# Petition — Morris v. United States > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385006_0495%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1979 - **Citation:** 444 U.S. 863 ## Text — ip Qn Aemremeeeasins “ ho, —s io TERT ao Str cd y ogy yg : AA, UE D | . ° ¥ + r -_ ’ = 4 Sik bt Ly EJ } ' | 5 i 4 i # ‘5. Supreme Court of TEE ROOK, JR, CLERK | Che United States October Term, 1979 No. @ 9 5 4 G. PATRICK MORRIS, JOAN E. ROTH, ELISE L. NEELEY, LYLE D. ROTH, VERA M. BALTZOR (formerly Vera M. Noble), CHARLENE S. BALTZOR, GEORGE R. BALTZOR, JUANITA M. MORRIS, NELLIE MAE MORRIS, MILO AXELSEN, PEGGY M. AXELSEN, and FARM DEVELOPMENT CORPORATION, an Idaho Corporation, An the Petitioners, v. UNITED STATES OF AMERICA and CECIL v. ANDRUS, SECRETARY OF THE INTERIOR OF -THE UNITED STATES OF AMERICA, Respondents. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT WILLIAM F. RINGERT Anderson, Kaufman, Anderson & Ringert Attorney for Petitioners: 503 Idaho Building Boise, Idaho 83702 In the Supreme Court of Che United States October Term, 1979 No. G. PATRICK MORRIS, JOAN E. ROTH, ELISE L. NEELEY, LYLE D. ROTH, VERA M. BALTZOR (formerly Vera M. Noble), CHARLENE S. BALTZOR, GEORGE R. BALTZOR, JUANITA M. MORRIS, NELLIE MAE MORRIS, MILO AXELSEN, PEGGY M. AXELSEN, and FARM DEVELOPMENT CORPORATION, an Idaho Corporation, Petitioners, Vv. UNITED STATES OF AMERICA and CECIL D. ANDRUS, SECRETARY OF THE INTERIOR OF THE UNITED STATES OF AMERICA, Respondents. _ PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT WILLIAM F. RINGERT Anderson, Kaufman, Anderson & Ringert Attorney for Petitioners 503 Idaho Building Boise, Idaho 83702 : ; eT nr nnmy PAGE Coren TROIOME eo ia a Ses hs bees 1 PUPAIIRINE ka as a2 ek RS Oe ee 1 ucstionn FROnenees oi. cla i ek oe eee 2 Constitutional and Statutory Provisions and Pepetaliones TAVOINOG i kas -'ns so kaw ecen wel 5 statem@nt Of the LGG0 «so iis chads ayscekwnee eles 6 Reasons for Allowance of the Writ .............. 15 A. Dnbroretiote sok cer oer eee eee 15 B. The Holding Proviso of 43 USC § 329 isa Lim- itation On The Quantity of Land to Which Title Can be Acquired, and Was Not Intended to Include Mortgages and COOOON: ys og och CRE Oe eee 18 C. The Assignment of a Desert Land Entry is a Transfer of the entire Interest of the Entryman, and 43 USC § 324 Was Not Intended to Include Mortgages and TMROES oc cs See Rea es ete 39 D. Applying the IBLA’s Interpretation of 43 USC § 329 to These Entries Without Pub- lishing an Appropriate Regulation Was an Abuse of Discretion and Was in Ex- cess of Statutory Limitations on the Secretary's Authority; the IBLA Inter- pretation Does Not Have the Force and Effect of Law and the Courts are rt Required to Defer to That Interpreta- I ICE RPS a WA ay UL Re EES Ot Rae BT re Ee 46 E. If the Transactions Amounted to Holdings by Sailor Creek in Excess of 320 Acres, That Was Not Sufficient to Warrant Can- cellation of the Entries and Forfeiture of the Lands and Moneys; the IBLA Decision was Inconsistent with Long-established Policies of the Department ................. 55 F. The IBLA Violated the Administrative Proce- dure Act and the Regulations of the De- partment by Disregarding Uncontra- _ dicted Evidence; the IBLA Wrongly concluded that the Government was not Estopped from Cancelling’ the NE Se TUNG eo Aceh eae he [esses 60 G. Upon Filing Applications for Entry the En- trymen Became Vested with the Right to Have the Entries Processed in Ac- cordance with the Policies and Regula- tions in Effect at That Time ............... 65 H. The Issues of Denial of Due Process, Applica- tion of Contract Law and Dismissal for Inadequate Pleadings Should Have Been Decided in Favor of the Petition- ae ae CCAR ra Saath ered en EY Lae eae 74 ill APPENDICES Appendix A: Decision of the Administrative Law EER ORAM LOM rae tele WE i ee A-1 Appendix B: Decision of the Interior Board of Land pL) ek ane Or renrenee eatery Pere phy thes Ls: B-1 Appendix C: Findings, Conclusions and Order of the District Court and Judgment of the District Cee oa iA iiact os eee da sees core C-1 Appendix D: Opinion of the Court of Appeals and Order of the Court of Appeals ............... D-1 Appendix E: Constitutional and Statutory Provi- sions and Regulations Involved .............. E-1 Appendix F: H. R. No. 8102 (1886), and 1. R. No. TOO? TRO i oe cds sc ee eee Nake eae F-1 lV CITATIONS CASES Page Abbotsford, The, 98 U.S. 440, 25 L. Ed. 168 ..... 24 Adolph Coors Company v. F.T.C., 497 F. 2d 1178 Re i eich ides kes cnaereceees 17, 63, 64 Aiken v. Obledo, 442 F. Supp. 628 (1977) ....... 53 Anderson, Clayton & Co. v. U.S., 562 F. 2d 972 0. APRESS Ors a aE nn, 2 eee ge aR pee 48 Andrus v. Charlestone Stone Prod. Co., Inc., 436 U.S. 604, 56 L. Ed. 2d 570 (1978) ......... 14, 63 Appalachian Power Co. v. Train, 566 F. 2d 451 (1977) Arizona Grocery Co. v. Atchinson, T. & S. F. R. Co., 284 U.S. 370, 76 L. Ed. 348 (1932) ............ 48 Atchison, T. & S. F. R. Co. v. Board of Trade, 412 U.S. 800, 37 L. Ed. 350 (1973) ......... 49, 58, 68 Bandy, Albert A., 41 Land Dec. 82 (1912) ....... 43 Barlow v. Collins, 397 U.S. 159, 25 L. Ed. 2d 192 oe cacy ESTERS Tey rea SERENE LAER cra Se a en ee 54 Bartine, Fred, 59 Land Dec. 110 (1945) .........33 Batterton v. Francis, 432 U.S. 416, 53 L. Ed. 2d 448 Co By § TONE NET ce NC aay 0 aA Canna os Re So 27, 53, 54 Benson Mining & Smelting Co. v. Alta Mining & Smelting Co., 145 U.S. 428, 36 L. Ed. 762 OSES Pie OF ci RN aR meta ane aR AR at 69 Bingham, Wallace S., 82 Int. Dec. 377 (1975). 43. 49 Vv Blake v. McKim, 103 U.S. 336, 26 L. Ed. 563 CRED sie sain dees 4 os ov a ee a en 42 Bond’s Heirs v. Deming Townsite, 13 Land Dec. BAR (ISOR icc es eas Ee eee 33, 37 Bone v. Rockwood, 38 Land Dec. 253 (1909) ..... 60 Braniff Airways, Inc. v. C.A.B., 379 F. 2d 453 (OBT) beck ey eee ee kes eee ea oe 17 Bright, James F., 6 Land Dec. 602 (1888) ....... 25 Briscoe v. Kusper, 435 F. 2d 1046 (1970) ........ 48 Cameron v. United States, 252 U.S. 450, 64 L. Ed. Ghd (1G19) oie cs i a ae 37 Campbell v. Glover, 35 Land Dec. 474 (1907) .... 42 Case v. Larkin, February 3, 1876, 2 Copp’s Public Land Lawes 2330 (1862) ° 5. icc ci Sac Bene tien cue’ 38 Cass v. United States, 417 U.S. 72, 40 L. Ed. 2d 668 (FOTO). ohh ees ho eel 20 Catholic Bishop v. Gibbon, 158 U.S. 155, 39 L. Ed. O81 (90RD iia. oe keen tes wae sae eas 38 Central Illinois Pub. Serv. Co. v. United States, 435 U.S. 21, 56 L. Ed. 2d 62 (1978) .....00..60 60: 49,50 Chapman v. Sheridan- Wyoming Coal Co., 338 U.S. 621, 94 L. Ed. 393 (1960) 2... ec ccsac ews 58, 71 Charlestone Stone Products Co., Inc. v. Andrus, SES FF. Ol FRG CIOTT) aks eins ok erkt eee 63 Church of The Holy Trinity v. United States, 143 U.S. 457, 36 L. Ed. 226 (1602) ... 000. sce cseee 19 V1 Cox v. Hart, 260 U.S. 427, 67 L. Ed. 332 NAD ona ati S ae ades dvds 8as 5 ones 25, 32, 38 Danford v. Ellsworth, 10 Land Dec. 341 (1890) ..26 Davies v. Killgore, 11 Land Dec. 161 (1890) ..... 26 Davis v. Manry, 266 U.S. 401, 69 L. Ed. 350 Poe Ceara evn ian cth Week bebeek eo Bee 29, 30 Day v. Weinberger, 522 F. 2d 1154 (1975) ....... 63 Diamond Ring Ranch, Inc. v. Morton, 531 F. 2d SE AG OCS oc aay Sees Ls 5 dose sek wih 17 Dole, David B., 3 Land Dec. 214-(1884) ..49, 59, 67 Downey, S. W., 7 C.L.O. 26 (1880) .............. 18 El Paso Brick Co. v. McKnight, 233 U.S. 250, 58 Re Os ie wee cele awe wal cavers 20 Emert, Adolph, 14 Land Dec. 101 (1892) ........ 41 Emmerson v. Cent. Pacific Railroad Co., 3 Land Ee TID Fcc aso c Vide sou ce aah ae Pea eke 25 Ernst & Ernst v. Hochfelder, 425, U.S. 185, 47 L. Lk gs Sa ey er pas Espinoza v. Farah Mfg. Co., 414 U.S. 86, 38 L. Ed. MEE Sn artha thasw'ei coh kere eaewe OF «ee Oakley, Herbert C., 34 Land Dec. 383 (1906) .... 29 Olsen v. Warford, 11 Land Dec. 289 (1890) ...... 26 Payne v. Central Pacific Railway Co., 255 U.S. ee a Oe TO CRUE his oc epee eda wake ape 67 Payne v. State of New Mexico, 255 U.S. 360, aha, A ee SAE ewes cis teen ceeken 67 xX Pennell v. Philadelphia & Reading Ry. Co., 231 Cy. a OB Te. a Oe a sk ee Sa ees 28 Perrine, Charles, 3 Land Dec. 331 (1883) ........ 38 Pfaff v. Williams, 4 Land Dec. 455 (1886) ....... 25 Rector v. Gibbon, 111 U.S. 276, 28 L. Ed. 427 Reiche v. Smythe, 80 U.S. 162, 20 L. Ed. 566 ea Ne So NEN EE OMEN LT ERS ER Safarik v. Udall, 304 F. 2d 944 (1962) ....... 49, 59 Saylor v. Wilson, 7 Land Dec. 493 (1888) ........ 26 Schetka v. Northern Pacific Railroad Co., 5 Land Se MEE CRISES: a's Cos yy Ohne onde cin ae ta ake wee 25 Securities and Exchange Commission v. Chenery Corp., 332 U.S. 194, 91 L. Ed. 1995 (1946) ....46 Shaffer, A. M., 73 Int. Dec. 293 (1966) .......... 73 Silsbee Town Company, 34 Land Dec. 430 Ce ern ya reais rary eas 5 4 a ras, a ae Rate 29 Smith v. United States, 170 U.S. 372, 42 L. Ed. Pe SAME Fo a cca as weees eek dee a ee el 20, 52 Solicitor’s Opinion Idaho Desert Land Entries — Indian Hill Group, 72 Int. Dec. 181 (1965) ....51 Sprague v. Ticonic National Bank, 307 U.S. 161, SES Se. Se A) Pick was practically identi- cal to 43 USC § 329, except that the time allowed to prove up was three years instead of four and the clause containing the holding limitation was omitted in the 1886 version, shows that the insertion of the holding limitation at that place in 43 USC § 329 was deliberate and intended as a limitation on the issuance of patent. The insertion of the holding limitation in the 1891 amendment also shows that Congress did not rely on “clear Departmental policy” that the IBLA contends had already established limitations on assignments. See 82 Int. Dec. at 155, App. B, p. B-19. Without the holding limitation, the 1891 Amendment could have overridden the departmental policy and permit- *4 Other cases using “hold” in the same sense include Schetka v. Northern Pacific Railroad Co., 5 Land Dec. 473 (1887); Fleming v. Bowe, 13 Land Dec. 78 (1891); James F. Bright, 6 Land Dec. 602 (1888); Pfaff v. Williams, 4 Land Dec. 455 (1886); and Emmerson v. Cent. Pacific Railroad Co., 3 Land Dec. 271 (1884). 25App. F, pp. F-1-4. 26 ted acquisition of unlimited quantities of land through assignments. Assignments were beyond the restriction of the 1890 Act cited by the IBLA?*, which applied only to original entrymen, not to assignees.?* When it enacted § 329, Congress had the option to restrict as- signments or to permit unlimited assignments. That it adopted a policy which happened to coincide with the former administrative policy lends no strength to the IBLA’s contention that the prior administrative policy would have prevailed. Under somewhat similar cir- cumstances this Court has ruled that administrative practice prior to the adoption of a statute is of no moment. See United States v. Townsley, 323 U.S. 557, 567, 89 L. Ed. 454, 461 (1944). The Timber Culture Law?* required the entrymen to state under oath that he made application for his own exclusive use and benefit and that he intended to hold and cultivate the land. Under those express statutory requirements the Department consistently ruled before 1891 that the law did not require presence of the entryman on the entry, or even in the state where the land was located, and that all acts necessary to perfect the entry could be performed by an agent.?® In Davies v. Killgore, 11 Land Dec. 161 (1890), the non-resident entryman paid his agent $25.00 per year 2626 Stat. 391, 43 USC § 212, repealed October 21, 1976, § 702, 90 Stat. 2787. cited at 82 Int. Dec. 155, App. B, p. B-19. 27 Cf. Webster v. Luther, 163 U.S. 331, 340-341, 41 L. Ed. 179, 18211896) 28 Act of June 14. 1878, 20 Stat. 115. 29 Lucas v. Ellsworth, 4 Land Dec. 205 (1885): Davies v. Killgore, 11 Land Dec. 161 (1890); Danford v. Ellsworth, 10 Land Dec. 341 (1890); Olsen vy. Warford, 11 Land Dec. 289 (1890); Hemstreet v. Greenup, 4 Land Dec. 493 (1886); Gahan v. Garrett, 1 Land Dec. 137 (1882); Flemington v. Eddy, 3 Land Dec. 482 (1884); Saylor v. Wilson, 7 Land Dec. 493 (1888). 27 and let the agent have whatever crops he might raise on the entry, apparently without reserving any rent, yet the Department did not charge that the entryman failed to “hold” the entry. In Klock v. Husted, 2 Land Dec. 329 (1884), the entryman abandoned the land, but was regarded by the Department as still holding the entry, albeit for the use and benefit of another party. Although the adminstrative agency’s consistent, long-standing interpretation of the statute under which it operates is entitled to considerable weight, there are limits, “grounded in the language, purpose and history of the particular statute, on how far an agency properly may go in its interpretive role.” Teamsters v. Daniel, No. 77-753, Jan. 16, 1979, slip op. p. 14, _U.S.__, 58 L. Ed. 2d 808, 820(1979). As stated by this Court in Zenith Radio Corp. v. United States, 437 U.S. 443, 57 L. Ed. 2d 337, 343 (1978), “The question is thus whether, in light of the nor- mal aids to statutory construction, the Department's interpretation is ‘sufficiently reasonable’ to be ac- cepted by a reviewing court. * * *” The general rule that contemporaneous, long- standing and consistent administrative interpretation of a statute is entitled to considerable weight, as reit- erated in Zenith, supra, is not applicable to the IBLA’s interpretation of the holding limitation, as applied in this case. See General Electric Co. v. Gilbert, 429 U.S. 125, 141-145, 50 L. Ed. 2d 343, 358 (1976): Ratterton v. Francis, 432 U.S. 416, 425-426, 53 L. Ed. 2d 448, 456- 457; United Housing Foundation, Inc. v. Forman, supra, 421 U.S. at 858, 44 L. Ed. 2d at 635-636. The 28 interpretation was made &4 years after enactment of § 329 and was inconsistent with all but two of the deci- sions,” instructions and regulations issued by the De- partment during that 84-year period, and was tn- consistent with the few decisions of this Court which interpreted the Desert Land Act during that interven- ing period. It was inconsistent with the policy of per- mitting multi-entry development leases judicially noticed by the District Court as prevailing in Idaho from 1950 to 1965."! The first administrative interpretation of § 329 ap- pears to be that stated in a Circular issued by the Commissioner of the General Land Office on April 27, 1891, 12 Land Dec. 405. Leases and mortgages of de- sert land entries are not mentioned in the Circular. The only reference to the holding limitation states that “Assignments are recognized, but the amount of land that may be held by assignment or otherwise, prior to the issue of patent is restricted tos 320 acres by the seventh section, which section it is provided, however, shall not apply to entries made prior to the act.” Id. at 106. This is a “contemporaneous construction of [§ 329] by the men charged with the responsibility of setting “Neither the Secretary's decision in Shearmes, supra, nor the IBLA’s decision in this case, contains any “sugyestion that some new source of legislative history had been discovered” after the decisions in Jensen, supra, and Michener, supra, were issued. Cf General Electric Co. v. Gilbert, VOUS. 125, 145,50 L. Bd 2d 545, 36001976). The other decision, United States vo Grigg. 