Petition — Andrus v. Shell Oil Co.

98-1815

In the Supreme Court of the Anited States

OcToBER TERM, 1978

Ceci. D. ANprus, SECRETARY OF THE INTERIOR,

PETITIONER

Vv.

SHELL Om CoMPANY AND D. A. SHALE, INC.

UNITED STATES COURT OF APPEALS

|

PETITION FOR A WRIT OF CERTIORARI TO THE

FOR THE TENTH CIRCUIT

Wave H. McCrer, Jr.

| Solicitor General

JAMES W. MoorMAN

Assistant Attorney General

SarA SuN BEALE

Assistant to the Solicitor General

Dirk D. SNEL

Rosert L. KiLarguisr

Attorneys

Department of Justice

Washington, D.C. 20530

Pages

i tee a eet eh EAs 1

i eA ena oe | 2

a 2

Ee, ee er 2

I EE A 4

Reasons for granting the petition .......... 12

ted Vokes tad ke hAes 0 19

aD Tale a aa as RD la

is ak ak he ass d ancensians 21a

ny fad 7 ue See oes ek es 22a

aa aie oe da db ain wi 5.8 5a aics 57a

et hci Se Re gal ee

er nae is Civ bcc WR bye 6 oa. 122a

CITATIONS

Cases:

Barrows v. Hickel, 447 F.2d 80 ........... 14

Castle v. Womble, 19 L.D. 455............. 10, 14

Chrisman v. Miller, 197 U.S. 313 ......... 5, 14

Cole v. Ralph, 252 U.S. 286 .............. H)

Davis’s Administrator v. W eibbold, 139 U.S.

a ae Wii a lia es wk ph k's | 14

Freeman v. Summers, 52 L.D. 201 ........ 2,6

Tron Silver Mining Co. v. Mike and Starr

Gold and Silver Mining Co., 143 U.S. 394 14

PII D MGEM UR occ wk cc cc eeades 14

Magalia Gold Co. v.Ferguson, 6 L.D. 218 .. 14

Roberts v. Morton, 549 F.2d 158 .......... 14

SEC v. Sloan, 436 U.S. 108 .............. 17

ge i & © gis Sie 17

United States v. Coleman, 390 U.S.599 .... 5,13

United States v. Estate of Alvis F. Denison,

ivcthn sh einen aknceounss 14

United States v. Iron Silver Mining Co., 128

of | PEARS Ee a Pe 14

il

Statutes : Pages

Act of July 9, 1870, ch. 235, 16 Stat. 217, 30

of i Serer rrr Ts tees 3

Act of July 20, 1956, ch. 652, 70 Stat. 592,

amending the Act of July 17, 1914, 30

ey haeng cab eeus bp eee* 4

Act of May 10, 1872, ch. 152, 17 Stat. 91, 30

ip Tg a arr eer 4-5

Section 1, 30 U.S.C. 22 .............. 2,13

Section 4, 30 U.S.C. 35 .............. 3

Section 11, 30 U.S.0. 37 ............- 13

Federal Land Policy and Management Act

of 1976, Pub. L. No. 94-579, Section 314,

90 Stat. 2769, 43 U.S.C. 1744 ........... 13

Mineral Leasing Act of 1920, ch. 85, 41 Stat.

aBy, SO UG: BEE 06-008. «= 056. eee oe: 4)

Section 37, 30 U.S.C. 193 ............ 3,5

Miscellaneous:

H.R. Rep. No. 2537, Tist Cong., 3d Sess.

(1 epee oar ree ter hy Creer ce 16

In the Supreme Court of the Anited States

OctToBER TERM, 1978

No.

Ceci. D. ANprRus, SECRETARY OF THE INTERIOR,

PETITIONER

Vv.

SHELL Om. Company ANp D. A. SHaALg, Inc.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

The Solicitor General, on behalf of the Secretary of

the Interior, petitions for a writ of certiorari to review

the judgment of the United States Court of Appeals for

the Tenth Circuit.

OPINIONS BELOW

The opinion of the court of appeals (App. A, infra,

la-20a) is reported at 591 F.2d 597. The opinion of the

district court (App. C, infra, 22a-56a) is reported at

426 F. Supp. 894. The opinion of the Interior Board

of Land Appeals (App. E, infra, 60a-121a) is reported

1

2

at 16 I.B.L.A. 112. The opinion of the administrative

law judge (App. F, infra, 122-204a) is not reported.

JURISDICTION

The judgment of the court of appeals (App. B, infra,

21a) was entered on January 25, 1979. On April 16,

1979, Mr. Justice White extended the time for filing a

writ of certiorari to May 25, 1979, and on May 16, 1979,

he further extended the time for filing to June 4, 1979.

The jurisdiction of this Court is invoked under 28

U.S.C. 1254(1).

QUESTION PRESENTED

Whether Congress ratified the administrative deci-

sion in Freeman v. Summers, 52 L.D. 201 (1927), and

the subsequent grant of numerous oil shale patents,

thereby excepting oil shale claims from the discovery

requirement of the general mining laws.

STATUTES INVOLVED

Section 1 of the Act of May 10, 1872, ch. 152, 17 Stat.

91, 30 U.S.C. 22, provides:

Except as otherwise provided, all valuable

mineral deposits in lands belonging to the United

States, both surveyed and unsurveyed, shall be free

and open to exploration and purchase, and the

lands in which they are found to occupation and

purchase, by citizens of the United States and

those who have declared their intention to become

such, under regulations prescribed by law, and

according to the local customs or rules of miners in

Mg

the several mining districts, so far as the same are

applicable and not inconsistent with the laws of the

United States.

The Act of July 9, 1870, ch. 235, 16 Stat. 217, 30

U.S.C. 35, provides in pertinent part:

Claims, usually called ‘‘placers,’’ including all

forms of deposit, excepting veins of quartz, or other

rock in place, shall be subject to entry and patent,

under like circumstances and conditions, and upon

similar. proceedings, as are provided for vein or

lode claims * * *.

Section 37 of the Mineral Leasing Act of 1920, ch. 85,

41 Stat. 451, 30 U.S.C. 193, provides:

That the deposits of coal, phosphate, sodium, oil,

oil shale, and gas, herein referred to, in lands valu-

able for such minerals, including lands and de-

posits described in the joint resolution entitled

‘‘ Joint resolution authorizing the Secretary of the

Interior to permit the continuation of coal mining

operations on certain lands in Wyoming,’’ ap-

proved August 1, 1912 (Thirty-seventh Statutes at

Large, page 1346), shall be subject to disposition

only in the form and manner provided in this Act,

except as to valid claims existent at date of the

passage of this Act and thereafter maintained in

compliance with the laws under which initiated,

which claims may be perfected under such laws,

including discovery.

4

The Act of July 20, 1956, ch. 652, 70 Stat. 592, amend-

ing the Act of July 17, 1914, 30 U.S.C. 122, provides:

Be it enacted by the Senate and House of Repre-

sentatives of the United States of America in Con-

gress assembled, That the first sentence of section

2 of the Act entitled ‘‘An Act to provide for agri-

cultural entry of lands withdrawn, classified, or

reported as containing phosphate, nitrate, potash,

oil, gas, or asphaltic minerals’’, approved J uly 17,

1914 (38 Stat. 509; 30 U.S.C. 122), is hereby

amended by striking out ‘‘such deposits to be sub-

ject to disposal by the United States only as shall

be hereafter expressly directed by law’’ and insert-

ing in lieu thereof, ‘“‘such deposits to be subject

to disposal by the United States only as shall be

hereafter expressly directed by law: Provided,

however, That all mineral deposits heretofore or

hereafter reserved to the United States under this

Act which are subject, at the time of application

for patent, to valid and subsisting rights acquired

by discovery and location under the mining laws

of the United States made prior to the date of the

Mineral Leasing Act of February 25, 1920 (41 Stat.

437), shall hereafter be subject to disposal to the

holders of those valid and subsisting rights by

patent under the mining laws of the United States

in force at the time of such disposal.

STATEMENT

1. To perfect a claim under the general mining law

(the Act of May 10, 1872, 17 Stat. 91, 30 U.S.C. 22

4)

et seq.), a claimant must establish that he has dis-

covered a valuable mineral deposit within the limits

of each claim. Cole v. Ralph, 252 U.S. 286, 295 (1920).

The test for value is the ‘‘prudent man test,’’ Chrisman

v. Miller, 197 U.S. 313, 322 (1905), augmented by the

marketability test, United States v. Coleman, 390 U.S.

599, 602-603 (1968). The combined tests require evi-

dence of a mineral deposit of such character that a

person of ordinary prudence would be justified in the

further expenditure of time and money with a reason-

able expectation that the minerals from the claims

could be marketed at a profit. The question here is

whether these criteria apply to claims in respect of oil

shale, a fine grained laminated sedimentary rock con-

taining kerogen, organic matter that will produce oil

upon destructive distillation (App. F, infra, 127a).

The issue remains important despite the enactment

of the Mineral Leasing Act of 1920, ch. 85, 41 Stat.

437, 30 U.S.C. 181 et seq., which withdrew oil shale and

certain other minerals (including coal, oil and gas)

from location under the general mining laws and estab-

lished a new system of development by leasing rather

than by the location of placer claims. Section 37 of the

1920 Act provided that ‘‘valid claims existent at

date of the passage of this Act and thereafter main-

tained in compliance with the laws under which initi-

ated’’ could be ‘‘perfected under such laws, including

discovery.’’ 30 U.S.C. 193. And a large number of oil

shale claims remain outstanding.

6

2. In 1927 the Secretary issued a decision in F'ree-

man v. Summers, 52 L.D. 201, upholding a placer claim

for oil shale in a contest proceeding involving a home-

stead claim to the same land. The Secretary observed

that there had been as yet ‘‘no considerable production

of oil from shales, due to the fact that abundant quan-

tities of oil have been produced more cheaply from

wells * * *.’’ 52 L.D. at 206. But he nevertheless held

that oil shale could be located as a valuable mineral,

reasoning (ibid.) :

[T]here is no possible doubt of its value and of the

fact that it constitutes an enormously valuable re-

source for future use by the American people.

It is not necessary, in order to constitute a valid

discovery under the general mining laws sufficient

to support an application for patent, that the min-

eral in its present situation can be immediately

disposed of at a profit.

Following this rationale, between 1920 and 1960 the

Department of the Interior issued 523 patents for 2,326

oil shale claims (App. E, infra, 108a).

3. In 1964 the Secretary initiated two complaints

contesting the validity of nine placer oil shale claims

in Colorado (App. F, infra, 123a).* Both complaints

alleged first, there had been no discovery of a valuable

mineral deposit on the claims prior to February 25,

1920 (the date shale oil was withdrawn from location

under the general mining laws) ; second, if there had

1 The claims were the Mountain Boys Nos. 1, 6, and 7, Harold

Shoup Nos. 1, 2, 3, and 4, and K. C. Schuyler Nos. 2 and 3 (App. F,

infra, 122a-123a).

7

been a valid discovery, the discovery was subsequently

lost; and third, there was no valuable mineral deposit

within the limit of the claims at the time of the contest

proceedings (App. F, infra, 124a). The complaints re-

quested that the claims be declared null and void (App.

F, infra, 125a). Because of the identity of the issues

and the proximity of the claims, the cases were con-

solidated (App. F, infra, 125a).

The administrative law judge found (App. F, infra,

176a, 179a, 184a) that the locators had made a ‘‘physi-

cal finding’’ of oil shale within the limits of only six

of the nine claims by February 25, 1920. As to the six

claims where oil shale had been physically located, the

ALJ considered whether they met the traditional dis-

covery test, 1.e., whether ‘‘ ‘a person of ordinary prud-

ence would be justified in the further expenditure of

his labor and means,’ on the contested claims, ‘with a

reasonable prospect of success, in developing a valuable

mine,’ and whether the product of the mines could be

marketed at a profit’? (App. F, infra, 138a-139a; cita-

tions omitted). After reviewing the uniformly unsuc-

cessful efforts to mine oil shale profitably anywhere in

the United States during the half-century since the

location of the six claims (App. F, infra, 145a-165a),

the ALJ observed (App. F, infra, 165a) that ‘‘[t]he

very fact that, in the more than half a century of in-

terest in oil shale claims of the Green River Forma-

tion, not one profitable mine has been developed is a

compelling reason for concluding that expenditure of

money to that end would be imprudent.’’ The ALJ

rejected respondents’ contention that ‘‘money spent or

8

obligated in the acquisition of oil shale claims’’ proved

that the claims included valuable mineral deposits,

reasoning that in order to establish a valuable discov-

ery for purposes of the general mining laws, ‘‘[t]he

mineralization must be such, not to justify the purchase

of the mining claim, for possible future development,

but to justify present expenditures with a reasonable

prospect of developing a profitable mine’’ (App. F,

infra, 166a).

The ALJ nevertheless upheld the claims. He ex-

plained (App. F, infra, 166a-167a) that ‘‘[i]f this were

a case of first impression [he] would, for the foregoing

reasons, find that both before and after February 25,

1920 oil shale was not a valuable mineral.’’ But he

concluded (App. F, infra, 167a-170a) that he was bound

by Freeman v. Summers, and the decisions following it,

which held ‘‘that oi] shale is a valuable mineral subject

to appropriation under the mining laws.’’ The ALJ

acknowledged that the decision in Freeman v. Summers

‘twas poorly conceived,’’ but he stated he was never-

theless bound by it (App. F, infra, 170a).

3. The Interior Board of Land Appeals (IBLA) re-

versed, overruling Freeman v. Summers (App. E, infra,

60a-121a). The Board adopted the portion of the

ALJ’s opinion reviewing the history of the unsuccess-

ful attempts to develop foreign and domestic oil shale

(App. E, infra, 75a), adding the following comments

(App. E, infra, 105a) :

First, as a historical fact, the commercial produc-

tion of oil from oil shale has never been competitive

with the liquid petroleum industry. Second, the

9

hypothetical studies at best confirm that the com-

mercial exploitation of oil shale would not be com-

petitive with the liquid petroleum industry. Third,

without exception, every oil shale operation that

has been attempted in this country has failed to

show profitable production. Fourth, [respondents ]

have held these claims for half a century without

attempting to exploit them.

In sum, the Board found it ‘‘unlikely that any oil shale

operation could have operated at a profit at the time

these claims were located or at any time up to and in-

cluding the time of these contest proceedings’’ (ibid.).

The Board recognized that with a breakthrough in tech-

nology or a change in the economic situation the pro-

duction of oil from shale might in the future become

profitable, but it held that ‘‘speculation that oil shale

m. y someday be valuable in an economic sense is not

evidence of its present value as of 1920 or 1966’’ (App.

K, infra, 107a). Accordingly, since the oil shale deposits

on these claims could not have been mined and marketed

at a profit at the time of location or the date of contest,

the Board held those deposits ‘‘never have been a valu-

able mineral deposit within the meaning of the general

mining law”’ (ibid.).

The Board acknowledged (App. E, infra, 108a) that

‘‘Tb]etween 1920 and 1960 the Department consistently

recognized oil shale as a valuable mineral deposit’’ on

the basis of the analysis of the Freeman v. Summers

decision. In the Board’s view (App. E, infra, 109a),

‘*T t]he basic substantive error in Freeman is its under-

lying assumption that possible future value for mining

10

meets the requirement of present value.’’ Though the

Freeman decision relied upon Castle v. Womble, 19

L.D. 455, 457 (1894), that case held that ‘‘the require-

ment relating to discovery refers to present facts, and

not to the probabilities of the future.’’ The Board found

that the Freeman decision was ‘‘clearly contrary to the

mining law,’’ and accordingly that it must be overruled

(App. E, infra, 112a).

The Board rejected respondents’ contention that if

Freeman v. Summers were overruled, the decision must

be given only prospective effect (App. E, infra, 112a-

121a). The Board pointed out (App. E, infra, 114a)

that ‘‘the only rule in effect at the time these claims

were located and on February 25, 1920, was the prudent

man test of Castle v. Womble, supra, requiring present

marketability,’’ and it concluded (App. E, infra, 115a)

that ‘‘[n]Jeither [respondents] nor their predecessors

in interest could have relied on the Department’s policy

in 1920-1960 in locating the claims herein.’’ It found

(App. E, infra, 117a) no evidence that respondent D. A.

Shale had ‘‘invested more than a minimal amount’’ in

its claims, and that respondent Shell Oil Company had

purchased its claims after the Secretary initiated the

contest proceedings. The Board concluded (App. E,

infra, 121a) that the continued application of the Free-

man v. Summers decision, which excepted oil shale

claims from the requirement of present discovery,

would be ‘‘contrary to law and in derogation of the

Secretary’s responsibility as trustee of the public lands

for the people of the United States.’’

11

4. Respondents sought judicial review of the IBLA’s

decision in the United States District Court for the

District of Colorado (App. C, infra, 23a, 26a). The dis-

trict court granted summary judgment for respondents,

holding that the ‘‘pre-1920 oil shale claims were dis-

coveries of valuable mineral deposits and are valid

claims’? (App. ©, infra, 55a). The court concluded

(App. C, infra, 38a) that the ‘‘Congressional and ad-

ministrative involvement in the disposal of oil shale

lands demonstrates Congressional approval of the F'ree-

man rule of discovery,’’ which the courts ‘‘should re-

spect and apply * * * in the absence of Congressional

action to the contrary.’’ Alternatively, the court held

that ‘‘[e]ven if the Congressional treatment of the

Freeman rule is considered merely as an interpretative

aid, and not as hardening the Freeman rule into an act

of law, * * * the Interior Department is estopped

from challenging the validity of the pre-1920 oil shale

claims involved in this case,’’ since ‘‘[p]rudent in-

vestors detrimentally relied upon the deliberate actions

and statements of high government authorities’’ (App.

