendments of 1970 mandates that voter registration be conducted through particular personnel or procedures, as long as the voter’s right to register is assured.

350 F.Supp. at 588-589.

The Bishop court next assumed, for the sake of argument, that once a state permits volunteers to engage in registration activities, discrimination in the selection of eligible registrars should be tolerated only if justified by a compelling state interest. The court found ample justification for limiting registrars to bipartisan teams consisting of one member of each of the two major political parties:

The purpose of this long-standing requirement ... is to minimize the risk of fraud or irregularity that might exist if registration by a representative of one party or by an independent were permitted.
... It is not inconceivable, for instance, that if any registered voter were permitted to engage in registration activity, he might fail to turn in to his county board of elections those party enrollments considered by him to be contrary to his own political beliefs. It was to protect against such risks that New York adopted its bipartisan requirement.

350 F.Supp. at 589 [citation omitted].

In comparison, Iowa Code § 48.27 does not require bipartisan teams. Indeed, the statute’s registrar selection provisions appear to be unrelated to risks of fraud or irregularity. The Court has been given no reason to believe that independents or members of minor parties would be more likely than members of major parties to abuse the position of voter registrar.

The second case to present issues similar to those now before this court was Rhode Island Minority Caucus, Inc. v. Baronian, 590 F.2d 372 (1st Cir.1979). There, a minority political organization and several minority individuals sought injunctive relief against the Board of Canvassers of the City of Providence, Rhode Island, for appointing as unpaid voter registrars only persons sponsored by the Democratic or Republican parties or the League of Women Voters. Plaintiffs raised two constitutional challenges to the Board’s procedure. First, they claimed discrimination on the basis of race. Second, they alleged that the Board had effectively conditioned appointment as a registrar on affiliation with one or more of the favored organizations, thereby abridging plaintiffs’ freedom of association or, more precisely, nonassociation.

The lower court denied the request for injunctive relief, finding that plaintiffs had failed to establish their probability of success on the merits. This result was affirmed by the Court of Appeals on the ground that the severity of the harm to plaintiffs was dissipated with the passage of the 1978 general election. The First Circuit did not agree, however, that plaintiffs’ probability of success was insubstantial and felt compelled to discuss certain aspects of the lower court’s analysis.

With regard to plaintiffs’ claim of race discrimination, the Court of Appeals noted that an equal protection violation was not precluded by the fact that ten of the thirty persons appointed as voter registrars were members of minority groups. A racially balanced group of registrars did not immunize the Board from liability for specific acts of discrimination against the individual plaintiffs. The court added that, while there is no right to be appointed a voter registrar, the plaintiffs did have the right to be considered for such position unhampered by invidiously discriminatory disqualification. The privilege of holding public employment or office could not be denied by the state on the basis of distinctions that violated federal constitutional guarantees. Rhode Island Minority Caucus, supra, at 376.

Turning to plaintiffs’ claim based upon freedom of association, the First Circuit stated:

As the state may not intentionally use an injurious racial classification absent compelling justification, so, too, it may not abridge fundamental First Amendment rights of speech and association without establishing that such an infringement is necessary to achieve a vital state interest. Plaintiffs allege that the Board has impermissibly burdened their right of association by conditioning appointment as a voter registrar upon membership in or affiliation with one of the three selected organizations____ [T]hey argue that whatever the importance, generally, of political parties to this nation’s political processes, it is not necessary to the process of voter registration to condition service as a registrar upon membership in either of the major political parties, the League, or any other organization.
So viewed, but without prejudging the issue, it appears that plaintiffs raise a substantial first amendment question.

Rhode Island Minority Caucus, supra, at 376-377 (citations omitted).

The Court of Appeals noted that the record was unclear as to whether membership in the Democratic or Republican parties was, or was thought to be, a requirement for nomination as registrar by those organizations, and as to the purpose, if any, the Board intended by such requirement. The lower court was directed to assess these and other factors in determining the extent to which plaintiffs’ associational rights were abridged; the burden, if any, the Board would have to bear in justifying that abridgement; and whether the Board could meet that burden. Thus, the Court of Appeals did not decide the constitutional issue, but directed the trial court to consider all relevant factors in determining whether plaintiff’s constitutional rights were violated. The Court appeared to authorize application of a balancing test to make this determination.

