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March 8, 2013

Justice Department Submits Revised Consent Decrees in Action Asserting Collusion for Mineral Rights Leases

By Jeffrey May, J.D.

The Department of Justice Antitrust Division has asked the federal district court in Denver to approve revised consent decrees that are intended to resolve an action challenging an allegedly anticompetitive bidding agreement for mineral rights leases (U.S. v. SG Interests I Ltd., Civil Action No. 12-CV-00395-RPM-MEH).

In March 6 filings, the Justice Department submitted revised settlements with SG Interests I, Ltd. and SG Interests VII, Ltd. (SGI) and Gunnison Energy Corporation (GEC) requiring SGI and GEC each to pay the United States $275,000 and to notify the Justice Department for a period of five years of any joint bidding at oil and gas lease auctions conducted by the U.S. Department of Interior's Bureau of Land Management (BLM).

In February 2012, the Justice Department brought an action against SGI and GEC for colluding in bidding on federal lands offered by the BLM at auctions held in February and May 2005. GEC allegedly agreed with two SGI limited partnerships that only the SGI companies would bid at the auctions and then assign an interest in the acquired leases to GEC. As a result of the alleged agreement, the BLM received lower bid payments. The government also alleged False Claims Act (FCA) violations for false statements made to the government in connection with the agreement not to compete.

Under the original proposed consent decree, which was filed with the government's complaint, SGI and GEC would have been required to each pay $275,000 to the United States to settle claims made in both the antitrust action and a separate qui tam action involving the False Claims Act violations. In a December 12, 2012, decision, the federal district court in Denver rejected that proposed consent decree. The court found that the settlement "for nothing more than the nuisance value of this litigation" was not in the public interest. After nothing was filed in the antitrust action for more than two months, the court on February 25, 2013, ordered the government to show cause why the action should not be dismissed for failure to prosecute.

On March 6, the Justice Department responded to the court's order to show cause, saying that it had been "actively engaged in attempting to find the most efficient manner to bring this case to resolution, either by pursuing the matter or by resolving it." On the same day, the government filed the revised proposed final judgments that resulted from the negotiations.

The revised proposed final judgments separate the settlement of the antitrust action from the FCA action. Under new settlements of the FCA Action, SGI and GEC paid $206,250 and $245,000, respectively. The revised settlements in the antitrust case would require the firms to pay $275,000 each. As a result, the government will receive a total $1,001,250 from the defendants, in contrast to the total of $550,000 under the original proposed settlements, according to the government's memorandum supporting entry of the proposed final judgments.

In addition to revising the amount of the settlement, the revised proposed final judgments address the district court's concern about deterrence by monitoring the firms' conduct at BLM auctions over the next five years. The proposed final judgments would require GEC and SGI to report to the United States any joint bidding activity prior to a BLM auction and, upon receiving a request from the United States, to provide information relating to that joint bidding.

"The revised settlements constitute meaningful relief that compensate the United States for the damages it incurred as a result of the alleged antitrust violations, serve as a deterrent to these Defendants from engaging in joint bidding that violates the antitrust laws, and put others in the industry on notice that such anticompetitive conduct will not be tolerated," according to the government.

"This case is significant because the United States for the first time alleged that a joint bidding agreement for oil and gas leases at a BLM auction violated the Sherman Act and then obtained a settlement appropriate to the violation alleged," the government told the court. "By bringing this novel action, the United States will deter others from crossing the line from appropriate to illegal joint bidding at BLM auctions."

Attorneys: Sarah L. Wagner, Department of Justice, for plaintiff. L. Poe Leggette (Fulbright & Jaworski, LLP) for SG Interests I, Ltd. Timothy R. Beyer (Bryan Cave) for Gunnison Energy Corporation.

Companies: Gunnison Energy Corp.; SG Interests I Ltd.; SG Interests VII Ltd.

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