Petition — Easterday v. Coyer

Supreme Court brief1984

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IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM 1983

ALFRED L. EASTERDAY,

Petitioner,

DONALD W. COYER and

PRED L. ENGLE, d/b/a RESOURCE

SERVICE COMPANY, and JAMES G. WATT,

Secretary of the Interior,

U.S. DEPARTMENT OF THE INTERIOR,

Respondents

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

MORTON J. SCHMIDT and

JOHN A. ZODROW, Attorneys

for Alfred L. Easterday

SCHMIDT & ASSOCIATES, LTD.

Edgewood Plaza Suite 201

4811 South 76th Street

Milwaukee, Wisconsin 53220

Phone (414) 281-3200

QUESTION PRESENTED

Should a court substitute its own

preferences for that of the Congress

by rewriting regulations to permit

heretofore prohibited acts?

oe wee

Questions Presented.....sseeeees

Table Of COntentS...seeeseeceees ii

Table of Authorities........+.+. iv

Opinions Below. ...sccceesseceses 1

JULISAGICCION. . cc eeseeesccccccees 2

Statutes and Regulations Involved

Statement of the Case....ceceees 6

Reasons for Granting the Writ... 19

I. The Court Should Not

Rewrite Regulations Which

Fall Within the Expertise

of the Secretary of

BETES o's da seeks bee ban 20

II. Ability of Government to

Conduct Fair Lottery

Severely Prejudiced....... 32

CG SREEO as heen bb's cnc bee bhesorvne 42

Appendix

Opinion of the paceee States

Court of Appeals in v

t, 720 F.2d 626 (TOCr ct.

), review of which is

BOUGHE. cccccocesicdscccedcscteoce A-1

Opinion of Interior Board of

CP eeeroseerewesesereere B-1

Page

Opinion of Interior Board of

| Land Appeals in paae Vv.

Easterday, 36 I.B.L.A. 181 ‘

eeeeseeeeeeeeeeeeeeeeeeeeee C-

| Order of the U.S. District

Court in Coyer v. Andrus, D.

Wyo.Civ.No. C-76-LO04K 11579),

| remanding appeal for evident-

iary HOMEINGs ccoccsccccesevsocese D-1

| Opinion of Interior Board of

Land Appeals in oe W. Coyer,

50 I.B.L.A. 306 eeeveeeeee E-l

b- Proposed findings and con-

clusions of A.L.J. Mesch,

| adopted in Donald W. Coyer... E-24

Order of U.S. District Court

in cover v. ree D.Wyo.

Civ. Ss. 5a: oe ’ C80-370K,

C80-372K (1981), affirming

Interior Board of Land Appeals. F-1

Opinion of United States Court

of Appeals in v. W

684 F.2d 957 Poke TeEst,

a related case followed in

COvyer WV. Watt. ..ccccccccsvcvces G-1

| Letter of Clerk of U.S. Court

of. Appeals advising date of

entry of judgment of case for

| which review is sought (1983) ,.

Denial of petition for rehearing

” Rss yrtalyioge for rehearing

bane by U.S8.Court of son

in Soyer _v, Watt pie Lin ata da

TABLE OF AUTHORITIES

Cases

Alfred L. Easterday, 34 I.B.L.A.

Ballard E. “Eee ete Inc.

v. Morton, F. 9 0

Tidth Cir

eae v. Andrus, D.Wyo.Civ.No.

K eeeeoeeeeeeeeeeneeeeeeeee

peer v. Easterday, 36 I.B.L.A.

aes v. Watt, 720 F.2d 626

(10t Cir. LE Te <r

50 I.B.L.A.

Donald S Coyer,

Frederick W. Lowey, 40 I.B.L.A.

361 (1979), rid ar. sub nom

Lowey Vv. Watt, 517 F.Supp. 137

John V. Steffans, 74 I.D. 46

Liberty Mut ’

GT. BsBG (RMOEN Ce cee as Ookc chcunhs

Lola I. ay 31 I.B.L.A.

eeeeeeereeeeeeeeeeeeeeee

Dd. o\e 1961) ccoccccccccceeoe

Page

passim

1,16

1,18

pacsim

* _ ™ = ‘

ce ee i

te s Watt, 684 F.2d 957

> 7 ) Dal é ob Bbe+COCECO CSCS

Marathon Power Co, = EPA, 608

= Ze eeeseeeeeeee

McTierman v. Frage 508 F.2d

Ee eeeneeeeneeeeee

Reed v. Morton, 480 F.2d 634, 645

t r.), cert. den. 414

U.S. 1064 PES l ie eseocweos

Runnells v,. Andrus, 484

F.Supp. 1234@Utah 1980)........-

Sidney H. Schreter

I.B.L.A.

et al.,

Poccseccccos

Thor-Westcliffe ee eee Inc.

Vv a — -

elf

den. 373 U.S

’

r cert. : e

951 (19 eeeeseeeeeeeeeeeeeeeeeesr

Udall v. Tallman, 380 U.S. 1

Statutes

28 U.S.C.

30 U.S.C.

Regulations

43 C.F.R.

Page

$1254(1).cccccsceeseess 2

MP adisdesesctn cinek Se

SE aGiicevaccedeegee. S108

$226 (C) .cecevecccsccees 2°3,6-7

S20CER ie iiNevedvvcse (36

G4.410. ccccvcccvccccces 15

§3100.0-5.....eeeee+++. Passim

§3100.0-5(b)...eeeeeee- passim

§$3101.1-5(a) .ceccsceeee 10

$3102. Te ceeeeseseesveess passim

$3103.3-2. cecccccccvece 8

$3112.1-2. .ccccccccvecs 7

$3112. 2—Lewcccccccccess 748

$3112.4-Lewcccccccscces 8

$3112.51. wccccccccsece 8

lll]

or ~~ a ,

639122 «S-Bsccccoveeds cone passim

a %

p 4

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF

APPEALS FOR THE TENTH CIRCUIT

The petitioner, Alfred L. Easterday,

respectfully requests that a writ of cer-

tiorari issue to review the opinion and

judgment of the United States Court of

Appeals for the Tenth Circuit entered on

November 4, 1983.

OPINIONS BELOW

The substantive final decisions of

the Interior Board of Land Appeals are

reported as Alfred L. Easterday, 34 I.B.L.A.

195 (1978), Coyer v. Easterday, 36 I.B.L.A.

181 (1978), and Donald W. Coyer, et al.,

50 I.B.L.A. 306 (1980). The United States 4

District Court for the District of Wyoming a

affirmed the Interior Board of Land Appeals ie

in an unreported decision. The United

States Court of Appeals for the Tenth Circuit ts

reversed the district court in an opinion

reported as Coyer v. Watt, 720 F.2d 626

(10th Cir, 1983), ‘The Court of Appeals’

ene

Yr 4 ie ph we >i, pone Wises

Be et a See Se a oo eee eee

Pe POR Oe (aa ad ape we ey: ‘ag nee

decision relied upon Lowey v. Watt, 684

F.2d 957 (D.C.Cir. 1982).

JURISDICTION

The judgment for which review is

sought was entered by the United States

Court of Appeals for the Tenth Circuit

on November 4, 1983. Petition for rehear-

ing, and suggestion for rehearing en

banc, was denied on November 28, 1983.

The case was mandated back to the district

court on December 6, 1983. The juris-

diction of this Court rests on 28 U.S.C.

§1254(1).

STATUTE AND REGULATIONS INVOLVED

1. This suit involved the applica-

tion of §226(c) of the Mineral Leasing

Act of 1920, 30 U.S.C. §226(c), which

provides:

$226. Lease of oil and gas lands.

subsection (b); first qualified

applicant.

If the lands to be leased are

not subject to leasing under sub-

section (b) of this section, [which

covers lands which are either within

any known geological structure of

a producing oil or gas field or

within a special tar sand area,]

the person first making lication

for the lease who is qualified to

hold a lease under this chapter

shall be entitled to a lease of

such lands without competitive

bidding... Such leases shall be

conditioned upon the payment by

the lessee of a royalty of 12-1/2

per centum in amount or value of

the production removed or sold from

the lease.

2. Applicable provisions of the

Interior Department Regulations, 43 C.F.R.

§§3100.0-5(b), 3102.7, 3112.5-2, are:

§3100.0-5. Definitions.

(b) sole ae in interest. A

sole party in interes na lease

or offer to lease is a party who

is and will be vested with all legal

and equitable rights under the |

lease. No one is, or shall be .

deemed to be, a sole party in inter- ‘:

est with respect to a lease in which

any other party has any of the inter-

ests described in this section.

The requirement of disclosure in

an offer to lease of an offeror's

or other parties' interest in a

lease, if issued, is predicated

on the departmental policy that

all offerors and other [omg am

having an interest in simultaneously

_ %

filed offers to lease shall have

an equal opportunity for success

in the drawings to determine pri-

Orities. Additionally, such dis-

closures provide the means for main-

taining adequate records of acreage

holdings of all such parties where

such interests constitute chargeable

acreage holdings. An “interest”

in the lease includes, but is not

limited to, record title interests,

over-riding royalty interests,

working interests, operating rights

or options, or any agreements cover-

ing such "interests." Any claim

to an advantage or benefit from

a lease, and any participation or

any defined or undefined share in

any increments, issues, or profits

which may be derived from or which

may accrue in any manner from the

lease based upon or pursuant to

any agreement or understanding

existing at the time when the offer

is filed, is deemed to constitute

an “interest" in such lease.

§3102.7. Showing as to sole party

in interest.

A signed statement by the offeror

that he is the sole party in inter-

est in the offer and the lease,

if issued; if not, he shall set

forth the names of the other in-

terested parties. If there are

other parties interested in the

offer a separate statement must

be signed by them and by the offer-

or, setting forth the nature and

extent of the interest of each

in the offer, the nature of the

agreement between them if oral,

and a copy of such agreement if

mea) Vel SE ee As a awa ee eT

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written. All interested parties

must furnish evidence of their

qualifications to hold such lease

interest. Such separate statement

and written agreement, if any, must

be filed not later than 15 days

after the filing of the lease offer.

Failure to file the statement and

written agreement within the time

allowed will result in the cancella-

tion of any lease that may have

been issued pursuant to the offer.

Upon execution of the lease the

first year's rental will be earned

and deposited in the U.S. Treasury

and will not be returnable even

though the lease is canceled.

§3112.5—-2. Multiple filings.

When any person, association,

corporation, or other entity or

business enterprise files an offer

to lease for inclusion in a drawing,

and an offer (or offers) to lease

is filed for the same lands in the

same drawing by any person or party

acting for, on behalf of, or in

collusion with the other person,

association, corporation, entity

or business enterprise, under any

agreement, scheme, or plan which .

would give either, or both, a great- yes

er probability of successfully ct

obtaining a lease, or interest i

therein, in any public drawing, wi

held pursuant to §3110.1-6(b), all ;

offers filed by either party will

be rejected. Similarly, where an

agent or broker files an offer to

lease for the same lands in behalf

of more than one offeror under an

agreement that, if a lease issues

to any. of such offerors, the

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PAS POR ORE SS eR ERS RRR eT ign Oe WEE o's

agent of broker will participate

in any proceeds derived from such

lease, the agent or broker obtains

thereby a greater probability of

success in obtaining a share in

the proceeds of the lease and all

such offers filed by such agent

or broker will also be rejected.

Should any such offer be given a

priority as a result of such a

drawing, it will be similarly re-

jected. In the event a lease is

issued on the basis of any such

offer, action will be taken for

the cancellation of all interests

in said lease held by each person

who acquired any interest therein

as a result of collusive filing

unless the rights of a bona fide

purchaser as provided for in §3102.1-

2 interevene, whether the pertinent

information regarding it is obtained

by or was available to the Govern-

ment before or after the lease was

issued.

ont : :

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Shae

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—

STATEMENT OF THE CASE

Under the Mineral Leasing Act of

1920, 41 Stat. 443, 30 U.S.C. §226, the

Secretary of the Interior is authorized

to award oil and gas leases for public

lands. Section 226(c) provides that

as to public lands which are not within

any known geologic structure of the

producing oil or gas field, “the person

ao es se) ee

first making application for the lease

who is qualified to hold a lease under

this chapter shall be entitled to a lease

of such lands without competitive bidding."

‘However, pursuant to authority

granted by 30 U.S.C. §189, the Secretary

has set up a lottery system in which

the Bureau of Land Management announces

that certain lands are available for

leasing and sets a deadline for the

receipt of applications, which must be

filed on standard drawing entry cards.

All applications received by the deadline

are deemed to have been filed simultan-

eously, and drawing entry cards are drawn

at random to determine who will be award-

ed the leases. 43 C.F.R. §3112.1-2,

§3112.2-1 (1977). This system was ap-

proved in Thor-Westcliffe Development,

Inc. v. Udall, 314 F.2d 257 (D.C.Cir.),

cert. den, 373 U.S. 951 (1963).

The secretary may decline to lease

a parcel of land even after the drawing

bed:

is held and a qualified applicant is

accepted. McTierman v. Franklin, 508

F.2d 885, 887 (10th Cir. 1975). However,

if the Secretary decides to award a

lease, he must award it to the first

drawee, provided that such drawee is

qualified under the regulations, and

provided that such drawee pays the first

year's rent under the lease within 15

days of notification of the lease award.

43 C.F.R. §3112.2-1, §3103.3-2 (1977).

If the first drawee does not meet these

criteria, the award goes to the next

succeeding drawee who does meet them,

43 C.F.R. §3112.2-1,§3112.4-1 (1977).

Only three drawing entry cards are drawn,

so if none of the three drawces are

qualified, a new lottery is held for

that parcel of land. 43 C.F.R. §3112.5-1

(1977).

The regulations governing the lot-

tery system have been issued by the

Department of the Interior in order to

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ensure that each lottery is conducted

fairly. The sole-party-in-interest

regulation, 43 C.F.R. §3102.7 (1977),

requires that each lease applicant

("offeror") disclose on his drawing entry

card all parties having an "interest"

in the application ("offer"), with

"interest" defined by 43 C.F.R.

§3100.0-5 to include any

Claim ... to an advantage or benefit

from a lease ... or any defined

or undefined share in any incre-

ments, issues, or profits which

may be derived from ... the lease

based upon or pursuant to any agree-

ment or understanding existing at

the time when the application

or offer is filed.

This disclosure requirement

is predicated on the departmental

policy that all offerors and other

parties having an interest in...

offers to lease shall have an equal

opportunity for success in the

drawings.

43 C.F.R. §3100.0-5(b). Such disclosure

also provides the "means for maintaining

adequate records of acreage holdings,"

id., so as to facilitate enforcement

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of the acreage limitations of 43 C.F.R.

§3101. 1-5 (a) -

The departmental policy of equal oppor-

tunity is also reflected in the multiple-

filing regulation, 43 C.F.R. §3112.5-2

(1977), which forbids any two parties to

enter into "any agreement, scheme, or plan

which would give either, or both, a greater

probability of successfully obtaining a

lease or interest therein.” It further

forbids

any agent or broker to file an offer

to lease [i.e., a drawing entry card]

for the same lands on behalf of more

than one offeror [i.e., applicant]

under an agreement that, if a lease

issues to any such offerors, the agent

Or broker will participate in any

proceeds derived from such lease.

Beginning in 1973, Resource Service

Company (R.S.C.) operated as a leasing

service. For a fee, R.&S.C. would prepare

and file drawing entry cards for individual

Clients. Each drawing entry card repre-

sented that the individual client named

theron was the sole party in interest.

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However, the services of R.S.C. to

each client were performed pursuant to

a standard service agreement which included

an exclusive sales agency provision grant-

ing R.S.C. an exclusive right to negotiate

sales or assignments of any leases won,

and to receive a percentage of the proceeds

thereof, for a period of five years, sub-

ject to the right of the client to reject

any or all sales or assignments negotiated

by R.S.C. This exclusive sales agency

provision was not disclosed as an interest

on any drawing entry card prepared and

filed by R.S.C.

In December, 1976, a protest was filed

with the Wyoming State Office of the Bureau

of Land Management by a second drawee

demanding the disqualification of several

R.S.C. clients who were the first drawees

in the previous month's drawing. The

protest alleged that the exclusive sales

agency provision in each service agreement

was an “interest” in a lease, and that.

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therefore the nondisclosure of the same

on each drawing entry card was a violation

of the sole-party-in-interest regulation.

The protest further alleged that R.S.C.

violated the multiple-filing regulation

by filing drawing entry cards for more

than one client on each of a number of

parcels,

The Wyoming office of the Bureau of

Land Management sustained the protest and

disqualified the drawing entry cards.

However, R.S.C.'s attorney prevailed upon

three employees of the Wyoming office not

to disqualify any other entries, pending

departmental appeal, in exchange for a

disclaimer of the challenged provision,

Subsequently, R.S.C. executed a doc-

ument entitled “Amendment and Disclaimer,”

which stated that the challenged provision

was disclaimed, except that if a deter-

mination were made following exhaustion

of all administrative and judicial remedies

that the challenged provision were not

an interest in a lease, then the "Amendment

and Disclaimer" would be null and void

as if never executed. However, R.S.C.

continued to use the standard service

agreement, including the provision

challenged, and it communicated the "Amend-

ment and Disclaimer" only to {1) the

Wyoming and New Mexico offices of the

Bureau of Land Management, and (2) those

clients of R.S.C. who won drawings. No

R.S.C. client was informed of the "Amend-

ment and Disclaimer” before that client

won a drawing. Whether R.S.C. actually

communicated the “Amendment and Disclaimer"

to a client at any time cannot be verified.

R.S.C.'s form-letter notice to a winning

client makes no mention of the "Amendment

and Disclaimer." The disclaimer was also

unsupported by consideration.

