Kenai Oil and Gas, Inc. v. Department of Interior of U.S., 81-2141

• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)
• Writing for the Court: Before BARRETT, McKAY and LOGAN; McKAY; BARRETT
• Citation: 671 F.2d 383
• Parties: KENAI OIL AND GAS, INC., a corporation, Bow Valley Petroleum, Inc., a corporation for themselves and for all others similarly situated, Plaintiffs-Appellants, v. The DEPARTMENT OF the INTERIOR OF the UNITED STATES; James G. Watt, individually and as Secretary of the Interior; The Bureau of Indian Affairs; Thomas Fredricks or his successor, individually and as Commissioner of the Bureau of Indian Affairs; Curtis Geiogamah, individually and as Acting Area Director of Indian Affairs, Phoenix Area; L. W. Collier, Jr., individually and as Superintendent of the Bureau of Indian Affairs, Uintah and Ouray Agency; Ute Indian Tribe, a federal corporation; and Ruby Black, Charles Redfoot, Antone Appawoo, Floyd Wopsock, Leon Perank, Ouray McCook, Sr., individually and as members of the Ute Tribal Council, Defendants-Appellees, Reading & Bates Petroleum Co., Amicus Curiae.
• Docket Number: No. 81-2141,81-2141
• Decision Date: 16 March 1982

Page 383

671 F.2d 383 KENAI OIL AND GAS, INC., a corporation, Bow Valley
Petroleum, Inc., a corporation for themselves and
for all others similarly situated,
Plaintiffs-Appellants,
v.
The DEPARTMENT OF the INTERIOR OF the UNITED STATES; James
G. Watt, individually and as Secretary of the Interior; The
Bureau of Indian Affairs; Thomas Fredricks or his successor,
individually and as Commissioner of the Bureau of Indian
Affairs; Curtis Geiogamah, individually and as Acting Area
Director of Indian Affairs, Phoenix Area; L. W. Collier,
Jr., individually and as Superintendent of the Bureau of
Indian Affairs, Uintah and Ouray Agency; Ute Indian Tribe, a
federal corporation; and Ruby Black, Charles Redfoot, Antone
Appawoo, Floyd Wopsock, Leon Perank, Ouray McCook, Sr.,
individually and as members of the Ute Tribal Council,
Defendants-Appellees,
Reading & Bates Petroleum Co., Amicus Curiae. No. 81-2141. United States Court of Appeals,
Tenth Circuit. Argued and Submitted Nov. 17, 1981.
Decided Feb. 17, 1982.
Rehearing Denied March 16, 1982.

Page 384

F. Alan Fletcher, Salt Lake City, Utah (Lawrence S. Skiffington, Salt Lake City, Utah, with him on the brief) of Pruitt & Gushee, Salt Lake City, Utah, for plaintiffs-appellants.

Martin E. Seneca, Jr., Washington, D. C., for defendant-appellee Ute Indian Tribe.

David C. Shilton, Atty., Dept. of Justice, Washington, D. C. (Carol E. Dinkins, Asst. Atty. Gen., Dept. of Justice, Washington, D. C., Francis M. Wikstrom, U. S. Atty., D. Utah, Barbara W. Johnsen, Asst. U. S. Atty., D. Utah, Salt Lake City, Utah, and Anne S. Almy, Atty., Dept. of Justice, Washington, D. C., with him on the brief), for defendant-appellee Dept. of the Interior.

James C. T. Hardwick, Kent L. Jones and Mark K. Blongewicz of Hall, Estill, Hardwick, Gable, Collingsworth & Nelson, P. C., Tulsa, Okl., for Reading & Bates Petroleum Co. as amicus curiae.

Before BARRETT, McKAY and LOGAN, Circuit Judges.

McKAY, Circuit Judge.

