Opposition — Grace v. Santa Fe Pacific Railroad

Supreme Court brief1982

Ask Donna

What actually matters in this document.

Text

[ Office - Supreme Court, U.S.

FILED

IN THE

ALEXANDER L. STEVAS.

Supreme Court of the

OCTOBER TERM, 1981

MICHAEL P. GRACE,

Petitioner,

SANTA FE PACIFIC RAILROAD COMPANY, et al.,

Respondents.

On Writ of Certiorari to the United States Court of Appeals

for the Tenth Circuit

BRIEF OF RESPONDENT

SANTA FE PACIFIC RAILROAD COMPANY

IN OPPOSITION TO PETITION FOR

WRIT OF CERTIORARI

Telephone (505) 243-4511

Counsel for Respondent Santa Fe

Pacific Railroad Company

WILSON - Eres Printine Co.. Inc. - 789-0096 - WASHINGTON, D.C. 20001

QUESTIONS PRESENTED

1. Whether the Court of Appeals correctly interpreted

and applied to the facts of this case this Court’s holding

in Commonwealth Coatings Corp. v. Continental Casualty

Co., 393 U.S. 145, 89 S.Ct. 337 (1968), that arbitrators

are required to disclose past business relationships with

parties to an arbitration.

2. Whether the decision of the Court of Appeals was

in accord with interpretations and applications of the

Commonwealth Coatings, supra, ruling by other courts

of appeals.

3. Whether Petitioner had a constitutional due process

right to an evidentiary hearing on a claim of evident par-

tiality of an arbitrator based upon a contention that the

arbitrator possibly had a tenuous, trivial, indirect and

insubstantial relationship with the attorneys for one of

the parties to the arbitration.

4. Whether Petitioner may question for the first time

in his Petition the correctness of District Court rulings

pertaining to (a) stay of litigation pending arbitration;

(b) permitting discovery in aid of arbitration; (c) re-

quiring the matter to proceed to arbitration after nearly

two years of delay by Petitioner; and, (d) ordering dis-

missal of a second arbitration demand by Petitioner in

California on the ground of res judicata.

5. Whether the decision of the arbitration panel, con-

firmed by the District Court and the Court of Appeals,

holding that Petitioner had failed to achieve production of

uranium in commercial quantities constituted a condem-

nation of solution mining.

(i)

TABLE OF CONTENTS

QUESTIONS PRESENTED FOR REVIEW

TABLE OF AUTHORITIES 2222.0... ccccccccccecceeeeees

—;³Uf - \cccscintsipisiercenneiioianrenanninanesectnnisntscenenes

JURISDICTION OF THIS COURT

STATUTES INVOLVED

STATEMENT OF THE ASS

ARGUMENT FOR DISALLOWANCE OF THE

WRIT a

SUMMARY OF ARGUMENT ....

II.

III.

IV.

CONCLUSION

THE COURT OF APPEALS CORRECTLY

INTERPRETED AND APPLIED THIS

COURT’S PREVIOUS DECISION IN COM-

MONWEALTH COATINGS

PETITIONER HAD NO DUE PROCESS

RIGHT TO AN EVIDENTIARY HEARING

AND THERE IS NO CONFLICT AMONG THE

THE DISTRICT COURT DID NOT “INTER-

FERE” IN THE ARBITRATION PROCEED-

INGS ; PETITIONER’S POINT III PRESENTS

NO QUESTION CALLING FOR REVIEW BY

THIS COURT

NEITHER THE DISTRICT COURT NOR THE

COURT OF APPEALS CONDEMNED SOLU-

TION MINING; THE ARBITRATORS PROP-

ERLY HELD THAT PETITIONER HAD

FAILED TO ACHIEVE PRODUCTION OF

URANIUM IN COMMERCIAL QUANTITIES..

(iii)

(i)

TABLE OF AUTHORITIES

CASES: . Page

17,18

Andros Compania Maritime, S.A. v. Mare Rich &

Co., 579 F.2d 691 (2d Cir. 197) ‘

Andrus v. Shell Oil Co., 446 U.S. 651 (1980) 26, 28

Bigge Crane & Rigging Co. v. Docutel Corp., 371

F.Supp. 240 (E.D. N.Y. 1978) ............................ 20

Box v. Rundell, 179 F.2d 626 (10th Cir. 1950) 24

Champion Ventures, Inc. v. Dunn, 567 P.2d 724

4X — ee 27

Chrisman v. Miller, 197 US. $18 (1906) .............. 28

Commercial Iron & Metal Co. v. Bache Halsey

Stuart, Inc., 581 F.2d 246 (10th Cir. 1978),

cert. den 440 U.S. 914 (19799999 22

Commonwealth Coatings Corp. v. Continental Cas-

ualty Co., 893 U.S. 145 (1968) _................... passim

Cook Ind., Inc. v. C. Itoh & Co., 449 F.2d 106 (2d

Cir. 1971), cert. den., 405 U.S. 921 (19727 17

Darr v. Eldridge, 66 N.M. 260, 346 P.2d 1041

ES SERS “ARE Ee — 27

Donahoe v. Susquehanna Colleries Co., 49 F.Supp.

843 (M.D. Pa. 1948), rev’d, 183 F.2d 8 (3d Cir.

1943), rehearing 66 F.Supp. 588 (M.D. Pa.

1946), rev’d, 160 F.2d 661 (3d Cir. 19477 20

Fizer v. Safeway Stores, Inc., 586 F.2d 182 (10th

Cir. 1978) ....... 17

Garfield & Co. v. Wiest, 482 F.2d 849 (2d Cir.

1970), cert. den., 401 U.S. 940 (197177 18

Greer v. Salmon, 82 N.M. 245, 479 P.2d 294

c 27, 28

International Association of Heat and Frost Insu-

lators and Asbestos Workers Local 66, AF L-

CIO v. Leona Lee Corp., 484 F.2d 192 (5th Cir.

＋— TL TSTMS: - SEL SOC a 20

International Produce, Inc. v. A/S Rosshavet, 638

F.2d 548 (2d Cir. 1981), cert. den., 451 US.