In March, 1977, the Wyoming office

of the Bureau of Land Management determined

that the exclusive sales agency provision

in the service contract did constitute

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an interest in the lease, thus upholding

the protest. This determination was

upheld in two related cases decided by

the Interior Board of Land Appeals:

Lola I. Doe, 31 I.B.L.A. 394 (1977),

and Sidney H., Schreter, et al., 32 I.B.L.A.

148 (1977). Although R.S.C. was a party

to both of these cases, it chose not

to appeal them, and, after the time for

appealing expired, it revised its service

contracts at the insistence of the

Wyoming office, but not until April,

1978 (Record, VIII, Ex.32).

Meanwhile, in April, 1977, a regular

monthly drawing was conducted by the

Wyoming office. With respect to Parcel

No. WY-44, the first card drawn was that

of Donald W. Coyer, a client of R.S.C.,

and the second was that of Alfred L.

Easterday. Easterday protested the

issuance of the lease to Coyer, claiming

that Coyer was unqualified because of

violations of the sole-party-in-interest

pte and of the multiple-filing

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Although the Wyoming office had

upheld the earlier protest, it dismissed

Basterday's protest of the award to Coyer,

finding that although R.S.C.'s service

agreement created an interest, and al-

though R.S.C. would have been in violation

of both regulations, the disclaimer docu-

ment was effective and cured the violations.

Easterday appealed to the Interior

Board of Land Appeals, which reversed the

Wyoming office and upheld Easterday's

protest in Alfred L, Easterday, 34 I.B.L.A.

195 (1978), holding that not only were

both regulations violated, but also that

the violations were not cured by the dis-

Claimer document. Neither Coyer nor

R.S.C. responded or appeared before

the Board even though Coyer was served

with a notice of appeal. They deliber-

ately declined to participate in the

proceedings, Basterday, supra, at

196. The multiple-filing regulation

was found violated in that R.8.C, filed over

igs. Sa

200 drawing entry cards on Parcel WY-44.

Pursuant to Easterday, the Wyoming

office rejected Coyer's lease offer. Coyer

and R.S.C. appealed, but the rejection

was upheld by the Board in Coyer yv. East-

erday, 36 I.B.L.A. 181 (1978). Coyer

and R.S.C. also sought judicial review

of Alfred L. Easterday, supra, on the false

ground that since they had been given no

notice of the proceedings before the Board,

and had had, therefore, no opportunity

to participate therein, they had suf-

fered a violation of their due-process

rights. The district court, which had

jurisdiction of the matter under30 U.S.C.

§226-2, remanded the matter to the board

for a full evidentiary hearing. Coyer

v. Andrus, D.Wyo. Civ.No,. C-78-104K

(1978). ‘

After conducting such a hearing, the

Interior Board of Land Appeals found that

Coyer and R.S.C,, by their own admission,

had had adequate opportunity to appear

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before the Board in Easterday, but had

failed to do so. Therefore, not only was

there no violation of their due-process

rights, but there was nothing further to

litigate, the matter being res judicata.

Donald W. Coyer, 50 I.B.L.A. 306 (1980).

The Board further held, noting that

"transactions of the United States relating

to the management, use and disposition

Of public lands and their resources are

for the benefit of all the people,” id.

at 321, that the amendment and disclaimer

procedure of R.S.C. did not promote federal

policies because

To give effect to such an arrangement

would establish a precedent that would

allow open ... [flouting] of the pro-

hibition against multiple filings

and foreclose the Department from

preventing flagrant abuses of the

drawiny-lottery system,

Id, at 320.

Meanwhile, the “Amendment and Dis-

claimer" document was also held ineffective

to eradicate R.S.C.'s innocent: in leases

in Frederick W, Lowey, 40 1.8.L,A, 381

(1979), aff'd sub nom. Lowey v. Watt,

517 F.Supp. 137 (D.D.C. 1981).

The United States District Court for

the District of Wyoming affirmed Donald

W. Coyer, supra, On a motion for summary

judgment. Its memorandum decision is

unreported. Coyer and R.S.C. appealed

to the United States Court of Appeals for

the Tenth Circuit. Even though the record

demonstrated that Coyer and R.S.C. made

a false allegation of denial of due pro-

cess, the Court of Appeals reversed the

district court, Coyer v. Watt, 720 F.2d

626 (10th Cir. 1983), relying on Lowey

v. Watt, 684 F.2d 957 (D.C.Cir. 1982),

which found the disclaimer document valid

on the strength of R.S.C.'s assertion of

good faith.

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OPEN ’ a ‘x r

REASONS FOR GRANTING THE WRIT

The management of public lands has

been delegated to the Congress and not

the Courts. It is within the power of

the Congress to enact laws. The decision

of the court of appeals, in effect, enacts

legislation governing the issuance of

leases to federal lands, in a way that

severely prejudices the ability of the

Secretary of Interior to award oil and

gas leases to the public in a fair manner.

This petition should be granted

to settle definitively the question of

entitlement to federal oil and gas leases,

and to maintain equality of opportunity. ee

I. The court Should Not Rewrite

Regulations Which Fall Within

the Expertise of the Secretary

of Interior.

The Interior Department is charged

by law with the operation and administra-

tion of the oil and gas leasing program,

under which members of the public are

awarded leases of public lands for the

purpose of exploiting the mineral resources

thereof. 30 U.S.C. §226. In order to

ensure that all parties "have an equal

opportunity for success” in obtaining

leases, 43 C.F.R. §3100.0-5(b), specific

procedures have been established to deter-

mine to whom leases will be awarded.

Essentially, each party desiring

to lease a particular parcel of public

land must enter a lottery for that parti-

cular parcel. Three entries are drawn,

and the first qualified drawee is en-

titled to the lease. If no one is qual-

ified, another lottery is held.

Federal regulations set forth explicit

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requirements which one must meet in order

to be considered qualified. Among the

requirements are the following: (1) The

lease applicant ("offeror") must be a

United States citizen; (2) He must not

be an employee of the Department of the

Interior; (3) He must not already hold

leases on more than the maximum amount

of acreage permitted; (4) He must not

file more than one application on any

particular parcel; (5) The application

must be filed on a standard drawing entry

card (DEC); and (6) Anyone having an

interest in the lease offer, including

anyone having a legally enforceable right

to share in the proceeds of the lease,

must be disclosed when the lease appli-

cation is filed.

This last requirement, disclosure,

is intended to facilitate the enforcement

of the preceding requirements. However,

the Court of Appeals has now permitted

applications which violate this regula-

tion, and which are thus invalid, to

be considered valid nevertheless.

There is no provision in the statutes

or in the regulations which permits

a lease offeror to correct defects in

his filed offer. The Court of Appeals

should not fill such void, particularly

where, as here, the lease offer was

invalid because of knowing, intentional,

deliberate, and sustained refusals to

eliminate an exclusive agency arrange-

ment. The manner in which the court

permitted the “cure” of an offer which

otherwise warranted disqualification

renders advisory, in substance, regu-

lations which were heretofore con-

sidered mandatory.

The Secretary must now deter-

mine if the offeror was in good faith

when he filed his offer.

An applicant's good faith is not an

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exception to disqualification. If

the Congress or the Department so

intended, they would have so

prescribed.

The Interior Board of Land

Appeals, in its opinion, said there

is no excuse for violating the regula-

tions. This is especially true when

a filing service is involved. It is

unclear how, or why, an agency should

have regulations dealing with the curing

of concealed, unlawful conduct. See

Reed v. Morton, 480 F.2d 634, 645 (9th

Cir.), cert. den., 414 U.S. 1064

(1973).

The Board stated that there is no

“ reason why the regulations or adjudica-

tory precedents should provide for the

eradication of forbidden interests re- ~

lating to leases of public lands. The

regulations are abundantly clear in

defining forbidden interests and there

is no justifiable reason for such |

interests to exist.

There can be no dispute that R.8.C.

had contractually provided itself with

an interest in every lease offer which

it filed on behalf of its clients. In

failing to disclose this interest and,

instead, representing that each client

was a "sole party in interest," each

R.S.C. lease offer violated 43 C.F.R.

§3102.7.

By such failure to disclose, R.S.C.

was enabled to file multiple offers in

the names of its clients on the more

desirable parcels, thereby enhancing its

mathematical chances of acquiring an

interest in the property for itself, in

violation of 43 C.F.R. §3100.0-5(b).

In addition thereto, the exclusive agency

provision gave R.S.C. the opportunity to

select the assignee oil company in mar-

keting the lease. This was clearly a

scheme to defeat the safeguards intended

to protect the integrity of the system

. for making federal oil and gas leases

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available to the public on an

equitable basis.

R.S.C. filed thousands of lease

offers annually. The interests it had

in those leases were undisclosed.

When these undisclosed interests

were finally revealed and R.S.C. was

directed to revise its contract or face

the rejection of its lease offers, R.S.C.

opted to propose a self-serving cure

for the problems created by the ex-

Clusive agency agreement.

The “cure” essentially consisted

of a promise by R.S.C. not to enforce

the exclusive agency agreement if it

in fact created an interest as defined

by the regulations. The promise was

contained in a written instrument called

an “Amendmet and Disclaimer," which

was not communicated to any client of

R.S.C., unless and until a client was

declared to be a winner in a drawing.

R.S.C. would then have the client

enter into a new exclusive agency agree-

ment, which was executed after the draw-

ing, and which was therefore claimed to

be in compliance with the regulations.

The "Amendment and Disclaimer" cure

improvised by R.S.C. is described in

Lowey _v. Watt, 684 F.2d 957, 961. In

its opinion the court mistakenly assumed

that no one questioned R.S.C.'s good

faith. |

The Lowey court blamed Congress

and/or the Department of Interior for

making R.S.C.'s scheme necessary by fail-

ing to provide, by statute or regulation,

a procedural mechanism "for removing

illegal provisions from standard leasing

service contracts." The court also mis-

takenly assumed that the Bureau of Land

Management had both motive and ability

to make certain that R.&.C. abided by

its promise. Lowey, supra, at 966.

However, RSC was fully cognizant

of its own overreaching conduct and con-

cealed this from the Bureau, Once it

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was revealed to the Bureau that R.S.C.

was using an exclusive sales agency agree-

ment, everything that R.S.C. did to effect

a cure resulted from its adamant refusal

to acknowledge that it had an “interest”

in its clients' leases, as "interest"

is defined in 43 C.F.R. §3100.0-5(b).

The definition of interest is so

broad and ali-encompassing that there

could be no reasonable basis for doubt

that R.S.C. had created and retained such

an interest.

All R.S.C. had to do to comply with

the regulations was to disclose that

interest and file the required statements.

In every case that had come before

the Interior Board of Land Appeals

for determination, R.S.C.'s disclaimer,

when at issue, was determined to be an

ineffective cure for violating the regu-

lations. S8very district court had sustained

the Board in that regard, |

In Lowey, supra, at 967, the court

ruled that a filing service's reasonable

efforts to cure a defect in its contracts

with its clients are sufficient to eradiate

the interest created by the FOREN

agency agreement. However, in discussing

the exclusive sales provision, the Lowey

court betrayed a fundamental misapprehension

of the system and the Regulations,

The Lowey court stated that RSC's

standard agreement forms contained a

provision of doubtful legality under the

applicable Interior Department regula-

tions. If the provision did in fact

violate the regulations, the court said,

no application filed by RSC would be

valid.

That last statement is obviously in

error.

As the government argued in its petition

for rehearing in Lowey, the exclusive

sales agency agreement

was a perfectly legal consensual

agreement between the contracting

parties, and it created an entirely

ges ee wewewewesseaw a

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legitimate interest in RSC which Engle

had every right to enforce -- as could

RSC clients enforce it against Engle

if he failed to perform as their sales

agent. Neither the IBLA nor the district

court found anything wrong with the

contract provision or the interest

it created, What was wrong was Engle's

failure to disclose that interest

as prescribed in 43 CFR 3102.7 and

Engle's practice in filing multiple

offers in which he had such undisclosed

interest on the same parcels of land

in order to enhance RSC's own prospects

of success (while, incidentally,

diminishing those of his clients)

in violation of 43 CFR 3112.5-2.

The regulations do not permit a

cure of defective filings and specifically

do not permit Bureau of Land Management

employees to qualify otherwise unqualified

applicants upon some undefined showing

of "good faith" accompanied by “reasonable

efforts" to cure defects.

However, the court in effect requires

the Bureau of Land Management to make

two judgment calls not provided for by

the regulations when an offeror may be

otherwise disqualified: (1) Did the !

applicant act in good faith? (2) Did

the applicant demonstrate reasonable

efforts to cure the defect? Wa ae

Neither of these standards are pro-

vided by the regulations. Yet if both

answers are in the affirmative, the Bureau

must award the lease.

This creation of a cure mechanism

amounts to impermissible judicial legis-

lation, and to allow such a result to

stand will result in a bureaucratic night-

mare,

Each “disqualified” offeror can avail

himself of the opportunity to demonstrate

his good faith and his reasonable efforts

to cure defects, thereby requiring the

Bureau to make independent individual

determinations without regard to the

regulations,

In the final analysis, these decisions

of the Courts of Appeals are an open invita-

tion to those who have the means and motive

Jot " 4 3 ~ —_— > Pa ss — 4 £ 5

to manipulate the system to achieve a

coveted result. This can lead to a pro-

fusion of post lease award litigation

and a total breakdown of trust and integrity

in the oil and gas leasing program.

Hoda ail

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The Court abrogates the long-standing

rule of deference to agency regulations

and engages in impermissible legislation.

Udall v. Tallman, 380 U.S. 1 (1965);

Marathon Power Co. v. EPA, 608 F.2d 334

(9th Cir.1979); Western Union Telegraph

Co. v. Lexroot, 323 U.S.490 (1945); Fisher

Flowing Mills Co. v. U.S., 270 F.2d 27 (9th

Cir. 1959); Liberty Mut.Ins. Co. v.

Horton, 275 F.2d 148, aff'd 367 U.S.

348 (1960).

II. Ability of Government to Conduct

Fair Lottery Severely Prejudiced

The decision of the United States

Court of Appeals for the Tenth Circuit

sanctions the award of leases to unquali-

fied parties who knowingly violate regu-

lations in order to increase their chances

of winning such awards. Thus, although

"an overarching policy of fairness is

intrinsic to the program,” Lowey v. Watt,

684 F.2d 957, 967 (D.C.Cir. 1982), quali-

fied and innocent participants in the

program are denied lease awards because

the government is rendered powerless to

enforce its own regulations.

The Department of the Interior has

the responsibility to conduct its oil and

gas lottery programs so as to give everyone

an equal opportunity to win the ktecy

held for each lease. It is “departmental

policy that all ... parties ... have an

equal opportunity for success in the draw-

ings.” 43 C.F.R. §3100.0-5 (b) °

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Federal regulations forbid any party

to have an interest in more than one

lease offer on any one parcel. 43 C.F.R.

§3112.5-2. This is to promote the public

policy of ensuring to all an equal oppor-

tunity for success in the drawings.

43 C.F.R. §3100.0-5. Further, there

are limitations on how much public land

One party can lease at any one time.

This is to ensure that as many parties

as possible have an opportunity to obtain

a lease without making the leased areas

too small to be worth exploiting.

To facilitate the enforcement of

these regulations, it is required that

each applicant for a lease disclose all

parties who have, at the time the drawing

entry card (DEC) is filed, a legally , 4

enforceable right to participate in the

proceeds of a lease. Otherwise, the

offer to lease is void. ,

This disclosure requirement is not

just so much red tape that lease applicants $e

must contend with. Rather, the govern-

ment is entitled to know the identities

of parties who have acquired or seek

to acquire interests in federally owned

lands so that it can administer the

program fairly, keep accurate records,

and prevent multiple filings that create

unfair advantages. With thousands of

entry cards filed for each drawing, the

Secretary of the Interior properly insists

on strict compliance with the regulations,

including the disclosure requirement,

so as to prevent unqualified parties

from obtaining leases through artifice,

e.g., by using “straw men" to hide their

identities and to avoid detection of

their disqualifications.

In this case, R.S.C. devised a

scheme to circumvent these safeguards

designed to protect the integrity of

&. ‘

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the system and ensure the availability

of lease opportunities to the public

on an equitable basis. The Court of bad

Appeals permitted R.S.C. to improvise ‘

an ad hoc cure to its knowing violations |

of regulations, thus permitting it to

flout the regulations with impunity and

giving it a decided advantage over honest

citizens who competed fairly.

It is clear that the exclusive sales

agency in the service contracts under

which R.S.C. filed entry cards for its

clients gave it an "interest" in each

lease won by its clients, for the contracts

gave R.S.C. a legally enforceabie right

to share in the proceeds of its clients’

leases. Moreover, R.S.C. knew that its

service agreement created an interest

in each lease and 43 C.F.R. §3100.0-5

Clearly says so. Further, R.S.C. was

a party to two cases holding that such

contractual provisions constituted interests,

and R.S.C. appealed neither case. Lola

I. Doe, 31 I1.B.L.A. 394 (1977); Sidney

ah. he RL 1 as / Ne aa

> ts pea eS ager OF < ; . , ; Rae ie

H. Schreter, et al., 32 I1.B.L.A. 148

(1977).

Since at least 1967, the Interior

Department has held that exclusive sales

agency agreements entered into prior

OEY

to the time of a drawing must be dis-

closed. John V. Steffans, 74 I.D. 46

(1967). Also, 43 C.F.R. §3102.7 requires

the disclosure of interests in leases.

Therefore, R.S.C. was required to dis-

close its interest in every lease offer

it filed, but it knowingly failed to

do so.

By such failure to disclose, R.S.C.

was able to file multiple offers in the

names of various clients on the more

desirable parcels, thereby enhancing

its mathematical odds of acquiring an

interest in those parcels. Obviously,

if R.S.C. files entry cards for over

200 clients on a single parcel, it has

over 200 chances to acquire an interest,

while everyone else has one chance,

except to the extent that R.S.C.'s com-

petitors practice the same scheme.

