Ormsbee Development Co. v. Grace

• Decision Date: 23 February 1982
• Docket Number: 80-1803 and 81-1161,Nos. 80-1750,s. 80-1750
• Citation: 668 F.2d 1140
• Parties: ORMSBEE DEVELOPMENT COMPANY, a Wyoming corporation, Plaintiff, v. Corrine GRACE and Michael P. Grace, Defendants-Cross Defendants-Appellants, v. SANTA FE PACIFIC RAILROAD, Defendant-Cross Claimant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1140

668 F.2d 1140

ORMSBEE DEVELOPMENT COMPANY, a Wyoming corporation, Plaintiff, v. Corrine GRACE and Michael P. Grace, Defendants-Cross Defendants-Appellants, v. SANTA FE PACIFIC RAILROAD, Defendant-Cross Claimant-Appellee.

Nos. 80-1750, 80-1803 and 81-1161.

United States Court of Appeals, Tenth Circuit.

Argued and Submitted Sept. 29, 1981.

Decided Jan. 4, 1982.

Rehearing Denied Feb. 23, 1982.

Gary W. Davis, Wichita, Kan. (William E. Dakan, Wichita, Kan., with him on the brief) of Martin, Pringle, Fair, Davis & Oliver, Wichita, Kan. (William E. Snead of Ortega & Snead, Albuquerque, N. M., with him on the brief), for Corrine Grace.

Martha Mansell Eskin, Culver City, Cal., and F. Kimball Joyner, Jr. of Jones, Meiklejohn, Kehl & Lyons, Denver, Colo. (Walter L. Reardon, Jr., Albuquerque, N. M., with them on the brief), for Michael P. Grace.

John R. Cooney and Ruth M. Schifani, Albuquerque, N. M. (Peter J. Adang, Albuquerque, N. M., with them on the brief) of Modrall, Sperling, Roehl, Harris & Sisk, Albuquerque, N. M., for Santa Fe Pac. Railroad.

Before BARRETT, DOYLE and SEYMOUR, Circuit Judges.

BARRETT, Circuit Judge.

These consolidated appeals challenge a final judgment of the District Court confirming an arbitration award and an order prohibiting proceeding on an arbitration demand.

In June 1968, Michael P. Grace (Michael) purchased six options from Santa Fe Pacific Railroad (Santa Fe) on property owned by Santa Fe believed to contain uranium-bearing ores in the Grants, New Mexico, area. Each option afforded Michael a three year period within which exploration work could be conducted, after which Michael had the option to enter into a uranium mining lease with Santa Fe.

In 1971 Michael exercised his options and entered into several uranium leases with Santa Fe. Each lease provided in part:

Lessor agrees that if during the term of this lease and agreement Lessee has found and at the expiration of the term of this lease is producing uranium-bearing ore in commercial quantities from the leased premises, Lessor will, upon written request ... renew this lease and agreement ... upon the same terms and conditions...

(App. at p. 131).

Each lease also provided:

Lessee shall not subject Lessor or the leased premises to any liability or lien for or on account of any work done ... upon said premises, and if by reason of the failure of Lessee to pay bills or expenses incurred by Lessee, any lien or liens shall be filed against the leased premises ... Lessor may also at its election declare a forfeiture of this Lease and Agreement.

(App. at pp. 127-128).

Each lease further provided that:

Any dispute between the parties under this agreement shall be referred to arbitration, each party selecting one arbitrator and the American Arbitration Association designating the third arbitrator. The award of the arbitrator shall be final and binding on the parties hereto.

(App. at p. 132).

Michael thereafter embarked on an exploration and mining program in accordance with his leases. In conjunction with his activities, substantial uranium reserves were discovered, albeit of a relatively low grade, located 3,000 to 5,000 feet underground. Subsequently, as the expiration date of the leases approached, Michael, in an effort to achieve production and retain the leases, turned to "solution mining". Solution mining is a process by which chemicals are injected into the ground, allowed to remain in uranium-bearing rock formations a short time, and then pumped to the surface with the hope of recovering U 3O 8 from the processing uranium suspended in the solution. By proceeding in such a manner, Michael was, allegedly, "successful in producing significant quantities of uranium-bearing solution from his operations." (Appellants' Brief at p. 6).

On November 26, 1975, twelve days prior to the expiration date of the principal term of the leases, Michael's operations were shut down when the Environmental Improvement Agency of the State of New Mexico obtained an injunction against him for failure to obtain a permit. Michael subsequently became involved in the renewal of his leases and his solution mining operations were not resumed.