PRR SED. AIRE or 3 12,18

Katzburg v. Krebs, 545 F.2d 104 (10th Cir. 1976) 24

Ormsbee Development Co. v. Grace, 668 F.2d 1140

1 15

TABLE OF AUTHORITIES—Continued

Page

Overseas Motors, Inc. v. Import Motors, Ltd., 375

F.Supp. 499 (E.D. Mich. 1974), af d, 519 F.2d

119 (6th Cir. 1975), cert. den., 423 U.S. 987

rr 24

Ramsey v. United Mine Workers of America, 401

REE / xxx 19

Reed & Martin, Inc. v. Westinghouse Electric

Corp., 489 F.2d 1268 (2d Cir. 1971777 18

Reese Enterprises Inc. v. Lawson, 220 Kan. 300,

rr 26

Reid Burton Constr. Inc. v. Carpenters Dist. Coun-

cil, ete., 614 F.2d 698 (10th Cir. 1980), cert

den., 449 U.S. 824 (1980 22

Rummell v. Bailey, 7 Utah 2d 137, 320 P.2d 653

c 28

Sanko S. S. Co. v. Cook Ind., Inc., 495 F.2d 1260

CE EE ae Sate ee 11,17

Sauder v. Mid-Continent Petroleum Corp., 292 U.S.

FREES TS LEE SAE RE ee 26

Saxis S. S. Co. v. Multifacs Int. Traders, Inc., 375

re 16

Smith and Holmes, 181 Kan. 438, 312 P. 2d 228

K 3 — — 26

State v. Nagel, 87 N. M. 434, 535 P. 2d 641 (App.

1975), cert. den., 87 N. M. 450, 535 P. 2d 656

(1975) ...... 24

Steamship Co. of 1949, Ine. v. The China Union

Lines, Hong Kong, Ltd., 123 F.Supp. 802 (S. D.

rr 20

Tamari v. Bache Halsey Stuart, Inc., 619 F.2d 1196

(7th Cir. 1980) , cert. den., 449 U.S. 873 (1980) 13

Town of Tome Land Grant Inc. v. Ringle Develop-

ment Co., 56 N.M. 101, 250 P.2d 850 (1952) 29

Treasure City v. Mountain States Clay Products,

182 Mont. 12, 313 P.2d 1028 (1957) 27

United Nuclear Corp. v. General Atomic, 93 N. M.

I ECR 16

United States Wrestling Fed. v. Wrestling Divi-

sion of the AAU, Inc., 605 F.2d 318 (7th Cir.

% LRAT RS +A TE OC 13

TABLE OF AUTHORITIES—Continued

Page

Vernon v. Union Oil Co. of Cal., 270 F.2d 441 (5th

. 26

World Brilliance Corp. v. Bethlehem Steel Co., 342

F. 2d 862 (2d Cir. 19890) 16

Wright Lumber Co. v. Herron, 199 F.2d 446 (10th

. eee ee nee Ore 16

j 19

15 U.S.C. — 27

998000 27

BD TE, 80————————————8—ß—ß8ß—ß—ß——— 27

BD A, BED ———8————5 28

99909880 27

SD TE, HOG ————5 27

21888 27

STATE STATUTORY PROVISIONS:

N. M. S. A. (1978) § 44-7-2(B) ) 2,19

N. M. S. A. (1978) 64477 ese eects 2, 20

N. M. S. A. (1978) § 447-12 (A) (2) 2, 6

N. M. S. A. (1978) 6447-16 2

MISCELLANY:

ETE AP RE as BLES 27

18 C.F.R. § 271.204 (C) ie 28

T. Greene, Conveyancing ‘Problems in Uranium

Mining Rights, 5 Utah L. Rev. 29 (1956)

Meyers, Habendum Clauses in Term Mineral and

Royalty Deeds, 6 Rocky Mountain Mineral Law

Institute, 551 (1961)

12 W. Sommers, The Law of Oil and Gas, § 306

1 ia tihininesiatiiepaintsins

3 H. Williams, Oil and Gas Law 36-88 (1978) 333

3 H. Williams, Oil and Gas Law 60 (197)

3 H. Williams & C. Meyers, Oil and Gas Law,

§ 384.7 (1977)

8 H. Williams & C. Meyers, Oil and Gas Law

§ 604.1 (1978)

S$ 8 888 8

In THE

Supreme Court of the United States

OCTOBER TERM, 1981

No.

MICHAEL P. GRACE,

SANTA Fx Pacrio RAILROAD COMPANY, et al.,

Respondents.

On Writ of Certiorari to the United States Court of Appeals

for the Tenth Circuit

Petitioner,

BRIEF OF RESPONDENT

SANTA FE PACIFIC RAILROAD COMPANY

IN OPPOSITION TO PETITION FOR

WRIT OF CERTIORARI

The Respondent, Santa Fe Pacific Railroad, respectfully

prays that the Court deny Petitioner’s request that a Writ

of Certiorari issue to review the Judgment and Opinion

United States Court of Appeals for the Tenth Cir-

cuit entered in this proceeding on January 4, 1982, and

OPINIONS BELOW

See Petition for Writ of Certiorari.

JURISDICTION OF THIS COURT

See Petition for Writ of Certiorari.

STATUTES INVOLVED

A. Federal Arbitration Act, 9 U.S.C. §§ 3, 9 (see Ap-

pendix for text).

B. New Mexico Arbitration Act §§ 44-7-2(B), 7, 12

(A) (2), 16 N.M.S.A. (1978 Comp.) (see Appendix for

text).

STATEMENT OF THE CASE

In order to correct inaccuracies and ommissions con-

tained in Petitioner’s Statement of the Case, Respondent

is hereby submitting its own Statement of the Case with

appropriate references to the record, as follows:

In 1968, Respondent determined to offer for lease at

auction certain mineral properties owned by it. (R. XI,

1140-46). Petitioner, who had a number of years ex-

perience in mineral exploration, was the successful bidder

on options covering several of these properties. (R. X,

925-26). The options permitted Petitioner to explore the

optioned property for uranium and, thereafter, to enter

into uranium mining leases. (R. XI, 1144, 1155, 1158).

Petitioner ultimately elected to lease several parcels from

Respondent under five separate uranium leases. The

leases allowed the Petitioner one year for exploration

activities and an additional three years to conduct min-

properties, no “ore body”, as that term is defined in the

industry, was ever discovered on any of the properties.“

(R. XIII, 1685-86; XIV, 866-67, 1898; XV, 1929). There-

fore, contrary to the assertion in the Petition (p. 3),

Petitioner did not discover any “substantial uranium

reserves” on the leased properties.

