[00:00:00] Speaker 03:
Next case for argument is 23-1848 Petromex versus United States.

[00:00:05] Speaker 03:
Mr. Greenspoon, please proceed.

[00:00:06] Speaker 05:
Thank you, Judge.

[00:00:07] Speaker 05:
And good morning, Your Honors.

[00:00:10] Speaker 05:
That's never happened in this court, for sure.

[00:00:13] Speaker 05:
May it please the court?

[00:00:15] Speaker 05:
Both sides agree that this court reviews all points of error under the de novo standard in this appeal.

[00:00:21] Speaker 05:
Petromex understands it must prevail on three issues to win reversal.

[00:00:26] Speaker 05:
Those issues are statute of limitations,

[00:00:29] Speaker 05:
the government's contract violation, and the affirmative defense of prior material breach.

[00:00:35] Speaker 05:
This court should reverse on all three issues.

[00:00:38] Speaker 05:
First, the continuing claims doctrine precludes the limitations defense.

[00:00:44] Speaker 05:
That is because the BLM's 2009 actions that first triggered contract breach for the breach pleaded at paragraph 38 in the complaint undisputedly happened within the limitations period.

[00:00:58] Speaker 04:
Now, your argument on statute of limitations, my understanding is that argument not limited to the continuing claims doctrine?

[00:01:07] Speaker 05:
Sorry.

[00:01:08] Speaker 05:
I believe I'm a little confused because I think we framed it all as the continuing claims doctrine because we noted that there had been a prior shut-in, but supervening events occurred in 2009 that actually created the liability for the breach of paragraph 38.

[00:01:29] Speaker 05:
And I can get into details of that as I continue.

[00:01:33] Speaker 03:
But I share Judge Cunningham's question.

[00:01:37] Speaker 03:
I mean, I don't see this as fitting within the rubric of continuing claims.

[00:01:42] Speaker 03:
I see August 2009 as an independent breach argument.

[00:01:48] Speaker 03:
And I don't see why this isn't just an accrual question.

[00:01:51] Speaker 05:
Well, I believe that's true as well.

[00:01:53] Speaker 05:
So if I answered inaccurately, I apologize.

[00:01:56] Speaker 05:
Perhaps we did argue it exactly that way in the brief.

[00:01:59] Speaker 05:
But that would be an additional reason to find no statute of limitations defense.

[00:02:04] Speaker 04:
Can you show us where you did make that argument?

[00:02:05] Speaker 04:
Because I at least asked you that question in part because in the red brief on page 27, I think they were saying you didn't argue it in terms of accrual.

[00:02:17] Speaker 05:
Your Honor, I surrender to whatever the briefs actually say.

[00:02:21] Speaker 04:
So you just agree with the red brief you surrender?

[00:02:25] Speaker 05:
Well, no.

[00:02:26] Speaker 05:
I don't have the time in view of the argument to look through the blue brief to see if that's in there.

[00:02:33] Speaker 01:
Did you make the argument that the termination of lease, which would be August,

[00:02:38] Speaker 05:
I think we said that substance because we said that there was not, we used this terminology in our blue brief, we said that termination was not even a whisper in 2008.

[00:02:57] Speaker 05:
In 2009, a number of supervening events occurred that were separate and distinct from whatever had happened in 2008.

[00:03:06] Speaker 05:
So the April 1st, 2009 letter, for example, that was the first time the BLM warned of termination.

[00:03:14] Speaker 05:
And it explained for the first time the absence of a field compressor as the basis for termination.

[00:03:20] Speaker 05:
The March 30th, 2009 site visit that was two days before that revealed the missing compressor concluded that all prior incidents were fixed.

[00:03:29] Speaker 05:
And no new incidents were reported.

[00:03:32] Speaker 05:
So the compressor basis was sparkly new in 2009, replacing prior reasons for the moving target shut-in order.

[00:03:41] Speaker 01:
And, of course, you asserted a claim for the termination, but you also asserted a claim for the shut-in that happened prior.

[00:03:49] Speaker 05:
Yes, specifically that was a yes, Your Honor.

[00:03:51] Speaker 01:
So if we don't buy your argument on the continuing claim doctrine

[00:03:58] Speaker 01:
then that would be a violation of the six year statute of limitations, the shut-in, not the termination, if you see that claim accrued then.

[00:04:07] Speaker 05:
What's interesting is the trial court ruled, our position was in the trial court, the October 2008 refusal to lift the shut-in, triggered the accrual of the paragraph 37 breach of contract claim.

[00:04:20] Speaker 05:
The district court had a different view of that October 2008 set of events and found that we didn't support the existence of the phone call we relied on.

[00:04:31] Speaker 05:
So the district court moved that Paragraph 37 approval back to, I think, June of 2008.

[00:04:38] Speaker 05:
And that is not on appeal here today.

[00:04:41] Speaker 05:
The appeal here today is just the Paragraph 38 breach, which targets

[00:04:47] Speaker 05:
the determination which happened August 26 2009.