82 Int. Dec. 125. was issued the same day as the IBLA decision in this case "App. C. pp. ©-11-12. A custom in which an administrative ageney acquiesces is persuasive of the meaning of the statute, Pennell v. Philadel phia & Reading Ry. Co, 251 US. 675, 58 L. Ed. 430. "The significance of the legislative history emerges upon study of the subsequent administrative practice.” Zuber vo Allen, 396 US) 168, 182, 24. L. Ed. 2d 345, 354 (1969) 29 its © © * machinery in motion, Norwegian Nitrogen Products Co. v. United States, 288 U.S. 294, 315, 77 L. Ed. 796, 53S. Ct. 350 (1933), [and] its interpretation of how [§ 329] should be implemented is presumptively correct. See, ibid, Udall v. Tallman, 380 U.S. 1, 16, 13 L.. Ed. 2d 616, 85 S. Ct. 792 (1965).” Trans Alaska Pipeline Rate Cases, 436 U.S. 631, 648, 56 L. Ed. 2d 591, 604 (1978). That presumption is not overcome by the IBLA’s after-the-fact analysis of § 329, which dis- regards the regulations on mortgages and contains no explanation for the absence of regulations on leases. The absence of regulations on leasing reflects a view that §§ 324 and 329 were not intended to cover leases. It is a practical construction adopted “before the pre- sent controversy arose or was thought of.” McLaren v. Fleischer, 256 U.S. 477, 481, 65 L. Ed. 1052, 1053 (1921); Udall v. Tallman, supra, 380 U.S. at 318, 13 L. Kd. 2d at 626 (1965). The contemporaneous, long-standing interpretation actually made by the Department is reflected in its decisions’ construing the holding limitation as a limi- tation on the amount of land to which one could ac- quire title, and in the decision and regulations permit- ting mortgages cited at note 42, infra, and in the ab- sence of regulations on leasing, which amounts to a practical construction that 43 USC §§ 324 and 329 do not cover leases. See Davis v. Manry, 266 U.S. 401, 404-405, 69 L. Ed. 350, 352 (1925): United States v. Chicago, St. P.. M. & O. Ry. Co., 43 F. 2d 300, " See, eg, Herbert C. Oakley, 34 Land Dee. 383. 387 (1906), Si/sbee Town Company 34 Land Dee, 430 (1906), 40 305-306 (CA-8th Cir, 1980) ef. Logan vo Davis, 233 U.S. 613, 627, 58 L. Ed. 1121, 1128 (1914). If the statute applied to leases, the Department would have been “solicitous to enforce it.” Davis v. Manry, supra. But throughout the 13-year course of these proceed- ings the Government has not cited a single pre-1965 ‘ase in which an ordinary lease was held to violate 43 USC § 324 or 43 USC § 329, and the IBLA was unable to cite any judicial or administrative decisions holding that leases and mortgages had been included in § 529 before 1965. Equally important is the absence of any reference to mortgages or leases in the regulations regarding qual- ifications for making entries and taking assignments. The applicable regulation, 43 CFR 232.9 (a) (1963 Re- Vision), requires an applicant to state that “he has not previously exercised the right of entry under the desert-land laws by filing an allowable application and withdrawing it prior to its allowance or by making an entry or by having taken one by assignment * °°." It would be appropriate, if the holding limitation ex- tended to mortgagee-lessees, to require a statement that the applicant had never been the mortgagee- lessee of any desert entry land, because under the IBLA’s interpretation the area “held” under the mortgage-lease transaction would count against the area the applicant could hold under his own entry. If the mortgaye-lease transaction involved 320 acres. the applicant would be disqualified by reason of his prior holding from making any entry at all, It is presumed that Congress approved the limita- tions prescribed by § 232.9 (a) when it amended 43 31 USC § 321 in 1958 without including any requirement that applicants be disqualified to the extent of prior mortgaye-lease transactions on other desert land en- tries.“ And it cannot be presumed that Congress would have acquiesced in these regulations for more than 50 years, if it intended to include mortgage-lease transactions in the holding limitation. The lack of any evidence that Congress intended to include mortgages and leases in the holding limitation of § 329, the absence of regulations on leasing, and expressions by Congress, as late as 1955" and by the Department, as late as 1964," that the 1891 Amend- ment reduced to 320 acres the amount that could be entered, bring this case within the rule that “Courts need not defer to an administrative construction of a statute where there are ‘compelling indications that it is wrong. Red Lion Broadcasting Co. v. FOC, 395 U.S. 367, 381, 23 L. Ed. 2d 371, 89S. Ct. 1794 (1969), see also Zuber v. Allen, 396 U.S. 168, 193, 24 L. Ed. 2d 345, 90 S. Ct. 314 (1969); Volkswagenwerk Ak- tiengesellschaft v. FMC, 390 U.S. 261, 272, 19 L. Ed. Yd 1090, 88S. Ct. 929 (1968)." Espinoza v. Farah Mfx. Co., 414 US. 86, 94-95, 38 L. Ed. 2d 287, 295 (1975). The holding proviso of § 329 is the only place in Section 2 of the 1891 Amendment in which a limita- tion of 320 acres appears. "8 S21 contains the applicable provisions stating the qualifications of entrymen “The act of IS77 °° ° was amended by the act of March 4, ISO1,* °° to reduce the allowable maximum to $20 acres to any one person” House Rep Na, p |. S4th Cong, Ist Sess, 1955 ® See Acreage Limitation Poliey, po 1A Study Prepared by the Depart ment of the Internor for the Committee on Interior and Insular Affairs, 14) 30 +? me The Department's course of action also establishes a defined usage regarding leases and mortgages of desert land entries, which is of controlling significance under the rule established in United States v. McDaniel, 7 Peters 1, 14-15, 8 L. Ed. 587, 592 (1833): “* * © Hence, of necessity, usages have been estab- lished in every department of the government, which have become a kind of common law, and regu- late the rights and duties of those who act within their respective limits. And no change of such us- ages can have a respective effect, but must be lim- ited to the future. “Usage cannot alter the law, but it is evidence of the construction given to it, and must be considered binding on past transactions.” The Department long has recognized that the rule stated in McDaniel, and the similar rule stated in United States v. Alabama Great Southern Railroad Co., 142 U.S. 615, 621, 35 L. Ed. 1134 (1892), apply to the Department. See, e.g.. Roy McDonald, 36 Land Dec. 205, 208-209 (1907).° The IBLA did not explain either the significance of ° its assertion that the Desert Land Act is a settlement law, or how a settlement feature could prevent leasing or mortgaging of entries. Residence is not a require- ment of the Desert Land Act,’ therefore there is no “ “The decisions clearly show that sudden changes in the construction of statutes, by those charged with their enforcement, are looked upon with, disfavor, especially where a construction tavorabie to the individual has been acted upon and the change is made in such manner as to become retroactive” 36 Land Dee. at 209 " Cox v. Hart, supra 33 need to reserve the use of a residence area on the entry as the Department sometimes has held is necessary in leasing homestead entries.“* Where Congress has in- tended to limit the use of the entry it always has done so with express language such as that used in Section 5 of the 1891 Amendment, for homesteads, and presumably it would have employed the same lan- guage had it desired to impose that restriction on de- sert land entries. The decisions” and instructions*’ of the Department have long recognized that the Desert Land Act is not a settlement law, and at least one member of Congress was so advised as early as 1885.4! And the Department has long recognized the right to mortgage a desert ]and entry.” These factors, together with the Department’s long established policy of permitting leases of homestead entries“, which were required“ to be made for the ™ See, eg. Thomason v. Patterson, 18 Land Dee, 241 (1894) we "The claim of Bond was initiated under the act of Mareh 3, 1877 (19 Stats. 377), which is entitled “An act to provide for the sale of desert lands in certain states and territories” This act provided for the disposal of a certain portion of the public domain by sale, instead of by settlement, as provided by the homestead and pre-emption laws. The entries possess none of the characteristics of settlement entries, as to residence and settlement, and all the acts of improvement may be done by an agent, instead of by the claimant in person. Congress has been careful to note the marked distine- tion which exists between claims initiated under the settlement laws and those initiated under the laws providing for the sale of public domain. * °°" (Emphasis supphed) Bond's Heirs vo Deming Townsite, 13 Land Dee. 665, December &, 1891. See, also, Charles Perrine, 3 Land Dee. 331 (1883), Fred Bartine, 59 Land Dee, 110 61945). June 22, 1892, 14 Land Dec. 677, 679. ' Julius Mo Wilde, 3 Land Dee. 325. 2 Thomas E. Jeremy, 24 Land Dee. 418 (1897), 45 CFR 2226.1 sed) " See, eg., Elnora C. Jetes, 33 Land Dec. 41 (1904) "45 USC § 162 (repealed October 21, 1976, PLL. 94-579, § 702, 90 Stat. 2787) - 34 entryman’s own use, remove all substance from the IBLA’s theory that some sort of settlement aspect pre- vents mortgaging and leasing desert land entries. Since the settlement distinction is ineffective, the pre- cedent established in decisions such as that in United States v. Colorado Anthracite Co., 225 U.S. 219, 56 L. Ed. 1063 (1912), should be applied to § 329 to support a conclusion that the holding proviso is a limitation on the acquisition of title. The IBLA should have applied the rule of ejusdem generis to the clause “hold by assignment or other- wise’, just as this Court in Ham v. Missouri, 59 U.S. 126, 15 L. Ed. 334 (1855), applied that rule to the. clause “sold or otherwise disposed of ” to determine that “or otherwise disposed of ” must signify some disposition equally efficient with a sale. As shown in Part C, infra, an assignment always has been consi- dered to be a transfer of the entire interest of the entryman, and the entire clause should be interpreted as applying to transactions which are equivalent to, or have the same practical effect as, an assignment of the entry. The IBLA’s contentions regarding the meaning of “otherwise” in the holding limitation of 43 USC § 329 (App. B, pp. B-22-23.) are directly contrary to the pre- cedent established by this Court’s decision in United States v. Sheldon, 15 U.S. 119, 121-122, 4 L. Ed. 199, 200 (1817). In Sheldon, the question was whether the driving of live oxen on foot was a “transportation” of them within the true intent and meaning of a law which prohibited transportation “in any wagon, cart, 35 sleigh, boat, or otherwise,” and provided for forfeiture of the articles transported and the vehicle in which they were transported. In concluding that the prohi- bited transportation must be by means of a vehicle similar to those enumerated, the Court stated “* * * To transport an article in a wagon, or other- wise, would seem necessarily to mean to carry or to convey it in that or in some other vehicle, by what- ever name it might be distinguished.* * * ” “But so far from this matter being left a doubt by the law, we find, that when the punishment by way of forfeiture is prescribed, the words ‘or otherwise’ are very plainly construed to mean the thing by which the articles are transported; thus distinguish- ing between the thing which transports and the thing which is transported.” “* * * Tf it were impossible to satisfy the words ‘or otherwise,’ except in the way contended for on the part of the United States, there would be some reason for giving that interpretation to them. But it has been shown that this is not the case.” And see Reiche v. Smythe, 80 U.S. 162, 20 L. Ed. 566 (1872). The same principle should be applied here, to limi‘ the scope of the phrase “by assignment or otherwise” to transactions having the same practical effect as an assignment. The IBLA’s interpretation of § 329 is contrary to that stated by this Court in United States v. Healey, 160 U.S. 136, 148-149, 40 L. Ed. 369, 373 (1895), in which the holding limitation was referred to as 36 “* * * the clause or provision relating to the quan- tity of desert lands that any person or association of persons might appropriate. * * *” This meaning of hold comports with the common understanding that to hold property is to own it.* And, although the legal title remains in the United States until patent issues, the entryman has an inchoate, equitable or possessory title so long as he complies with the requirements of the Desert Lard Act.*® The title interest of a desert entryman was recognized by Congress in the 1888 debate on H.R. 790147 and in the Act of June 25, 1910, c. 437, 36 Stat. 867, in which relief was granted to “* * * any person, other than a corporation, who has in good faith * * * acquired by assignment a desert-land entry,* * * in the belief that he was obtaining a valid title thereto * * *” This meaning was confirmed by Congress in a relief act passed in 1956*% which provided that “* * * any person who holds a * * * desert land entry which was allowed and subsisting on March 1, 1956 * * * is hereby granted permission to suspend until March 1, 1959 further operations looking to the cultivation and im- provement of the lands: Provided, That such entryman shall forfeit no rights and shall not otherwise be ex- cused from full compliance. with the applicable public land laws by reason of * * * such suspension of cultiva- tion and improvement operations * * *.” Emphasis supplied. Congress obviously regarded the entryman See McFeely v. Commissioner of Internal Revenue, 296 U.S. 102, 107, 80 L. Ed. 83 (1935). See Instructions, 34 Land Dec. 29 (1905). “Supra, at 21. *43 USC §§ 336a, Act of July 30, 1956, c. 778 § 1, 70 Stat, 715. 37 as the “person who holds a desert land entry”, and the committee reports*® indicate that the Senate and House Committees on Interior and Insular Affairs, and the Assistant Secretary of the Interior used the word “entryman” and the phrase “holder of a desert-land entry” interchangably. It is significant that the permission to suspend oper- ations is granted to the person who holds the desert land entry. That could only be the entryman, because a mortgagee or a tenant would have no need for such permission because he would have no obligation or responsibility for cultivation and improvement of the lands in the entry, that being entirely the responsibil- ity of the entryman, although it has long been held that he may have the work done by others. See, e.g., Williams v. Kirk, 38 Land Dec. 429 (1910); Bond's Heirs v. Deming Townsite, supra, at note 39. Upon allowance of his application, the entryman becames entitled to exclusive possession of the land. 43 USC § 315f; cf. Cameron v. United States, 252 U.S. 450, 460, 64 L. Ed. 659, 662 (1919); United States v. Bucha- nan, 232 U.S. 72, 76-77, 58 L. Ed. 511, 514. As against all but the United States the entryman is vested with all incidents of fee simple title upon entry. Cf. United States v. Clarke, 529 F. 2d 984, 986 (CA-9th Cir., 1976). Possession may be held by exercise of such acts of ownership over the land as are necessary to enjoy the “ordinary use of which it is capable, and acquire the profits it yields in its present condition, — such acts, * House Rep. No. 2737, Senate Rep. No. 2405, 84th Cong., 2nd Sess., 1956. 