As the expiration dates of the leases approached, Pe-

titioner began desperate attempts at “mining operations”

to convince the Respondent that he had achieved commer-

cial production. These attempts included some pit mining

on one property and “in situ” or “solution mining” proj-

ects on two other parcels. (R. XIV, 1933-34, 2083-84;

IX, 735-36; XV, 2088-40; VII, 318; XIII, 1675-78; XIV,

1862, 1867). Solution mining is a process whereby

2 “Yellowcake” is not produced directly by “in situ” mining opera-

tions as claimed at p. 3 of the Petition.

than $5,000 as against operating costs in

$70,000. (R. XIII, 1675-78; XIV, 1862,

HE Li

lig!

operations although his consultants had

mercial quantities. (R. XI, 1211-18). Respondent there-

upon hired an independent mining consultant to review

Petitioner’s activities, study the properties and render a

report on whether production in commercial quantities

had been achieved on any of them. (R. XI, 1214). The

consultant’s report was that such production had not

been achieved and Petitioner was notified that the leases

had expired.

Shortly thereafter, in 1976, five exploration companies

filed suit in the United States District Court for the

ous breaches of the lease terms. Petitioner thereupon filed

a demand for arbitration with the American Arbitration

Association, seeking to have the leases declared valid and

in full effect. (R. I, 184). On motion of the Petitioner,

the District Court stayed proceedings on the crossclaim

pendirg arbitration. (R. II, 276).

Pursuant to the rules of the American Arbitration As-

sociation, Petitioner and Respondent each nominated an

arbitrator and the Association proposed a neutral arbi-

trator, Dr. Jack T. Mommsen (“Mommsen”’), after nu-

1960 and employed by some 25 public and

private entities. Among his clients were General Atomic

(“General Atomic”) and Texas Eastern Nu-

tion 25 lease, it would be assigned to Bokum who, in

turn, was committed by contract to offer it to Gulf.

(R. IX, 667-70, 715; XI, 1252-58).

After contacting Mommsen directly, and receiving his

resume, Petitioner accepted Mommsen as the neutral

arbitrator. There were then further delays occasioned

by Petitioner’s reluctance to move forward with the arbi-

tration. However, the matter finally culminated in a

two and one-half week evidentiary hearing. (R. III,

717). The decision of the arbitration panel, with the

Petitioner’s nominee dissenting, was adverse to Peti-

tioner. (R. III, 516-20). On July 3, 1979, Respondent

moved to confirm the arbitration award. (R. II, 516).

Petitioner moved to vacate the award pursuant to § 44-7-

12(A) (2) N.M.S.A. (1978 Comp.), on the ground of

evident partiality of the neutral arbitrator. (R. III,

549). Among the facts alleged were that:

(1) Mommsen had consulted for General Atomic and

General Atomic was represented by Respondent’s attor-

neys, the Modrall law firm, albeit on unrelated matters;

(2) Mommsen had consulted for Texas Eastern Nu-

clear and the Modrall law firm represented a sister cor-

poration, Transwestern Pipeline Company; and,

(3) Mommsen was being considered as an arbitrator

in a matter involving Homestake Mining Company, which

was a client of the Modrall law firm.

On April 1, 1980, the District Court denied the Motion

tioner, the District Court entered another opinion on

May 15, 1980, supplementing, but not changing, the

April Ist opinion. On May 23, 1980, the District Court

entered a Judgment confirming the arbitration award.

(R. III, 768). Petitioner then appealed to the United

States Court of Appeals for the Tenth Circuit. (R. III,

786). The Court of Appeals affirmed the decision of the

District Court on January 4, 1982.

ARGUMENT FOR DISALLOWANCE OF THE WRIT

Summary of Argument

A. This is a case involving an effort by Petitioner to

vacate an arbitration award on the ground of evident

partiality on the part of a neutral arbitrator in a com-

mercial arbitration. The arbitrator disclosed his busi-

ness and educational background to the Petitioner prior

to his selection as arbitrator. The neutral arbitrator had

no prior business dealings with either of the parties to

the arbitration or their attorneys. The record disclosed

only that, at different times, and on different matters,

the neutral arbitrator had consulted for General Atomic,

which was represented by Respondent’s attorneys. It also

disclosed that the neutral arbitrator consulted for Texas

Eastern Nuclear and the Respondent’s attorneys had rep-

resented a sister corporation of Texas Eastern Nuclear.

Finally, the neutral arbitrator was being considered as

an arbitrator on a matter involving Homestake Mining

Company, also represented by Respondent’s attorneys.

There was no evidence that Respondent’s attorneys ever

had any contact with the neutral arbitrator; nor that the

neutral arbitrator knew of the clients represented by

Respondent’s attorneys; nor that Respondent’s attorneys

knew, at the time of his selection, of the neutral arbitra-

tor’s clientele. Therefore, there was no prior business

relationship of any kind between the neutral arbitrator

and the Respondent or Respondent’s attorneys. The neu-

tral arbitrator’s connection, if any, with the Respondent’s

attorneys was, at best, indirect, trivial and insubstantial.

As a consequence, the neutral arbitrator did not breach

any duty of disclosure created by this Court in Common-

wealth Coatings Corp. v. Continental Casualty Co., supra,

and the ruling of the United States Court of Appeals up-

holding the arbitration award was completely in accord

with that decision.

B. There is no conflict in the circuits over application

of this Court’s ruling in Commonwealth Coatings Corp. v.

Continental Casualty Co., supra. It is clear under that

case that an arbitrator must disclose prior business deal-

ings with the parties to an arbitration. By interpretation,

the rule has been extended to include prior business deal-

ings with attorneys for the parties. In this case, the

neutral arbitrator never had any business dealings with

either party to the arbitration or their attorneys. He

completely disclosed to Petitioner his educational and

business background, and was accepted by Petitioner.

Under the circumstances, there was no basis for vacation

of the arbitration award under the Commonwealth Coat-

ings decision.

