Oil, Gas and Mining Qui Tam Cases

The False Claims Act imposes liability on a defendant in connection with underpaying royalty payments to the Government that typically involve amounts owed for use of minerals, oil, and gas on public lands. Most of the reported cases involve the defendant entering into oil and gas leases with Indian Tribes. The Government, through the Mineral Management Service (MMS) agency, acts as a fiduciary for Indian Tribes with respect to royalty payments due on these leases. As part of this duty, the agency collects the royalties, ensures the accuracy of the payments through an auditing system, and remits the royalty payments to the tribe. Because the royalty payments are made to a federal agency on behalf of the Tribes, False Claims Act liability may be imposed on a defendant who underpays the royalties even though the Government does not have an ongoing interest in the funds, and the Government does not suffer a loss.

The most well-known case in this area is United States ex rel. Johnson v. Shell Oil Company. In Johnson, the qui tam whistleblowers alleged that eighteen major oil companies and their divisions, subsidiaries or affiliates, underpaid royalties owed to the United States for production of oil on federal and Indian lands. The qui tam whistleblowers alleged that these companies historically underpaid oil royalties to the Government by calculating the royalties using prices substantially lower than the consideration the [oil companies] actually have received for the oil.

The qui tam whistleblowers stated that the oil companies engaged in a nationwide conspiracy to underpay government royalties derived from the production of crude oil from federal and American-Indian-owned lands spanning more than 27 million acres of off-shore and on-shore tracts located in various states.

The qui tam whistleblowers claimed that the oil companies filed reports with the government citing erroneous prices and deficient royalty payments due to the government. The qui tam whistleblowers claimed that the oil companies used seven different schemes to deflate the value of oil reported to the government, resulting in underpayment of royalties. The oil companies attempted, without success, to have the case dismissed several different times under different defense theories. The oil companies eventually settled the case for a total of nearly $440 million.

For more information and case citations, please see Androphy “Federal False Claims Act and Qui Tam Litigation,” published by Law Journal Press (2010).

For more information, email quitam@bafirm.com


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You should be aware that qui tam claims are subject to a Statute of Limitations. The area of limitations periods is complex. There are also first to file rules, public disclosure bars, original source issues, and varying limitations in pursuing retaliation claims. If you wish to pursue your claims, you should promptly seek the opinion of an attorney regarding the merits of your qui tam claim and the applicable statute of limitations.