Appellants are lessees of several oil and gas leases from Ute Indians ¹ on lands within the Uintah and Ouray Indian Reservation. The leases were approved by the Bureau of Indian Affairs (BIA) on various dates beginning March 23, 1971. By their terms, the leases would expire ten years from the date of BIA approval unless at that time wells on each lease were producing oil or gas in paying quantities. Prior to the expiration date of the leases, appellants had drilled producing wells on only some of the land leased from the Indians. They had also completed at least one well in March, 1981, on non-tribal land that was within the boundaries of a "communitized area" proposed by lessees. Under a communitization agreement, 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 deemed to be produced from each tract within the unit. Appellants proposed communitization plans in an effort to keep their nonproductive leases on Indian land in effect beyond the primary ten-year lease term by including these nonproductive leases in a communitized area containing at least one producing well.

All communitization agreements on restricted Indian land must be approved by

Page 385

the Secretary of the Interior, or his designate, in this case, the Superintendent of the BIA. Appellants' proposed communitization plan was presented to the Superintendent's office shortly before the leases were to expire. The Superintendent refused to approve the proposed communitization agreements because he determined they did not serve the best interests of the Indians. The Superintendent's refusal to approve the proposed agreements would result in immediate expiration of all nonproductive leases at the end of ten years.

On March 23, 1981, the date the first nonproductive leases were to expire, lessees filed a complaint in federal district court seeking a declaration that the Superintendent's action was invalid and an injunction ordering the Superintendent to approve the agreements. The district court entered a temporary restraining order suspending the terms of the leases to prevent their immediate expiration pending a decision on the motion for preliminary injunction. After a hearing, the district court denied plaintiffs' motion for preliminary injunction. Thereafter, the district court also denied plaintiffs' motion for an injunction pending appeal, but continued the interim relief for two weeks, to keep the leases in effect while plaintiffs appealed. This court further extended the suspension of the lease terms pending an expedited review of the district court's denial of injunctive relief.

It is well settled that the grant or denial of a preliminary injunction is within the sound discretion of the trial court, and may be set aside only if it is based on an error of law or constitutes an abuse of discretion. Lundgrin v. Claytor, 619 F.2d 61, 63 (10th Cir. 1980). In deciding the motion for preliminary injunction, the district court properly placed the burden on the lessees to establish:

(1) (a) substantial likelihood that the movant will eventually prevail on the merits; (2) a showing that the movant will suffer irreparable injury unless the injunction issues; (3) proof that the threatened injury to the movant outweighs whatever damage the proposed injunction may cause the opposing party; and (4) a showing that the injunction, if issued, would not be adverse to the public interest.

619 F.2d at 63. The district court determined that the lessees had carried their burden of proof with respect to the last three points, but denied injunctive relief because the lessees had not demonstrated a substantial likelihood that they would eventually prevail on the merits. We agree with the district court's determination that the lessees would be harmed by losing the 1971 leases, that this harm outweighed any potential injury to the defendants, and that an injunction would not be adverse to the public interest. The sole issue on appeal, therefore, is whether the court properly denied injunctive relief based on its determination that lessees had failed to show that they were likely to prevail on the merits.

When all other prerequisites to injunctive relief have been established, plaintiff need only raise "questions going to the merits so serious, substantial, difficult and doubtful as to make them a fair ground for litigation and thus for more deliberate investigation" to satisfy the requirement of showing a likelihood of succeeding on the merits. Lundgrin v. Claytor, 619 F.2d 61, 63 (10th Cir. 1980) (quoting Continental Oil Co. v. Frontier Refining Co., 338 F.2d 780, 781-82 (10th Cir. 1964). Clearly, the issues presented in this case are serious and substantial. However, in our opinion, there is little doubt as to the proper resolution of the legal issues involved, and the district court correctly determined that lessees had little, if any, chance of succeeding on the merits of their claim.

Approval of communitization agreements is within the discretion of the Secretary of the Interior or his delegate. Section 396d of Title 25 of the United States Code states:

All operations under any oil, gas, or other mineral lease issued pursuant to the terms of any act affecting restricted Indian lands shall be subject to the rules and regulations promulgated by the Secretary of the Interior. In the discretion of the

Page 386

said Secretary, any lease for oil or gas issued under the provisions of sections 396a-396g of this title shall be made subject to the terms of any reasonable cooperative unit or other plan approved or prescribed by said Secretary prior or subsequent to the issuance of any such lease which involves the...