Abuses of the system became so

widespread that on February 29, 1980,

the Secretary of the Interior issued

an order, Secretarial Order No.

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37 :

suspending the issuance of oil

and gas leases under the lottery program.

A news release from the Office of the

Secretary, dated the same day, quoted

the Director of the Bureau of Land Man-

agement to the effect that the leasing

system "has been subjected to such tho-

rough manipulation that the possibility

of lawful, bona fide participants suc-

cessfully obtaining a lease has in many i

cases been reduced to a very low level."

(he failure of leasing services

to disclose their interests as they were

required to do under federal regulations

also opened the door to violations of

the acreage limitations, for "such dis-

closures provide the means for maintain- ;

ing adequate records of acreage hold- ;

ings." 43 C.F.R. §3100.0-5(b). Yet,

in spite of all the abuses that nondis- i

closure of interests can lead to and a

has led to, the court of appeals has &

provided a method by which violations :

can be perpetuated, 3: aes a

R.S.C. began operations in 1973,

and its undisclosed interests went un-

detected until late 1976, when a member

of the public protested an award of a

lease to a client of R.S.C. Bureau of

Land Management personnel at the Wyoming

State Office informed R.S.C. that it

would have to revise its service contract

to eliminate its interest in its clients’

leases, or face rejection of its clients’

lease offers. Instead of so revising

the standard service contract, or dis-

closing its interest on drawing entry

cards filed on behalf of its clients,

R.S.C. opted to deny that it had any

interests in its clients’ leases, 3

R.S.C. convinced three mid-level

employees of the Bureau of Land Mange-

ment to accept the filing of a disclaimer

document and refrain from rejecting

offers of R.S.C.'s clients at least until A

the controversy could be resolved at ie me

a higher level. | ti

She

However, R.S.C. did not send a copy

of the disclaimer to all its clients.

Rather, when a client won a lease

award, R.S.C. would ask him to sign

a new exclusive agency agreement.

However, the Interior Board of Land

Appeals held that R.S.C.'s use of the

"disclaimer" was impossible to police

and permitted open flouting of the regu-

lations. Donald W. Coyer, 50 I.B.L.A.

306, 320 (1980).

Moreover, permitting unlawful offers

to be accepted because of a dubious ad

hoc "cure" of intentional and knowing

wrongdoing works an injustice on the

innocent. It denies to qualified second

drawees, in favor of ungualified first

drawees, their legitimate right and

entitlement to lease awards that they

by law ought to receive. Even if R.S.C.'s ig

fi clients were wholly innocent, their lease 4

offers were invalid ab initio, for the 4

sins of the agent are visited upon the e..

«SAS to tas

principal. Where an entry card is invalid = =s_—©

when filed, to allow the first drawee

to subsequently cure the invalidity

“infringe[s] on the rights of the second-

drawn qualified offer.” Ballard E,

Spencer Trust, Inc. v. Morton, 544 F.2d

1067, 1070 (10th Cir. 1976); Runnells

v. Andrus, 484 F.Supp. 1234 (D.Utah 1980).

The innocent clients of R.S.C.,

victimized by its misdeeds, would have

a remedy if their leases were invalidated:

they could sue R.S.C. for damages. The

innocent second drawees, however, would

be without remedy. They would be in

the unenviable position of having suffered

an unrightable wrong for following the

ga mpeeeee ess

rules and competing fairly, while those

who broke the rules and competed unfairly

= |

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would be generously rewarded.

The general public is the loser

when equality of opportunity is eroded

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by systematic abuse. The general public a

is the loser when a “cure” for regulatory J

violations found ineffective by the 5

Interior Board of Land Appeals and the |

By.

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ek cited ah? ve n

;

U.S. District Court is found effective

by the Court of Appeals when permitting

such a "cure" makes the government vir-

tually powerless to ensure the integrity

of the oil and gas leasing system.

Further, to allow a knowing, inten-

tional, and deliberate violator to, when

caught, design a "cure" not authorized

by statute, regulation, or prior court

decision sets a dangerous precedent.

Rather than promoting the rule of law,

it is an open invitation to flout the

law. Rather than binding the unscrupu-

lous in the chains of the law, it invites

them to undermine equality of opportunity

for all by taking advantage of the average

citizen's inclination to compete fairly

and honestly.

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CONCLUSION

For the foregoing reasons, the

petition for writ of certiorari should

be granted.

Odrow, Attorneys

for Alfred L. Easterday

SCHMIDT & ASSOCIATES, LTD.

Edgewood Plaza Suite 201

4811 South 76th Street

Milwaukee, Wisconsin 53220

Phone (414) 281-3200

Dated: February 9, 1984

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

No, 81-1415

SLIP OPINION

DONALD W. COYER and FRED L. ENGLE, d/b/a

RESOURCE SERVICE COMPANY,

Plaintiffs-Appellants,

Vv.

JAMES G. WATT, Secretary of the

Interior, United States Department

of the Interior; ALFRED L. EASTERDAY;

J. ROE; and WYOMING STATE OFFICE,

BUREAU OF LAND MANAGEMENT, United States

Department of Interior,

Defendants-Appellees.

Appeal from the United States District

Court for the District of Wyoming

(D.C. Nos. C78-104K, C80-370K and C80—372K)

{Filed November 4, 1983]

Before: DOYLE, MCKAY and SEYMOUR, ‘

Circuit Judges.

DOYLE, Circuit Judge.

The plaintiffs appeal the district

court order affirming the ruling of the

Interior Board of Land Appeals (IBLA)

which rejected plaintiffs’ first Drawing

Entry Card (DEC) for failure to comply

with 43 C.F.R. §3102.7 (1970). This is

a regulation which has been issued by

the Department which reads as follows:

A signed statement by the offeror

that he is the sole party in interest

in the offer and the lease, if issued;

if not he shall set forth the names

of the other interested parties.

If there are other parties interested

in the offer a separate statement

must be signed by them and by the

offeror, setting forth the nature

and extent of the interest of each

in the offer, the nature of the agreement

between them if oral, and a copy of

such agreement if written. All in-

terested parties must furnish evidence

of their qualifications to hold such

lease interest. Such separate statement

and written agreement, if any, must

be filed not later than fifteen days

after the filing of the lease offer.

Pailure to file the statement and

written agreement within the time

allowed will result in the cancellation

of any lease that may have been issued

pursuant to the offer.

Don Coyer entered into a service agree-

ment with the Resource Service Company

(RSC), which is a filing company founded

in 1973 by Fred L. Engle, which submits

non-competitive oil and gas lease offers

on behalf of its clients pursuant to a

standard service agreement which provides

in pertinent part as follows:

If I am successful in a drawing, I

hereby authorize you to act as my

sole and exclusive agent to negotiate

for me and on my behalf... any

right I obtain by reason of being

successful in a drawing for the best

price obtainable by you. Any final

negotiated price is subject to my

approval. If you have successfully

negotiated a sale... I hereby

agree to pay you for your services

in accordance with the schedule detailed

below. [The scheduled fees ranged

from twelve to sixteen percent depending '

upon the amount of the sale price.

A similar schedule existed for overriding

royalty payments, if any, negotiated

for the client.] This agency to negoti-

ate shall be valid for a period of

five (5) years.

Donald Coyer, as we have noted, entered

into this service agreement on January fi,

5, 1977. On January 13, 1977, fearful

that its service agreement might constitute

an improper undisclosed interest under

43 C.FP.R. §3102.7, RSC filed a disclaimer

with the BLM which stated in pertinent

part:

I, Fred Engle, d/b/a Resource Service

Company, do hereby state and aver

that I do hereby waive and renounce

my exclusive agency which I may have

by reason of said service agreements

with said offerors from and after

this date.

The disclaimer also provided that in the

event the brokerage provision in the service

agreement was deemed not to create an

interest in RSC, the disclaimer was null

and void. It was hoped that this disclaimer

would eliminate the contested provision

and avoid RSC's having to renegotiate

a thousand agreements already in existence.

Engle also agreed to notify each of RSC's

winning clients that RSC disclaimed its

brokerage right under the service agreement.

The BLM agreed to accept the disclaimer,

but warned RSC that the validity of the

document was subject to review by the

IBLA.

In May 1977 Coyer's DEC was drawn

i s

first in a Wyoming lottery. Alfred Easterday,

the second drawee, filed a protest challeng-

ing Coyer's qualifications to be granted

a lease. The BLM dismissed Easterday's

protest finding that, although the ser-

vice agreement created an interest in

RSC which was not properly disclosed,

the disclaimer cured the defective DEC,

Easterday appealed the ruling to the IBLA.

Although notified of the appeal, neither

Coyer nor RSC participated in the appellate

proceeding. On March 22, 1978, the IBLA

reversed the BLM finding and held RSC's

disclaimer ineffective to cure Coyer's

DEC because the disclaimer had not been

communicated to Coyer prior to the drawing

and because Coyer had not given any con-

sideration to RSC for the disclaimer.

Coyer thereupon filed a complaint

in the district court in which he sought

review of the IBLA's decision. The court

determined that the administrative record

was insufficient to permit adequate review.

As a consequence, the case was remanded

to the BLM for further proceedings. An

administrative law judge (ALJ) conducted

a hearing in which all parties participated.

The ALJ determined that the disclaimer

was ineffective to cure RSC's undisclosed

interest. The ALJ's findings were adopted

by the IBLA. Coyer v. Easterday, 50 IBLA

306 (1980).

The case was again appealed to the

district court. Cross motions for summary

judgment were filed. After conducting

sat =, =.

: ~— ae de > r

an evidentiary hearing, the court granted

Easterday's motion finding that the IBLA's

ruling was not arbitrary, capricious,

an abuse of discretion or contrary to

the law. This appeal followed.

WHAT IS THE EFFECT OF A DISCLAIMER?

In the case between RSC customers oy

~~ .

: Saw

and the government, involving facts virtually

identical to those here, the District “Si

A-6 4

of Columbia Court of Appeals held that

RSC‘'s disclaimer was sufficient to eliminate

any impermissible or undisclosed mterest

in the lease of a first drawee. Lowey

v. Watt, 684 F.2d 957 (D.C. Cir. 1982).

The opinion of the District of Columbia

Court of Appeals, which was written by

Judge Wright, held that RSC's disclaimer

was a reasonable effort to protect itself

and its clients in the face of uncertain

regulatory requirements.

Judge Wright held that the action

taken by RSC is consistent with the purposes

of the non-competitive leasing program

and with basic principles of contract

law. The non-competitive leasing program

l. The government, in wits peti-

tioned for rehearing and rehearing

n banc. Both petitions were

n - According to counsel for

the government in the case sub

pease: the government chose not

towey.

A-7

represents an effort to provide equal

access to oil and gas leases.

The regulations governing the program

do not prescribe any particular method

for waiving impermissible interests before

applications are filed. The District

of Columbia Court of Appeals held:

If we were to hold, as a matter of

common law, that a filing service's

reasonable efforts to cure a defect

in its contracts with its clients

were insufficient, our decision would

not only penalize blameless individ-

uals like the individual appellants

in these cases, but it would have

a deleterious effect on the program

as a whole.

Lowey, supra, at 976.

Filing services would be forced to take

. a spiel) *

fs 5 3 y : ‘ _ Z + he %

costly precautions, effectively excluding

all but the wealthy from using this egali-

tarian program.

Contract law principles also support a

finding that RSC's “amendment and disclaimer® 4%

effectively terminated any interest it

may have had in its customers’ leases.

a —— EE

The Restatement (Second) of Contracts

§89 (1981) provides:

A promise modifying a duty under a

contract not fully performed on either

side is binding

(a) if the modification is fair

and equitable in view of circum-

stances not anticipated by the

parties when the contract was

made....

Comment b to Section 89 explains that

the "fair and equitable" standard contemplates

both the absence of coercion and a "dem-

onstrable reason for seeking a modification."

The District of Columbia Circuit properly

held that the circumstances surrounding

RSC's disclaimer of its right to enforce

its exclusive sales provision fit RSC's

action squarely within this legal principle.

Neither RSC nor its clients anticipated

that the provision might undermine the

clear purpose of the contract. Indeed a

to reach a result other than that which

has been indicated would place a heavy

burden on the clients and it would be

unjustified. RSC's unilateral waiver

& tS. &

Bnet eka Bo

as ef

of its rights was the most speedy and

cost-efficient way to protect the interests

of its clients. The need for the change

was clear, and RSC was certainly not coerced

into relinquishing its rights under the

contract. Its formal unilateral modification

is thus binding, and does away with any

interest the clause might have conveyed

to RSC in leases obtained by RSC's clients.

It is true that this court is not

bound to follow the ruling of the District

of Columbia Circuit but we find that the

Lowey case is persuasive and should be

followed and that the interests of all

the parties are served thereby.

Thus the case should be reversed and

remanded to the district court for action

consistent with this opinion.

se ha

ae a ee ee

OPINION OF INTERIOR BOARD OF LAND APPEALS

IN ALFRED L. EASTERDAY, 34 I.B.L.A. 195

eee ee

IBLA 78-73 - Decided March 22, 1978

Appeal from decision of the Wyoming

State Office, Bureau of Land Management,

dismissing protest against issuance of

©il and gas lease W-59232.

Reversed,

l. Oil and Gas Leases: Applica-

tions: Generally--Oil and Gas

Leases: Applications: Sole

Party in Interest--Oil and Gas

Leases: First Qualified Applicant

When an individual files an oil

and gas lease offer through a

leasing service under an agreement

where the leasing service is

authorized to act as the sole

and exclusive agent to negotiate

for sub-lease, assignment or

sale of any rights obtained by

the offeror; where the offeror

is required to pay the leasing

4 : eae

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4 : g ~

al > Pal

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1 a 5 -

: B r pues 4

> * vay

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‘ < id 4 » ? 4

: Nabe a ; pd ee ha ‘ tn

- ‘

service according to a set schedule, id

even if the offeror negotiates

the sale; and where such agency

to negotiate is to be valid for

5 years, the leasing service

has an enforceable right to share

in the proceeds of any sale of

the lease or any interest therein.

Such an agreement creates for

the leasing service an interest

in the lease as that term is

defined in 43 CFR 3100.0-5(b).

y Oil and Gas Leases: Applications:

« "2 =e. oe -e a itn. wate as a al

Generally--Oil and Gas Leases:

Applications: Sole Party in

Interest--Oil and Gas Leases:

First Qualified Applicant

Where an individual files an

oil and gas lease offer through _

a leasing service under an agree-

ment with the service which has ne

been determined by this Department

ae ne

to create an interest in the

lease for the service, and the

service files a waiver of that

interest with the BLM prior to

a simultaneous drawing, without

communicating such waiver to

the client, and without any con-

tractual consideration running

from the client to the leasing

service, the waiver is without

effect as a matter of law and

the successful drawee is required

to make a showing as to sole

party in interest under 43 CFR

3102.7. ‘

Oil and Gas Lease: Applications:

Drawings

A first-drawn simultaneous drawing

entry card which is defective

because of noncompliance with

a mandatory regulation must be

rejected and may not be "cured"

by submission of further information,

APPEARANCES: Morton J. Schmidt, Esq.,

Morton J. Schmidt & Associates, Ltd., Milwaukee

Wisconsin, for appellant.

OPINION BY ADMINISTRATIVE JUDGE STUEBING

Alfred L. Easterday has appealed from

a decision of the Wyoming State Office,

Bureau of Land Management (BLM) which dis-

missed his protest to the issuance of oil

and gas lease W-59232 to Donald W. Coyer.

Appellant filed a protest after Coyer's

filing card was drawn first for parcel No.

44 in the May 1977 simultaneous drawing

held in the Wyoming State Office, BLM.

Appellant charged an alleged violation

of 43 CFR 3112.5-2 ~ which prohibits multiple

filings. Appellant pointed out that prior ’

Se aS

to the drawing Coyer had executed a service

agreement with his filing agent, Resource

Service Company (RSC), which provided for

a service fee and royalty payment in force

at the time of the drawing. Appellant

stated that under the agreement RSC would

i. participate in any proceeds derived from =

cr B-4 y, ’ Seg ies

” - v. sa ei

Po id

the lease,

Appellant also argued that because

RSC had an interest in the lease, Coyer

was required to file a statement telling

of the additional party in interest as

required by 43 CFR 3102.7.

The State Office was very familiar

with the terms of the RSC service agreement,

having challenged that same agreement in

a previous simultaneous oil and gas filing.

That case had been taken on appeal to this

office in Sidney H. Schreter, William F,.

Wopp, Jr., 32 IBLA 148 (1977). The State

Office noted in its dismissal of the protest

that Fred Engle, d/b/a Resource Service

Company (RSC), in order to protect his

clients during the consideration of that

appeal, had submitted an amendment and

Gisclaimer dated January 13, 1977. He

waived all rights to an exclusive agency

and agreed not to enforce the objectionable

portions of the service agreement calling

for a percentage commission on all lease mS

B-3: *;. sy meee

sales and royalties benefiting his clients.

Subsequently, Engle notified all of his

Clients who were winners in the simultaneous

drawings that they were not bound by the

objectionable provisions of the original

service agreement. Therefore, the State

Office treated the objectionable provisions

as if they had no effect because they would

not be enforced by RSC.

When Coyer was notified by RSC that

he was the winner for parcel No. 44, he

chose to execute a new agreement with RSC

containing similar language as that of

the original agreement. The State Office

found that the execution of the new agreement

after the drawing did not violate 43 CFR

3102.7 because the lessee was free to develop

or assign the lease as he deemed best without

interference. |

Appellant objects to the State Office

decision stating that it ignores the language,

of 43 CPR 3102.7 and 3100.0-5(b). He contends —

B-6

;

, |

the service agreement created an interest

in RSC in the subsequent lease which required

a filing as to parties in interest in compli-

ance with 43 CFR 3102.7. It is his position

that the conditional disclaimer filed by

RSC, which is not communicated to the winner

until after the drawing, did not relieve

the lessee of the filing requirement.

