W & T Offshore, Incorporated v. David Bernhardt, e ( 2019 )


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  •      Case: 18-30876   Document: 00515246589     Page: 1    Date Filed: 12/23/2019
    IN THE UNITED STATES COURT OF APPEALS
    FOR THE FIFTH CIRCUIT
    United States Court of Appeals
    Fifth Circuit
    No. 18-30876                       FILED
    December 23, 2019
    Lyle W. Cayce
    W & T OFFSHORE, INCORPORATED,                                       Clerk
    Plaintiff – Appellant – Cross-Appellee
    v.
    DAVID BERNHARDT, SECRETARY, U.S. DEPARTMENT OF THE
    INTERIOR; GREGORY J. GOULD, DIRECTOR, OFFICE OF NATURAL
    RESOURCES REVENUE, U.S. DEPARTMENT OF THE INTERIOR,
    Defendants – Appellees – Cross-Appellants
    Appeals from the United States District Court
    for the Western District of Louisiana
    Before CLEMENT, ELROD, and DUNCAN, Circuit Judges.
    JENNIFER WALKER ELROD, Circuit Judge:
    This is an oil and gas royalty case concerning orders to pay issued by the
    Department of the Interior to W&T, a company that operated natural gas
    deposits leased from the federal government, in order to resolve volumetric gas
    delivery imbalances. The parties each appeal the district court’s partial grant
    of each other’s motions for summary judgment.             We conclude that the
    Department of the Interior permissibly required resolution of delivery
    imbalances via cash payment, but that it improperly promulgated a
    substantive rule without subjecting it to notice and comment. We also hold
    that the Department of the Interior should have credited all W&T’s deliveries
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    under the doctrine of equitable recoupment. We therefore AFFIRM in part,
    REVERSE in part, and REMAND for proceedings consistent with this opinion.
    I.
    W&T operated offshore natural gas deposits leased from the federal
    government. The Department of the Interior leased the deposits, pursuant to
    its authority under the Outer Continental Shelf Lands Act (“OCSLA”), 43
    U.S.C. §§ 1331–1356b, in exchange for a monthly royalty payment. See 43
    U.S.C. § 1337(a)(1)(A); 30 U.S.C. § 1724(c)(2).        The OCSLA gives the
    Department of the Interior discretion to require royalties “in amount or value
    of the production saved, removed, or sold”—i.e., payment in kind or payment
    in cash. 43 U.S.C. § 1337(a)(1)(A) (emphasis added).
    Several decades ago, the Department of the Interior began a pilot
    program that expanded the number of leases for which it required payment in
    kind, and W&T’s leases were included in that program. As both parties point
    out, “[n]atural gas markets are complex,” and operators like W&T routinely
    struggled to “deliver the exact volume of gas actually owed.” Some months,
    W&T delivered too much gas; other months, too little. As the pilot program
    progressed, the Department of the Interior sometimes issued delivery shortfall
    guidance in the form of “Dear Operator” letters. These letters gave industry
    entities like W&T instructions and options for remedying underdelivered
    royalties: for instance, one typical letter advised operators to make up
    shortfalls with additional gas deliveries “within 120 days of the end of the
    production month” in question, or—failing that—to deliver the additional gas
    on a mutually-agreeable schedule or make a cash payment.
    In October 2008, the Department of the Interior elected to begin
    requiring payment in cash from W&T. It subsequently shuttered the payment-
    in-kind pilot program altogether. In 2010, having determined that W&T’s
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    underdeliveries had exceeded its overdeliveries during its participation in the
    pilot program, the Department of the Interior issued orders requiring W&T to
    make up the cumulative shortfall with a final cash payment. 1 The orders
    superseded all previous “Dear Operator” letters. The period over which W&T’s
    delivery imbalances were calculated ran backwards from October 2008 to
    February 2003, past which point the Department of the Interior reasoned the
    statute of limitations barred any inquiry. See 30 U.S.C. § 1724(b)(1). The
    Department of the Interior also provided its methodology for calculating the
    amount due: multiplying the amount underdelivered in each month by the
    contract sales price it would have collected in each month had the proper
    amount of gas been delivered.
    W&T appealed the orders to the Director of the Office of Natural
    Resources Revenue, who denied the appeal. See W&T Offshore, Inc., 184 IBLA
    272, 305 (2014). W&T then appealed that denial to the Interior Board of Land
    Appeals (“IBLA”), which affirmed. See 
    id. at 305–06.
    W&T proceeded to file a
    request for judicial review of the IBLA decision in the district court. See W&T
    Offshore, Inc. v. Jewell, No. 14-cv-2449, 
    2018 WL 2437677
    , at *1 (W.D. La. Feb.