Recently, the United States Supreme Court had occasion to describe the analytical process to be used in resolving constitutional challenges to state election laws. In Anderson v. Celebrezze, 460 U.S. 780, 103 S.Ct. 1564, 75 L.Ed.2d 547 (1983), the Court considered an attack by 1980 presidential candidate John Anderson on an Ohio statute that required independent candidates for president to file a statement of candidacy and nominating petition in March in order to appear on the general election ballot in November. Anderson did not announce his candidacy until April 24, 1980. The District Court held that the March filing deadline was unconstitutional on two grounds — it imposed an impermissible burden on the First Amendment rights of Anderson and his supporters, and, because no comparable limitation was placed on the nominee of a political party, it violated the Equal Protection Clause of the Fourteenth Amendment.

The Supreme Court noted that not all restrictions imposed on candidates’ eligibility for the ballot are constitutionally suspect:

We have recognized that, “as a practical matter, there must be a substantial regulation of elections if they are to be fair and honest and if some sort of order, rather than chaos, is to accompany the democratic processes.” Storer v. Brown, 415 U.S. 724, 730 [94 S.Ct. 1274, 1279, 39 L.Ed.2d 714] (1974). To achieve these necessary objectives, States have enacted comprehensive and sometimes complex election codes. Each provision of these schemes, whether it governs the registration and qualifications of voters, the selection and eligibility of candidates, or the voting process itself, inevitably affects — at least to some degree — the individual’s right to vote and his right to associate with others for political ends. Nevertheless, the State’s important regulatory interests are generally sufficient to justify reasonable, nondiscriminatóry restrictions.

460 U.S. at 788, 103 S.Ct. at 1569.

The Supreme Court then described the process to be followed in assessing the constitutionality of a state election law:

Constitutional challenges to specific provisions of a State’s election laws therefore cannot be resolved by any “litmus paper test” that will separate valid from invalid restrictions. Storer, supra [415 U.S.] at 730 [94 S.Ct. at 1279]. Instead, a court must resolve such a challenge by an analytical process that parallels its work in ordinary litigation. It must first consider the character and magnitude of the asserted injury to the rights protected by the First and Fourteenth Amendments that the plaintiff seeks to vindicate. It then must identify and evaluate the precise interests put forward by the State as justifications for the burden imposed by its rule. In passing judgment, the Court must not only determine the legitimacy and strength of each of those interests; it also must consider the extent to which those interests make it necessary to burden the plaintiff’s rights. Only after weighing all these factors is the reviewing court in a position to decide whether the challenged provision is unconstitutional.

460 U.S. at 789, 103 S.Ct. at 1570, citing Storer v. Brown, 415 U.S. 724, 94 S.Ct. 1274, 39 L.Ed.2d 714 (1974).

Although the analytical framework described above is very similar to, and no doubt largely inspired by, that used in cases resting on the Equal Protection Clause, the Anderson court based its conclusions directly on the First and Fourteenth Amendments and did not engage in a separate Equal Protection Clause analysis. Anderson, supra, 460 U.S. at 786 n. 7, 103 S.Ct. at 1569 n. 7. It remains to apply the instructions of the Supreme Court to the case at hand.

INJURY TO PLAINTIFFS

Iowa Code § 48.27 provides that mobile deputy registrars are to be selected from lists of nominees submitted by the county chairman of each of the two political parties receiving the highest number of votes in the county in the last preceding general election. The statute does not require nominees for mobile deputy registrar to be members of a party. Defendant has presented evidence tending to show that non-members of the major political parties have been nominated for the position of temporary mobile deputy registrar in the past. Thus, on 10 occasions from 1980-1984, the Republican party chairperson nominated individuals “whose voter registration indicated they were not then members of the Republican party,” and on 41 occasions over the same period the Democratic chairperson nominated individuals whose voter registration indicated they were not then members of the Democratic party. Indeed, plaintiff Alfred Marrón was so nominated and then appointed in 1982 while a member of the Iowa Socialist Party.