Such a disclaimer changed nothing as to

the preexisting arrangement which he asserts

remained in effect at the time of the drawing.

{1} As indicated by both the State

Office and appellant, the exact language

of the service agreement used by RSC and

as executed by the parties in this case

has been examined at length by this Board

in Sidney Schreter, William Wopp, Jr., a

supra. 3 we found that the agreement provides

RSC with more than a mere hope or expectation

of sharing in the profits. RSC tas an en- :

forceable right by the terms of the agency 4

provision of the agreement to share in

the profits of any sublease, assignment,

or sale of a lease, whether such sublease,

assignment, or sale is negotiated by RSC

or by the offeror. In addition, such a

right is enforceable for a period of 5

years.

Since RSC has a prospective claim

to a benefit from a lease, the service

agreement provides RSC with a defined share

of any profits which may be derived from

the lease pursuant to the agreement which

was in existence at the time the offer

was filed. Therefore, we concluded in

Schreter that the agreement created an

“interest” in the lease as that term is

defined in 43 CPR 3100.0-5(b).

However, the current case presents

‘a different situation for our consideration,

where during the pendancy of the Schreter

appeal, RSC filed an amendment and disclaimer

with the Wyoming State Office, BLM, January -

13, 1977.

~ m

VE ee ~ et > | oe ee s§ SS Sa ae ae

as See we

~ ,

Under the terms of that document if

it is ultimately determined by the Department

and the courts that this service agreement

vests an interest in the lease or offer

to lease in RSC, Fred Engle, d/b/a Resource

Service Company, proclaims:

I,***do hereby state and aver that

I do hereby waive and renounce any

exclusive as which I may have

by reason of said service agreements

with said offerors from and after

this date. ***I do hereby further

state and aver that said waiver and

renunciation shall become operative

forthwith and shall inure forthwith

for the benefit of all said offerors.

[2] From our review of the sequence

of events which culminated in the May drawing

for parcel No. 44, we do not find that 4

Engle's filing of his waiver document with |

the Wyoming State Office effectively amended é

the service agreement with Coyer. 4

Engle’s unilateral action did not is

alter the contractual obligations of the ;

parties as they existed as of the date ae

of the drawing. First, the waiver document | "6

was not communicated to Coyer until after — ‘—

B-9 c : , 4, iz ee

> am ~ ee ae |

the drawing, and a new agreement was not

oat

ratified by Coyer until after he was declared

the winner for parcel No. 44. The waiver

tt = ih

served notice to the BLM that RSC did not

intend to enforce the objectionable provisions

of the service agreement. However, without

a ¢

notice to, or an agreement with Coyer,

Engle was not bound to carry out the terms

4 _

of the alleged amendment. It is fundamental

to the formation of a contract that there

be mutual assent or a meeting of the minds

on all essential elements or terms in order

to form a binding contract. For both parties |

to be bound to an agreement there must

be a distinct and common intention which f

is communicated by each party to the other.

17 Am, Jur. 2d, Contracts §18 (1964). f

That element is obviously lacking here.

Next, there was no consideration given

to Engle by his client for his forbearance ‘ae

from enforcing his contractual rights. | Pe.

It is a fundamental legal requisite for

the formation of an enforceable contract te * 3

as «

- es a

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+ Ceca — Va ee SE ee EE

that legally sufficient consideration be

"wt,

given for a promise. A promise has no

consideration when nothing was in fact

given in exchange for the promise or when

no action was taken in reliance upon it,

either because the promise was intended

as a gratuity or because the thing for

which it was offered was not given. Williston

on Contracts, Third Edition Section 101;

17 Am. Jur. 2d, Contracts §85. For these

reasons we find Engle's waiver was without

effect as a matter of law. The original

service agreement remained in effect as

of the date of the drawing giving RSC an

interest in the lease as defined by 43

CPR 3100.0-5(b). Therefore, we hold that

Coyer, as a successful drawee, was required

to make a timely showing as to RSC's interest

under 43 CFR 3102.7. e

Appellant has also provided evidence

that RSC may have represented some 200 ie

other client-offerors in this drawing for %

3 B-ll Jae

parcel No. 44. Since we find that Engle's

amendment and waiver were ineffective,

it then follows that any other offerors

availing themselves of RSC's services in

the drawing would have remained bound by

their original service agreements with

RSC in a like manner. Engle did gain an

increased probability of success in the

drawing. Accordingly, the regulation prohibit-

ing multiple filings, 43 CFR 3112.5-2,

has also been violated.

[3] As for the execution of the new

agreement by the parties with the same

terms after the drawing, such actions were

of no consequence, The facts show that

by letter of May 9, 1977, Engle notified

Coyer that he was the winner and explained

the question caised by the BLM concerning

the binding effect of the service agreement a.

and requested Coyer to reestablish their g

mutual interest relationship. Coyer signed :

the new agreement the same date. However » ijl

the parties cannot retroactively cure the a.

B-12 oS Rae

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defect after they knew that the offer was

the first own drawn for the parcel.

The Board has repeatedly held that

the requirements of 43 CFR 3102.7 are man-

datory and that an offer not in compliance

therewith must be rejected. Emily Sonnek,

21 IBLA 245 (1975); Joy Goodale, 18 IBLA

38 (1974); Wesley Warnock, 17 IBLA 338

(1974); Mary West, 17 IBLA 84 (1974);

D. O, Keon, 17 IBLA 81 (1974). A first-

drawn simultaneous drawing entry card which

is defective because of non-compliance

with a mandatory regulation must be rejected

and may not be “cured” by submission of

further information. Ballard E. Spencer

Trust, Inc., 18 IBLA 25 (1974), aff'd,

B.E.S.T., Inc. v. Morton, 544 F.2d 1067

(10th Cir. 1976).

Therefore, pursuant to the authority

delegated to the Board of Land Appeals

by the Secretary of the Interior, 43 CFR

4.1, the decision appealed from is reversed

B-13

and remanded .or action consistent here-

with.

Edward W. Stuebing _

ace W. Stuebing

Administrative Judge

We concur:

Frederick Fishman

rederick Fishman

Administrative Judge

{s/ Douglas E. Henriques

Douglas E. Henriques

Administrative Judge /

’ Footnotes:

1. 43 C.F.R. 3112.5-2 Multiple filings,

provides:

When any person, association, corp-

Oration, or other entity or business enter-

prise files an offer to lease for inclusion

in a drawing, and an offer (or offers)

to lease is filed for the same lands in

the same drawing by any person or party

acting for, on behalf of, or in collusion

with the other person, association, corp-

oration, entity or business enterprise,

under any agreement, scheme, or plan which

would give either, or both, a greater pro-

bability of successfully obtaining a lease,

or interest therein, in any public drawing,

held pursuant to §3110.1-6(b), all offers

filed either party will be rejected.

Similarly, where an agent or broker files

an offer to lease for the same lands in

behalf of more than one offeror under an

peerage that, if a lease issues to any

such offerors, the agent or broker will

participate in any proceeds derived from

B-14

+h, PAA

See

| ——

such lease, the agent or broker obtains

thereby a greater probability of success

in obtaining a share in the proceeds of

the lease and all such offers filed by

such agent or broker will also be rejected.

Should any such offer be given a priority

as a result of such a drawing, it will

be similarly rejected. In the event a

lease is issued on the basis of any such

offer, action will be taken for the cancellation

of all interests in said lease held by

each person who acquired any interest therein

as a result of collusive filing unless

the rights of a bona fide purchaser as

provided for in §3102.1-2 intervene, whether

the pertinent information regarding it

is obtained by or was available to the

Government before or after the lease was

issued."

2. 43 CFR 3102.7 Showing as to sole

party in interest, provides:

"A signed statement by the offeror

that he is the sole party in interest in

the offer and the lease, if issued; if

not he shall set forth the names of the

other interested parties. If there are

other parties interested in the offer a

separate statement must be signed by them

and by the offeror, setting forth the nature

and extent of the interest of each in the

offer, the nature of the agreement between

them if oral, and a copy of such agreement

if written. All interested parties must

furnish evidence of their qualifications

to hold such lease interest. Such separate

statement and written agreement, if any,

must be filed not later than 15 days after

the filing of the lease offer. Failure

to file the statement and written agreement

within the time allowed will result in

the cancellation of any lease that may

have been issued pursuant to the offer.

Upon execution of the lease the first year's

2 ©,

-—s

- +f?

P sg

rental will be earned and deposited in

the U.S. Treasury and will not be returnable

even though the lease is canceled."

3. The critical section of the agree-

ment provides:

"If I am successful in a drawing,

I hereby authorize you to act as my sole

and exclusive agent to negotiate for me

and on my behalf with any party, firm or

corporation for sub-lease, assignment or

sale of any rights I obtain by reason of

being successful in a drawing for the best

price obtainable by you. Any final oe

tiated price is subject to roval.

If you have successfully negotia a sale,

assignment or lease of my rights by reason

of a successful drawing or if I do so during

the term of this agency, I hereby agree

to pay you for your services in accordance

with the schedule detailed below. This

agency to negotiate shall be valid for

a period of five (5) years." [Emphasis

in original.)

OPINION OF INTERIOR BOARD OF LAND APPEALS 4

is COYER V. TERDAY, 36 I.B.L.A. 181

(1978)

DONALD W. COYER, APPELLANT

ALFRED L. EASTERDAY, APPELLEE

IBLA 78-409 - Decided July 31, 1978

Appeal from the rejection of appellant's

oil and gas lease offer. W-59232.

Dismissed.

1. Administrative Procedure: Admin-

istrative Review--Appeals--Res a

Judicata--Rules of Practice:

Appeals: Generally--Rules of

Practice: Appeals: Dismissal

Where the Board of Land Appeals

has considered an appeal and

rendered a final decision holding

that a particular oil and gas

lease offer was not proper and :

must be rejected, the applicant

may not thereafter appeal the

mattec to this Board merely because Pe

te | the Bureau of Land Management, ;. in

Cel

}

)

}

;

in implementing the Board's

decision, mistakenly advised

him that he had the right to

such an appeal. The matter is

res judicata, and the subsequent

appeal must be dismissed,

Administrative Procedure: Adminis-

trative review--Administrative

Procedure: Judicial Review--

Appeals-- Judicial Review--

Rules of Practice: Appeals:

Generally

Where the Board of Land Appeals,

by a previous decision, has held

that a particular oil and gas

lease offer must be rejected,

and the rejected applicant files

suit for judicial review of that

decision in the United States

District Court, and also files

a contemporaneous appeal to the .

Board from a BLM decision in-

bed

, - . = * wy "

plementing the Board's decision,

the Board will defer to the Court's

jurisdiction and make no decision

on the merits of the appeal,

which is subject to summary dis-

missal by the Board.

APPEARANCES: Matthew J. Flynn, Esq., Mil-

waukee, Wisconsin, and Jerry Statkus, Esq.,

Cheyenne, Wyoming, for the appellant;

Morton J. Schmidt, Esq., Milwaukee, Wisconsin,

for the appellee.

OPINION BY ADMINISTRATIVE JUDGE STUEBING

In April 1977, the Wyoming State

Office of the Bureau of Land Management

conducted its regular monthly drawing of

simultaneously filed oil and gas lease

offers. The drawing entry card offer of

Donald W. Coyer was drawn first for Parcel

No. Wy-44, and the card filed by Alfred

L. Easterday was drawn second. Easterday

protested the issuance of the lease to

Coyer, contending that Coyer's agreement

C-3

with his leasing service (Resource Service

Company) invested the leasing service with

an undisclosed interest in the offer and

the lease if issued. The Wyoming State

Office dismissed Easterday's protest, whereupon

he filed an appeal to this Board. The

decision of the Wyoming State Office named

Coyer as an adverse party, and Coyer was

served copies of all documents filed in

connection with Easterday's appeal.

By our decision dated March 22, 1978,

this Board held that the leasing service

did indeed have an undisclosed interest

in Coyer's offer, and that the company's

alleged “waiver” of that interest was in-

«y'

}

effective, so that Coyer's offer was violative

of 43 CPR 3102.7 and 43 CPR 3112.5-2.

The Board remanded the case to the Wyoming ‘

State Office for further action consistent a

with that opinion. Alfred L. EBasterday,

34 IBLA 195 (1978). ei

In an effort to implement the Board's

decision in Basterday, supra, the Wyoming =

«at

State Office rejected Coyer's lease offer

by its letter decision dated April 10,

1978. However, in so doing, the Wyoming

State Office advised Coyer that he had

a right to appeal from that decision to

this Board, in which event the adverse

party to be served would be Easterday.

This advice is in error, as will be

explained.

Coyer then filed this appeal.

On June 20, 1978, Coyer and one Fred L.

Engle, d/b/a Resource Services Company,

filed suit in the United States District

Court for the District of Wyoming, seeking

judicial review of this Board's decision

in Alfred L. Easterday, supra. Coyer v.

Andrus, Civ. No. Cc 78-104.

1 BLM Manual sec. 1841.1 (Rel. 1-920,

7/15/74) provides in part: "°.15

- Parties to BLM decisions

e r have or do not have the right of 2

appeal by regulation. (See 43 CFR 4,410.) “a

¥i a« "

he Tight where it Goss Bt exist nor

nold it where IE @ Ses exist.

In response to Coyer's appeal to this

Board, Easterday moved that it be summarily

dismissed, asserting that this Board's

decision in Easterday had made the matter

res judicata.

{1} Coyer's appeal is, in effect,

an appeal of the decision of this Board

in Easterday, involving the same parties,

the same events, the same lease, and is

before the same tribunal. Although it

purports to be an appeal from the action

of the Wyoming State Office in rejecting

Coyer's lease offer, that action was merely

the ministerial implementation of the

Easterday decision, and carried no right

of appeal to the Board. The decision of ¥

this Board is final for the Department, ge

and no further appeal will lie in the

Department. 43 CFR 4.2l(c). Where an

appeal has been taken and a final depart-

mental decision has been reached, under j

the doctrine of administrative finality ss

‘s C-6

‘

the principle of res judicata will operate

_. | Oy Wee ee ee Aes

to bar consideration of a new appeal arising

from a later proceeding involving the same

parties, the same land and the same issues.

Dallas C. Qualman, __ IBLA ___ (1978); .

Pekka K. Merkallio, 30 IBLA 157 (1977);

United States v. Blythe, 16 IBLA 94 (1974),

aff'd Blythe v. Kleppe, Civ. No. 77-1446

(10th Cir., filed Nov. 16, 1977); Elsie |

Farrington, 9 IBLA 191 (1975), aff'd Farrington 4

v. Morton, Civ. No. S-2768 (D. Calif.,

filed Dec. 15, 1973); Eldon L. Smith, 6

IBLA 310 (1972); Eldon L. Smith, 5 IBLA

330, 79 I.D. 149 (1972); The Dredge Corpor-

ation, 3 IBLA 98 (1971); Gabbs Exploration

Co., 67 I.D. 160 (1960), aff'd, Gabbs

Exploration Co. v. Udall, 315 F.2d 37

(D.C. Cir. 1963), cert den. 375 U.S. 822

(1963).

This appeal is clearly a manifestation

of a case barred by the principle of res “S

judicata, and must be dismissed for that sa

reason. a

C-7 ie

[2] There is, however, yet another

basis for the dismissal of this appeal.

Appellant's filing of a suit for judicial

review of our previous decision in this

matter contemporaneous with his filing

of his appeal to this Board has placed

the matter before two tribunals, adminis- 8

trative and judicial. In past cases such 8

as this, where matters pending before the

Department have been submitted to a court |

of law, the Department has customarily

deferred to the jurisdiction of the court. t

In such case the administrative appeal

may be suspended to await the court's dispo-

sition of the case, or the administrative

appeal may be dismissed, as indicated by

the circumstances, In Carl Alber, A-30369

(May 25, 1967), the Department held:

Where a decision of the Director,

Bureau of Land Management, is put

into full force and effect pending ;

a decision on any 1° from the

decision, the appellant files an appeal .”

to the Secretary and then brings an —

action in court to review the Director's ©

“2

decision, his appeal will be regarded

as withdrawn or abandoned and will q

be dismissed.

| In light of our holding that Coyer's

appeal is barred by the doctrine of res q

| judicata, his filing of an action to Lliti-

| gate the same issues in the United States

District Court impels the dismissal of

) this appeal.

Therefore, pursuant to the authority

we. 6%). | oe

| delegated to the Board of Land Appeals

by the Secretary of the Interior, 43 CFR e

4.1, the appeal is hereby dismissed. The

: administrative record will be returned

to the Wyoming State Office, so as to be .

| available for use in the litigation. :

| 46004 w. Btuebing ’

ee | Administrative Judge

) We concur: as

Administrative Judge |

ORDER OF U.S. DISTRICT COURT IN COYER

V. ANDRUS, D.WYO.CIV.NO. C-78-104K (1979)

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF WYOMING

DONALD W. COYER, and FRED L.

ENGLE d/b/a RESOURCE SERVICE

COMPANY,

Plaintiffs,

vs.

CECIL D. ANDRUS, Secretary

of the Interior, United

States Department of the

Interior; and ALFRED L.