[00:04:51] Speaker 05:
That was an independent breach.

[00:04:54] Speaker 05:
And as said the rationales were replaced.

[00:04:58] Speaker 05:
The shut-in rationale was replaced.

[00:05:00] Speaker 05:
Then in May 2009 the rationales for

[00:05:04] Speaker 05:
the shut-in expanded, and they now included a royalty of rearages and a bond deficiency.

[00:05:11] Speaker 05:
So paragraph 38 breach liability did not accrue until 2009.

[00:05:15] Speaker 05:
And in terms of the record, I would point to one final thing, which is appendix 2291.

[00:05:22] Speaker 05:
That's within the June 16, 2009 order from the BLM.

[00:05:30] Speaker 05:
And appendix 2291.

[00:05:33] Speaker 05:
Within that document, that is the very first time that the BLM says it is a so-called order of the BLM to continue the shut-in on grounds of, which we now know are improper, royalty of rearages and the bond increase deficiency.

[00:05:53] Speaker 05:
So again, all the events are supervening that we rely on for the breach of paragraph 38.

[00:05:59] Speaker 05:
The second issue on appeal is liability itself.

[00:06:02] Speaker 05:
And here, Interior's Board of Land Appeals already ruled in favor of Petromex on the key issues concerning termination and cancellation.

[00:06:11] Speaker 01:
So they only rule on a discrete issue on whether wells are producing.

[00:06:16] Speaker 01:
were capable of producing.

[00:06:17] Speaker 05:
They went far, far beyond that discrete issue, Your Honor.

[00:06:20] Speaker 05:
And the way you know that is just look at the headnotes at the very beginning of the decision, and then look at where those headnotes are keyed at the end of the decision one and two.

[00:06:29] Speaker 05:
The holdings of the I.B.L.A.

[00:06:32] Speaker 05:
are that it was error for any termination process to begin at all.

[00:06:38] Speaker 05:
It was an erroneous activity under the regulations.

[00:06:41] Speaker 05:
There was no right by BLM to even commence the termination process.

[00:06:45] Speaker 01:
And I'll tell you, I struggle with this issue in regards to there was a factual discreet finding, it seems, that was made, but it's hard to advance that to say, well, we ran back and forth for damages.

[00:06:56] Speaker 01:
So it is a factual finding.

[00:06:59] Speaker 01:
It should have given some effect, it seems to me.

[00:07:03] Speaker 01:
But it seems that it's a bridge too far to say, OK, you went and breached a contract just based on that factual finding.

[00:07:09] Speaker 05:
Right.

[00:07:10] Speaker 05:
No, I understand the issue.

[00:07:11] Speaker 05:
And I think a way to sort of solve the puzzle is recognize that it's only a half step more to the breach conclusion.

[00:07:19] Speaker 05:
And that half step is you read section one of the contract, the lease.

[00:07:24] Speaker 05:
Section one says we have exclusive use to extract minerals and gas.

[00:07:27] Speaker 01:
But you haven't asserted section one down below, but that's not in the brief.

[00:07:31] Speaker 05:
Oh, we did assert Section 1.

[00:07:33] Speaker 01:
You did assert it because it seemed like you were just limiting to Section 7 in terms of your breach of contract and what you argued to us.

[00:07:41] Speaker 05:
Yeah, statement of the case starting pages 5 and 6, we start by quoting Section 1.

[00:07:52] Speaker 05:
What was that page again, I'm sorry?

[00:07:54] Speaker 05:
Page 5 of the blue brief.

[00:07:57] Speaker 05:
We start by quoting Section 1.

[00:08:00] Speaker 01:
But certainly in a remand.

[00:08:02] Speaker 01:
No, you're cited there.

[00:08:03] Speaker 01:
But my question is, do you actually make the argument that they preach section one as supporting your breach of contract claim?

[00:08:11] Speaker 05:
I believe we did.

[00:08:11] Speaker 05:
I know we focused on section seven, which I can also go into.

[00:08:14] Speaker 05:
No, I know you did that.

[00:08:17] Speaker 01:
I just didn't see where you asserted Section 1 as your breach claim.

[00:08:24] Speaker 01:
Can you point at me where that is in your blue brief?

[00:08:27] Speaker 05:
Well, in the blue brief, I believe the style of our argument was just to show issue preclusion exists.

[00:08:36] Speaker 05:
did draw the conclusion that that means there's only damages left.

[00:08:40] Speaker 05:
I don't think we did a fulsome argument on that final half step.

[00:08:44] Speaker 01:
But you don't make that in section, your issue three, you don't raise this either.

[00:08:47] Speaker 01:
I guess the point I'm just trying to make is it doesn't seem that you make the argument of reaching a contract on section one of the lease.

[00:08:57] Speaker 05:
It is certainly made below.

[00:08:58] Speaker 01:
No, I know it was made below, but on appeal here, it wasn't made.

[00:09:02] Speaker 05:
Right.

