Appendix — Southern Union Co. v. Jicarilla Apache Tribe
Supreme Court brief1986
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324
Supreme Court, U.&.
es. & D
No. A-1010
AlGn13.i996
wa IN THE |
JOSERPH F. SPANIOL, JR.
Supreme Court of the Unite ERK
OCTOBER TERM, 1986
SOUTHERN UNION COMPANY,
UNICON PRODUCING COMPANY,
SOUTHLAND ROYALTY COMPANY and
EXXON CORPORATION,
" Petitioners,
JICARILLA APACHE TRIBE,
DONALD P. HODEL, Secretary of the
United States Department of the Interior
and STATE OF NEW MEXxIco,
Respondents.
PETITIONERS’ JOINT APPENDIX TO
PETITION FOR A WRIT OF CERTICRARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
SETH D. MONTGOMERY * JOHN R. COONEY *
MARK F. SHERIDAN LYNN H. SLADE
ANNE B. HEMENWAY WALTER E. STERN, III
MONTGOMERY & ANDREWS, P.A. MODRALL, SPERLING, ROEHL,
Post Office Box 2307 HARRIS & SISK, P.A.
Santa Fe, New Mexico 87504-2307 Post Office Box 2168
(505) 982-3873 Albuquerque, New Mexico 87103
Counsel for Petitioner (505) 848-1800
Southern Union Company Counsel for Petitioner
CAMPBELL & BLACK, P.A. HAROLD L. HENSLEY, JR.*
Post Office Box 2208 HINKLE, Cox, EATON,
Santa Fe, New Mexico 87501 COFFIELD & HENSLEY
(505) 988-4421 Post Office Box 10
Counsel for Petitioner Roswell, New Mexico 88201
Unicon Producing Company (505) 622-6510
FRANK G. HARMON *
BAKER & BOTTS
One Shell Plaza
Houston, Texas 77002
(718) 229-1234
Counsel for Petitioner
* Counsel of Record Exxon Corporation
WILSON - Epes PRINTING Co., Inc. - 789-0096 - WASHINGTON, D.C. 20001
TABLE OF CONTENTS
APPENDIX A Page
Opinion of the United States Court of Appeals for
the Tenth Circuit on Rehearing En Banc, filed
PT Re Cas SP pean aT oe me la
Opinion of the United States Court of Appeals for
the Tenth Circuit Denying Petitions for Rehearing
En Banc, filed April 15, 1986 ..............2000.202..... 15a
Opinion of the United States Court of Appeals for
the Tenth Circuit Denying Motion to Modify En
Banc Opinion and Supplementing En Banc Opin-
i ey NE Gh Acie a ie 18a
APPENDIX B
Opinion of the United States Court of Appeals for
the Tenth Circuit, filed February 24, 1984 ............. 2la
APPENDIX C
Opinion of the United States District Court for
the District of New Mexico on Cross Motions for
Partial Summary Judgment, filed September 7,
Tait eh hE ee ae ea a 66a
Order of the United States District Court for the
District of New Mexico on Cross Motions for Par-
tial Summary Judgment, filed September 7, 1978.. 73a
APPENDIX D
Opinion and Order of the United States District
Court for the District of New Mexico Denying
Plaintiff’s Motion to Reconsider Partial Summary
Judgment, filed December 19, 1978 ............0.00000...... 75a
APPENDIX E
Opinion of the United States District Court for
the District of New Mexico, Denying Defendants’
Motions to Dismiss Plaintiff’s Second Amended
Complaint, filed April 13, 1979 00.00... 79a
ii
TABLE OF CONTENTS—Continued
Page
Order of the United States District Court for the
District of New Mexico Denying Defendants’ Mo-
tions to Dismiss Plaintiff’s Second Amended Com-
plaint, fled April 18, 197O ............-.....c...cccs-ssecoensnmnoee 102a
APPENDIX F
Opinion of the United States District Court for
the District of New Mexico Following Trial on the
Merits, filed November 5, 1979 ..................--.------------ 104a
Order of the United States District Court for the
District of New Mexico Following Trial on the
Merits, filed November 5, 1979 ................-...----2-2-20-++ 138a
APPENDIX G
Opinion and Order of the United States District
Court for the District of New Mexico Pertaining
to Accounting of Royalties on Oil and Gas Leases,
Gg Fela BY, RII asisccctenesrseenstinieeneinecenteeaiins 14la
Order of the United States District Court for the
District of New Mexico on Motions to Reconsider
July 30, 1980 Opinion and Order, filed January 26,
TI ocecexcicissnssatincosnsiscisgudssansaieapiihdacansilddigiaeciasaias aia narnrne 154a
APPENDIX H
Opinion of the United States District Court for the
District of New Mexico on Cross-Claims of South-
land Royalty Company, Supron Energy Corpora-
tion and Exxon Corporation Against Gas Company
of New Mexico, filed June 1, 1981 ~............0.000002..... 165a
Order of the United States District Court for the
District of New Mexico on Cross-Claims of South-
land Royalty Company, Supron Energy Corpora-
tion and Exxon Corporation Against Gas Company
of New Mexico, filed June 1, 1981 ..............0220... 173a
iii
TABLE OF CONTENTS—Continued
Order of the United States District Court for the
District of New Mexico Amending Order of June 1,
GS eee
APPENDIX I
Opinion of the United States Department of the
Interior, Interior Board of Land Appeals, On Con-
solidated Appeals From Decisions of the Acting
Deputy Cornmissioner for Indian Affairs, Pertain-
ing to Reyalty Values, decided March 21, 1980.......