    23, 2018); see also 43 U.S.C. § 1349(b); 5 U.S.C. § 704. There, the parties
    eventually filed cross-motions for summary judgment.
    On the issues relevant to this appeal, W&T argued first that the “or” in
    the phrase “amount or value,” 43 U.S.C. § 1337(a)(1)(A), precluded the
    1  The Department of the Interior also ordered W&T to pay interest on past-due
    royalties from the time the royalties originally became due (though the royalties had then
    been due in kind), despite having previously assured operators that interest would not begin
    to run until after the Department of the Interior began requiring payment in cash. The
    district court determined that this retroactive interest order was arbitrary and capricious,
    and remanded it to the Department of the Interior. The Department of the Interior does not
    challenge this ruling on appeal.
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    Department of the Interior from requiring make-up cash payments for past
    months in which it had originally required payment in kind. Second, W&T
    argued that the Department of the Interior’s decision to require retroactive
    payment-in-cash royalties—and its methodology for doing so—created a new
    substantive rule that should have been subject to notice and comment under
    the Administrative Procedure Act (“APA”), 5 U.S.C. §§ 552, 553. Third, W&T
    argued that the Department of the Interior was obligated to comply with the
    valuation regulations set out in 30 C.F.R. part 1206, which generally value gas
    at the price the lessee receives, rather than at the Department of the Interior’s
    contract sales price. Fourth, W&T argued that the Department of the Interior
    should have credited its overdeliveries prior to February 2003, despite the
    statute of limitations in 30 U.S.C. § 1724.
    The district court partially granted and partially denied the parties’
    cross-motions for summary judgment. 2 On the statutory interpretation issue,
    applying the framework set out in Chevron U.S.A. Inc. v. Natural Resources
    Defense Council, Inc., 
    467 U.S. 837
    (1984), the district court determined that
    the statutory text was ambiguous and deferred to the Department of the
    Interior’s interpretation: that nothing in the statute bars the Department of
    the Interior from switching its election from payment in kind to payment in
    cash. As to the APA, the district court concluded that the Department of the
    Interior’s orders were “grounded in and logically justified by the specific
    statutory text,” making them mere interpretive rules for which notice and
    comment is not required. The district court also rejected W&T’s claim that the
    Department of the Interior used the wrong valuation methodology, reasoning
    2 The district court’s reasoning is set out in the report and recommendation of the
    magistrate judge, which the district court adopted.
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    that the regulations W&T pointed to applied only to royalties “owed in value
    in the first place—not [to] the valuation of underdeliveries of royalties in kind.”
    Finally, the district court agreed with W&T that the Department of the
    Interior should have credited W&T’s previous overdeliveries because “[a]s a
    purely defensive procedure, [equitable recoupment] is available to defendant
    so long as plaintiff’s claim survives—even though an affirmative action by
    defendant is barred by limitations.”        Distrib. Servs., Ltd. v. Eddie Parker
    Interests, Inc., 
    897 F.2d 811
    , 812 (5th Cir. 1990).
    As a result, the district court partially granted and partially denied the
    parties’ cross-motions for summary judgment, resulting in a final judgment
    vacating the orders to pay and remanding them to the Department of the
    Interior for re-issuance consistent with the court’s rulings.         The parties
    appealed. W&T challenges the district court’s Chevron, APA, and valuation
    rulings, and the Department of the Interior challenges its equitable
    recoupment ruling. The arguments will be considered in turn.
    II.
    The court “review[s] de novo a grant of summary judgment, applying the
    same legal standards that the district court applied.” Kerr-McGee Oil & Gas
    Corp. v. U.S. Dep’t of Interior, 
    554 F.3d 1082
    , 1084 (5th Cir. 2009). Summary
    judgment is appropriate “if the movant shows that there is no genuine dispute
    as to any material fact and the movant is entitled to judgment as a matter of
    law.” Fed. R. Civ. P. 56(a). When cross-motions for summary judgment have
    been ruled upon, “we review each party’s motion independently, viewing the
    evidence and inferences in the light most favorable to the nonmoving party.”
    Green v. Life Ins. Co. of N. Am., 
    754 F.3d 324
    , 329 (5th Cir. 2014) (quoting
    Duval v. N. Assurance Co. of Am., 
    722 F.3d 300
    , 303 (5th Cir. 2013)).
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    III.
    We begin by considering whether the Department of the Interior
    exceeded its statutory authority by changing its election from payment in kind
    to payment in cash for overdue royalties. W&T argues that the statutory text
    permitting the Department of the Interior to require monthly royalties “in
    amount or value of the production saved, removed, or sold,” 43 U.S.C. §
    1337(a)(1)(A), evinces a “disjunctive” choice in that once the Department of the
    Interior requires payment in kind for a given month, it cannot later require
    payment in cash to resolve the outstanding balance for that month. The
    Department of the Interior does not dispute that the choice is “disjunctive” in
    some sense—i.e., that it cannot require operators to pay the amount due twice
    over, once in kind and once in cash. Instead, the Department of the Interior
    argues that the two methods of payment are not mutually exclusive, and
    therefore that it can change its election between payment types for a given
    monthly obligation until the full value has been paid.            The district court
    concluded that the statute was ambiguous and deferred to the Department of
    the Interior’s interpretation. We agree.
