State of Or. By and Through Div. of State Lands v. Bureau of Land Management, Dept. of Interior, U.S., 87-4096

• Citation: 876 F.2d 1419
• Decision Date: 31 July 1989
• Docket Number: No. 87-4096,87-4096
• Parties: 54 Ed. Law Rep. 430 STATE OF OREGON, By and Through the DIVISION OF STATE LANDS, Plaintiff-Appellant, v. The BUREAU OF LAND MANAGEMENT, DEPARTMENT OF THE INTERIOR, UNITED STATES of America, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1419

876 F.2d 1419

54 Ed. Law Rep. 430

STATE OF OREGON, By and Through the DIVISION OF STATE LANDS Plaintiff-Appellant, v. The BUREAU OF LAND MANAGEMENT, DEPARTMENT OF THE INTERIOR UNITED STATES of America, Defendant-Appellee.

No. 87-4096.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Oct. 31, 1988.

Decided June 7, 1989.

As Amended June 30 and July 31, 1989.

Robert W. Muir, Michael D. Reynolds, Dept. of Justice, State of Or., Salem, Or., for plaintiff-appellant.

Dirk D. Snel, Dept. of Justice, Land & Natural Resources Div., Washington, D.C., for defendant-appellee.

James R. Parker, Jr., Kuhs & Parker, Bakersfield, Cal., for Amicus Curiae, California Land Title Ass'n, Oregon Land Title Ass'n and Washington Land Title Ass'n.

Appeal from the United States District Court for the District of Oregon.

Before BROWNING, TANG and FARRIS, Circuit Judges.

TANG, Circuit Judge:

In 1968, the State of Oregon ("Oregon") made applications to the Bureau of Land Management ("BLM") to obtain federal land under 43 U.S.C. Sec. 851. After audits of land transactions dating back to 1859, the BLM concluded that Oregon had already received public lands in excess of its entitlement and therefore denied Oregon's applications. The BLM also ruled that the "pro rata rule" of 43 U.S.C. Sec. 852(b) must be utilized for indemnity selections in lieu of unsurveyed school sections in fractional townships. On administrative appeal, the Interior Board of Land Appeals ("IBLA") affirmed the BLM. On judicial review, the district court granted summary judgment in favor of the BLM, ruling that the decisions of the IBLA were not arbitrary, capricious, an abuse of discretion, nor otherwise not in accordance with the law. Oregon v. Bureau of Land Management, 676 F.Supp. 1047 (D.Or.1987). Oregon appeals. We have jurisdiction under 28 U.S.C. Sec. 1291.

I. Background

In order to better understand this case, it is necessary first to review some pertinent statutes and historical facts.

A. Oregon Admission Act

Oregon was admitted into the Union on February 14, 1859 under the Oregon Admission Act. 11 Stat. 383. Under this Act, the United States agreed to provide certain federal land to Oregon for support of its schools:

That the following propositions be, and the same are hereby, offered to the said people of Oregon for their free acceptance or rejection, which, if accepted, shall be obligatory on the United States and upon the said State of Oregon, to wit: First, That sections numbered sixteen and thirty-six in every township of public lands in said State, and where either of said sections, or any part thereof, has been sold or otherwise been disposed of, other lands equivalent thereto, and as contiguous as may be, shall be granted to said State for the use of schools.

11 Stat. 383 Sec. 4.

In considering a similar provision in a case involving Wisconsin, the Supreme Court noted that "[i]t was ... an unalterable condition of the admission, obligatory upon the United States, that section sixteen (16) of every township of the public lands in the State, which had not been sold or otherwise disposed of, should be granted to the State for the use of schools." Beecher v. Wetherby, 95 U.S. (5 Otto) 517, 523, 24 L.Ed. 440 (1877) (emphasis added).

B. The Indemnity Act of 1891 and 43 U.S.C. Secs. 851-852

Problems arose when the sections designated for the states were unavailable. To deal with this problem, Congress enacted a line of statutes providing for selections of other public lands in lieu of the unavailable sections. See United States v. Morrison, 240 U.S. 192, 36 S.Ct. 326, 60 L.Ed. 599 (1916). The Indemnity Act of 1891, Rev.Stat. Secs. 2275-76, was a key statute in this regard. After some consolidation and amendment, these statutes are now codified in 43 U.S.C. Secs. 851-852. See Andrus v. Utah, 446 U.S. 500, 100 S.Ct. 1803, 64 L.Ed.2d 458 (1980).

C. The Forest Lieu Act

The Forest Lieu Exchange Act of 1897 ("the Forest Lieu Act"), provided for indemnity selections when sections 16 and/or 36 were located within a national forest:

That in cases in which a tract covered by an unperfected bona fide claim or by a patent is included within the limits of a public forest reservation, the settler or owner thereof may, if he desires to do so, relinquish the tract to the Government, and may select in lieu thereof a tract of vacant land open to settlement not exceeding in area the tract covered by his claim of patent.