APPENDIX J
25 U.S.C.A. §§ 396a-396g (1983), Indian Mineral
Ne ee en santbisenuumuseanaiiwmes
S. Rep. No. 985, 75th Cong., 1st Sess. (1937) _.......
H.R. Rep. No. 1872, 75th Cong., 3d Sess. ( 1938) ._..
APPENDIX K
25 C.F.R. §§ 211.1-211.30 (1985) (formerly codi-
fied at 24 C.F.R. § 171 (1981) ) ou.
30 C.F.R. §§ 221.1-221.80 (1981) 20.
Redesignation Table Showing Relationship of For-
mer 30 C.F.R. Part 221 (1981) to Current 30
C.F... Parts 208 to 206 (10986) ...............................
Redesignation Table Showing Relationship of For-
mer 30 C.F.R. Part 221 (1981) to Current 43
C.F.R. Parts 3160-3165 (1985) ...............................
30 C.F.R. §§ 206-100-206.107 (1985) 00...
43 C.F.R. §§ 3160.0-1-3160.0-5 (1985)
43 C.F.R. §§ 3161.1-3161.3 (1985) 200.
43 C.F.R. §§ 3162.1-3162.8 (1985) 0.
43 C.F.R. §§ 3163.1-3163.6 (1985) 20.
43 C.F.R. §§ 3164.1-3164.4 (1985)
Page
175a
176a
200a
204a
209a
214a
238a
279a
iv
TABLE OF CONTENTS—Continued
Page
43 C.F.R. §§ 3165.1-3165.4 (1985) .......................... 338a
51 Fed. Reg. 4507 (1986) (Notice of Proposed
Rules, February 6, 1966) .......................................... 34la
United States Department of Interior, Minerals
Management Service, Draft of Proposed Regula-
tions, 30 C.F.R. Parts 202, 206 and 207, February
peers 344a
APPENDIX L
United States Department of the Interior, Oil and
Gas Mining Lease for Tribal Indian Lands, Form
I TN occ tetas pasnksmsbscnniecabetinesdaestngetymaninanntesmeneien 377a
United States Department of the Interior, Geo-
logical Survey, Lessee’s Monthly Report of Sales
and Royalty, Form 9-361 (1962) ...................--.-.------ 387a
la
APPENDIX A
UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
Nos. 81-1680
81-1860
81-1871
81-1872
81-1873
81-1874
81-1939
JICARILLA APACHE TRIBE,
Plaintiff, Appellant,
Cross-Appellee,
V.
SUPRON ENERGY CORPORATION,
SOUTHLAND ROYALTY COMPANY,
DONALD P. HODEL, Secretary of the Interior
GAS COMPANY OF NEW MExIco,
Defendants, Appellees,
Cross-A ppellants,
EXXON CORPORATION,
Defendant, Cross-Claimant,
Appellee, Cross-Appellant, —
STATE OF NEW MExIco,
Applicant in Intervention
and Appellant in 81-1680.
’
[Filed Jan. 23, 1986]
U.S. District Court for the District of New Mexico
D.C. Civil No. 75-247M
2a
ON REHEARING EN BANC
Robert J. Nordhaus and B. Reid Haltom of Nordhaus,
Haltom & Taylor, Albuquerque, New Mexico, for Plain-
tiff, Appellant, Cross-Appellee Jicarilla Apache Tribe.
Maria A. Iizuka, Attorney (F. Henry Habicht II, As-
sistant Attorney General, and Anne S. Almy, Attorney,
Department of Justice, Washington, D.C.; William L.
Lutz, United States Attorney, and Raymond Hamilton,
Assistant United States Attorney, Albuquerque, New
Mexico, with her on the brief), for Appellee, Cross-
Appellant Donald P. Hodel, Secretary of the Interior.
John R. Cooney (Peter J. Adang and Susan R. Stockstill
with him on the brief), or Modrall, Sperling, Roehl,
Harris & Sisk, P.A., Albuquerque, New Mexico, for Ap-
pellee, Cross-Appellant Southland Royalty Company.
Mark F. Sheridan (Seth D. Montgomery, Gary R. Kil-
patric, and Wesley B. Howard, Jr., with him on the
brief), of Montgomery & Andrews, P.A., Santa Fe, New
Mexico, for Cross-Appellant Gas Company of New Mexico.
