Shell Oil Co. v. Kleppe

• Decision Date: 17 January 1977
• Docket Number: Civ. A. No. 74-F-739.
• Citation: 426 F. Supp. 894
• Parties: SHELL OIL COMPANY and D. A. Shale, Inc., Plaintiffs, v. Thomas S. KLEPPE, Secretary of the Interior, Defendants.
• Court: U.S. District Court — District of Colorado

426 F. Supp. 894

SHELL OIL COMPANY and D. A. Shale, Inc., Plaintiffs, v. Thomas S. KLEPPE, Secretary of the Interior, Defendants.

Civ. A. No. 74-F-739.

United States District Court, D. Colorado.

January 17, 1977.

James B. Dean, Mosley, Wells & Dean, Denver, Colo., Fowler Hamilton, Cleary, Gottlieb, Steen & Hamilton, New York City, Donald L. Morgan, Cleary, Gottlieb, Steen & Hamilton, Washington, D. C., for plaintiff Shell Oil Co.

Norma L. Comstock, John W. Shiremen, Denver, Colo., Claron Spencer, Senior & Senior, Salt Lake City, Utah, for plaintiff D. A. Shale, Inc.

James L. Treece, U. S. Atty., Carolyn McNeill, Asst. U. S. Atty., Denver, Colo., Gerald S. Fish, Dept. of Justice, Washington, D. C., for defendants.

FINESILVER, District Judge.

This matter is before the Court on cross-motions for summary judgment. This case is another installment of the long-enduring and multi-faceted litigation over oil shale, a mineral principally located in the Western states. For the ten year history of oil shale litigation, see The Oil Shale Corp. v. Udall, 261 F.Supp. 954 (D.Colo.1966), aff'd, 406 F.2d 759 (10th Cir. 1969), rev'd sub nom., Hickel v. Oil Shale Corp., 400 U.S. 48, 91 S.Ct. 196, 27 L.Ed.2d 193 (1970), conformed to, The Oil Shale Corp. v. Morton, 370 F.Supp. 108 (D.Colo.1973), remanded Sept. 22, 1975 (10th Cir.), cert. denied, The Oil Shale Corp. v. Kleppe, 426 U.S. 949, 96 S.Ct. 3169, 49 L.Ed.2d 1185 (1976), dec'n pending, No. 8680 (D.Colo.).¹

In the instant litigation, Plaintiffs seek judicial review of a decision of the Board of Land Appeals in the Department of Interior, United States v. Frank W. Winegar, et al., IBLA 70-549, June 28, 1974, reported at 16 IBLA 112, 81 I.D. 370 (hereinafter Winegar), in which plaintiffs' oil shale placer mining claims were held invalid on the ground that these claims did not constitute discoveries of a valuable mineral deposit pursuant to 30 U.S.C. § 22 et seq. We have reviewed the Winegar decision, the voluminous briefs, the extensive administrative record, and have undertaken our own independent research. Plaintiffs' Motion for Summary Judgment is GRANTED.

I

The factual background of this litigation is set out in detail in Winegar. The six oil shale placer mining claims in dispute, Mountain Boy Nos. 6 and 7 and Harold Shoup Nos. 1, 2, 3, and 4, were located in 1917 under the Act of May 10, 1872, 30 U.S.C. § 22 et seq. The Mineral Lands Leasing Act, 30 U.S.C. § 181 et seq., subsequently withdrew oil shale from location but preserved "valid claims existent on February 25, 1920, and thereafter maintained in compliance with the law under which initiated, which claims may be perfected under such laws, including discovery." 30 U.S.C. § 193. By various mesne conveyances, the plaintiffs acquired title to the claims.

The instant controversy began on September 8, 1964, when the Manager, Colorado Land Office, Bureau of Land Management, issued complaints on behalf of the United States alleging the invalidity of the claims due to a failure to discover a valuable mineral deposit. The traditional standard for determining that a valuable mineral deposit had been discovered is whether or not a prudent person would be justified in believing the deposit could be developed, extracted, and marketed at a reasonable profit. Freeman v. Summers, 52 L.D. 201 (1927) (hereinafter Freeman), held that present development and marketability at a reasonable profit is not necessary for deposits of oil shale. Rather, the claimant must only establish that the oil shale deposits constitute a valuable resource for future use and development.

Administrative Law Judge Dent D. Dalby found that the claimants did not meet the standard mining law test for a valuable resource. If he had been ruling as a matter of first impression, he would have determined the claims to be invalid. However, he found that the claimants had established that the oil shale deposits constituted a valuable resource for future use and development. Under the Freeman standard, he held all six claims to be valid, except for 35.4 acres of Harold Shoup No. 3 which were non-mineral in character, and are not before us on appeal.

