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The United States Court of Appeals for the Federal Circuit is now open and in session.

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God save the United States and this honorable court.

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Good morning, ladies and gentlemen.

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We have six cases on the calendar this morning.

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Five of them will be decided on the briefs.

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One that is being decided with oral argument is 19-1983 Taylor Energy Company versus the United States.

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Mr. Waxman.

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Thank you, Judge Lurie, and may it please the court.

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It is undisputed that Taylor Energy can take no further measures to decommission the MC-20 site without doing more environmental harm than good.

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That has been the situation for nine years, and there is no basis to think it will change.

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Yet the government has determined that under the party's 2008 trust agreement,

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Taylor must keep nearly a half a billion dollars locked up indefinitely to no productive use.

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The trust agreement was one of many ways the government could and can require Taylor to provide financial assurances that it would decommission the MC-20 site.

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And if Taylor prevails in this litigation, those other options remain open to the government.

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But when the government signs the contract,

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even one to satisfy regulatory obligations, it is subject to ordinary contract principles.

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If a complaint in this case plausibly alleges that Taylor, the trust agreement reflects the party's shared expectation that Taylor would be able to complete its decommissioning obligations within a reasonable time and that the government would promptly allow release of the funds.

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Mr. Waxman.

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Mr. Waxman, wasn't it

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projected by various governmental groups that no further progress could be made?

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So it was, there is, when you say government groups, Judge Lurie, I want to be clear about this.

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The 2013 Consensus Environmental Report, the CIRA report,

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What about BSEE?

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BSEE has taken the position, it is BSEE's, which we call BSEE, position that while there is nothing that Taylor, given present technology, can do that would be more beneficial rather than harmful to the environment, and therefore that federal law prohibits Taylor energy from proceeding,

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It held that under the regulations, it did not have to make a decision that no decommissioning activities will ever be able to be done, and the IBLA affirmed that because, as it said, there is nothing in the OXLA or its implementing regulations that prevents BESSI from deferring its decision.

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The question in this case involves the disposition of a trust account

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that is governed by a contract.

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And the question in the case is whether or not the government gets to decide as a matter of contract law that this particular type of security can be held forever, even though the terms of the account were agreed upon under certain contract terms.

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Mr. Waxman, I think part of the problem is that you opened up with the statement

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that it is completely undisputed that nothing more can be done.

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But not just Bessie, but, and I don't know what you call the other one, BOEM, the Coast Guard, the Justice Department.

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They all said that they don't share the views of the Sara report.

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So I want to be clear on a couple things, Judge O'Malley.

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First of all, the Sara report was the government's report.

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They're entitled to change their mind.

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And I want to be clear that as a regulatory matter,

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decommissioning obligations never expire.

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Twenty years from now, if one of the wells that Taylor Energy plugged blows out, the government will come after Taylor Energy and BP, which was its predecessor in interest, for decommissioning obligations.

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That is not the question whether

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That doesn't govern whether this particular account, which was established under the terms of a contract, which the complaint plausibly alleges had as a term, that the obligations to perform would expire within a reasonable period of time.

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That, as a contract matter, that period of time has now concluded.

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And I want to underscore, Judge O'Malley, that the government... Wait a minute, Mr. Waxman.

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Section 6.8 of the trust agreement provides determination when all obligations have been complied with and they have not been.

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So, Judge Lurie, two things.

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First of all,

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the interpretation of this conduct only question before this court because the government has raised no state law or contract law interpretive positions at all our position is that it is clear that as a matter of contract law a contract that includes uh... uh... a contract that is it had been indeterminate

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time of performance or an indeterminate duration, the obligation to perform terminates within a reasonable period of time.

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At trial, it will be an issue for the trier of fact to decide whether under contract purposes a reasonable period of time has expired.

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That is going to say nothing whatsoever about Taylor Energy's regulatory decommissioning obligations.

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But the government, there is no... You seem to be, Mr. Westman, I'm sorry, but you seem to be jumping all the way to the end here.

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I think there are several hurdles that you would have to get past.

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And for instance, what effect is that IBLA decision on your argument?

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I mean, we're bound by that decision, and they specifically classified this as a least specific abandonment account, not as a contract.