38 being continued and uninterrupted, will amount to actual possession.” Cox v. Hart, 260 U.S. 427, 434, 67 L. Ed. 332, 337 (1922). A landowner may occupy his land by tenants, and such occupancy constitutes actual possession by the owner. Northern Pac. Ry. Co. v. Smith, 171 U.S. 260, 275, 43 L. Ed. 157, 163 (1897). Possession by a tenant is, in law, the possession of the entryman. Catholic Bishop v. Gibbon, 158 U.S. 155, 39 L. Ed. 931 (1895); Rector v. Gibbon, 111 U.S. 276, 28 L. Ed. 427 (1884); Frank Johnson, 28 L.D. 537, 539 (1898). The tenant may have actual occupation, but the landlord would still have possession. Frank Johnson, supra. Where a settler on public land rents his improvements to another person, the landlord, and not the tenant, is entitled to the pre-emption..Case v. Larkin, February 3, 1876; see 2 Copp’s Pub. Land Laws 1330 (1882). Therefore, even under the definition adopted by the IBLA, the entrymen had actual posses- sion and the right of actual possession, and they held the land. The IBLA disregarded the decisions of this Court in arriving at a contrary conclusion. Application of these precedents, established rules of construction and consideration of the legislative his- tory and the practice and policy of the Department for more than 70 years after enactment of the 1891 Amendment, must lead to the conclusion that Con- gress did not intend to include leases and mortgages within the meaning of “hold”, as the word is used in § 329. If Congress had intended to preclude desert en- trymen from employing means of financing and farm- ing which were common practices on other types of entries and on privately owned land, surely it would 39 have selected specific language to accomplish that purpose.®*® Although the combination of mortgages and leases conceivably is within a literal meaning of “hold”, there is no evidence that Congress intended to include mortgages and leases within that term as it is used in § 329. To the contrary, the legislative history and the contemporaneous use of “hold” indicate only an intention to limit the quantity of land for which a claim could be made and to which a patent could be obtained. C.The Assignment Of A Desert Land Entry Is A Transfer Of The Entire Interest Of The Entryman, and 43 USC § 324 Was Not Intended To Include Mortgages And Leases. Decisions of the Departmentin the 1890’s*! to the effect that desert entries could be assigned to corpora- tions prompted the practice by natural persons who had exhausted their desert entry rights of creating corporations for the sole purpose of taking an assign- ment of a desert entry, thus circumventing the holding limitation of § 329. Although departmental decisions such as Jacob Switzer Company, 33 Land Dec. 383 (1905), made it more difficult to accomplish this pur- pose, Congress put an end to the practice in 1908 with the passage of 43 USC § 324.°? The words “assigns” and “assignees” as used in the public land laws, had acquired a well-settled meaning See, e.g., NLRB v. Highland Park Mfg. Co., 341 U.S. 322, 324-325, 95 L. Ed. 969, 977 (1951); cf. New York Tei. Co. v. New York Labor Dept., No. 77-961, Mar. 21, 1979, slip op. pp. 16-17, _ U.S.__,, 59 L.. Ed. 2d 553, 567 (1979). 5'See, e.g., Nevada Southern Ry. Co., 22 Land Dec. 1 (1895). *2Act of March 28, 1908, c. 112, § 2, 35 Stat. 52, App. E, p. E-8 40 through regulations, instructions and decisions issued by the Department before § 324 was enacted. Since March 1, 1884, if not before, assignees were regarded as “purchasers who purchase the land after entry and take assignments of the title after such entry.” Alonzo W. Graves, 11 Land Dec. 283 (1890), citing General Circular, approved March 1, 1884. Emphasis supplied. Graves involved R.S. § 2362.5% Two cases decided by this Court before the enact- ment of § 324 involved repayments to homestead, timber culture or desert-land entrymen or to their “as- signs”, under the Act of June 16, 1880.54 In Hoffeld v. United States, 186 U.S. 273, 46 L. Ed. 1160 (1902), the Court stated that “|A] voluntary assignee takes the property with all the rights thereto possessed by his assignor.” Id. at 186 U.S. 276, 46 L. Ed. 1162. And in United States v. Commonwealth Title Ins. & Trust Co., 193 U.S. 651, 48 L. Ed. 830 (1904), the Court said “[wlJe regard the word ‘assigns’, as used in the statute, as one who derives from the original entryman by the volun- tary act of the latter.” Id. at 193 U.S. 656, 48 L. Ed. 831. The context clearly indicates the Court meant that the “assign” derived title and all rights thereto from the original entryman, because the question in the case was whether “a mortgagee who foreclosed his mortgage and purchased the property mortgaged at sheriffs sale under a decree of the court is an assignee 5343 USC § 689, Act of January 12, 1825, c. 5, 4 Stat. 80; Act of February 28, 1859, c. 64, § 1, 11 Stat. 387, repealed October 21, 1976, P.L. 94-579, § 403\a), 90 Stat. 2789. 54C, 244, § 2, 21 Stat. 287, 43 USC § 263, repealed October 21, 1976, P.L. 94-579, § 702, 90 Stat. 2787. 41 of the owner of the land” within the meaning of the statute. In United States v. Colorado Anthracite Co., 225 U.S. 219, 223, 56 L. Ed. 1063, 1065 (1912), this Court noted that by the decisions in Hoffeld, supra, and Common- wealth Title, supra, “it is settled that an assign, within the meaning of the act (21 Stat. 287), is one who be- comes invested with the entryman’s right in the land through some voluntary act of his.***” The Department held, in effect, in 1892 that an as- sign within the meaning of 43 USC § 263 was “the one in whom title was vested at the date of the cancellation of the entry.” Adolph Emert, 14 Land Dec. 101, 102 (1892). This interpretation of 43 USC § 263 and 43 USC § 689 was contained in the regulations in effect at the time these entries were made (43 CFR § 217.39 (1963 Revision)), and in those in effect at the time the IBLA decision in this case was made (43 CFR § 1822.3-5 (a) (1974 Revision)). Those regulations stated that “Those persons are assignees, within the meaning of the statutes authorizing the repayment of purchase money, who purchase the land after the entries thereof are completed and take assignments of the title under such entries prior to complete cancella. tion thereof, when the entries fail of confirmation for reasons contemplated by the law.” Those regulations recognize the effect of this Court’s decision in Commonwealth Title, supra. See 43 CFR § 1822.3-6(a) (1) (1974 Revision). 42 43 USC § 263 and 43 USC § 689 are in pari materia with both § 324 and § 329, and the same interpretation of assign should be applied in construing all four sta- tutes. It is presumed that Congress in 1908 knew of the construction by the Court in Hoffeld, supra, and in Commonwealth Title, supra, and the construction therefore became a part of the law. See Grover & B.S.M. Co. v. Forence S.M. Co., 85 U.S. 553, 21 L. Ed. 914 (1874); Blake v. McKim, 103 U.S. 336, 26 L. Ed. 563 (1881). In Campbell v. Glover, 35 Land Dec. 474, 477 (1907), the Department stated that “**“(T]he assignee of a desert land entryman, who for all purposes is the successor of the entryman, must be held to be entitled to the same rights and privileges with respect to the entry that the entry- man himself might have been entitled to in the ab- sence of an assignment.***” And in Young v. Trumble, 35 Land Dec. 515 (1907), the Department, after noting the precedents estab- lished in Hoffeld and Commonwealth Title held, in effect, that an assignee is one who by voluntary act of the original entryman becomes entitled to make the further annual proofs and to receive patent for the land. 35 Land Dec. at 518. That these rulings were known to Congress is indi- cated by the committee report on the bill that included $324” That report stated the purpose of the bill to be 55Senate Rep. No. 341, 60th Cong., Ist Sess. (1908) 43 to restrict “the right to receive an assignment to a qualified individual, so that both the assignee and the assignor have their rights to take and hold the land under the desert-land law extinguished by the transac- tion.” Senate Rep. No. 341 at 1. A report made two years earlier®® noted that the result of an assignment was “the transfer of the en- tryman’s claim”, and that there was “practically no difference between an assignment in the case of a de- sert entry and a relinquishment with a transfer of improvements in the case of a homestead entry.” Ibid at 3. That report also stated that “***if there is not some provision whereby rights acquired by an entry- man may be transferred to another before proof, great hardship and loss are likely to result in many cases. It was evidently to meet just such contingencies that the assignment clause was provided and there can be no more valid objection to it than there is to the right of a homesteader to sell his improvements before making final proof. One who takes a desert entry and assigns is held to have had the benefit of the desert-land act and can not make another entry.” The decisions and regulations of the Department uniformly have interpreted an assignment as transfer- ring the entire interest of the original entryman to the assignee. See, e.g., Instructions, 34 Land Dec. 29 (1905); Regulations, 37 Land Dec. 316, § 8 (1908); Al- bert A. Bandy, 41 Land Dec. 82 (1912); Wallace S. Bingham, 82 Int. Dec. 377 (1975); 43 CFR 2521.3(b) (1) (1975). In the case of Michael H. Fallon, 36 Land Dec. “House Rep. No. 4896, 59th Cong., Ist Sess. (1906). 44 187 (1907), the Department noted that its uniform practice had been to treat entries made under the pub- lic land laws as entireties and that assignments of portions of desert land entries were prohibited, al- though the assignment of the whole was authorized. It further noted that the practice was well settled, and good administration demanded, that but one certifi- cate should be issued upon a single entry. Ibid at 188. The first regulations issued under § 324 stated that “The language of the act indicates that the taking of an entry by assignment is equivalent to the making of an entry, and this being so, no person is allowed to take more than one entry by assignment. The desert-land right is exhausted either by making an entry or by taking one by assignment.” 37 Land Dec. 312, 316, § 15 (1908). Those same regulations required, as do the current regulations, that as evidence of the assignment there should be transmitted to the BLM the original deed of assignment or a certified copy thereof, thus indicating an understanding that an assignment conveys the en- tryman’s entire interest in the entry. See Regulations, 37 Land Dec. 312, 316, § 1611908): 43 CFR 2521.3 (c)(1) (1978 Revision). The decisions of the Department have long recog- nized that a mortgage does not constitute an assign- ment of an entry unless it is foreclosed and sold at sheriffs sale under the decree of the court, and then the purchaser can be recognized only if he has the qualifications required of an original entryman. See, e.g., Thomas E. Jeremy, 24 Land Dec. 418 (1897). 45 Thus, it is obvious that Congress understood and intended assignments to constitute the transfer of an entryman’s entire interest in the land and the deci- sions of the lower courts to the effect that the mortgages and leases constituted assignments are con- trary to the statute and cannot be affirmed. There is nothing in the committee reports or in the limited congressional debate to indicate that Congress in- tended mortgagees before foreclosure sale or lessees to be included within the term “assigns” or that mortgages and leases were intended to be included in the term “assignments.” The committee reports repre- sent the considered and collective understanding of those congressmen invoived in drafting and studying the proposed legislation. Zuber v. Allen, 396 U.S. 168, 186, 24 L. Ed. 2d 345, 356 (1969). Our purpose in analyzing the meanings of assign and assignment is to show the type of transaction which Congress intended to include in the holding limitation of § 329, as revealed by application of the rule of ejusdem generis.*? Since the IBLA did not overrule the Administrative Law Judge’s ruling that the transactions did not con- stitute assignments, the lower courts had no power or authority to confirm cancellation of the entries on the *’The IBLA asserts that application of the rule of ejusdem generis would eliminate the word “otherwise” from the clause. On the contrary, applica- tion of that rule would include such transactions as executory contracts to convey after patent, which are not technically the same as assignments, but produce the same ultimate result, while the IBLA’s interpretation would completely eliminate the necessity for the phrase “by assignment or other- wise.” If every conceivable type of holding was intended, use of the word “hold” by itself would have accomplished that purpose. Congress obviously had some purpose in using the phrase “by assignment or otherwise.” 46 basis of their findings that the transactions did consti- tute assignments. The reviewing courts must judge the propriety of administrative action solely on the grounds invoked by the agency. “If those grounds are inadequate or improper, the court is powerless to af- firm the adminisirative action by substituting what it considers to be a more adequate or proper basis.” Sec- urities and Exchange Commission v. Chenery Corp., 332 U.S. 194, 196, 91 L. Ed. 199. 1999 (1946). D. Applying the IBLA’s interpretation of 43 USC § 329 to these entries without publishing an appropriate regu- lation was an abuse of discretion and was in excess of statutory limitations on the Secretary's authority; the IBLA interpretation does not have the force and effect of law and the courts are not required to defer to that interpretation. The determination of what transactions fall within the holding limitation of § 329 cannot be accomplished . on an ad hoc basis, but must be accomplished through the publication of substantive rules of general applica- bility and interpretations of general applicability for- mulated and adopted by the Department, and pub- lished in the Federal Register in accordance with the requirements of the Administrative Procedure Act. 5 USC § 552 (a)(1). Morton v. Ruiz, 415 U.S. 199, 232-236, 39 L. Ed. 2d 270, 292-2955*. The IBLA presented * 5 USC § 552 (a) (1) states in pertinent part: “Each Agency shall separately state and currently publish in the Federal Register for the guidance of the public — (D) substantive rules of general applicability adopted as authorized by law, and statements of general policy or interpretations of general applica- bility formulated and adopted by the agency.” 