Bruce D. Black of Campbell & Black, P.A., Santa Fe,
New Mexico, filed a brief for Unicon Producing Company,
formerly Supron Energy Corporation, Defendant, Appel-
lee, Cross-Appellant.
Harold L. Hensley, Jr. of Hinkle, Cox, Eaton, Coffield &
Hensley, Roswell, New Mexico, filed a brief for Defend-
ant, Cross-Appellant Exxon Corporation.
Paul Bardacke, Attorney General, and Bruce Thompson,
Assistant Attorney General, Santa Fe, New Mexico, filed
a brief for State of New Mexico, Applicant in Interven-
tion and Appellant in 81-1680.
Kenneth J. Guido, Jr., of Sonosky, Chambers, Sachse &
Guido, Washington, D.C.; and Thomas Acevedo of Fred-
ericks & Pelcyger, Boulder, Colorado, filed a brief for
Amici Curiae Shoshone and Arapahoe Indian Tribes.
3a
Ernest J. Altgelt III, Houston, Texas (John K. Dubiel
and Thomas H. Burton, Houston, Texas; Jason Kellahin
of Kellahin & Kellahin, Santa Fe, New Mexico; and
Houston G. Williams of Williams, Porter, Day & Neville,
Casper, Wyoming, appearing of counsel on the brief),
for Amicus Curiae Conoco Inc.
Before HOLLOWAY, Chief Judge, SETH, MCWIL-
LIAMS, BARRETT, DOYLE,* MCKAY, LOGAN, and
SEYMOUR, Circuit Judges.
PER CURIAM:
These cases are before the court for rehearing en banc.
The majority of the court adopts the prior dissenting
opinion of Judge Seymour, reported at 728 F.2d 1555,
1563 (10th Cir. 1984), with the exceptions and additions
set out below.
As Judge Seymour noted in dissent, whether the New
Mexico Natural Gas Pricing Act (NMNGPA), N.M.
Stat. Ann. § 62-7-1 et seq. (1982), applies to sales by
non-Indian producers to non-Indian buyers of gas pro-
duced on the reservation is an issue that need not be
decided in this case and we specifically do not decide it.
We adopt the view that under the NMNGPA, value for
royalty purposes can exceed sales prices and thus can
exceed the price ceilings. Given this construction, the
Act creates no possible conflict with federal law, so we
need not decide the preemption issue addressed in the
dissent.
There is one issue not reached in the dissent which
must now be decided. The trial judge held that the
Tribe had stipulated away part of its claim against de-
*The Honorable William E. Doyle did not participate in this
matter after December 31, 1985.
4a
fendant Southland Royalty Company. The court said
that “[a]eknowledging the inconsistency of this result,
I state only that plaintiff is bound by the stipulation of
counsel.” 479 F. Supp. 536, 552 (D.N.M. 1979). The
Tribe argues that the court’s construction of its stipu-
lation is not logical. Given the context in which the
stipulation was made, we agree.
Prior to trial, the court granted partial summary
judgment in favor of defendants on the issue of “value”
for royalty purposes, holding that defendants had paid
royalties on the “value” of minerals produced from the
leased lands by basing royalties on the actual price re-
ceived for sale of gas at the wellhead. Although the
court ultimately reversed itself on this issue, its decision
was the law of the case throughout the trial. The Tribe
argues persuasively that when it stipulated, in the middie
of the trial, that Southland had paid royalties at the
appropriate rate on the consideration Southland had re-
ceived, the stipulation only applied to the situation where
the sale price had been held by the court to be conclusive
evidence of value. On appeal, Southland has provided
no reason why the Tribe would drop its claim against
Southland and not against other defendants. We thus
conclude that the trial court misconstrued the stipulation.
We have considered the other arguments of the various
defendants and conclude that they are without merit.
Accordingly, the district court is affirmed in all respects
except for its limitation on the Tribe’s recovery against
Southland. In this regard, the cause is reversed and
remanded to the district court for computation of the
additional amount owing from Southland to the Tribe.
eID EPPA PA LB OR
5a
SETH, Circuit Judge, dissenting:
I must dissent from the majority opinion.
The panel opinion in this appeal noted that there was
no finding that the Secretary had acted in an arbitrary
or capricious manner in reaching and continuing his con-
struction of the regulations and the lease as to royalty
payments. This is mentioned because this finding has
unusual implications in this case. Thus it has to be
assumed that the Secretary had performed all his func-
tions as a public official, and had considered his duties to
carry out national energy policies; to exercise his dis-
cretion as to the subject matter under the regulations; to
consider the impact on public land leases generally; to
carry out contractual obligations; and his duties to the
parties with direct concern—the Irian lessors and the
lessees. These considerations were of both the short and
long range implications of his action. Again, since the
Secretary did not act in an arbitrary or capricious way,
he included an evaluation of his position as to the lessors.
There is nothing whatever shown to the contrary. The
duty to the Tribe, however it may be characterized, was
thus among the elements considered. His general broad
discretion under the statutes, regulations, and the leases
was, of course, an element in his evaluation.