On June 2, 1976, Ormsbee Development Company, a drilling subcontractor, filed suit against Michael and his wife, Corrine, as lessees, and Santa Fe, as owner of the properties, seeking to foreclose on mechanics' liens which it had filed after Michael had failed to pay it for drilling and exploration work. Other subcontractors intervened or filed companion cases, all of which were consolidated with the Ormsbee claims. These disputes were ultimately settled and the complaint dismissed.

Santa Fe, however, filed an original, and, on February 10, 1977, an amended cross claim against Michael seeking a determination that all his rights and interests "and all rights and interests of anyone holding or claiming to hold any interest in the leasehold estates at one time existing in Michael P. Grace" had terminated by reason of his failure to achieve production of uranium-bearing ore in commercial quantities as required by the leases. Santa Fe also alleged a breach of the leases amounting to a forfeiture by allowing the filing of the lien claims.

Prior to Santa Fe filing its amended cross claim, Michael, on July 19, 1976, filed a demand for arbitration with the Phoenix Regional Office of the American Arbitration Association seeking to declare his leases valid and in full effect. In March of 1977, the law firm of Kantor and Carmody entered its appearance for Michael and Corrine in federal district court, and thereafter, on April 11, 1977, filed a motion on behalf of Michael and Corrine for stay of proceedings on Santa Fe's cross claim pending arbitration.

On July 5, 1977, the District Court herein entered an order directing that Michael and Corrine would not be required to file an answer to Santa Fe's cross claim pending arbitration. On the same day, the Court also entered an order, dismissing with prejudice, Santa Fe's motion requesting an injunction enjoining Michael from proceeding with arbitration "for the reason that that question is now moot as a result of the Court's ruling, filed herein, granting Defendants', Michael P. Grace II and Corrine Grace's motion to stay proceeding pending arbitration." (App. at p. 377). This order bore the caption "Approved and Stipulated To Prior To Submission To The Court" and was executed by "Kantor and Carmody P.A." as "Attorneys for Michael P. Grace II and Corrine Grace."

The arbitration process thus commenced with Michael and Santa Fe each selecting an arbitrator and the American Association of Arbitrators (Association) selecting a third neutral arbitrator, one Dr. Jack T. Mommsen (Mommsen). An arbitration evidentiary hearing conducted under the auspices of the Association began on April 17, 1979, and ended some two and one-half weeks later on May 1, 1979.

On June 27, 1979, the arbitrators, with one member dissenting, entered their award, holding that the leases had "expired under the terms and on the termination dates defined in the leases", that "the leases are not valid", and that "all rights and interests of Grace in the leases are terminated."

On July 3, 1979, Santa Fe filed a motion to confirm the award of the arbitrators. On September 25 and 26, 1979, Michael and Corrine, respectively, filed separate motions to vacate or set aside or modify the arbitration award.

Within her motion, Corrine alleged, inter alia, that: the leases were community property, that she had a one-half interest in them and that she therefore should have been a named party to the arbitration; there was evident partiality on the part of the neutral arbitrator; and that William Condren, her husband's attorney, had a conflict of interest which should have prohibited his firm acting as counsel in the arbitration proceeding. Within his motion, Michael alleged, as had Corrine, the issue of the community property nature of the leasehold interests and the evident partiality of the neutral arbitrator. Michael also alleged that a substantial amount of relevant evidence was improperly excluded by the arbitrators, that the decision making process of the arbitrators was not proper, and that a continuance on the hearing should have been granted due to his health.

On April 1, 1980, the District Court entered its opinion confirming the arbitration award in favor of Santa Fe. In so doing the Court found/concluded, inter alia : for purposes of resolving the motions, the leases are assumed to be community property; Corrine's attorney objected to Santa Fe's request that Corrine be made a formal party to the arbitration proceeding because Corrine had not signed an arbitration agreement; at issue is whether a single spouse can participate in a proceeding affecting community real property, employ counsel and direct the litigation without the joinder of the other spouse-that the question is a management question; under the law of New Mexico, Corrine is bound by the management actions of Michael; the claim of evident partiality arose from the alleged connections between Mommsen and the Modrall law firm which represented Santa Fe; the alleged connections included the fact that Mommsen's active clients included General Atomic Company, which is a partnership between Gulf Oil and Scallop Nuclear, and that the Modrall firm which represents Santa Fe also represents Gulf Oil; the alleged connections giving rise to evident partiality also included Mommsen's work for Texas Eastern Nuclear, a subsidiary of Texas Eastern Company and that the Modrall firm represents Transwestern Pipeline Company, another subsidiary of Texas Eastern Company; Mommsen was being considered as an arbitrator in a case with Homestake Mining Company, which was also represented by the Modrall firm; Mommsen sent Grace's attorney, Dinsmore Adams a copy of his resume wherein he (Mommsen) related his connections with General Atomic, Texas Eastern...