47 no reason why the requirements of the Administrative Procedure Act could not or should not have been met, by publication of an appropriate regulation. Cf. Morton v. Ruiz, supra, 415 U.S. at 235, 39 L. Ed. 2d at 294. Failure to publish regulations on mortgages and leas- ing embodying the IBLA’s current interpretation of § 329 renders cancellation of the entries on the basis of that interpretation beyond the IBLA’s statutory pow- ers. Morton v. Ruiz, supra, 415 U.S. at 236, 39 L. Ed. 2d at 294-295. The Court of Appeals recognized the violation of 5 USC § 552 (a) (1) in its original decision, but tempered that recognition when it amended the opinion in the order denying the petition for rehearing. The Court of Appeals declined to apply the publication requirement of 5 USC § 552, apparently because it felt that the publication requirement had effect only as part of the Petitioners’ claim that the Government was equitably estopped from enforcing its interpretation of 43 USC § 329. See 593 F. 2d at 855; App. D, p. D-8. The Court of Appeals seems to be imposing a knowledge requirement on the Department’s duty to publish regulations em- bodying its interpretation of the statute, but nothing in the Administrative Procedure Act seems to support such a position, and the Court of Appeals offered no explanation of its position. The Court of Appeals com- mitted error by declining to require the Department to comply with the publication requirement of 5 USC § 552 (a) (1), and its ruling to that effect is in conflict with this Court’s decision in Morton v. Ruiz, supra, and that of the Fourth Circuit in Appalachian Power Co. v. Train, 566 F. 2d 451 (1977). 48 The abuse of discretion which the District Court recognized, but the Court of Appeals did not, lies in the retroactive application of a new interpretation to past transactions against persons who did not know and had no reason to know that the holding limitation applied to mortgages and leases, without affording any opportunity to comply with the new interpretation. That abuse is aggravated by the unexplained failure to adhere to the long-established policy of the Depart- ment not to give retroactive effect to new interpreta- tions, and by the fact that none of the statutes which create the Secretary’s authority with regard to desert land entries confer upon him authority to give re- troactive effect to his interpretations of the Desert Land Act. The Court of Appeals committed error when it up- held retroactive application of the new interpretation of § 329 to enforce the harsh penalty of forfeiture against the entrymen. That aspect of the lower court’s decision appears to be in conflict with decisions of this Court such as Arizona Grocery Co. v. Atchison T. & S. F. R. Co., 284 U.S. 370 at 390, 76 L. Ed. 348 at 356 (1932), NLRB v. Bell Aerospace Corporation, 416 U.S. 267, 295, 40 L. Ed. 2d 134, 154 (1974), and Helvering v. Griffiths, 318 U.S. 371, 397-403, 87 L. Ed. 843, 860-864 (1943), and with the decision of the Seventh Circuit in Briscoe v. Kusper, 435 F. 2d 1046 (1970), and with the decision of the Fifth Circuit in Anderson, Clayton & Co. v. United States, 562 F. 2d 972 (1977). See, also, Helvering v. R. J. Reynolds Tobacco Co., 306 U.S. 110, 116, 83 L. Ed. 536, 541-542 (1939). 49 It is significant that the IBLA made no effort to justify its departure from the long-established rule of giving only prospective effect to changed interpreta- tions of the Desert Land Act.5® This Court’s decision in Atchison T. & S. F. R. Co. v. Board of Trade, 412 U.S. 800, 37 L. Ed. 350 (1973), requires that it do so. The Petitioners were entitled to notice of the IBLA’s interpretation of § 329 “sufficiently explicit to inform a reasonably prudent person of the legal consequences” of mortgages and leases of desert entry land. Cf. Central Illinois Pub. Serv. Co. v. United States, 435 U.S. 21, 38, 55 L. Ed. 2d 82, 95 (1978), concurring opinion of Mr. Justice Powell. This they did not receive. Instead, the notification received in the form of the decision in Michener, supra, told them that the arrangements did not violate § 324 or § 329. This principle was recog- nized and applied by the Department in Raymond L. Gunderson, 71 Int. Dec. 477, 484 (1964), in which the Department also acknowledged that the entryman’s argument that his case should be governed by the policy that was being followed at the time of his relin- quishment was well taken, and im Wallace S. Bing- ham, 82 Int. Dec. 377, 384 (1975). In Gunderson, supra, the Department stated * * * Until the Department provided by specific regulations that the word ‘entry,’ as used in the act * ** included the filing of an allowable application for homestead entry, the meaning of the term ‘entry’ was not so clear as to warrant holding an applicant 5® See, e.g., David B. Dole, 3 Land Dec. 214 (1884); William Thompson, 8 Land Dec. 104 (1889). Cf. Mary R. Leonard, 9 Land Dec. 189 (1889) and Safarik v. Udall, 304 F. 2d 944, 949 (CA-D.C. Cir., No., 1962). 50 : accountable for understanding that the mere act of filing an allowable homestead entry application would exhaust his rights under the homestead law even if he should elect to withdraw the application before it’ Was acted upon.* * *’ The absence of a regulation defining “wages” as in- cluding lunch expense reimbursements, for tax with- holding purposes, was an important factor in this Court’s decision in Central Illinois Pub. Serv. Co. v. United States, supra. Other fators emphasized in Central Illinois are pre- sent in this case. In view of the existing regulations on mortgages and the Department’s failure to issue regu- lations on leasing soon after § 329 was passed, or ever, and the 1964 interpretations in Jensen, supra, and Michener, supra, it is hardly reasonable to expect the Petitioners to “fill the gap” by determining that mortgages and leases are within the meaning of “hold”. The IBLA’s action is retroactive because it applies a new interpretation to past transactions, and it is highly punitive in view of the large expenditures on the irrigation system and on land development, little of which could be recovered if the entries are cancelled. The principles applied in Central Illinois should be applied to this case to determine that the Petitioners complied with § 329 as it was most reason- ably interpreted in 1964 and that a more expansive interpretation adopted after the Petitioners had re- claimed, cultivated and irrigated the entries can not be applied retroactively to cancel the entries. The IBLA’s decision is based on the Secretary’s earl- 51 ier decision in United States v. Shearman, 73 Int. Dec. 386, 426 (1966), and the Solicitor’s Opinion, Idaho De- sert Land Entries — Indian Hill Group, 72 Int. Dec. 181 (1965). Neither was published in the Federal Re- gister and the principles announced did not become “rules” which the Petitioners could be required to obey. See NLRB v. Wyman-Gordon Co., 394 U.S. 759, 764- 766, 22 L. Ed. 2d 709, 714-715 (1969). A ruling that the Petitioners were under no obligation to refrain from mortgaging and leasing the land in their entries is warranted because § 324 and § 329 did not mention or prohibit leases and mortgages, no regulation prohibits leases, 43 CFR 232.18 (d) auchorizes mortgages, and no order was ever issued by the BLM requiring the Petitioners to cancel the arrangements the IBLA held to be unlawful. NLRB v. Wyman-Gordon Co., supra, at 394 U.S. 766, 22 L. Ed. 2d 715. The use of adjudication rather than rule-making constituted an abuse of discretion in this case because it was applied to past actions taken in good faith re- liance on the Department’s past decisions and policies and the BLM’s approval of the mortgages and the lack of any regulations on leasing. See NLRB v. Bell Aeros- pace Co., 416 U.S. 267, 294-295, 40 L. Ed. 2d 134, 154 (1974). In Bell Aerospace, supra, the Court noted that the NLRB did not specify in what instances the Board must resort to rule-making. Note 21 at 416 U.S. 290, 40 L. Ed. 2d 152. But here Congress has authorized the Secretary, or his designee, to enforce any part of Title 43 USC, by “appropriate regulations” where not 52 otherwise specifically provided for. 43 USC § 1201.° This Court held in Smith v. United States, 170 U.S. 372, 380-381, 42 L. Ed. 1074, 1077 (1898), that the decisions of the Secretary are not in any sense regula- tions under R.S. 161 (now 5 USC § 301). Nothing in the Desert Land Act contains specific, independent au- thorization for the Secretary to enforce the assignment clause or the holding limitation. Therefore, enforce- ment of the IBLA’s interpretation of the holding limi- tation in the adjudicatory proceedings was beyond the Secretary's jurisdiction and authority, and the ad- ministrative cancellation of the entries was void and of no effect. This analysis is in accord with the commands of 5 USC § 558*', Act of September 6, 1966, 80 Stat. 338. This situation by no means hampers the Secretary in the execution and enforcement of the public land laws. He has but to issue appropriate regulations in order to activate the powers granted him by Congress.*? The *° § 1201. The Secretary of the Interior, or such officer as he may designate, is authorized to enforce and carry into execution, by appropriate regulations, every part of the provisions of this title not otherwise specially provided for. Act of February 19, 1874, c. 30, 18 Stat. 16. *! § 558. Imposition of sanctions; determination ef applications for licenses; suspension, revocation, and expiration of licenses (a) This section applies, according to the provisions thereof, to the exercise of a power or authority. (b) A sanction may not be imposed or a substantive rule or order issued except within jurisdiction delegated to the agency and as authorized by law. 62 Any such regulation would have to be consistent with § 329, otherwise it would be a nullity. See, e.g., United States v. Larionoff, 431 U.S. 864, 873, 53 L. Ed. 2d 48, 56, (1977); Manhattan General Equip. Co. v. Commissioner, 297 U.S. 129, 134, 80 L. Ed. 528 (1936); Ernst & Ernst v. Hochfelder, 425 U.S. 185, 213-214, 47 L. Ed. 2d 668, 688 (1976). The interpretation em- bodied in the regulation must be consistent with the congressional purpose. Morton v. Ruiz, 415 U.S. 199, 237, 39 L. Ed. 2d 270, 295 (1974); Espinoza v. Farah Mfg. Co., 414 U.S. 86, 38 L. Ed. 2d 287 (1973). 53 issuance of such regulations would in many cases, in- cluding this one, enhance the administration of the law.® Nor does it limit the Secretary’s power to interpret his own regulations in adjudicatory proceedings. The problem here is the absence of any regulations on leas- ing desert land entries. And to the extent the IBLA concluded that the mortgages somehow contributed to the “holding”, its decision is clearly contrary to the plain language of the applicable regulation.®* The Secretary’s authority under § 1201 is only ad- ministrative, not legislative. United States v. George, 228 U.S. 14, 57 L. Ed. 712 (1913). Any regulation issued by the Secretary would not, therefore, “have the force and effect of law”, and the courts give to such interpretive regulations only such deference as is war- ranted by the timing and consistency of the agency’s position, and the nature of its expertise. Batterton v. Francis, 432 U.S. 416, 425, 53 L. Ed. 2d 448, 456 (1977). The courts below suggested no reason why any greater deference should be accorded an administra- tive interpretation in adjudication proceedings, and they committed error by accepting the IBLA’s in- terpretation without analyzing it in accordance with these standards. ®3 Cf. Kelly v. United States Department of the Interior, 339 F. Supp. 1095, 1102 (E.D. Ca., 1972); Aiken v. Obledo. 442 F. Supp. 628 (E.D. Ca., 1977). *443 CFR § 232.18 (d) (1963 Revision). App. E, p. E-14. It should be noted that, although Sailor Creek filed copies of the mortgages pursuant to this regulation, the BLM did not name Sailor Creek as a party in the administrative proceedings and did not notify Sailor Creek that the mortgages were regarded as part of a mechanism for “holding” the entries. 54 The unexplained inconsistencies in the Depart- ment’s recent interpretations of the holding limitation relieve the courts of any obligation to accord special weight to its views. Cf. United Housing Foundation, Inc. v. Forman, supra, 421 U.S. at 858, 44 L. Ed. 2d at 635-636. Both the District Court and the Court of Appeals committed error in limiting the scope of review to determination of whether “the Secretary's decision is arbitrary or capricious or unsupportable by substan- tial evidence, considering the record is whole.” App. d, p. D-5. That standard applies where Congress has ex- pressly delegated to the agency the power to prescribe standards, and in such cases the regulations have “legislative” effect, which a reviewing court is not free to set aside simply because it would have inter- preted the statute in a different manner. See Batterton v. Francis, 432 U.S. 416, 425, 53 L. Ed. 2d 448, 456 (1977). But the IBLA’s decision in this case is not a legislative regulation, it is not even an interpretive regulation, it is merely an interpretive decision in an adjudicatory proceeding. This Court noted in Batterton v. Francis, supra, 432 U.S. at 425, 53 L. Ed. 456-457, note 9, that “A court is not required to give effect to an interpretive regulation.” Where the only or principal dispute relates to the meaning of a statutory term, the controversy presents issues on which the courts, and not the administrators, are relatively more expert. See Barlow vy. Collins, 397 U.S. 159, 166, 25 L. Ed 2d 192, 199 (1970). This Court has long held that a construc- tion of law by the Land Department is not conclusive upon the courts. See Wisconsin Central R. Co. v. For- 55 sythe, 159 U.S. 46, 61, 40 L. Ed. 71, 76 (1895). These principles are in accordance with the scope of judicial review expressed in the Administrative Procedure Act, 5 USC § 706 (2) (A), (C) and (D), which require the reviewing court to hold unlawful and set aside agency action, findings, and conclusions found to be “arbit- rary, capricious, an abuse of discretion, or otherwise not in accordance with law; * * * in excess of statutory jurisdiction, authority, or limitations, * * * (or) without observance of procedure required by law; * * *”. The courts below committed error in limiting their review to the questions of whether th: |BLA’s decision is ar- bitrary or capricious or unsupportable by substantial evidence. E.1f the transactions amounted to holdings by Sailor Creek in excess of 320 acres, that was not sufficient to warrant cancellation of the entries and forfeiture of the lands and moneys; the IBLA decision was inconsistent with long-established policies of the department. Because 43 USC § 1201 requires enforcement of the Desert Land Act through the publication of approp- riate regulations, and because no regulation issued by the’ Department provides that a holding in excess of 320 acres of desert land constitutes “failure to comply with the requirements of the law”, within the meaning of § 329, it is beyond the statutory authority of the IBLA to cancel these entries on the basis of its finding that Sailor Creek held more than 320 acres of desert land. Regulations issued by the Department which were in effect when these entries were made and have been 56 in effect continuously since that time preclude the IBLA from cancelling these entries on the basis of its finding that Sailor Creek held more than 320 acres. 