The Secretary in the execution of his duties gave what
he considered appropriate weight to each element. The
majority of the panel which first heard the case con-
cluded that he had acted within his duties and functions
and thus held it was not for the trial judge to redo the
Secretary’s actions and assume his functions.
The trial court had substituted its own views as to the
weight and consideration to be given to the several ele-
ments. The trial court thus overturned completely the
construction of the regulations and the leases established
by the Secretary for 20 or 25 years. This it did by con-
sidering only one element in the mix and excluding all ©
6a
others. Thus the court held that the only factor or con-
sideration was to “maximize” the immediate royalty reve-
nues to the Jicarilla Apache Tribe. There was in its
view nothing else to be considered. Thus, although the
Secretary had evaluated all the elements and given
weight to them (including a duty to the Tribe), he had
in the court’s view breached his fiduciary duty. This,
again, because the Secretary’s only duty was to “maxi-
mize” revenues and to do nothing else. If he did any-
thing else it constituted a breach of “fiduciary duty.”
Under this view, of course, the Secretary had no dis-
cretion whatever under the regulations or leases, and no
duty to the national energy policy, nor to public land
policies, conservation or anything else. The only duty
and function of the Secretary of the Interior was to
“maximize” tribal revenues regardless. If this is his
function he is not the Secretary of the Interior but a
functionary for but one interest.
On the en banc consideration the Tribe again advances
this only duty of the Secretary, but it fails to identify
the extent, nature or the source of such a duty. It would
not seem enough to pick up quotations from a variety
of cases, and to apply them in this case regardless of
context. There is no overall, all pervading “fiduciary
duty” to the Tribe. It has to have its origin in some
statute relating to the subject matter and applicable to
the particular situation. This is what United States v.
Mitchell, 445 U.S. 535, and United States v. Mitchell,
463 U.S. 206, teach. That is, there must be a statutory
basis for the duty and a clear one. The particular stat-
utes were brought forth in Mitchell II.
Congress has plenary power over the Indian tribes
and their lands. A consideration of the relationships
must start with this basic proposition. Congress has
this complete authority and when it places with a public
official the authority to perform a function and the power
to control and to administer Indian property the grant
must be clear and specific as to the particular property
Oe ee core een ire nea
Ta
before a fiduciary duty arises. This is what Mitchell I
and IJ hold. There is only a “fiduciary duty” when a
statutory basis exists and the nature and scope of such
duty is therefrom clear. As the Court said, the statute
defines the “contours” of a duty. Again, there is no
amorphous all-inclusive “fiduciary duty” out there.
The Tribe itself entered into the leases as lessor. It
has the authority that any lessor has under an oil and
gas lease to enforce its terms and conditions and to so
manage the property. The Tribe has engaged attorneys
to provide advice. Its revenues from oil and gas royalties
have been large as this record demonstrates. In Mitchell
I the Court stated that Congress intended that the In-
dians were to manage their lands rather than the United
States. This must be the starting point and the initial
assumption in this case.
In Mitchell II, as mentioned, the Court relied on
several specific statutory provisions relating only to In-
dians and to the subject concerned to have created a
fiduciary duty. It held that to create a duty the stat-
utes must “clearly establish” the fiduciary relationship.
It is worthwhile to consider the statutes in Mitchell IT:
25 U.S.C. §§ 406 and 407 refer to timber on Indian land
held under a trust or other patent. It provides that
timber sales shall be made upon a consideration of the
“needs” and “best interests” of the Indian owner; 25
U.S.C. § 407 refers to sales of timber on unailovted reser-
vation lands and provides such timber may be sold in
accordance with sustained yield and with other standards
recited in the statute; 25 U.S.C. § 466 directs the Secre-
tary to make rules for the management of Indian for-
estry units; 25 U.S.C. §318a covers roads on Indian
reservations; § 323 empowers the Secretary to grant
rights of way over Indian lands; § 324 covers consents
for rights of way; and § 325 covers compensation. These
were the specific statutes directed to Indian lands relied
on by the Court in Mitchell IJ. The detail therein pro-
8a
vided as to forestry practices demonstrate the needed de-
tail to provide the existence and scope of the duty.
We have nothing comparable in the case before us.
The plaintiffs seek to rely on the Indian Mineral Leas-
ing Act, 25 U.S.C. § 396, to meet the “clearly establish”
requirement, but its substance does not support such an
argument. This Act does no more than authorize the
Tribe to lease lands (with the approval of the Secretary)
for minerals. Section 396(b) provides for bids for leases,
but expressly provides that an organized Tribe (as here
concerned) may lease according to its own constitution.
Section 396(c) provides for bonds by lessees for compli-
ance with leases and § 396(d) states that operations under
the Indian leases shall be in accordance with rules and
regulations promulgated by the Secretary. These are the
general public land regulations and are not directed to
Indian lands.
The General Allotment Act and the Indian Reorganiza-
tion Act do not provide a basis for a fiduciary duty.