CO, infra, 40a ; footnote omitted ).

5. The court of appeals affirmed (App. A, infra, 1la-

20a). The court acknowledged (App. A, infra, 3a)

that the ‘‘ ‘valuable mineral deposit’ standard or re-

quirement was not met as to oil shale claims of the type

here considered before 1920 as the standards were

applied to the metallic minerals,’’ but it held (App. A,

infra, 20a) that the Freeman v. Summers standard had

become ‘‘an addendum to the mining law whi: : cannot

be removed short of Congressional action.”’

12

The court noted that in 1930 Congress conducted an

investigation of charges of impropriety in connection

with the Department of the Interior’s policies of issu-

ing patents for oil shale claims and more particularly

the decision in Freeman v. Summers (App. A, infra,

9a). The court concluded (App. A, infra, 12a) ‘*Con-

gress made an intense investigation into Interior’s in-

terpretation of the mining laws as to a very specific

and narrow circumstance, and approved it.’”” The

court also noted (App. A, infra, 13a-14a) that in

1956 Congress had acted on the assumption that oil

shale located prior to 1920 were valid claims when it

eased one of the restrictions for taking oil shale claims

to patent. In sum, the court held (App. A, infra, 17a)

‘“Tt}he different treatment afforded all oil shale claims

as to the valuable mineral deposit element of a location

became a part of the general mining laws by reason of

its adoption and approval by both Houses of Congress

during the intensive investigations of this very ques-

tion and their affirmative resolution of the issue.”’

Accordingly, the court held that the Department of the

Interior has no authority to ‘“‘change the application

of the general mining laws”’ to these oil shale locations

(ibid.).

REASONS FOR GRANTING THE PETITION

This decision, if permitted to stand, may require the

United States to patent more than 5 million acres of

federal land within the Tenth Circuit’ for $2.50 per

2 The number of oil shale claims cannot be precisely determined

at the present time because claims located prior to February 25,

1920 were filed locally, with no requirement that the federal govern-

13

acre under the general mining laws,’ despite the fact

that none of the claimants has established the discovery

of a valuable mineral deposit. The principal basis for

this unprecedented decision is the court’s conclusion

(App. A, infra, 20a) that the investigation of two con-

gressional committees—which resulted in no legisla-

tion, nor, indeed, even a committee report—constituted

the enactment of a relaxed discovery standard for oil

shale as ‘‘an addendum to the mining law.’’ The issue

presented here is important to the administration of

the public lands, and it warrants review by this Court.

1. The general mining laws permit the location and

extraction of ‘‘valuable mineral deposits in lands be-

longing to the United States.”’ 30 U.S.C. 22. As this

Court explained in United States v. Coleman, 390 U.S.

599, 602 (1968) (footnote omitted ) :

Under the mining laws Congress has made public

lands available to people for the purpose of min-

ing valuable mineral deposits and not for other

purposes. The obvious intent was to reward and

encourage the discovery of minerals that are valu-

able in an economic sense. Minerals which no pru-

ment be notified. However, Section 314 of the Federal Land Policy

and Management Act of 1976, Pub. L. No. 94-579, 90 Stat. 2769,

43 U.S.C. 1744, now requires that all unpatented claims existing as

of October 31, 1976, be recorded with the Department of the Interior

by October 31, 1979.

Even assuming that oil shale met the discovery test, some of the

claims would be subject to challenge on the ground that the claimant

had not substantially satisfied the assessment requirement. See

Hickel v. Oil Shale Corp., 400 U.S. 48, 57 (1970).

’'The land on which a valid placer claim is located may be pat-

ented by the mining claimant for $2.50 per acre. See 30 U.S.C. 37.

14

dent man will extract because there is no demand

for them at a price higher than the cost of extrac-

tion and transportation are hardly economically

valuable. Thus, profitability is an important con-

sideration in applying the prudent-man test * * *.

See Chrisman v. Miller, 197 U.S. 318, 322 (1905). Both

this Court and the Secretary held in a number of early

decisions that marketability must be shown as a present

fact, not by speculation about value in the future. See,

e.g., Castle v. Womble, supra, 19 L.D. at 457; John

Downs, 7 L.D. 71, 73 (1888) ; Magalia Gold Co. v. Fer-

guson, 6 L.D. 218, 220 (1887) ; Davis’s Administrator v.

W eibbold, 139 U.S. 507, 522, 523 (1891) ; ef. Tron Silver

Mining Co. v. Mike and Starr Gold and Silver Mining

Co., 148 U.S. 394, 404-405 (1892); United States v.

Tron Silver Mining Co., 128 U.S. 673, 683-684 (1888).

See also Roberts v. Morton, 549 F.2d 158, 163 (10th Cir.

1976); Barrows v. Hickel, 447 F.2d 80, 83 (9th Cir.

1971); United States v. Estate of Alvis F. Denison,

76 L.D. 233, 239-240 (1969). The present holding is

wholly at odds with this salutary rule.

The requirement that the claimant show present

marketability is one of the most essential elements of

the mining laws. If claims could be sustained solely

upon a showing of possible future profitability, it is

doubtful that any claim showing any mineralization

whatsoever could be ruled invalid, for no matter how

‘‘low-grade’’ the mineral deposit might be, there would

always be the possibility that exploitation might some

day become profitable when better quality deposits be-

come exhausted or new technology makes exploitation

WS icie

15

feasible. Recognition of claims based upon possible

future profitability would not serve the purpose of the

mining laws, which is to encourage the development of

actual mining operations, not to enrich speculators.

2. Although correctly conceding (App. A, infra, 3a)

that since oil shale could not in 1920, and eannot now,

be marketed at a profit, ‘‘it must be concluded that the

‘valuable mineral deposit’ standard or requirement was

not met as to oil shale claims of the type here considered

before 1920 as the standards were applied to the metal-

lic minerals,’’ the court of appeals upheld the present

claims. This was justified on the premise that Congress

had been apprised of the decision in Freeman v. Sum-

mers and the Secretary’s subsequent grant of numer-

ous Oil shale patents, and had acquiesced in and adopted

an exception to the discovery requirement.

The court’s conclusion that Congress ratified a spe-

cial exception to the mining laws for oil shale claims

is founded principally on the fact that in 1931 both

houses of Congress conducted investigations into the

charges made by Ralph Kelley, a former employee of

the General Land Office, who publicly ‘‘attacked the

decision in Freeman v. Summers’’ and ‘‘asserted that

there had been fraud and favoritism in the issuance of

patents’? (App. A, infra, 9a). The court found that

the Freeman v. Summers decision ‘‘was the center of

attention of the House and Senate Committees,’’ and

that as a result of the committees’ investigation, Con-

gress ‘‘was thus fully informed on Interior’s view and

handling of the ‘valuable mineral deposit’ element of

locations for oil shale.’? Although Congress took no

action at the conclusion of the committees’ investiga-

16

tions, and neither committee issued a report stating its

findings,‘ the court noted that the chairman of the

Senate committee wrote the Secretary that ‘‘there is no

reason why your Department should not proceed to

final disposition of the pending applications for patents

to oil shale lands in conformity with the law’’ (App. A,

infra, lla). The court of appeals concluded (App. A,

infra, 12a) that ‘‘we have what appears to be a unique

situation where Congress made an intense investigation

into Interior’s interpretation of the mining laws as to a

very specific and narrow circumstance, and approved

it,’’ making ‘‘an express determination that the prac-

tice had indeed become part of the mining laws and

properly so.’’°

In our view, the court of appeals made too much of

wholly inadequate evidence. The conclusion that a sub-

*The House Committee on Public Lands did recommend legisla-

tion placing a deadline on the filing of applications for patent of oil

shale claims, H.R. Rep. No. 2537, 71st Cong., 3d Sess. (1931), but

the committee report did not address the decision in Freeman v.

Summers or the discovery requirement. Indeed, the report quotes

the Secretary’s comment that “other phases” of the “general prob-

lem as to oil shale lands,” such as “questions of discovery” might

require legislative clarification. Jd. at 8. The bill recommended by

the Committee was not enacted.

° The court also noted what it viewed as a more recent indication

of Congress’ belief that oil shale claims were valid, the adoption in

1956 of an amendment to the mining laws making it easier for a

locator with a pre-1920 claim to minerals now covered by the Mineral

Leasing Act to take his claim to patent. The Act of July 20, 1956,

ch. 652, 70 Stat. 592, amending 30 U.S.C. 122. In fact, however, as

the district court recognized (App. C, infra, 36a), in enacting this

legislation “Congress did not specifically address the problem of

discovery at all,” and moreover the amendment dealt with all the

minerals withdrawn by the Mineral Leasing Act, not merely oil

shale.

17

stantive amendment to the mining laws was accom-

plished when Congress simply took no action at the close

of committee investigations is squarely at odds with

this Court’s analysis in recent cases such as TVA v.

Hill, 437 U.S. 163 (1978), and SEC v. Sloan, 436 U.S.

103 (1978).

In Hill, TVA demonstrated that both the House and

Senate Appropriations Committee Reports ‘generally

reflected the attitude of the Committees either that the

[Endangered Species] Act did not apply to Tellico or

that the dam should be completed regardless of the pro-

visions of the Act.’’ 437 U.S. at 189 (emphasis in

original). But, in the absence of a statement in legis-

lation passed by the Congress that the Tellico dam was

to be completed regardless of compliance with the En-

dangered Species Act, this Court was ‘‘unable to con-

clude that the Act has been in any respect amended or

repealed.’’ Ibid. The Court recognized, 437 U.S. at

191, that both committees had ‘‘expressly stated their

‘understanding’ that the earlier legislation would not

prohibit the proposed expenditure’’ to complete the

Tellico dam. But it observed that, despite the inclusion

of these views in the committees’ reports, ‘‘there is no

indication that Congress as a whole was aware of TV A’s

position,’ 437 U.S. at 192. Accordingly, the Court

held, quoting the Regional Rail Reorganization Cases,

419 U.S. 102, 132 (1974), that the committees’ state-

ments, ** ‘however explicit, * * * cannot serve to change

the legislative intent of Congress expressed before the

Act’s passage.’ ’’ 437 U.S. at 193.

Similarly, in SEC v. Sloan this Court rejected. the

contention that Congress had adopted a longstanding

Sl

18

Commission construction that the Court concluded was

‘‘inconsistent with a statutory mandate.’’ 436 U.S. at

118. The Court refused ‘‘to presume general congres-

sional awareness of the Commission’s construction’’

(436 U.S. at 121), even though Congress had reenacted

the summary suspension authority ‘‘without disapprov-

ing the Commission’s construction,’’ when the Com-

mission had ‘‘on at least one occasion made its views

known to Congress in Committee hearings,’’ and ‘‘at

least one Committee [had] indicated on one occasion

that it understood and approved of the Commission’s

practice.’’ 436 U.S. 119, 120 (footnotes omitted). More-

over, the Court also stated that even if it were to assume

Congress as a whole was aware of the Commission’s

construction of its summary suspension authority, it

was questionable whether ‘‘such general awareness at

the time of reenactment would be tantamount to amend-

ment of what we conceive to be the rather plain mean-

ing’’ of the statutory language. 436 U.S. at 121.

Thus, in Hill and Sloan the Court rejected the argu-

ment that Congress had in effect ratified an adminis-

trative construction as an amendment to previous legis-

lation even though Committee reports recommending

subsequent legislation adopted the agency’s interpreta-

tion. Here, in contrast, the court of appeals found that

Congress had effectively amended one of the principal

requirements of the mining laws by its failure to take

action after investigating Interior’s actions. It is un-

disputed that no legislation was enacted, and no com-

mittee reports dealing with the discovery requirement

were issued; the sole action taken was a letter to the

Secretary from the chairman of one of the congres-

19

sional committees which did no more than state that

the Department could ‘‘ proceed to final disposition of

the pending applications * * * in conformity with the

law’’ (App. A, infra, 11a).

3. The court of appeals’ decision clears the way for

the patenting of an estimated 5 million acres of federal

land in Colorado, Wyoming, and Utah to oil shale min-

ing claimants. These lands, which include the richest

oil shale deposits in the continental United States (see

App. E, infra, 77a-78a), are also valuable for uses in-

cluding grazing, recreation, and wildlife preservation.

Before the Secretary is required to patent these lands

to claimants who have not met the discovery require-

ment of the general mining laws, this Court should

grant review.

CONCLUSION

The petition for a writ of certiorari should be

granted.

Respectfully submitted.

Wave H. McCreg, JR.

Solicitor General

JAMES W. MoorMAN

Assistant Attorney General

Sara Sun BEALE

Assistant to the Solicitor General

Dirk D. SNEL

Rosert L. KLArQuIst

Attorneys

J UNE 1979

APPENDIX A

PUBLISH

United States Court of Appeals

TENTH CIRCUIT

No. 77-1346

SHELL Or. Company AND D. A. SHALE, INC.,

Plantiff's-Appellees,

Vv.

Crecm. D. ANDRUS, SECRETARY OF THE INTERIOR,

Defendant-A ppellant.

Appeal from the United States District Court for the

District of Colorado (D.C. # 74-F-739)

Before SETH, Chief Judge, LOGAN, Circuit Judge,

and STANLEY, District Judge.”

SETH, Chief Judge.

The Secretary of the Interior issued in September

of 1964 an administrative complaint asserting that the

shale oil placer mining claims here in issue were in-

valid. The grounds advanced for the contest were that

they did not contain valuable minerals on February 25,

1920, nor do such minerals now exist on the claims.

There were also applications for patent then pending.

The contest proceedings were heard over a five-month

* Of the District of Kansas, Sitting by Designation.

(la)

2a

e

period by Administrative Law Judge Dalby in 1967,

and he announced his decision in 1970. Twenty-six

witnesses appeared; there were some 1,700 exhibits,

and over 5,000 pages of transcript. The Administrative

Law Judge concluded that the claims were valid, and

that patents should issue.

The Government took an appeal to the Interior

Board of Land Appeals (IBLA) in the Department

which reversed in 1974 and held the claims to be in-

valid. (16 IBLA 112). The Secretary of the Interior

then ordered the claims to be cancelled. The owners

then obtained review of the Secretary’s order in the

United States District Court for the District of Colo-

rado by these proceedings. The trial court on cross-

motions for summary judgment entered judgment for

the owners of the claims, and thus held the claims to

be valid.

This appeal was then taken by the Government on

the administrative record and the judgment of the trial

court. |

What constitutes a ‘‘discovery’’ and what may be

a ‘‘valuable mineral deposit’’ has been the subject of

many administrative proceedings and litigation. The

‘‘valuable’’ element has been considered under many

interrelated ‘‘tests’’ including intrinsic value, prudent

man, and marketability. It would not seem necessary

to discuss the many variations. Reference should be

made however to the early ‘‘prudent man”’ decision,

Castle v. Womble, 19 L.D. 455 (1894), to United States

v. Coleman, 390 U.S. 599; Enfield v. Klepee, [sic] 566

F.2d 1139 (10th Cir.); United States v. Zweifel, 508

of we ee

3a

F.2d 1150 (10 Cir.) ; United States v. Adams, 318 F.2d

861 (9th Cir.) ; United States v. Strauss, 58 I.D. 567

(1943) ; Jefferson-Montana Copper Mines Co., 41 L.D.

320 (1912) ; United States v. Black, 64 1.D. 93 (1957) ;

United States v. Heirs of Stack, A-28157 (1960). See

also 7 Rocky Mountain Mineral Law Institute 263; 1

American Law of Mining § 4.31; and 1 Lindley Mines

§ 98 (3d Ed.).

Under the mining laws, Act of July 4, 1866, Act of

May 10, 1872, and Act of June 22, 1874, now generally

30 U.S.C. § 22, public lands of the United States not

withdrawn from entry and containing valuable mineral

deposits are open for location with some exceptions

not here concerned. Nonmineral entries cannot be made

on public lands deemed valuable for minerals. 30 U.S.C.

§ 23 relates to lode claims and § 35 provides that placer

claims should be located under like circumstances and

conditions and upon similar proceedings as are pro-

vided for lode claims. For lode claims there must be

a discovery of a vein or lode and also a discovery of

a valuable mineral deposit. For a placer claim there

need only be a discovery of a valuable mineral deposit.

We are here concerned with placer claims located for

oil shale before the Mineral Leasing Act of 1920, 30

U.S.C. § 181.

Everything considered, it must be concluded that the

‘valuable mineral deposit’’ standard or requirement

was not met as to oil shale claims of the type here

considered before 1920 as the standards were applied

to the metallic minerals. The lack of conformance

came about as to the immediate saleability of the oil

4a

shale or profitability as compared to other minerals.

The shale was obviously different in this regard, and

for the claims here concerned to be valid as found by

the District Court and the Administrative Law Judge,

it must be established that oil shale deposits were

treated differently by the then General Land Office and

the Secretary for the location of placer claims for oil

shale.

