Southwestern Petroleum Corporation v. Udall, 8250.

• Decision Date: 06 June 1966
• Docket Number: No. 8250.,8250.
• Citation: 361 F.2d 650
• Parties: SOUTHWESTERN PETROLEUM CORPORATION, a New Mexico corporation, Appellant, v. Stewart L. UDALL, Secretary of the Interior, W. J. Anderson, Acting State Director, State of New Mexico, Bureau of Land Management, Santa Fe, New Mexico, Michael T. Solan, Manager, United States Land Office, Bureau of Land Management, Santa Fe, New Mexico, Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

361 F.2d 650 (1966)

SOUTHWESTERN PETROLEUM CORPORATION, a New Mexico corporation, Appellant, v. Stewart L. UDALL, Secretary of the Interior, W. J. Anderson, Acting State Director, State of New Mexico, Bureau of Land Management, Santa Fe, New Mexico, Michael T. Solan, Manager, United States Land Office, Bureau of Land Management, Santa Fe, New Mexico, Appellees.

No. 8250.

United States Court of Appeals Tenth Circuit.

June 6, 1966.

Thomas F. McKenna, Santa Fe, N. M. (McKenna & Sommer, Santa Fe, N. M., with him on the brief), for appellant.

S. Billingsley Hill, Atty., Dept. of Justice, Washington, D. C. (Edwin L. Weisl, Jr., Asst. Atty. Gen., John Quinn, U. S. Atty., John A. Babington, Asst. U. S. Atty., and Roger P. Marquis, Atty., Dept. of Justice, with him on the brief), for appellees.

Before PICKETT, HILL and SETH, Circuit Judges.

SETH, Circuit Judge.

Having exhausted its administrative remedies in its effort to have a federal oil and gas lease issued to it, Southwestern Petroleum Corporation sought relief in the federal court by filing this action against the federal officials concerned. Upon motion by both parties for summary judgment, the District Court for the District of New Mexico granted appellee Udall's motion, finding that Southwestern's right of statutory preference was cut off by the superior right of Ralph Lowe as a bona fide purchaser. The District Court held that Southwestern's right was merely a statutory right of preference, not a vested right against the United States which would be entitled to constitutional protection under the Fifth Amendment. Southwestern then took this appeal.

This case presents a conflict of rights arising under the Mineral Leasing Act of 1920, 30 U.S.C. §§ 181-263. Specifically, the question here is whether an applicant for a federal noncompetitive oil and gas lease who actually was the first qualified applicant under the terms of Section 17 of the Mineral Leasing Act (30 U.S.C. § 226(c)) has a right to a lease superior to that of an assignee of the person to whom a lease was issued contrary to department regulation, where such assignee claims the bona fide purchaser protection added to Section 27 of the Mineral Leasing Act by the Act of September 21, 1959, 30 U.S.C. § 184(h) (2), (i),¹ and the regulations promulgated pursuant to these amendatory acts. 43 C.F.R. § 191.15, now codified as 43 C.F.R. § 3104.2 (1965).

The facts essential to this case are here set out in chronological order:

July 7, 1958, 10:00 a. m., lease offer NM 048273 filed by J. Penrod Toles.

July 7, 1958, 10:16 a. m., lease offer NM 048299 filed by Southwestern Petroleum Corporation.

Both offers included among other acreage applied for the SE¼, Section 17, Township 16 South, Range 27 East, N.M.P.M., which is the tract here in dispute.

January 27, 1959, Bureau of Land Management lease NM 048273 issued to J. Penrod Toles. The lease included the tract in dispute and was issued with the effective date of February 1, 1959.

February 10, 1959, lease NM 048273 assigned from J. Penrod Toles to Ralph Lowe.

March 5, 1959, Toles-Lowe assignment filed with the Bureau of Land Management at Santa Fe with the request that it be approved.

September 2, 1959, Bureau of Land Management lease NM 048299 issued to Southwestern Petroleum Corporation, including the tract in dispute. This lease was issued with the effective date of October 1, 1959.

September 21, 1959, Congress passed the bona fide purchaser amendments to the Mineral Leasing Act of 1920.

October 19, 1959, upon becoming aware that it had issued two leases covering the SE¼, Section 17, Township 16 South, Range 27 East, N.M.P.M., the Land Office at Santa Fe cancelled Southwestern\'s lease NM 048299 in its entirety. Southwestern did not appeal this cancellation through the administrative channels.

October 30, 1959, decision rendered by Land Office at Santa Fe and amended December 7, 1959, cancelling Toles\' lease NM 048273 as to the tract in dispute on the ground that Toles\' offer NM 048273 failed to include adjoining lands that were available for leasing up to the minimum of 640 acres as required by regulation. 43 C.F.R. § 3123.1(d).

November 2, 1959, the decision of the Land Office at Santa Fe of October 19, 1959, cancelling Southwestern\'s lease NM 048299 in its entirety was modified to leave the lease offer in effect.

