Cheyenne-Arapaho Tribes of Oklahoma v. U.S., CHEYENNE-ARAPAHO

Decision Date05 June 1992
Docket Number89-6355,Nos. 89-6270,CHEYENNE-ARAPAHO,s. 89-6270
Citation966 F.2d 583
PartiesTRIBES OF OKLAHOMA, Plaintiff-Appellee and Cross-Appellant, v. The UNITED STATES of America; the Department of the Interior; William P. Clark, Individually and as Secretary of the Interior; William P. Ragsdale, Individually and as Area Director, Anadarko Area Office, Bureau of Indian Affairs; Tom Dowell, Individually and as Superintendent, Concho Indian Agency, Bureau of Indian Affairs, Defendants, and The Woods Petroleum Corporation, Defendant-Appellant and Cross-Appellee.
CourtU.S. Court of Appeals — Tenth Circuit

Robert T. Anderson of the Native American Rights Funds, Boulder, Colo. (Patrice Kunesh-Hartman and Yvonne T. Knight with him on the brief), for plaintiff-appellee and cross-appellant.

Kent L. Jones of Hall, Estill, Hardwick, Gable, Golden & Nelson, P.C., Tulsa, Okl. (Orval E. Jones with him on the brief), for defendant-appellant and cross-appellee.

Before ANDERSON and BRORBY, Circuit Judges, and BRIMMER, Chief District Judge. *

BRIMMER, Chief District Judge.

This action seeking judicial review of the decision of a federal agency was initiated by the plaintiff, Cheyenne-Arapaho Tribes of Oklahoma (hereinafter "Tribe") on July 17, 1984. Jurisdiction of the district court was based upon 28 U.S.C. §§ 1331 and 1362. 1 This Court has appellate jurisdiction pursuant to 28 U.S.C. § 1292(b) 2. The district court certified its order for appeal on May 26, 1989. This Court granted appellant Woods Petroleum Corporation's (hereinafter Woods) petition to take an interlocutory appeal on July 24, 1989, and Tribe's petition for cross-appeal on October 20, 1989. The United States did not take an interlocutory appeal.

Background

The district court's summary judgment ruling overturned the Bureau of Indian Affairs' (hereinafter BIA) 1981 decision to approve two communitization agreements unitizing oil and gas operations on two 640-acre spacing units (Sections 29 and 32) owned by the Tribe in Custer County, Oklahoma. Woods had four oil and gas leases in Sections 29 and 32, each covering 160 acres, which were approved by the Concho Agency Superintendent on May 10, 1976. 3 Reading and Bates Petroleum Company acquired two leases covering 160 acres each in Sections 29 and 32 on February 22, 1980. 4 The primary term of each lease was for 5 years and as much longer thereafter as oil and/or gas was produced in paying quantities. Each of the 1976 leases contained a commence drilling clause, which purported to extend the lease if drilling was commenced during the primary term.

Each lease also contained a unit operation clause (hereinafter Clause 9) which dealt with communitization 5 by providing that:

The parties hereto agree to subscribe to and abide by any agreement for the cooperative or unit development of the field or area, affecting the lease lands, or any pool thereof, if and when collectively adopted by a majority operating interest therein and approved by the Secretary of the Interior, during the period of supervision.

Under a communitization agreement, drilling operations conducted anywhere within the unit area are deemed to occur on each lease within the communitized area and production anywhere within the unit is considered to be produced from each tract within the unit. Kenai Oil & Gas, Inc. v. Dept. of Int. of U.S., 671 F.2d 383, 384 (10th Cir.1982). Communitization agreements formed pursuant to Clause 9, in conjunction with the commence drilling clause, thus extend the terms of all the leases if drilling is commenced on any lease within the units covered by the agreements.

Since the five year leases signed in 1976 would have expired on May 10, 1981, a flurry of activity occurred among the lessees prior to that date. Woods and Reading and Bates, as owners of the leases in sections 29 and 32, agreed on April 1, 1981 to communitize the tracts and leases in each section for unitized drilling and production. The communitization agreements designated Reading and Bates as the operator of the unit wells in both sections. Reading and Bates Petroleum Company requested the Tribe's approval of the proposed communitization agreements by letter dated April 15, 1981. The USGS issued a permit on April 22, 1981 authorizing Reading & Bates to commence drilling operations in Section 32. On April 22 and April 23, 1981, the chairman of the Tribe's business committee and the Tribe's business manager met with the Reading and Bates representative and officials from the Anadarko Area Office of the BIA and explained that they would not agree to the communitization agreements unless the 1976 leases were renegotiated. Tribal officials requested a lease bonus of $1500 per acre as well as a ten percent back-in working interest in the Woods leases. Reading and Bates rejected any renegotiations of the Woods leases on May 1, 1981.