[00:09:03] Speaker 05:
It's possible, you're correct, Your Honor, that might be omitted as a part of the argument.

[00:09:08] Speaker 01:
So how does that impact us, this analysis?

[00:09:11] Speaker 05:
I think we have fulsomely asked this court to reach and decide the issue of preclusion question.

[00:09:16] Speaker 05:
And the issue of preclusion question, we've listed out in the blue brief those things that we believe are precluded.

[00:09:22] Speaker 04:
But I also share Judge Mazate's concern here in terms of there not being

[00:09:27] Speaker 04:
an identity of issues.

[00:09:28] Speaker 04:
I feel like you're asking us to take a step too far.

[00:09:32] Speaker 04:
I think your additional half step is important.

[00:09:35] Speaker 05:
And perhaps it could be done on remand.

[00:09:37] Speaker 05:
But if there's an issue preclusion conclusion or finding by this appellate court, then that can go back on remand for that final half step.

[00:09:45] Speaker 05:
And here's what I mean by that.

[00:09:47] Speaker 05:
In the blue brief, we identified specifically the collection of issues

[00:09:53] Speaker 05:
that were precluded or that should have been found precluded, that collection of issues could certainly go back to the trial court.

[00:10:04] Speaker 04:
Is there a page you want us to look at in the library?

[00:10:13] Speaker 05:
Yes, Your Honor.

[00:10:14] Speaker 05:
It's under issue one.

[00:10:18] Speaker 05:
Perhaps the reply was a better, I remember a bullet pointed kind of list.

[00:10:36] Speaker 04:
Maybe to try to streamline it.

[00:10:39] Speaker 04:
And following up on Judge Mazad's question in particular, are you just trying to contend that the backbinding should be binding and then upon a remand, they'll deal with this whole issue in terms of the breach or your allegation?

[00:10:54] Speaker 05:
It's our argument on appeal that the issue of preclusion doctrine has full sway here.

[00:11:00] Speaker 05:
The IVLA decision has full preclusive effect on any overlap issues, including facts or law.

[00:11:08] Speaker 01:
But what do we do if we determine that just that underlying factual decision wasn't given its full effect?

[00:11:14] Speaker 01:
But we don't believe that it gets to the issue of saying, you win, breach a contract, and we remit our act for damages.

[00:11:21] Speaker 01:
So let's say we don't go that far.

[00:11:23] Speaker 01:
How does that impact on a remand if we say you didn't get preclusive effect to just one issue?

[00:11:31] Speaker 05:
Right.

[00:11:32] Speaker 05:
I'll give you a concrete example of what should happen on remand.

[00:11:35] Speaker 05:
Juxtapose the court's decision at appendix page 122 where they say it was not error.

[00:11:41] Speaker 05:
for the termination process to go forward, with Appendix 2370 where IBLA says it was error for the termination process to go forward.

[00:11:52] Speaker 05:
In particular, in the IBLA decision in the different citation format, 180 IBLA 104, the agency board clearly held

[00:12:04] Speaker 05:
that reasonable time hadn't been given to my client to show proof of capability to extract in payable quantities.

[00:12:15] Speaker 05:
So the reasonable time prong was absent according to the findings of the agency board.

[00:12:21] Speaker 05:
Yet on page 122, the lower court said that, no, they had plenty of reasonable time.

[00:12:26] Speaker 05:
Those are diametrically opposed conclusions.

[00:12:29] Speaker 04:
But can you answer Judge Masson's question just kind of

[00:12:33] Speaker 04:
overall and just directly answer it without giving us your example.

[00:12:37] Speaker 05:
Right.

[00:12:38] Speaker 05:
The facts and conclusions of the I.B.L.A.

[00:12:41] Speaker 05:
should be given preclusive effect in this litigation.

[00:12:43] Speaker 03:
Yes, but if we don't, Judge Mazan's question, if I understood it right, was if we don't agree with your sweeping the preclusion argument, but we agree with a lesser version, like

[00:12:53] Speaker 03:
the facts findings.

[00:12:54] Speaker 03:
Yes.

[00:12:55] Speaker 03:
What is the proper course of action for this court under those circumstances?

[00:13:00] Speaker 05:
And I tried to get to that.

[00:13:01] Speaker 05:
We could delineate exactly which conclusions are in the IVLA opinion, which were in conflict with what the court did.

[00:13:07] Speaker 05:
Those were the conclusion of the IVLA.

[00:13:10] Speaker 03:
You're not helping me.

[00:13:11] Speaker 03:
What would be the outcome?

[00:13:13] Speaker 03:
What would we do?

[00:13:13] Speaker 03:
Do we vacate in Romania?

[00:13:15] Speaker 05:
Oh, of course.

[00:13:16] Speaker 03:
And ask the tribunal to reconsider the

[00:13:19] Speaker 03:
the ultimate legal conclusions, accepting these facts.

[00:13:24] Speaker 05:
I think the simplest, most efficient order of the court would be a vacate remand with direction to consider the I.B.L.A.