September 2, 1960, further amendments to the bona fide purchaser protection act were enacted by Congress in the 1960 amendments to the Mineral Leasing Act.

April 18, 1962, the manager of the Land Office at Santa Fe entered his decision, approving the Toles-Lowe assignment of lease NM 048273, effective April 1, 1959, and rejecting Southwestern\'s lease offer NM 048299.

Toles appealed the cancellation of his lease, and the Director of the Bureau of Land Management affirmed the cancellation on May 26, 1960. On appeal to the Secretary of the Interior, it was held that the action was correct, but that cancellation was premature by reason of the assignment to Ralph Lowe. The decision held that if the assignment was proper in all respects, and the assignee Lowe was a bona fide purchaser, he must be allowed to take advantage of the statute and regulation protecting bona fide purchasers. J. Penrod Toles, 68 I.D. 285 (1961).

Upon remand to the Land Office, the Manager, in a decision dated April 18, 1962, held that the Toles-Lowe assignment was valid, that Lowe was a bona fide purchaser, and Southwestern's offer to lease was rejected.

Southwestern then pursued its administrative appeal, but the Secretary affirmed the Bureau's findings that Lowe was a bona fide purchaser and held that the right of an assignee who is a bona fide purchaser is superior to that of one who holds the right as the first qualified applicant. Southwestern Petroleum Corporation, 71 I.D. 206 (1964).

On this appeal Southwestern first contends that its statutory preference right was a vested right in existence on September 21, 1959, when the bona fide purchaser protection was added to the Mineral Leasing Act. Southwestern argues that to retroactively cut off such a right would be a denial of rights protected by the Fifth Amendment to the Constitution of the United States. Secondly, Southwestern contends that Lowe does not qualify for the protection offered under the bona fide purchaser amendment to the Mineral Leasing Act. Third, Southwestern contends that it should have had the opportunity to be present and to present evidence when the bona fides of Lowe were considered by the Manager of the Land Office at Santa Fe.

The first point to be considered is whether the bona fide purchaser amendment was intended to be retroactively applied. The first bona fide purchaser amendment to the Act was effective on September 21, 1959, which was after the date of the lease assignment from Toles to Lowe, and before its approval by the Land Office. As to Southwestern the change in the Act came during the period a lease had also been issued to it for the same tract, but which was later cancelled (October 19, 1959) because the Toles lease was outstanding. Southwestern made no objection to the cancellation, and its offer to lease was later reinstated (November 2, 1959). The amendment was intended by Congress to have retroactive application to the extent that it was possible. This was the only way it could be effective to meet the conditions it was intended to correct. It was imposed upon the great mass of diverse transactions with an infinite variation of facts which had taken place in the issuance and assignment of federal oil and gas leases. The wording demonstrates this retroactive application both as to Southwestern and to protect Lowe to the extent he may be within the terms of the amendment.

Although a retroactive application was intended, was it effective as to the rights Southwestern had acquired? Southwestern says it was not because it held a vested interest protected by the Fifth Amendment. We cannot agree.

The Toles lease had been issued at least contrary to departmental regulations (43 C.F.R. § 3123.1(d)) requiring that certain available adjoining lands be included in such an offer to lease. The administrative vine was climbed by Toles on this point, and ultimately it was decided that his lease should be cancelled except as the interest of an assignee might be protected under the bona fide purchaser amendment. Thus the lease of Toles was subject to cancellation and Southwestern ultimately became the first qualified applicant and entitled to a lease.

The Secretary of the Interior and the courts have interpreted the Mineral Leasing Act as giving the Secretary the discretion to offer lands for lease, but once he has decided to lease it is mandatory that he issue a lease to the first qualified applicant, if he is going to lease at all. Foster v. Udall, 335 F.2d 828 (10th Cir.); Duesing v. Udall, 350 F.2d 748 (D.C.Cir.); McKay v. Wahlenmaier, 96 U.S.App.D.C. 313, 226 F.2d 35 (D.C.Cir. 1955); R. S. Prows, 66 I.D. 19 (1959). Thus Southwestern became entitled by the proceedings to seek administrative cancellation of the lease to Toles and an issuance of a lease to it. Boesche v. Udall, 373 U.S. 472, 83 S.Ct. 1373, 10 L.Ed.2d 491 (1963). Southwestern did not seek this administrative remedy until after the assignment of the Toles lease to Lowe and after April 18, 1962, when the Manager of the Santa Fe Land Office rejected Southwestern's lease offer.

The comprehensive authority of Congress over public lands includes the power to prescribe the times, conditions and mode of transfer thereof, and to designate the persons to whom the transfer shall be made. Gibson v. Chouteau, 80 U.S. (13 Wall.) 92, 20 L.Ed. 534. Except as rights are vested, the benefits of existing legislation may be superseded or be modified by later legislation. For example, oil and gas lease offers which were filed before the 1960 amendments to the Mineral Leasing Act, 74 Stat. 781, and which were still pending on ...