The United States appealed the ruling to the Interior Board of Land Appeals (hereinafter the Board). The Board reversed the administrative law judge, and held the six claims to be null and void, explicitly overruling Freeman. The Board held that in order to satisfy the requirement of discovery of a valuable mineral deposit, it must be shown that the deposit could have been developed, extracted, and marketed at a reasonable profit on February 25, 1920 (the date of the withdrawal of oil shale lands from location), and at all subsequent times without substantial interruption, up to the time of the contest proceedings. The Board adopted Administrative Law Judge Dalby's factual findings that despite considerable investment over the years in various techniques of extracting oil from oil shale, no prudent person was justified in believing the deposits could be presently developed, extracted and marketed at a reasonable profit.

The Board held that the claims here in issue had been filed not on the basis of their then current value — oil shale could not then be developed — but in anticipation that the oil shale would someday become a valuable mineral. The 1872 Mining Act had opened further land to exploration and purchase of "valuable mineral deposits". The overall effect of the Board's ruling was to invalidate 50,000 old mining claims. The Board's ruling expressly invalidated only six claims filed before 1920, but its precedent endangers all other pre-1920 oil shale claims covering at least 500,000 acres of Federal land in Colorado, Utah and Wyoming. One news article commented on the ruling in these words:

But the board's ruling, unless appealed and reversed in court, would mean that no pre-1920 oil shale claim can be patented and these old claims would be open to department action invalidating them.

"Board Ruling Imperils Oil-Shale Claims," Denver Post (July 2, 1974).

The claimants seek review of the decision of the Department of Interior declaring their oil shale claims invalid. They contend that (1) the rule of discovery set out in Freeman is a proper application of the traditional and long-established requirements of the mining laws; (2) this rule has received Congressional review and approval; (3) the Interior Department is estopped from applying any other rule to the plaintiffs' claims; and (4) the United States Government has recognized oil shale deposits as valuable mineral deposits under the mining laws. These and other contentions are discussed in Parts III and VI below.

II

Final decisions of the Board of Land Appeals within the Department of Interior denying the validity of mining claims are clearly reviewable under the Administrative Procedure Act, 5 U.S.C. § 701 et seq.; Nickol v. United States, 501 F.2d 1389 (10th Cir. 1974). The issues raised by the parties in this case are within the scope of review, namely, whether the agency's ruling is supported by law and by substantial evidence. 5 U.S.C. § 706; Citzens to Preserve Overton Park, Inc., v. Volpe, 401 U.S. 402, 414, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971); Universal Camera Corp. v. National Labor Relations Board, 340 U.S. 474, 71 S.Ct. 456, 95 L.Ed. 456 (1951); Henrikson v. Udall, 350 F.2d 949, 950 (9th Cir. 1965), cert. denied, 384 U.S. 940, 86 S.Ct. 1457, 16 L.Ed.2d 538 (1966).

III

Mining laws require the discovery of a valuable mineral deposit prior to the location of a valid claim. 30 U.S.C. §§ 22, 23, 25 and 29; Best v. Humboldt Placer Mining Co., 371 U.S. 334, 83 S.Ct. 379, 9 L.Ed.2d 350 (1963); Cameron v. United States, 252 U.S. 450, 40 S.Ct. 410, 64 L.Ed. 659 (1920). The traditional definition of discovery is embodied in Castle v. Womble, 19 L.D. 455, 457 (1894);

In this case the presence of mineral is not based upon probabilities, belief and speculation alone, but upon fact, which . . . show that with further work a paying and valuable mine, so far as human foresight can determine, will be developed.

After a careful consideration of the subject, it is my opinion that where minerals have been found and the evidence is of such a character that a person of ordinary prudence would be justified in the further expenditure of his labor and means, with a reasonable prospect of success, in developing a valuable mine, the requirements of the statute have been met.

This definition has been consistently affirmed. United States v. Coleman, 390 U.S. 599, 88 S.Ct. 1327, 20 L.Ed.2d 170 (1968); Best, supra; Cameron, supra; Chrisman v. Miller, 197 U.S. 313, 25 S.Ct. 468, 49 L.Ed. 770 (1905).

The "prudent-person test" in Castle v. Womble has been elaborated upon by the "marketability test," that is, whether the mineral can be removed and extracted at a profit:

Under the mining law Congress has made public lands available to people for the purpose of mining valuable mineral deposits and not for other purposes. The obvious intent was to reward and encourage the discovery of minerals that are valuable in an economic sense. Minerals which no prudent man will extract because there is no demand for them at a price higher than the costs of extraction and transportation are hardly economically valuable. Thus, profitability is an important consideration in applying the prudent-man test, and the marketability test which the Secretary has used here merely recognizes this fact. (Footnotes omitted)

United States v. Coleman, supra, 399 U.S. at 602-603, 88 S.Ct. at 1330. The Coleman opinion points out that the prudent-person test and the marketability test are essentially the same; the latter is simply a logical extension of the former.

The parties agree upon this basic definition. Thus, the pivotal issue of the dispute lies in whether it was correctly applied to oil shale in the Freeman case. Freeman deals with two issues relating to the discovery of oil shale: (...