A district court judge has 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 lawsuit on behalf of the government against the producer under the False Claims Act (FCA).

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 in his March 30 ruling. 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, which was returned in January.

“Judge Figa’s order is a vindication of Kerr-McGee’s position from the very outset of the case,” said Scott Barker, attorney for Kerr-McGee. “Since it was Mr. Maxwell’s duty as an MMS auditor to look for and report fraud, the information relating to Kerr-McGee’s alleged royalty underpayments, which formed the basis for [the]…allegations in the lawsuit, could not have been voluntarily provided by Mr. Maxwell,” he said.

“This result is especially appropriate since, as the MMS confirmed after the [January] verdict, it had concluded, based on a full and complete audit, that Kerr-McGee had properly and fully paid all the royalties that were due,” Barker said.

Maxwell testified before a House committee late last month that audits of oil and natural gas companies began to be deemphasized at MMS beginning in 2000, and enforcement of lease terms and regulations “seemed to become less important” (see NGI, April 2).

Maxwell’s lawsuit 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 royalties allegedly owed by Kerr-McGee. 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.

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