C. Petitioner claims that, because the neutral arbitra-

tor and the Respondent’s law firm had one common client

and other clients that had corporate ties to one another,

albeit on totally unrelated matters, an evidentiary hear-

ing might “possibly” have revealed some business con-

nection between the arbitrator and the Respondent’s law

firm. The Court of Appeals correctly held that the pos-

sibility of such a tenuous and indirect relationship was

not sufficient to justify an evidentiary hearing on Peti-

tioner’s motion to vacate arbitration award. Further-

more, an evidentiary hearing on a motion to vacate an

arbitration award is a matter within the discretion of

the trial court and not a matter of right. Therefore,

Petitioner did not suffer any denial of due process.

D. Petitioner’s arguments under Point III are all

issues not raised in the District Court or Court of

peals. In them, Petitioner seeks to question the

ness of District Court rulings staying litigation pending

arbitration ; 1 discovery in aid of arbitration;

requiring the matter to proceed to arbitration after

nearly two years of delay caused by Petitioner; and,

ordering dismissal of a second arbitration attempt by

Petitioner in California on the ground of res judicata.

Not having raised these issues previously, Petitioner is

not entitled to have them reviewed by certiorari. Further-

more, the rulings were correct. Staying the litigation

pending arbitration is specifically permitted by the fed-

eral and state arbitration statutes. Discovery was per-

mitted pursuant to a written stipulation by Petitioner.

Petitioner did not object to the District Court requiring

the matter to proceed to arbitration after a two year delay

nor did he request a continuance. And, all of the issues

which Petitioner attempted to raise in the California

arbitration had already been Gotermined in the New

Mexico arbitration.

E. Petitioner claims that the District Court and the

Court of Appeals condemned solution mining as a pro-

duction technique. This is not correct. The arbitration

panel decided that Petitioner’s rights under the leases

with Respondent had terminated because he had not

achieved production in commercial quantities. The Dis-

trict Court and the Court of Appeals confirmed this

decision. That action did not condemn solution mining

in any manner.

I. THE COURT OF APPEALS CORRECTLY INTER-

PRETED AND APPLIED THIS COURT’S PREVI-

OUS DECISION IN COMMONWEALTH COATINGS.

Petitioner has attempted to persuade the Court that

the decision of the Court of Appeals was somehow in

conflict with this Court’s decision in Commonwealth Coat-

ings, supra. That can only be determined in the context

of the claims raised by the Petitioner. As stated by the

Court of Appeals, Petitioner has contended that:

(1) Mommsen consulted for General Atomic and the

Modrall law firm, Respondent’s attorneys, represented

General Atomic;

(2) Mommsen consulted for Texas Eastern Nuclear, a

subsidiary of Texas Eastern Corporation, and the Modrall

law firm represented Transwestern Pipeline Company,

another subsidiary of Texas Eastern Company; and,

(3) Mommsen was being considered as an arbitrator

on a case involving Homestake Mining Company, another

client of the Modrall law firm.

The record before the Court of Appeals established

that, with regard to the one common client, General

Atomic, Mommsen and the Modrall law firm represented

that company on unrelated matters. Mommsen and the

Modrall law firm never had any business dealings or con-

tact with one another. At most, one member of the

Modrall law firm, who did not work on this case, was

aware of Mommsen’s retention by General Atomic but

never had any contact with him.

Petitioner now contends that Mommsen somehow vio-

lated the disclosure standard of Commonwealth Coatings

and that the Court of Appeals somehow misinterpreted

that case in reviewing the District Court’s denial of the

Motion to Vacate Arbitration Award. To this, the Peti-

tioner has added a new argument, raised for the first

time in this Petition for Writ of Certiorari, to the effect

that Mommsen should have advised Petitioner that Gen-

eral Atomic was a partnership between Gulf and Scal-

lop Nuclear, because of Gulf’s interest in the Section 25

property and subsequent acquisition of that property.

Neither of these assertions, however, is meritorious or

justifies the granting of a Writ of Certiorari.

The Petitioner correctly analyzed the gist of the Com-

monwealth Coatings decision in stating that this Court

held that an arbitrator has a duty to disclose past finan-

cial dealings with a “party” notwithstanding the ab-

sence of evidence of fraud or bias. (Petition, p. 7).

To that extent, this Court may have created a “per se”

rule. However, that avails the Petitioner nothing since

Mommsen never had any financial dealings with either of

the parties to the arbitration. He did disclose all of his

other dealings in the uranium business and, therefore,

there was no violation of the disclosure requirement of

Commonwealth Coatings.

Following Commonwealth Coatings, in Sanko S.S. Co.

v. Cook Ind., Inc., 495 F.2d 1260 (2d Cir. 1973), the

United States Court of Appeals for the Second Circuit

extended the disclosure requirement of Commonwealth

Coatings to include disclosure by an arbitrator of past

dealings with the attorney for a party to an arbitration.

Assuming that this Court would endorse the Sanko ex-

tension, the Court of Appeals correctly interpreted and

applied both decisions to the facts of this case. Since

Mommsen never had any business dealings with the

Modrall law firm either, he did not violate the extended

disclosure requirement.

The Petitioner seeks to impose some additional dis-

closure requirement on Mommsen based upon the facts

that he and the Modrall law firm had one common client

(General Atomic) ; that both did work for separate sub-

sidiaries of the same corporate parent (Texas Eastern

Corp.); and, that another client of the Modrall law firm

(Homestake Mining Co.) was involved in an arbitration

in which Mommsen was being “considered” as an arbitra-

tor. The Petitioner suggests that there was something

sinister about the foregoing, ignoring that tenuous con-

nections such as these would be expected given the facts

that Mommsen is an expert in the nuclear energy busi-

ness and that the Modrall law firm represents companies

engaged in that business. Nevertheless, assuming the

existence of such “facts”, there was still nothing for

Mommsen to disclose either factually or legally under the

Commonwealth Coatings decision.

Factually, Mommsen could not have disclosed the

Modrall law firm’s clientele since he had no way of know-

ing which of his clients the Modrall law firm might have

represented. He had never dealt with the Modrall law

firm and any knowledge on his part of common elientele

would be sheer coincidence. Since he apparently had no

knowledge of any of the relationships of which the Peti-

tioner complains, there was nothing that he could have

disclosed under the circumstances.