[00:13:31] Speaker 05:
decision as preclusive.

[00:13:36] Speaker 02:
I think he just asked my answer to that question.

[00:13:38] Speaker 02:
All right.

[00:13:39] Speaker 02:
Okay, you want to say, can you say the rest of the time for a bottle?

[00:13:43] Speaker 02:
Yes, that would be fine.

[00:13:43] Speaker 02:
All right, why don't we let him say the rest of the time for a bottle?

[00:13:45] Speaker 05:
Thank you, Your Honor.

[00:13:45] Speaker 02:
Ms.

[00:13:45] Speaker 02:
Westert.

[00:13:58] Speaker 00:
Morning.

[00:13:58] Speaker 00:
May I please the court?

[00:14:00] Speaker 00:
There is a very simple path forward with this case.

[00:14:02] Speaker 00:
And that is for this court to also find that Petromex's claim, which is simply untimely.

[00:14:06] Speaker 00:
And to start with, the only purpose of the trial was to determine whether a verbal shut-in order happened in October 2008.

[00:14:13] Speaker 00:
And the trial court correctly found that that never happened.

[00:14:17] Speaker 00:
And that's at page 103.

[00:14:18] Speaker 03:
Well, what do you do with the August 2009 independent claim and paragraph number 38 of the complaint?

[00:14:24] Speaker 03:
That doesn't feel time-barred.

[00:14:27] Speaker 00:
It is, Your Honor, because what happened here is once that shut-in order was put in place in May 2008, Petromex has always alleged that the field office, the BLM, should have lifted that shut-in order by no later than June 2008.

[00:14:42] Speaker 00:
Because the field office did not lift that shut-in order, Petromex could not produce some paying quantities

[00:14:48] Speaker 00:
And according to Brown Park Estates, it's a continuing negative effect that the lease was later terminated because it could not produce in paying quantities.

[00:14:55] Speaker 00:
And that was part of it.

[00:14:56] Speaker 01:
But it's not a discrete harm.

[00:14:57] Speaker 01:
I mean, the termination, that's a land right that's actually being terminated.

[00:15:02] Speaker 01:
Everything that happens before didn't result in termination.

[00:15:05] Speaker 01:
So irrespective of whether or not anything before that may be barred by the statute of limitations or any claim from that, it seems like that's a separate harm that gets accrued on August 26, 2009.

[00:15:18] Speaker 00:
I disagree, Your Honor.

[00:15:18] Speaker 00:
And the reason why is because, again, from May 2008 and the shut-in order is 2202 of the appendix, through that termination, it was consistent by the BLM, the field office, that it was being terminated because they were not allowed to produce in paying quantities.

[00:15:36] Speaker 00:
In the 60-day letter, that's a 2244 of the appendix, says that same thing.

[00:15:41] Speaker 00:
you will be terminated if you cannot produce in paying quantities.

[00:15:44] Speaker 00:
And then the recommendation to terminate, as well as the lease termination itself, which is at 229.

[00:15:49] Speaker 01:
Whether it could pay in sufficient quantities was actually reversed, too.

[00:15:54] Speaker 01:
But the irrespective of that is, just general property rights, when you terminate a property right, that's a discrete harm.

[00:16:03] Speaker 01:
I'm having trouble wrapping my head around why that wouldn't set up a statute of limitations in terms of being accrued on the date when you terminate someone's property.

[00:16:10] Speaker 01:
Well, and the reason why it's not a distinct term is... Irrespective of what set it up, it's still, until they terminate it, that seems like that's notice to the landowner that, hey, you have to go take some action.

[00:16:24] Speaker 00:
Well, and that's exactly it.

[00:16:26] Speaker 00:
It is notice to Petro Max.

[00:16:28] Speaker 00:
There was repeated notice to Petro Max.

[00:16:29] Speaker 01:
But not until the termination.

[00:16:30] Speaker 01:
I mean, it seems like, and I guess, again, I know you disagree, but I disagree respectfully that

[00:16:38] Speaker 01:
A termination of property right seems like that's when that property right, not cruel for any claim, starts in the day you terminate that person's right.

[00:16:46] Speaker 01:
But it started earlier than that, Your Honor, because it... But none of that actually resulted in the termination.

[00:16:52] Speaker 01:
So yes, there's other events that happened that I think could be barred by a statute of limitations in terms of trying to assert those.

[00:16:58] Speaker 01:
But the claim of a termination of right didn't happen until you actually terminated it.

[00:17:02] Speaker 00:
Except with the BLM.

[00:17:05] Speaker 00:
It's a termination by operation of law.

[00:17:07] Speaker 00:
And so that is because they were failing to produce in paying quantities.

[00:17:11] Speaker 01:
And again... But what did we do with that when that was all circular in terms of that being reversed because it was shut in so they couldn't produce?

[00:17:18] Speaker 01:
It was certainly capable of producing.

[00:17:20] Speaker 00:
But that's exactly the point.