Thus there are no prescribed standards—no “contours”
for any management by the Secretary—only in accord-
ance with the regulations he prescribes. This would seem
at most to place his duty within a “reasonable care”
standard along with everybody else.
There was no treaty with the Jicarilla Apaches. The
Reorganization Act of 1934 does not supply a duty.
There was no Congressional Act to create the Reser-
vation.
Our cases, before Mitchell I and Mitchell II, rely on
a general, all prevading “fiduciary duty,” applicable in
ali dealings with Indian Tribes in all circumstances.
Now however a fiduciary duty not only has to have its
crigin in statutory provisions, but it only has a mean-
ing and scope derived therefrom. Tere is a new meas-
ure, a new standard, and the abundance of quotations
9a
of phrases from the older cases would seem to be no
longer useful.
The opinion of the Court in Nevada v. United States,
463 U.S. 110, is also significant as to several aspects of
this case. It demonstrates the error in the remedy
sought to be used by the trial court. Also, it considers
circumstances where the Secretary of the Interior had
duties in the same transaction to different entities one
of which was the Pyramid Lake Paiute Tribe. The
Court pointed out the diverse interests or claimants to
the water there concerned and concluded that the Sec-
retary had. properly exercised his discretion. He had
considered all elements and so discharged his duty. There
is no hint in the opinion that the interest of the Paiute
Tribe was the only consideration, and when it was in-
cluded in the combined circumstances there was no
breach of fiduciary duty as held by the trial court in the
case before us. The fact that litigation was involved in
Nevada v. United States is not significant as the action
of the Secretary and his decision obviously preceded the
litigation. The Court in Nevada v. United States said
of the Secretary’s several possibly conflicting obligations:
“In this regard, the Government cannot follow the
fastidious standards of a private fiduciary, who
would breach his duties to his single beneficiary
solely by representing potentially conflicting interests
without the beneficiary’s consent. The Government
does not ‘compromise’ its obligation to one interest
that Congress obliges it to represent by the mere
fact that it simultaneously performs another task
for another interest that Congress has obligated it
by statute to do.”
The Court in the same case quoted in a footnote the trial
court’s findings as to the conflict and which characterized
the decisions in the Department as within the scope of
delegated duties and which were political and policy de-
cisions. Of this the Court said:
10a
“The District Court’s finding reflects the nature of a
democratic government that is charged with more
than one responsibility; it does not describe conduct
that would deprive the United States of the author-
ity to conduct litigation on behalf of diverse in-
terests.”
It seems advisable to state a few facts in the case be-
fore us. The lease is the common form (or was) used
for all public lands. The leases were executed by the
Tribe and the original lessees in 1950. The gas produced
is sold at the wellhead with a price adjustment for BTU
content (thus the combustible gas and liquid content).
The gas goes into intrastate commerce only. The Lybrook
Plant near the Reservation extracts liquids from the gas
produced by the leases in question and from gas pro-
duced elsewhere in the area from private and public
lands. The liquid content of the gas varies from place
to place. This plant operates most but not all the time.
It is owned and operated by a stranger to the litigation.
The extraction of liquids is for the transporters-owners
of the gas which they have purchased at the wellhead
from the defendant lessees. For a period of time, 1974-
1979, the plant was owned by a defendant—Supron—
but only for that period. No other lessee has had an
interest in the plant. Extraction plants are common in
and near gas fields throughout the country, including
gas fields producing gas from the public lands under
leases like the one in issue. The lessees were regularly
billed for royalties by the USGS and its successor.
These royalties were paid by the lessee-defendants. These
computations were made in accordance with the Secre-
tary’s construction of the lease terms and regulations.
The defendants thus acted only in response to the offi-
cial line.
The regulations in issue need not be here described in
detail. It is sufficient to point out that they divide, for
the computation of royalty, lessees into two categories.
wen es al + end
lla
The first are the lessees with interests in an extraction
plant, and for these the regulation 30 C.F.R. § 206.106 is
directed to such a lessee which thereby derives revenues
from the products extracted at its plant. Royalty is thus
based on what such lessee receives for the products. The
second group are the lessees who do not have an interest
in such a plant and for these the Secretary has discretion
to use the actual amount received at the wellhead for the
gas produced or to use the highest field price (30 C.F.R.
§ 206.103) with the BTU adjustment.
The record shows that the Secretary put Supron in the
first category during the period when it owned-operated
the plant. This was the Secretary’s construction of the
regulations and the accepted practice. The other lessees
were placed in the second category as were all lessees
with no plant ownership. This was also the generally
accepted construction of the leases and regulations and
the one uniformly followed by the USGS for all public
land leases.
The trial court instead sought to place the lessees in
both categories at the same time in requiring that royal-
ties be computed on the higher of the two figures. There
is no basis in the regulations to place a lessee in both.
It thus required accounting from lessees as to product
values and processing costs although strangers owned the
plants and lessees had no access to the plant records.
There was however a theoretical formula provided in the
regulations.