EASTERDAY, and J. ROE,

Defendants,

ORDER REMANDING APPEAL

TO WYOMING STATE OFFICE

No. C78-104K

[Filed February 1, 1979]

The above-entitled matter coming on

regularly for hearing before the Court

upon an appeal from the Interior Board

of Land Appeals, plaintiffs appearing by

and through their respective counsel of 3

record and the defendants appearing by

and through their respective counsel of se

record, and the Court having considered : Fe

the argument of counsel and having fully

and carefully reviewed the record on appeal,

finds the following facts are not in dispute:

plaintiff Coyer has an agreement with a

leasing service known as Fred L. Engle,

d/b/a Resource Service Company; the agreement

creates an undisclosed interest violative

of the regulations (Lola I. Doe, 31 IBLA

394, August 19, 1977 and Sidney H. Schreter,

William F. Wopp, Jr., 32 IBLA 148, September

12, 1977); following these decisions Engle

filed a disclaimer with the Wyoming State

Office stating that any of his clients

who might be awarded a lease would not

be bound by the invalid agreement; the

Wyoming State Office treated the objectionable

parts of the agreement as if they had no

= Oo

- x

. - . J 7

res &

-.* i - Dp. = a

effect.

Coyer was awarded the lease by the

Wyoming State Office; Easterday protested; ,

his protest was dismissed by the Wyoming 7

State Office; Easterday appealed to the

IBLA; the IBLA reversed the decision of .

7 : « Se a

the Wyoming State Office, finding that

the alleged disclaimer was without effect

to bind the parties to it and remanded

it to the Wyoming State Office; Coyer failed

to appear or submit briefs on the appeal.

Following the above actions, the Wyo-

ming State Office rejected Coyer's priority

status and awarded the lease to Easterday;

Coyer was advised of his right of appeal

to the IBLA; Coyer appealed to IBLA and

his appeal was dismissed as being res judicata

in the light of the earlier Easterday appeal

and decision.

Coyer instituted the present action

in this Court for injunctive and declaratory y

relief, alleging arbitrary and capricious

action on the part of the Secretary.

Defendant Andrus filed a Motion to "i

Dismiss, said motion having been argued P.

before the Court; later, Coyer's attorney -

contended he had not received notice of

the hearing on the Motion to Dismiss; Andrus

contends this Court is without jurisdiction ‘ i

D~3 aS Saas

and the plaintiff has failed to state a

claim.

Geosearch filed a Motion to Intervene

as Defendant claiming it acquired twenty-

five per cent (25%) interest in Easterday's

lease.

Taking the record as a whole, this

Court finds the record is in such a state

of confusion that an intelligent review

is not possible, and the Court being fully

advised in the premises; it is

ORDERED that said matter be remanded

to the Wyoming State Office where each

of the parties will be given a full oppor-

tunity to appear in person and present

such evidence as may be relevant to the

interest of each.

Dated this 12th day of February, 1979.

i rr

U. S. District Judge

* . : :

OPINION OF INTERIOR BOARD OF LAND APPEALS

IN DONALD W. COYER, 50 I.B.L.A. 306 (1980)

DONALD W. COYER, FRED L. ENGLE,

D.B.A. RESOURCE SERVICE CO., INC., .

APPELLANTS;

ALFRED L. EASTERDAY,

BUREAU OF LAND MANAGEMENT,

RESPONDENTS

(ON JUDICIAL REMAND)

IBLA 78-73, 78-409

Decided October 14, 1980

Proceeding on remand from the U.S. -

District Court for the District of Wyoming, ‘

following hearing and issuance of proposed 7

findings and conclusions by Administrative

Law Judge Robert W. Mesch, concerning

oil and gas lease offer W-58232.

Proposed findings and conclusions

oe adopted; Donald W. Coyer, 36 IBLA 181

(1978), and Alfred L, EBasterday, 34 IBLA

im 195 (1978), reaffirmed.

: 1. Administrative Procedure: Admin-

istrative Review--Appeals--

Res Judicata--Rules of Practice:

Appeals: Generally--Rules of

‘om Practice: Appeals: Dismissal

7 Laff

; a «4

‘Senn.

ee ty ae

Be Oe Fo ea eee Fee me

mf ; » i 7 & 7 7 e x a

Where an individual is named

as an “adverse party” in a BLM

decision which is favorable

to that person, who then is

duly served with copies of a

notice of appeal and statement

of reasons challenging the

validity of BLM's decision before

the Board of Land Appeals and

seeking reversal of that decision,

but decides not to participate

in the appellate proceedings

before the Board, the matter

ux . » -

becomes res judicata upon the

rendering of the Board's decision,

and the party may not subsequently

challenge this decision by filing

a new appeal of his own before |

the Board for readjudication id

of the same matter.

Oil and Gas Leases: Applications; ~

Generally~-Oil and Gas Leases: |

Applications: Sole Party in |

Interest--0i1 and Gas Leases:

/ a

1 oe i

VP im

First Qualified Applicant

When an individual files an

oil and gas lease offer through

a leasing service under an agree-

ment where the leasing service

is authorized to act as the

sole and exclusive agent to

negotiate for sublease, assignment

| or sale of any rights obtained

by the offeror; where the offeror

| is required to pay the leasing

service according to a set

| schedule, even if the offeror

negotiates the sale; and where

such agency to negotiate is

to be valid for 5 years, the

| leasing service has an enforceable

right to share in the proceeds

of any sale of the lease or

any interest therein, and any

payments of overriding royalties a

retained. Such an agreement ‘5

creates for the Boniageirtas. 4U

an “interest” in the lease as

that term is defined in 43 CFR :

3100.0-5(b). |

Oil and Gas Leases: Applice-

tions: Generally--Oil and Gas |

Leases: Applications: Sole

Party in Interest--Oil and Gas |

Leases: First Qualified Appli-

cant

Where an individual files an oil

and gas lease offer through a leasing

service under an agreement

with the service which has

been determined to create

an interest in the lease for

the service, and the service

fileds a “waiver” of that in-

terest with the BLM prior to

a simultaneous drawing, without

communicating such waiver to

the client, and without any

contractural consideration

running from the client to *

the leasing service, the “waiver®

ga RR ee, = oe. ae (ie lh

is without effect as a matter

of law and the successful drawee

is required to make a showing

as to sole party in interest

under 43 CFR 3102.7.

Oil and Gas Leases: Applications:

Generally--Oil and Gas Leases:

Applications: Piling

Where an oil and gas leasing

service has an interest in the

offers of its clients, and where

it files offers for multiple

clients on one particular parcel,

the service has increased the

probability of its success in

the drawing, and all of its

clients’ offers for that parcel

must be rejected under 43 CFR

3112,5-2.

Equitable Adjudication: Generally

--Estoppel--Federal Employees

Leases: Applications: Generally

The Department is not estopped

from rejecting an oil and gas

lease offer because the offeror

allegedly relied on the acceptance

by a State Office of BLM, of

a plan designed by the offeror

to remove a fatal defect in

the offer, where the offeror

had both constructive and actual

knowledge that the BLM State

Office employees are subordinate

personnel and that their decisions

are subject to reversal on review

at the Secretarial level.

Appearances: Thomas W. Ehrmann, Esq.,

Milwaukee, Wisconsin, for appellants;

Morton J. Schmidt, Esq., Milwaukee, Wiscon-

sin, for respondent Alfred L. EBasterday;

Harold J. Baer, Jr., Esq., Office of the

Regional Solicitor, U.S. Department of ‘

the Interior, Denver, Colorado, for respondent

Bureau of Land Management; Jason R. Warren, —

Esq., Washington, D.C., for amicus curiae

2 4

_.. —_

Eloise B. Miller. 1

OPINION BY ADMINISTRATIVE JUDGE STUEBING

In Alfred L. Easterday, 34 IBLA 195

(March 22, 1978), this Board reversed

a decision by the Wyoming State Office,

Bureau of Land Management (BLM), which

had denied the protest of Easterday

against the first-drawn simultaneous oil

and gas lease offer of Donald W. Coyer,

W-59232. We held that Fred Engle, d.b.a.

Resource Service Co., Inc. (RSC), had

an undisclosed interest in Coyer's offer

when it was filed with BLM, in violation

of 43 CPR 3102.7,° and that Engle prob-

ably had an increased probability of partici-

pating in the proceeds from the lease

owing to his having a similar interest 4

in other offers filed for the same parcel |

by some 200 more of his clients, in viola- |

tion of 43 CPR 3112.5-2.

Engle's interest was created by the

service agreement contract between him

and each of his clients, including Coyer. 4

as the client/offeror's exclusive agent

for 5 years to negotiate assignment or

sale of all oil and gas rights won by

the client, and provided that Engle would

receive a share of the proceeds of any

such sale, whether or not arranged by

him, as well as a share of and payments

of overriding royalty retained by the

client. We held in Easterday, supra,

as we had held previously in Sidney Schreter,

32 IBLA 148 (1977), that this agreement

gave Engle an enforceable right to a defined

share of the proceeds of the lease, an

"interest" as defined by 43 crr 3100.0—5(b).

In Easterday, supra, we also held |

that Engle's purported “amendment and 4

disclaimer" of this interest was a unilateral e

mm m@e@e ag «ss ge

;

action which was not communicated to his

clients and for which no consideration

was received. As such, we held, it was

unenforceable and therefore ineffective 2

to vitiate Engle's interest in Coyer's

offer and in the offers of his other clients _

which were filed on this parcel. “ %

SE ee

vn : ee

Coyer was named as an adverse party

by BLM in its original decision denying

Easterday's protest, and he was therefore

served with a copy of Easterday's notice

of appeal and statement of reasons before

this Board. However, he elected not to

participate by filing an answer, or any *

other form of response. As, under our 4

rules of procedure, the failure of an

adverse party to respond to an appeal

does not constitute a default, the Board

proceeded to render a decision on the

merits reversing BLM's decision and remanding

the case for further action. q

In implementing our decision in Easterday,

BLM rejected Coyer's offer on April 10,

1978. Coyer then filed an appeal of that

action with this Board and contemporaneously A

filed in the U.S. District Court for the 7

District of Wyoming a petition for judicial a

review of the Easterday decision, We °

dismissed Coyer's appeal in Donald Ww. ‘

Cover, 36 IBLA 18l(July 31, 1978), holding

issues, land, and parties as in Easterday,

the doctrines of administrative finality

and res judicata barred our adjudicating

it again. We also held that our further

consideration of the matter was impaired

in any event by Coyer's filing his conten-

poraneous lawsuit with the District Court.

As the matter was before the District

Court, after rendering the Coyer decision

we certified the administrative record

and forwarded it to BLM, which received

it on August 21, 1978. At some point

thereafter, the case file was misplaced

and could not be presented to the District

Court for review. On Pebruary 12, 1979,

the Court issued an order noting that

"the record is in such a state of confusion

that an intelligent review is not possible,"

and remanding the matter to give the parties

a full opportunity to present such evidence

as may be relevant to their interest.

The District Court's order of February

12, 1979, remanded the matter to the Wyo-

ming State Office, BLM, for this hearing.

| E-10

A” . ‘ T,) Og. pate: aes

ae 4 ss oo ie le hie « ae eee ee

‘

‘ ; ‘ ‘

4 re, os 5 ok gag

ee 56 sie, et ee AAS ait es ey Oe ee on ~~

However, as BLM is neither staffed with

any designated hearing officers who could

properly conduct the sort of evidentiary

proceeding contemplated by the Court,

nor empowered to make findings or conclusions

contrary to final decisions of the Board,

and because it was the Board's decisions

(not BLM's) which were at issue, on June

19, 1979, we issued an order referring

the matter to the Hearings Division, Office

of Hearings and Appeals, for assignment

to an Administrative Law Judge to conduct

a full evidentiary hearing, with proposed

findings and conclusions to be submitted

to the Board for review. On August 31,

1979, the District Court expressly affirmed

this action by amending its order of February

12, nunc pro tunc, to remand the matter

to the Hearings Division as provided in

our June 19 order. Judge Kerr noted that

the Administrative Law Judge should resolve

issues relating to the lost administrative

record and make provision for the authen-

tication of a reconstructed record.

E-11

On September 10, 1979, Administrative

Law Judge Robert w. Mesch directed the

parties to file statements detailing the

issues presented, and schedule a prehearing

conference, which was held on October

12, 1979, in Cheyenne, Wyoming.»

Sub-

sequently, the parties clarified the matters

in issue and began their effort to recon-

struct the administrative record.

The hearing before Judge Mesch was

held on February 14, 1980, in Denver,

Colorado. At this hearing, BLM introduced

into evidence the misplaced administrative

record concerning this lease offer, contain-

ing the official, original record up to

the time it was certified by the Board.

We have scrutinized this record and found

that it is the complete, original file,

and that nothing has been added to it. ~

Following his consideration of the

administrative record, and the other evi-

dence adduced at the hearing, Judge Mesch

issued Proposed Findings and Conclusions Sed

sth aaa ;

4 .

- ‘ ‘ 7 - : A, — -

y - tex ¢ : , ’ : ‘

ee eee ee iy” as ee - : > :

- [pes ti ra . .

aie

high

along with the case record, to this Board.

We have reviewed these findings and con-

Cluded that they should be adopted in full.

{1) Engle‘'s and Coyer's effort to

appeal the rejection of Coyer's offer

pursuant to this Board's decision in

Easterday was barred by his failure to

participate in the review procedure when

this matter was properly before the Board.

Coyer was named as an “adverse party"

in BLM's dicision rejecting Easterday's

protest. As such, he was entitled to

receive copies of any notice of appeal

and supporting statement of reasons filed

by Easterday, in order to allow him the

opportunity to defend his interests by

filing an answer to this appeal. 43 CFR

4.413, 414. The record shows that Easterday

served these documents on Coyer as required,

and Engle and Coyer knew that the validity

of Coyer's offer was being litigated before

the Board pursuant to Easterday's appeal.

Before Judge Mesch, Engle and Coyer ad-

mitted that they knew. so, explaining that

they deliberately did not participate

because they were sure that they would

prevail on appeal (Pr. Find. & Concl.

at 10-11). Had Engle and Coyer simply

filed an answer to Easterday's appeal,

they would have been entitled to partic-

ipate in the proceeding with full status

as parties, including the right to request

an evidentiary hearing per 43 CFR 4.415,

However, having failed to participate

in Easterday's appeal, Coyer may not attack

the results of this appeal by filing a

new appeal of his own to this Board, as

the matter is res judicata. Donald W.

Coyer, supra.

"When an administrative agency is

acting in a judicial capacity and resolves

disputed issues of fact properly before

it which the parties have had an adequate

opportunity to litigate, the courts have

not hesitated to apply res judicata to

enforce repose." United States v. Utah

Construction and Mining Co., 384 U.S.

394, 433 (1966). It is appropriate to

apply res judicata to bar a suit for judi-

E-14

cial review of an agency decision by the

affected person, where he has been given

an opportunity to challenge the decision

within the agency's appellate framework

but has elected not to exercise this oppor-

tunity by taking an appeal. A. Duda &

Sons Cooperative Ass'n. v. United States,

495 F.2d 193 (5th Cir. 1974); see Leviner

v. Richardson, 443 F.2d 1338 (4th Cir.

1971). Coyer and Engle were given the

opportunity to litigate the validity of

Coyer's offer by participating in the

quasi-judicial appellate proceeding ini-

tiated by Easterday, and knowingly and

deliberately elected to forego this right,

thus rendering our decision in Easterday

final and barring a collateral attack

on its efficacy. °®

[2, 3, 4) In any event, Coyer's

and Engle's attack on the validity of

our decision in Easterday fails on its

merits. The service agreement between

them gave Engle an “interest" in Coyer's

offer.’ This interest was not abrogated

Sates f

or «

by Engle's subsequent attempt to unilat- 8

erally disclaim it, as Engle did not ms

communicate this putative waiver to Easterday 8

or receive any consideration from him

to bind the contract. Coyer failed to

disclose this interest at the time the

offer was made as required by 43 CFR 3102.7,

and his offer must therefore be rejected

because it violates this regulation.”

Moreover, numerous other offers in which

Engle had a similar interest were apparently

filed for this parcel, thus increasing

Engle's chances of success in violation

: . Pn ‘ a ‘ ’

Of 43 CFR 3112.5-2, under which all such

offers, including Coyer's, must be

rejected, 1°

[5] Finally, the Department is not

estopped from rejecting Coyer's offer

pe tere

on account of the “understanding” between

Engle and employees of the Wyoming State

Office in connection with the filing of

a ONE Rs See

the putative waiver. The Departmental

regulation is explicit on this question:

e* _ “The United States is not bound or estopped e :

} ae ee

—_

by the acts of its officers or agents

when they enter into an arrangement or

agreement to do or cause to be done what

the law does not sanction or permit."

43 CFR 1810.3(b). It is this Board, as

the representative of the Secretary of

the Interior, which decides what Depart-

mental regulations and other provisions

of law sanction or permit as fully and

finally as might the Secretary himself,

in Departmental disputes concerning the

public lands. 43 CFR 4.1(b)(3). Thus,

when a representative of BLM enters into

any agreement, it is subject to review

by the Secretary, through this Board,

and, if improper, it is without effect,

regardless of whether or not a party may

have relied on the forming of the agreement.

To allow subordinate officials to enter

into binding agreements would empower yy

them to take actions immune from review

by the Department and would effectively

uncermine the supervisory power of the

Secretary to*make and enforce policy in

& eee

‘ is Us Ae

a * " ~, 7¢) : yt aa a i = ae of, yet

py a Fi =: Ps ie 1 ys <p’;

Lak Cg ee od

ale 4 Oe by y>; - ~ A pal s. ‘ ‘

, . -_ or ) 1s

« 4, a t

~~ =

oN aed a

the Department, or to correct the errors

of subordinates. This principle is in

accord with judicial determinations regarding

estoppel, which require, inter alia, that

the party seeking estoppel must have had

a reasonable right to rely on a misrepre-

11 As

sentation by Government agents.

the regulation (id.) so states unequivocally,

it is a matter of record that BLM State

officials do not have final authority

in the Department, and that, to the contrary,

their rulings are subject to protest and

appeal procedures. As all citizens are

charged with the responsibility of being

Familiar with applicable regulations (Federal

Crop Insurance Corp. v. Merrill, 332 U.S. 3

380 (1947)), Engle had constructive notice ;

“ ¢

2 ae - —s - Pa <*y sod

pe : r i - i wv ‘ P

that BLM's accomodation did not bind the

Department. | ig

- Purthermore, Judge Mesch has found

that Engle had actual knowledge that the

Wyoming State Office, BLM, could not speak

for the Department.*? thus, it is clear

that Engle could not reasonably have rel

2 -18 fe Me ‘ Om ai. | t

; sof hy < N

Re. >

ied

, , 7

kha

hy Pak

Dy ny.