[00:17:21] Speaker 00:
where even the IBLA had said, you put them in a catch-22, you won't let them produce, but yet you still terminate them, and all of it flows together.

[00:17:28] Speaker 00:
Where even in Petromax's brief here before the court, in both briefs, they also acknowledge that it all flows together.

[00:17:35] Speaker 03:
Okay, suppose that we disagree with you.

[00:17:39] Speaker 03:
Can you tell us what happens then?

[00:17:40] Speaker 03:
If we agree, if we find that termination of a property right is a distinct harm,

[00:17:46] Speaker 03:
And we find that the August, to be very clear, 2009 termination does not fall with your statute of limitations argument.

[00:17:54] Speaker 03:
So once we make that finding, what is your next argument?

[00:17:57] Speaker 03:
What should happen?

[00:17:58] Speaker 00:
You should still affirm.

[00:17:59] Speaker 00:
And the reason why is because the trial court, although it did make the statute of limitations finding and did hold that all of it was one harm, the trial court alternatively determined that there was not a breach of contract.

[00:18:11] Speaker 00:
And in addition to that, also determined

[00:18:14] Speaker 00:
that there were prior material breaches that Petromax had committed.

[00:18:18] Speaker 00:
And I disagree with my friend here, where his viewpoint was this should be vacated and remanded for further factual development.

[00:18:25] Speaker 00:
Well, this was a five-day trial.

[00:18:27] Speaker 00:
And there was extensive testimony.

[00:18:29] Speaker 00:
And there were only four witnesses, but it was over five days.

[00:18:33] Speaker 00:
And everything was addressed.

[00:18:35] Speaker 00:
And I've glued the list of different things that my friend believes should be remanded for more information is when

[00:18:43] Speaker 00:
the notices of incidence of non-compliance were fixed, or when the compressor was removed.

[00:18:48] Speaker 01:
Let me ask, this issue of how to handle that, is the specific finding that was reversed was that the well was capable of producing paying quantities.

[00:18:58] Speaker 01:
And although I don't agree with issue preclusion in terms of remaining back from breach of contract and its damages,

[00:19:04] Speaker 01:
it appears that the cause of that finding, it seems to me, wasn't given effect.

[00:19:12] Speaker 01:
It permeates everything.

[00:19:13] Speaker 01:
And tell me why that's not the case.

[00:19:16] Speaker 01:
Because that was kind of almost ignored in terms of how it impacts everything else in the case.

[00:19:22] Speaker 00:
Well, so it's interesting where, and so impacting the sense of issue preclusion or particular factual findings.

[00:19:29] Speaker 01:
Which is how everything in terms of the decisions were made in terms of

[00:19:32] Speaker 01:
Because it seems to me that the factual finding wasn't given preclusive effect.

[00:19:38] Speaker 01:
And so it seems like we can't determine those factual findings here.

[00:19:42] Speaker 01:
It has been rendered back, vacated and sent back to give that preclusive effect and how does it affect the analysis?

[00:19:48] Speaker 00:
Well, so it's interesting where even with the IVLA opinion,

[00:19:52] Speaker 00:
uh... petromax even before the trial court only wanted to pick and choose for facts that it wanted to have conclusive effect an example of that is that the appendix uh... eight fifty seven note eight but that that isn't for us to figure out isn't that something that that would be figured out on a vacate oh i understand your honor but again the trial court

[00:20:10] Speaker 00:
even quoted the IBLA decision in the lengthy opinion.

[00:20:15] Speaker 00:
But also, again, everything, and I guess I also want to step back just a second.

[00:20:21] Speaker 00:
So with the IBLA, it was a declaration from the president of Petromex making various statements in the declaration, and then just some documents.

[00:20:29] Speaker 00:
And that's all that the IBLA had before it.

[00:20:32] Speaker 00:
Versus, again, this was an actual trial.

[00:20:34] Speaker 00:
There was direct cross-exam.

[00:20:37] Speaker 00:
and everything, and more exhibits that were presented to the trial court.

[00:20:41] Speaker 00:
And so it had been brought up, and this is not in the appendix, but in the opening argument.

[00:20:46] Speaker 00:
And I have had this case for 10 years, so I apologize if I'm too close to the facts.

[00:20:50] Speaker 00:
But it had been argued that the IDLA decision should have, the facts at least, should have preclusive effect.

[00:20:56] Speaker 00:
And Judge Horn had acknowledged that, well, there is this opinion.

[00:20:59] Speaker 00:
I'll look at it.

[00:21:00] Speaker 00:
But we're here to get

[00:21:01] Speaker 03:
testimony live testimony if we think it should have proposed again this is kind of like if we think of the August two thousand nine claims about such limitations if we think back findings of the idea of a should have a person that then what happens then what happens is it so uh...

[00:21:19] Speaker 00:
They brought a breach of contract claim in the court of federal claims.

[00:21:23] Speaker 00:
They had relayed, does not have jurisdiction over breach of contract claims.

[00:21:26] Speaker 00:
And so it was up to Judge Horn to decide, well, you may have cited the wrong regulation.