Furthermore, even if Mommsen had been aware that

the Modrall law firm had a client in common with him,

or the other associations asserted, such connections were

so tenuous, trivial and insubstantial as to be beyond the

scope of any disclosure requirement of Commonwealth

Coatings. In Commonwealth Coatings, in his 2

opinion, Mr. Justice White stated:

. . . The Court does not decide today that arbitra-

tors are to be held to the standards of judicial

decorum of Article III judges or indeed of any

— It is often because they are men of affairs,

not apart m but of the marketplace, that they are

effective their adjudicatory function. . This

does not mean the judiciary must overlook outright

chicanery in giving effect to their awards; that would

be an abdication of our responsibility. But it does

mean that arbitrators are not automatically disqual-

ified by a business relationship with the parties be-

fore them if both parties are informed of the rela-

tionship in advance, or if they are unaware of the

facts but the relationship is trivial.

. . . [A]n arbitrator’s business relationships may be

diverse indeed, involving more or less remote com-

mercial connections with great numbers of people.

He cannot be expected to provide the parties with his

complete and unexpurgated business biography. . . .”

89 S.Ct. at p. 340. Folicewing that language, in Interna-

tional Produce, Inc. v. A/S Rosshavet, 638 F.2d 548 (2d

Cir. 1981), vert. den., 451 U.S. 1017, (1981), the United

States Court of Appeals for the Second Circuit held that

a mere appearance of bias does not equate with the evi-

dent partiality necessary to vacate an arbitration award

and refused to do so where the neutral arbitrator in one

arbitration appeared as an expert witness in another

arbitration for one of the law firms involved in the first

arbitration. Similarly, in United States Wrestling Fed. v.

Wrestling Division of the AAU, Inc., 605 F.2d 313 (7th

Cir. 1979), the United States Court of Appeals for the

Seventh Circuit held that Commonwealth Coatings did

not require an arbitrator to disclose insubstantial and

trivial relationships, adopting as a “guiding principle”

that:

The interest or bias of an arbitrator must be direct,

definite, and capable of demonstration rather than

remote, uncertain, or speculative.”

605 F.2d at p. 318. Finally, in Tamari v. Bache Halsey

Stuart, Inc., 619 F.2d 1196 (7th Cir. 1980), cert. den.,

449 U.S. 873, (1980), the Seventh Circuit again held

that the Commonwealth Coatings decision requires an

arbitrator to disclose only significant connections with a

party to an arbitration, particularly where the possibility

of bias is highly speculative. This Court refused to grant

certiorari in the International Produce and Tamari cases.

Consequently, under Commonwealth Coatings, as inter-

preted by at least two circuits, even if Mommsen had

been aware of the Modrall law firm connection with a

couple of his clients, he would have been under no duty

to disclose that connection because of its tenuous, trivial

and insubstantial nature.

Petitioner’s further attempt to raise a new issue, viz.,

Mommsen’s alleged duty to disclose Gulf’s partnership in-

terest in Genera] Atomic, is also inappropriate. Even if

Petitioner is entitled to raise the issue for the first time

on a Petition for Writ of Certiorari, the assertion has

little merit. Given the fact that the ownership of Gen-

eral Atomic was a matter of common knowledge in the

uranium industry, it is difficult to believe that Petitioner

was unaware that Gulf was one of the partners in the

venture. However, regardless of that, Gulf’s ownership

interest in General Atomic, a client of Mommsen, hardly

creates even an appearance of bias in this case simply

because Gulf ultimately acquired the Section 25 property

after Petitioner’s interest was terminated. There is noth-

ing in the record to suggest that Mommsen ever worked

for Gulf, or had any relationship with Gulf by which he

would have profited from Gulf’s acquisition of the Sec-

tion 25 property. Furthermore, the Petitioner’s implica-

tion that Mommsen favored Respondent’s position in the

arbitration because of some desire to assist Gulf in ob-

taining the Section 25 property is simply a misrepresen-

tation of the facts. The evidence during the arbitration

proceeding showed that Petitioner had made a deal with

Richard Bokum, a uranium entrepreneur, whereby the

Section 25 property had been assigned to him contingent

upon Petitioner’s succeeding in the arbitration. Bokum,

in turn, had a contractual commitment to offer the Sec-

tion 25 property to Gulf if he acquired it. (R. IX, 667-

70, 715; XI, 1252-53). Consequently, if Petitioner’s the-

ory is that Mommsen somehow wanted to benefit Gulf,

then the easiest way for him to have done so would have

been to rule in Petitioner’s favor. As a matter of fact,

Mommsen was not interested in Respondent’s plans for

the leased property and thought that such plans were

irrelevant to the arbitration. (R. XII, 1322).

In summary, Mommsen revealed all the information he

was required to reveal under the Commonwealth Coatings

decision and other courts of appeals cases interpreting

that decision. He never had any business relationship

whatsoever with either the Respondent or the Respond-

ent’s attorneys, and his connection with the Respondent’s

law firm was, unbeknownst to him, trivial and insub-

stantial. There was nothing about it which he either

could, or should have revealed. The eleventh hour claim

that Mommsen had a duty to disclose that his client, Gen-

eral Atomic, was partially owned by Gulf, is not only too

late but has no merit since the implication that Momm-

sen showed favoritism to Respondent in order to benefit

Gulf is simply untrue under the facts of the record. The

flict in the circuits over such interpretation.

II. PETITIONER HAD NO DUE PROCESS RIGHT TO

AN EVIDENTIARY HEARING AND THERE IS NO

CONFLICT AMONG THE CIRCUITS.

Petitioner claims, in the caption of this portion of his

Petition, that his right to due process of law was vio-

Development

. v. Grace, 668 F.2d 1140 (10th Cir. 1982), at p. 1152.

of arbitration weighs heavily in its favor

and cannot be upset absent exceptional circumstances.”

right to an evidentiary hearing and does not even discuss

the concept of a deprivation of constitutional rights. In-

stead, in the argument itself, he asserts that there is a

conflict among the circuits on whether an evidentiary

hearing is appropriate.