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Whether, Judge O'Malley, whether or not, we're not suggesting that you aren't bound by the IBLA's decision.

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The IBLA did characterize the account as a least specific abandonment account, and the government makes much of that.

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Whether this does or doesn't qualify as a least specific abandonment account, it was an account that was set up pursuant to a contract, and that contract has to be interpreted

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under contract principles, and that is the only question that this court needs to or appropriately should decide.

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I want to say also that the I.B.L.A.

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You keep saying it's a contract, but isn't there a fair argument that the government makes on the other side that it's not a contract at all?

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While it's called an agreement, it simply lists all of the regulatory obligations that Taylor has to abide by.

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Oh, Judge O'Malley, it does far more than that.

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And if I can just answer it by reference to the IBLA decisions in this case, there were two.

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There was a decision, there was a case that was filed in 2012 that involved

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Taylor Energy's claim to be entitled to additional reimbursement from the trust account.

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The IBLA made clear, and that opinion is in the Joint Appendix beginning at page 3505, and at page 3517, the IBLA makes clear that the issue of disbursements from the account and all questions relating to the trust agreement

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are decided by contract principles.

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Under the IBLA decision, the other decision which is briefed and which is discussed in the brief in which the IBLA upheld Bessie's refusal to terminate the regulatory obligations, the IBLA made clear that it was making a determination under the regulations alone and was saying nothing about what the contract says or doesn't say

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about the government's obligation to return money from the trust account.

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And that is, I hope I haven't jumped over any hurdles, Judge O'Malley, but that really is... Well, it expressly says that the government's obligation is upon completion of all regulatory requirements.

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And regulatory requirements include decommissioning, correct?

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Yes, there is no doubt

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that under the regulation there was a regulatory requirement that is imposed on Taylor energy that is independent of any contract and that survives the termination or expiration of any contract to fully decommissioned that was the holding of the DC circuit in the noble energy case which followed from this court's decision in amber resources where there was a adjudication of a contract breach in an

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outer continental shelf leasing agreement.

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But did Snowvo Energy rely on newly enacted federal law that hadn't been contemplated under the original regulatory agreement?

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And here there is no newly enacted law, is there?

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No, no, no.

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There's no newly enacted law.

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What happened in Amber Resources, this court's decision in Amber Resources, is there was an interpretation by a California court

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that the Coastal Zone Management Act had to be interpreted in a way that extended a certain timeline by which the government in its lease agreed that it would grant permits.

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And this court held

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that because of that had the government had notes the government had to follow the california state california court decision but nonetheless that produced a breach and therefore amber resources was excused from all of its obligations under the contract the government betty then came back and said well you still have a regulatory obligation to decommissioned and amber resources and noble energy said no we don't

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we're relieved of any obligations under the contract.

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And the DC Circuit held the former may be true, but the latter is not.

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That is, even though you have no further contractual obligations to decommission, you have a regulatory obligation to decommission that survives and is dependent of the contract.

[00:11:35] Speaker 03:
Yeah, but here it's not independent.

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Council, here it's not independent because the trust expressly incorporates

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uh... c f thirty c f r two fifty when it says distrust agreement shall terminate upon the occurrence of either the following condition mutual written agreement or taylor's compliant with all obligations as evidence by written concurrence of the government so here it's not independent of the contract wasn't expressly incorporated into the contract judge more i hope i hope i'm getting that personalities right here but judge more there that term is in the contract and if

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this court reverses and the matter goes down for adjudication, it will be available to the government and incumbent upon Judge Firestone to determine whether under contract principles that provision of the contract governs over the provision of Louisiana state contract law that says

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that when there is a contract that is whose performance date and termination date is indeterminable, Louisiana law imposes a reasonable time for performance under the contract and we will put on evidence, again the government has raised no state law issue here, we will put on evidence showing that the parties contemplated that the decommissioning pursuant to the plan

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that the contract required Taylor Energy to pursue, that decommissioning would proceed continuously, with the exception of hurricane season, and it would be completed within a year or shortly thereafter.