The record before us does demonstrate that the value

element attributed to substantial oil shale deposits to

support claims was expressly treated differently than

for metallic minerals by the Department of the Interior

for the period 1915 to 1960. This was clearly the case

as to the Green River Formation on which the subject

oil shale claims are located. The mining laws were thus

interpreted differently for oil shale by departmental

practice, official instructions and decisions.

The record shows the ebb and flow of interest in oil

shale during the period 1915 to the present time. It

shows the intense interest in it as a source of oil for

the Navy and to replace ‘‘foreign’’ oil in 1918. This

was a period of decline in domestic crude oil production

relative to demand, and dependence on foreign oil in-

creased. The Department of the Interior by its pub-

lications and policies strongly encouraged the locatiou

of claims on oil shale deposits in the pre-1920 period.

In 1913 there was a USGS Bulletin published on the

Green River Formation oil shale, and others followed.

It was a period of the creation of Naval reserves for

oil, and for oil shale. The oil shale reserves for the

Navy were created in Colorado and Utah by presiden-

——— — — Abstain x

eA ee SE | ali te ee a ae et ate Medilitay Metaen tS puta Ale saat + teat ae

es

5a

tial order in 1916. There was then in Great Britain a

method in use for extracting oil from the shale, and

no problems were contemplated.

During the period 1918 to 1920 Congress was hold-

ing hearings on what became the Mineral Leasing Act

of 1920, and eventually placed oil and gas and oil shale

under a system of leasing rather than by placer loca-

tions. This Act made special reference to existing oil

shale claims and did nothing to impair their validity.

30 U.S.C. § 193.

The Department by 1920 had thus determined that

oil shale deposits, if demonstrated to contain sufficient

oil, were ‘‘valuable mineral deposits’’ although there

was no immediate market.

The Government in these proceedings has acknowl-

edged that these claims met the discovery requirements

under the 1916 to 1920 standards applied by the De-

partment of the Interior. This was because there had

been an administrative determination that valid loca-

tions could then be made on the Green River Formation

oil shale beds if all other elements of a proper loca-

tion were present. The geology was obviously well

known, uncomplicated, and the beds were conspicuous.

After 1920 the Department of the Interior continued

to patent pre-1920 oil shale claims, and the record

shows that there was a careful examination of patent

applications for compliance with the mining laws and

to determine whether substantial oil reserves were pres-

ent. There is nothing in the record before us to in-

dicate any routine approval of such claims.

In 1927 the departmental decision in a contest be-

6a

tween a homestead entry and an oil shale claim was

issued, captioned in part Freeman v. Summers, 52 L.D.

201. This decision referred to Castle v. Womble, 19

L.D. 455, and held in substance what had been the prior

administrative determination that oil shale could be

considered a valuable mineral deposit.

Freeman v. Summers, in part says:

‘‘While at the present time there has been no

considerable production of oil from shales, due to

the fact that abundant quantities of oil have been

produced more cheaply from wells, there is no pos-

sible doubt of its value and of the fact that it

constitutes an enormously valuable resource for

future use by the American people.

‘It is not necessary, in order to constitute a

valid discovery under the general mining laws

sufficient to support an application for patent, that

the mineral in its present situation can be im-

mediately disposed of at a profit.”’

And also:

‘‘The evidence in this case shows that in this

particular area of Colorado the lands contain the

Green River formation, and that this formation

carries oil shales in large and valuable quantities ;

that while the beds vary in the richness of their

content, the formation is one upon which the miner

may rely as carrying oil shale which, while yield-

ing at places comparatively small quantities of oil,

in other places yields larger and richer quantities

of this valuable mineral.

Ta

**In other words, having made his initial dis-

covery at or near the surface, he may with assur-

ance follow the formation through the lean to the

richer beds.

‘There can be no question whatever as to the

greater value of the lands for their oil-shale de-

posits than for other purposes. Their agricultural

value is negligible; their value for grazing pur-

poses is nominal, and the real and principal value

is the mineral deposit.’’

This determination as to value continued from 1916

to 1960, and patents were issued for oil shale claims.

Some 2,326 patents were so issued. The Freeman deci-

sion was not particularly significant at the time, but in

1930 became the center of attention. The 1931 Report of

the Secretary of the Interior stated that by then some

195,000 acres had been patented. He also estimated that

the ‘‘oil shale area’’ in Colorado consisted of 1,496,027

acres, in Utah 2,754,950 acres, and in Wyoming 4,006,-

805 acres.

There were also ‘‘Instructions’’ of general applica-

tion issued by the Secretary of the Interior relative to

the handling of applications to patent oil shale claims,

dated May 10, 1920. See 47 L.D. 547-551. This was in

response to a request for instructions from the Com-

missioner of the General Land Office in April 1920

relative to the first oil shale patent to be issued after

the Mineral Leasing Act—the La Paz claims. These

Instructions said in part: ‘‘Oil shale had long been

recognized as a valuable mineral deposit and for many

8a

years the mining of such deposits and distillation of

petroleum and other mineral substances therefrom has

been an extensive industry in Scotland, ... While

there are no oil shale operations in the United States

that have reached that point of commercial develop-

ment or production ... ,’’ there are publications as

to processes and some experimental plans. The Instruc-

tions also refer to the requirement that homestead

entries are subject to restrictions as to oil shale. The

Instructions then concluded :

‘‘Oil shale having been thus recognized by the

Department and by Congress as a mineral deposit

and a source of petroleum, and having been demon-

strated elsewhere to be a material of economic im-

portance, lands valuable on account thereof must

be held to have been subject fo valid location and

appropriation under the placer mining laws, to the

same extent and subject to the same provisions and

conditions as if valuable on account of oil or gas.

Entries and applications for patent for oil shale

placer claims will, therefore, be adjudicated by

your office in accordance with the same legal pro-

visions and with reference to the same require-

ments and limitations as are applicable to oil and

gas placers.”’

There were before and after the time we have men-

tioned several instances of similar administrative de-

terminations that entries could be made for specified

minerals. These included in 1883 lands containing

borax, sulphur, alum, and nitrates of soda, and Con-

9a

gress in 1892 had declared that lands containing build-

ing stone were subject to placer location. Also Congress

changed the law in 1955 so that sand, gravel, and other

common varieties were no longer ‘‘valuable mineral de-

posits’’ to permit locations. Thus from time to time

certain minerals or substances were declared subject

to location, and also changes made when the need arises.

Thus the Department continued to examine applica-

tions, and, if approved, to issue patents for oil shale

claims in accordance with the Instructions and the

Freeman opinion as any other patents, and some 2,326

oil shale patents were issued. There was a period of

time from about September 30, 1930, to the middle of

1931 when the issuance of oil shale patents was sus-

pended. This period will be considered hereinafter.

The departmental standards for the examination of

applications for patent of oil shale claims continued

in the manner described above until the end of Septem-

ber 1930. By that time some 1,171 patents had issued

on oil shale claims. The processing of patent appli-

cations stopped because a Mr. Kelley, who was Chief

of the Field Division of the General Land Office in

Denver, then published his letter of resignation. This

letter attacked the departmental policies as to the is-

suance of patents for oil shale claims, and attacked the ©

decision in Freeman v. Summers. It also asserted that

there had been fraud and favoritism in the issuance

of patents. This raised a cry of scandal in the press.

The New York World paid Mr. Kelley some $12,000.00

for his story, and the matter became something of a

sensation. There was thus great publicity, and Mr. Wil-

10a

bur, the then Secretary of the Interior, answered the

charges. There was thus great interest in the matter

largely because the Teapot Dome scandal had but re-

eently quieted down. The Teapot Dome scandal was,

of course, of nationwide interest and involved several

leading business figures, and resulted in the conviction

of the Secretary of the Interior Fall. The matter con-

cerned bribes for the issuance of oil and gas leases

in Teapot Dome and Elk Hills.

Congress began an investigation into the charges

made by Mr. Kelley. The Senate Committee was headed

by Senator Walsh, who had been a leading figure in

the Teapot Dome investigations which had, of course,

centered on the Interior Department’s oil and gas leas-

ing practices.

We are only concerned because the interest of Con-

gress was intense, and the investigation was very sig-

nificant for the problem before us for the reason that

it centered directly upon the standards used to examine

oil shale patent applications, and because it was spe-

cifically directed to the decision of Freeman v. Sum-

mers. In fact, the first day of the Senate hearings,

Solicitor Finney who had drafted the Freeman v. Sum-

mers opinion (52 L.D. 201) appeared and was ques-

tioned abeut it. The opinion in Freeman would not

otherwise be of much significance, but it became im-

portant by reason of the fact it was the center of atten-

tion of the House and Senate Committees.

The investigations by Congress were thus intensive

upon the very matters concerned in this case, and Con-

gress was thus fully informed on Interior’s view and

lla

handling of the ‘‘valuable mineral deposit’’ element of

locations for oil shale described above. We must con-

clude that Congress approved the departmental stan-

dards as set out in the Freeman case and in the Instruc-

tions as proper application of the mining laws. There

were, of course, many things Congress could have done

to change the practice as this was a matter of inter-

pretation of the mining laws, and wholly within Con-

gressional authority to change.

The House Committee concerned with the investiga-

tion recommended some legislation which would have

put a deadline on filing applications for patent of oil

shale claims (H.R. 2547, Tist Cong., 3d Sess.). Senator

Nye, then Chairman of the Senate Committee, wrote

a letter, at the conclusion of the hearings, to the Secre-

/ tary of the Interior. This letter of April 1931 in part

said:

‘‘Responding now to your letter of April 10, I

have conferred with Senator Walsh and beg to ad-

vise that there is no reason why your Department

should not proceed to final disposition of the pend-

ing applications for patents to oil shale lands in

conformity with the law.’’

After the above advice, the Department resumed the

examination of oil shale patent applications per the

Instructions and Freeman v. Summers, along with all

the other patent applications. There were about 1,149

oil shale patents issued thereafter until issuance was

abruptly stopped in 1961.

The record shows also that the Department of Justice

12a

conducted in 1930 an investigation of the same matters,

and a report was filed in October 1930, and Secretary

Wilbur was advised.

Thus we have what appears to be a unique situation

where Congress made an intense investigation into In-

terior’s interpretation of the mining laws as to a very

specific and narrow circumstance, and approved it.

This indeed bears no resemblance to the many Congres-

sional silence cases, and removes any uncertainty as

to whether the matter actually received attention, and

also constitutes an express determination that the prac-

tice had indeed become part of the mining laws and

properly so.

As mentioned above, the Department continued after

the Congressional investigation to handle the patent-

ing of oil shale claims, and the discovery-value element

as before. This appears to be what Congress intended.

There was another interaction between Interior and

Congress some twenty-five years after the investigation

relating to oil shale claims. This arose in 1955 and

1956. There had developed during the previous years

some conflicts between shale claims going to patent and

homestead entries. The Act of July 17, 1914, 30 U.S.C.

§ 121, permitted homestead entries to be patented al-

though there might be valuable minerals thereon, in-

cluding ‘‘oil,’’ if the minerals were reserved to the

United States. This problem is described in our opin-

ion in Brennan v. Udall, 379 F.2d 803 (10th Cir.).

We there said:

‘‘Although the position of the Department of the

Interior has varied over the years as to the form

13a

of the reservation in patents embracing oil shale

lands, it is abundantly clear that for fifty years

it has consistently construed the 1914 Act to au-

thorize the classification of lands containing oil

shale deposits as a valuable source of petroleum

and nitrogen and to require the reservation of such

deposits where patents are issued. The Depart-

ment’s construction of the statute has been made

a matter of public record on numerous occasions.

?

* e

The other side of the homestead-shale claim con-

flict concerned patents sought by shale claim locators

whose claims included land within the 1914 Act home-

stead patents. The Department’s practice was to re-

quire the person seeking the oil shale patent to pur-

chase the surface within the claim boundaries and

convey it to the United States. Legislation was sought

to change this requirement to permit the claim to go

to patent although the surface was not owned by the

United States. Interior supported this legislation and

submitted a response to a request by Senator Murray

for comment. This statement of the Secretary in part

said: ‘‘. . . The problem which S. 2115 is presumably

intended to clear up concerns the valid and subsisting

rights acquired by discovery and location under the

mining laws made prior to the enactment of the Min-

eral Leasing Act of February 25, 1920... .’’ The

statement continued : ‘‘Though we heartily endorse the

purpose of S. 2115 we believe certain amendments... .”’

Thus again Congress and the Department acted to per-

mit the patenting of oil shale claims. This was to make

l4a

the patenting less burdensome on the locators and to

recognize the rights acquired by the pre-1920 discovery

‘*under the mining laws.”’

The Mountain Boy Claims 6 and 7 were located in

1918, and a second application for patent was filed in

1958 after a series of title problems was resolved. The

final certificate was issued for patent and the file was

sent to Washington for review and issuance of a patent.

Assessment work had been done through the years. The

Shoup Claims 1, 2, 3, and 4 were located in 1917. There

was development work performed, including construc-

tion of a plant. There were some accidents, and a long

period of litigation. The claims were challenged in’

1928 and they were held to be valid by the Department

in 1935 after hearings.

The two groups of claims are contiguous, are located

in Garfield County, Colorado, in Section 14 and Section

23, of Township 7 South, Range 97 West, 6th Principal

Meridian.

The claims were considered to be properly located

under the 1916-1920 standards by the parties. The hear-

ings herein as to current conditions included testimony

by the Interior witnesses that there were large deposits

of Green River Formation oil shale on the claims. The

record shows there was a thickness of 500 to 600 feet

of shale which would yield 96,000,000 barrels of oil per

claim, and an additional 95 feet of shale which would

yield some 20,000,000 more barrels of oil per claim. An

Interior witness testified that shale from these claims

could have been marketed at a profit when they were

located, and at present. Dr. Vogelz testified for In-

15a

terior that oil shale has had a value from 1917 to the

present. The cost studies prepared by the Department

also showed that a profitable operation was possible.

It is apparent under Cole v. Ralph, 252-U.S. 286, that

a locator or owner of an unpatented claim, properly

located, has a vested property interest therein. This

has beeu universally recognized by the courts. Thus, if

we recognize that the Department has acknowledged

that there was a valuable mineral deposit in 1920, and

at the time the claims were located, there is no discovery

defect as to the locations. Since this was the only de-

fect asserted in the contest, we must assume that the

claims were valid as unpatented claims under depart-

mental standards up until the 1961 change of policy by

the Department which was sought to be applied retro-

actively. The owners of the claims thus had a vested

property interest in the claims, unless in 1961 oil shale

was not a valuable mineral deposit in 1920.

As mentioned at the outset, the Department filed pro-

ceedings to contest the claims described in the preced-

ing paragraph. The Administrative Law Judge con-

eluded they were valid; the Department of the Interior

held them to be void; and the District Court decided

that they were valid and should not have been cancelled.

The contest of these claims in 1961 marked a com-

plete departure by the Department from the rules, the

instructions, and the standards of the Department

which had prevailed without exception, departure, or

variation from 1915. It is also apparent from the de-

partmental position expressed in 16 IBLA 112 (1974)

that the decision of the Department reversing the Ad-

16a

ministrative Law Judge represented a complete aban-

donment and reversal of everything which had gone

before as to ‘‘discovery’’ on oil shale claims. Thus the

Department concluded :

‘«. , . Accordingly, we are not concerned with

the assessment work requirements of 30 U.S.C.

§ 28 (1970), but with the question of discovery

within the meaning of the mining laws. We hold

that no discovery of a valuable mineral deposit

has been established on the claims at issue herein.”’

The IBLA opinion is quite long. It discussed Castle v.

Womble, and the prudent man test for ‘‘valuable,’’ and

the marketability test. It also reviews the history of

oil shale. It recites that: ‘‘ Between 1920 and 1960 the

Department consistently recognized oil shale as a valu-

able mineral deposit,’’ and refers to Freeman v. Sum-

mers. It asserts that there could have been no reliance

on departmental policy. The substance of the opinion

is that the Department no longer considers oil shale to

be a valuable mineral deposit under the mining laws.

No reason is given for the complete departure from the

previous holdings. It is apparent that no changes in

circumstances relative to oil shale and its development

have come about. It is purely a change in departmental

policy which came about by a change in the philosophy

of the personnel. Thus in 1920 the Department said oil

shale was ‘‘valuable’’ then, and in 1961 and 1974 the

Department says oil shale was not ‘‘valuable”’ in 1920.

The question is whether such a policy change can bring

about the consequences sought to be obtained by the

iva

Department, considering all that has taken place in the

forty-year period. It must be pointed out that the De-

partment since 1920 has been seeking to lease oil shale

under the Mineral Leasing Act to persons who would

undertake development and was able to obtain in 1974

a 210-million dollar bid on a tract offered for lease.

We must hold that the Department is not free to so

change the application of the general mining laws as

to the oil shale locations here under consideration. The

different treatment afforded all oil shale claims as to

the ‘‘valuable mineral deposit’? element of a location

became a part of the general mining laws by reason of

its adoption and approval by both Houses of Congress

during the intensive investigations of this very ques-

tion and their affirmative resolution of the issue. The

general mining laws were thus adjusted to accommodate

the then very important practical and legal problem.

We do not put this in the category of Congressional

reenactment after an administrative interpretation.

There are, of course, a large number of cases in a

variety of circumstances which relate to reenactments.

