IN THE UNITED STATES COURT OF FEDERAL CLAIMS OSAGE TRIBE OF INDIANS ) OF OKLAHOMA, ) ) Plaintiff, ) ) v. ) No. 99-550L ) (into which has been consolidated THE UNITED STATES OF AMERICA, ) No. 00-169L) ) Judge Emily C. Hewitt Defendant. ) ) DEFENDANT S REPLY IN SUPPORT OF ITS MOTION TO COMPEL COMPLIANCE WITH KOCH SUBPOENAS AND/OR TO STRIKE KOCH DATA Defendant United States of America ( Defendant ) hereby submits this reply brief, in support of its motion [Docket No. 367] (the Motion ) to either compel compliance with the subpoenas issued to Koch Industries, Inc. ( Koch ) and Vance Klager (the Koch Subpoenas ) or, in the alternative, to strike Plaintiff s references to and reliance upon the limited data obtained from Koch and Mr. Klager (the Koch Data ) for purposes of summary judgment, and in reply to Osage Nation s Opposition to the Defendant s Motion to Compel Compliance with Koch Subpoenas and/or to Strike Koch Data [Docket No. 371; corrected in part at Docket No. 372] (the Osage Opposition ) and the Response of Koch Industries, Inc. and Vance Klager to Defendant s Motion to Compel Compliance with Koch Subpoenas and/or to Strike Koch Data [Docket No. 370-3] (the Koch Response ). ARGUMENT I. THE MOTION PROPERLY SEEKS TO COMPEL RESPONSES TO THE KOCH SUBPOENAS As Plaintiff has previously argued, the scope of relevant information subject to discovery should not be narrowly defined:
Pretrial discovery [...] encompasses the uncovering of information that will assist in defining or clarifying the issues in the case or that will illuminate issues upon which a trial court must pass in administering or deciding the case. 6 Moore s Federal Practice 26.41[6][a], at 26-161. It need only bear on some issue the [trial] court will have to decide in the course of bringing the case to its ultimate conclusion. Id. at 26-161 to 26-162. Osage Nation s Opposition to Motion for Protective Order and Cross-Motion to Compel Discovery [Docket No. 357] at 6. Plaintiff s only objection to the Motion is its assertion that the information the United States seeks is irrelevant. Osage Opposition at 2. Koch appears to make a similar argument, asserting that the Government does not need further information from Koch in order to advance [a presumed] argument. Koch Response at 3; see also id. at 6 (arguing that the Government simply does not need this information in order to make the legal arguments it [presumably] desires to advance.... ). Relevant evidence is that having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence. Fed. R. Evid. 401 (emphasis added). Further, [r]elevance under Rule 26(b)(1) has been construed more broadly for discovery than for trial. Heat & Control, Inc. v. Hester Indus., 785 F.2d 1017, 1024 (Fed. Cir. 1986). As a result, [w]here there is doubt over relevance, the rule indicates that the court should be permissive. Id. Under these authorities, both Plaintiff and Koch are incorrect -- the documents sought by Defendant are indeed relevant here. Plaintiff first states that the United States suggests than an offer to purchase oil must result in an actual sale for that price to be an offered price under the 1974 regulations. Osage Opposition at 3. Defendant, however, has not made such a suggestion in the Motion. Rather, what Defendant has suggested is that the Koch Data is problematic, and that this problem is 2
particularly acute for the data represented by Exhibit A to Mr. Klager s declaration (the Ex. A Data ) where such data is not supported by any evidence represented by Exhibit B to Mr. Klager s declaration (the Ex. B Data ) of an actual sale. 1/ Accordingly, Defendant has suggested that the Koch Data may thus not be used for summary judgment purposes unless Defendant is provided a fair opportunity to test the blanket claim that it presents offered prices sufficient to purportedly increase Defendant s liability by millions of dollars. 