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And that contemplation, together with the contractual obligation that Taylor Energy diligently pursued a completion of decommissioning obligations,

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together with the state law principle that where the time for performance is indeterminate, state law imposes a reasonable time, there will be an adjudication whether under contract law a reasonable time has passed.

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That will do nothing whatsoever to relieve Taylor Energy of any further decommissioning obligations that it has, if indeed there are any.

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Mr. Waxman, before you use up all your rebuttal time...

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Let me understand why under Parker drilling you believe there are legal issues underlying Taylor's claims that are unaddressed by federal law.

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Yes, because the relevant issue in this case within the meeting of Parker is the how to interpret the terms of this contract.

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Parker drilling did not overrule mobile oil exploration.

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And may I please reserve the balance of my time?

[00:14:27] Speaker 01:
We will save two minutes for you, Mr. Waxman.

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Mr. Roberson.

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Thank you, Your Honor.

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May it please the court?

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This court should reject Taylor's appeal because it presents an interpretation of the trust agreement using Louisiana law that is directly at odds with Oxfam, the Supreme Court's decisions in Parker drilling, Rodriguez, offshore logistics, and mobile oil.

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and this quotes decisions in Amber Resources and Century Exploration.

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Notably, Taylor cannot cite to a single case where a court has employed the interpretive strategy that Taylor recommends here of dividing a single regulatory agreement into two sets of independent obligations, one regulatory subject to federal law and one contractual subject to state law, with state law imposing implicit limitations on the scope of federal regulatory terms

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embedded in the agreement.

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Payment interpretive strategy is foreclosed as a matter of law.

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Parker Drilling instructs citing OXLA 1333A2A that where federal law has already addressed the relevant issue in a matter involving the outer continental shelf, state law addressing the same issue is necessarily inconsistent with federal law and therefore cannot be adopted as federal law.

[00:15:50] Speaker 02:
Can I ask, is the government's position that there is no contract here, or is the government's position that it doesn't matter if you characterize it as a contract because federal law covers the entire landscape of the agreement?

[00:16:06] Speaker 04:
So the government's position is that this is a lease-specific abandonment account in the form of a trust.

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The trust is in the form of an agreement.

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So there were three parties to the trust agreement.

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You could say broadly that trust is a form of contract.

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And our position is completely consistent with the court's holding in mobile oil, which discussed the lease there as a contract, and the notion that the relationships between the parties are the same as in the private.

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That's true.

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This is, though, a regulatory instrument, and as mobile oil instructs,

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the regulatory terms are embedded as terms of this agreement, the trust agreement.

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And so this is not a contract, a Louisiana contract.

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It's a federal regulatory instrument, as was the lease.

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If you look and see what happens, the lease itself that Taylor had, had the same section one that you see in mobile oil, amber resource, and century exploration.

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which incorporates, literally and specifically incorporated, office of regulations, current and future.

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And then that requirement under Taylor's lease was incorporated in section 1.2d of the trust agreement.

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And there, the trust agreement then allows for those obligations to be part of the contractual obligations.

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So this notion that Taylor has to revert to the fiction that they were

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they revert to, is this notion that there is a bifurcation of a single instrument, this trust agreement, least specific in abandonment count, and that federal law doesn't apply to the contractual components of it.

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It's only applied to regulatory components, ignoring that this is a singular agreement, a unitary agreement, and that is the instruction of mobile oil.

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Mobile oil found that the

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Section 1 was incorporated by reference and incorporated by reference federal statutes and regulations.

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Using federal law, court determined that a breach of contract occurred relative to the incorporated OXFEL regulations.

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State law was not invoked to address the breach of contract claim in mobile oil or amber resources or century exploration.

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And instead, it was federal law.

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Federal law was what the government did, inconsistent

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with the federal terms embedded in the contract.

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And in Amber Resources and Mobile Oil, the court concluded that what the government had done was inconsistent with the lease terms.

[00:18:42] Speaker 02:
So wait, just going back to my question then.

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So is your answer that, yes, there's a contract, but federal law governs all aspect of it?

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Or is your answer that the lease is a contract, but the trust agreement is not?

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I'm not quite sure I'm following.

[00:19:00] Speaker 04:
The lease obviously was a contract, and the trust agreement, in the broadest sense, is a form of contract.