The method the trial court devised was also incomplete
in several important particulars. It made no allowance
for shrinkage or line losses, for drip gasoline, or for the
cost of transportation to the plant. The theoretical manu-
facturing allowance departed widely from the standards
theretofore applied, and had no basis in the record.
There are other omissions which demonstrate it was a
matter to be left to the experts. The solution by the trial
court also ignored the fact that the propane and butane
12a
are further processed. It is just as reasonable to include
this processing as it is the processing of the gas. The
trial court’s solution treats these leases differently from
public land leases nearby under the very same regula-
tions.
It became more apparent during the en banc oral argu-
ment that if it were held that there was a breach of duty
by the Secretary the trial court applied the remedy to the
wrong parties and so punished the lessees although it
stated that they were in no way at fault. They paid
what they were billed. It was also observed at the oral
argument that the Tribe had an action pending against
the Government in the Claims Court asserting a breach
of duty arising from the same circumstances.
It has been suggested that some sort of a break in
the sequence should be made in 1979 when the Secretary
acceded to the trial court’s orders. That somehow the
dual accounting arose as an independent act of the Secre-
tary. The record does not permit this independent act
argument as the change came about only as a response
to the order of the trial court. There is no administrative
record to support such a ‘voluntary” change as is re-
quired.
The timing and the statements or references to the
orders alsc demonstrate the involuntary nature of the
change. However, equally persuasive was the argument
of the Government at the en banc hearing which recited
that before the court order there were some persons in
the department seeking a change and some memos writ-
ten, but they were unable to get official approval for a
change.
It is also persuasive that these are the only Indian or
public land leases in the country where this construction
is now applied. If this is the only place it cannot be
accepted that the change was voluntary. If the Secretary
independently came to a decision to require dual account-
eS
18a
ing and to so change the long construction of the lease
and regulations it was necessary for him to articulate
| the reasons for the change. Motor Vehicle Manufacturers
; Ass’n v. State Farm Mutual Automobile Insurance Co.,
463 U.S. 29. This is both a procedural and substantive
requirement. This was not done. It would have been
necessary and the practice to give notice to those directly
concerned to give them a chance to express their views.
Again, there is no administrative record to describe or
to support such a change. The conclusion must be reached
that the change was not an administrative change but
was instead brought about by the trial court’s order.
The order was entered April 11, 1979. The Secretary
relies on memos which did not reach the problem. This is
particularly evident in an Associate Solicitor’s letter of
July 20, 1981. There is reliance for independent action
| placed on the IBLA Supron opinion, but this relies on
the trial judge’s order. This opinion expressly refers to
“Cwlhere a United States District Court has ordered a
lessee to adopt dual accounting ....” In any event, the
issue in the above Supron case only arose as to Supron’s
interest in the Lybrook plant described above and was in
conformity with the then existing construction. It did
not concern other lessees.
In the record no basis exists for a conclusion that the
change in the Secretary’s position as to dual accounting
came about other than by the court’s order. Again, it
should be mentioned that the Government’s oral argument
at the en banc hearing stated that there were internal
memos in the Department on the subject of dual account-
ing, but it had no official sanction before the court order.
Again, these are the only Indian or public land leases in
the country where dual accounting is required. This has
continued since the purported change five or eight years
ago. This must have some significance.
Thus the infirmities both substantive and procedural
of the trial court’s order continues to this day. If the
l4a
dual accounting is supported it must be by reliance on
the actions of the trial court.
I would set aside the order and judgment of the trial
court.
Judge McWilliams and Judge Barrett join in this
dissenting opinion.
15a
MARCH TERM—April 15, 1986
Before Honorable William J. Holloway, Jr., Honorable
Oliver Seth, Honorable Robert H. McWilliams, Honorable
James E. Barrett, Honorable Monroe G. McKay, Honor-
able James K. Logan, Honorable Stephanie K. Seymour,
Honorable John P. Moore, Honorable Stephen H. Ander-
son, Honorable Deanell Reece Tacha, Honorable Bobby
R. Baldock, Circuit Judges
Nos. 81-1680
81-1860
81-1871 thru 81-1874
81-1939
JICARILLA APACHE TRIBE,
Plaintiff-Appellant/
Cross-Appellee,
vs.
SUPRON ENERGY CORPORATION, et al.,
Defendants-A ppellees/
Cross-A ppellants.
This matter comes on for consideration of the petitions
for rehearing and suggestions for rehearing en banc filed
in the captioned cause by Defendants-Appellees/Cross-
Appellants Unicon Producing Company (formerly Supron
Energy Corporation), Gas Company of New Mexico, and
Exxon Corporation.
Upon consideration whereof, the petitions for rehear-
ing are denied by the en banc court that rendered the
decision sought to be reheard. Judge Barrett voted to
grant rehearing.
16a
A poll was requested on the en banc suggestion. Judges
Barrett and Baldock voted to grant rehearing en banc.