2/ As noted in the Motion, there is a question (both factual and legal) as to whether the Ex. A Data in fact reflects an actual offered price. Indeed, as both Plaintiff and Koch acknowledge, the purported offered prices contained in the Ex. A Data may be inconsistent with prices actually paid for any oil purchased, depending on some limiting factors. Osage Opposition at 3; Klager Decl. at 9. For example, Exhibit 8 (attached hereto) clearly shows that Ex. A Data does not correspond in at least some instances with Ex. B Data (showing instead that, for lease no. 0005098, on October 1, 1987, the Ex. A Data indicates a purported offered price of $18.90 (at 40-44.9 gravity), while the Ex. B Data shows that such 43.8 gravity oil in fact only sold for $18.7581). This acknowledged limitation with the Ex. A Data can not be fully or adequately analyzed without the evidence sought to be compelled under the Motion, because 1/ This is not an infrequent issue, notwithstanding the volume of Ex. B Data apparently hand-selected by Plaintiff for production. Exhibits 6 and 7 (attached hereto) provide examples of purchase statements (Ex. B Data) for leases not listed within the Ex. A Data. 2/ In this regard, Plaintiff s position now appears to be fundamentally at odds with the position it took in Tranche 1. There, Plaintiff argue[d] that the actual selling price can be determined only by examining the underlying sales contract.... Osage Tribe v. United States, 72 Fed. Cl. 629, 651 (2006) ( Osage III ) (quoting from Plaintiff s Tranche 1 brief) (emphasis added). In other words, when faced with actual sales documents such as purchaser s statements, Plaintiff nonetheless argued that it needed the underlying sales contract in order to be able to properly evaluate the data. Id. Defendant seeks no more (and perhaps less) here. 3
Koch does not provide a complete or exhaustive list of the purported limiting factors, let alone identify which limiting factor may apply to which portions of the Ex. A Data. 3/ Thus, at present, and without the discovery sought under the Motion, the parties and this Court have no basis to determine whether the Ex. A Data in fact reflect offered prices. Moreover, as also noted in the Motion, there is no present basis to assume that the data represented by the Ex. A Data represents offered prices in a manner relevant to this case. As Koch makes clear, the Ex. A Data simply reflects price code data. Koch Response at 3. Outside of the Ex. B Data, Koch has not produced any evidence of what price codes it is using. Even with the Ex. B Data, Koch has not produced any documents explaining the meaning of these price codes. Koch does now note, however, that at least some of its price codes represent conditional offers that are contingent upon having a full tank of oil ready to sell on that day. Id. at 4. This is an important new fact, which in effect limits the use of Ex. A Data to those days for which there is a corresponding supporting Ex. B Data purchase statement. The information sought in the Koch Subpoenas is relevant precisely because it seeks to discern what other conditions or terms may be associated with Koch s purported offers. See, e.g., Motion at Ex. 5, p. 3 (seeking documents that provide the terms of the offers ). Furthermore, as noted in the Motion, there are other specific reasons to believe that at least some portion of the Koch Data does not in fact represent offered prices in a manner relevant to this case. For example, Plaintiff acknowledges that so-called EDQ pricing is the mathematical equivalent to using the average monthly price, and that this is precisely how Klager refers to it. Osage Opposition at 5. This suggests that Koch instead offered only the 3/ Production of relevant documents could also provide impeaching evidence important to the weight to be accorded the statements made in Mr. Klager s declaration. 4
average monthly price for such transactions, and that Koch s Ex. A Data thus represents something entirely different from a Koch offer to purchase. Moreover, regardless of the procedure used to calculate the impact of EDQ transactions, the factual issue remains that the documents that Koch produced in Ex. A and Ex. B simply do not agree for transactions that appear to be EDQ. See Ex. 8. Without further information it is impossible to determine if the Ex. A price or the Ex. B price, if evidenced by a purchase statement, is correct for that day. Koch does nothing to contradict this notion, instead stating only that the Government may certainly make such an argument, but that it should not need any additional information from Koch [to] add materially to that argument. Koch Response at 5. Given the factual dispute as to how to treat these Koch transactions, the documents sought under the Motion are needed to determine how (if at all) the Koch Data may be used here. Indeed, even if Koch were correct that no further documents are needed for Defendant to argue that certain types of Koch Data are irrelevant or otherwise unreliable for summary judgment