Section 48.27 provides that each of the two major parties “shall” submit nomination lists for both temporary and permanent mobile deputy registrars. No indication is given of what is to occur if a party fails to submit a list of nominees for the position of temporary mobile deputy registrar. With regard to the position of permanent mobile deputy registrar, however, the statute directs that, if no list is submitted by a party, “the county commissioner of registration shall appoint persons known to be members of that political party____”

Paragraph 4 of § 48.27 contains protections against abuse of the mobile registration process by the major political parties. It is unlawful for a mobile deputy registrar to refuse to register any eligible voter. Unreasonable refusal to register is a simple misdemeanor. § 48.27(4)(a). The mobile deputy registrar must give the voter a signed receipt stating that the voter is duly registered. § 48.27(4)(b). And mobile deputy registrars may not influence the elector in designating party affiliation during the registration process. § 48.27(4)(e).

Moreover, if it is participation in the voter registration process that plaintiffs want, then Chapter 48 provides alternatives to service as a mobile deputy registrar. For example, there appears to be nothing to prevent plaintiffs from distributing blank voter registration cards to prospective voters. In fact, while so doing, plaintiffs would be free to espouse their respective political viewpoints — a freedom denied mobile deputy registrars.

On the other hand, there is a very real possibility that § 48.27 could be used to restrict the ranks of mobile voter registrars to members or supporters of the Democratic or Republican parties. Given the unlikelihood of unseating either of the traditionally dominant parties, the fate of minor party members or supporters, and also of independents, who desire to serve as mobile deputy registrar lies in the unfettered discretion of the Democratic and Republican chairmen. One can easily imagine the reluctance chairmen of the dominant parties might have to nominating members or supporters of rival parties. The record in the instant case includes the following letter, dated October 16, 1983, to Donald Doumakes, a member of the Iowa Socialist Party:

Dear Don,
Regarding your request to be named a permanent Mobile Registrar for the Democratic Party: it is my policy to name to these positions only registered Democrats who are not members of any other political party.
Yours sincerely,
Jeff Cox,
Chair, Johnson Co.
Democratic Central Committee

Plaintiffs’ Exhibit A.

Particularly in light of this letter, the Court must view with suspicion defendant’s evidence that 51 times from 1980-1984 persons not registered as members of the major parties were nominated to serve as mobile deputy registrars. No information is provided as to the total number of persons nominated during that period. Of even greater concern, the Court is not told what portion of the 51 nominees who were not registered as party members were nonetheless party supporters.

Finally, it is true that plaintiffs can distribute voter registration cards to prospective voters. However, if the completed registration card is to be mailed to the county commissioner of registration, it must be postmarked by the twenty-fifth day prior to an election or the registration will not take effect for that election. Once the mail-in cutoff date has passed, a registrant has until ten days before the election to submit his completed registration card in person. Iowa Code § 48.3. In either event, the certainty and convenience of on-the-spot registration is not afforded.

The Supreme Court has said that a burden that falls unequally on new or small political parties or on independent candidates impinges, by its very nature, on associational choices protected by the First Amendment. It discriminates against those candidates and — of particular importance — against those voters whose political preferences lie outside the existing political parties. Clements v. Fashing, 457 U.S. 957, 964-65, 102 S.Ct. 2836, 2844-45, 73 L.Ed.2d 508 (1982) (plurality opinion). “By limiting the opportunities of independent-minded voters to associate in the electoral arena to enhance their political effectiveness as a group, such restrictions threaten to reduce diversity and competition in the marketplace of ideas.” Anderson, supra, 460 U.S. at 794, 103 S.Ct. at 1572.