    Chevron supplies the familiar two-step framework for judicial review of
    an agency’s interpretation of its statutory authority:
    First, always, is the question whether Congress has directly
    spoken to the precise question at issue. If the intent of Congress is
    clear, that is the end of the matter . . . . If, however . . . the statute
    is silent or ambiguous with respect to the specific issue, the
    question for the court is whether the agency’s answer is based on
    a permissible construction of the 
    statute. 467 U.S. at 842
    –43. At the first step, courts “apply[] the traditional tools of
    statutory interpretation” to gauge statutory clarity, “bear[ing] in mind the
    Supreme Court’s admonition” to “interpret the statute as a symmetrical and
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    coherent regulatory scheme.” BNSF Ry. Co. v. United States, 
    775 F.3d 743
    ,
    751 (5th Cir. 2015) (quoting FDA v. Brown & Williamson Tobacco Corp., 
    529 U.S. 120
    , 133 (2000)). At the second step, if the agency action carries the force
    of law, 3 courts defer to the agency’s interpretation of the governing statute as
    long as that interpretation is a “permissible construction of the statute.”
    Exelon Wind 1, L.L.C. v. Nelson, 
    766 F.3d 380
    , 392 n.10 (5th Cir. 2014) (quoting
    
    Chevron, 467 U.S. at 843
    ). An interpretation is “permissible” when it is a
    “reasonable” one. 
    Id. (quoting Entergy
    Corp. v. Riverkeeper, Inc., 
    556 U.S. 208
    ,
    218 (2009)).
    Here, W&T’s contention that the statutory phrase “amount or value”
    unambiguously prohibits the Department of the Interior from changing its
    election from payment in kind to payment in cash for overdue royalties is
    unpersuasive. Nothing in the statutory text or context purports to limit the
    Department of the Interior’s ability to elect—or re-elect—its preferred method
    of royalty payment. To the extent the statutory context provides any insight
    into the Department of the Interior’s royalty collection power, it evinces a grant
    of discretion to the Department of the Interior to determine how best to
    “achieve effective collections of royalty and other payments.”                 30 U.S.C.
    § 1712(a); see 
    id. (stating that
    “a lessee who is required to make any royalty or
    other payment under a lease or under the mineral leasing laws, shall make
    such payments in the time and manner as may be specified by the Secretary”);
    30 U.S.C. § 1711(c)(1) (“The Secretary shall audit and reconcile, to the extent
    practicable, all current and past lease accounts for leases of oil or gas and take
    appropriate actions to make additional collections or refunds as warranted.”). 4
    3 No party argues that the orders to pay did not carry the force of law.
    4 W&T points out that these provisions are not an independent grant of regulatory
    power, such that the authority to “take appropriate actions” does not permit the Department
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    W&T advances several arguments in support of its reading, but each
    falls short. W&T begins by citing several cases for the proposition that “[i]t is
    well-established that the disjunctive term ‘or’ unambiguously signifies
    mutually exclusive options that cannot be combined.” But only one of these is
    a case in which a simple “or” was clearly construed as creating mutually
    exclusive alternatives—and that case is distinguishable. In D.P. ex rel. E.P. v.
    School Board, 
    483 F.3d 725
    (11th Cir. 2007), the Eleventh Circuit construed
    the following statutory text:
    [D]uring the pendency of any proceedings conducted pursuant to
    this section, unless the State or local educational agency and the
    parents otherwise agree, the child shall remain in the then-current
    educational placement of the child, or, if applying for initial
    admission to a public school, shall, with the consent of the parents,
    be placed in the public school program until all such proceedings
    have been completed.
    20 U.S.C. § 1415(j). The Eleventh Circuit rejected appellants’ contention that
    this language allowed a free choice between the two alternative placements.
    Instead,    because     of “the placement of the disjunctive coordinating
    conjunction—between the two alternatives, but before the imperative,” the
    Eleventh Circuit held that the statute created mutually exclusive alternatives:
    the fact of whether the child was applying for an initial admission unavoidably
    determined the child’s placement. 
    D.P., 483 F.3d at 729
    . Here, unlike in D.P.,
    the relevant statutory language does not place the “or” before an imperative,
    making D.P.’s statutory interpretation unhelpful.
    of the Interior to exceed specific limitations on its authority. See Santa Fe Snyder Corp. v.