The absence of any argument or authority on the due

process issue is understandable because it is not a con-

stitutional question. Petitioner attempted to vacate the

arbitration award by a motion filed under the New Mex-

ico Arbitration Act. 668 F.2d at p. 1149. Under that Act,

an application to a court to vacate an arbitration award

is to be made and heard in the manner provided for the

hearing and making of motions. § 44-7-16 NMSA (1978

Comp.). The provision is substantially the same as the

parable provision in the Federal Arbitration Act. 9

U.S.C. §6. The burden of proof is on the party seeking

to vacate the arbitration award. Saris S.S. Co. v. Multi-

facs Int. Traders, Inc., 375 F.2d 577 (2d Cir. 1957);

Wright Lumber Co. v. Herron, 199 F.2d 446 (10th

Cir. 1952). The question whether an evidentiary hearing

is mandatory on a motion to vacate an arbitration award

was decided by the Second Circuit in World Brilliance

Corp. v. Bethlehem Steel C»., 342 F.2d 362 (2d Cir.

1965). There, the unsuccessful party in an arbitration

moved to vacate the arbitration award and claimed that

in its motion should have been deter-

Eft

;

ieee eee

een ri

EE 2 ‘ie ga 8s 111475 117115

alla HH PEL Bee tee

alah Helis FL rit 112151

ayy 14337. 1474144 5

1 i 1 iel ite 372 te ae

‘tities i 11114111 12142141 15

demonstrate some conflict between the Second and Tenth

393 U.S. at 151; Andros Compania Maritima, S.A. v.

Mare Rich & Co., 579 F.2d at 700. Thus, in the “special

context of what are in effect post hoc efforts to induce

arbitrators to undermine the finality of their own awards

evidentiary hearings should be limited to situations where

clear evidence of impropriety has been presented.” Andros

Compania Maritima, S.A. v. Mare Rich & Co., 579 F.2d

at 702. That is not the case here. Petitioner has pre-

sented no clear evidence of any impropriety and an evi-

dentiary hearing was properly denied, particularly where,

as here, Petitioner’s efforts “appear to be yet one more

attempt to avoid the consequences of an arbitration upon

which [he] insisted.” 668 F.2d at p. 1148.

III. THE DISTRICT COURT DID NOT “INTERFERE”

IN THE ARBITRATION PROCEEDINGS; PETI-

TIONER’S POINT III PRESENTS NO QUESTION

CALLING FOR REVIEW BY THIS COURT.

In his Point III, Petitioner complains that the Court

of Appeals allowed the District Court to “interfere” with

arbitration proceedings.” (Petition, p. 15). Most of

the claims presented in Petitioner’s Point III were not

presented either to the District Court or the Court of

governed by the New Mexico Arbitration Act, § 44-7-1,

tion Act, 9 U.S.C. § 1 et seg., or both. The issue is of no

§ 44-7-2(B), supra, provides for a stay of any action or

proceeding if there is an order for arbitration. The Fed-

sented either to the District Court or the Court of Ap-

peals and cannot form the basis for review in this Court.

Moreover, no error was committed by the District Court

with respect to discovery in the arbitration proceedings.

The parties stipulated on May 19, 1978, in the arbitra-

tion that both parties would be entitled to discovery by

way of submission of written interrogatories, inspection

of documents, and examination or deposition of witnesess.

Respondent caused the issuance, from the District Court,

of numerous subpoenas for depositions in aid of the ar-

bitration. The New Mexico Arbitration Act specifically

provides that subpoenas for attendance of witnesses

“shall be served and, upon application to the court by a

party or the arbitrators, enforced in the manner provided

by law for the service and enforcement of subpoenas in

a civil action.” § 44-7-7 N.M.S.A. (1978 Comp.). Nu-

merous federal courts have recognized the propriety of

issuance and enforcement of subpoenas by the court which

has ordered an arbitration in aid of the arbitration.

See, Steamship Co. of 1949, Inc. v. The China Union

Lines, Hong Kong, Ltd., 123 F.Supp. 802 (S.D. N.Y.

1954) ; Bigge Crane & Rigging Co. v. Docutel Corp., 371

F.Supp. 240 (E.D. N.Y. 1973) ; Donahoe v. Susquehanna

Colleries Co., 49 F.Supp. 843 (M.D. Pa. 1943), rev'd,

183 F.2d 3 (3d Cir. 1943), rehearing, 66 F.Supp. 588

(M.D. Pa. 1946), rev’d, 160 F.2d 661 (3d Cir. 1947);

International Association of Heat and Frost Insulators

and Asbestos Workers Local 66, AFL-CIO v. Leona Lee

Corp., 484 F.2d 192, 194 (5th Cir. 1970). Subpoenas,

or orders concerning discovery, issued by the arbitrators

do not have the force of law. That is precisely why the

arbitration act and the cases in point permit a court

which has ordered arbitration to issue further orders in

aid of the arbitration, including orders pertaining to dis-

Court here consisted of an Order (R. II, 464) denying

the Motion of Defendants Michael and Corinne Grace for

a Protective Order Quashing Subpoenas for the Deposi-

tions which Petitioner had agreed could be taken in the

Stipulation for Discovery, and an Order allowing the

taking of the deposition of Corinne Grace (R. II, 485)

who was then incarcerated in a federal correctional in-

Petitioner next contends (Petition, p. 12) that the Dis-

trict Court “directed that the arbitration hearing proceed

despite the illness of Petitioner at the commencement of

the arbitration hearings.” This seriously misrepresents

the record. The first Opinion of the District Court (R.

III, 717; see, App. D to Petition) points out that when

the arbitrators finally scheduled the hearing on the merits

in the arbitration almost two years after the Order di-

recting arbitration, due principally to delays caused by

Petitioner (R. III, 718), Petitioner changed his attor-

neys two weeks prior to the scheduled hearing and sought

a continuance on that basis. Over Respondent’s objection,

a continuance was granted but only upon the promise of

Petitioner’s new counsel that no more continuances would

be sought. The District Court found this demand to the

arbitrators “completely reasonable for there had

nearly a two-year lapse since this Court had stayed

ceedings pending arbitration and nearly three years

the first arbitration demand had been made.” (R. III,

729). When the rescheduled arbitration hearing began,

Petitioner was absent for the first five days of the two

and one-half week hearing because of emergency surgery.

However, as the District Court found, “no demand for

relief from his prior promise or for a continuance was

made by counsel.” (R. III, 729). Thus, the District Court

did not direct that the arbitration proceed despite the

illness of Petitioner; no request for a continuance was

made either of the arbitrators or of the District Court.