[00:19:06] Speaker 04:
It was an agreement, but it was not a contract.

[00:19:09] Speaker 04:
It was a trust agreement.

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So there was, you know, there's an agreement.

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There's three parties that earn to it.

[00:19:16] Speaker 02:
You know, Taylor is ascending.

[00:19:18] Speaker 02:
Okay, so what we are getting to then is essentially the Parker drilling question, right?

[00:19:23] Speaker 04:
Once you have the, Your Honor, that's correct.

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Once you see that the regulatory terms are incorporated as part of the trust agreement, then Parker drilling instructs, there's no state law that can apply to interpret those terms.

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And Taylor's complaint is based entirely on the application of Louisiana law.

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Therefore, Parker drilling instructs, consistent with mobile oil,

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Well, I understood opposing counsel to pretty much acknowledge, based on the portion of the agreement that I read, that the trust shall terminate upon occurrence of either the following mutual written agreement or compliance with all obligations.

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I mean, that is the regulatory decommissioning obligation.

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So I don't see how we're not in Parker drilling territory.

[00:20:12] Speaker 04:
Correct.

[00:20:13] Speaker 04:
I absolutely agree, Your Honor.

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In fact, if you look at all the substantive obligations of the trust, you'll see that they're all regulatory obligations.

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They flow from 30 CFR 250.1700 through, and those regulatory obligations are embedded in the trust.

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The decommissioning obligations of Schedule X expressly cite regulatory obligations that are controlling the decommissioning obligations.

[00:20:42] Speaker 02:
So what's your response to the argument that was made on the other side, that if we're in Parker Drilling territory, that we should remand for the court of federal claims to assess whether there are legal issues underlying Taylor's claims that are unaddressed by federal law in the first instance?

[00:21:03] Speaker 04:
Well, I think generally Parker Drilling doesn't really establish new law.

[00:21:06] Speaker 04:
It just reiterates basically what Oscar says and what is consistent with Rodriguez and offshore logistics.

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So in the first instance, there's really, Parker drilling certainly made it less ambiguous if there was any, but it doesn't really break new law.

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It really reiterates the extent of federal supremacy.

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Then if you look at basically this notion of remand, then you just go to the Froman versus Davis factors with respect to rule 15 amendment.

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Basically, you've got undue delay.

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You know, four years, we filed our motion to dismiss four years ago stating that they failed to state a claim.

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They didn't amend their complaint.

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And then four years later, after the Federal Circuit, they want it now suddenly remand and amend their complaint.

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That is undue delay.

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It would also be undue prejudice.

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So we were basically, we're near the point of having an order to decommission issued by BESSI.

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And then we suddenly have litigation for another few years over whether or not there's a valid trust again.

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So it would be undue prejudice as well.

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traditional economy would not be there.

[00:22:12] Speaker 02:
Is there a merit material dispute over whether the legal landscape is covered by federal regulation or not?

[00:22:23] Speaker 04:
I don't think that there's, I don't think that parkers ruling, again, changes much and it certainly, if you look at

[00:22:31] Speaker 04:
The statute's there, we argued it, and we argued it using Rodriguez and Oxford Logistics, but there's a whole slew of cases.

[00:22:40] Speaker 04:
If you go down to the Fifth Circuit and even the district courts in the Fifth Circuit.

[00:22:44] Speaker 03:
I don't think, I'm sorry, please go ahead, Detroit.

[00:22:49] Speaker 01:
Mr. Olgason, what do we do with the impossibility argument?

[00:22:53] Speaker 01:
There are, there's some evidence here that these leaks could continue for a hundred years.

[00:23:03] Speaker 04:
So the notion of the leaks that came for 100 years is not something I think that has a realistic... I'm looking at two ways.

[00:23:12] Speaker 04:
One is, is this a problem that can be fixed?

[00:23:14] Speaker 04:
Yes, it can be fixed.

[00:23:15] Speaker 04:
And if you look at Taylor's impossibility argument, it's not that it can't be fixed.

[00:23:19] Speaker 04:
It's they're saying that there's a risk benefit that makes it impossible for them to comply with federal regulations as they interpret it using state law.