Here, in its character and magnitude, the injury to plaintiffs’ constitutional rights cannot be considered severe. Nor, however, may it be dismissed as inconsequential. The Court must, therefore, “identify and evaluate the precise interests put forward by the State as justifications for the burdens imposed by its rule.” Anderson, supra, at 789, 103 S.Ct. at 1570. In so doing, the Court will bear in mind that it is difficult for the State to justify a restriction that limits political participation by an identifiable political group whose members share a certain viewpoint or associational preference. Anderson, supra, at 793, 103 S.Ct. at 1572. In particular, the risk that the First Amendment rights of minor parties, whose interests are not well represented in state legislatures, will be ignored in legislative decision making may warrant careful judicial scrutiny. Anderson, supra, at 793 n. 16, 103 S.Ct. at 1572 n. 16.

STATE INTERESTS

In support of Iowa Code § 48.27, the State asserts its interest in “maintaining the integrity of the political system as it stands.” Thus broadly stated, this interest has been accepted by the Supreme Court:

We have upheld generally applicable and evenhanded restrictions that protect the integrity and reliability of the electoral process itself. The State has the undoubted right to require candidates to make a preliminary showing of substantial support in order to qualify for a place on the ballot, because it is both wasteful and confusing to encumber the ballot with the names of frivolous candidates. The State also has the right to prevent distortion of the electoral process by the device of “party raiding,” the organized switching of blocks of voters from one party to another in order to manipulate the outcome of the other party’s primary election.

Anderson v. Celebrezze, 460 U.S. 780, 788-789 n. 9, 103 S.Ct. 1564, 1569-1570 n. 9, 75 L.Ed.2d 547 (1983) (citations omitted).

The State argues first that it “wants the most active and supported parties to bear most of the burdens associated with running a political system.” By vesting the power to nominate mobile deputy registrars in the chairpersons of the two major political parties, the State ensures that the political system is maintained by those who appear to use the system the most.

Next advanced is the State’s interest in seeing that voter registration is conducted in an orderly and systematic manner. In particular, defendant contends that § 48.27 serves “to insure that the courthouse is not overrun with mobile deputy registrars, that voters are not being registered more than once, that people who do not want to be mobile deputy registrars are not appointed and that as many voters as possible are actually registered.” It is the commissioner of registration who is assigned the risk of seeing that such things do not occur.

The State has a valid interest in placing the responsibility for obtaining the registration of as many voters as possible upon the party leaders of the two major parties. Our system of government is a two-party system and the two largest parties should bear the responsibility of aiding it to function as effectively as it can. Volunteer help is made available without the expense that would be incurred if it were necessary for the county to adopt a method of screening and evaluating applicants who might be unknown. There is a danger that a procedure that required expenditure of tax funds might result in the repeal of the mobile registration provisions of the code.

However, just as plaintiffs’ injury is not great, the State’s interest in this particular statutory framework for mobile registration is not great. Neither is it inconsequential. Therefore, the Court must consider the extent to which those interests make it necessary to burden plaintiffs’ rights. Anderson, supra, at 780, 103 S.Ct. at 1564.

NECESSITY OF BURDENING PLAINTIFFS’ RIGHTS

Before assessing the unavoidability of obstruction to plaintiffs’ rights, the Court will note that it does not read Anderson to call for a showing of absolute necessity. Rather, the opinion suggests that the degree of necessity required will vary depending on the nature of the rights affected and the extent of the injury to those rights. As indicated above, the Court views both the injury to plaintiffs’ associational rights and the State’s interests to be relatively minor. This does not mean, however, that the State may carry its burden by showing simply that the procedure set forth in § 48.27 is one of a number of ways to achieve the asserted objectives. At a minimum, the State must show that it would be impractical to institute some other procedure less burdensome to plaintiffs’ rights.

