Dredge Corp. v. Conn

• Decision Date: 22 May 1984
• Docket Number: No. 83-2362,83-2362
• Citation: 733 F.2d 704
• Parties: The DREDGE CORPORATION, Plaintiff-Appellant, v. Kemp CONN, District Manager, Bureau of Land Management; James Schalnus, Chief, Division of Operation, Bureau of Land Management; William Malencik, Chief, Division of Technical Services, Bureau of Land Management; Edward Spang, State Director, Bureau of Land Management; Robert Burford, Director, Bureau of Land Management; James Watt, Secretary of the Interior, Department of the Interior, being agencies of the United States Department of the Interior; United States of America, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 704

733 F.2d 704

The DREDGE CORPORATION, Plaintiff-Appellant, v. Kemp CONN, District Manager, Bureau of Land Management;

James Schalnus, Chief, Division of Operation, Bureau of Land

Management; William Malencik, Chief, Division of Technical

Services, Bureau of Land Management; Edward Spang, State

Director, Bureau of Land Management; Robert Burford,

Director, Bureau of Land Management; James Watt, Secretary

of the Interior, Department of the Interior, being agencies

of the United States Department of the Interior; United

States of America, Defendants-Appellees.

No. 83-2362.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 14, 1984.

Decided May 22, 1984.

John W. Bonner, Jones, Jones, Bell, Close & Brown, Las Vegas, Nev., for plaintiff-appellant.

J. Carol Williams, Dept. of Justice, Donald T. Hornstein, Washington, D.C., for defendants-appellees.

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

Before TANG and PREGERSON, Circuit Judges, and CARROLL, District Judge. ^*

PREGERSON, Circuit Judge:

The Dredge Corporation ("Dredge") appeals the decision of the Interior Board of Land Appeals ("Board") that Dredge did not have a valid placer mining claim ¹ to Dredge No. 51, a 40-acre parcel of federally-owned land located five miles west of Las Vegas. The Board's decision was based on Dredge's failure to discover minerals of marketable value on Dredge No. 51 before the effective date of the Surface Resources Act, 30 U.S.C. Secs. 601-615. We affirm.

I. Statutory Background

The acquisition of private mining rights in federally-owned land is governed by the Mineral Location Law of 1872. 30 U.S.C. Sec. 22. Under that law, an individual is entitled to enter, mine, and eventually obtain title to federally-owned land that is open to mineral entry.

To establish a valid mining claim a claimant must meet certain requirements. First, the claimant must "locate" the claim. ² The procedures for locating a claim are prescribed by local custom or state law. See 30 U.S.C. Sec. 28. These procedures usually require the claimant to (1) post some form of notice on the land; (2) mark the boundaries of the claim; (3) conduct preliminary excavation or discovery work on the claim; and (4) record a certificate of location in the local mining district office. See 1 Rocky Mtn.Min.L.Inst.,American Law of Mining Sec. 5.49 (1981 ed.).

Second, the claimant must make a "discovery." This requires the discovery of a valuable mineral deposit on the claim. Whether a claim is sufficiently valuable is determined by the marketability test. Under that test, the claimant must show that the mineral on the claim can be "extracted, removed and marketed at a profit." United States v. Coleman, 390 U.S. 599, 600, 88 S.Ct. 1327, 1329, 20 L.Ed.2d 170 (1968); McCall v. Andrus, 628 F.2d 1185, 1188 (9th Cir.1980), cert. denied, 450 U.S. 996, 101 S.Ct. 1700, 68 L.Ed.2d 197 (1981). ³ A claimant who makes a valid discovery is entitled to apply for a patent which will convey title to the land in fee simple. 30 U.S.C. Sec. 29.

The Surface Resources Act, effective July 23, 1955, removed all common varieties of sand and gravel from future location under the general mining law. ⁴ In other words, after July 23, 1955, an individual could not enter federally-owned land for the purpose of mining sand and gravel. The Act contained a savings clause, however, that protected any valid mining claim located before the effective date of the Act. 30 U.S.C. Sec. 615. Under that clause, the claimant must show that he located and made a discovery on the claim before July 23, 1955. Dredge contends that its claim falls within this savings clause.

II. Facts

Dredge No. 51 was located on July 21, 1952 for the purpose of mining sand and gravel. It lies on the edge of an alluvial fan composed of sand and gravel. Patented claims lie immediately to the south and southwest. One of these claims, called "Wells Cargo", contains an extensive sand and gravel operation that has operated continuously since 1952. Little or no work was done on Dredge No. 51, however, until 1962, except for a road built in 1954 connecting Dredge No. 51 and Wells Cargo.