purposes, the documents sought under the Motion would still be needed. Because the Koch Data does not fully disclose which transactions are so affected, unless the entirety of the Koch Data is to be disregarded if Defendant prevails on this issue, documents are still needed under the Motion to determine enough about each purported offer to determine which portions of the Koch Data are so affected. Similarly, and as also noted in the Motion, the Koch Data indicates that some of the Ex. A Data in fact represent royalty payments made, rather than offers to purchase. As noted in Tranche 1, the payment of royalties in Osage County was the responsibility of the lessee, although sometimes the payments were made by the purchaser under an agreement between the purchaser and lessee. See Osage III, 72 Fed. Cl. at 652. Accordingly, any payment of royalty by 5
Koch as purchaser would simply represent a royalty payment, not an offered price, and Koch s Ex. A Data must thus represent something entirely different from a Koch offer to purchase. Cf. Errata [Docket No. 372] (Plaintiff distinguishing between royalty and sales price or payment ). Plaintiff is incorrect when it suggests that such a royalty payment constitutes a different price[] for purposes of the 1974 regulation. Osage Opposition at 6. Plaintiff conflates two completely different concepts when it asserts that [t]he United States argues that because the lessee received a lower price than the royalty owner, the price paid to the royalty owner is not an offered price. Id. (emphasis in original). Oil purchasers (such as Koch) did not make offers to the Osage Tribe to purchase oil, they made offers to the lessees/producers. Relatedly, the Tribe, as royalty owner, did not receive an offered price, it received a royalty payment. 4/ Once again, Koch provides nothing to the contrary, again stating only that the Government may certainly make such an argument, but that it should not need more information from Koch in order to make that legal argument. Koch Response at 5. But to the extent that there is any factual dispute as to how to treat these Koch transactions, documents are needed under the Motion to determine this issue. And even if Koch is correct that no further documents are needed for Defendant to make such an argument, because the Koch Data does not fully disclose which transactions are so affected, unless the entirety of the Koch Data is to be disregarded if Defendant prevails on this issue, documents are still needed under the Motion to determine which purported offers are instead in fact mere royalty payments. 4/ Plaintiff is also incorrect in suggesting that this Court has already addressed this issue. See Osage Opposition at 6 (quoting Osage III, 72 Fed. Cl. at 638). To the extent that this Court has already addresse[d] the situation where two different prices are paid on the same lease, id., it has done so only in the context of price controls where the same lease has produced both controlled and uncontrolled oil, see Osage III, 72 Fed. Cl. at 650-51, and has not addressed whether a royalty payment is itself also a price offered or paid under a lease. 6
The above merely represents examples of already known issues with the Koch Data. Because the majority of the Koch Data represents transactions for which Defendant has no other data to use to evaluate them, documents from Koch, as sought by the Motion, are needed to determine just what other issues there may be with the Koch Data, as well as what impact these issues may have in this case. Plaintiff s final relevance argument is that Defendant should not need to determine how or why gravity deductions, bonuses or handling charges... or any other adjustments may have been made. Osage Opposition at 7. Plaintiff makes three flawed arguments in this regard. First, Plaintiff makes the conclusory argument that Mr. Klager already states that the data includes any adjustments and bonuses. Id. That argument, however, does not provide important context and background, such as explain how or why such adjustments or bonuses were made. Plaintiff attempts to address this issue in its second argument that the Koch data on its face is a listing of prices at 40-44.9 [g]ravity. Id. But this does not meet the issue of whether Plaintiff s expert is properly using this data, which usually requires some form of gravity adjustment. To the extent that the parties experts may differ on the appropriate method of gravity adjustment (for this Koch Data or any other data), and this Koch Data is not stricken, Defendant will need more information about how the Koch Data is gravity adjusted to provide the Court with a full and complete picture of the underpinnings and credibility of Plaintiff s expert s opinion. 