As indicated, we are of the view that the circumstances

here present take the case far beyond the doctrine set

forth in these cases, and into something quite different,

but they demonstrate the variety of circumstances and

show the firm basis for the presumptions arising from

reenactment alone. These cases were referred to by

the trial court (426 F. Supp. 894), and include NLRB

v. Bell, 416 U.S. 267, concerning ‘‘managerial employ-

ees’’; Cammarano v. United States, 358 U.S. 498, ‘‘or-

dinary and necessary’’ business expenses; Corn Prod-

18a

ucts Refining Co. v. Comm’r, 350 U.S. 46, purchase of

‘‘futures”’; and see NLRB v. Gullett Gin Co., 340 U.S.

361, and Brennan v. Udall, 379 F.2d 803 (10th Cir.).

Instead of reenactment, and silence on the issue, as

an acceptance of interpretation, we regard the events

hereinabove described as an affirmative adoption of the

very basic application of the mining laws to make it

part of the statutory method for development of the oil

shale reserves. It was obviously considered to be part

of such an exploitation as the reserves were considered

very essential. It is equally apparent that other events

transpired to forestall the use of oil shale as a source

of oil. These events included a large increase in domes-

tic oil production and cheap foreign oil. Some of these

events and the subsequent variations thereon came

about through the actions of the Government. Thus

Congress may have been wrong in its estimate as to the

timing of oil shale development, but that is no reason

to now change the mining laws without the benefit of

Congressional consideration. In short, the changes here

sought to be made by the Department as to 1920 stan-

dards incorporated in the mining laws are well beyond

executive authority.

This is no more than an application of the doctrine

developed over the years in the reenactment cases but

in the presence of the added significant element de-

scribed above at some length,—the extensive participa-

tion by Congress in the specific issue.

Thus in Corn Products Refining Co. v. Comm ’r, 350

U.S. 46, the Court said after referring to three reen-

actments of the Tax Code and recognition for twenty

ee ei a s RL Owe.

OTe Ee EO SIE a OS ee ae ee

19a

years: ‘‘This bespeaks congressional approval. Helver-

ing v. Winmill, 305 U.S. 79, 83.’ The Court then added

the other element: ‘‘Furthermore, Congress has since

specifically recognized the hedging exception here un-

der consideration in the short-sale rule of § 1233(a)

of the 1954 Code.”’

In United States v. Leslie Salt Co., 350 U.S. 388, the

Court considered Treasury’s long-standing construc-

tion of what a ‘“‘debenture’’ was and what was a ‘‘cer-

tificate of indebtedness.’’ The Court referred to the

Corn Products case, and the importance therein given

to contemporaneous construction; then it said of the

department’s sudden change in definition:

‘| Against the Treasury’s prior longstand-

ing and consistent administrative interpretation

its more recent ad hoc contention as to how the

statute should be construed cannot stand. More-

over, that original interpretation has had both

express and implied congressional acquiescence,

9

The Court also in Leslie Salt refers to its opinion in

Norwegian Nitrogen Products Co. v. United States, 288

U.S. 294.

The importance given to ‘‘eontemporaneous’’ con-

struction by the administrative officials must not be

overlooked, and reference must be made again to Leshe

Salt. Thus the officials in Interior from top to bottom

considered the application of the mining laws to shale

oil. This was ‘‘new,”’ not, of course, as a new law but |

a new mineral. It was a ‘‘contemporaneous”’ construc- |

_——

20a

tion also in the sense of an application of the law to

a new situation, an application calling for a standard

to be applied. It was in 1920 a ‘contemporaneous con-

struction’’ to be given the specifie consideration sug-

gested by the Court. It is even more significant because

of the attempted retroactive application to 1920 of this

new and totally different position.

We do not reach the retroactive aspect as a separate

issue. The doctrine relating to retroactive application

of policy changes and statutory construction by agencies

with the need for a ‘compelling reason”’’ is considered

in Logan v. Davis, 233 U.S. 613; Rough Rider, 41 L.D.

242, and in James v. Bell, 52 L.D. 197.

The combination of circumstances we have before us

presents a unique situation which, as we have said

above, constituted an addendum to the mining law

which cannot be removed short of Congressional action.

It is simply an application of the doctrine arising in

the reenactment cases referred to above with special

emphasis on the added element of affirmative action

by Congress. The affirmative action by Congress on

the point here is overwhelming.

Thus the judgment of the District Court is AF-

FIRMED.

a

dan NS la ot a Soe nn

oh a, ——

APPENDIX B ona

Unitep States CourRT OF APPEALS |

For THE TENTH CIRCUIT

January Term—January 25, 1979

Before Honorable Oliver Seth, Chief J udge,

Honorable James K. Logan, Circuit Judge,

Honorable Arthur J. Stanley, Jr., Sr. District Judge.

SHELL On. CoMPANY and

D. A. SHatg, INc.,

Plaintiffs-A ppellees, JUDGMENT

vs. No. 77-1346

Crom, D. Anprus, Secretary of (D.C. No.

the Interior, 74-F-739 )

Defendant-A ppellant,

Srate oF UTAH,

Amicus Curiae.

This cause came on to be heard on the record on

appeal from the United States District Court for the

ere ree District of Colorado, and was argued by

counsel.

Upon consideration whereof, it is ordered that the

judgment of that court is affirmed.

/s/ Howard K. Phillips

Howarp K. Putters, Clerk

2la

APPENDIX C

SHELL OIL COMPANY and

D. A. Shale, Inc., Plaintiffs,

V.

Thomas 8S. KLEPPE, Secretary of the

Interior, Defendants.

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

United States District Court,

D. Colorado.

Jan. 17, 1977.

FINESILVER, District J udge.

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.).’

* Other oil shale cases have recently been before this Court.

United States v. Eaton Oil Co., C-4139 (Complaint filed July 11,

1972) ; U. 8. Mobil Oil & Equity Oil Co., C-4135 (Settled Nov. 1,

1976) ; Amerada Hess Corp. v. Morton, C-4361 (Complairt filed

September 26, 1972).

22a

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In the instant litigation, Plaintiffs seek judicial re-

view of a decision of the Board of Land Appeals in the

Department of Interior, United States v. Frank W.

Winegar, et al., [BLA 70-549, June 28, 1974, reported

at 16 [BLA 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

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 vari-

ous 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

24a

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 de-

posit could be developed, extracted, and marketed at a

reasonable profit. Freeman v. Summers, 52 L.D. 201

(1927) (hereinafter Freeman), held that present de-

velopment 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 de-

velopment.

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

biiRD i cad AOE St ate Aton dae ash wip rns

—I eet

25a

requirement of discovery of a valuable mineral deposit,

it must be shown that the deposit could have been de-

veloped, 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 Administra-

tive Law Judge Dalby’s factual findings that despite

considerable investment over the years in various tech-

niques of extracting oil from oil shale, no prudent per-

son was justified in believing the deposits could be

presently developed, extracted and marketed at a rea-

sonable 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 de-

posits”. 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-1929 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 re-

versed in court, would mean that no pre-1920 oil

shale claim can be patented and these old claims

26a

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 De-

partment 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 tra-

ditional and long-established requirements of the min-

ing laws; (2) this rule has received Congressional re-

view 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 de-

posits under the mining laws. These and other conten-

tions are discussed in Parts III and VI below.

II

[1,2] Final decisions of the Board of Land Appeals

within the Department of Interior denying the validity

of mining claims are clearly reviewable under the Ad-

ministrative 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.

0 U.S.C. § 706; Citizens 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

‘4

sega Aaa

Ab in th hk

27a

L.Ed. 456 (1951); Henrikson v. Udall, 350 F.2d 949;

950 (9th Cir. 1965), cert. demed, 384 U.S. 940, 86 &.Ct.

1457, 16 L.Ed.2d 538 (1966).

Ill

[3] 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. H umboldt Placer

Mining Co., 371 U.S. 334, 83 S.Ct 379, 9 L.Ed.2d 350 4

(1963) ; Cameron v. United States, 252 U.S. 450, 40

S.Ct. 410, 64 L.Ed. 659 (1920). The traditionai defini- «

tion 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, 4

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 develop-

ing 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. 1827, 20 L.Ed.

2d 170 (1968) ; Best, supra; Cameron, supra; Chrisman

28a

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 pur-

poses. The obvious intent was to reward and en-

courage 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 valu-

able. Thus, profitability is an important considera-

tion 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 ex-

tension 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. Free-

man deals with two issues relating to the discovery of

oil shale: (1) the extent to which a discovery of an

apa 45 od ah apts Kis,

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29a

outcropping of oil shale on the surface indicates to a

prudent person the existence of a bed of oil shale below

the surface substantial enough in size to warrant devel-

opment; and (2) whether oil shale need be presently

disposable at a profit. Since it is eoneeded by the

government that the plaintiffs’ claims contain substan-

tial amounts of very rich oil shale, it is only the latter

issue in Freeman which concerns us now.

Freeman held that the claimants did not have to

prove that they could presently profit from the develop-

ment of their oil shale claims:

While at the present time there has been no con-

siderable production of oil from shales, due to the

fact that abundant quantities of oil have been

produced more cheaply from wells, there is no

possible doubt of its value and of the fact that it

constitutes an enormously valuable resource for

future use by the American people.

It is not necessary, in order to constitute a valid

discovery under the general mining laws sufficient

to support an application for patent, that the

mineral in its present situation can be immediately

disposed of at a profit. (Emphasis added )

Freeman at 206. This case appears to extend the doc-

trine of discovery beyond the traditional limits of the

paying and valuable mine test in Castle v. Womble and

subsequent Supreme Court opinions adopting that

principle. Those cases speak in terms of the present

expenditure of labor and resources in order to develop

a presently profitable mine, rather than the future

30a

developmental value of the mineral deposit. Roberts v.

Morton, 549 F.2d 158 (10th Cir. 1976) re-affirmed the

present marketability test for alumina deposits located

in oil shale land.

The claimants argue that ‘‘the present value of a

mineral deposit is usually dominated by the present

appraisal of the future,”’ in other words, the estimated

future worth of the oil shale should be discounted to

current values. Plaintiffs’ Opening Brief at 130-131.

The administrative law judge in his findings of fact

agreed with the claimants and expressly found that the

future value of oil shale has a certain economic worth,

even a substantial economic worth in present-day

terms. The discounted future value of a mineral deposit

may well be a significant factor to the prudent person

in determining whether he can profitably develop the

deposit. However, the discounted future value of a

mineral deposit is by itself insufficient to meet the

marketability and prudent person tests of Coleman and

Castle v. Womble.

[4] For purposes of these pre-1920 oil shale claims,

however, Freeman does not represent an unwarranted

extension of the traditional tests for discovery. Merely

speculative claims are not discoveries of valuable min-

eral deposits under the Freeman standard. Freeman

only extended the prudent person test to a mineral that

the prudent person justifiably believed would inevi-

tably become valuable, or would become marketable by

the time the oil shale deposits could be sufficiently de-

veloped, and not only if the demand for the ultimate

product were changed. Roberts, supra, Coleman, and

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Castle v. Womble are distinguishable because they did

not have to consider the unique position of oil shale. Of

most significance to our decision is the fact that because

oil shale deposits contain a potential domestic source of

energy, the Government itself has acted to create a

market and to encourage prudent investors to stake

claims in oil shale deposits. Part V, ifra.

IV

Claimants contend that Freeman is in effect an ex-

pression of Congressional intent to establish special

rules of discovery for oil shale, and that to overrule it

would be an interference with Congress’ legislative

authority. They point specifically to the legislative his-

tory of the Miner: Lands Leasing Act of 1920, an

administrative ruling shortly thereafter, a general

executive and congressional review of oil shale claims

in 1930-31, and the enactment in 1996 of an amendment

to the mining laws relating to the patenting of oil shale

claims. This argument raises two issues: whether Con-

gress did in fact approve the rule of discovery in

Freeman and, if so, whether the nature and form of the

approval warrants giving it such force that only Con-

gress itself can repeal or overrule it.

The legislative history of the Mineral Lands Leasing

Act of February 25, 1920 is unclear concerning the

Congressional policy for the requirements of discovery

of oil shale. As early as 1916, the Department of In-

terior proposed the withdrawal of oil shale lands from

entry, location, and patenting under the Act of May 10,

1872, 30 U.S.C. § 22 et seqg., and the placement of the

32a

lands under a leasing program. Hearings on H.R. 406

Before the Senate Committee on Public Lands, 64th

Cong., Ist Sess., at 301, 320-321 (1196). The motivation

for this and subsequent proposals was Congressional

perception of the significant value of oil shale as an

important source of petroleum to replace other rapidly

dwindling supplies. The general view of witnesses and

Congressmen was that development of oil shale was at

that time not commercially feasible but would be in the

near future. Hearings on H.R. 406, supra; Hearings

on S. 45 Before The Senate Committee On Public

Lands, 65th Cong., Ist Sess., pt. 4, at 250-253 (1917) ;

Hearings on H.R. 3232 and S. 2812 Before the House

Committee on Public Lands, 65th Cong., 2nd Sess., at

811 et seg. (1918) ; 56th Cong. Rec. 6984-6987 (1918).

Although the Mineral Lands Leasing Act of 1920

indicated a sharp change in the government’s policy of

disposing of its material resources, § 37 of that act, now

30 U.S.C. § 193, preserved existing, valid claims to oil

shale. Few comments were made concerning this sec-

tion, and even fewer were directed to the requirements

of a valid discovery of oil shale. The remarks of Con-

gressman Taylor of Colorado, one of the managers of

the bill in the House, are typical:

Yet the Senate and the House have both always

retained in every bill of this kind the provisions ~

of section 37 and expressly recognized and legal-

ized and attempted to affirmatively protect the

property and legal rights under the laws as they

are now and have for over 40 years been on our

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33a

statute books of the honest prospectors, the bona

fide locators in good faith, and holders of rightful

claims, claims that are valid and existing under

existing laws at the date of the passage of this act.

Those claimants, even though they may not have

perfected a legal discovery under the laws are

entitled to go ahead and maintain and perfect their

claims under the present existing laws and obtain

a patent to their lands just as though this bill had

never been passed, and I hope no court or Federal

department will ever attempt to deny to these

people the rights which Congress looks upon as

vested and is attempting in section 37 to guarantee

to them.

59 Cong. Rec. 2711-2712 (1920). See also 59 Cong. Ree.

2709 (1920) ; 58 Cong. Rec. 4444 (1919) ; 58 Cong. Rec.

457-4584 (1919).

The rule of discovery at that time was the prudent

person test of Castle v. Womble. That would indicate

that oil shale was subject to the same rigorous stand-

ards of profitability and commercial development as all

other locatable minerals. However, as the extensive

hearings make clear, Congress was fully aware that

commercial development of oil shale was not yet tech-

nologically feasible. Despite this knowledge, expres-

sions in Congress were all in the direction and belief

that oil shale lands were of tremendous value and, as

Congressman Taylor’s remarks indicate, that valid oil

shale claims did exist.

On May 10, 1920, shortly after the passage of the

34a

Mineral Lands Leasing Act, the Department of In-

terior issued Instructions relating to oil shale placer

claims. 47 L.D. 548 (hereinafter Instructions). These

Instructions were in response to the first application

for patent of 14 oil shale placer mining claims under

the 1920 Act. The purpose was to provide guidelines as

to what constituted a discovery of oil shale under the

new law. The Instructions held that consistent with the

Department’s prior position, oil shale was a valuable

and, therefore, locatable mineral :

The Department has had numerous inquiries as

to the locatability and patentability of such de-

posits under the mining laws and in response

thereto, while disclaiming any intention to express-

ing a binding opinion in the premises, it has never-

theless declared itself as favorable to the view that

such deposits, if valuable, are subject to location

and purchase under the mining laws...

Oil shale having been thus recognized by the

Department and by Congress as a mineral deposit

and a source of petroleum, and having been demon-

strated elsewhere to be a material of economic im-

portance, lands valuable on account thereof must

be held to have been subject to valid location and

appropriation under the placer mining laws, to the

same extent and subject to the same provisions and

conditions as if valuable on account of oil or gas.

Td. at 549-551. The Instructions, therefore, determined

that oil shale was sufficiently valuable to be discover-

able. Only questions such as the size and richness of the

Se a

35a

deposits would appear to remain. That this is the cor-

rect interpretation of the Instructions is indicated by

the fact that the 14 claims which occasioned the In-

structions were granted patents.

The next Congressional action came in 1930-31, sub-

sequent to the Freeman decision which reaffirmed the

principle of the 1920 Instructions that oil shale was

valuable for discovery purposes even though not pres-

ently profitable. The immediate cause of the Congres-

sional review was the accusation by Ralph S. Kelly,

Chief of the Field Division of the Department of

Interior in Denver before his resignation in 1930, that

the mining laws were being improperly administered

with respect to oil shale. Among other things, he

pointed to what he felt was a clearly erroneous decision

in the Freeman case. 74 Cong. Rec. 7080-7083 (1931) ;

Hearings on S. Res. 379 Before the Senate Committee

on Public Lands and Surveys, Tist Cong. 3rd Sess.

(1931); Consolidated Hearings on H.R. 3754, H.R.

12802, H.R. 13191, H.R. 15002, H.R. 15130, H.R.

15131, and H.R. 15132 Before the House Committee on

Public Lands, T1st Cong., 2nd and 3rd Sess. (1931).

The discovery rule of Freeman was thoroughly ex-

plored by Congress. It was clearly understood that

although commercial development of oil shale was not

yet feasible, claimants were nevertheless receiving

patents under Freeman based on oil shale’s future

value as a source of petroleum. Hearings on S. Res.