It cannot be said that the only practical way to limit the number of mobile deputy registrars is to deny consideration to all but nominees of the two major parties. Nor can it be said that such an approach is the only practical way to prevent voters from being registered more than once. As for the State’s concern “that people who do not want to be mobile deputy registrars are not appointed,” it must be observed that voter registrars are volunteers, not conscripts. There is nothing in the record to suggest that minor party or independent volunteers would be less diligent in performing the duties of mobile deputy registrar than are major party volunteers. Finally, the Court does not agree that limiting mobile deputy registrars to nominees of the major parties is somehow crucial to furtherance of the legitimate goal of registering as many voters as possible. Other methods are available that would have a less chilling effect on the individual’s right to participate in the registration process than does the present procedure, which requires him to solicit nomination by leaders of parties to which he does not belong.

In sum, although defendant has raised interests on behalf of the State, he has not adequately explained why the pursuit of those interests makes it necessary to burden plaintiffs’ rights. In the absence of such an explanation, the challenged statute must be found unconstitutional.

CONCLUSION

It is the finding and conclusion of the Court that § 48.27 of the Iowa Code, which provides that mobile deputy registrars are to be selected from lists of nominees submitted by the county chairmen of the two political parties receiving the highest number of votes in that county at the last preceding general election, violates the plaintiffs’ rights to freedom of association and equal protection under the First and Fourteenth Amendments to the United States Constitution.

In view of the fact that an election is not imminent, and as the Iowa legislature is now in session and may decide to address the issue, injunctive relief will be denied.

The Court is aware that it has given the State only general guidance as to the form a constitutionally sound selection process might take. This is by design. It would be inappropriate at this juncture for the Court to attempt to dictate to the State the specific manner in which § 48.27 should be amended if it is to pass constitutional muster. Rather, the Court chooses to follow the approach articulated by the Eighth Circuit Court of Appeals in McLain v. Meier, 637 F.2d 1159, 1170 (1980) (holding a portion of the North Dakota election statute unconstitutional):

There are options and initially the State has the choice of the options it may select.
If new legislation is enacted there will be time enough for its validity to be determined judicially. Of course, if the State does not act and if it undertakes to enforce the statutes as now written, injunctive relief may be necessary. But that can be done within the framework of another lawsuit.

Plaintiffs have prevailed on their claim that Iowa Code § 48.27 violates their rights under the Constitution of the United States. Accordingly, the Court will exercise its discretion to assess all costs of this action against defendant. The claim made by plaintiffs for attorneys’ fees is separate and collateral from the merits and the issue of costs. Obin v. District No. 9, International Ass’n of Machinists and Aerospace Workers, 651 F.2d 574, 582 (8th Cir.1981). The Court will allow plaintiffs a reasonable time to file an itemized fee application and defendant an opportunity to object to the application.

IT IS THEREFORE ORDERED that § 48.27 of the Iowa Code should be and it is hereby declared to be unconstitutional in that it violates the First and Fourteenth Amendments to the Constitution of the United States.

IT IS FURTHER ORDERED that plaintiffs shall, within twenty (20) days of the date this Order is filed, file an itemized fee application. Defendant shall, within twenty (20) days of the filing of plaintiffs’ itemized fee application, file any specific objections it has to plaintiffs’ requested fee.

IT IS FURTHER ORDERED that the Clerk of Court shall assess all costs of this action against defendant.

      . That this argument leaves defendant holding inconsistent positions is not lost on the Court. If the State’s desire in enacting § 48.27 was to impose the "burdens” of mobile registration on the two dominant political parties, and if § 48.27 is capable of being so used, the fact that persons other than registered members of the two dominant parties have been appointed as mobile deputy registrars may be viewed as fortuitous.
      Also, plaintiffs presumably would contend that the opportunity to serve as a mobile deputy registrar is not a burden, but a blessing.

      . Defendant states that under § 48.27 "the commissioner of registration can designate certain areas that particular registrars should canvas, thereby being able to ascertain that no voters are being registered twice and that no voters are ignored.” Defendant does not explain, and the Court is unable to conceive, how opening the position of mobile deputy registrar to persons other than nominees of the major parties would hinder the commissioner’s efforts to assign a particular geographic area to each registrar.