Valley Camp of Utah, Inc. v. Babbitt

Decision Date20 May 1994
Docket NumberNo. 93-4067,93-4067
Citation24 F.3d 1263
PartiesVALLEY CAMP OF UTAH, INC., a Utah corporation, Plaintiff-Appellant, v. Bruce BABBITT, Secretary of the Interior, Cy Jamison, Director, Bureau of Land Management, United States Department of the Interior; James Parker, Director, Utah State Office, Bureau of Land Management, United States Department of the Interior; Robert Lopez, Chief, Minerals Adjudication Section, Utah State Office, Bureau of Land Management, United States Department of the Interior; United States Department of the Interior, Defendants-Appellees.
CourtU.S. Court of Appeals — Tenth Circuit

John A. Snow, Van Cott, Bagley, Cornwall & McCarthy, (John S. Kirkham, Stoel Rives Boley Jones & Grey with him on the brief), Salt Lake City, UT, for plaintiff-appellant.

Jacques B. Gelin, Atty., Dept. of Justice (Myles E. Flint, Acting Asst. Atty. Gen., Dept. of Justice, Washington, DC, David J. Jordan, U.S. Atty., Carlie Christensen, Asst. U.S. Atty., Salt Lake City, UT, Robert L. Klarquist, Atty., Dept. of Justice, and Karen Hawbecker, Office of Sol., Dept. of Interior, Washington, DC, of counsel, with him on the brief), for defendants-appellees.

Before KELLY and SETH, Circuit Judges, and OWEN, District Judge. d

PAUL KELLY, Jr., Circuit Judge.

Plaintiff-appellant Valley Camp, Inc. (Valley Camp) appeals from the district court's grant of summary judgment affirming an Interior Board of Land Appeals (IBLA) decision in favor of defendants-appellees. We have jurisdiction pursuant to 28 U.S.C. Sec. 1291 and we reverse and remand.


This appeal arises from the Bureau of Land Management's (BLM) attempt in 1982 to readjust the royalty rate on a federal coal lease which covered two separate mines owned and operated by two separate entities. Pursuant to 43 C.F.R. Sec. 3451.1(c)(1) (1981), the BLM notified the lessee of record in 1981 of its intention to readjust the lease. In 1986, after various administrative proceedings, the BLM implemented a readjusted royalty rate retroactive to 1982. The lessee of record then appealed to the IBLA. When a sublessee of the affected lands, Valley Camp, received notice of deficient royalty payments covering its separate operations for the period 1982 through 1986, it sought to intervene in the district court appeal but was denied. Pursuant to a Memorandum of Understanding (MOU) between the IBLA and Coastal States, the operator of one of the mining operations and the lessee of record, the appeal was abandoned and a decision issued stating that the lease, as amended, was effective from May 1, 1982. A copy of this decision was sent to Valley Camp which again protested to the BLM, arguing that the BLM had not made necessary predicate determinations regarding its output to readjust the royalty rate. The BLM rejected this argument, reasoning that Valley Camp had no right to participate in readjustment negotiations, given its lack of privity with the BLM as a result of its status as sublessee. The IBLA affirmed the BLM's action. The district court granted summary judgment in favor of the BLM, and Valley Camp appealed.

A. Interests in the Lease

On March 1, 1962, the United States leased coal lands located in Carbon and Emery Counties, Utah, lease number 020305 (hereinafter "the lease"), to Emmett K. Olson. The lease reserved to the government the right to receive royalty payments on the coal recovered from the leased lands, as well as the right reasonably to readjust any term of the lease after twenty years and every twenty years thereafter. The lease also provided that the "lessee hereby agrees: ... [t]o file for approval [with the BLM], within 90 days from the date of execution, any assignment or transfer made of this lease, whether by direct assignment, operating agreement, working or royalty interest, or otherwise." Aplt.App. at 67.

Mr. Olson, on April 24, 1962, assigned the lease to Malcolm N. McKinnon. This assignment was approved by the BLM on July 20 1962. On May 10, 1974, Mr. McKinnon entered into an option agreement with Oak Creek Development (Oak Creek) whereby Oak Creek was given the right to prospect for coal on the subject lease for a period of one year, with an option to acquire a sublease of the lands at the conclusion of the prospecting period. Additionally, if certain payments under the sublease were made, Mr. McKinnon also agreed to execute an assignment of the record title to the lease. The option agreement could not be assigned without the permission of Mr. McKinnon.