43 CFR § 232.17 (c) (1963 Revision) states that “* * “The assignment of a desert-land entry to one disqualified to acquire title under the desert-land law, and to whom, therefore, recognition of the as- signment is refused by the manager, does not of itself render the entry fraudulent, but leaves the right thereto in the assignor. In such connection, however, see 42 L.D. 90 and 48 L.D. 519.” The reference to 48 L.D. 519 directs attention to the case of Freeman v. Laxton (1922), which was relied on by the District Court in allowing the entrymen to ac- complish a divestittre of the holdings the IBLA deter- mined to be in violation of § 329. Freeman invites the entryman to submit his transactions to the BLM, with the assurance that unauthorized transactions thus submitted will not jeopardize the entry.®* The quoted regulation clearly contemplates that when a desert land entryman presents a transaction to the manager of the Land Office, the manager has a duty to determine whether the transaction constitutes an assign- ** “The regulations governing the assignment of desert land entries contemplate that such assignments will be submitted to the General Land Office for adjudication as to the qualifications of the assignee and for recognition of the assignment. “When this plan is pursued and it is found that the assignment cannot be recognized on account of the disqualification of the assignee, the assign- ment is disallowed and the title is considered as retained in the assignor. But where parties fail to submit the assignment to the General Land Office, they’ act at their own risk and if the fact of assignment is brought to the attention of the Land Department by contest alleging disqualification of the assignee, such charge constitutes sufficient ground for a contest and for cancellation of the entry if proven or in case of failure to make answer. See Watson v Barney et al. (48 LD. 308)." * *" 48 Land Dec. at 520. 57 ment and whether the assignee is qualified to take the assignment. If the assignee was not qualified, the manager simply would refuse to recognize the assign- ment and the right to the entry would remain in the original entryman. One common reason for refusing to recognize assignments is that the proposed assignee already has exhausted his right to a desert land entry. Under the interpretation adopted by the IBLA and by the Court of Appeals, a finding that a proposed assig- nee of a 320-acre entry previously had held any quan- tity of desert land under an entry of his own, would absolutely require cancellation of the entry because by virtue of the assignment, even though it had not been recognized or approved by the BLM, the assignee would be holding the entry by assignment and there- fore in violation of the holding limitation. That would be contrary to the regulation. If the leases and mortgages did result in a “holding” by Sailor Creek, that holding would not be of such an extensive interest as would result from an assignment, because by an assignment the entire interest of the entryman is transferred to the assignee. It is illogical and discriminatory that the BLM would not afford to entrymen attempting to transfer such lesser interests the same opportunity and procedure as is afforded to an entryman attempting to transfer his entire interest to another person. In other words, if the entrymen had attempted to sell the entries to Sailor Creek, they would have been accorded the rights and procedure established in 43 CFR § 232.17 (c), but since they only mortgaged and leased the entries, the IBLA has ruled 58 that they are not entitled to that procedure and protec- tion. The BLM violated its own regulation by not apply- ing 43 CFR § 232.17 (c) to the transactions voluntarily submitted to it by the entrymen. It should not be per- mitted to cancel and forfeit the entries without first resorting to its own established procedure. Morton v. Ruiz, 415 U.S. 199, 39 L. Ed. 2d 270 (1974); Chapman v. Sheridan-Wyoming Coal Co., 338 U.S. 621, 94 L. Ed. 393 (1950); West v. United States, 30 F. 2d 739 (CA- D.C., 1929). If it be argued that this regulation applies only to absolute assignments, and not to transfers of lesser interests, then it should be held that the absence of any specific regulations on combinations of mortgages and leases shows that the Department has never regarded transactions of that type as being within the holding limitation. As stated in The Atchison, Topeka & Santa Fe Railway Company v. Board of Trade, 412 U.S. 800, 807, 37 L. Ed. 2d 350, 362 (1973) “A settled course of behavior embodies the agency's informed judgment that, by pursuing that course, it will carry out the policies committed to it by Congress.” See, also United States v. Midwest Oil Co., 236 U.S. 459, 472-473, 59 L. Ed. 673, 680, 681 (1915); Zemel v. Rusk, 381 U.S. 1, 11, 14 L. Ed. 2d 179, 187 (1965); Udall v. Tallman, supra 380 U.S. at 17, 13 L. Ed. 2d, at 629. The Court of Appeals committed error when it re- versed the District Court’s ruling that the rationale of the Freeman decision should be applied to these en- tries. rec te ee 59 Certain policies adopted by the Department, which bind the IBLA under the rule established in United States v. McDaniel, supra, also preclude the IBLA from cancelling these entries on the basis of a finding that the transactions enabled Sailor Creek to hold more than 320 acres of desert entry land. Since 1884, if not before, it has been the consistent and uniform policy of the Department to apply changes in rulings and policies prospectively only, and not retrospectively. See Miner v. Mariott, 2 Land Dec. 709 (1884), in which the Department stated that even where a construction of ¢ statute was clearly erroneous, “such fact does not render illegal any acts which have been performed in accordance with and pursuant to that construction or interpretation.” Id. at 711. The rule was applied to a desert entry in David B. Dole, 3 Land Dec. 214 (1884), and in other cases, including William Thompson, 8 Land Dec. 104 (1889), in which the Department also held that a desert entry was a contract between the Government and the entryman, controlled by the in- terpretation of the law in effect at the time the entry was made. The policy has received judicial recognition and approval. See, e.g., Safarik v. Udall, 304 F 2d 944, 959 (CA-D.C. Cir., 1962). Several decisions rendered in the 1890's, the last apparently being Heinzman vy. LeTroadec’s Heirs, 28 Land Dec. 497 (1899), declined to cancel desert entries on the basis of excess holdings. In Heinzman one of the charges was that one of the parties “by his own entry and similar assignments held lands in excess of the amount allowed by law.” Id. at 498. The Department held that the “assignment of a desert land entry to one 60 disqualified to acquire title under the Desert Land Law, does not render the entry fraudulent, but leaves the right thereto still in the entryman”, and that “By the assignment * * * the integrity of the entry was not affected, and the right thereto still remains in the original entryman.” Id. at 500. The policy expressed in these decisions presumably was approved by Congress when it modified the right of assignment by enacting § 324, without requiring that attempted assignments to disqualified persons would require cancellation of the entries. The policy was modified in two later decisions, but neither of those modifications apply to the facts in this case. The effect of these policies is to bar the IBLA from applying retroactively its new interpreta- tion of the holding limitation and to bar the IBLA from using the asserted excess holdings as grounds for can- cellation of the entries. F. The IBLA violated the Administrative Procedure Act and the regulations of the Department by disregarding uncontradicted evidence; the IBLA wrongly concluded that the government was not estopped from cancelling the entries. From an administrative record consisting of more than 5,000 pages of testimony and hundreds of docu- ments, the IBLA extracted a single statement in one Government exhibit as the sole support for its finding that the BLM did not have knowledge that the entry- men had leased their entries. That statement appears in a letter sent by the Manager of the Land Office to “Bone v. Rockwood, 38 Land Dec. 253 (1909); Freeman v. Laxton, supra. 61 each entryman, shortly after final proof, in which it was observed that “In addition to the Sailor Creek Water Company furnishing water to your entry, this Bureau notes that the lands in your entry are actually being de- veloped and farmed by the same company. There is nothing of record with this office that shows such contractual arrangements.* * * "67 The statement itself is equivocal as to the existence or absence of knowledge on the part of the Govern- ment. All the statement really says is that the Land Office did not have copies of the leases, and that is by no means the same as saying that the BLM did not know, from discussions by its representatives and agents or from copies furnished to other offices, about the terms of the leases. But when considered with other uncontradicted evidence in the record, as must * A copy of the letter is in evidence as Exhibit G-2 Doc. 33, which reads in pertinent part as follows: “This office has recently reviewed all the information, including final proof papers, you have submitted leading toward patent of the land in your desert land entry. The documents of record include a ‘Notice of Mortgage’ and a ‘Water Right Document’ including ‘Exhibit A’ which is a real estate mortgage with the Sailor Creek Water Company for con- struction of an irrigation system. These contractural documents are to furnish water to the land of your entry and also to provide security to the company. “In addition to the Sailor Creek Water Company furnishing water to your entry, this Bureau notes that the lands in your entry are actually being developed and farmed by the same company. There is nothing of record with thir office that shows such contractual arrangements. In order for us to complete action on your application for patent, it will be necessary that you furnish this office with copies of the contractual arrangements you have made with the party or parties actually doing the developing and farming of the land in your entry. Please furnish this information at the earliest possible date. Very truly yours, /s’ Orval G. Hadley Acting Land Office Manager” 62 be done by the statutory command of 5 USC § 556 (d) (Act of September 6, 1966, 80 Stat. 386), by this Court’s decision in Universal Camera Corp. v. NLRB, 340 U.S. 474, 487-488, 95 L. Ed. 456, 467 (1951), and by the Department’s own regulation, 43 CFR § 4.478 (a) ® it becomes clear that the IBLA’s conclusion is contrary to the “reliable, probative and substantial evidence”, which its own regulation requires as a basis of deci- sion. This conclusion disregarded the uncontradicted testimony of two witnesses, Allen Noble and G. Patrick Morris, without any explanation and without any find- ing that there was a lack of credibility on the part of these witnesses. The Administrative Law Judge, who observed them on the witness stand, relied on their testimony in making his findings. Neither was there any indication by the IBLA that the testimony of Noble and Morris was inherently improbable. Under these circumstances, the IBLA’s rejection of this im- portant, uncontradicted testimony concerning the knowledge possessed by the agents and representa- tives of the BLM is arbitrary and not justified. The contrary ruling by the Court of Appeals conflicts with this Court’s decision in Universal Camera Corp. v. NLRB, supra, 340 U.S. at 496-497, 95 i. Ed. at 471- 472, and with the decisions of the First Circuit in Stone & Webster Engineering Corp. v. NLRB, 536 F. 2d 461 ®* § 4.478 Conditions of decision action. (a) Record as basis of decision; definition of record. No decision shall be rendered except on consideration of the whole record or such portions thereof as may be cited by any party or by the State Director and as supported by and in accordance with the reliable, probative, and sub- stantial evidence. The transcript of testimony and exhibits, together with ail papers and requests filed in the proceedings, shall constitute the exclusive record for decision. 63 (1976), and that of the Sixth Circuit in NLRB v. Cleve- land Trust Co., 214 F. 2d 95 (1954), and with its own decisions in Day v. Weinberger, 522 F. 2d 1154 (1975), and Charlestone Stone Products Co., Inc. v. Andrus, 553 F. 2d 1201 (1977), reversed on other grounds, An- drus v. Charlestone “tone Products Co., Inc., 436 U.S. 604, 56 L. Ed. 2d 570 (1978). The IBLA’s finding cannot be affirmed simply by isolating a specific quantum of supporting evidence, cf. Universal Camera Corp. v. NLRB, supra, Day v. Wein- berger, supra at 552 F. 2d 1156, particularly in light of the long-standing policy of the Department of the In- terior to the effect that in forfeiture cases the determi- nation leading to a forfeiture must be based on a clear preponderance of the evidence. See, e.g., Tibergheim v. Spellner, 6 Land Dec. 483, 485 (1888). The Court of Appeals declined to find that the record- ing of the leases constituted constructive notice to the BLM of the actual provisions of the leases.®? On that point the decision of the Court of Appeals is in direct conflict with the decision by the Tenth Circuit in United States v. Christopher, 71 F 2d 764 (1934). In Adolph Coors Company v. FTC, 497 F. 2d 1178, 1184 (1974), the Tenth Circuit held that the agency must consider the initial decision of the Law Judge and the evidence in the record on which it was based, and that when the Law Judge and the agency reach oppo- site results, the Law Judge’s findings should be consi- dered on review and given such weight as they merit within reason and the light of judicial experience, fol- * The point was raised in Brief of Plaintiffs - Cross - Appellants at 45. 