    Norton, 
    385 F.3d 884
    , 892 (5th Cir. 2004). As discussed infra, however, W&T does not
    demonstrate how the Department of the Interior’s decision to change its royalty type election
    exceeds its statutory authority in any way.
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    Next, W&T argues that—because the statutory definition of “obligation”
    includes “any duty of the Secretary . . . to take oil or gas royalty in kind,” 30
    U.S.C. § 1702(25)—the Department of the Interior is forever bound to accept
    payment in kind for a given month if it once elects to require payment in kind
    for that month. This definitional provision cannot bear the weight W&T places
    on it, as it says nothing about what the scope of any such “duty” might be.
    Instead, W&T’s unexplained assumption that any duty to accept in-kind
    payments is permanent for a given monthly obligation is merely a repackaging
    of its unexplained assumption that the Department of the Interior’s election
    between royalties in kind and royalties in cash is also permanent.
    W&T also argues that the incorporation of § 1337(a)(1)(A)’s “amount or
    value” language into its lease provisions created an “alternative contract” and
    that the Department of the Interior’s original election of in-kind payment
    forever fixed the parties’ obligations under that contract. See generally 11
    Timothy Murray, Corbin on Contracts § 59.4 (rev. ed. 2019) (discussing
    alternative contracts).      However, W&T does not explain how the
    “incorporat[ion of the] OCSLA provisions as promises,” Mobil Oil Expl. &
    Producing Se., Inc. v. United States, 
    530 U.S. 604
    , 614 (2000), causes those
    provisions to take on a meaning different from the one they already had.
    Therefore, W&T’s argument again assumes its conclusion—that the statutory
    phrase “amount or value” permanently locks the Department of the Interior in
    to its election for a given month.
    Finally, in its reply brief, W&T argues that Congress’s use of the words
    “or both” after setting out alternatives elsewhere in the OCSLA—but not in
    § 1337(a)(1)(A)—evinces an intent that the Department of the Interior not be
    allowed to elect “both” payment in kind and payment in cash here. See 43
    U.S.C. §§ 1337(a)(1)(B), 1350(c)–(d), 1352(b)(2), 1353(a)(1); see also Hamdan v.
    9
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    Rumsfeld, 
    548 U.S. 557
    , 578 (2006) (“[A] negative inference may be drawn from
    the exclusion of language from one statutory provision that is included in other
    provisions of the same statute.”).
    This contention misses the mark because the other “or both” provisions
    in the OCSLA are instances in which Congress appears to countenance the
    application of multiple alternatives at the same time.            For instance,
    § 1337(a)(1)(B) discusses royalties “in amount or value of the production saved,
    removed, or sold, with either a fixed work commitment based on dollar amount
    for exploration or a fixed cash bonus as determined by the Secretary, or both.”
    43 U.S.C. § 1337(a)(1)(B) (emphasis added). Presumably, leases under this
    provision could permissibly and simultaneously require a “fixed work
    commitment based on dollar amount for exploration” and “a fixed cash bonus.”
    
    Id. Thus, Congress’s
    decision not to use the words “or both” in § 1337(a)(1)(A)
    might reasonably signify only that Congress intended to limit the Department
    of the Interior to requiring one type of payment at a time. As the district court
    concluded:
    The use of “or” in the above-cited provisions of the OCSLA may be
    enough to show, as W&T contends, that [the Department of the
    Interior] cannot demand payments of royalties in kind and in value
    at once; however, it is not sufficiently unambiguous to evince
    Congress’s intent, within the royalty scheme set out under the
    OCSLA, that [the Department of the Interior] be bound by its
    election such that it is prevented from demanding that an
    imbalance of a payment due in kind be resolved instead in cash.
    Moreover, W&T’s argument proves too much. If the Department of the
    Interior’s choice between requiring payment “in amount or value” truly
    “signifie[d] mutually exclusive options that may not be combined,” the
    Department of the Interior would appear to be permanently bound by its initial
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    royalty election over the lifetime of the lease. But even W&T admits that the
    Department of the Interior is not “bound forever by electing to take royalties
    on a given lease either in cash or in kind.” Instead, W&T’s reading would allow
    the Department of the Interior to change its election for future months—just
    not for past months for which payment is overdue. W&T does not cogently
    explain how such a result is the unambiguous intent of Congress as expressed
    by its direction that the Department of the Interior collect royalties “in amount
    or value.” 43 U.S.C. § 1337(a)(1)(A).