[00:21:31] Speaker 00:
And they also had not argued.

[00:21:34] Speaker 03:
Yes, but if we find she didn't give preclusive effect to the fact findings, don't we have to send it back to her for her to reconsider the breach of contract claim in light of the preclusive effect that those fact findings should be given?

[00:21:47] Speaker 00:
No.

[00:21:48] Speaker 00:
And the answer is still no to that, Your Honor, because, again, because they could not bring a breach of contract action in the IBLA, the field office of Briella could not assert a prior material breach argument.

[00:21:57] Speaker 00:
And so the cause of action is entirely different at the court of federal claims.

[00:22:01] Speaker 00:
And even if... Wait.

[00:22:05] Speaker 03:
Go ahead.

[00:22:06] Speaker 03:
I'm struggling, so don't you go.

[00:22:08] Speaker 01:
I'm troubling you.

[00:22:08] Speaker 01:
It just seems your argument supports remanding and sending it back to consider these issues.

[00:22:12] Speaker 01:
But they already were all considered, Your Honor, and I guess... No, that's my problem, is it doesn't seem like the unpinning factual finding...

[00:22:21] Speaker 01:
was truly considered.

[00:22:23] Speaker 01:
And show me where.

[00:22:24] Speaker 01:
That was actually considered and it gave preclusive effect to the fact of those factual findings.

[00:22:33] Speaker 01:
Because that is my problem.

[00:22:35] Speaker 01:
And please explain to me why I'm wrong.

[00:22:38] Speaker 01:
Because it seems like that factual finding is so important to the outcome of the case.

[00:22:42] Speaker 01:
It needs to be sent back to give that preclusive effect and then to do the analysis again and decide.

[00:22:47] Speaker 00:
And that was acknowledged in, so the trial court with that, that was in the discussion of the breach of contract where they had alleged, they'd never alleged before the trial court that section one was a breach, but they did argue section seven.

[00:23:01] Speaker 01:
So in other words, that- Well, they argued down below, but my argument was, I don't think they raised section one here.

[00:23:08] Speaker 00:
The section one.

[00:23:09] Speaker 00:
And with the trial court again, with section seven, what the IBLA said was that BLM

[00:23:16] Speaker 00:
you terminated, but you shouldn't have terminated because they were capable of production pain quantities, so you should have canceled the lease.

[00:23:22] Speaker 00:
That's what the IVLA said.

[00:23:24] Speaker 00:
And so the trial court didn't.

[00:23:25] Speaker 04:
But are you able to answer his direct question of showing us exactly where in the record we can see that this has been done?

[00:23:32] Speaker 00:
Yes.

[00:23:32] Speaker 00:
And so with that, and I'm trying to get here, where it was, so for example, at page 122 of the record that was

[00:23:45] Speaker 00:
So essentially, so 120 through 12.

[00:23:49] Speaker 00:
Last one was appendix page 122.

[00:23:51] Speaker 00:
Appendix page 122.

[00:23:51] Speaker 00:
I'm sorry, Your Honor.

[00:23:53] Speaker 00:
So the discussion through pages 120 through 122 is Judge Horn's discussion and her fact findings, where even if BLM had pursued the wrong course, so essentially termination, whereas it should have canceled, Judge Horn still found that BLM had given Petromex 143 days to try to resolve the various outstanding issue.

[00:24:15] Speaker 00:
or in other words, to restore production in paying quantities.

[00:24:18] Speaker 01:
And so again, what- How does that show that they're giving percussive effect in the underlying factual findings?

[00:24:25] Speaker 01:
Well, and I think even Petromex has always said not all facts should be given percussive effects, so they're- No, but in this case, it's so crucial, you know, about the way we're not producing it and not being able to produce in paying quantities.

[00:24:43] Speaker 00:
And the-

[00:24:45] Speaker 00:
It was terminated for that reason, and maybe I'm just not understanding your question.

[00:24:49] Speaker 01:
I'm not trying to... No, my question throughout, and I've asked it many different ways, is that that underlying factual finding, it didn't seem like it was given any preclusive effect in this decision.

[00:25:03] Speaker 01:
Not the issue of what they want to say,

[00:25:07] Speaker 01:
they should have found rich contract and just had the issue of damages.

[00:25:11] Speaker 01:
I'm not going there.

[00:25:11] Speaker 01:
I'm just saying is where in this opinion does it show that they gave preclusive effect to that factual finding?

[00:25:17] Speaker 00:
So the factual finding is this, and I don't have it at my fingertips, but with the, so for the termination, so the BLM had, IBLA, sorry, the IBLA had said it was capable of production of pain quantities, so you went down the wrong path.

[00:25:32] Speaker 00:
And there was testimony about that and even Judge Horan

[00:25:36] Speaker 00:
had quoted from the IVLA opinion that this is what the IVLA said.

[00:25:39] Speaker 00:
And what the BLM had believed was that without the compressor, they could not produce.