379, supra at 22-27. The hearings revealed that the

Instructions and Freeman had already resulted in the

patenting of 184,000 acres of oil shale lands, and that

36a

an additional 85,000 acres could be disposed of through

pending patent applications. Consolidated Hearings

on H.R. 3754, supra at 181; H.R. Rep. No. 2537, T1st

Cong., 3rd Sess., 4, 9 (1931) ; 74 Cong. Rec. 4100-4101,

4104 (1931).

Despite this thorough knowledge of the legal aspects

and practical consequences of the Freeman doctrine,

the oil shale legislation reported to the House did not

modify the Freeman rule of discovery. H.R. Rep. No.

2537, supra; 74 Cong. Rec. 4102-4104 (1931). Further-

more, the Chairman of the Senate Committee on Public

Lands, Senator Gerald P. Nye, wrote to Secretary of

Interior Wilbur that patenting should continue. Ex-

hibit C-699 in the Administrative Record. The failure

of Congress even to propose legislation that would alter

the requirements of discovery under Freeman mani-

fests its approval of that rule.

The most recent significant Congressional action

affecting the patenting of oil shale claims was the

passage of the Act of July 20, 1956, 70 Stat. 592, 30

U.S.C. § 122. This Act facilitates the patenting of oil

shale claims preserved under 30 U.S.C. § 193 by elimi-

nating the requirement that the applicant must also

obtain any outstanding patent to the surface rights.

However, Congress did not specifically addres the

problem of discovery at all.

[5] In summary, a review of the legislative history

and subsequent administrative and Congressional ac-

tion under the Mineral Lands Leasing Act of 1920

indicates that Congress intended and did, in fact, ratify

a liberalized version of the traditional rule of dis-

37a

covery, as embodied in Freeman. Although it is diffi-

cult to discern the Congressional intent from the de-

bates preceding the enactment of the Mineral Lands

Leasing Act of 1920, the 1920 Instructions, promul-

gated only three months later, disclose that oil shale

was regarded as sufficiently valuable to be a legally

discoverable mineral despite the lack of prospects for

immediate profitable development. This administrative

ruling should be accorded considerable weight (espe-

cially in view of the otherwise ambiguous Congressional

intent), since it is a contemporaneous construction by

those who are presumably intimately familiar with the

legislative history and who are charged with the en-

forcement of the act. United States v. Leslie Salt Co.,

350 U.S. 383, 396, 76 S.Ct. 416, 100 L.Ed. 441 (1956) ;

Norwegian Nitrogen Products Co. v. United States,

288 U.S. 294, 315, 53 S.Ct. 350, 77 L.Ed. 796 (1933) ;

United States v. Shreveport Grain and Elevator Co.,

287 U.S. 77, 84, 53 S.Ct. 42, 77 L.Ed. 175 (1932) ; United

States v. Philbrick, 120 U.S. 52, 59, 7 S.Ct. 413, 30

L.Ed. 559 (1887); Brennan v. Udall, 379 F.2d 803,

806-807 (10th Cir. 1967), cert. denied, 389 U.S. 975, 88

S.Ct. 477, 19 L.Ed.2d 468.

As noted, in 1930-1931, a major investigation was

conducted by Congress into the Department of Interi-

or’s patenting of oil shale lands, including an evalua-

tion of the discovery rule of Freeman and the implica-

tions it held for further patenting of oil shale lands.

The failure of Congress to modify or overrule the F'ree-

man doctrine when presented with an opportunity to do

so is a further indication of Congress’ intent. Corn

38a

Products Refining Co. v. Commissioner of Internal

Revenue, 350 U.S. 46, 53, 76 S.Ct. 20, 100 L.Ed. 29

(1955) ; United States v. Leslie Salt Co., supra 350 U.S.

at 397, 76 S.Ct. 416; Norwegian Nitrogen Products Co.

v. United States, supra 288 U.S. at 313, 53 S.Ct. 350;

Kay v. FCC, 143 U.S.App.D.C. 223, 443 F.2d 638, 646-

647 (1970). As was contemplated by Congress, the

Department of Interior resumed patenting oil shale

lands under Freeman.

That Congress should take a special attitude toward

oil shale lands and ratify in Freeman an exception to

the traditional discovery rule is explained by the un-

usual role of oil shale as a natural resource in contrast

to other locatable minerals. As the Congressional hear-

ings and debates have disclosed, oil shale was perceived

as highly valuable and crucial to the national security

and welfare. Congress believed that commercial devel-

opment of oil shale would soon be feasible, because of

its perception of the rapid depletion of existing sources

of oil. That attitude has persisted, in varying degrees,

to this day. Consequently, various means have been

sought to foster the development of oil shale. One such

technique was to liberalize the rules of discovery.

[6,7] This long, stormy, and somewhat complicated

Congressional and administrative involvement in the

disposal of oil shale lands demonstrates Congressional

approval of the Freeman rule of discovery. Conse-

quently, the Courts should respect and apply the ap-

proved rule, in the absence of Congressional action to

the contrary. An attempt by the Board of Land Ap-

peals or this Court to overrule Freeman would be viola-

ER

ae nell ste te. tee

Ne er eee en ed Ae Ae eae ey eee Eee ee Pe ete

aT A ee ee

39a

tive of Congressional legislative authority, and there-

fore improper. NLRB v. Bell Aerospace Co., 416 US.

267, 275, 94 S.Ct. 1757, 40 L.Ed.2d 134 (1974); Fribourg

Navigation Co., Inc., v. Commissioner of Internal

Revenue, 383 U.S. 272, 283, 86 S.Ct. 862, 15 L.Ed.2d 751

(1966) ; Cammarano v. U. S., 358 U.S. 498, 511, 79 8.Ct.

524, 3 L.Ed.2d 462 (1959) ; Service v. Dulles, 354 U.S.

363, 380, 77 S.Ct. 1152, 1 L.Ed.2d 1403 (1957); Corn

Products Refining Co. v. Commissioner, supra; Na-

tional Labor Relations Board v. Gullett Gin Co., 340

U.S. 361, 365-366, 71 S.Ct. 337, 95 L.Ed. 337 (1951) ;

Wilmette Park District v. Campbell, 338 U.S. 411, 417-

418, 70 8.Ct. 195, 94 L.Ed. 205 (1949) ; Crane v. Com-

missioner, 331 U.S. 1, 7-8, 67 S.Ct. 1047, 91 L.Ed. 1301

(1947); Brooks v. Dewar, 313 U.S. 354, 360-361, 61

S.Ct. 979, 85 L.Ed. 1399 (1941); Helvering v. R. J.

Reynolds Tobacco Co., 306 U.S. 110, 116, 59 S.Ct. 423,

83 L.Ed. 536 (1939); Brennan v. Udall, supra The

‘‘ye-enactment rule’’ enunciated in these cases should

not be used in the absence of clear evidence that Con-

gress was aware of the administrative regulation at the

time of its review of the rules of discovery. Rothenberg

v. U. S., 233 F.Supp. 864, 866-867 (D.Kan.1964), aff’d.,

350 F2d 319 (10th Cir 1965) ; see also Davis, Adminis-

trative Law § 5.07 (1958). Here, it is clear that Con-

gress refused to modify the Freeman rule despite full

knowledge of its existence and meaning.

Vv

[8] For years, top administrators in the Interior

Department have recognized the energy potential of

40a

oil shale. They themselves generated financial and

other interest in its mining. Even if the Congressional

treatment of the Freeman rule is considered merely as

an interpretive aid, and not as hardening the Freeman

rule into an act of law,’ we hold that the Interior De-

partment is estopped from challenging the validity of

the pre-1920 oil shale claims involved in this case. ‘‘The

doctrine of equitable estoppel binds the Government

for the conduct of its agents while they are acting

within the scope of their employment.’’ Atlantic Rich-

field Co. v. Hickel, 432 F.2d 587, 591 (10th Cir. 1970).

See United States v. Wharton, 514 F.2d 406, 412-413

(9th Cir. 1975); Fox v. Morton, 505 F.2d 254, 256

(9th Cir. 1974) ; C. F. Lytle Co. v. Clark, 491 F.2d 834,

&38 (10th Cir. 1974) ; Brandt v. Hickel, 427 F.2d 53, 56-

o7 (9th Cir. 1970); United States v. Georgia-Pacific

Co., 421 F.2d 92 (9th Cir. 1970); McKay v. Wahlen-

mater, 96 U.S.App.D.C. 313, 226 F.2d 35, 43 (1955) ;

Chapman v. El Paso Nat. Gas. Co, 92 U.S. App.D.C.

154, 204 F.2d 46, 53-54 (1953) ; Davis, Administrative

Law of the Seventies, §17.01 (1976); Comment,

‘*EKmergence of an Equitable Doctrine of Estoppel

Against the Government—The Oil Shale Cases,’’ 46

Colo.L.Rev. 433 (1975) ; Berger, Estoppel Against the

Government, 21 U.Chi.L.Rev. 680 (1954). Prudent

investors detrimentally relied upon the deliberate ac-

tions and statements of high government authorities.

Such government encouragement was clearly under-

taken in an official capacity, and comports with the

subsequent treatment of oil shale both by the Depart-

ment of the Interior in its Instructions of 1920 and by

* See Davis, supra at § 5.07.

4la

Congress. This is a clear case for the application of

equitable estoppel against the government.

A review of public announcements and events

through the years will set the proper factual perspec-

tive for oil shale development and its potential in 1920.

‘‘Interest in the commercial development of oil shale

has varied directly with the need for hydrocarbon fuels

and inversely with . . . the availability of shale oil's

chief competitor—conventional crude oil.’’ Thomas A.

Sladek, ‘‘Recent Trends in Oil Shale—Part 1: History,

Nature, and Reserves,’’ 17 Mineral Industries Bulletin

1,3 (Nov. 1974). Until shortly after the discovery of oil

at Titusville in 1859, the ‘‘U.S. shale oil industry .. .

was a vital part of the American economy.”’ Id.

For half a century thereafter, the oil shale industry

lay dormant. At the beginning of the twentieth cen-

tury, oil shale was regarded even by the speculator only

as an indication of the existence of a nearby oil field:

The tunnel stopped in shale, which is certainly

what is known as oil shale, but nobody imagined

that it contained oil . . . No tests have yet been

made of the oil, but it is probable that a sample

will be sent to some expert, and possibly the oil may

be developed and piped down to the city before

another year has passed.

‘Oil Oozing from Breast of Cowenhoven Tunnel,”’

The Denver Times at 11 (February 7, 1902).°

’ Local newspapers are an invaluable source for determining

whether the ‘‘prudent person’’ prior to February 25, 1920 thought

that an investment in oil shale deposits was mere speculation or was

presently. capable of being developed at a reasonable profit. The

42a

‘fan expert operator ... says he has never seen

better indications for the development of a first

class field, the shale encountered even in croppings

is so thoroughly impregnated with oil that it burns

readily and the indications of gas are to be found

everywhere.”’

‘*Oil in Rio Blaneo,’’ Jd. at 6 (May 21, 1907). See also,

‘Irrigation Project,’’ Id. at 6 (May 23, 1902); ‘‘Oil

Excitement in Slate Creek District,’’ Jd. at 9 (Feb. 23,

1903).

However, during World War I, officials of the Fed-

eral government actively encouraged Westerners to

invest in Colorado’s oil shale deposits: ‘‘I plead with

you, men and women of the West . . . Develop your

vast resources on a sound business basis . . . Let every

investor get a run for his money.’’ Speech by Dr.

David T. Day, Chief of the United States Division of

Petroleum Research, United States Bureau of Mines,

delivered to delegates from Colorado mining associa-

tions and the public in the chamber of the Colorado

House of Representatives, ‘‘Colorado’s Oil Shales to

Save World—Day,”’ Id. at 2 (Jan. 24, 1918). ‘‘The

future of the oil industry is in the hands of the people

of Colorado and Utah . . . If the people of those states

do not take hold and develop their resources, Eastern

people will come in and reap the benefits.’’ Speech by

impact upon the beliefs of prudent persons can be determined from

informative statements in newspaper articles. We do not consider

them for the truth of the facts therein asserted, but only for their

impact on the prudent mining investor. Rules 201 and 902(6). Fed.

R.Evid. permit us to take notice of statements in newspaper articles

without the necessity of authentication.

EERE LR bores Det

ah BA

43a

Day to the Colorado Civic Association ‘‘ Expert Tells of

Shale Riches,’’ Jd. (June 26, 1918).

Both Dr. Day and Interior Secretary Lane em-

phasized the fact that Colorado’s oil shale deposits

would ‘‘save the world’’ when the oil fields were ex-

hausted :

It is but a question of years—and not many of

them, at that—until the oil fields of the world will

be exhausted to the point where gasoline and other

products of crude oil must be secured from another

source and—the rich oil shales of Colorado will be

- that source.

‘*Save the World,”’ supra.

Investment in oil shale, which had been scorned by

prudent persons at the turn of the century, gained the

interest of the financial world:

The financial world began to regard him [an early

forecaster who preached that oil shale would save

the world] as anything but ‘cracked’ on the sub-

ject . . . until today [when] people are giving

serious attention to those treasure vaults that the

world up to only yesterday said contained only

debris instead of untold wealth.

‘*Colorado’s Oil Shales to Save World,”’ supra.

The following announcement by Secretary Lane of

the Department of the Interior helped trigger the filing

of thousands of claims prior to 1920:

The most important single act during the month of

December in connection with the classification of

44a

mineral lands was the creation of two Naval oil

shale reserves, one of 45,440 acres in western

Colorado, and one of 86,584 acres in northeastern

Utah. The lands thus set apart for the use of the

Navy contain bodies of shale which, when mined

and distilled in properly constructed retorts, yield

oil of good quality. Thus far oil has not been ex-

tracted from shale in the United States in com-

mercial quantities since the discovery of crude oil

developed by wells, because oil can be secured in

the latter way much more cheaply than thru the

more complex process of extracting 1t from shales.

But the oil shale industry has existed in Scotland

for half a century in spite of the competition of the

oil fields of the world, and the time will doubtless

come when the large oil shale deposits of western

United States will also be developed in a com-

mercial way.

The Naval oil shale preserves have been created

to provide for the needs of the Navy during that

future time when the ordinary oil fields have been

so reduced that it becomes practicable and profit-

able to distill the more expensive oil shale.

“Colorado Shale Reservations Are Held Important.”

The Denver Post at 1 (Jan. 21, 1917). In fact, the

Federal government informed Colorado’s interested

citizenry that its oil shale could be mined at a sub-

stantial profit, and by a simple process:

Based on figures from the Scotch and French shale

operations, shale in Colorado and her sister states

45a

can be mined on a large scale and give the investor

better than 50 percent profit. Shale to be mined at

a profit should be in veins not less than three feet

thick.

‘¢Colorado’s Oil Shales to Save World,”’ supra.

Fancy processes are not needed. Just tear a leaf

out of the Seotch book. They have been making

profiits out of shales since 1869, and their methods

are good. The industry requires manufacturers and

miners. This oil shale is very tough and not easy

to mine, but Colorado people are past masters of

mining and will solve all such problems . . . Dr.

Day stated the government thought enough of the

shale deposits to create a reserve of 145,000 acres’

in Colorado and Utah for the future use of the

Navy, but that this reserve did not by any means

include the richest shales, and there is enough left

unreserved for all.

‘*Expert Tells of Shale Riches,’’ supra.

Geologists reinforced the view of Federal officials

that the oii shale deposits ought to be mined, and could

be mined at a reasonable net profit. See ‘‘ Possibilities

of State’s Shale Outlined By Professor George,’’ The

Rocky Mountain News at sec. one (Jan. 1, 1918);

‘‘Natural Oil Running Short, But State Shale Will

Produce For 800 Years,’’ The Denver Times at 8 (Jan.

1, 1920).

[9,10] Thus, the Government stressed the fact that

oil shale deposits would inevitably become commercially

marketable. This inevitably removed the pre-1920

46a

claims in existing oil shale deposits from the realm of

mere speculation, and gave them sufficient present

value to constitute a valuable mineral deposit pursuant

to 30 U.S.C. § 22 et seq. While we agree with the Board

that speculative future value is not a sufficient showing

of present value to make oil shale a ‘‘ valuable mineral,”’

certain (or apparently certain) value in the near future

is sufficient evidence of present value. In the Govern-

ment’s encouragement of early investment in oil shale,

there was no suggestion that ‘‘dramatic technological

breakthroughs’? or unexpected ‘‘market changes”’

would be necessary in order to develop the oil shale

deposits and make them profitable. The Board also

stated that ‘‘in the 102 years since enactment of the

general mining law, value has always been determined

upon present facts, not upon possibilities of the

future.’? Winegar, 16 IBLA at 168. This is incorrect

in that the value of oil shale deposits has always been

determined in accordance with its future potential.

Among those early prudent investors was Karl C.

Schuyler, Sr., an authority on mining law, who became

a United States Senator from Colorado in 1932. His

partners included George A. Taff, an engineer who had

been instrumental in the construction of the Pike’s

Peak hydroelectric plants, and Eugene D. Milliken,

United States Senator from Colorado from 1941 to

1957. Reports made by mineral examiners of the

General Land Office concluded that:

Whether or not to lessee is successful in his attempt

to solve the shale question, there is no question

47a

but that the attempt that he is making is made on a

basis sufficiently large and is done under the direc-

tion of sufficiently competent technical men to

insure the belief that the men who are financing

the attempt have every confidence in its success.