A majority of judges having voted to deny the petition
for rehearing en banc, the petition is therefore denied.
/s/ Robert H. Hoecker
ROBERT H. HOECKER
Clerk
Mr. Robert J. Nordhaus
Mr. B. Reid Haltom
Mr. Peter E. Springer
Ms. Marcia L. Green
Nordhaus, Haltom & Taylor
507 Roma Avenue, N.W.
Albuquerque, NM 87102
Mr. Terry Farmer
Moses, Dunn, Beckley,
Espinosa & Tuthill
800 American Bank of Commerce
200 Lomas Boulevard, N.W. #800
Albuquerque, NM 87102
Mr. Bruce D. Black
Mr. Kemp W. Gorthey
Campbell and Black, P.A.
P. O. Box 2208
Santa Fe, NM 87501
Mr. John R. Cooney
Mr. Peter J. Adang
Ms. Susan Stockstill Julius
Modrall, Sperling, Roehl,
Harris & Sisk
P. O. Box 2168
Albuquerque, NM 87103
Mr. Frank Harmon
Baker and Botts
8000 One Shell Plaza
Houston, TX 77002
William Lutz, U.S. Attorney
James B. Grant, Assistant
Raymond Hamilton, Assistant
P. O. Box 607
Albuquerque, NM 87103
Mr. Gary L. Kilpatric
Mr. Edward F. Mitchell
Mr. Mark Sheridan
Montgomery, Andrews &
Hannahs, P.A.
P. O. Box 2307
Santa Fe, NM 87501
17a
Mr. Don M. Chrestman
Attorney at Law
1000 Fort Worth Club Tower
Fort Worth, TX 76102
Mr. Paul Bardacke,
Attorney General
Mr. Bruce Thompson, Assistant
P. O. Drawer 1508
Santa Fe, NM 87501
Mr. J. Douglas Foster
Mr. Harold L. Hensley
Hinkle, Cox, Eaton, Coffield &
Hensley
P. O. Box 10
Roswell, NM 88201
Mr. Anthony Liotta, Deputy
Assistant Attorney General
Mr. Christopher Harris
Mr. Edward J. Shawaker
Mr. Raymond Hamilton
Ms. Haria A. Iizuka
Ms. Anne Almy
Land & Natural Resources
Division
Appellate Section
U.S. Department of Justice
Washington, DC 20530
Mr. Kenneth J. Guido, Jr.
Mr. Reid Peyton Chambers
Mr. Harry R. Sachse
Mr. Lloyd B. Miller
Mr. Kevin A. Griffin
Mr. Loftus E. Becker, Jr.
Sonofsky, Chambers, Sachse
& Guido
1050 31st Street, N.W.
Washington, DC 20007
18a
MAY TERM—June 18, 1986
Before Honorable William J. Holloway, Jr., Honorable
Oliver Seth, Honorable Robert H. McWilliams, Honorable
James E. Barrett, Honorable Monroe G. McKay, Honor-
able James K. Logan, Honorable Stephanie K. Seymour
Nos. 81-1680
81-1860
81-1871 thru 81-1874
81-1939
JICARILLA APACHE TRIBE,
Plaintiff-Appellant/
Cross-A ppellee,
VS.
SUPRON ENERGY CORPORATION, et al.,
Defendants-A ppellees/
Cross-Appellants.
The Government has moved the Court to modify its en
bane opinion in this case with respect to various con-
clusions regarding the Secretary’s fiduciary duty to the
Tribe. Upon consideration, the motion to modify in the
regard requested by the Government is denied. Judges
Seth and Barrett would grant the Government’s motion.
On its own motion, the Court hereby supplements the
en bane opinion. Citing Nevada v. United States, 463
U.S. 110, 114 n.16 (1983), defendants have argued that
the Government should pay the additional royalties owing
as the result of this case because their nonpayment re-
sulted from the Government’s breach of its fiduciary duty.
A Aid I Ld ene AIC ys
entitle pettus
19a
We disagree. The allegation in Nevada was that the
Government ineffectively represented the Tribe in a law-
suit, resulting in the Tribe being barred by res judicata
from raising claims against third parties. The Court said
in note 16 that the Tribe’s remedy was against the Gov-
ernment. While the Secretary failed in its duty to repre-
sent the Tribe’s interests in the present case, the rela-
tionship between the Tribe and defendant-lessees is con-
tractual. The failure of the Secretary to require dual
accounting resulted in the lessees paying an insufficient
amount of royalties under the contract. That the Secre-
tary breached its fiduciary duty to properly enforce the
leases does not excuse the lessees from subsequently hav-
ing to pay the amounts determined to be owed under the
leases. Cf. Atlantic Richfield Co. v. Hickel, 482 F.2d 587,
592 (10th Cir. 1970).
The mandate in this case is stayed for 30 days to per-
mit the timely filing of a petition for writ of certiorari.
If a timely petition is filed, the stay shall remain in effect
until the Supreme Court disposes of the petition.