[00:25:44] Speaker 00:
And so again, instead of cancellation, which the IVLA said you should have done,

[00:25:48] Speaker 00:
they terminated instead.

[00:25:50] Speaker 03:
I don't feel like you're going to get an answer, so do you mind if I move on?

[00:25:55] Speaker 03:
So I would like to ask a question about that.

[00:25:58] Speaker 03:
I don't understand where the common law right of termination comes in for the government.

[00:26:04] Speaker 03:
Look, I'm not a government contracts expert by any stretch.

[00:26:07] Speaker 03:
And to be honest with you, we were not given even a readable copy of the contract in this case.

[00:26:13] Speaker 03:
It's completely illegible in the appendix.

[00:26:15] Speaker 03:
But I'm accepting what section one and section seven say based on the fact that they're in the opinion below and no one has disputed that.

[00:26:22] Speaker 03:
So my question is, since you have a contract that was, I don't know, most likely written by the government, can't be sure, but you have a contract, okay?

[00:26:29] Speaker 03:
And section seven says this is what the government has the right to do in the case of a default.

[00:26:38] Speaker 03:
And that requires a judicial proceeding.

[00:26:40] Speaker 03:
That's what section seven says.

[00:26:42] Speaker 03:
How does the government also have some common law right to say, you know what, I can also, with the same exact set of facts, just choose to terminate.

[00:26:50] Speaker 03:
And I don't have to follow any of the procedures laid out in section seven.

[00:26:53] Speaker 03:
Where does that come from?

[00:26:54] Speaker 03:
Like, I don't understand this.

[00:26:57] Speaker 03:
I don't understand from where the government has a right to terminate when, as here, they contracted quite specifically about the process to be undertaken in the case of default.

[00:27:09] Speaker 03:
So can you help me with that?

[00:27:10] Speaker 00:
Yes, I can.

[00:27:11] Speaker 00:
And so this is a standard oral and gas lease.

[00:27:14] Speaker 00:
I'm sorry, what?

[00:27:15] Speaker 00:
It's a standard oral and gas lease.

[00:27:17] Speaker 00:
And I apologize that it is hard to read in the appendix.

[00:27:21] Speaker 00:
I understand that.

[00:27:23] Speaker 03:
Not hard.

[00:27:23] Speaker 03:
It's actually impossible.

[00:27:26] Speaker 00:
But that's what the idea was.

[00:27:29] Speaker 00:
You should have canceled it.

[00:27:30] Speaker 00:
You had grounds to cancel it, so you should not have terminated it.

[00:27:33] Speaker 00:
And so Section 7, and that's what was argued below and here,

[00:27:38] Speaker 00:
that because you should have canceled it, instead of termination, that's a breach of contract.

[00:27:43] Speaker 04:
So are you continuing that the only way to, I guess, get out of the contract is Section 7 cancellation?

[00:27:51] Speaker 04:
Is that what you're saying?

[00:27:52] Speaker 00:
In this case, because as the IDLA had determined it was capable of production and paying quantities, that they just weren't allowed to produce.

[00:28:00] Speaker 00:
what the field office should have done is judicially cancel the lease.

[00:28:03] Speaker 00:
But again, they brought a breach of contract action to the court of federal claims.

[00:28:07] Speaker 00:
And it is, according to Laguna Construction, we can claim a prior material breach.

[00:28:14] Speaker 00:
And it's indisputed that there were prior material breaches even before the lease was terminated.

[00:28:20] Speaker 00:
They failed to pay production royalties.

[00:28:24] Speaker 00:
They failed to report production.

[00:28:26] Speaker 00:
And they had conceded that.

[00:28:29] Speaker 01:
So you're agreeing that there was a violation of Section 7?

[00:28:32] Speaker 00:
Correct.

[00:28:33] Speaker 00:
They should have judicially canceled the lease.

[00:28:35] Speaker 00:
And that's what the IDLA said.

[00:28:36] Speaker 00:
And I would point to the IDLA decision where I think it's on the very last page.

[00:28:41] Speaker 00:
And I realize I'm getting really short on time here.

[00:28:43] Speaker 00:
But in the very last page, and this is the appendix 2371, it's clear in that last paragraph where

[00:28:52] Speaker 00:
There is a distinction between canceling a lease and terminating such a lease for non-production.

[00:28:58] Speaker 00:
So that is something that the trial court did consider in the opinion, and obviously incorporated that in the discussion for breach of contract as well as prior material breach.

[00:29:08] Speaker 04:
I know that you're running a little bit over, but I think it might be helpful if you just give us a few sentences on this prior material breach issue.

[00:29:14] Speaker 04:
I feel like that's not really been addressed.

[00:29:17] Speaker 00:
Yes, certainly, Your Honor.

[00:29:19] Speaker 00:
So with the prior material breach,

[00:29:22] Speaker 00:
And this is at discussing the trial court opinion of 123 through 143.

[00:29:29] Speaker 00:
The breaches were, even if this court were to find the lease termination as a separate and distinct breach, what Petromex had failed to do was to report its production.