    For its part, the Department of the Interior simply argues that “[n]othing
    in OCSLA or the implementing regulations (or any other statute) provides that
    once [it] elects to take royalties in kind, it is barred from later taking royalties
    in value to satisfy an outstanding royalty deficiency on the lease.” In essence:
    § 1337(a)(1)(A) allows the Department of the Interior to choose the method of
    payment for outstanding royalties, and there is no textual support for a
    limitation on its ability to so choose. Thus, argues the Department of the
    Interior, the OCSLA unambiguously permits it to demand a cash payment
    from W&T to satisfy past-due royalties originally due in kind.
    The Department of the Interior’s straightforward argument has some
    force, but we need not dwell here on the distinction between whether the
    statute   unambiguously      supports    the   Department      of   the   Interior’s
    interpretation or whether it does not definitively speak to the issue and is thus
    ambiguous. Even assuming that Congress left a statutory gap here, the lack
    of any clear indication that the Department of the Interior’s election authority
    was to be cabined to a one-time-only choice for a given monthly obligation
    makes the Department of the Interior’s interpretation a permissible one to
    which we accord Chevron deference. This is especially so given Congress’s
    expressed intent to “increase receipts and achieve effective collections of
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    royalt[ies]” by commanding lessees to “make such payments in the time and
    manner as may be specified by the Secretary.” 30 U.S.C. § 1712(a).
    Because    the      Department    of    the    Interior’s     interpretation    of
    § 1337(a)(1)(A) is permissible, the district court properly granted summary
    judgment to the Department of the Interior on this ground.
    IV.
    We next consider whether the Department of the Interior’s requirement
    of a cash payment to resolve delivery shortfalls is a new substantive rule that
    should have been subject to notice and comment under the APA. W&T argues
    that the requirement is a substantive rule, while the Department of the
    Interior maintains that it is not a rule at all, but rather an adjudicative order.
    The district court concluded that the requirement was an interpretive rule not
    subject to notice and comment. We disagree.
    The APA obligates agencies to subject their substantive rules to notice
    and comment. See 5 U.S.C. § 553. A “rule” is “an agency statement of general
    or particular applicability and future effect designed to implement, interpret,
    or prescribe law or policy.” 5 U.S.C. § 551(4). Substantive rules “are those
    which create law, usually implementary to an existing law.”                    Phillips
    Petroleum Co. v. Johnson, 
    22 F.3d 616
    , 619 (5th Cir. 1994) (quoting Brown
    Express, Inc. v. United States, 
    607 F.2d 695
    , 700 (5th Cir. 1979)), modified on
    other grounds, No. 93-1377, 
    1994 WL 484506
    (5th Cir. Sept. 7, 1994). They
    typically “grant rights, impose obligations, or produce other significant effects
    on private interests.” Avoyelles Sportsmen’s League, Inc. v. Marsh, 
    715 F.2d 897
    , 908 (5th Cir. 1983) (quoting Batterton v. Marshall, 
    715 F.2d 694
    , 701–02
    (D.C. Cir. 1980)). Substantive rules not subjected to notice and comment may
    not be enforced against a party. See Phillips 
    Petroleum, 22 F.3d at 621
    (citing
    5 U.S.C. § 552(a)(1)).
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    Adjudicative orders, on the other hand, are not rules at all and therefore
    need not go through notice and comment. See generally 5 U.S.C. § 551(6)
    (defining “order” as “a final disposition, whether affirmative, negative,
    injunctive, or declaratory in form, of an agency in a matter other than rule
    making”); 5 U.S.C. § 551(7) (defining “adjudication” as the “agency process for
    the formulation of an order”). 5
    While the Fifth Circuit may accord “some deference” to “the agency’s
    characterization of its own rule,” this deference is minimal—courts “focus[]
    primarily” on the actual characteristics of the agency action. Prof’ls & Patients
    for Customized Care v. Shalala, 
    56 F.3d 592
    , 595 (5th Cir. 1995); see also 
    id. at 596
    (“The label that the particular agency puts upon its given exercise of
    administrative power is not, for our purposes, conclusive; rather, it is what the
    agency does in fact.” (alteration omitted) (quoting Brown 
    Express, 607 F.2d at 700
    )).
    Here, the Department of the Interior’s characterization of its orders to
    pay as the result of an adjudicative order is unpersuasive. Phillips Petroleum
    Co. v. Johnson, 
    22 F.3d 616
    (5th Cir. 1994) and Shell Offshore Inc. v. Babbitt,
    
    238 F.3d 622
    (5th Cir. 2001) are instructive.
    In Phillips Petroleum, Phillips owed natural gas royalties to the
    Department of the 
    Interior. 22 F.3d at 618
    . Until 1988, the Department of the
    Interior “considered several factors in determining the value of federal offshore
    Interpretive rules, meanwhile, need not be subject to notice and comment. Phillips
    5
    
    Petroleum, 22 F.3d at 619
    . An interpretive rule is generally a “statement[] as to what the
    administrative officer thinks the statute or regulation means.” 