Mention is made of these last facts to make clear

the fact that in our opinion, the entire system of

development work on which the applicant relies

for patent, when viewed in connection with the

present operations of the lessee, establishes beyond

any doubt the bona fides of the work.

General Land Office Field Examiners, Mineral Report

at p. 16 (Nov. 9, 1920). The fact that these early

prudent investors were persons of prudence and mining

experience who reasonably believed that a valuable

mine could be developed is persuasive authority to

satisfy the ‘‘valuable mineral’ test, even under Castle

v. Womble, supra, and United States v. Coleman, supra.

The excitement of thousands of investors who staked

claims in oil shale deposits prior to passage of the

Mineral Leasing Act of 1920 was fueled by a com-

bination of factors:

the supply of crude oil from domestic fields fell

below demand, and increasing amounts of crude

were imported from the new fields in Mexico. The

U.S. Geological survey [sic] estimated that a nine-

year supply of domestic natural petroleum re-

mained in the United States. No additional dis-

coveries were anticipated, and it appeared that the

automobile, which was already a major element in

48a

American life, would soon fall idle for lack of fuel.

At about the same time, the USGS announced that

fantastic quantities of potential fuels were con-

tained in the western oil shales. When combined

with the predictions of a coming fuel shortage, this

announcement produced an oil shale boon.

Sladek, supra at 3.

Interest in oil shale was dampered in the 1920’s as a

result of (a) lack of technology, because the industry

had stagnated for a half-century, (b) widespread pro-

motional fraud, which weakened public confidence in

the industry, and (c) the discovery of abundant oil

reserves in Texas, which was the single most significant

factor that diminished interest in oil shale. Jd.

During World War II, the United States became

more dependent on imported oil. In response to this

need, Congress passed the Synthetic Fuels Act of 1944

‘‘which acknowledged the importance of a reliable

domestic supply of fuels and which provided the Bu-

reau of Mines with a charter to establish such a supply

from the domestic oil shale deposits. The Bureau began

a research program that has continued to the present

day.” Id.

Once again, the discovery of oil in the Middle East,

on the ccntinental shelf of the United States, and in

Alaska, crushed public interest in oil shale until the

‘fenergy crisis’’ of 1973. Id.

In the aftermath of the fuel embargo, public interest

in oil shale and in other energy alternatives has re-

mained high. Even today, when the Alaskan pipeline is

nearly completed, reports on oil shale and synthetic

49a

fuels are given significant treatment by the press. See,

e. g., “‘Oil-Shale Funds Blocked,’ The Denver Post

1 (Sept. 23, 1976); ‘‘Interior Predicts Competitive

Shale,’’ The Rocky Mountain News 27 (Sept. 13, 1976) ;

‘*Colorado: Tomorrow, the West,’’ The Denver Post

(Sept. 5, 1976); ‘‘Is Oil Shale Dead?,’’ The Straight

Creek Journal 6 (Sept. 2, 1976); ‘‘Kleppe ‘Stumped’

On Oil Shale,’’ The Denver Post (Aug. 30, 1976);

*‘Oil-Shale Loan Plan Back,’’ Id. (Aug. 29, 1976) ;

‘‘Dead Oil Shale Project Revived,’’ Id. at p. 1 (Dee. 1,

1976).

In November 1974, the Federal Energy Administra-

tion published its Final Task Force Report, Project

Independence: Potential Future Role of Ow Shale:

Prospects and Constraints. The FEA noted that esti-

mates of oil shale resources have greatly increased

since the 1920’s, and that Colorado has 84% of the

higher grade reserves, which are among the finest and

most easily mined in the world. Jd. at 1. The Federal

government owns 80% of the known resources, al-

though there were thousands of claims filed on this

public land prior to 1920, ‘‘when oil shale was a locat-

able mineral under the mining laws.’’ Id. at 96. The

Report urges that the Government lease or sell its land

to private industry at a fair market value and in a

manner that would achieve efficient resource allocation

by approximating a perfectly competitive market.

Because the Government has refused to lease or sell its

land, which contains the most valuable oil shale re-

sources, private enterprises are unwilling to develop

their privately held deposits. Id. at 101-102:

50a

a private developer will continue to be reluctant to

develop private lands first so long as the possibility

exists that at some future date, as a result of

leasing public lands, the high grade resources

would be available to potential competitors as well

as whatever information the pioneering company

had already developed. The situation has been

assessed by the National Petroleum Council which

has concluded that without the availability of

public lands, development may be limited to one or

possibly two plants with a combined production of

100,000 barrels per day by 1985, even though the

potential is probably closer to 400,000 daily barrels.

Id. at 102.

Even the upwardly revised cost estimates of shale oil

production ($12 to $18 per barrel) indicate that shale

oil could be presently competitive with oil imported

from OPEC, especially if world oil prices rise. Report

of the Department of the Interior, Mining and Min-

erals Policy 72 (July 1976). This report notes that the

time required to determine the validity of claims filed

on public lands when oil shale was a locatable mineral

may impede commercial development. Id. at 73. See

Project Independence, supra at 39. The Secretary of

the Interior urged that a synthetic fuel commercial-

ization bill be passed by Congress in 1976, in order to

‘“‘encourage the developinent of the industry and pro-

vide an incentive for accelerated leasing and produc-

tion of shale oil,’’ Jd.

At about the same time, the GAO released a report to

Congress entitled, An Evaluation of Proposed Federal

5la

Assistance for Financing Commercialization of Emerg-

ing Energy Technologies (Aug. 1976), wherein it

recommended that the synthetic fuel commercialization

bill not be passed :

Synthetic fuels production—while technically

feasible with first generation technologies—is not

cost effective in that the total cost of outputs is not

price competitive with foreign oil. Nor does it look

as attractive when compared to other technologies,

which we examined, on an incremental price basis.

We believe synthetic fuels technologies would

receive a high priority for Government research,

development and demonstration efforts designed to

develop more advanced and efficient production

technologies, but we question whether assistance

should be given to commercialization of synthetic

fuels at the present time.

Id. at 48.

Faced with these polarized positions, on September

23, 1976, the House of Representatives defeated a pro-

posed $4 billion loan guarantee as an incentive to pro-

duce synthetic fuel by a one-vote margin. Multiple eco-

nomic, aesthetic, environmental, engineering, and

political uncertainties throughout the field of energy

resource development have led to this intense divisive-

ness within the federal government itself. Yet, the

nation requires a stable, long-term policy regarding the

development of oil shale deposits. Such a coherent

energy resource policy is especially important today,

when we have become much more reliant than before

52a

the ‘‘energy crisis’’ of 1973 upon foreign oil, when the

future of nuclear energy remains unclear, and when

other energy alternatives are technologically and eco-

nomically more unrealistic than oil shale.

Reliance on imported energy requires acceptance

of a worsening of the balance of payments. In

addition to the bleak monetary picture, a certain

insecurity is inevitable when the operation of the

nation depends to a large extent on a steady supply

of fuel from an area of the world which has been in

an almost continuous state of war for over 25 years.

In the long run, the United States and its neigh-

bors will need many other sources of energy besides

petroleum, and oil from the abundant reserves of

oil shale will probably be one of the alternative

sources. There is certainly much current interest

and involvement in the oil shale business. How-

ever, at the present time oil shale is at the mercy of

many political and economic elements, and it is un-

certain that the current efforts will be of sufficient

duration to produce a mature shale oil industry.

Sladek, supra, at 3-4; See Hon. Wayne N. Aspinall ‘‘Oil

Shale Development Handicapped by Government In-

decision,’’ 59 Quarterly of the Colorado School of

Mines 91 (July 1964).

Because of the instability of the Government’s

energy policy, it has appeared prudent, at times, to

invest in oil shale, while at other times, such investment

has appeared merely speculative. While the courts can-

not prevent the Government from having an unstable

53a

energy policy, the courts must prevent the Govern-

ment from altering legal standards that have been

relied upon by investors for the past half-century.

Since World War I, prudent mining investors and

industrial giants have purchased oil shale land in the

reasonable expectation that future profits would justify

such purchases. See Winegar, supra at 134-138. The

Standard Oil Company of California began to purchase

Colorado land bearing oil shale in 1943 ‘‘for their oil

shale resources,’’ which Standard considered valuable.

(Deposition of W. S. Svenson at 28). Since 1927,

Texaco has acquired nearly 30,000 acres of oil shale

land in Colorado and Utah in the belief that such an

acquisition has been prudent. (Deposition of C. E.

Moser at 47). Since 1955, Mobile Oil Co. has acquired

about 20,000 acres of oil shale _.nd, and holds an option

to purchase about 12,000 other acres ‘‘in the expectation

of eventually returning a profit justifying the pur-

chase’’ (deposition of T. W. Nelson at 40). Since 1952,

Cities Service has acquired about 10,000 acres of

Colorado oil shale land, and considers that investment

to have been prudent (deposition of D. M. Anthony at

30-32). Since 1961, TOSCO has acquired about 30,000

acres of oil shale land in Colorado and Utah, and

regards this as a prudent investment: ‘‘a viable indus-

try cannot exist without the ownership of these re-

serves’’ (testimony of H. Koolsbergen, Tr. 5033).

Apart from the fact that the Board’s reversal of the

Freeman standard has ignored a century of reliance

on the prudent man standard as it' applies to the pecu-

liar situation of oil shale, such action could jeopardize

54a

the future of our nation. It is apparent that world

crude oil prices can only continue to rise. With con-

stantly depleting oil reserves, there must come a time

when the recovery of oil from shale will be competitive

with crude oil. At this critical juncture, the future of

oil shale investment ought not te be tied up in decades

of litigation. As with every other industry, the tech-

nology would improve during competitive private

development. Prudent investors might be those who

recognize that we cannot wait until the next severe

shortage of crude oil (which may be the final shortage).

In our view, United States v. Coleman, supra, did not

superimpose the requirement that shale oil be presently

competitive with crude oil. Prudent investors can fore-

see a time in the not-too-distant future when it will be

cheaper to supply more of this country’s energy needs

with the vastly greater amount of shale oil.

VI

The Tenth Circuit and this Court have recently con-

sidered the applicability of the ‘‘prudent man’’ test in

the area of mining claims. United States v. Zwetfel,

508 F.2d 1150, 1157 (10th Cir. 1975); Hallenbeck v.

Kleppe, No. 75-786 (D.Colo., Aug. 31, 1976).

The government must go forward with sufficient

evidence to establish prima facie the invalidity of

contested claims, and the burden then shifts to the

claimant to show by a preponderance of the evi-

dence that his claim is valid

Zweifel, supra at 1157; Hallenbeck, supra at 7.

[11-13] In view of the Federal Government’s own

2 Pee eee

55a

statements which encouraged prudent investors to stake

claims in oil shale deposits, we find that the Government

has not established a prima facie case of invalidity. We

do not hold that an administrative agency cannot over-

rule its own long-standing precedents. However, be-

cause of subsequent Congressional approval, the F’ree-

man standard can only be overruled by legislative ac-

tion. Even if we were to hold that the Board itself

eould overrule Freeman, and that it could determine

that oil shale can no longer be regarded as a valuable

mineral under the prudent investor test, the Govern-

ment cannot assert that the very oil shale claims it had

encouraged are not valid. The reversal of the original

intention of the Interior Department and of Congress

requires application of estoppel against the Govern-

ment. See Vassiliou v. District Director of Immigra-

tion & Nat. Serv., 461 F.2d 1193, 1195 (10th Cir. 1972).

Moreover, where an established rule has long been

relied upon by investors, an administrative agency

should not reverse its position on a retroactive basis.

See NDRB v. Majestic Weaving Co., 355 F.2d 854, 859-

861 (2d Cir. 1966) (Judge Friendly). We hold that

the six pre-1920 oil shale claims were discoveries of

valuable mineral deposits and are valid claims.

Vil

Accordingly, IT IS HEREBY ORDERED that

Plaintiffs’ Motion for Summary Judgment is

GRANTED. Defendant’s Motion for Summary Judg-

ment is DENIED.

IT IS FURTHER ORDERED that by February 1,

56a

1977, Plaintiffs are to submit an Order and Form of

Judgment setting forth their claims with particularity

and description and implementing the Court’s ruling

herein.

57a

APPENDIX D

In THE UNITED States District Court

FOR THE DISTRICT OF COLORADO

SHELL Om Company AND D. A. |

SHALE, INC.,

Plaintiffs, Civil Action

vs. > No. 74-F-739

Ceci. D. Anprus, Secretary of J UDGMENT

the Interior,

Defendant.

[ Filed Feb. 1, 1977, James R. Manspeaker, Clerk ]

This action having come before the Court on cross

motions for summary judgment and the issues having

been duly considered and a decision having been duly

rendered,

IT IS ORDERED AND ADJUDGED that Judg-

ment enter for Plaintiffs, Shell Oil Company and D. A.

Shale, Inc., and against Defendant, Cecil D. Andrus,

Secretary of the Interior, as follows:

1. The decision of the Board of Land Appeals in the

Department of the Interior in United States v. Frank

W. Winegar, et al., IBLA 70-549, June 28, 1974, re-

ported at 16 [BLA 112, 81 I.D. 370, is reversed.

The oil shale mining claims owned by the respective

plaintiffs and involved in this action and their legal

descriptions, as set forth in the location certificates, are

as follows:

Shell Oil Company

Claims Legal Descriptions

Mountain Boy 6 Section 14, northwest quarter

Mountain Boy 7 Section 14, southwest quarter

D. A. Shale, Ine.

Claims

Harold Shoup 1 Section 23, southeast quarter

Harold Shoup 2 Section 23, northeast quarter

Harold Shoup 3 Section 23, NE 1/4 NW 1/4,

EK 1/2 SW 1/4 NW 1/4, and

SE 1/4 NW 1/4

Harold Shoup 4 Section 23, southwest quarter,

all within Township 7 South, Range 97 West, 6th Prin-

cipal Meridian, in Garfield County, Colorado.

2. The applications to patent plaintiffs’ claims are

remanded to the Department of the Interior. The de-

fendant and his subordinates shall expeditiously

process those applications consistent with the Order

granting summary judgment. Absent good cause

shown, such processing shall be based on the existing

administrative record.

3. The Court retains jurisdiction for the purpose of

entry of such further orders and directions as may be

necessary or appropriate for the construction or carry-

ing out of this judgment or this Court’s Order of

January 17, 1977, granting summary judgment for

plaintiffs in this action.

——eEeEeEeEeEeEeEeEeEeEeEeEEEErorOoeEeEeEeEeEeEeEe——————

59a

4, Each party to pay its own costs.

Dated at Denver, Colorado, this 10th day of Feb-

ruary, 1977.

FOR THE COURT:

JAMES R. MANsPEAKER, Clerk

By: Stephen P. Ehrlich

STEPHEN P. EHRLICH,

Chief Deputy

Approved:

Sherman G. Finesilver

SHERMAN G. F'INESILVER,

United States District Judge

60a

APPENDIX E

UNITED StaTEs DEPARTMENT OF THE INTERIOR

OFFICE OF HEARINGS AND APPEALS

INTERIOR Boarp oF LAND APPEALS

4015 Wilson Boulevard

Arlington, Virginia 22203

UNITED STATES

Vv.

FraNK W. WINEGAR, et al.

IBLA 170-549 Decided June 28, 1974

Appeal from a decision of Administrative Law

Judge Dent D. Dalby, holding that five and a portion

of a sixth oil shale placer mining claims are valid and

can proceed to patent. (Colorado Contest 359, 360)

Reversed.

Mining Claims: Determination of Validity—Mining

Claims: Discovery: Marketability

To satisfy the requirement of discovery of a valu-

able mineral deposit within the boundaries of an

oil shale placer claim located prior to February

25, 1920, it must appear that at that time the

mineral deposit could have been developed, ex-

tracted, and marketed at a reasonable profit; it

must also appear that such marketability has

continued without substantial interruption from

that time to the time of the contest proceedings.

Where it has been shown that at no time would a

6la

prudent man have expended further labor or

means in order to develop actual mining opera-

tions, discovery of a valuable mineral deposit has

not been made, and the claims must be declared

null and void.

Mining Claims: Determination of Validity—Mining

Claims: Discovery: Marketability

In order for an oil shale deposit to be considered

valuable within the meaning of the general min-

ing law, it must appear as a present fact, as of

February 25, 1920, and at all times thereafter

that the deposit could be developed, extracted,

and marketed at a reasonable profit. The possi-

bility of dramatic technological breakthroughs

or changes in market conditions at some future

date has no bearing on value as a present fact.

Mining Claims: Determination of Validity— Mining

Claims: Disecovery—Rules of Practice: Evi-

dence

What men have or have not done over a period of

years is proper evidence as to the conduct of a

prudent man in the same or very nearly the same

circumstances. Where oil shale claims had been

held for fifty years and no commercial produc-

tion was achieved on such claims, it must be con-

cluded that no prudent man would have been

justified in the belief that the mineral deposit

could be developed, extracted, and marketed at a

reasonable profit. -

62a

Rules of Practice: Generally

Departmental precedent will be overruled where

it is shown: 1) that it is contrary to the law as

interpreted by the courts and this Department,

and 2) it would result in the disposition of pub-

lic lands to those not entitled to receive them.

Freeman v. Summers, 52 L.D. 201 (1927), is

overruled.