[00:29:43] Speaker 00:
And this is at the appendix, page 1178 through 79.

[00:29:48] Speaker 00:
They had also failed to pay a civil penalty.

[00:29:51] Speaker 00:
And that's the appendix 22229 through 2230.

[00:29:56] Speaker 04:
I would point out that there's still an outstanding debt to the Treasury about... So if we were to find the prior material breach to apply here, wouldn't that mean the government would never need to follow Section 7?

[00:30:07] Speaker 00:
Well, and again, they're distinct causes of action, which is why I think issue preclusion does not apply, because IBLA said, BLM, you have to restore their lease to them, which they promptly did.

[00:30:18] Speaker 00:
And then this is a separate breach of contract cause of action.

[00:30:20] Speaker 00:
So because they brought a common law breach of contract, and even it was only in the briefing where they were post-trial briefing where they were alleging Section 7.

[00:30:30] Speaker 00:
I'm not sure.

[00:30:30] Speaker 04:
Maybe I didn't state the question.

[00:30:31] Speaker 04:
Let me try it one more time.

[00:30:33] Speaker 04:
So if we were to find the prior material breach applied here, wouldn't that mean the government would never need to follow Section 7?

[00:30:40] Speaker 00:
No, that would not mean that.

[00:30:43] Speaker 00:
OK, tell me why.

[00:30:46] Speaker 00:
that because ideally had said that this was was capable production the proper route would have been judicial cancellation and that's why the ideal a return restored releases in reverse that decision to terminate releases but then some government had to pursue a section seven remedy for the failure to pay the royalties or the increase the bond you know shouldn't they have had to pursue a section seven for those failures for judicial cancellation and

[00:31:14] Speaker 00:
they could have, except by the time of the IPLA decision, Petromex had remedied those failures already.

[00:31:21] Speaker 00:
So the bond was still outstanding.

[00:31:24] Speaker 00:
Or not the bond, but the civil penalty.

[00:31:26] Speaker 00:
But for example, Petromex had paid the outstanding royalties that were due, had turned in the production reports, and they also had increased that statewide bond.

[00:31:35] Speaker 00:
And so that was Petromex's argument while the waiver deepened.

[00:31:40] Speaker 00:
But essentially, by the time of the IDLA decision, which I believe was in January 2010, Petromex had basically cured some of those underlying prior material breaches.

[00:31:51] Speaker 00:
And if there are no further questions, we respectfully request that this court affirm the trial for its judgment.

[00:31:56] Speaker 00:
Thank you.

[00:32:02] Speaker 05:
Your Honors, appendix page 57 proves that what my friend just said is absolutely incorrect.

[00:32:06] Speaker 05:
Mr. Fancher.

[00:32:08] Speaker 05:
gave these exact words.

[00:32:10] Speaker 05:
No, no, they had not corrected all compliance issues by the time of lifting of the shut-in after post-ILBLA.

[00:32:22] Speaker 05:
Judge Moore, about your question, I ask myself the same question.

[00:32:25] Speaker 05:
What is this business of these two parallel tracks, termination, cancellation, what's the statutory framework?

[00:32:31] Speaker 05:
The answer I sort of taught myself, I think,

[00:32:34] Speaker 05:
is that Section 226 I, which is termination, deals with geological status of the land.

[00:32:41] Speaker 05:
It's really a no-fault kind of situation.

[00:32:43] Speaker 05:
It's whatever the land is.

[00:32:44] Speaker 03:
I don't know what Section 226 I is.

[00:32:46] Speaker 05:
That's the termination statute, and it operates independently of or above or, you know, at a higher level than the lease.

[00:32:53] Speaker 05:
So there is a right to terminate if all the boxes can be checked, but those boxes are really not.

[00:32:58] Speaker 04:
So what's the relationship between 30 USC 226 I and the Section 7 of the lease?

[00:33:03] Speaker 05:
Right.

[00:33:04] Speaker 05:
None that I could see, except that the statute and how the government relates to its citizens or its contractees under statute always will kind of supersede any kind of contractual issue.

[00:33:19] Speaker 04:
What about the relationship between 30 USC 188 and section 7 of lease?

[00:33:24] Speaker 05:
That is one-to-one relationship.

[00:33:26] Speaker 05:
The section 31 mentioned in that paragraph is section 30 USC 188.

[00:33:33] Speaker 05:
Finally, there is no deferential fact-finding at all to answer your question, Judge Mazzani, and I tried to point to Appendix Page 122 to demonstrate that because that's a diametrically opposite finding from the IVLA.

[00:33:45] Speaker 05:
And Judge Cunningham, Section 7, does presuppose that there has been a breach.

[00:33:52] Speaker 05:
You can't use the prior material breach doctrine to evade operation of a contractual term that presupposes there was a prior breach.

[00:34:01] Speaker 03:
Okay, we thank both counsels.

[00:34:02] Speaker 03:
This case is taken under submission.