» , . at “J elie! ae 4

" R “tke ‘ %) o,

Dae tA an

in good faith on the finality of the arran-

gement made with the Wyoming State Office.

Rather, Engle knew (and the regulation

made clear) that BLM's decision to accept

the disclaimer was subject to protest

and review at the Secretarial level, which

review might result in reversal of this

decision.

Accordingly, we find that the Department

is not estopped to reject Coyer's lease

offer.

Therefore, pursuant to the authority

delegated to the Board of Land Appeals

by the Secretary of the Interior, 43 CFR

4.1, the decisions appealed from are sus-

tained.

“Matatstrative tease ————

We concur:

“hiatnistrative du De a

cacreteriey 2igisy ———-

FOOTNOTES:

l Coyer and Engle were the respondents

in Alfred L. ea ee 34 IBLA 195 (1978),

and the appellants in Donald W. a

36 IBLA 181 (1978). As the parties seeking

review, they are properly described as

appellants herein. Easterday was the

appellant in Alfred L. Easterday, supra

at n.l, and the respondent in Donald W.

Coyer, supra at n.l. Schmidt also apparent-

y represents whatever interest is held

by Geosearch, Inc., in this matter. (See

infra at n.5.) By order dated October

22, 1979, Administrative Law Judge Mesch

granted Miller leave to participate as

amicus curiae, as she is involved in a

different dispute involving similar issues.

2 Easterday was the offeror whose drawing

entry card was drawn with second priority

in the May 1977 drawing for this parcel,

designated as WY-44, in the Wyoming State

Office, Bureau of Land Management (BLM).

3 43 CFR 3102.7 provides as follows:

"Showing as to sole party in interest.

"A signed statement by the offeror

that he is the sole party in interest

in the offer and the lease, if issued;

if not he shall set forth the names of

the other interested parties. If there

are other parties interested in the offer

a separate statement must be signed ~!

them and by the offeror, setting fort

the nature and extent of the interest

of each in the offer, the nature of the

agreement between them if oral, and a

copy of such agreement, if any, must be

filed not later than 15 days after the

filing of the lease offer. Failure to

file the statement and written agreement

within the time allowed will result in

the cancellation of any lease that may

have been issued pursuant to the offer.

Upon execution of the lease the first

year's rental will be earned and deposited

Sarre

in the U.S. Treasury and will not be return—

able even though the lease is canceled."

4 43 CFR 3112.5-2 provides as follows:

"Multiple filings.

“When any person, association, corporation

or other entity or business enterprise

files an offer to lease for inclusion

in a drawing, and an offer (or offers)

to lease is filed for the same lands in

the same drawing by any person or partly

[sic] acting for, on behalf of, or in

collusion with the other person, association,

corporation, entity or business enterprise,

under any agreement, scheme, or plan which

would give either, or both, a greater

probability of successfully obtaining

a lease, or interest therein, in any public

drawing, held pursuant to §3110.1-6(b),

all offers filed by either party will

be rejected."

5 Although Geosearch, Inc., never peti-

tioned to intervene in the administrative

proceedings concerning this lease offer,

it nevertheless filed a prehearing state-

ment with Judge Mesch. Geosearch had

petitioned to intervene in the judicial

proceedings in the District Court, assert-

ing that it had acquired a 25 percent

interest in Easterday's offer. However,

this assertion was never proven, as the

Court remanded the matter without ruling

on Geosearch's petition. At the prehear-

ing conference, Morton J. Schmidt, Esq.,

counsel for respondent Easterday indicated Z

that he was authorized to represent what- F

ever interest Geosearch might have (Pre-

hearing Conf. Tr. 3-5). Accordingly, fe

we recognize Schmidt in this Nh ey

without finding that Geosearch has any

cognizable interest in this lease offer.

6 Moreover, Engle has also had a full “a

ms egabonor Be to litigate the same issues a

presented in this case in a separate ad- ~

ministrative proceeding concerning the

* :

’ x S oy Ry

E-21 £65 ae

eK 7 -_

, 4 re ae. * - 7 of -; Pa

; Dh A sun eh : 4 oe. ae —~

* » rs * ee

+e oo a Ie a ee Rs ey

opie oie ; ges abe 12 ie

offer of Frederick W. Lowey, another of

his clients, which was filed in the New

Mexico State Office, BLM. Lowey's appeal,

in which Engle appeared as a party, raised

the same issues as did Coyer's and was

decided against him. Thus, Engle is in-

volved in his rd opportunity to litigate

these same issues fore the Board.

7 Pr. Finds. & Concls. at 4; 43 CFR

3100.0-5(b); Frederick W. Lowey, 40 IBLA

381, 383 (1979); Alfred L. ras oulay

supra at 198; Sidney H. Schreter, IBLA

1977); Lola I. Doe, 31 IBLA 394 (1977);

ee also Order Remanding Appeal to Wyoming

State Office, Coyer v. Andrus, No. C78-

104K (D. Wyo. Feb. 12, 1979), containing

the finding that the following facts are

not in dispute: “Coyer has an agreement

with a leasing service known as Fred L.

Engle, d/b/a Resource Service Company;

the agreement creates an undisclosed in-

terest violative of the regulations (Lola

Doe, 31 IBLA 394, August 19, 1977 and

Sidney H. Schreter, William F. Wopp, Jr.,

32 IBLA 148, September 12, 1977)."

8 Pr. Finds. & Concls. at 4-5;

Frederick W. Lowey, Supra at 199.

9 Pr. Finds. & Concls. at 6; Frederick

W. Lowey, supra at 384-392}; Alfred L.

Easterda , Supra at 199; see also

District Court's order of Feb. AB

1979, quoted above at n.7.

10 Pr. Finds & Concls. at 12-13; Alfred

L. Easterday, supra at 200.

ll An analysis of the operation of es-

toppel against the Government is contained

in the judicial opinions delivered in

the cases of Ss v. Rub ey

588 F.2d 697 te 3

grates ve Wharton, 514 F.2d 40 Cir.

;

E-22

Sh Res See TO Sh Pee ee ay RY eT,

PAB at ke RR Ss ey MOR eed cs eee ates

pPignpehftaehGUlurraeelllUCrrrTOOllUlC rr OllUC rr OU CCrOOOUlUlC rrOOOllUlU CrTTOOllClC UrLOOllUC rUrTTllUlUCU lUlCU

United States v. Lazy FC Ranch, 324 F.

Supp 698 (D. Idaho 1971), Aftf'd, 481 F.2d

985 (9th Cir. 1973); and United States

v. Georgia-Pacific Co., 421 F.2d 92 (9th

Cir. 1590) Under these holdings, in

order for estoppel to lie against the

Government, inter alia, the individual

asserting estoppel must have relied to

his detriment on misinformation received

on account of some affirmative misconduct

by Government agents acting within the

scope of their authority, on which misinformation

the party had a reasonable right to rely.

United States v. Joseph Larsen, 36 IBLA

130 (1978).

12 Judge Mesch found that Engle's "“amend-

ment and disclaimer" itself contains re-

citals demonstrating thatEngle clearly

recognized that the Wyoming State Office

did not speak for the Department, which

recitals belie Engle's assertions to the

contrary (Pr. Finds. & Concls. at 7).

UNITED STATES DEPARTMENT OF THE INTERIOR

OFFICE OF HEARINGS AND APPEALS

July 14, 1980

PROPOSED FINDINGS AND CONCLUSIONS

Donald W. Coyer and

Fred L. Engle, d/b/a

Resource Service Company,

Appellants

Bureau of Land Management and

Alfred L. Easterday,

Respondents

IBLA 78-73 34 IBLA 195

IBLA 78-409 36 IBLA 181

Oil and Gas Lease

Proceeding on Remand

Appearances: Thomas W. Ehrmann, Wayne

E. Babler, Jr., Ross R. Kinney and William.

@eenmrtesees es = w=

R. Hamm of Quarles & Brady, Milwaukee,

Wisconsin, for appellants;

Harold J. Baer, Jr., Office of the Solicitor,

Department of the Interior, Denver,

Colorado, for respondent, Bureau of Land

Management;

Morton J. Schmidt of Morton J. Schmidt

& Associates, Ltd., Milwaukee, Wisconsin,

E-24

for respondent Alfred L. Easterday;

Jason R. Warran of McDade and Lee, Wash-

ington D.C., for amicus curiae, Eloise

B. Miller;

Before: Administrative Law Judge Mesch.

In May, 1977, the Wyoming State Office

of the Bureau of Land Management conducted

its regular monthly drawing of simultaneously

filed oil and gas lease offers. The drawing

entry card offer of Donald W. Coyer was

drawn first for parcel No. 44, and the

card filed by Alfred L. Easterday was

drawn second. As a result of the drawing,

Coyer was entitled to receive a lease,

W 59232, covering parcel No. 44 if he was

a qualified offeror.

Easterday filed a protest with the

Wyoming State Office against the issuance

of the lease to Coyer. Easterday contended

that Coyer was not a qualified offeror

because he had an agreement with a leasing

service operated by Fred L. Engle, doing

business as Resource Service Company,

that invested Engle with an undisclosed

E-25

See -

re ge a

tT .

- : a }

» = ® ~ . ‘A ¥ > vA ,

ha oO D oe ie oe, 4 ent Cee ee ri es Nee 5 AM “*

interest in the offer and the lease if

issued,

By a decision dated October 25, 1977,

the Wyoming State Office dismissed Easterday's

protest. In its decision, the Wyoming

State Office recognized that there was

a service agreement between Coyer and Engle

that created an undisclosed interest in

Engle in Coyer's offer. The decision concluded,

however, that the objectionable provisions

of the service agreement were of no effect

because Engle had submitted an amendment

and disclaimer document by which he waived,

and agreed he would not enforce, his rights

under the service agreement.

Easterday appealed to the Interior

Board of Land Appeals. Coyer did not parti-

. f J . ~

cipate in the proceedings on appeal. In

Alfred L. Easterday 34 IBLA 195 (March

22, 1978), the Board held (1) that Engle'‘s

service agreement gave Engle an interest

in Coyer's offer within the meaning of

43 CFR 3100.0-5(b) because he had an en-

forceable right to share in the profits

E-26

. i 4a,

x38 ¢ : Die i yi fhe ley ce cp. 7 SER

Ts - ERRATA + ee . ee te eel ee Oe Pee OM Pee oA Se a S-

of any sale of any lease obtained by Coyer;

(2) that Engle's amendment and disclaimer

document was ineffective as a matter of

law because there was no notice to or agree-

ment with Coyer prior to the drawing and

there was no consideration given to Engle

for his forebearance from enforcing his

contractual rights; (3) that Coyer's offer

violated 43 CFR 3102.7, which required

a timely disclosure of Engle's interest

in the offer; and (4) that there was a

violation of 43 cpr 3112.5-2, which prohibits

multiple filings, because Engle may have

represented some 200 other client-offerors

under similar service agreements in the

drawing for parcel No. 44.

On April 10, 1978, the Wyoming State

Office issued a decision rejecting Coyer's

lease offer. Coyer filed an appeal to

the Board of Land Appeals. Easterday parti-

cipated in the proceedings on appeal.

In Coyer v. Easterday, 36 IBLA 181 (July

31, 1978), the Board dismissed Coyer's

appeal on the ground of Res Judicata

E-27

stating, “Coyer's appeal is, in effect,

an appeal of the decision of this Board

in Easterday, involving the same parties,

the same events, the same lease, and is

before the same tribunal".

Coyer and Engle sought judicial review

of the Board's decisions. On February

12, 1979, the United States District Court

for the District of Wyoming issued an order

in Coyer, et al. v. Andrus, et al., Civil

No. C 78-104, remanding the matter for

a redetermination of the rights of the

parties.

By an order dated June 19, 1979, the

Board of Land Appeals referred the matter

for assignment to an administrative law

judge to “conduct a hearing pursuant to

43 CFR 4.415 for the reception of evidence

On any relevant issues of disputed fact,

ey ae ‘ :

aa nts x, . t os

a I> < : : - . _ . A

and to hear all arguments of fact and law".

The Board also directed the administrative

law judge to make proposed findings and

conclusions for submission to the Board

in accordance with 43 CFR 4.433. In its

E-28 ie eee

- : fe “4 J fy “y bi coat bys iis io bi

i er a Cee ae, ey att. Pana ee Fe te Oy ae ies

order, the Board stated that “the plaintiffs

to the judicial litigation will be required

to plead and prove reversible error in

decisions rendered by this Board in disposing

of the respective appeals of Easterday

and Coyer".

A hearing was held on February 14,

1980, in Denver, Colorado. The parties

and the amicus curiae have submitted pro-

posed findings and conclusions and support-

ing briefs.

;

}

;

| Coyer and Engle do not challenge the

Board's determination that the service

4 agreement used by Engle created an interest

in Engle in Coyer's lease offer. They

t contend that Engle reached an agreement

with personnel of the Wyoming State Office

q to the effect that Engle's amendment and

4 disclaimer eradicated the prohibited in-

terest from his service contracts, and

4 the agreement with the State Office Em-

ployees should be given legal effect and

4 enforced because (1) Federal regulatory

policies will not be prejudiced and will

actually be promoted by giving effect to

E-29

Sea OY ee Re LT

the agreement; (2) the regulations and

adjudicatory precedents do not specify

how forbidden interests can be eradicated

and any reasonable means agreed to between

the holders of the interest and a represen-

tative of the Bureau of Land Management

should be enforced under established prin-

ciples relating to (a) agreements made

by governmental entities in carrying out

proprietary functions, (b) equitable estoppel,

rules, and (d) apparent authority of gov-

ernment representatives in the course of

carrying out proprietary functions; and

(3) the amendment and disclaimer method

of eradicating the prohibited interest

has a solid base in the common law doctrine

of waiver.

Easterday and the Bureau dispute the

claimed effect of Engle's amendment and

disclaimer, the claimed effect of any agree-

ment between Engle and employees of the

Wyoming State Office, and the validity

of the legal conclusions advanced by Coyer

E~-30

5 7<¥N* -

and Engle. Among other things, they assert

(1) that any agreement between Engle and

employees of the Wyoming State Office cannot

be given legal effect and enforced because

this would permit employees of the state

office to immunize a decision of that office

from review by higher authority and effectively

nullify Easterday's right to appeal the

state office decision of October 25, 1977,

which is granted by the Department under

43 CFR 4.410; (2) that Coyer and Engle

are precluded from litigating any issues

relating to any agreement between Engle

and employees of the Wyoming State Office

because Coyer had the opportunity and did

not present such issues to the Board of

Land Appeals on Easterday's appeal from

the Wyoming State Office decision of October

25, 1977, and they cannot now present new

theories designed to alter the results

of the previous adjudication; (3) that

Engle is precluded from litigating the

effect of the amendment and disclaimer

and any agreement reached with employees

E-31

ft > guts

ee x ’ . he - tie

ray, ee ae a ae “ ~~. a 7 , he b rs — » me A A

ye Bee mT: . FRIES Saba: S . Le Oo Slot Ene. Ape? SR

of the Wyoming State Office because he

has already litigated the issues in another

case decided by the Board, i.e., Frederick

W. Lowey, et al., 40 IBLA 381 (May 14,

1979) ;and (4) that Coyer and Engle have

not shown reversible error in the decisions

of the Board, as required by the Board's

order for a hearing in this proceeding.

The history of this case, pertinent

regulations, the relevant evidence presented

at the hearing, and other matters either

agreed to or undisputed are summarized

in an attached appendix. That summary

supports and dictates the following findings

and conclusions:

l. The service agreement executed by

Coyer on January 4, 1977, and used by Engle

in filing Coyer's drawing entry card offer

in the May 1977 drawing, authorized Engle

to act, for a period of five years, as

Coyer's sole and exclusive agent to nego-

tiate the sale of any rights obtained by

Coyer in the drawing. It further provided

that, upon the consummation of a sale,

A? 3 E-32 he! ve c f

ryt - on Gull ure aie

an : Oe | : a fot! ma he ” 7 ei a nA Brteesi, +

eS OR. Ae ee ORG sk cee Mite Yay RA Pr enyy. te ey ig a Oa tae %

Engle would receive for his services a

percentage of the cash price paid to Coyer

and a percentage of any royalty payments

made to Coyer. Under the service agreement,

Engle had an interest in Coyer's offer

as that term is defined in 43 CFR 3100.0—5(b)

and illustrated in 43 CFR 3112.52.

By the amendment and disclaimer document

executed by Engle on January 13, 1977,

Engle waived and renounced, subject to

a condition subsequent, the exclusive agency

in his service agreements with his clients.

Engle's attempt to amend, disclaim, waive

Or renounce the exclusive agency provisions

of his service agreements would, if effec-

tive, have modified his contracts with

his clients by eliminating (a) the authori-

zation granted by his clients and Engle's

obligation to act as their sole and exclu-

sive agent in negotiating the sale of any

rights obtained in a drawing; (b) the fixed

percentage shares agreed upon for success-

fully negotiating a sale of any rights

obtained in a drawing; and (c) Engle's r

E~-33 piv

obligation, if the client did not receive

at least $10,000.00 for the sale of any

rights, to process up to 300 additional

lease applications for the client without

any service fees.