APPEARANCES: Albert V. Witham, Esq., Office of

the Regional Solicitor, Department of the Interior,

Denver, Colorado, for appellant; Tweedy & Mosley,

Denver, Colorado, and Clearly, Gottlieb, Steen &

Hamilton, New York, New York, attorneys for

appellees, Frank W. Winegar and Shell Oil Co. ; Senior

and Senior, Salt Lake City, Utah, attorneys for

appellee, D. A. Shale, Inc.

OPINION BY CHIEF ADMINISTRATIVE

JUDGE FRISHBERG

The United States appeals from that part of the de-

cision by Administrative Law Judge (formerly Hear-

ing Examiner) Dent D. Dalby dated April 17, 1970,

validating placer mining claims Mountain Boy Nos. 6

and 7, and Harold Shoup Nos. 1, 2, 3 and 4.' The basic

* There were nine claims involved in the proceedings below: the

Mountain Boy Nos. 1, 6, and 7, and K.C. Schuyler Nos. 2 and 3,

and the Harold Shoup Nos. 1, 2, 3, and 4. The Mountain Boy No. 1,

and the K. C. Schuyler Nos. 2 and 3 were declared invalid by Judge

Dalby for lack of a physical finding of oil shale on the claims prior

to February 25, 1920. Additionally, Judge Dalby found that 35.4

acres of the Harold Shoup No. 3 were non-mineral in character.

That portion of the decision is final since no appeal was taken as to

those claims.

63a

issue presented in this appeal is whether the oil shale

on the subject claims was a valuable mineral deposit

as of February 25, 1920, when oil shale was withdrawn

from location under the general mining law by the

Mineral Leasing Act of February 25, 1920, 30 U.S.C.

§ 181 et seq. (1970), and, if so, whether such oil shale

has continued to be a valuable mineral deposit within

the meaning of the general mineral law, 30 U.S.C. § 22

et seq. (1970).”

The Mountain Boy Nos. 6 and 7 were surveyed in

1917 in 160-acre legal subdivisions. The location cer-

tificates were recorded February 6, 1918, showing loca-

tion on January 8, 1918, by the same eight locators for

both of the claims. Between 1917 and the early 1950’s

ownership of the claims changed several times. In 1956

Frank Winegar made an agreement with Shell Oil

Company that he would attempt to purchase the Moun-

tain Boy claims and use due diligence to obtain patents

thereto for Shell. Shell agreed to buy the claims after

patenting for $60 per acre and to reimburse Winegar’s

expenses up to $12,800.00. Winegar obtained title to a

number of Mountain Boy claims, including Nos. 6 and

7. On August 7, 1958, he filed a patent application with

the Bureau of Land Management for Mountain Boy

Nos. 1-8. In a report of December 14, 1959, a Bureau

2 Section 37 of the Act, 30 U.S.C. § 193, also excepted claims on

which a discovery had not been made by February 25, 1920, but on

which work leading to a discovery was being diligently prosecuted

on that date and was thereafter continued to a discovery. See

Starks v. Mackey, 60 I.D. 309, 310 (1949). No party asserts that

the claims in issue fall within this exception. Therefore, this

exception will not be restated in further discussion below. .

64a

evaluation engineer recommended that patents be is-

sued for the Mountain Boy Nos. 1, 6 and 7. A final

certificate was issued by the Bureau of Land Manage-

ment on November 30, 1960, for such claims. On March

21, 1961, the final certificate was approved for patent

by a Minerals Adjudicator of the Bureau. The applica-

tion was sent to the Director of the Bureau of Land

Management for issuance of patent. A patent was not

issued. Instead, some three and one-half years later,

Colorado Contest 359 was initiated. Subsequently,

Shell purchased the Mountain Boy Nos. 1, 6 and 7

from Winegar in November 1964 for $30,000.

The Harold Shoup Nos. 1, 2, 3 and 4 were located

on September 29, 1917, by eight co-locators. The loca-

tion certificates were recorded by October 27, 1917.

S. D. Crump acquired such claims and quitclaimed

them to Karl C. Schuyler, Sr., on May 24, 1923. When

Schuyler died testate on July 31, 1933, the claims

passed to his wife. On July 6, 1960, she incorporated

D. A. Shale, Inc., under the laws of the State of Colo-

rado, and transferred possessory title of the claims to

such corporation. On September 29, 1960, the corpora-

tion filed an application for patent of these and other

claims.

The instant case arose on September 8, 1964, when

the Manager, Colorado Land Office, Bureau of Land

Management, issued two complaints on behalf of the

United States alleging the invalidity, inter alia, of the

claims herein and requesting that they be declared null

and void. Both complaints charged that:

A. Valuable minerals were not found within the lim-

65a

its of the Claims on or before February 25, 1920,

or subsequent to February 25, 1920, as a result

of diligent prosecution of work leading to a dis-

covery on February 25, 1920, and thereafter con-

tinued so as to constitute a valid discovery within

the meaning of the mining law.

B. If a valid discovery was made on or before Feb-

ruary 25, 1920, or subsequent to February 29,

1920, as a result of diligent prosecution of work

leading to a discovery on February 25, 1920, and

thereafter continued, the discovery was subse-

quently lost and the lands within the claims re-

verted to and became a part of the vacant un-

appropriated public domain.

C. Valuable minerals do not now exist within the

limits of the claims so as to constitute a valid

discovery within the meaning of the mining law.

On October 7, 1964, contestee D. A. Shale, Inc., filed

an answer to the complaint denying the allegations.

On November 9, 1964, contestee Frank W. Winegar,

having obtained an extension of time in which to re-

spond, filed an answer similarly controverting the al-

legations. At the same time Shell Oil Company filed

a motion to intervene, alleging that it had purchased

the Mountain Boy claims from Winegar. This motion

was granted on November 9, 1964.

On March 9, 1967, leave was granted to the contestee

to amend their answers to the complaints. The two

cases were joined for hearing and decision. The hear-

ing on the complaints was commenced on June. 20, 1967,

66a

at Denver, Colorado, and continued until October 13,

1967. A further hearing was held on November 20,

1967, at Salt Lake City, Utah.

After these adjudicatory proceedings Judge Dalby

made an extensive review of the applicable mining law

with respect to the evidence presented in the proceed-

ings and concluded :

If this were a case of first impression I would,

for the foregoing reasons, find that * * * oil shale

was not a valuable mineral deposit. (Dee. at 55).

However, because of prior departmental precedent,

particularly Freeman v. Summers, 52 L.D. 201 (1927),

Judge Dalby felt that he was precluded from entering

such a finding ; accordingly he held that five claims and

a portion of a sixth were valid.

Appellant contends that there is no basis in fact or

law for that holding and that prior departmental prece-

dent with respect to oil shale is in error and should be

overruled. Appellees argue that prior departmental

precedent is a correct statement of both fact and law,

but even if that precedent is to be overruled, such ac-

tion may only be given prospective effect.

I. The Mining Law

The general mining law provides in pertinent part

that

all valuable mineral deposits in lands belonging to

the United States * * * shall be free and open to

exploration and purchase * * *. Act of May 10,

1872, as amended, 30 U.S.C. § 22 (1970). (Empha-

sis added).

67a

From 1872 to 1920 oil shale was locatable under the

general mining law. However, the Mineral Leasing Act

of February 25, 1920, withdrew oil shale from disposi-

tion under the mining law, except as provided in Sec-

tion 37 thereof, 30 U.S.C. § 193.

Since enactment of the general mining law, the courts

and the Department of the Interior have consistently

held that a valuable mineral deposit has been discov-

ered where there have been found within the limits

of a claim minerals of such quantity and quality that

a prudent man would be justified in the expenditure

of his labor and means with a reasonable prospect of

success in developing a valuable mine. United States v.

Coleman, 390 U.S. 599, 602 (1968) ; Cameron v. United

States, 252 U.S. 450, 460 (1920) ; United States v. Iron

Silver Mining Co., 128 U.S. 673, 675 (1888); United

States v. Zweifel, 11 IBLA 53, 80 LD. 323, 328-29

(1973) ; Oregon Basin Oil and Gas Co. (On Rehearing),

50 L.D. 253, 254 (1924) ; Castle v. Womble, 19 L.D. 455,

457 (1894).

Although both appellant and appellees agree with

that general statement of the law, appellant contends

that the facts of this case mandate the conclusion that

oil shale is not now and was not in 1920 a valuable

mineral deposit, while appellees assert the opposite.

The clear purpose of the law has always been to ob-

tain the development of actual mining operations. Sev-

eral years after enactment of the general mining law

the Supreme Court stated :

It is the policy of the government to favor the

development of mines of gold and silver and other

68a

metals, and every wari is afforded for that pur-

pose * * bl

Umted States v. Iron Silver Mining Co., 128 U.S.

673, 675 (1888).

Kighty years later the Court adhered to the same view:

Under the mining laws Congress has made public

lands available to people for the purpose of mining

valuable mineral deposits and not for other pur-

poses.

Umited States v. Coleman, 390 U.S. 599, 602

(1968).

Decisions of this Department are in accord with

that reasoning. We have stated several times that ac-

tual mining operations are the best evidence that a

mineral deposit is valuable. Sce, e.g., United States v.

Kosanke Sand Corp. (On Reconsideration), 12 IBLA

282, 304; 80 I.D. 538, 549 (1973); United States v.

McKenzie, 4 IBLA 97, 100 (1971). It is where actual

mining operations have not been initiated that the diffi-

culty arises in determining whether a mineral deposit

is valuable. While proof of actual sales of minerals

from a claim is not an indispensable element in estab-

lishing their marketability, lack of development and

sales may raise a presumption that the market value

of the minerals found thereon was not sufficient to

justify the cost of their extraction. Barrows v. Hickel,

447 F.2d 80 (9th Cir. 1971) ; Palmer v. Dredge Corp.,

398 F.2d 791 (9th Cir. 1968), cert. denied, 393 U.S.

1066 (1969) ; United States v. Humboldt Placer Mining

Co., 8 IBLA 407 (1972). Although such a presumption

69a

can be overcome by evidence showing that a mineral

deposit could have been extracted, removed and mar-

keted at a profit on or prior to a given date, such find-

ings have been rare. Cf. Verrue v. United States, 457

F.2d 1202 (9th Cir. 1972), rev’g United States v. Ver-

rue, 75 I.D. 300 (1968); United States v. Gibbs, 13

IBLA 382 (1973) ; United States v. Harenberg,9 IBLA

77 (1973), with cases cited above.

The Department of the Interior’s seminal decision in

determining whether there has been a discovery of a

valuable mineral deposit is Castle v. Womble, supra.

In that case an agricultural entryman had applied for

a patent. Several mining claimants protested on the

basis that they had discovered a valuable mineral de-

posit. In resolving the dispute, the Department tied

the test of value to the concept of an operating mine

as the desired end of the general mining law:

[W ]here minerals have been found and the evi-

dence is of such a character that a person of or-

dinary prudence would be justified in the further

expenditure of his labor and means, with a reason-

able prospect of success, in developing a valuable

mine, the requirements of the statute have been

met.

19 L.D. at 457.

This formulation, often referred to as ‘‘the prudent

man test,’’ has received the continuing approval of the

courts. Chrisman v. Miller, 197 U.S. 313, 322 (1905) ;

Cameron v. United States, supra; United States v.

Coleman, supra.

70a

In the years since promulgation of the prudent man

test, the Department has found it necessary to state

explicitly that for a mineral deposit to be considered

valuable it must be capable of extraction, removal and

marketing at a profit. This test of marketability has

been approved by the Supreme Court in United States

uv. Coleman, supra, as a logical complement to the pru-

dent man test:

Minerals which no prudent man will extract be-

cause there is no demand for them at a price higher

than the cost of extraction and transportation are

hardly economically valuable. Thus, profitability

is an important consideration in applying the pru-

dent-man test, and the marketability test which

the Secretary has used here merely recognizes this

fact.

The ruling in Coleman, approving the marketability

test employed by the Department, is and has always

been applicable to all mining claims. Converse v. Udall,

399 F.2d 616 (9th Cir. 1968), cert. denied, 393 U.S. 1025

(1969), and cases cited therein at pp. 621-22.

The courts clearly defined value with respect to the

purpose of the general mining law: the development of

actual mining operations. It is equally clear that the

level of anticipated profits must be sufficient to attract

prudent investment capital to develop actual mining

operations. For that reason we have held on several

occasions that mineral deposits which will yield only

meager profits are not valuable within the meaning of

the general mining law, since no prudent man would

invest in actual operations in those circumstances. E.g.,

Tla

United States v. Edwards, 9 IBLA 197, 203 (1973) ;

United States v. Harper, 8 IBLA 357, 369 (1972).

In addition to the prudent man test and its logical

complement, the marketability test,’ the Department

has developed several standards to aid in the deter-

mination of value.

First, it must appear as a present fact that there

would be a reasonable prospect of success in develop-

ing an operating mine that would yield a reasonable

profit. Castle v. Womble, supra; Davis’s Adm’r. v.

Weibbold, 139 U.S. 507, 523 (1891). Speculation with

respect to future changes in market conditions, dra-

matic breakthroughs in technology, or the hoped-for

discovery of a mother lode will not demonstrate as a

present fact that a prudent man would be justified in

initiating actual mining operations. Foster v. Seaton,

271 F.2d 836, 838 (D.C. Cir. 1959); United States v.

Denison, 76 I.D. 233, 239 (1969); United States v.

Jenkins, 75 I.D. 312, 318 (1968); United States v.

Larsen, 9 IBLA 247, 266 (1973).

The Castle v. Womble decision, as already noted, is-

sued as a result of proceedings between an agricultural

entryman and mineral claimants; this was the typical

situation in which the mining law developed.‘ It would

’ or an incisive and more extensive analysis of the application

of the marketability test, see United States v. Larsen, 9 IBLA 247

(1973).

‘There were other similar situations which give emphasis to the

requirement that the property be valuable for mining as a present

fact: 1) disputes between two mining claimants for the same area,

where prior in time of discovery was prior in right ; Clipper Mining

Co. v. Eli Mining & Land Co., 194 U.S. 220 (1904) ; and 2) disputes

72a

have been inequitable to allow the defeat of a homestead

entry by those asserting that the lands might someday

be valuable for mining without demonstrating present

value.

In addition to the historical concern for equity be-

tween competing claimants, there is a more fundamen-

tal reason for continued adherence to the present value

requirement: there is no practical alternative. Lands

may not pass from the public domain under the gen-

eral mining law unless the Department is persuaded

that they are valuable for mining. United States v.

Coleman, supra. If marketability could be predicated

upon possibilities of the future, the variables intro-

duced would be endless. Since few, if any, of these

variables are susceptible to reasonable predictability,

the marketability test would be reduced to mere specu-

lation, and any meaningful conclusion as to value would

disappear in a sea of conjecture. The effects of per-

mitting such vagueness in the administration of the law

were accurately forecast by Judge Friendly in his lec-

tures on administrative law: 1) capriciousness and 2)

undue political influence.°

A second standard is that actions of others in the

Same or very nearly the same circumstances may be

used as evidence of what would constitute prudent in-

vestment activity. For example, a mining claimant

would be justified in initiating actual mining opera-

over whether a placer claim was known to contain a mineral deposit

at the time patent was issued. United States v. Iron Silver Mining

Co., 128 U.S. 673 (1888).

°H. FRIENDLY, THE FEDERAL ADMINISTRATIVE

AGENCIES 19-24 (1962).

73a

tions on mineral showings that are the same or very

nearly the same as those where actual mining opera-

tions have been successfully brought to fruition by

others. See, e.g., Cascaden v. Bortolis, 162 F. 267, 270

(9th Cir. 1908).

In the same manner, failure to undertake actual op-

erations may be used as evidence that no prudent man

would be justified in so doing. For instance, if mining

claimants have held claims for several years and have

attempted little or no development of actual opera-

tions, a presumption may be raised that there has been

no discovery of a valuable mineral deposit. This was

the case in Cameron v. United States, supra, where six

years had elapsed from the date of location to the date

of the hearing. There the Supreme Court stated:

Sufficient time has elapsed since these claims were

located for a fair demonstration of their mineral

possibilities.

252 U.S. at 457.

For similar holdings, see United States v. Ruddock,

52 1.D. 313 (1927), where 17 years had elapsed without

production; Starks v. Mackey, 60 I.D. 309 (1949), 29

years; United States v. White, 72 I.D. 522 (1965), 38-

39 years; and United States v. Flurry, A-30887 .

5, 1968), where the Department stated :

* * * the most persuasive evidence as to what a

man of ordinary prudence would do with a par-

ticular mining claim is what men have, in fact,

done or are doing, not what a witness is willing

to state that a prudent man would do.

T4a

A third standard is that money expended on further

exploration or further research, but not on initiation

of actual operations, is evidence only that further ex-

ploration or research may be justified ; it is not evidence

that the mineral exposed is valuable, or that prudent

men would be justified in initiating actual operations.