5/ Plaintiff may be attempting to address this issue in its third argument that 5/ For example, Exhibit 9 (attached hereto) is a copy of a Koch oil pricing bulletin effective January 16, 1986. The bulletin shows that crude oil prices in Kansas and Oklahoma (relevant areas for the Osage regulations at that time) have different gravity scales -- Kansas has gravity scale G which calls for a gravity deduction of $0.015 per 0.1 and Oklahoma has gravity scale E which uses $0.02 per degree from 40 to 35 and $0.015 per 0.1 below 35. The Ex. A Data (continued...) 7
the parties have agreed to Koch s gravity adjustment scale during this time period as part of the Joint Data Base. Id. This statement is misleading. The parties have only agreed regarding Koch s gravity adjustment scale to the extent that it was applied to the known and vetted data in the Joint Data Base -- no such agreement has been reached with regard to the Koch Data. Indeed, the identification of appropriate gravity scales in the Joint Data Base for individual purchasers came only as a result of many hours of comparing each lease s sales transaction month by month to other reference gravity scales to narrow the range of probable gravity scales. At that point, the parties respective experts evaluated that data and selected the appropriate gravity scale for each major purchaser for each day. The limited amount of data provided by Koch so far does not lend itself to a similar analysis. Moreover, upon information and belief, see Koch Response at 2 (discussing conference between Defendant and Koch regarding the Koch Data), Defendant does not expect that the gravity adjustment scales agreed to with regard to the Joint Data Base will be applicable to all of the Koch Data. The documents requested from Koch under this Motion are necessary to analyze this further. Accordingly, Defendant has presented ample basis for compelling compliance with the Koch subpoenas. II. STRIKING THE KOCH DATA IS A REASONABLE ALTERNATIVE TO COMPELLING COMPLIANCE WITH THE KOCH SUBPOENAS Koch effectively concedes that it has some relevant documents and/or data that would shed some more light on the terms of Koch s various offers, and thus whether the Ex. A Data in fact represents offered prices in a manner relevant to this case and/or perhaps whether Plaintiff 5/ (...continued) does not distinguish what state the purported offer was appropriate to and therefore it would be impossible to determine what would be the correct gravity scale to apply. 8
has properly used any relevant Koch Data. Even if many of Koch s offers were oral, Koch does not dispute that it may nonetheless have other documents that subsequently record or confirm the terms of such offers. See Koch Response at 4. And, by implication, at least some of Koch s offers must have been in writing. In this light, a bare excerpt from a database created specifically for this litigation and under Plaintiff s direction, see id. at 1, 5, can hardly be the best evidence of Koch s actual offers or the terms of such offers, id. at 4. Nonetheless, Koch also asserts that the documents and data it has (assuming it found and produced them) would be quite limited. See, e.g., Koch Response at 3 ( Koch has already produced the best evidence it has concerning the prices it offered.... ); id. at 4 (suggesting that it might be impossible, not merely difficult, for Koch to produce the documents sought under the Motion). If Koch can not produce the documents Defendant needs to fairly test the handselected data provided to Plaintiff, the Motion must be denied as a practical matter to the extent that it seeks to compel production. In light of the above-referenced issues with the Koch Data in its current form, however, the Court should also strike the Koch Data and Klager Declaration such that Plaintiff may not rely on them for purposes of summary judgment. Koch also argues at length that compliance with the Koch Subpoenas would be burdensome. Defendant does not necessarily disagree. For completeness of the record, however, it is notable that in Koch s various discussions with Defendant about alternative ways they might be able to comply with the Koch Subpoenas that might reduce their burden, the compromise finally sought of seeking only documents for the top 1, see Motion at Ex. 5, p. 3, was one specifically noted by Koch s counsel as one that might be reasonable in burden. To be sure, Koch s counsel did not commit that such a limited production would be a reasonable burden, and when officially asked for this production, he did refuse. But given that Koch has 9