    Id. (quoting Brown
    Express,
    607 F.2d at 700
    ); see also 
    Avoyelles, 715 F.2d at 908
    –09 (noting that interpretive rules “are
    not determinative of issues or rights addressed,” but rather “express the agency’s intended
    course of action, its tentative view of the meaning of a particular statutory term, or internal
    house-keeping measures” (quoting 
    Batterton, 648 F.2d at 702
    )). The Department of the
    Interior does not argue on appeal that the orders to pay were interpretive rules.
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    production for royalty purposes.” 
    Id. But in
    1989, the Department of the
    Interior directed Phillips to recalculate and pay previously-due royalties
    pursuant to the methodology set out in an “unpublished internal agency paper
    referred to as the ‘Procedure Paper’” which created “new criteria for valuing
    natural gas liquid products.” 
    Id. On appeal
    to this court, the Department of
    the Interior argued that the Procedure Paper was not a substantive rule
    because it merely clarified existing regulations. We disagreed. Noting that
    the new valuation methodology “effect[ed] a change in the method used by [the
    Department of the Interior] in valuing” natural gas products, we concluded
    that it constituted a new substantive rule. 
    Id. at 619–20.
          Shell Offshore concerned the Department of the Interior’s previous
    practice of accepting crude oil tariffs merely “filed” with the Federal Energy
    Regulatory Commission (“FERC”) as satisfying a regulatory exception
    applicable to tariffs “approved” by 
    FERC. 238 F.3d at 624
    –25. In 1994, when
    Shell filed tariffs with FERC and asked the Department of the Interior to verify
    that it had satisfied the regulatory exception, the Department of the Interior
    changed its position. It issued an order denying the request because Shell had
    not “receive[d] from FERC a determination affirmatively stating that FERC
    possessed jurisdiction” over the tariffs. 
    Id. at 625–26.
    On appeal to this court,
    the Department of the Interior argued that its denial of Shell’s tariff request
    evinced nothing more than a workaday adjudicatory order, not a substantive
    rule. We disagreed. We first noted that the Department of the Interior’s
    requirement of an affirmative jurisdictional statement from FERC was “a
    departure from [the Department of the] Interior’s previous practice of treating
    as approved all filed FERC tariffs.” 
    Id. at 628.
    Next, we noted that the
    adjudication resulting in the denial could not be described as the application
    of a pre-existing “general regulation to the specific facts of Shell’s case.” 
    Id. 14 Case:
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    Rather, the Department of the Interior had “established a new policy and then
    applied that new policy to several [industry entities], including Shell.” 
    Id. Because “the
    adjudication . . . was wholly predicated upon a new requirement
    that [was], in effect, a new substantive rule,” we concluded that the
    Department of the Interior should have subjected its new policy to notice and
    comment. 
    Id. at 627–28.
    6
    At oral argument, counsel for the Department of the Interior admitted
    that “this court’s caselaw [on this issue] is Phillips [Petroleum] and Shell
    [Offshore], neither of which are particularly helpful for us.” Oral Argument at
    25:41.    We agree with this assessment.            Like in Phillips Petroleum, the
    Department of the Interior engaged in an internal effort to develop a new
    royalty     valuation      methodology—expressly           “supersed[ing]”      previous
    practices—which it then ordered industry entities to adhere to and to apply to
    royalties due in previous years. 7 Like in Shell Offshore, the Department of the
    Interior did not apply a pre-existing regulation to the specific facts of an
    industry entity’s case. Rather, it followed up the development of a new policy
    with adjudications in which the new policy “controlled the adjudicative
    process” and was applied across the board to a number of industry entities.
    Shell 
    Offshore, 238 F.3d at 628
    . The Department of the Interior may not cloak
    6  The Shell Offshore court elsewhere relied on a doctrine stemming from Paralyzed
    Veterans of America v. D.C. Arena L.P., 
    117 F.3d 579
    (D.C. Cir. 1997), which was later
    rejected by the Supreme Court. See Perez v. Mortg. Bankers Ass’n, 
    135 S. Ct. 1199
    (2015).
    None of this abrogates the analysis relied on here.
    7 As early as 2009, the Department of the Interior reported to the Government
    Accountability Office that it was “drafting regulations that address among other things the
    operator’s obligation . . . to resolve or mitigate production imbalances.” This would match
    the Department of the Interior’s approach to resolving overdue royalties due in cash, which
    the Department of the Interior addressed through formal rulemaking. See, e.g., 30 C.F.R.
    § 1206.159(e)(1). However, the Department of the Interior eventually jettisoned its plan to
    establish regulations governing overdue royalties due in kind in lieu of applying its new
    valuation methodology to industry entities through nearly-identical adjudications.
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    its development—and industry-wide          application—of    a new      valuation
    methodology in the guise of simple adjudicative orders.