[00:23:29] Speaker 04:
So what they say is, oh, there's only three gallons a day leaking.

[00:23:32] Speaker 04:
Therefore, decommissioning effort is too risky.

[00:23:35] Speaker 04:
The risk and benefit from that don't add up to a course of action because you have to undertake actions that are safe and sound.

[00:23:45] Speaker 04:
But they're using Louisiana law of impossibility to affect the federal law, which simply says you're going to decommission until Bessie says that the pollution is affecting Bessie.

[00:23:57] Speaker 04:
That's 30 CFR 250.381.

[00:24:02] Speaker 04:
First of all, you have to look at what the argument is.

[00:24:04] Speaker 04:
And it requires the application of Louisiana law of impossibility to affect the federal regulation.

[00:24:10] Speaker 04:
That goes against Parker drilling.

[00:24:11] Speaker 04:
The second thing is, the notion that there's three gallons a day, we are collecting over 1,000 gallons a day and have been doing so for a year and a half since we got a containment system up.

[00:24:21] Speaker 04:
To date, in a year and a half, we've collected 464,000 gallons of oil.

[00:24:25] Speaker 04:
So the general notion, factually, about what they're arguing,

[00:24:30] Speaker 04:
It's unfounded.

[00:24:31] Speaker 03:
But the more important point is for the motion to dismiss is the notion that... Yeah, but, Counsel, that last argument about how many gallons you got and how many gallons they say it is, that would be a fact question.

[00:24:41] Speaker 03:
That's not something we would be deciding on appeal.

[00:24:43] Speaker 03:
I don't understand why you think that argument ought to persuade us.

[00:24:47] Speaker 04:
I'm not arguing that the 464,000 gallons should persuade you.

[00:24:51] Speaker 04:
My persuasion for you is that they're using a regional law as an possibility.

[00:24:56] Speaker 04:
contractual term to affect a federal regulatory term embedded in the contract that says you have to decommission to the satisfaction of Bessie.

[00:25:07] Speaker 04:
And that's part of the drilling.

[00:25:10] Speaker 03:
And that's true even if Bessie won't be able to be satisfied.

[00:25:16] Speaker 03:
I mean that's kind of what they're saying.

[00:25:17] Speaker 03:
They're saying that there's such a risk and therefore because of the risk we can't satisfy that condition.

[00:25:23] Speaker 04:
If there's a second level of dissatisfaction with BESSI, it's not through the contract.

[00:25:29] Speaker 04:
There's no breach of the contract term.

[00:25:31] Speaker 04:
They have the opportunity to go back to the ideas, to go back to that departure request from our regulatory obligations, and then they can go through that process.

[00:25:44] Speaker 04:
And if Becky's acting arbitrarily and capriciously by not allowing them to, you know, to go forward or to get their money back, then that's for the IDLA.

[00:25:54] Speaker 04:
But in a true breach of contract claim, they're stepping on Parker drilling because they are advocating for Louisiana law of contract impossibility back federal regulations embedded in the contract.

[00:26:08] Speaker 04:
So whereas mobile oil in those cases looked at federal actions that are,

[00:26:14] Speaker 04:
impinging on the federal regulatory terms embedded in the contract.

[00:26:17] Speaker 04:
What Taylor's arguing is Louisiana state law indicates that the federal terms embedded in the contract were improper and therefore it's a breach under Louisiana state law.

[00:26:27] Speaker 04:
That's impossible under a bill.

[00:26:35] Speaker 04:
And if you look at the terms of the contract

[00:26:40] Speaker 04:
All the terms, again, as I said, are embedded terms.

[00:26:43] Speaker 04:
All the major terms are embedded terms of regulatory requirement.

[00:26:49] Speaker 04:
And if you look at the choice of laws, they argue that, well, they have the choice of law.

[00:26:54] Speaker 04:
There's plenty of authority that OXLA does supersede the normal choice of law rules, textual expiration,

[00:27:04] Speaker 04:
The contract's choice of law provision is of no moment because the party's choice of law will not trump the choice of law being provided by Congress and HOXLA.

[00:27:14] Speaker 04:
And that clause is not meaningless.

[00:27:17] Speaker 04:
There are examples where Louisiana law could apply to the trust.