3. Engle's conditional amendment,

disclaimer, waiver or renunciation was

not communicated to Coyer prior to the

May 1977 drawing. There was no mutual

assent or meeting of the minds between

Engle and Coyer prior to the drawing relating

to Engle's attempted modification of his

service agreement with Coyer.

There was no consideration to support

the attempted modification of the contract.

Engle‘s unilateral attempt to modify his

contract with Coyer was ineffective as

a matter of fundamental contract law.

17 Am. Jur. 2d, Contracts §465. Accordingly,

Engle's amendment and disclaimer did not

eradicate the interest he held in Coyer's

offer at the time of the drawing.

4. In January of 1977, Sngle and

his then attorney reached an understanding

hon, 1

eS a a

—_ 2

with employees of the Wyoming State Office

under which the employees of that office

agreed, insofar as that office was concerned

and during an interim appeal period only,

to (a) accept the amendment and disclaimer

procedure proposed by Engle and his attorney

as effectively eradicating the interests

held by Engle in his clients’ lease offers

under his service agreements; and (b) take

no action on their own initiative, if agreed

procedures were followed, in rejecting

any Of Engle‘s clients' offers. No legal

theory has been presented, and none is

apparent, that would support the conclusion

that Engle's agreement with employees of

the Wyoming State Office supplied the legal

deficiencies in Engle's unilateral attempt

to modify his service contracts with his

Clients and, as a result, rendered the

amendment and disclaimer effective as a

. modification of the basis provisions of

the service agreements. The understanding

or agreement reachec between Engle and

employees of the Wyoming State Office did

B-35

in Coyer's offer.

5. The Department of the Interior

follows specific adjudication and appellate

procedures in its administration of the

public lands. Each state office of the

Bureau of Land Management makes the initial

determination with respect to lands within

its area of jurisdiction. Any party who

is adversely affected by a decision of

an officer of the Bureau of Land Management

has an absolute right of appeal to the

Board of Land Appeals. 43 CFR 4.410.

The "Board decides finally for the Department

. a

appeals to the head of the Department from

decisions rendered by Departmental offi-

cials relating to the use and disposition

of public lands and their resources".

43 CFR 4.1(b) (3). Employees of a state

office of the Bureau cannot effectively

prejudge a case by agreement or otherwise

Soll ieee % = :

and thereby immunize a decision of that

office from independent review by the Board.

The agreement reached between Engle and

employees of the Wyoming State Office and

E-36

iis :

any representations made by those employees

as to the action they would take with respect

to offers filed by Engle under his service

agreement and the amendment and disclaimer

document were not binding on and had no

legal effect insofar as the Board of Land

Appeals is concerned. Easterday, as a

party adversely affected by the decision

of the Wyoming State Office in rejecting

his protest to the issuance of a lease

to Coyer, had the right of appeal and the

right to have the Board consider the case

on its merits free from any legal conclusions

reached by employees of the Wyoming State

Office. Engle and his attorney knew or

should have known, of the established adjudi-

cation and appellate procedures followed

by the Department.

6. There was a violation of 43 CFR

3102.7 because Engle‘s interest in Coyer's

lease offer arising from his service agree-

ment with Coyer was not disclosed to the *

Wyoming State Office and the required documents

and signatures of Engle and Coyer were 4

SR Se = . | Swe ae My ae oS ee ee ee

not filed with that office.

7. There is no merit to the appellants’

argument that the amendment and disclaimer

procedure proposed by Engle and his attorney,

and the agreement reached with employees

of the Wyoming State Office pursuant thereto,

should as a matter of Federal policy be

held to have the intended effect because

Federal regulatory policies will not be

prejudiced, but will be promoted. Engle's

unilateral amendment and disclaimer, which

in effect amounted to an attempt to modify

and change the basic provisions of his

service contracts with his clients, was

made without any consideration and without

any notification to or agreement with his

clients. It was ineffective as a matter

of law; was not made effective by Engle's

agreement with employees of the Wyoming

State Office; and was subject to revoca-

tion or rescission at Engle's option.

If a client, after winning a lease in a

Svauing and then being informed for the

first time of the amendment and disclaimer

E-38

A «+

and the agreement with the Wyoming State

Office, refused to execute a new service

agreement with Engle and sold the lease

to a bona fide purchaser, Engle could then

revoke or rescind the amendment and dis-

Claimer and demand his share of the proceeds

called for under the original service agree-

ment. To give effect to such an arrange-

ment would establish a precedent that would

allow open flaunting of the prohibition

against multiple filings and foreclose

the Department from preventing flagrant

abuses of the drawing-lottery system,

The Department could not, undec such cir-

cumstances, effectively insure that there

were no hidden interests in other parties’

lease offers and that one party did not

have more than one chance of obtaining

an interest in a lease in a drawing.

8. There is no merit to the appel-

lants' argument that since Federal regu-

lations and existing adjudicatory precedents

~ s - .

a ,

do not specify how forbidden interests

relating to leases of public land can be

E-39

Nia ae ™ 5 en) Og Se ieee ee Ds, ee Sar N ,

eradicated, any reasonable means agreed

to between the holder of the interests

and a representative of the Bureau of Land

Management should be given legal effect.

There is no reason why the regulations

or adjudicatory precedents should so specify.

The regulations are abundantly clear in

defining forbidden interests and there

is no justifiable reason for such interests

to exist. If they do arise, they can readily

and easily be eliminated by a party inter-

ested in following fundamental and established

legal precedents rather than concocting

a procedure calculated (a) to maintain

a viable leasing service business, and

(b) to minimize the chances of being fore-

closed from sharing in any profits that

might be obtained from a lease. Any “reason-

eo oe ~ >

able means" agreed to between the holder

of a forbidden interest and a representative

of the Bureau of Land Management cannot

automatically and as a general proposition .

be given legal effect because (a) under

existing regulatory procedures no represen-

E-40

a :

ae OF

tative of the Bureau of Land Management

can enter into a binding agreement that

would nullify the Department's adjudication

and appellate procedures; and (b) the

Secretary of the Interior could not properly

discharge his duties as guardian of the

public lands if he was compelled to either

(i) promulgate regulations covering every

conceivable (and undreamed of) legal problem

that might arise in the management, use

and disposition of the public lands or

(ii) suffer the consequences of local em-

ployees in the various state offices of

the Bureau entering into agreements that

would bind him in the administration of

the multitude of public land laws. In

any event, the approach agreed to between

Engle and employees of the Wyoming State

Office was not a reasonable means because,

as a matter of basic contract law, it did

not eradicate the forbidden interest and,

if adopted, would prevent the Department

from maintaining the integrity of its draw-

ing-lottery system.

E-41

ee a.

9. There is no merit to the appellants’

arguments that enforcement of such agreements

is a fair and reasonable method of resolving

such regulatory gaps and the principal

(a) draws sustenance from established

principles governing agreements entered

into and promises made by governmental

entities in the course of carrying out

their proprietary functions; (b) is supported

by the principle of equitable estoppel;

relating to retroactive application of

new legal rules; and (d) draws sustenance

from the principle of apparent authority.

a. Entering into a lease agreement

involving public lands with a private

citizen, does not, as contended by

the appellants, fall squarely within

the proprietary sphere where governments

have been held to their agreements

and estopped from taking a contrary

position. Transactions of the United

States relating to the management,

use and disposition of public lands

and their resources are for the benefit

E-42

ooh tell ss a ae tbe

a ee 2 . 7

Beeg@wPmeeae & @ewe@wa & = = gn

of all the people and are considered

a governmental rather than proprietary

function. Utah Power & Light Company

v. United States, 243 U.S. 389 (1917);

United States v. California, 332 U.S.

(1947); United States v. State of

Florida, 482 F.2d 205 (5th Cir. 1973).

b. The doctrine of equitable estoppel

does not bind the Secretary of the

Interior of the United States to the

agreement reached between Engle and

employees of the Wyoming State Office.

The principal case relied on by the

appellants, United States v. Wharton,

514 F.2d 406 (9th Cir. 1975), outlines

the test of equitable estoppel as:

(i) the party to be estopped must

know the facts; (ii) he must intend

that his conduct shall be acted on

Or must so act that the party asserting

the estoppel has a right to believe

it is so intended; (iii) the latter

must be ignorant of the true facts;

and (iv) he must rely on the former's

conduct to his injury.

E-43

i. Contrary to the appellants’

assertion, the employees of the

Wyoming State Office did not

know, and could not have known,

what would be sufficient to

eradicate the objectionable

provisions of the service agreement.

The only thing they knew in this

regard is what, in their opinion,

would be sufficient to accomplish

the eradication. There is no

evidence suggesting that the

employees of the Wyoming State

Office ever represented affirma-

tively that either the Secretary

of the Interior (through his

delegate the Board of Land Appeals)

or any other Bureau state office

would be bound by their interpre-

tation of the legal effectiveness |

of the amendment and disclaimer.

The employees of the Wyoming

State Office did not represent,

did not purport to represent,

E-44

2 -

and could not speak for any office

Other than their own, They were

not in any position to know,

did not purport to know, and

could not have known, what the

Board of Land Appeals or any

other Bureau state office would

conclude as to the legal effective-

ness of the amendment and dis-

Claimer. They could not, and

did not purport to, bind the Secretary

of the Interior or his delegates

to a determination as to what

would be sufficient to eradicate

the forbidden interest. They

could not, and did not purport

to, nullify the Department's

adjudication and appellate pro-

cedures,

ii. The only thing Engle and

his attorney had a right to believe

was that the Wyoming State Office

would not on its own initiative,

and during an interim appeal

period, take any action to reject

E-45

any of Engle's clients’ lease

offers if agreed procedures were

followed. The employees of the

Wyoming State Office simply attempt-

ed to make a temporary accommoda-

tion that would permit Engle's

leasing service business to continue

without interruption pending

appellate and possibly judicial

review. They warned Engle and

his attorney that the accommodation

was risky and they did not know,

and could not determine, what

the Department or any other Bureau

office would conclude as to the

effect of the amendment and dis-

Claimer,

iii. Engle and his attorney were

not, or should not have been,

ignorant of the true facts.

> a =

There was no reasonable basis

for Engle or hie attorney to

suppose (a) that the employees

of the Wyoming State Office repre-

B-46 “

_ a =

: ag pe Oo

gee

a .

‘ y. See = dus : : ) ; i. 4

ES y Wank ig | Bie A\i+ 4 : io 4 gt me, hal 4 sy 3 ae ween X¢ :

. . a. YS . ~ i> . cl as + a ARS

— =

sented or spoke for any office

other than their own; (b) that

the employees knew, or could

have known, what the Board of

Land Appeals or any other Bureau

state office would conclude as

to the legal effectiveness of

the amendment and disclaimer;

Interior or his delegates would

be bound by the interpretation

of local employees of the Bureau

as to the legal effectiveness

of the amendment and disclaimer;

and (d) that the local employees

of the Bureau could nullify and

render completely meaningless

the Department's adjudication

and appellate procedures,

iv. Engle and his attorney were

fully informed, or should have

been aware, of every aspect of }

the matter. They were advised {

of, and had, other alternatives i

¥ Pik cag k

avin ®

to the conditional amendment

and disclaimer procedure concocted

and proposed to the Wyoming State

Office. Engle could have contin-

ued to use the existing service

agreement and simply disclosed

his interest in his clients’

lease offers in accordance with

43 CFR 3102.7. He chose not

to follow this procedure because

this would foreclose him from

representing more than one client

in a drawing for the same parcel

of land. Engle could have adopted

a new service agreement eliminat-

ing the prohibited interest.

He chose not to follow this pro-

cedure because of the "horrendous"

amount of paperwork involved

with some 4,000 to 6,000 existing

clients. In addition, such a

procedure would undoubtedly have

created problems in obtaining

an exclusive agency agreement

‘aN

;

mat.

after a drawing that could be

avoided or minimized under the

amendment and disclaimer procedure.

If Engle had had any interest

in anything other than reaching

an agreement under which his

leasing service business would

remain viable and he would minimize

the chances of being foreclosed

from sharing in any profits that

might be obtained from a lease,

then he would not have refused

to take the courses suggested

by the Wyoming State Office

which would have extricated him

and his clients from the difficulty

created by the prohibited interest.

C. There is no retroactive application

of a new legal rule involved in this

proceeding. There was no old rule,

regulation, or authoritative pronounce-

ment that the amendment and disclaimer

procedure proposed by Engle and his

E-49 ,

is ae

Cwaionin Bebe a

ane a ‘

cen |

= ee ‘,

® poe

attorney would be an effective means

of eliminating the prohibited interest.

An agreement reached with employees

of a local Bureau of Land Management

office does not constitute a legal

rule that cannot be changed by the

Department except by prospective appli-

cation. A contrary conclusion would

render the Department's adjudication

and appellate procedures meaningless

and make it impossible for the Secretary

to properly discharge his duties and

obligations as guardian of the public

lands. There was a new legal rule,

but only in the sense that any determin-

ation on a question of first impres-

sion by the Department or the Courts

creates a new legal rule. The ruling

on the effect of the amendment and

disclaimer was a necessary consequence

of the Department's adjudication and

appellate procedures and Easterday's

appeal from the Wyoming State Office

decision rejecting his protest to

the issuance of a lease to Coyer.

E-50

“ere

os tt Hee Renae, 1 Tie Di te ‘ a

Steoas Ee Say ee ME ea oS

A et

Bement er PEt Pt lrerTEtllCUcOEEtlUrlCU LLlUCUrLlCU

2 thee. >. ve ae .

d. The principle of apparent author-

ity, which is the power to bind a

principal, which the principal has

not actually granted, but which he

leads persons with whom his agent

deals to believe that he has granted

to the agent, is not applicable in

this proceeding. As the appellants

recognize, the principle applies to

a governmental entity only when govern-

ment employees are acting in the course

of carrying out proprietary functions.

A proprietary function is not involved

in this case. In addition, neither

the Department of the Interior nor

the Bureau of Land Management did

anything that would have led Engle

to believe, and a man of ordinary

prudence, diligence, and discretion

would not have had a right to believe,

and would not have actually believed,

that the employees of the Wyoming

> “3 "> : . ?

State Office possessed the authority

and purported to act for any office

E-51

ee yt a RE ate Bt he ee a

Pe Tee) | a gee ae

ae 4

arguments that, in any event, Engle's amendment

other than their own. The Department's

adjudication and appellate procedures

set forth in 43 CFR Part 4, which

Engle and his attorney were,or should

have been, familiar with at the time,

would, without considering anything

more, have been sufficient to dispel

any idea that employees of the Wyoming

State Office had authority to bind

the Bureau or the Department.

10. There is no merit to the appellants’

and disclaimer effectively operated as

a waiver or relingquishment of his interests

in his clients’ lease offers; that when

the amendment and disclaimer document was

executed Engle was powerless to later assert

his rights without the consent of his clients;

and that consideration, communication, and

agreements with his clients were unnecessary.

Engle's unilateral and conditional attempt

to amend, disclaim, waive or renounce the

exclusive agency provisions of his service

agreements was not a waiver, as that térm

ot. Be oe

A te

emma wim He Fe Ease ee se Fs GH

ys” DONT asa

has variously and loosely been construed.

It was an attempt to modify and change

the basic provisions of his service agree-

ments with his clients; and, as such

it was not effective without consideration

and mutual assent. In any event, if Engle's

amendment and disclaimer document can be

construed as a waiver, rather than a modifica-

tion of his service contracts, the law

that would apply is that set forth in the

decisions of the Board of Land Appeals

in the Easterday case and the Lowey case

and not that set forth in the appellants’

brief. The authoritative treatises cited

by the Board, Williston on Contracts, Third

Edition, §689 (1961), §690 (1961), §1820

(1972); 3A Corbin, Contracts §752 (1960);

5A Corbin, Contracts, §1238 (1964), state

that waivers are not effective and can

be rescinded at will in the absence of

consideration of justifiable reliance.

There was no consideration here, and there

- could not have been any reliance because

+ eee N

os. ee.

a Coyer was not aware of the alleged waiver,

which was subject to a condition subsequent,

prior to the drawing.

ll. When the Wyoming State Office

issued its decision rejecting Easterday's

protest against the issuance of a lease

to Coyer, Easterday filed an appeal pursuant

to 43 CFR 4.410. He served Coyer with

copies of all documents filed in connection

with the appeal, as required by 43 CFR

4.413. Coyer did not participate, either

individually or through Engle, in the proceed-

ings on appeal to the Board of Land Appeals.

Coyer (and through him, Engle) had the

right and opportunity to participate in

the appeal under 43 CFR 4.414. Coyer and

Engle should be precluded under fundamental

principles relating to exhaustion of adminis-

trative remedies from (a) obtaining any

relief from or any reconsideration of the

Board's decision in the Easterday case;

and (b) from presenting new theories which

were not litigated beforethe Board in the

Easterday case, i.e., issues relating to

eer 2

- the agreement between Engle and employees ial

of the Wyoming State Office concerning

E-54

“it

Engle's amendment and disclaimer, in an

effort to alter the results of the Board's

decision in the Easterday case. St. Regis

Paper Co. v. Marshall, 591 F.2d 612 (10th

Cir. 1979).

12. Engle litigated the effect of

the amendment and disclaimer and the agreement

with employees of the Wyoming State Office

in another case decided by the Board, i.e.,

Frederick W. Lowey et al., Supra. He should

now be precluded from again litigating

the same issues or new issues relating

to the same subject matter.