64 lowing this Court’s holding in Universal Camera Corp v. NLRB, supra, 340 U.S. at 496, 95 L. Ed. at 472. The effect of the ruling of the court of Appeals in this case is that the findings of the IBLA are entitled to recogni- tion over those of the Law Judge, without reviewing the Law Judge’s findings and without giving them any consideration on appeal. That ruling is in direct con- flict with this Court’s ruling in Universal Camera Corp. v. NLRB, supra, and with the Tenth Circuit’s ruling in Adolph Coors Company, supra. The rejection of the evidence presented by the tes- timony of Noble and Morris without a detailed expla- nation of the reasons for such rejection was arbitrary. White Glove Building Maintenance, Inc. v. Brennan, 518 F. 2d 1271, 1276 (CA-9th Cir., 1975). Proper consideration of the evidence on which the Administrative Law Judge based his findings that the BLM knew that the entrymen intended to have their entries farmed by a single entity and that they in- tended to obtain 100% financing, can only lead to the conclusion that those findings were supported by sub- stantial evidence and should not have been rejected or disregarded by the IBLA and by the Court of Appeals. The knowledge shown by that evidence is sufficient to estop the IBLA from applying its interpretation of § 329 to these entries. And in addition to the basis of estoppel stated by the District Court, the BLM, by allowing the applications for these entries with know- ledge of the plans for leasing and financing, thereby setting in motion the machinery for expenditure of hundreds of thousands of dollars of private funds in 65 construction of the irrigation system and development of the lands in the entries, without issuing any regula- tion, decision or direct communicaton indicating to the entrymen or to Sailor Creek that leases and mortgages would violate § 329, can not be permitted at this late date to establish that new interpretation as grounds for forfeitures which result in a tremendous windfall gain to the Government. Under similar circumstances this Court held in Un- ited States v. Bank of the Metropolis, 15 Peters 377, 395-398, 10 L. Ed. 774, 781 (1841), that the Govern- ment could not use facts which already had happened to exempt itself from liability on the basis of a condi- tion which it could have expressed, but did not. G. Upon filing applications for entry the entrymen be- came vested with the right to have the entries processed in accordance with the policies and regulations in effect at that time. There are two types of vesting of rights which occur with respect to a desert land entry. The first type occurs when the applicant files an allowable applica- tion and pays the downpayment of twenty-five cents per acre. In the case of Raymond L. Gunderson, 71 Int. Dec. 477, decided December 2, 1964, less than six months after final proof and final payment were made on these entries, the Department held that all the rights of an entryman under the public land laws vest in an applicant upon the filing of his application, if the application subsequently is found to be allowable, and that those vested rights include the right to have the entry processed in accordance with the policies and 66 regulations in effect at the time the application was made. Id. at 483-484. The Gunderson case involved a homestead entry, but the decision relied heavily on previous decisions and regulations under the Desert Land Act, and indicated that the same rules and policies should be applied to both types of entries. The ultimate ruling in Gunderson was that the amended homestead regulation at issue in that case should be applied only to allowable homestead applications filed after the effective date of the amendment to the regula- tion. Id. at 484. The same analysis of the rights of a purchaser under the public land laws was made in James v. Germania Tron Co., 107 F. 597, 602 (CA-8th Cir., 1901), in which the Court stated “* * * The rights of these parties vested on Feb- ruary 23, 1889. They were initiated under and con- ditioned by the laws of the land and the rules and practice of the department on that day, and no sub- ‘equent rules, decisions, or practice could devest them of the property they then secured, or deprive them of their equitable or legal rights to the title to the land which they then acquired. Cornelius v. Kessel, 128 U.S. 456, 461, 9 Sup. Ct. 122, 32 L. Ed. 482; Shreve v. Cheesman, 69 Fed. 785, 792, 16 C.C.A. 413, 419, 32 U.S. App. 679, 689.* * *” The decision of the Court of Appeals in this case is in direct conflict with the decision of the Eighth Circuit in James, supra. Applying these rules to this case means that the Secretary's interpretation of § 329 in Shearman, supra, 67 and the IBLA’s interpretation in this case, should be applied only to desert land entries for which applica- tion was filed after the effective date of the decision. 7° In Gunderson the Department also reiterated and applied the long-standing policy of the Department to the effect that a desert land entry is governed and controlled by the regulations and interpretations in effect at the time the entry is made by filing the appli- cation. Those same principles should have been applied to these entries. The IBLA offered no explana- tion for the failure to apply that policy to these entries, nor did it attempt to distinguish the Gunderson deci- sion or offer any explanation of why the rights of the entrymen did not vest at the time their applications were filed. In arriving at its decision in Gunderson, supra, the Department discussed and applied several decisions of this Court, including Payne v. Central Pacific Railway Co., 255 U.S. 228, 65 L. Ed. 598 (1921), and Payne v. State of New Mexico, 255 U.S. 360, 65 L. Ed. 680. The decision in Gunderson conformed to the policy adopted at least 80 years earlier in connection with cesert land cases in the case of David B. Dole, 3 Land Dec. 214 (1884), in which the Secretary stated “I do not understand that a party acts under a misapprehension of the law, so as to lose any right, when he acts under its official interpretation,” and that entrymen and their assignees acting under such official interpreta- tion “should not be required to forfeit any right by 7” Applications for these entries were filed two and one-half years or more before the Shearman decision. 68 subsequent construction inconsistent with the first.” Id. at 215. This policy presumably was known to Congress when it enacted § 329, and since Congress did not direct otherwise, the policy should be considered as having been adopted by Congress as an implied part of § 329. At the very least, it should be presumed that the intent of Congress was being carried out by adhering to the settled rule of giving only prospective effect to changed rulings or to new interpretations, and the IBLA had a duty to explain its “departure from the prior norms.” Atchison, T. & S. F. R. Co. v. Board of Trade, supra, 412 U.S. at 807-808, 37 L. Ed. 2d at 362. This requirement applies with equal force to the other changes in policy involved in this case, none of which were explained by the IBLA. The other type of vested interests arises when the entryman fulfills the statutory requirements and makes final proof and final payment.”' As recognized by the Department in Gunderson, supra, and as stated by this Court in Wyoming v. United States, 255 US. 489, 497-498, 65 L. Ed. 742, 746 (1921), “When the price is paid, the right to a patent immediately arises. If not issued at once, it is be- cause the magnitude of the business in the Land Department causes delay. But such delay in the mere administration of affairs does not diminish the rights flowing from the purchase, or cast any addi- ™!'The IBLA did not disturb the Law Judge's findings that satisfactory final proof had been made and the final payment had been made, App. A, pp. A;17 and A-42. \ 69 tional burdens on the purchaser, or expose him to the assaults of third parties.” (Quoting from Benson Mining & Smelting Co. v. Alta Mining and Smelting Co., 145 U.S. 428, 431, 36 L. Ed. 762, 764 (1892)). And the Court also held that when all the conditions of entry had been performed and the price had been paid, “the full equitable title has passed, and only the naked legal title remains in the government, in trust for the other party, in whom are vested all the rights and obligations of ownership.” Id. at 255 U.S. 498, 65 L. Ed. 746. It is significant that these cases hold that no additional burdens can be cast on the purchaser and that there are vested in him all the rights and obliga- tions of ownership. These decisions can only mean that subsequent to final proof and final payment, and prob- ably from the time of filing the application and paying the initial twenty-five cents per acre, no additional requirements and limitations can be imposed upon a desert land entryman. The IBLA committed error when it attempted to impose its interpretation of the holding limitation on these entries nearly eleven years after final proof was made. The Court of Appeals com- mitted error when it ruled that the rights of the en- trymen had not vested. In State of Wisconsin et al, 65 Int. Dec. 265 (1958), the Department discussed Wyoming v. United States, supra, and other cases, in arriving at the conclusion that after an entryman has done all that is required of him undr- a particular statute and has earned equita- ble title to a tract of public land, the Secretary can vacate the disposal and refuse to issue patent only for 70 proper grounds existing prior to or up to the time equitable title was earned. It is not entirely clear from the IBLA’s decision whether it regarded the holding by Sailor Creek as existing as soon as the sublease was made or as exist- ing only when the leases had been assigned to Sailor Creek by Morris and Noble. However, since the as- signments of the leases were discussed in some detail, App. B, pp. B-9-10, and the IBLA noted that “By 1965 the Sailor Creek Water Company had a mortgage on all the entries, had leases with an ele- ven year possible life, had absolute authority to de- termine what would or would not be grown, oversaw all the planting and harvesting operations, and re- tained all profits derived from these operations’, it should be assumed that the IBLA regarded the as- signments of the leases as an operative part of the “totality of the arrangements,” which would mean that the asserted “holding” by Sailor Creek did not occur until 1965, more than six months after final proof was made on these entries. Therefore, the entries come within the rule stated in State of Wisconsin, supra, and the entrymen’s right to patent vested at the time of final proof, if not before, and that right could not be affected by the assignment transactions between Mor- ris and Noble and Sailor Creek Water Company which occurred after final proof. The IBLA ofiered no reason why the rule in State of Wisconsin should not be applied to these entries. That rule encourages fair de- aling between the Government and the citizen, and it ee 71 should not be disregarded or avoided unless compelling reasons exist. The rule adopted in State of Wisconsin, supra, is recognized in the regulation of the Department?? which states that “After final proof and payment have been made the land may be sold and conveyed to another person without the approva! of the Bureau of Land Management”, with the caveat that such con- veyances are subject to the superior rights of the Un- ited States and that the title would fall if it should be finally determined that the entry was illegal or that the entryman had failed to comply with the law. But the caveat can only be intended to apply to matters occurring before final proof and final payment, as indi- cated by the wording of the regulation and by the fact that the regulation clearly recognizes the right to make the sale without regard to whether the pur- chaser is a qualified entryman or not, so that a sale after final proof to a disqualified person could not be asserted as grounds for cancellation of the entry, even though a sale-assignment before final proof could, under certain circumstances, result in cancellation of the entry. See Freeman v. Laxton, supra. This regula- tion binds the IBLA. Morton v. Ruiz, supra; Chapman v. Sheridan-Wyoming Coal Co., supra. In Lemon v. Kurtzman, 411 U.S. 192, 199, 36 L. Ed. 2d 151, 160 (1973), this Court recognized that “statu- tory or even judge-made rules of law are hard facts on which people must rely in making decisions and in shaping their conduct. This fact of legal life underpins 43 CFR 2226.1-3 (a) (1964 Supplement: 72 our modern doctrines recognizing a doctrine of nonret- roactivity. Appellants offer no persuasive reason for confining the modern approach to those constitutional cases involving criminal procedure or municipai bonds, and we ourselves perceive none.” Retroactive application of the new interpretation of § 329 raises a serious question of due process, which has not been decided by the Court of Appeals or by the District Court, and Petitioners raise the question here only to protect the issue should the decision of the Court of Appeals be regarded as final for all purposes. But aside from the constitutional implications of re- troactive application of the new interpretation, the quoted statement from Lemon, supra, and related principles stated in Linkletter v. Walker, 381 U.S. 618, 14 L. Ed. 2d 601 (1965), and cases cited in Linkletter at 381 U.S. 624-628, 14 L. Ed. 2d 605-607, should be applied to this case. The IBLA should have been guided by the principles discussed by this Court in Lemon v. Kurtzman, supra, to look to the prior history and purpose of the rule in question, its purpose and effect, and whether retro- spective operation will further or retard its operation. 