[00:27:21] Speaker 04:
If you look at section 2.6, 2.9, there's periodic account statements, monthly statements.

[00:27:26] Speaker 04:
There was something there that went afoul of Louisiana law.

[00:27:30] Speaker 04:
It's not impinging on the federal area

[00:27:34] Speaker 04:
of regulation that's embedded in the contract, and so those could be a point where Louisiana law could apply.

[00:27:41] Speaker 04:
But here, Taylor's caught between the dilemmas of mobile oil and parker drilling, and they fail to state a claim because they are basing their claim on Louisiana law.

[00:27:56] Speaker 04:
If you look at their claims, too, they're internally inconsistent.

[00:28:00] Speaker 04:
Taylor argues

[00:28:01] Speaker 04:
that if it were to prevail in a breach of contract claim, its regulatory obligations would remain the same.

[00:28:08] Speaker 04:
Yet the trust is established as a regulatory agreement to ensure funds are available to pay for the completion of Taylor's decommissioning obligations.

[00:28:15] Speaker 04:
And under Taylor's theory of the case, that rescinded, voided, or reformed under Louisiana law.

[00:28:20] Speaker 04:
We wouldn't have the regulatory instrument of a trust to ensure that Taylor's form can be paid for.

[00:28:28] Speaker 04:
So its arguments ignore

[00:28:30] Speaker 04:
that the goal of the trust is to ensure that in a world where Taylor remains obligated to pay for the decommissioning of its wealth, there are indeed funds available to undertake these obligations.

[00:28:42] Speaker 04:
If the Court has no further questions, I just ask that the Court, for the foregoing reasons and for the reasons stated in our briefs, affirm the Court's decision dismissing Taylor's complaint.

[00:28:59] Speaker 01:
Thank you, Mr. Rogerson.

[00:29:00] Speaker 01:
We have your case.

[00:29:01] Speaker 01:
Mr. Waxman has two minutes for rebuttal.

[00:29:04] Speaker 00:
Thank you, Your Honor.

[00:29:07] Speaker 00:
There is no regulatory reason to insist on this particular pot of money.

[00:29:12] Speaker 00:
If and when Taylor Energy prevails in this litigation, the government will be able to impose a reasonable bonding requirement, presumably under a surety bond, the cost of which will be vastly less than a half a billion dollars, to fully satisfy and ensure any other decommissioning obligations that may occur.

[00:29:35] Speaker 00:
Judge Moore, it is not our position that under the contract law, that the trust will terminate only when the government fully agrees.

[00:29:43] Speaker 00:
Our position is that under contract law, which has to govern under Lynch and Mobile, because this is a contract as the government conceived and IBLA agrees, under contract law, there is a term for it.

[00:29:59] Speaker 00:
The performance must be within a reasonable time.

[00:30:02] Speaker 00:
and the impossibility issue that the court's questions addressed as relevant here is not whether it will forever be impossible to do anything, but whether it is impossible within a reasonable period of time to conduct further decommissioning safely in an environmentally friendly manner.

[00:30:22] Speaker 00:
Federal law currently prohibits

[00:30:25] Speaker 00:
Taylor Energy from doing anything it has for the last nine plus years, and Taylor Energy may not proceed with a single decommissioning step unless the government provides a permit and approves.

[00:30:39] Speaker 00:
The government says, Mr. Roberson started by saying that there is no case we've cited that imposes two sets of laws to decommissioning and reimbursement obligations.

[00:30:52] Speaker 00:
Noble Energy did exactly that.

[00:30:56] Speaker 00:
The regulatory terms for decommissioning were embedded in the contract in that case, just like it is here.

[00:31:03] Speaker 00:
And as this Court held in amber, contract law did decide the question, but it didn't relieve the regulatory obligations.

[00:31:14] Speaker 00:
I see that my time has expired, and I thank the Court.

[00:31:17] Speaker 01:
Thank you, Mr. Waxman.

[00:31:19] Speaker 01:
We appreciate the arguments of both counsel and the case will be taken under submission.

[00:31:26] Speaker 00:
The Honorable Court is adjourned until tomorrow morning at 10 a.m.