    The Department of the Interior’s arguments to the contrary are
    unavailing. First, the Department of the Interior attempts to distinguish
    Phillips Petroleum because there it had “admitted” that the policy at issue “was
    a new rule.” 
    Id. (internal quotation
    marks omitted). But that fact does nothing
    to vitiate Phillips Petroleum’s analysis of what makes up a substantive rule—
    analysis that is directly applicable here. Next, the Department of the Interior
    argues that it was merely carrying out its “statutory duty to resolve the
    existing imbalances,” and merely applied the relevant statutes to W&T. Shell
    Offshore already aptly explains why the Department of the Interior’s creation
    and uniform application of a new methodology is not an adjudicatory
    application of an existing rule to the facts of a specific case, and Phillips
    Petroleum explains why the new methodology can only be a substantive rule.
    Finally, the Department of the Interior points to the APA’s definition of
    a “rule” as an agency action that has “future effect,” 5 U.S.C. § 551(4), and
    argues that here it would be free in future adjudications to apply a different
    methodology. This hypothetical rings hollow in light of the Department of the
    Interior’s actual actions in this case: its purposeful development of a
    comprehensive new policy to address an industry-wide problem and its
    application of that new policy across the board in all subsequent adjudications
    of the issue. Indeed, the Department of the Interior’s approach would permit
    an agency to create new policies and uniformly apply them to every industry
    entity going forward without ever undertaking notice and comment so long as
    it declined to say that it would necessarily stick to the policy forever. Our
    approach to the substantive-rule analysis, grounded in Phillips Petroleum and
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    Shell Offshore, is not just an empty formalism that would permit that result. 8
    At any rate, the language in the orders to pay—stating, for instance, that the
    Department of the Interior “cashes out the volume imbalances using the
    contracted sales price, less transportation, fuel, and/or quality bank costs each
    month there is an imbalance”—flatly communicates what the Department of
    the Interior’s new payment valuation approach is, without any temporal
    limitation.
    Because the Department of the Interior’s orders to pay evince the
    creation of a new substantive rule, the district court improperly granted the
    Department of the Interior summary judgment on this issue. 9
    V.
    As a final matter, we address the issue of whether—whatever valuation
    methodology the Department of the Interior employs—the agency must credit
    all of W&T’s prior overdeliveries in calculating the cumulative delivery
    shortfall. The Department of the Interior appeals the district court’s ruling
    that it must do so, arguing that the statute of limitations set out in 30 U.S.C.
    § 1724(b)(1) prohibits it from crediting overdeliveries prior to the limitations
    period. W&T argues that the doctrine of equitable recoupment applies here to
    overcome the statute of limitations.           We agree that equitable recoupment
    applies and therefore affirm.
    We “hold unlawful and set aside agency action, findings, and
    conclusions” that are “arbitrary, capricious, an abuse of discretion, or
    8  It is unclear how the Department of the Interior’s new methodology in this case has
    less “future effect” than the procedure paper in Phillips Petroleum, which the Department of
    the Interior had represented was a mere “policy guideline.”
    9 This conclusion obviates the need to address W&T’s appeal of the district court’s
    determination that Interior did not contradict its own valuation regulations in calculating
    the amount due.
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    otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). The statute of
    limitations at issue states the following:
    A judicial proceeding or demand which arises from, or relates to an
    obligation, shall be commenced within seven years from the date
    on which the obligation becomes due and if not so commenced shall
    be barred. If commencement of a judicial proceeding or demand
    for an obligation is barred by this section, the Secretary, a
    delegated State, or a lessee or its designee . . . shall not take any
    other or further action regarding that obligation, including . . .
    completion of an audit with respect to that obligation . . . [and]
    shall not pursue any other equitable or legal remedy, whether
    under statute or common law, with respect to an action on or an
    enforcement of said obligation.
    30 U.S.C. § 1724(b)(1). The common-law doctrine of equitable recoupment,
    meanwhile, provides “a defense that goes to the foundation of [a] plaintiff’s
    claim by deducting from plaintiff’s recovery all just allowances or demands
    accruing to the defendant with respect to the same contract or transaction.”
    Eddie Parker 
    Interests, 897 F.2d at 812
    . “As a purely defensive procedure, it
    is available to defendant so long as plaintiff’s claim survives—even though an
    affirmative action by defendant is barred by limitations.” 
    Id. As the
    magistrate judge’s report and recommendation succinctly and
    aptly explains, equitable recoupment is “never barred by the statute of
    limitations so long as the main action itself is timely.” Bull v. United States,
    
    295 U.S. 247
    , 262 (1935); see also Eddie Parker 
    Interests, 897 F.2d at 812
    .