30 Stat. 11, 36.

The Land Department of the General Land Office ("GLO"), the predecessor of the BLM, adopted rules and procedures for the administration of the Act. Specifically, a forest lieu applicant was to (1) prepare a quitclaim deed relinquishing base land to the United States, along with an affidavit of title to show the deeds were effective to pass title and that the lands were free of tax liens or other encumbrances; (2) file the deed and the abstract with the local land office; and (3) file with the deed and the abstract an application form for the selected lands. 24 L.D. 592-93. These rules have been declared "reasonable" by the Supreme Court. Cosmos Exploration Co. v. Gray Eagle Oil Co., 190 U.S. 301, 309, 23 S.Ct. 692, 696, 47 L.Ed. 1064 (1903).

D. The Hyde Fraud Combine

Between 1898 and 1902, Mr. F.A. Hyde and others conspired to obtain state school lands within the boundaries of national forests, and to exchange them for more valuable federal land, using the indemnity selection process of the Forest Lieu Act. ¹

The State of Oregon held title to these school lands (the "base" lands) within the national forests. Hyde arranged for applicants, some of whom may have been fictitious, to purchase the base lands from the State. Under Oregon law, Oregon citizens could purchase Oregon land, but were limited to 320 acres for personal use, not for speculation. Hill's Annotated Laws Sec. 3618. Hyde, however, devised an elaborate scheme to avoid these limitations.

Hyde defrauded Oregon of about 47,000 acres of school lands which he acquired from Oregon at $1.25 per acre. Hyde sold selection rights at a considerable profit. State v. Hyde, 88 Or. 1, 32, 169 P. 757, 766 (1918). Prior to 1903, federal patents were issued to Hyde for approximately 27,000 acres of indemnity lands subsequently selected by Hyde under the Forest Lieu Act. Hyde persuaded employees of the GLO in Washington, D.C. to expedite Hyde applications for indemnity land in violation of a policy requiring them to be processed in the order received. Id.

When the Secretary of the Interior became aware of the fraud, he issued an order on November 21, 1902 suspending all applications for forest lieu selections bearing Hyde's name as the applicant or as the attorney for the applicant. Further orders in 1903 and 1904 suspended all applications for forest lieu selections involving Oregon school lands as base. The Department of Interior also sought to cancel all patents issued to Hyde for indemnity land, but a statute of limitations prevented cancellation, except for 1,680 acres.

On March 3, 1905, Congress repealed the Forest Lieu Act. A grandfather clause, however, permitted previously made selections to be perfected and patented, and reselections to be made if a pending selection were held invalid for any reason not the fault of the selector. 33 Stat. 1264. In 1908, Hyde was found guilty of criminal fraud against the United States, and his conviction was affirmed by the U.S. Supreme Court. Hyde and Scheider v. United States, 225 U.S. 347, 32 S.Ct. 793, 56 L.Ed. 1114 (1912).

E. Oregon State Court Proceedings Against Hyde

In 1910, the United States commenced adverse proceedings against forest lieu selections made by Hyde. These proceedings were suspended in 1912 so that Oregon could proceed with its suits. In 1913, Oregon began legal proceedings in state court against Hyde to cancel Hyde's deeds to the state's school lands which Oregon had issued to Hyde. The land in question had not been exchanged for patents under the Forest Lieu Act. The suits involved 29,078.74 acres.

Final decisions of the Oregon Supreme Court were handed down in 1918 and were reported in six published decisions. ² In these decisions, the Supreme Court of Oregon divided the lands into three categories: Supplement A, Supplement B, and Supplement C. These categories are important because they are referred to by the parties and in the decisions below:

Supplement A: 17,355.62 acres of land offered by Hyde as base to the U.S. under the Forest Lieu Act, whose accompanying applications were approved by the GLO, but which later were suspended by the Secretary's order of November 21, 1902. The selected lands were never patented.

Supplement B: 9,385.17 acres of land offered by Hyde as base to the U.S., but whose accompanying applications were never approved by the GLO.

Supplement C: 2,337.95 acres of land never even offered as base.

The Supreme Court of Oregon held that, because Supplement A lands had been offered as part of a selection application and were approved by the GLO, the deeds to the lands had been accepted by the United States, and therefore title had passed to the United States. Because title had passed to the United States, the United States was deemed to be a necessary party to any deed cancellation proceedings. Thus, because the United States refused to make an appearance as a party, the Supreme Court of Oregon dismissed the deed cancellation proceedings with respect to the Supplement A lands. The Supreme Court of Oregon, however, cancelled the deeds of the Supplement B and C lands.

F. Federal Proceedings Against Hyde

Following these decisions of the Supreme Court of Oregon, the GLO resumed adverse proceedings against the Hyde selections. The State of Oregon filed answers alleging fraudulent procurement of title. In 1920, with the cooperation of the Department of the Interior, Oregon reached a compromise agreement with the transferees of selections whose base lands...