411 US. at 199, 36 L. Ed. 2d at 161. The determination of whether retroactive application is necessary, or even permissible, is an equitable consideration, and “it is well established that reliance interests weigh heavily in the shaping of an appropriate equitable remedy.” Lemon, supra, at 411 U.S. 203, 36 L. Ed. 2d at 163. Petitioners were entitled to rely on the absence of regulations or decisions on leasing desert land entries, a 73 and on the lack of any objection from BLM officials and representatives when the plans for leasing were dis- cussed prior to allowance of the entries, and on the regulations permitting mortgages and the BLM’s ap- proval of these mortgages, when they accepted the Government's statutory offer and proceeded to expend large sums of money in construction of the irrigation system and development of the land for farming pur- poses. Under these principles, the IBLA abused its discre- tion and exceeded the Secretary's statutory authority by retroactively applying the new interpretation of § 329 to these entries. The District Court correctly concluded that the equities weighed heavily in favor of the entrymen, and its findings in that regard were not disturbed by the opinion of the Court of Appeals. If the interpretation contended for by the Petitioners is applied, no direct damage results to the Government. If the IBLA’s in- terpretation is correct, it can be applied to all future desert land entries. In A. M. Shaffer, 73 Int. Dec. 293 (1966), the Department stated that “the regulations should be so clear that there is no basis for the appli- cant’s noncompliance, and if there is doubt as to their meaning and intent such doubt should be resolved favorably to the applicants.” Id. at 298."* * * If it is felt that the practice followed by the appellants is objec- tionable, the regulations should be amended to make the offerors’ obligation clear.” Id. at 301. By failing to apply the rule stated in Shaffer, supra, the IBLA disregarded vet another established policy of 74 the Department in arriving at its decision in this case. That policy was established at least as early as 1955 in the case of Madison Oils, Inc., 62 Int. Dec. 478, 483. The IBLA’s failure to apply that policy to these entries was arbitrary and capricious action, discriminating against these entrymen, just as was its failure to apply other long-established policies of the Department. H. The issues on denial of due process, application of contract law and dismissal for inadequate pleadings should have been decided in favor of the petitioners. Neither the District Court nor the Court of Appeals discussed or ruled on the issues of denial of due pro- cess, application of contract law to these entries, or inadequacy of the contest pleadings under the Ad- ministrative Procedure Act and the regulations and decisions of the Department. On the authority of Sprague v. Ticonic National Bank, 307 U.S. 161, 83 L. Ed. 1184 (1939), and Hansen & Rowland v.C. F. Lytle Co., Inc., 167 F. 2d 998 (CA-9th Cir., 1948), and Union Pacific R. Co. v. Johnson, 249 F. 2d 674 (CA-9th Cir., 1957), those issues should remain before the District Court for determination, if this Court denies this peti- tion or affirms the decision of the Court of Appeals. These issues are mentioned here only to preserve them should the decision of the Court of Appeals be regarded as final for all purposes. 75 CONCLUSION For the reasons herein stated, this Petition should be granted, and the judgment and decision of the Court of Appeals should be reversed, and the judgment and decision of the District Court should be reversed in- sofar as it affirms the decision of the IBLA. Respectfully submitted, WILLIAM F. RINGERT Anderson, Kaufman, An- derson & Ringert 503 Idaho Building Boise, Idaho 83702 Attorney for Petitioners See eee ee _— A-1 APPENDIX A DECISION OF THE ADMINISTRATIVE LAW JUDGE (Dated January 29, 1971) UNITED STATES OF AMERICA, Contestant US. G. PATRICK MORRIS, JOAN E. IDAHO ROTH, ELISE L NEELEY, 013820, LYLE D. ROTH, VERA M. NOBLE, 013905, CHARLENE S. BALTZOR, 013906, GEORGE R. BALTZOR, JOHN E. 013907, ) ) ) ) ) ) ) ) ) MORRIS, JUANITA M. MORRIS, ) 014126, ) ) ) ) ) ) ) ) ) NELLIE MAE MORRIS, MILO 014128, AXELSEN, PEGGY M. AXELSEN, 014129, Contestees 014130, 014249, FARM DEVELOPMENT 014250, CORPORATION, 014251, Intervenor 014252 Desert Land Entries STATEMENT OF THE CASE These proceedings involve a group of 12 desert land entries situated on 3,781.62 acres of public land adja- cent to the south bank of the Snake River near Glenns Ferry in Elmore County, Idaho. The entrymen filed final proof papers in May 1964. The contests. were initiated in June 1966 by the Idaho Land Office Man- A-2 ager, Bureau of Land Management, who filed separate complaints against each entry. Answers making gen- eral denials were filed by the entrymen. Since the entries were developed as a group and the charges set forth in Paragraph V of the complaints are identical in each case, they were combined for hearing and decision. A prehearing conference was held, in Boise, Idaho, on April 4, 1967. The hearing, which involved 38 days of testimony, commenced on June 26,1967, and ad- journed on August 1, 1968, with sessions being held in Boise, Idaho, and San Francisco, California. The Gov- ernment was represented by Messrs. William Burpee, Riley C. Nichols and Robert S. Burr, Office of the Solicitor, U.S. Department of the Interior, Boise, Idaho. Messrs. William F. Ringert of Boise, Idaho, and Milo Axelsen of Nampa, Idaho, represented the Con- testees. Mr. Ringert also represented the Intervenor. The final brief was filed on September 2, 1969. FINDINGS OF FACT I. INTITIAL FILINGS | On January 1963, G. Patrick Morris and his v-ife, f Juanita M. Morris, Robert S. Skyles and his wife, Charlotte M. Skyles, Calvin B. Neeley and his wife, Margaret J. Neeley, each filed a desert land entry application on land in the area of Sailor Creek near Glenns Ferry, Idaho. The initial filing fee for all six applicants was remitted to the Bureau of Land Man- agement by Mr. Skyles. Accompanying the applica- a en na A-3 tions were receipts for individual water permits issued to each applicant by the Department of Reclamation of the State of Idaho and a statement that the applicants intended to cooperate in the construction of an irriga- tion system to furnish water from the Snake River for all six entries. On or before Feburary 21, 1963, Lyle D.Roth and his wife, Joan E. Roth, Nellie Mae Morris and Elise L. Neeley also filed applications for desert land entries in the same area (Ex. G-84). G. Patrick Morris, acting as their agent, assisted in the preparation of the applica- tions and remitted the fees to the Bureau (Exs. G-2, G-3, G-4; Tr. Vol. 12, p. 1864). The applications were accompanied by receipts for individual water permits and a schematic layout of a proposed high lift irriga- tion system designed to deliver water from the Snake River to their entries and to the entries of the first six applicants. In March or April of 1963, through the persuasion of G. Patrick Morris, Allen T. Noble became interested in the Sailor Creek entries and he and Morris agreed to join efforts as a partnership to develop the entire pro- ject (Tr. Vol. 19, pp. 2911-2915). It was about this time that Neeley and Skyles withdrew as active particip- ants in the efforts to obtain financing. Of the six applications that were filed January 1963, the only entry that was later allowed was that of G. Patrick Morris. The status of the Skyles and Neeley entries is not certain as the record is silent. They may have been relinquished or they may be pending : ‘o- wance. A-4 Eight new applications for entry were filed by May 6, 1963. The applicants were: Vera N. Noble, John and Lucy Noble, John E. Morris, Keith and Della Jane Taylor, and George R. and Charlene S. Baltzor. The fees were paid by Allen T. Noble, and he and G. Patrick Morris assisted in the preparation of the applications and exhibits and acted as agents for the applicants in applying to the State for water permits. In these appli- cations, the source of water was shown as “Sailor Creek Company” with a plan proposed for a row-crop farming operation. At this stage, the project comprised 18 applications embracing 5,760 acres of land. The applications for John and Lucy Noble and Keith and Della Jane Taylor were subsequently relinquished and are not involved in these procedings. On June 14, 1963, Milo and Peggy M. Axelsen each filed applications for desert land entries at Sailor Creek. On the same date, Nellie Mae Morris and Juanita M. Morris relinquished their earlier applica- tions and filed new applications covering the entries now in issue. Il. DEVELOPMENT OF THE ENTRIES AND FINANCING Soon after the first six applications had been filed, Morris began his attempt to obtain “mortage money” to develop what is now referred to as the Sailor Creek Project. From the outset,the applicants intended to finance the entire operation with borrowed capital (Tr. Vol. 3, pp. 457-458; pp. 1032 and 1034). Since the main expense would be the construction of a high lift irriga- A-5 tion system to pump water from the Snake River, Mor- ris first contacted the FHA; the Small Project Loans Division of the Bureau of Reclamation, Traveler’s In- surance Company, and W. R. Ames Company (Tr. Vol. 7, pp. 1031 1101-1103). After Allen Noble became in- terested in the project, he contacted Farm Develop- ment Corporation who had built and financed an irri- gation system for him in the Dry Lake area. On May 17, 1963, Morris wrote to Mr. B G. Miller (an officer of Hale Brothers Associates, a parent corporation of Farmland-Idaho and Hiller Engineering Corporation) presenting a proposal to irrigate 6,160 acres of desert land, which comprised the 18 desert land entries plus 400 acres that Morris had asked the State of Idaho to put up for sale in section 16, Township 6 South, Range 9 East. In the presentation, Morris estimated a total cost of $1,990,340 which included a water distribution system, labor camp, roads, wells, sheds, bridge and a $21,600 item for “payment to Skyles and Neeley.” This last item raises an inference that Morris was proposing that Skyles and Neeley be paid for relinquishing their entries. There is, however, no evidence that such pay- ment was ever made. On May 20, 1963, Mr. Miller met with Morris and Noble to discuss the development. The meeting re- sulted in an informal agreement in which Hale Brothers Associates, through their subsidiaries Farmland-Idaho, Inc., and Hiller Engineering Corpo- ration, would finance 100 percent of the cost of de- velopment of the proposed Sailor Creek Project (Tr. Vol. 4, pp. 583-584; Vol. 9, pp. 2916-2921; Vol. 11, pp. 3136-3148; Exs. G-149, A-14). A-6 Mr. Miller and Noble then contacted Harley McDowell (doing business as Idaho Land and Apprai- sal Service) and hired him to prepare a feasibility report (Tr. Vol. 37, p. 5769). On May 21, 1963, Morris and Miller met with Mr. Ringert to discuss the legal implications of the prop- osal. It was proposed that Morris and Noble would farm or supervise the farming of the entries; that Farmland-Idaho and Hiller Engineering Cor- poration would construct the main irrigation sys- tem and finance the development of the project; and that McDowell’s office would prepare the feasibility . work, the handling of the applications and the final proof taking. During the discussion Mr. Miller asked if the companies he represented, or either of them, could acquire the land. He was advised by Mr. Ringert “that he could just as well forget about that until the entry- men had patent and then see if he could make a deal with them, if he wanted to at that time” (Tr. Vol. 22, pp. 5819-5820). Mr. Ringert was retained by Hale Brothers to investigate the formation of either a joint venture or a corporation to carry on the proposed plans (Tr. Vol. 22, p. 3416; Ex. G-150, Doc. U-34). On May 28, 1963, Mr. Ringert wrote to Mr. Miller as follows: From our telephone conversation of yesterday morn- ing, it is my understanding that the various parties who have filed application for desert land entries on lands in the Saylor [sic] Creek Project are agreeable to your offer to conduct water from Snake River to the property lines of the various entries at a total A-7 price of $189.00 per acre, and that the irrigation system will be constructed by a private water corpo- ration with whom the entrymen will contract for their water rights. It is also my understanding that the water corporation will obtain firm commitments for long term loans to the entrymen on terms agree- able to the entrymen and that the entrymen will agree to borrow funds from the lending institution which makes the commitments, the loan proceeds to be applied directly to payment of the water right contracts. The entrymen also will agree to mortage their desert land entries to secure such loans and will agree to exercise best efforts promptly to obtain patent to the lands upon which entry is made. It is also my understand [sic] that several of the entries are to be leased to Allen Noble during the period in which the entries are being developed and made ready for final proof, under a lease agreement whereby the various entrymen shall be entitled to a fair and equitable portion of the net returns from the crops produced on the entries. The foregoing should of course be contingent, as to each entry, upon the application for the entry being allowed by the Bureau of Land Management... . (Ex. G-150, Doc. U-39). The joint venture, composed of Hiller Engineering Corporation and Farmland-Idaho, Inc., was formally created by written agreement on July 5, 1963, and was named “Sailor Creek Water Company” (Ex. G-80, File I, Doc. 14, et seg.). Each entryman and the water com- pany then entered into water right contracts in which A-8 the company agreed to construct and operate the main irrigation system for delivery of water and the entry- man agreed to pay a specified amount of money for the water rights. Payment ot the purchase price of the water right contracts was secured by mortgages on each entry. The mortgages secured only the deferred installments of the purchase price and included a clause in which the mortgagee (water company) agreed to waive any right to deficiency judgment in the event of foreclosure. This latter provision was made as a result of a specific request by John E. Morris (Tr. Vol. 15, pp. 2285 through 2287). Copies of the water right contracts and mortgages were included in the feasibility report sub- mitted to the Bureau of Land Management on July 12, 1963, by Idaho Land Appraisal Service in support of the applications for the 12 entries later allowed and now in issue (Ex. G-80, Files 1, 2 and 3). Sailor Creek Water Company paid the cost of the feasibility report. Sometime prior to August 1963, G. Patrick Morris decided to attend school in Chicago. Before leaving Idaho he made an arrangement with Sailor Creek Water Company to provide him a fixed monthly sum for one year to be repaid from his “equity in the water company” (Tr. Vol. 27, p. 4154; Ex. G-150, Doc. U-66). On August 5, 1963, he was reimbursed $1,438.90 for the expenses he incurred in connection with the project and for his past work (Ex. G-149, Doc. H-25; Tr. Vol. 22, p. 3371). Of this amount, $1,300 was compensation to him for the time he had spent working on the Sailor Creek matters prior to July 26, 1963. A-9 Pursuant to Morris’ agreement, he received 12 pay- ments of $400 each. On the corporate books the pay- ments were first treated as “compensation.” Later, an agreement was prepared and signed by Morris which provided that the $400 monthly checks were to be repaid from his equity in the Sailor Creek Water Com- pany Noble also entered into an