On August 1, 1974, Oak Creek, with Mr. McKinnon's approval, assigned all its rights in the option agreement to Routt County Development (Routt County). Routt County, on September 15, 1975, subleased a part of the property, known as the O'Connor block, to Energy Fuels, reserving an overriding royalty interest in the coal production from this portion of the land. On October 29, 1975, Routt County exercised its option with Mr. McKinnon.

Pursuant to a September 15, 1975 exchange agreement concerning various federal coal leases, Energy Fuels, on November 5, 1975, assigned its interest in the O'Connor block to Valley Camp. On August 2, 1978, Routt County, successor to Energy Fuels, assigned the exchange agreement, subject to Valley Camp's interest, to Coastal States. On August 3, 1978, Coastal States also received an assignment from Routt County of all its rights in the September 15, 1975 sublease to Energy Fuels, again subject to the earlier Valley Camp assignment. As a result, Valley Camp and Coastal States became co-operators on the lease, with Valley Camp operating the Belina mine on the O'Connor block and Coastal States operating the Skyline mine on the remainder of the property known as the Connelville block. All of the foregoing instruments were submitted to the BLM in a timely fashion and each was approved.

During late 1982, after all payments contemplated by the Routt County sublease were made, Mr. McKinnon assigned the record title to the lease to Routt County, which immediately assigned record title to Coastal States pursuant to the earlier agreements. These transfers were approved by the BLM in early 1983, and, as a result, Coastal States became lessee of record for Utah-020305.

B. Readjustment of the Royalty Rate for the Lease

By letter dated October 7, 1981, the BLM notified Mr. McKinnon, as lessee of record, of its intention to readjust the terms of the lease, effective March 1, 1982, pursuant to 43 C.F.R. 3451 (1981). The BLM sent copies of this notice to all interested owners, including Valley Camp. On February 22, 1982, the BLM sent notice of the proposed terms of the readjustment to Mr. McKinnon and copies to all interest owners, including Valley Camp. Mr. McKinnon timely filed objections to the proposed readjustment with the BLM. The BLM overruled these objections in part and sustained them in part when it entered its decision implementing the new royalty rate on November 10, 1982. Mr. McKinnon appealed this decision to the IBLA, arguing, among other things, that the BLM had failed to consider a royalty rate of less than 8% for underground production of coal as provided by 30 U.S.C. Sec. 207(a) (1982).

The IBLA affirmed the BLM's decision with regard to the readjusted royalty rate but reversed in part, on other grounds, and remanded. On May 28, 1985, the BLM issued its decision implementing the IBLA's decision. Valley Camp did not receive a copy of the implementation decision. Subsequently, in an unrelated case, the Tenth Circuit held that the BLM could not automatically readjust production royalty rates to 8% without regard to specific production capacities of the leased land, as required by 43 C.F.R. 3473.3-2(a)(3) (1979). Coastal States Energy Co. v. Hodel, 816 F.2d 502, 507 (10th Cir.1987). Coastal States, as substituted party-appellant, appealed from the BLM's 1985 decision, arguing, among other things, that the BLM had erred in automatically readjusting the royalty rate in light of the Tenth Circuit's recent decision.

Upon learning of the implementation decision and Coastal States' appeal therefrom, Valley Camp moved to intervene in the appeal. Valley Camp was again rebuffed. In an October 18, 1988, decision, the IBLA set aside the BLM's decision with regard to the readjusted royalty rate and remanded for a BLM determination of whether a royalty rate less than 8% was warranted. On October 17, 1988, Coastal States and the BLM signed a Memorandum of Understanding that resolved most of the issues then pending before the IBLA. In the MOU, Coastal States specifically agreed to a royalty rate covering Coastal States' production of 8% and also agreed to dismiss and terminate, with prejudice, all pending litigation and dismiss and terminate, without prejudice, all pending administrative actions concerning Coastal States' interests in the lease.

Pursuant to the MOU, the BLM issued a decision on August 27, 1990, which informed Coastal States that all terms of the lease, as readjusted, were considered effective as of May 1, 1982, including the 8% royalty rate. A copy of this decision was also sent to Valley Camp. Valley Camp responded with a letter on March 19, 1990, notifying the BLM that Valley Camp did not consider itself bound by the terms of the MOU because it was not a party to nor was it notified of any negotiations regarding royalty rates. Valley Camp also charged that the BLM had failed to comply with federal regulations in readjusting its production royalty rate. On August 28, 1990, the BLM sent a letter to Valley Camp explaining that the MOU set the royalty rate for all land encompassed by the lease, including the O'Connor block. The letter further stated that the BLM was not required to notify Valley Camp of the readjustment proceedings due to its status as a sublessee when, according to its interpretation of applicable regulations, only lessees of record were required to be notified. Valley Camp appealed this...

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