apparently created a database for Plaintiff (the Ex. A Data), and then followed that up with the production of over one thousand documents (the Ex. B Data) from a list of 37 leases handselected by Plaintiff, what has a very hollow ring, Koch Response at 4, is Koch s insistence that any production by it would be too burdensome. The bottom line is that Koch has not provided a single document in response to Defendant s subpoenas. Nonetheless, as noted in the Motion, Defendant is quite sensitive to issues of burden in this case. Although, as noted in the Motion and herein, the documents requested are both relevant and may be necessary to Defendant s ability to respond to Plaintiff s request for several million dollars in damages, Defendant also acknowledges that Koch is a non-party in this case. But neither Plaintiff nor Koch should be allowed to achieve the result they seek here. Koch has chosen to participate in this case in an entirely one-sided manner -- responding to Plaintiff s subpoenas with significant amounts of data, including the creation of customized data for Plaintiff and a voluntary declaration, while failing to provide Defendant with a single document in response to its subpoenas. Plaintiff seeks to profit from this one-sided assistance -- seeking to use the data it received while knowing that Defendant has been denied any opportunity to explore any other data from Koch beyond that sought by Plaintiff. Moreover, such profit is not hypothetical -- Plaintiff has not denied that this Koch Data is the sole source of a significant portion of its multi-million dollar claim. Accordingly, if the Court finds either that enforcing the Koch Subpoenas is a practical impossibility, given Koch s limited document retention, or that it would impose such a burden upon Koch that the Koch Subpoenas should be quashed, then the Court should also strike the Koch Data and Klager Declaration such that Plaintiff may not rely on these for purposes of summary judgment. 10
CONCLUSION For these reasons, as well as those set forth in the Motion, Defendant requests that this Court enter an Order either compelling compliance with the subpoenas issued to Koch Industries, Inc. and Mr. Klager, or striking Plaintiff s references to and reliance upon the Koch Data for purposes of summary judgment. 11 JOHN C. CRUDEN Acting Assistant Attorney General s/ Joseph H. Kim JOSEPH H. KIM, IL Bar #6243249 U.S. Department of Justice Environment & Natural Resources Division Natural Resources Section P.O. Box 663 Washington, D.C. 20044-0663 Tel: 202-305-0207 Fax: 202-353-2021 joseph.kim@usdoj.gov ATTORNEYS FOR DEFENDANT UNITED STATES OF AMERICA OF COUNSEL: ROMNEY PHILPOTT, CO Bar # 35112 BRIAN COLLINS, TX Bar # 24038827 U.S. Department of Justice Environment & Natural Resources Division Natural Resources Section P.O. Box 663 Washington, D.C. 20044-0663 Tel: 202-305-0258 Tel: 202-305-0428 ELISABETH C. BRANDON HOLLY C. CLEMENT ERICKA L. THOMPSON KYSCHIA PATTON Office of the Solicitor United States Department of the Interior Washington, D.C. 20240
12 REBECCA SALTIEL THOMAS KEARNS Office of the Chief Counsel Financial Management Service United States Department of the Treasury Washington, D.C. 20227
CERTIFICATE OF SERVICE I HEREBY CERTIFY that on the 5th day of March, 2009, I filed the foregoing electronically through the CM/ECF System, which caused the following parties or counsel to be served by electronic means, as more fully reflected on the Notice of Electronic Filing: Wilson K. Pipestem, Attorney for Plaintiff Merrill Godfrey, Attorney for Plaintiff Jim Tuite, Attorney for Plaintiff I further certify that, on this same date, I also served a copy of the foregoing upon James Armstrong, counsel for Koch Industries, Inc. and Vance Klager, by electronic mail. s/ Joseph H. Kim JOSEPH H. KIM, Trial Attorney (IL6243249) United States Department of Justice Environment and Natural Resources Division Natural Resources Section P.O. Box 663 Washington, D.C. 20044-0663 (202) 305-0207 (202) 353-2021 (fax) joseph.kim@usdoj.gov Attorney for Defendant 13