Moreover, as the District Court found (R. III, 729-30),

the portion of the arbitration hearing which Petitioner

missed consisted of the presentation of his own case, Pe-

titioner did appear to testify on his own behalf, and was

present throughout the presentation of evidence by Re-

spondent. As the District Court further found, the claim

that the arbitration should not have proceeded because

Petitioner was absent for the first few days of the hear-

ing is “completely without merit.” (R. III, 729). Again,

this was recognized by Petitioner’s former attorneys, as

this point was not raised in the Court of Appeals.

Petitioner also complains of the District Court’s state-

ment (Petition, p. 12) that the District Court was re-

considering its decision to order arbitration and was con-

sidering abolishing the Stay Order. This comment was

made during the hearing on the Motion by Petitioner

seeking to quash the subpoenas which had been issued in

aid of taking the depositions which he had agreed to and

which the arbitrators had ordered to be taken. The re-

sult of the hearing was the Minute Order of February

1, 1979 (R. II, 464) denying Petitioner’s Motion for a

Protective Order. Even if the District Court had abol-

ished the Stay Order, such action would have been proper

by reason of Petitioner’s numerous delays the arbitra-

tion (R. III, 718) which the District Court very well

could have found constituted a waiver of the right to

arbitrate or a “default in proceeding” with the arbitra-

tion. See, 9 U.S.C. 53; Reid Burton Constr. Inc. v.

Carpenters Dist. Council, etc., 614 F.2d 698 (10th Cir.

1980), cert. den., 449 U.S. 824, (1980); Commercial

Iron & Metal Co. v. Bache Halsey Stuart, Inc., 581 F.2d

246 (10th Cir. 1978), cert. den., 440 U.S. 914, (1979).

However, the District Court did not lift the Stay Order,

but allowed the arbitration to proceed, and in fact did

not grant Respondent’s Motion to Lift the Stay Order

(R. III, 487). The fact that the District Court, in ex-

pressing its exasperation at Petitioner’s efforts to delay

the arbitration proceeding, stated that it was considering

lifting the Stay Order presents no question for review

by this Court, and was not even made the basis of any

point urged by Petitioner in the District Court or the

Court of Appeals.

Finally, Petitioner contends (Petition, p. 13) that the

District Court erred in ordering Petitioner to dismiss

his second demand for arbitration, filed in California

after the District Court had confirmed the New Mexico

arbitration award. This “second bite at the apple” was

the subject of a separate appeal before the Tenth Cir-

cuit, numbered 81-1161. The second demand for arbitra-

tion filed in California on November 14, 1980 (four

months after Petitioner had appealed confirmation of the

New Mexico arbitration award to the Tenth Circuit),

made three claims:

1. That Respondent was unjustly enriched as a result

of Petitioner’s expenditure in exploring the leased prop-

erties for uranium;

2. That Respondent owed a duty to Petitioner to sub-

mit an offer by Gulf to accept an assignment of Peti-

tioner’s leases ; and,

3. That the arbitrators in the New Mexico arbitration

had a duty to examine and admit into evidence “similar

leases” between Respondent and other lessees.

All of these issues were litigated in the New Mexico

arbitration. Petitioner’s claims of “unjust enrichment”

were argued, and evidence offered concerning them, in

the New Mexico arbitration (R. VI, 12-13; R. X, 832);

and, the only Memorandum Brief submitted by Peti-

tioner’s counsel to the arbitrators was entitled Memo-

randum Brief—Unjust Enrichment.”

One of the principal grounds urged by Petitioner in the

District Court and the Court of Appeals for vacation of

the New Mexico Arbitration Award was his claim that

the arbitrators refused to consider or admit in evidence

“similar leases”. This claim was soundly rejected by both

Courts. It is difficult to imagine how an arbitration panel

in California could determine that the arbitrators in New

Mexico had “breached duties” to Petitioner in refusing

to hear evidence concerning “similar leases” after the

District Court and Court of Appeals found that the

arbitrators had in fact considered the evidence and, in

any event, had not acted improperly in refusing to hear

any evidence.

The claim that Respondent refused to submit an offer

from Gulf was likewise litigated in the New Mexico ar-

bitration. In fact, Respondent simply referred Gulf to

Petitioner, and Gulf then unsuccessfully negotiated with

Petitioner for an assignment of the leases. (R. X, 852,

941; R. XI, 1105; R. XII, 1413-37; R. XVI, 2105-06).

The District Court and Court of Appeals were clearly

correct in ruling that the matters presented by the Cali-

fornia arbitration were barred by res judicata. Box

v. Rundell, 179 F.2d 626 (10th Cir. 1950); Katzburg

v. Krebs, 545 F.2d 104 (10th Cir. 1976) ; State v. Nagel,

87 N. M. 434, 535 P.2d 641 (App. 1975), cert. den., 87

N.M. 450, 535 P.2d 657 (1975). Overseas Motors, Inc.

v. Import Motors, Ltd., 375 F.Supp. 499 (E.D. Mich.

1974), affd, 519 F.2d 119 (6th Cir. 1975), cert. den.,

423 U.S. 987, (1975), relied upon by Petitioner (Peti-

tion, pp. 13-14), actually supports the conclusions of the

District Court and Court of Appeals that the arbitration

award and its confirmation barred Petitioner’s second

attempt to arbitrate the same issues in California. And,

Petitioner does not even bother to attack the rulings of

the Court of Appeals that the District Court had the

power to order Petitioner to dismiss the California ar-

bitration in aid of the appeal from the judgment con-

firming the arbitration award, and that the issues sought

to be arbitrated in California, even if they had not been

arbitrated in New Mexico, would be waived by failure to

assert them in the earlier New Mexico arbitration. 668

F.2d at 1152-53.

In summary, Petitioner’s Point III is a hodge-podge of

arguments, most of which were never presented to the

District Court or Court of Appeals, is clearly without

merit and presents no question worthy of review by this

Court.

IV. NEITHER THE DISTRICT COURT NOR THE

COURT OF APPEALS CONDEMNED SOLUTION

MINING; THE ARBITRATORS PROPERLY HELD

THAT PETITIONER HAD FAILED TO ACHIEVE

PRODUCTION OF URANIUM IN COMMERCIAL

QUANTITIES.