By letter dated May 1, 1981, Reading and Bates demanded that the Tribe assent to the communitization agreements. The letter stated that in the event the leases were lost, Reading and Bates would "pursue every legal remedy" in order to receive restitution for the losses that it might sustain. 6 On May 5, 1981, Reading and Bates submitted the proposed communitization agreement to the United States Geological Survey (USGS) for approval. The USGS recommended approval of both agreements on the basis that they appeared to offer adequate protection to the restricted Indian interests. On May 8, 1981, the Acting Area Director of the Anadarko Office of the BIA approved both communitization agreements.

On August 5, 1981, the Tribe filed a notice of appeal of the Area Director's decision to approve the communitization agreements. Subsequently, on February 9, 1982, the Deputy Assistant Secretary of the Department of the Interior affirmed the Acting Area Director's decision. The Tribe then appealed this decision to the BIA. On February 10, 1983, the BIA entered an order affirming the Anadarko Director's decision. The BIA then granted the Tribe's petition for rehearing and called for supplementation of the record so that the reasons for the Area Director's approval of the agreements could be set forth in more detail. Upon consideration of supplemental materials, the BIA entered an order on May 18, 1984 reaffirming the Area Director's May 1981 decision to approve the communitization agreements.

The Tribe then commenced an action in the United States District Court for the Western District of Oklahoma. The fundamental issue before the district court was whether the BIA's approval of the communitization agreements extended the primary terms of certain leases on the Tribe's land. Subsequently, summary judgment motions were filed by the parties. Upon review of the record, the district court concluded that the administrative record was inadequate to resolve the issues raised. The court remanded the case to the Secretary of the Interior with instructions to respond to particular questions presented by the court. After the Secretary entered his response to the Order of Remand, the parties filed a second round of summary judgment motions. This appeal is from the order on those motions.

In the action below, Woods contended that the issues raised by the Tribe were not properly before the district court because the Tribe's administrative appeal of the approval of the communitization agreements was not timely. The court below disagreed, finding that the Tribe did not receive written notice as per 25 C.F.R. § 2.4, and concluding that the Tribe's filing of its appeal on August 5, 1981 was not untimely under 25 C.F.R. § 2.10. In addition, the district court found that Woods failed to demonstrate that it had been prejudiced by the delay in the filing of the Tribe's appeal. Since the Tribe's administrative appeal was timely, the district court declared that the issues raised by the Tribe were properly before it.

The district court found that the record did not establish that the parties to the 1976 leases intended Clause 9 (the unit operation clause) to require particularized tribal consent to each communitization agreement. The court analyzed the language of Clause 9, and found that the provision constituted a blanket consent to future communitization agreements. There was no finding of a fundamental conflict between the blanket consent interpretation of Clause 9 and the policies underlying the Mineral Leasing Act of 1938, 25 U.S.C. §§ 396a to 396g (hereinafter MLA). In addition, the district court interpreted the law existing in 1976 when the leases were executed as supporting the blanket consent interpretation of Clause 9. The court concluded that lack of Tribal consent did not invalidate the communitization agreements. The district court also found that the Area Director breached his trust responsibility to the Tribe under the MLA by approving the communitization agreements without studying the economic conditions prevailing at the time. As a result of this breach of trust, the court held that the communitization agreements did not extend the non-drilling 1976 leases, and those leases thus expired at the end of their primary terms. The district court denied the Tribe's cross-motion for partial summary judgment on the issue of whether the Woods' leases violated the MLA, holding that the commence drilling clauses of the leases operated to extend those leases if drilling was commenced during the primary term set forth in the habendum clauses. The court denied the Tribe's cross motion for summary judgment on the issue of whether Woods' leases were amended by the communitization agreements to condition extension beyond their primary terms on production rather than drilling, on the basis that the matter had not been properly raised at the administrative level.

As a result of the court's ruling, three leases on which no drilling occurred during their primary terms expired on May 10, 1981. 7 Consequently, as of May 10, 1981, the Tribe was the rightful...

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