13. The appellants did not prove,

as required by the Board's order for a

hearing in this proceeding, reversible

error in the rulings of the Board in its

Easterday decision that (a) Engle's service

agreement gave Engle an interest in Coyer's

offer within the meaning of 43 CFR 3100.0-

5(b); (b) Engle's alleged waiver or dis-

Claimer of that interest was ineffective

as a matter of law; (c) Coyer's offer violated

43 CPR 3102.7, which required a timely

E-55

sip. ab dt

disclosure of Engle's interest in the offer;

and (d) there was a violation of 43 CFR

3112.5-2, which prohibits multiple filings,

because Engle may have represented some

200 other client-offerors under similar

service agreements in the drawing for parcel

No. 44. No satisfactory evidence was presented

as to whether Engle did or did not, in

fact, represent other client-offerors under

his standard form service agreement in

the drawing for parcel No. 44. Engle could

have presented evidence on this question

sufficient to support a specific finding.

He did not, but simply testified that he

assumed he had filed for more than one

Client in the drawing.

- ~ * + >

14. The appellants did not prove

reversible error in the ruling of the Board

in its decision in Coyer vy. Easterday,

Supra, that Coyer was barred under the

principal of res judicata from litigating

any issues that were or could have been

x ee

5 gan

. “

presented to the Board in its consideration

of Easterday's appeal.

SEIN EA PE Ue

For the reasons stated, Coyer's offer

should be rejected and the lease issued

to EBasterday if he was a qualified offeror.

/s/Robert W. Mesch

Administrative Law Judge

APPENDIX

Fred L. Engle, doing business as

Resource Service Company, is, and has been

since November of 1973, engaged in solicit-

ing individuals to participate in the monthly

simultaneous oil and gas lease drawings

conducted by the various state offices

of the Bureau of Land Management. (Tr.

58-61). A brochure that he distributed

contains the following, among other, entice-

ments:

Newspaper Zone Manager from Ogden,

Iowa won the oil and gas lease rights

to a 1,264 acre parcel of government

land that immediately sold for $265,505

plus a 5% overriding royalty on all

future oil and gas production. If

exploration proves fruitful, our client

could realistically become a million-

aire without any additional investment

on his part. (Appellants' Ex. No. 31)

From the inception of his business

until early 1978, Engle used a standard

form agreement, captioned "Service Agreement",

~—

;

oe on

t segap:

in filing drawing entcy cardoffers for

Clients. (Tr. 60). Under the agreement,

the client submitted to Engle the filing

fees required by the Bureau of Land Management

and service fees covering Engle's services

in connection with each drawing. Engle

was authorized to select parcels of land

for filing and to complete and file drawing

entry card offers for the clients. The

agreement also authorized Engle to act,

for a period of five years, as the sole

and exclusive agent for the client in nego-

tiating the sublease, assignment or sale

of any rights the client obtained by reason

of being successful in a drawing. It pro-

vided that if a sale, assignment or sublease

was negotiated, either by Engle or the

client during the five-year period of the

agency, Engle would share on a percentage

basis in any cash price paid to the client

and if royalty payments were made Engle

would share on a percentage basis in such

payments. Any final negotiated price was

subject to the clients’ approval. The

E-59

agreement also provided that if the client

did not receive at least $10,000 gross

in aggregate on the outright sale of a

lease, Engle would process up to 300 additional

lease applications free of service fees.

Engle was authorized to handle all of the

Client's correspondence at his address.

(Appellants' Ex. No. 1). Engle did not

submit the agreement or otherwise apprise

the various state offices of the Bureau

that such an agreement existed when filing

drawing entry card offers for clients.

In December of 1976, Engle's service

agreement was broughtto the attention of

employees of the Wyoming State Office of

the Bureau. As a result, that office issued

decisions rejecting three simultaneously

filed oil and gas lease offers of Engle's

clients, i.e., Lola I. Doe, Sidney H. Schreter,

and William F. Wopp, Jr., that had been

drawn first for three parcels in the Nov-

ember 1976 drawing. The state office decisions

held that (1) Engle's service agreement

gave Engle an interest in his clients‘

g 1

4 - eat -

lease offers within the meaning of 43

CFR 3100.0-5(b) by reason of the exclusive

agency provision and the right to share

in the profits from the sale of a lease;

(2) there was a violation of 43 CFR 3102.7

because Engle's interest in the offer was

not disclosed; and (3) there was a violation

of 43 CPR 3112.5-2 because Engle had the

same interest in more than one clients’

lease offer submitted for the same parcel.

(Appellants' Ex. No. 28, pp. 59-60).

The regulations relied on by the

Wyoming State Office provide in part:

43 CFR 3100.0-5(b) * * * An “interest”

in the lease includes, but is not

limited to, record title interests,

overriding royalty interests, working

interests, operating rights or options,

or any agreements covering such "in-

terests." Any claim or any prospec-

tive or future claim to an advantage

or benefit from a lease, and any reer

pation or any defined or undefine

share in any increments, issues, or

profits which may be derived from

or which may accrue in any manner

from the lease based upon or pursuant

to any agreement or oe gre

existing at the time when the offer

is filed, is deemed to constitute

an “interest” in such lease.

43 CFR 3102.7 * * * If there are other

parties interested in the cffer a

separate statement must be signed

by them and by the offeror, setting

forth the nature and extent of the

interest of each in the offer, the

nature of the agreement between them

if oral, and a copy of such agreement

if written. All interested parties

must furnish evidence of their qualifi-

cations to hold such lease interest.

Such separate statement and written

agreement, if any, must be filed not

later than 15 days after the filing

of the lease offer. Failure to file

the statement and written agreement

within the time allowed will result

in the cancellation of any lease that

may have been issued pursuant to the

offer.

43 CPR 3112.5-2 * * * Similarly, where

an agent or broker files an offer

to lease for the same lands in behalf

of more than one offeror under an

agreement that, if a lease issues

to any of such offerors, the agent

or broker will participate in any

proceeds derived from such lease,

the agent or broker obtains thereby

a greater probability of success in

obtaining a share in the proceeds

of the lease and all such offers filed

by such agent or broker will also

be rejected. Should any such offer

be given a priority as a result of

such a drawing, it will be similarly

rejected.

Engle appealed the decisions of the

Wyoming State Office, not in his name,

but, in the names of his clients. The

appeals were taken pursuant to 43 CFR 4.410

-_ ~~ - —_—

which provides that “any party to a case :

who is adversely affected by a decision sf

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of an officer of the Bureau of Land Management

* * * shall have a right to appeal to the

Board [of Land Appeals)". (Tr. 150-151).

When Engle became aware of the position

taken by the Wyoming State Office in its

rejection decisions, he and his then attorney,

Harry W. Theuerkauf, contacted the Wyoming

State Office in an attempt to find a way

to avoid the risk of future disqualifications

of winning clients pending appellate and

possibly judicial review of the Wyoming

State Office's rejection decisions. They

were referred to John D. Erdmann, a Paralegal

Specialist working in the Oil and Gas Section

of the Branch of Lands and Minerals Operations

of the Division of Technical Services in

the Wyoming State Office. Engle and Theuverkauf

reached an understanding with Erdmann,

which was concurred in by Harold G. Stinch-

comb, Chief, Branch of Lands and Minerals

Operations, and Glenna M. Lane, Chief,

Oil and Gas Section, that Engle could con-

tinue to use his standard form service a

agreement, as to both existing and new Ps

EB-63 |

Clients, pending appellate and possibly

judicial review and the Wyoming State Office

would not disqualify any winning clients

if (1) Engle filed a document drafted by

his attorney designated “Amendment and

Disclaimer" with the Wyoming State Office;

(2) Engle notified each successful client,

after the drawing, of the disclaimer and

of the clients being free to either enter

into a new service agreement with Engle or

to decline to do so and be under no further

Obligation; and (3) Engle provided the

Wyoming State Office with information

sufficient to enable it to satisfactorily

monitor Engle's adherence to the under-

standing. (Appellants' Ex. No. 28, pp.

60, 69-85, 90-91, 115-118, 121-123).

Engle did not want to revise his standard

form service agreement because of his uncer-

tainty as to whether the position of the

Wyoming State Office that the agreement

gave Engle an interest in his clients’

lease offers would be sustained on appeal is

and because of problems posed by the large BY

number of clients (between 4,000 and 6,000)

that Engle had at the time. (Appellants'

Ex. No. 25, pp. 9, 12-13). He did not

want to avoid the problem created by his

service agreement by disclosing his interest

and filing the statements and information

required by 43 CFR 3102.7 because, as he

advised Erdmann, "there's obviously going

to be more than one [filing] per parcel".

Appellants’ Ex. No. 28, p. 72).

The personnel of the Wyoming State

Office did not feel that they could compel

Engle to revise his service agreement until |

their position had been sustained by the

Interior Board of Land Appeals and they

felt that the amendment and disclaimer

proposal submitted by Engle and his attorney

would solve the problem on an interim basis

pending the appeals and possibly judicial

review. (Appellants' Ex. No. 28, p. 91).

In a subsequent deposition, Erdmann

testified as follows with respect to his

conversations with Engle's attorney,

Theuerkauf:

A. * * * I explained that I was

not counsel for the Department of

the Interior; I explained that I could

not speak for anybody except those

people in the Wyoming State Office

and as to what their inclinations

were; that there was the possibility

that further protests would be made;

and that upon review at whatever level

that the accommodation that we were

making to his business needs might

not withstand more authoritative ex-

amination. (Appellants' Ex. No. 28,

pp. 117, 118)

es eeerkek a

A. * * * that I and the people

in the Wyoming State Office, particularly

the Branch of Land and Minerals Operations,

were not happy with the idea of the

accommodation we were coming to, but

we felt that it would not be injurious

to the public interest that the pur-

poses of the regulations would be

accomplished, but that I would --

that I was concerned and apprehensive

that something might go awry with

the thing. And that if he wanted

to rely on that amendment and disclaimer,

we weren't going to say no to it.

But frankly, I didn't think it was

a good idea; that we would prefer

he rewrite his agreement this way.

We thought that Mr. Engle ought to

rewrite the service agreement the

way we thought it ought to be written.

(Appellants' Ex. No. 28, pp. 122,

123)

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In his deposition, Theuerkauf explained

his understanding of the conversations

with Erdmann as follows:

A. * * * He [Erdmann] at first thought

that we should immediately file a

]

’

“se

-- start using or send out to everybody

a new service agreement. So we told

him what the problems were, and he

was sympathetic to the problem of

that, but he still thought that some-

thing had to be done.

When we proposed this [the amendment

and disclaimer], he said this was

the solution. (Appellants' Ex. No.

25, P. 12)

zx enereenke ek

Q. During the period beginning December

of 1976 and concluding in March of

1978 when the Government approved

the new service agreement, did any

Government official ever tell you

that the use of the amendment and

disclaimer, Exhibit 2, would be risky?

A. Never. Appellants’ Ex. No. 25,

pp. 26, 27)

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Q. And what did you do when you found

out that a state office [New Mexico

in March 1978] had rejected the dis-

Claimer ?

A. I called Mr. Erdmann and said,

"What's going on, you know? We had

this agreement. We've complied with

the agreement, and so far up until

today you complied with the agreement."

Q. What was Mr. Erdmann's response?

A. That was the first time that

he told me that that agreement was

only valid with the Cheyenne office

of the Bureau of Land Management.

(Appellants' Ex. No. 25, p. 29)

eseereneeaee”

Q. I'm asking you, Mr. Theuerkauf,

what you would have recommended to

Mr. Engle in December of '76 or January

of '77 had Mr. Erdmann expressed the

qualifications he first expressed

in March of ‘78.

A. * * * And if we had any doubt that

we weren't dealing with the Bureau

of Land Management and that we had

to go to * * * sixteen states, we

wouldhave very seriously considered

another way.

And, remember, at that time we were

considering revision of the service

agreement, we were considering the

disclaimer and amendment and many

other options that we had talked about.

But if I had any idea that that would

have jeopardized those 4,000 people,

we certainly would have given more

thought to another route. (Appellants'

Ex. No. 25, pp. 30, 31)

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A.. * * * If on January 13th when

I talked to Mr. Erdmann he had said, ig

"Gnder no circumstances would we accept

a disclaimer, that creates an interest "

and that's it and you've got to have :

a new service agreement," we probably

would have done it, because at that De

point Mr. Engle was interested only 4

in qualifying his clients. >

Now, they didn't say that, but if o

they would have, that's probably what

we would have done. * * * (Appellants' a

Ex. No. 25, P. 54) i

Pursuant to the arrangement reached ae:

with Erdmann, Engle executed the amendment &¢g

and disclaimer document on January 13, heey

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1977. It was received by the Wyoming State

Office on or about January 18, 1977. (Tr.

66-68). This document recited that Engle

"is a party to various contracts designated

as service agreements with various customers

for drawings"; that "it is possible that the

Bureau of Land Management may opine that

said exclusive agency, in fact, vests in

the undersigned an interest in the lease

or offer"; and that “it is the intention

and desire of the undersigned to avoid

any adverse consequences or delays which

may result should the Bureau of Land Management

adopt such an opinion", The document then

stated that "I [Engle] do hereby waive

and renounce any exclusive agency which

I may have by reason of said service agreements

with said offerors from and after this

‘

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* ‘

date"; that “said waiver and renunciation

shall become operative forthwith and shall

inure forthwith for the benefit of all

said offerors"; and that "in the event

a determination is nde following the exhaus-

tion of all administrative remedies and

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judicial remedies that said exclusive

agency does not constitute an interest

of the undersigned in said oil and gas

leases, then and in that event this Amend-

ment and Disclaimer shall be null and void

as if never executed". (Appellants' Ex.

No. 2).

The recitals in Engle's amendment

and disclaimer document are a clear recogni-

tion by Engle that the Wyoming State Office,

which had already ruled that the exclusive

agency provision did, in fact, create a

prohibited interest in Engle in his clients‘

offers, was not the same as the Bureau

of Land Management and did not speak for

the Bureau of Land Management or the Department

of the Interior. The recitals belie Engle's

assertions that he believed he was dealing

with the Bureau of Land Management, and

not simply the Wyoming State Office, in

arranging the amendment and disclaimer

procedure. %

On March 12, 1977, one Bugene R, Fischer

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filed protests with the Wyoming State Office

against the issuance of six leases to clients

of Engle that were winners in the January

1977 drawing. When informed of the pro-

tests, Theverkauf sent a letter to Erdmann

dated April 4, 1977, in which he (1) confirmed

the filing of the amendment and disclaimer

with the Wyoming State Office; (2) provided

a copy of the form letter used by Engle

which “communicates the disclaimer to the

winner and permits him to do whatever he

considers in his best interest with the

lease without any commitment to Resource

Service Company"; and (3) provided a copy

of the agency contract used by Engle “to

permit the winner to reinstate the sales

agency terminated by the disclaimer if

the winner chooses to do so". (Appellants'

Bx. Wo. 18).

On April 12, 1977, the Wyoming State

Office issued a decision over the signature

of Glenna M, Lane, Chief, Gil and Gas Section,

dismissing the Pischer protest. ‘This de-

cision stated:

By agreement between this office

and Mr. Fred Engle of the Resource

Service Company, the objectionable

portions of that company's service

agreement have been eliminated. By

amendment and disclaimer dated January

13, 1977, Mr. Engle has waived all

rights to an exclusive agency to sell

his clients’ leases as set out in the

Original service agreement. Until

he can put newly printed forms into

use, Mr. Engle will notify any of

his clients who are winners in our

simultaneous drawings that they are

not bound by the exclusive agency

agreement. The clients so notified

will be invited to execute new agreements

if they desire to do so after they

are notified of winning a drawing.

This procedure will conform to our

regulations. (Appellants' Ex. No.

A copy of this decision was sent

to Theuverkauf. The decision advised the

protestant, Fischer, of his right of appeal

to the Board of Land Appeals. Wo appeal

was taken.

Donald W. Coyer, Engle's client, whose

SeeeeeeueseeG @e ws @

drawing entry card offer was drawn first

for parcel No. 44 in the May 1977 monthly

drawing conducted by the Wyoming State

Office, has been employed as a police

Blectronics technician for the City of

Milwaukee for 24 years. Coyer responded

to a newspaper advertisement place by Engle

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and, as a result, executed a service agreement

with Engle through his Resource Service

Company on January 4, 1977. The agreement

was the standard form agreement used by

Engle between 1973 and 1978. (Tr. 27-28).

On May 9, 1977, Engle called Coyer

to inform him that he had been a winner

in the May 1977 drawing. Coyer met with

Engle on that date (his first meeting with

Engle) and Engle gave Coyer (1) a form

letter dated May 9, 1977, addressed to

Coyer; (2) a copy of the amendment and

Gisclaimer; and (3) a new agency agreement.

(Tr. 29-30). At that time, Coyer executed

the new agency agreement which contained

the same terms and conditions as the ori-

ginal service agreement with respect to

the exclusive agency and Engle's right

to share on a percentage basis in any cash

price and royalty payments received by

Coyer. The agreement did not, however,

contain the provision that Engle would

process up to 300 additional lease appli-

cations free of service fees if Coyer did

mot receive at least $10,000 gross on the

sale of the lease. The form letter addressed

to Coyer stated in part:

We are in the process of working

with the Bureau of Land Management

in an effort to determine if the Sales

Agreement portion of our Service Agreement

presents a "sole party in interest”

question. There has been a sugges-

tion that this clause possibly gives

an interest to us in our client's

lease. * * * To remove any doubt

that our clients are in fact the ex-

Clusive owners of their leases and

to protect their best interests we

have informed the Bureau that we do

not consider this exclusive clause

binding if it created an interest

in us. The Bureau has suggested that

if the Sales Agreement is signed after

the drawing there is no question presented.

(Appellants' Ex. No. 4)

Prior to his first meeting with Engle

on May 9, 1977, Coyer did not know that

Engle had executed the amendment and disclaimer

Gocument. Prior to that meeting, Coyer

had not agreed to any modification of his

contract with Engle and no consideration

had been given for any contractual modifi-

cation,

On July 15, 1977, Alfred L. Easterday,

whose entry card offer was drawn second

to the card submitted by Coyer for parcel

No. 44,

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