Umited States v. New Mexico Mines, Inc., 3 IBLA 101,

106 (1971).°

As previously noted, oil shale was withdrawn from

location under the general mining law by the Mining

Leasing Act of February 25, 1920, 30 U.S.C. §§ 181,

193, 241 (1970). The mining claims which are the sub-

ject of the present appeal were located prior to the

date of such withdrawal. Therefore, the validity of

such claims must be tested by the value of the mineral

deposit as of the date of the withdrawal, as well as

at the date of determination. Barrows v. Hickel, supra;

Mulkern v. Hammitt, 326 F.2d 896 (9th Cir. 1964). If

the claims were not supported by a qualifying discov-

ery of a valuable mineral deposit at the time of with-

drawal, the land embraced within the boundaries of the

claims would not have been excepted from the effect

of the withdrawal, and the claims could not thereafter

become valid even though the value of the deposit sub-

sequently increased due to a change in the market

value of the mineral. United States v. Henry, 10 IBLA

195, 199 (1973) ; United States v. Gunsight Mining Co.,

note 6, supra; United States v. Pulliam, 1 IBLA 143

(1970) ; United States v. Duval, 1 IBLA 103 (1970).

* For an imaginative analogy, see United States v. Gunsight Min-

ing Co., 5 IBLA 62, 69 (1972).

75a -

Even if the mining claims are supported by a valid

discovery, it is clear that a discovery may be lost. We

have frequently held that discovery may be ‘‘lost’’ due

to exhaustion of the deposit or to changes in market

conditions of substantial duration. Best v. Humboldt

Placer Mining Co., 371 U.S. 334, 336 (1963), citing with

approval United States v. Logomarcint, 60 I.D. 371,

373 (1949), and United States v. Houston, 66 I.D. 161,

165 (1959). See also Mulkern v. Hammitt, supra;

Adams v. United States, 318 F.2d 861, 871 (9th Cir.

1963) ; Multiple Use Inc. v. Morton, 353 F. Supp. 184

(D. Ariz. 1972), aff’g United States v. Silverton Min-

ing and Milling Co., 1 IBLA 15, 18 (1970); United

States v. Charleston Stone Products, Inc., 9 IBLA 94,

100 (1973) ; United States v. Denison, supra.

II. The Distribution and Development of Oil Shale

The geographic distribution and the history of the

development of both foreign and domestic oil shale

were very ably set forth in the opinion rendered by

Judge Dalby. Accordingly, we adopt those portions

of his decision which are set forth below, changing the

numbers of the footnotes therein to follow ours sequen-

tially.

‘BACKGROUND

‘Geographic Distribution of Oil Shale

‘‘The contested claims were located for oil shale. Oil

shale is a fine-grained, laminated, sedimentary rock

containing solid organic material called kerogen which,

upon destructive distillation, will produce a substantial

76a

amount of oil. The kerogen is derived from deposition

of aquatic plants and smaller amounts of animal life

in lakes during various geological periods. Oil shale

does not contain appreciable amounts of oil.

‘*Oil shale was deposited in a wide span of the earth’s

geological history from the Cambrian to recent periods.

Shale deposits that yield at least 10 gallons of oil per

ton occur in all of the continents. There are both high

and low grade oil shale deposits in Africa of late

Paleozoic and early Mesozoic age. In the Stanley Basin

of the Congo, extensive deposits of oil shale of Triassic

age exist in beds that aggregate about 30 feet in thick-

ness and yield more tha: 25 gallons of oil per ton. There

are extensive deposits in China, Israel, Jordan, Syria,

Siberia, Thailand, Burma and Turkey. The oil shale

resources of Asia have been estimated at 70 billion

barrels in deposits that yield more than 25 gallons per

ton. Deposits oceur in Australia and New Zealand. The

known higher grade deposits are estimated to contain

280 million barrels oil equivalent.

‘“‘In Europe there are substantial oil shale deposits

in the Balkan Peninsula and adjacent area, France,

Germany, Great Britain, Italy, Austria, Switzerland,

Luxembourg, Russia, Spain, Portugal and Sweden. The

recoverable oil shale resources of Europe are esti-

mated to contain a total of more than 30 billion barrels,

mostly in shales that yield more than 25 gallons per

ton. In South America, oil shale deposits are known

to exist in Argentina, Brazil, Chile and Uruguay. These

oi] shale resources are estimated to contain 50 billion

barrels of recoverable shale oil.

77a

‘‘In the United States, deposits of oil shale of vary-

ing nature and extent have been reported in the States

of Alabama, Alaska, Arkansas, California, Colorado,

Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Ken-

tucky, Maryland, Missouri, Michigan, Montana, Ne-

vada, New York, North Carolina, Ohio, Oklahoma,

Pennsylvania, South Dakota, Tennessee, Texas, Utah,

Virginia, West Virginia, Wisconsin and Wyoming. A

large fraction of shale deposits of the United States

contain small amounts of organic matter which will

yield from one to five gallons of oil per ton on destruc-

tive distillation. These rocks have not been considered

as oil shale. In addition, some sandstones, siltstones

and limestones contain solid organic matter which yield

very small amounts of oil. Possibly half or more of

the sedimentary rock areas of the country will yield

a small amount of oil. Oil shale can, therefore, be sub-

ject to several definitions. One authority defines oil

shale as organic-rich shale that yields at least 10 gal-

lons (3.8) percent of oil per ton.’

‘“‘The oil shales of highest concentration of organic

matter are in the Green River Formation of Colorado,

Utah and Wyoming and the Tiglukpuk Formation in

Alaska. These are the only North American oil shales

in the United States in the 25 to 100 gallons per ton

range. The Green River Formation shales of this grade

have been estimated to contain 600 billion barrels. The

7 G-97, pp. 3, 10-16 ; Tr. 3448, 3450, 3455.

The Contestant’s exhibits are designated by the prefix ‘‘G’’

and the Contestee’s by the prefix ‘‘C.’’ ‘‘CFF’’ refers to the

Contestee’s Proposed Findings of Fact.

78a

Tiglukpuk Alaskan shales of similar grade have been

estimated to yield 250 billion barrels.* .

‘*The Green River Formation is considered by geolo-

gists to have been formed in an inland lake which, at

one time, covered an area of some 16,000 square miles

in the States of Colorado, Utah and Wyoming. The

formation resulted from lake and stream depositions

extending over a period of some eight to ten million

years. During the course of the evolution of the Green

River Formation, tuff beds were formed in localized

areas from airborne volcanic ash. In some instances,

fairly great thicknesses of tuff were deposited.’

* * * * * * *

“Foreign Oil Shale Activity

“Oil shale development in foreign countries stimu-

lated interest in the possible development of Western

United States shales and has relevance in determining

what expenditures might prudently be made in the

United States. Several of the foreign deposits have

been commercially exploited.

‘Production of fuels from oil shale preceded the

production from petroleum. Shale oil was first pro-

duced in France in 1838. Subsequent oil shale opera-

tions were started in Scotland in 1850; Australia in

1865; Brazil in 1891; Germany in 1916; Sweden and

Kstonia in 1921; Spain in 1922; Manchuria in 1929;

and South Africa in 1935. A number of these con-

tinued until recent years when they succumbed to eco-

8 G-97, p. 9.

* Tr. 83, 86, CFF-1; CFF-10.

79a

nomic pressures from the petroleum industry. Today,

only the Estonian and Manchurian operations survive.”*

‘‘In France, the shale oil industry grew until about

1864 when competition of imported petroleum caused

a decline. The French Government, at least intermit-

tently, provided support of one kind or another, such

as imports duties on foreign petroleum or direct sub-

sidies. In 1893, oil shale production was about 190,000

tons. By 1900, production reached 220,000 tons, in-

creased to 500,000 tons during World War II, and then

declined. The industry ceased in the early 1960’s.”

‘‘The Scottish industry used oil shale, recovered by

underground mining, which assayed generally in the

range of 25 to 35 gallons per ton. After 1850, more

than 140 companies and individuals engaged in oil

shale ventures. By 1870, these were reduced to 51, and

by 1910 only six companies remained. By 1920, the

operations were consolidated under one parent com-

pany, Scottish Oil Ltd. The Scottish oil shale produc-

tion in the early 1870’s was approximately 500,000

long tons per year and reached 3,000,000 tons annually

by 1910. Production thereafter gradually declined to

essentially nothing in 1964.” |

‘‘Oil Shale Activity in the United States

‘‘The oil shale industry in the United States started

about 1850. By 1860 there were 53 companies produc-

ing oil by distillation of various bituminous substances,

including oil shale. Natural petroleum was discovered

10 G.290, pp. 29, 39; G-479, pp. 109, 110, 111; C-1025; CFF-45.

11 G.281, p. 15; G-290, pp. 25, 26; G-419, p. 50; C-1025, pp. 1, 2.

12 G.290, pp. 29, 30, 32, G-419, p. 56, 57.

80a

at Titusville, Pennsylvania, in 1859 and the American

petroleum industry came into being. This reduced the

price of kerosene so-much that oil shale operations

became unprofitable. The plants were abandoned or

adapted to petroleum refineries.”

‘Interest in oil shale revived in the 1910 to 1920

period and has continued to the present time.”

“An examination of how prudent persons expended

their means with respect to oil shale during this period

will provide the guide in determining whether oil shale

was, as of February 25, 1920, a valuable mineral. Be-

cause the evidence in this respect is massive, the exam-

ination is limited to some corporations and the Govern-

ment, whose activities are directed by the composite

judgment of experienced officers.

‘Robert M. Catlin, a businessman and a member of

the American Institute of Mining and Metallurgical

Engineers, between 1890 and 1915 purchased approxi-

mately 140 acres of oil shale land, leased approximately

480, and obtained an interest in 140 acres of unpa-

tented mining claims. He visited Broxburn, Scotland,

in 1901 to study the Scottish shale oil operation, and

in 1914 began research and development with the Elko

deposits. In 1915, a 100-foot shaft was sunk in his

mining property. The following year he erected a 20-

_ ton per day retort which proved unsatisfactory and

was later dismantled. In 1917, he incorporated the

** G-290, pp. 60, 61; G-419, p. 99; C-721, pp. 38-39 ; C-853, p. 151;

CFF-288.

** C-721, pp. 39-45.

8la

‘Catlin Shale Products Company’ and transferred his

oil shale land to the company for stock.”

‘‘In 1918, the company began the construction of

eight 100-ton per day retorts which differed in design

from the 1915 models. The retorts were in operation

in May of 1919 and by July the new plant had pro-

duced 15,000 gallons of shale oil. A refrigerator plant,

wax press, stills and agitator were added to the plant

the latter part of 1919 and early 1920. Sometime later,

probably 1920, the Catlin Company’s retorts were shut

down. A third retort, 40 feet high and 12% feet in

diameter, was constructed and put in operation in

December of 1921. This retort was operated intermit-

tently until October 18, 1924.”

‘‘Tn 1924, the shale oil products were offered for sale

for the purpose of testing the market. The products

apparently could not be marketed in competition with

petroleum products. On December 23, 1930, the Com-

pany was dissolved. Its operation was admittedly ex-

perimental.”

“The Oil Shale Mining Company was incorporated

in Colorado on October 2, 1916; as a public stock com-

pany with a capitalization of $100,000. It acquired six

mining claims about 15 miles west of DeBeque, Colo-

15 G.23, p. 101; G-722, Part 1, pp. 9, 10, 12, 17, 18; G-722, Part II,

p. 30, G-724E, G-724G, Lease No. 4349; G-724I, pencil notes of

R. M. Catlin, Sr.; G-724N, Deeds 276-F, 278-F and 384-F ; CFF-57 ;

CFF-58, CFF-105.

16 G.722, Part I, pp. 19, 20, 43; G-724H, Catlin letter, May 19,

1919; G-724J, letters of October 18, 1919 and December 2, 1919;

CFF-78.

17 G.722, Part I, pp. 18, 40, 41; G-722B; G-724B; G-724J, letter

by R. M. Catlin dated August 8, 1919.

82a

rado. In 1916, the company built a bunkhouse and a

cookhouse near the claims. In 1917, the buildings were

moved to a new location and an externally heated, six

to eight-ton per day batch-type Henderson retort, 18

feet high and 12 to 15 inches in diameter, and a tram-

way were constructed. By the end of 1918 cr the early

part of 1919 the company had six of these retorts, only

one of which was assembled and operated on an experi-

mental basis. By 1920, the company experimented with

a continuous type of retort, invented by its superin-

tendent, A. V. Young, which was subsequently aban-

doned.”*

“The company produced a few barrels of oil in 1920

and 30 barrels in 1921. Oil shale for the retorts was

obtained from small pits on the claims during the pe-

riod from 1917 to 1921. By 1926, the company lost its

properties through attachments.”

‘The Monarch Shale Oil Company was incorporated

~ in October 1919. The corporation acquired 240 acres

of oil shale land, located about 13 miles northeast of

DeBeque, Colorado. By April 1921, the company had

erected a Ginet retort (named after its inventor and

president, Joseph H. Ginet), 18 to 25 feet long and 3%

feet in diameter, with a capacity of about 50 tons of

shale per day. During 1921, the plant was operated

on 11 or 12 occasions for short periods and produced

a total of 71 barrels of shale oil. The retort was ‘not

run to any extent’ during 1922 and was not operated

** G-115, pp. 4, 6, 7, 14, 15, 20, 27, 40, 47, 114, 115, 130-123, 139,

G-241, p. 30.

*° G-115, pp. 28, 40, 113-118, 130; G-241, p. 30; CFF-57.

83a

at all during 1923. Some test runs were made in 1924.

The shale for charging the retort was taken from a

tunnel driven 75 feet into the side of the cliff above

the plant.”

“The Mount Logan Shale Mining and Refining Com-

pany was incorporated in Colorado in July 1917. It

obtained seven unpatented mining claims located about

five miles from DeBeque, Colorado, on Mount Logan.

The company erected a plant in Western Colorado in

1918, using three Galloupe retorts of a 20-ton capacity

per day. After test ruris in 1919 and 1920 proved this

retort to be unsatisfactory, the company erected a

Simplex retort similar to the Galloupe. The Simplex

was 21 to 30 feet long and about 3 feet wide with a

capacity of about seven tons, producing 12 to 15 bar-

rels a day. The company obtained its shale from a 100-

foot tunnel into the cliff. The total cost of the plant

was estimated at approximately $70,000. The corpora-

tion made some experimental runs of oil shale in 1920

and 1921. The company became defunct in October

1926." 3

‘The Index Shale Oil Company was incorporated in

Colorado in October 1920. It obtained possessory title

to eight oil shale claims and equitable ownership in an

additional 15 others. Index began constructing an ex-

perimental plant in 1920 about 15 miles northwest of

DeBeque, Colorado, using the Brown retort invented

20 G-116, pp. 4-8, 14, 20, 48, 67, 70, 71, 80, 86, 93, 101, 106, 119,

120 ; C-212.

21 G61, No. 8; G-117, pp. 1, 7, 9, 10, 12, 15, 19, 20, 24, 31, 32, 34,

59, 61, 75, 89, 99-102, 118, 143, 145; G-168, p. 21; C-213, p. 326;

C-455 ; 0-457 ; C-959, pp. 31, 32; CFF-80, CFF-106.

84a

by its largest stockholder, Harry L. Brown. The retort

was 75 feet long, two and one-half feet in diameter.

Experimental runs of oil shale indicated that changes

in design and equipment were necessary. Additional

equipment was added in 1926. In 1928 the company

was in receivership. The corporation mined its shale

from a tunnel driven 60 feet into the face of the cliff.”

“The March Oil Company was incorporated in Au-

gust 20, 1917, in the State of Colorado by a group of

businessmen, including K. C. Schuyler. The company’s

mining property, consisting of about 2,400 acres of oil

shale, was located three to four miles north of Grand

Valley on Parachute Creek. In 1917 the company

leased its mining claims to K. C. Schuyler who agreed

to work the claims and to refine and dispose of oil shale

and its products. In 1920 and 1921 Schuyler and

George Taff, working for or in partnership with Schuy-

ler, constructed a plant at a cost of $100,000. The plant

consisted of some buildings and sheds, a one-and-one-

half-mile tramway, crushers and engine. A retort was

designed by Taff, ordered from a Wisconsin manufac-

turer, but never delivered. In mid-1921 a cable on the

tram broke killing nine men. The plant was never

completed.”

‘*The Continental Oil Shale Mining Company was in-

corporated in Arizona in November 1920. The company

obtained mining claims by merger with the Oil Devel-

#2 G-118, pp. 1, 2, 31, 47, 49, 51, 52, 53-130, 154, 155, 163, 165,

166, 167 ; G-624E, pp. 172-207.

*8 G-61, No. 18; G-125, pp. 10, 15, 19, 21, 22, 30, 43; C-972, Exs.

No. 1, pp. 1, 2, No. 3, p. 1, No. 4, p. 7, and Nos. 10 and 12; ©-973,

p. 54; CFF-81; CFF-353 ; CFF-358 ; CF F-362.

85a

opment Company. In 1919, it constructed a plant, 20

miles north of Rifle, Colorado, on Piceance Creek, con-

sisting of a bunkhouse, a residence for a superinten-

dent, a blacksmith shop, a crusher, and a Colorado

continuous retort, invented by two Denver engineers.

The vertical retort was about 22 feet high and two feet

in diameter, having a capacity of 50 tons of shale per

day.”

‘« Shell Oil Company became interested in oil shale by

1945. By August 1954, Shell had acquired 3,624 acres

of oil shale property at a cost of $123,014.35. Shell

continued to acquire oil shale lands. In 1965, it entered

into an option to purchase the Cathedral Bluff claims

in the Piceance Creek Basin. The options on these

21,000 acres specified a purchase price of $2,000 an

acre. The total cost to Shell would be in excess of

$43,000,000, including $1,000,000 as the cost of main-

taining the option. In the span of 10 to 15 ye

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