    Because W&T asserted equitable recoupment as a defense to the Department
    of the Interior’s orders to pay, the statute of limitations does not apply.
    The Department of the Interior offers three reasons to conclude
    otherwise, but none is persuasive. First, the Department of the Interior argues
    that Congress expressly precluded application of equitable recoupment in the
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    text of the statute by barring “pursu[it of] any other equitable or legal remedy,
    whether under statute or common law” regarding obligations outside the
    limitations period.    30 U.S.C. § 1724(b)(1).     But the Supreme Court has
    required “the clearest congressional language” to defeat equitable recoupment,
    United States v. W. Pac. R.R., 
    352 U.S. 59
    , 71 (1956), and the language the
    Department of the Interior cites falls short. This is because Congress’s bar on
    equitable remedies does not clearly bar equitable defenses. Equitable remedies
    typically take the form of “an injunction or specific performance,” and are
    typically affirmatively sought and “obtained when available legal remedies . . .
    cannot adequately redress the injury.”         Equitable Remedy, Black’s Law
    Dictionary (10th ed. 2014).
    Here, W&T did not institute an action to recover its overpayments.
    Instead, the Department of the Interior instituted the adjudications at issue
    and W&T merely raised equitable recoupment in its appeal of those
    adjudications. The distinction between the two finds further support in United
    States v. Western Pacific Railroad Co., 
    352 U.S. 59
    (1956), where the Supreme
    Court addressed a statute of limitations governing “all actions at law.” 
    Id. at 70.
    The Court stated that even assuming “that the Government would have
    been barred by [the statute of limitations] from filing an affirmative suit . . . to
    recover overcharges,” the statute of limitations does not bar “questions raised
    by way of defense in suits which are themselves timely brought.” 
    Id. at 71.
          Second, the Department of the Interior notes that equitable recoupment
    applies only to obligations arising under “the same contract or transaction” and
    argues that here each monthly obligation under the lease was a separate
    transaction. Eddie Parker 
    Interests, 897 F.2d at 812
    ; see also Rothensies v.
    Elec. Storage Battery Co., 
    329 U.S. 296
    , 299 (1946) (noting that equitable
    recoupment “has never been thought to allow one transaction to be offset
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    against another, but only to permit a transaction which is made subject of suit
    by a plaintiff to be examined in all its aspects”). This objection is easily
    dispatched, as the Department of the Interior’s requirement that payments be
    made on a monthly basis does not trump the reality that each monthly
    obligation arises from a single contract: the lease. The Department of the
    Interior’s cramped view of the meaning of “the same contract or transaction”
    in this context is at odds with the aim of equitable recoupment doctrine, which
    is to allow the contract or transaction at issue to be “examined in all its aspects,
    and judgment to be rendered that does justice in view of the one transaction as
    a whole.” 
    Rothensies, 329 U.S. at 299
    (emphasis added). 10
    Third, and finally, the Department of the Interior argues that equitable
    recoupment should not be applied here because there is no real-world inequity.
    In the Department of the Interior’s view: because it applied the statute of
    limitations to a number of industry entities with outstanding royalty
    obligations regardless of “whether the imbalances benefitted the government”
    or not, its treatment of W&T was not inequitable.                     Moreover, as the
    Department of the Interior points out, W&T could have rectified the delivery
    imbalances earlier.       Even if we accept the Department of the Interior’s
    principle that a party asserting equitable recoupment must make an
    independent showing of inequity beyond a failure to credit its payments, the
    Department of the Interior’s logic is unsound. The Department of the Interior’s
    10Although the Supreme Court has specified that individual tax payments are
    individual transactions for recoupment purposes, this is because each tax obligation was
    created by its own “single taxable event.” 
    Rothensies, 329 U.S. at 300
    ; see also Ferguson v.
    Comm’r, 
    568 F.3d 498
    , 505 (5th Cir. 2009). Not so in this case, where each one of W&T’s
    monthly obligations became due because of the obligations set out in a single lease
    agreement.
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    neutral application of the statute of limitations across the industry does not
    counteract the inequitable result that W&T suffered—the Department of the
    Interior’s refusal to credit deliveries it received from W&T. And W&T had no
    way to know that it needed to act quickly or else lose credit for its past
    overdeliveries, as the Department of the Interior had previously assured the
    industry that “total [royalty-in-kind] . . . natural gas volumes” would be
    “carr[ied] over to the next month to resolve aggregated imbalances that have
    occurred in prior months.” 73 Fed. Reg. 19241, 19242 (Apr. 9, 2008).
    Because the Department of the Interior should have credited all of
    W&T’s deliveries under the lease, the district court properly granted summary
    judgment to W&T on this issue.
    VI.
    Accordingly, the judgment of the district court is AFFIRMED in part,
    REVERSED in part, and REMANDED.
    21