The Bureau of Land Management ("BLM") has issued three contest complaints challenging the validity of the Dredge No. 51 claim. The first two were dismissed without prejudice. Then, in 1975, Dredge filed a patent application for Dredge No. 51. On October 6, 1977, the BLM responded by issuing a third contest complaint contending that: (1) the land within Dredge No. 51 was non-mineral in character; (2) no valid discovery of valuable minerals had been made; and (3) the mineral material on Dredge No. 51 could not have been marketed at a profit before July 23, 1955.

After a hearing, an Administrative Law Judge ("ALJ") held that Dredge had established that the mineral deposit on Dredge No. 51 was marketable. The ALJ based his decision on Dredge No. 51's substantial similarity and proximity to other claims that were being mined at a profit and on the additional fact that between 1962 and 1966 Dredge had removed and sold 70,000 cubic yards of material from Dredge No. 51. On appeal, the Interior Board of Land Appeals reversed the ALJ's decision and denied Dredge's patent application. The Board specifically rejected the ALJ's reliance on the "substantial similarity" between Dredge No. 51 and neighboring claims. Dredge then filed a complaint in district court seeking review of the Board's decision. The district court entered summary judgment for the BLM.

III. Analysis

Our review of a Board decision is limited. We are required to uphold the decision unless it is "arbitrary, capricious, an abuse of discretion, unsupported by substantial evidence, or not in accordance with law." Melluzzo v. Watt, 674 F.2d 819, 820 (9th Cir.1982); 5 U.S.C. Sec. 706(2)(A). The principal issue here is whether Dredge discovered a valuable mineral deposit on the Dredge No. 51 claim before the critical date of July 23, 1955.

The Board's determination that the mineral deposit on Dredge's claim was not marketable in 1955 is supported by substantial evidence. Under the marketability test, the claimant must show that the claim can be "extracted, removed and marketed at a profit." Coleman, 390 U.S. at 600, 88 S.Ct. at 1329 (1968); McCall, 628 F.2d at 1188; Rawls v. United States, 566 F.2d 1373, 1376 (9th Cir.1978). The claimant need not show that he actually sold minerals at a profit before 1955, although the absence of sales is a relevant factor in determining marketability. Rawls, 566 F.2d at 1376. However, "when there is little or no evidence of pre-1955 sales, a court should consider costs of extraction, preparation, and transport as well as then-existent market demand." Id. In this case, the government showed that in 1955 the supply of sand and gravel in the Las Vegas area far exceeded local demand. Only 150 out of 40,000 acres of potential sand and gravel sites were being mined before 1955. Further, the demand for sand and gravel began to decline in 1955 after a boom in local construction from 1952 to 1954. This decline continued until the early 1960's. Although the record is conflicting, the government offered evidence that little or no mining activity occurred on Dredge No. 51 before 1955, with the exception of the construction of a road. This lack of mining activity lends support to the government's contention that the local market was weak in 1955.

In addition, the government's expert, Shinzi Kuniyoshi, testified that he had examined the claim in 1977 and found that the mineral deposit on Dredge No. 51 was of poorer quality than other deposits in the area. He also testified that it would have been more costly to extract sand and gravel from Dredge No. 51 than from neighboring claims because Dredge No. 51 contained a greater quantity of caliche. ⁵ He thus concluded that Dredge No. 51 could not have been mined and marketed at a profit in 1955. ⁶

Dredge offered no contrary evidence regarding market supply and demand in the Las Vegas area in 1955. Indeed, Dredge concedes that a prudent person would not have mined Dredge No. 51 in 1955, but would have waited until 1960 when the local demand increased. The Board thus reasonably concluded that Dredge could not have profitably mined and marketed the deposit on Dredge No. 51 in 1955. Moreover, Dredge would have had difficulty competing in the weak local market because of the deposit's poor quality and high extraction costs.

Dredge contends, however, that the deposit on Dredge No. 51 should have been deemed marketable merely because of its proximity and similarity to existing patented claims. We disagree. First of all, the government demonstrated important differences between Dredge No. 51 and nearby claims. Dredge No. 51 had less loose material and had a thick layer of caliche.

Moreover, Dredge's argument is inconsistent with the approach we set forth in Melluzzo v. Morton, 534 F.2d 860 (9th Cir.1976) for determining the marketability of a mineral deposit. In Melluzzo, we stated that the existence of a local market for sand and gravel alone is not sufficient to establish marketability. Id. at 863. In other words, the claimant cannot rely solely on the fact that comparable material is being marketed. Rather, "[t]he claimant must establish that his material was of a quality that would have met the existing demand and that it was marketable at a profit." Id. (emphasis added). The profitability of a particular deposit is determined not only by its cost of extraction, preparation for market, and transportation to market, but also by the overall market demand and supply. Id. at 864. Proof that neighboring claims are being marketed is relevant to determining a claim's marketability, but such proof alone does not overcome evidence that the market was already well-supplied. The claimant must also show that given existing market conditions his particular claim could have returned a...