employment agreement, dated August 10, 1963, with the joint venture in which he was to act as a field manager for construction and management of the proposed water system at a monthly salary of $1,000 (Ex. C-CH). On August 30, 1963, the Bureau of Land Manage- ment recognized Sailor Creek Water Company as a source of water supply for the 12 proposed land entries which are now in issue, involving a total of 3,789.62 acres in the area of Township 6 South, Range 9 East, Boise meridian, Idaho (Ex. G-80, File 3, Doc. 9). On August 30, 1963, Mr. Miller wrote a memoran- dum for inclusion in the Sailor Creek Water Company file summarizing the situation as it then existed. The portions of the memorandum which reveal the intent of the company at this phase of the project follows: From: B .G. Miller The Sailor Creek Water Co. has been formed as a joint venture by two of our wholly-owned subsidi- aries, Hiller Engineering Corp. and Farmland- Idaho, Inc. At the outset, the Water Company will build an irrigation system to provide water from the Snake River to 3700 acres of desert entry land in A-10 Elmore County, Idaho. There are another 10-12,000 acres of land adjacent to the project which are sus- ceptible to the same treatment as the first 3700 acres. The Water Company will continue to supply water to the land as well as to acquire land and actively farm land for its own account. Allen Noble and Pat Morris will be admitted as one-third owners each. Desert entry is a right available to each resident of a state which permits him to file upon up to 320 acres of U. S. owned desert land when he can show that it is economically and agriculturally feasible to bring water to the land and to cultivate it for “higher use”. When the entry is “allowed” (i.e. feasibility theoretically demonstrated), the entryman has as many as nine years (including renewal) to bring «th of his entry into crop. When he has done so, the U. S. Bureau of Land Management will issue him a patent granting fee title to him for the entire entry. It is important to note that, in the interval bet- ween “allowance” and patent, the entryman may treat the land exactly as if title vested in him, except that he cannot make any undertaking in this period to sell the developed land. He may mortgage it, how- ever, and the mortgage is enforceable against the land in the interval before patent as well as after patenting. However, if foreclosure occurs before pa- tent issues, the successful bidder must be a qualified entryman. In May of this year, G. Patrick Morris and Allen Noble approached Farmland as well as Ames to go A-11 into partnership in the development of desert entries filed by them, members of their families, and per- sonal friends. Our proposal to them was more ac- ceptable than our competitors’, and we began de- tailed planning of the development. Both Morris and Noble believe that these lands should be under common management and possibly, at a later date, common ownership. The intent of the Desert Entry legislation, however, precludes any person or entity from rights to more than one entry. While | am confident that Morris and Noble are genuine in their belief that, when the land proves and is patented, they will be able to buy the land at a modest price because of their close relationships with the entry- ren, it seemed prudent to plan that this might not happen. Good faith can weaken markedly when a dollar sign gets far enough to the left of the decimal point. For this reason, the original partnership idea was shelved and the joint venture was used. Farmland and Hiller have each agreed to contribute $25,000 to their capital accounts in the venture and stand ready to cause HBA to lend as muchas $175,000 to it (a total of $225,000 as discussed by the HBA Board). When, as, and if Morris and Noble each contribute two sections of land (1280 acres), more or less, to the venture, they will be entitled to a one third interest apiece. Since we can't have a binding agreement as to the land contribution by Noble and Morris, they wanted some assurances as to their participation. I have A-12 agreed that their assignment of the leases to all 3700 acres to the Company will be consideration for '» of their stock, when we incorporate, if ever. The Water Company sold each entryman a water contract in which the entryman agrees to buy, and the water company agrees to supply, irrigation wa- ter. The entrymen assigned their water permits to the Water Company and secured their obligations to the Company on the contract by the first real mortgage on their entries. Aside from normal boil- erplate, these mortgages also provide: 1. The entryman will diligently, and in a timely manner, farm the entry or cause it to be farmed. 2. He will diligently pursue the issuance of the patent. 3. He will not refinance the contract without prior written approval from the Water Company. 4. In the event of default of the entryman under 1 or 2, the water company may have peaceable possession of the entry in order that it may farm it in order to obtain the patent for the entryman and perfect its lien as against the world. 5. He will pay his water bills. We have leased the laterals to them, but we have only sold him the use of the main system. In a hypothetical case where the contract would be paid in cash, the Water Company would have a profit of $59,648 per entry since it would still own the water system ... (Ex. G-150, Doc. A-15). A-13 It must be emphasized that the comments are Mr. Miller’s and reflect only his understanding, for there was no evidence that any of the entrymen had seen or knew of the existence of this memorandum. The water contracts were executed early in August 1963 by the 12 entrymen and the Sailor Creek Water Company. Under the contract, the entrymen were obligated to pay a down payment of $5,200 for a 320- acre entry. The payment was to be due when the en- tries were allowed (Ex. G-130, p. 4). The rent for the land was sufficient to permit the entrymen to pay the annual water contracts and provide them with cash to pay their income taxes on the reduction in principal. Although primarily the form of the water right con- tracts and mortgages was a result of negotiations, dis- cussions and examinations by G. Patrick Morris, Allen T. Noble (acting for the entrymen), and Mr. B. G. Miller (as representative of the water company), the entrymen had given their consideration to the terms of the water contract and the terms of the morgage (Tr. Vol. 12, p. 182 — Roths; Tr. Vol 14, p. 2130 — Baltzors; Tr. Vol. 33, p. 4957 — Axelsen; Tr. Vol. 8, pp. 1262- 1263 — Morrises). Immediately after the Bureau of Land Management granted permission on September 11, 1963, the Sailor Creek Water Company began construction of the pen- stock pump bases and part of the pipeline of the irriga- tion system (Ex. G-80, File 4, Doc. 101; Tr. Vol. 19, p. 2936). A-14 Ill. LEASING THE ENTRIES Most of the entrymen had intended from the outset to have the land in their respective entries farmed by a tenant or tenants (Tr. Vol 33, p. 5020 — Axelsens; Tr. Vol. 14, p. 2049 — Baltzors; Tr. Vol. 12, p. 1861 Roths; Tr. Vol. 35, p. 5370 Nellie Mae Morris; Tr. Vol 8, p. 1198 Elise Neeley). On September 23, 1963, in furtherance of this intent, all of the entrymen except G. Patrick Morris assigned to Morris and Allen Noble farm leases having a primary term of two years with two five-year renewals at the option of the lessees. The leases provided for annual cash rental of $25 per irrig- able acre for two years with option for two additional five-year periods of $22.50 and $30 per acre per year. The leases provided that after the allowance of the entry by the Bureau of Land Management the lessees should have the right to enter the land for the purpose of preparing the land for cultivation and planting crops. It provided that the lessor should pay all ad valorem taxes upon the real property and should pay all purchase price and interest payments which have become due under the terms of the water contract. In addition to the cost of preparing the land for cultiva- tion, the lessees agreed to furnish the seed, fertilizer, labor, machinery, farm implements and any other necessary expenses. The lessees had the right to de- termine the crops to be grown, the soil treatment and fertilization. They further agreed to keep the sprinkler irrigation system owned by the lessors in good condi- tion. The leases were subject to cancellation if the entries were rejected or cancelled by the Bureau of Land Management. A-15 Under the leases, if the lessees failed to take care of the premises as stated, the lessors could hire others to repair any damage due to negligence and charge the cost of repairs to the lessees. The lessors had the right to enter upon the premises to inspect the land and the crops but could not reasonably interfere with the farm- ing operations of the lessees. And finally, the leases were fully assignable. In October and December of 1963 Peggy Axelsen gave 99-year leases to two 40-acre tracts within her entry. However, the leases to Morris and Noble were still in effect, so the 99-year leases never became effec- tive and were cancelled in 1967. It was upon the two 40-acre tracts that the company erected permanent farm structures. In January of 1964 a sublease for one year from Morris and Noble to Sailor Creek Water Company was prepared. This sublease was signea :n April 1964 and was for the lands leased to Morris and Noble by the entrymen (Ex. G-80, File 3, Doc. 37). In the fall of 1964 the sublease was superseded by an assignment by Morris and Noble to the company of the 11 leases. At the same time, Morris leased his entry to the company for a one year term with two successive five-year re- newal options. IV. ALLOWANCE, RECLAMATION, CULTIVA- TION AND FINAL PROOF The applications for the 12 desert land entries now in issue were allowed by the Bureau of Land Manage- A-16 ment in the period November 1, 1963 through March 13, 1964. Sailor Creek Water Company then began clearing, brushing and leveling the land in each of the entries (Tr. Vol. 19, p. 2940). Construction of the main irrigation system was completed for the most part in late April 1964. It was built to serve one large acreage but could readily be converted to serve individual en- tries by the addition of water meters. Most of the clear- ing, brushing and leveling was completed by the end of May 1964 and crops had been planted on the irrigable portions of all 12 entries by June 5, 1964. With Noble employed as farm manager, the group of entries was set up as one large farm with an overseer’s home, farm equipment repair shop, grain bins, large field potato storage building, residence for workers, and an airplane landing strip. The farm was cropped without regard to the boundaries of the individual entries. On April 15, 1964, the leases were amended because the entrymen had determined not to purchase and install the hand-move laterals. Consequently, the rent was reduced by $1,600 a year or $5 per acre per year. In July 1965, Farm Development Corporation, under a conditional sales contract, sold the laterals back to the entrymen, who in turn leased them back to Farm De- velopment Corporation. Apparently the primary reason for this transaction was the entrymen’s under- standing that the Bureau of Land Management would not issue patents unless the laterals were owned by them (Ex. G-150-U-11). A-17 On June 8 and 9, 1964, each of the 12 entrymen. made final proof before Harley M. McDowell of Idaho Land & Appraisal Service. Mr. McDowell or one of his employees then delivered the final proofs with support- ing documents to the BLM Land Office at Boise and made the final payment for each entry. Sailor Creek Water Company then paid Idaho Land & Appraisal Service for the account of each entryman. On July 7, 1964, the Bureau sent a letter to each entryman requesting copies of the contractual ar- rangements between them and the developing com- pany. Copies of the lease agreements, amendments and subleases were delivered on July 24, 1964. On September 4, 1964, the joint venture between Farmland-Idaho, Inc., and Hiller Engineering Corp- oration was terminated and Farmland-Idaho, Inc., ac- quired Hiller’s interest and assumed Hiller’s liability arising from the juint venture (Ex. G-150-R-59). On the same date Farmland-Idaho changed its name to Sailor Creek Water Company (Ex. G-150-R-60). Sometime prior to November 30, 1964, Farm Development Cor- poration was organized as the parent company for all Hale Brothers Association operations in Idaho with Sailor Creek Water Company as its wholly owned sub- sidiary (Ex. G-150-W-145). On September 14, 1964, Morris wrote a letter to Mr. Miller in which he outlined the terms on which he would sell his interest in the leases acquired by him- self and Allen T. Noble in the Sailor Creek Project. He proposed to sell 10 percent of his interest for $25,000 A-18 cash plus $175 per month for 20 years plus a forgive- ness of the existing mortgage amounting to $8,500. Later, a meeting was held in Boise with Morris, Miller, Noble and Mr. Thoreau, President of Hale Brothers, Inc., to discuss Morris’ offer of September 14, 1964. On October 22, Mr. Thoreau wrote down the decisions made at the meeting (Ex. G-337). It was ‘ agreed that an assignment of Morris’ interest in the leases would be made for one-sixth of the $450,000 anticipated net profit on Sailor Creek in 1964 ($75,000), plus $50,000 for the remaining 11-year term of the leases, plus the forgiveness of advances Morris had by then received totaling $9,300. In accordance with these decisions, a document was executed by Mor- ris and officers of Farmland-Idaho, Inc., in November 1964 whereby Farmland agreed to pay Morris $134,300 and to grant him an option to 300 acres of State land being purchased by Farmland (Ex. G-54). Primarily, because Allen T. Noble was to be employ- ed as farm manager of the Sailor Creek Project, his arrangement with Farm Development Corporation was entirely different. It was intended that he could leave his money in the venture, risking it for one-sixth of the net crop (Ex. G-246). On October 22, 1964, Noble agreed with Miller and Mr. Thoreau to sign the leases under terms similar in form to those agreed to by Morris. Arrangements were then made to sell Noble 10 percent of Farm Development Corporation (Ex. G-150, Doc. S-92 and D-32; Tr. Vol. 22, pp. 3407-3408, 3431- 3434; Vol. 23, pp. 3680-3682). He was also permitted to purchase shares of the Hale Brothers stock with 1500 A-19 shares being placed in escrow for him (Tr. Vol. 23, pp. 3681-3682). If the entrymen were aware of the agree- ments between Morris and Noble and Hale Brothers, they were only generally aware and did not know the details. Each entryman has made the required payments under his w [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385006_0495%3A1. Public record. Not legal advice.