A district court judge Friday overturned a jury verdict that Kerr-McGee Oil & Gas underpaid $7.55 million in federal royalties on oil production, concluding that the plaintiff in the case, a former auditor of the Minerals Management Service (MMS), failed to meet one of the conditions necessary to bring a False Claims Act (FCA) lawsuit on behalf of the government against the producer.

Former MMS auditor Bobby L. Maxwell, who brought the FCA action in June 2004, had already disclosed the information related to Kerr-McGee on an "involuntary basis" while employed at the agency, said U.S. District Judge Phillips S. Figa. And "once involuntarily disclosed, the same information cannot subsequently be voluntarily disclosed within the meaning of the False Claims Act," he noted.

"Because Maxwell did not voluntarily disclose to the government the principal information underlying his FCA complaint, he does not qualify as an original source. Accordingly, this court lacks subject matter jurisdiction over this case," Figa wrote. Subsequently, he granted Kerr-McGee's request to dismiss the earlier jury verdict.

Maxwell told a House committee late last month that audits of oil and natural gas companies began to be deemphasized beginning in 2000, and enforcement of lease terms and regulations "seemed to become less important" (see Daily GPI, March 29). Maxwell testified before the House Committee on Natural Resources, which held its second in a series of hearings on ongoing management issues at the Interior Department (see Daily GPI, Feb. 28).

Maxwell had accused Kerr-McGee of underpaying royalties on crude oil production in the Gulf of Mexico, which was sold to Houston-based Texon LP. Kerr-McGee was alleged to have accepted less than market price for the oil from Texon in exchange to the company's assuming part of Kerr-McGee's marketing responsibilities.

While still employed by the MMS, Maxwell said he was under pressure not to pursue royalty underpayments to the U.S. government, including the Kerr-McGee case. Maxwell filed the FCA lawsuit against Kerr-McGee on behalf of the U.S. government to collect the underpayments, and within days of the lawsuit becoming public, he said he was notified he was being terminated. He alleges that top Interior Department officials ordered him to stop pursuing Kerr-McGee for back royalties, a claim that Interior disputes.

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