Petitioner’s Point IV argues that the District Court

and Court of Appeals held that solution or “in situ”

mining of uranium could not qualify as “commercial pro-

duction.” This is a gross misstatement of the record.

Although evidence presented at the arbitration hearing

indicated that solution mining was not contemplated by

term (Petition, p. 16), such a limitation upon the term

i. e., lack of production in commercial or paying quantities

at the end of the primary term results in an automatic

on of the lessee’s interests. 3 H. Williams, Oil

Gas Law, 36-38 (1978); Vernon v. Union Oil Co.

F.2d 441 (5th Cir. 1959) ; Reese Enterprises

. Lawson, 220 Kan. 300, 553 P.2d 885 (1976).

Court has previously recognized such usage of the

See Sauder v. Mid-Continent Petroleum Corp.,

-78, (1934). See, also, Andrus v. Shell

„ 446 U.S. 651, (1980). The construction by a

of the courts—as an automatic limitation or

termination of the lessee’s estate if production in com-

es has not been achieved by the end of

iad

181

8 2.

in accord with the intent of the parties and

sound policies . . . the special limitation placed on

the duration of the lessee’s interest is not a frivolous

collateral condition or a whimsical limitation on the

use of the interest.

Rather, the basis of the majority rule is that the

3 H. Williams, supra, at pp. 38, 60. While reported

cases construing “commercial” or “paying” quantities

most often involve oil and gas leases, it has been recog-

nized that the construction of such terms by those courts

312 P.2d 228 (1957) ; Treasure City v. Mountain States

Clay Products, 182 Mont. 12, 313 P.2d 1028 (1957).

New Mexico has recognized that principles of construc-

tion applicable to oil and gas leases are likewise applicable

to similar terms found in other mineral leases. Darr v.

Eldridge, 66 N.M. 260, 346 P.2d 1041 (1959). The

United States has frequently used the terms “commercial

quantities” or “paying quantities” in statutes and regula-

tions as limiting the term of oil and gas and other min-

eral leases. See, e.g., 25 U.S.C. § 396(a) ; 25 U.S.C. § 398;

30 U.S.C. § 187 (a); 30 U.S.C. § 226-1; 43 U.S.C. § 1337;

15 U.S.C. § 3312.

The “commercial quantities” or “paying quantities”

test means, as Petitioner admits, that production must

at least “pay its way,” or produce revenues in excess of

costs of production. (Petition, p. 16.) Discovery alone

does not constitute “production” in commercial or paying

quantities. 3 H. Williams & C. Meyers, Oil and Gas Law,

§ 604.1 at 42.4; Greer v. Salmon, 82 N.M. 245, 479 P.2d

294 (1970). Production in “commercial quantities” re-

quires a quantum of minerals produced sufficient to pay

operating costs plus some profit. Greer v. Salmon, supra;

Champion Ventures, Inc. v. Dunn, 567 P.2d 724 (Wyo.

1977) ; 12 W. Sommers, The Law of Oil and Gas, § 306

at pp. 335-36 (1959); 3 H. Williams & C. Meyers, Oil

and Gas Law, § 334.7 (1977); Meyers, Habendum

Clauses in Term Mineral and Royalty Deeds, 6 Rocky

Mountain Mineral Law Institute 551, 603-09 (1961);

Annotation, “Meaning of Paying Quantities in Oil and

Gas Lease,” 43 A.L.R.3d 8 (1972). Almost without ex-

ception, the witnesses testifying at the arbitration agreed

with this interpretation as applicable to the uranium

mining industry in the area of the subject leases. (R.

VII, 706; R. VIII, 997; R. IX, 1130-33; R. XI, 1539-40,

1697-98; R. XII, 1748-1813; R. XIII, 1981-2023, 2034

52). Contrary to Petitioner’s contention (Petition, p.

16), the Federal Energy Regulatory Commission has not

concluded that “production in commercial quantities has

occurred if natural gas has been sold and delivered.” To

the contrary, the FERC, in 18 C.F.R. § 271.204(C), de-

fined “commercially producible” as requiring a completed

well which “can reasonably be expected to produce nat-

ural gas in quantities sufficient to yield revenues in ex-

cess of operating costs.” The portion of the regulation

cited by Petitioner actually states that a rebuttable pre-

sumption exists that production in commercial quantities

has not occurred if natural gas has not been sold. Like-

wise, Rummell v. Bailey, 7 Utah 2d 137, 320 P.2d 653

(1958), relied upon by Petitioner (Petition, p. 32), did

quantities. Rather, that case involved the test of “dis-

covery” of a valuable mineral under 30 U.S.C. § 23. It

has been specifically recognized that a valuable mineral

may have been “discovered” even though the deposit may

not contain ore “in paying quantities.” Chrisman v. Mil-

ler, 197 U.S. 318, (1905). See, also, Andrus v. Shell

Oil Co., 446 U.S. 651, (1980). As noted above, most

courts considering the question, including New Mexico,

have held that a mere “discovery” of a valuable mineral

does not amount to production in commercial quantities

to extend the term of the lease. Greer v. Salmon,

production under any definition of that term. The pit

mining operation produced total revenues of $62 which

Petitioner’s argument in Point IV again was not pre-

sented to the District Court or Court of Appeals. The

definition of “commercial production” applied by the ar-

bitrators comports with the rule followed by the vast

Grant Inc. v. Ringle Development Co.,

STATUTORY APPENDIX

9 U.S.C. §3

11 1 115 12125 3555

a 11 13 zl i 111

1 111 i . i

t : is : i!

; as 147 f i: 81

Mi: | Mbp

21445 F

75 aT 5121 511 list 27175

2 1 117 3 Pa 111 I Hi

11127 He

sili

33 2

117752

3° 2

a 1 bee 35

Title 44, N. MS. A. (1978 Comp.):

111175

qn 115

Hie

112 1120

HIP

: 17115275

Linn ee:

213

447-2. Proceedings to compel or stay arbitration.

B. On application, the court may 2

the arbitrators, enforced in the manner provided by law

for the service and enforcement of subpoenas in a civil

B application of a party and for use as evidence,

the arbitrators may permit a deposition to be taken, in

the manner and upon the terms designated by the ar-

C. All provisions of law compelling a person under

subpoena to testify are applicable.

D. Fees for attendance as a witness shall be the same

as for a witness in the district court.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.