/s/ Robert L. Hoecker
ROBERT L. HOECKER
Clerk
1 Judges Seth, McWilliams, and Barrett dissent from this con-
clusion.
Mr. Robert J. Nordhaus
Mr. B. Reid Haltem
Mr. Peter E. Springer
Ms. Marcia L. Green
Nordhaus, Haltom & Taylor
507 Roma Avenue, N.W.
Albuquerque, NM 87102
Mr. Terry Farmer
Moses, Dunn, Beckley,
Espinosa & Tuthill
800 American Bank of
Commerce
200 Lomas Boulevard, N.W.
#800
Albuquerque, NM 87102
Mr. Bruce D. Black
Mr. Kemp W. Gorthey
Campbell and Black, P.A.
P. O. Box 2208
Santa Fe, NM 87501
Mr. John R. Cooney
Mr. Peter J. Adang
Ms. Susan Stockstill Julius
Modrall, Sperling, Roehl,
Harris & Sisk
P. O. Box 2168
Albuquerque, NM 87103
Mr. Frank Harmon
Baker and Botts
3000 One Shell Plaza
Houston, TX 77002
William Lutz, U.S. Attorney
James B. Grant, Assistant
Raymond Hamilton, Assistant
P. O. Box 607
Albuquerque, NM 87103
Mr. Gary L. Kilpatric
Mr. Edward F. Mitchell
Mr. Mark Sheridan
Montgomery, Andrews &
Hannahs, P.A.
P. O. Box 2307
Santa Fe, NM 87501
(also Mr. Seth B. Montgomery
& Ms. Anne B. Hemenway)
20a
Mr. Don M. Chrestman
Attorney at Law
1000 Fort Worth Club Tower
Fort Worth, TX 76102
Mr. Paul Bardacke,
Attorney General
Mr. Bruce Thompson, Assistant
P. O. Drawer 1508
Santa Fe, NM 87501
Mr. J. Douglas Foster
Mr. Harold L. Hensley
Hinkle, Cox, Eaton, Coffield
& Hensley
P. O. Box 10
Roswell, NM 88201
Mr. Anthony Liotta, Deputy
Assistant Attorney General
Mr. Christopher Harris
Mr. Edward J. Shawaker
Mr. Raymond Hamilton
Ms. Maria A. Iizuka
Ms. Anne Almy
Land & Natural Resources
Division
Appellate Section
U.S. Department of Justice
Washington, DC 20530
Mr. W. Richard West
Fried, Frank, Harris, Shriver
and Jacobson
600 New Hampshire Ave. N.W.
Washington, D.C. 20037
| APPENDIX B
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
Nos. 81-1680
81-1860
81-1871
81-1872
81-1873
81-1874
81-1939
JICARILLA APACHE TRIBE,
Plaintiff, Appellant,
Cross-Appellee,
Ve
SUPRON ENERGY CORPORATION,
SOUTHLAND ROYALTY COMPANY,
JAMES G. WATT, Secretary of the Interior,
GAS COMPANY OF NEW MEXIco,
Defendants, Appellees,
Cross-Appellants,
EXXON CORPORATION,
Defendant, Cross-Claimant,
Appellee, Cross-Appellant,
STATE OF NEW MEXICO,
Applicant in Intervention and
Appellant in 81-1680.
22a
[Filed Feb. 24, 1984]
Appeal from the United States District Court
For The District of New Mexico
(D.C. Civil No. 75-247 M)
Robert J. Nordhaus and B. Reid Haltom of Nordhaus,
Haltom & Taylor, Albuquerque, New Mexico, for Plain-
tiff, Appellant, Cross-Appellee Jicarilla Apache Tribe.
Bruce D. Black of Campbell, Byrd & Black, P.A. (Kemp
W. Gorthey, with him on the brief), Santa Fe, New
Mexico, for Defendant, Appellee, Cross-Appellant Supron
Energy Corporation.
Peter J. Adang and Susan Stockstill Julius of Modrall,
Sperling, Roehl, Harris & Sisk, P.A. (John R. Cooney,
with them on the brief), Albuquerque, New Mexico, for
Defendant, Appellee, Cross-Appellant Southland Royalty
Company.
Christopher Harris, Attorney, Department of Justice,
Washington, D.C. (Carol E. Dinkins, Assistant Attorney
General, Anthony C. Liotta, Deputy Assistant Attorney
General, Land and Natural Resources Division, Washing-
ton, D.C., William L. Lutz, United States Attorney, Ray-
mond Hamilton, Assistant United States Attorney, Al-
buquerque, New Mexico, and Edward J. Shawaker, Attor-
ney, Department of Justice, Washington, D.C., with him
on the brief, William R. Murray, Jr., Office of the Solici-
tor, Department of the Interior, Washington, D.C., of
counsel), for Defendant, Appellee, Cross-Appellant James
G. Watt, Secretary of the Interior.
Gary R. Kilpatric of Montgomery & Andrews, P.A.
(Edward F. Mitchell and Mark F. Sheridan, with him
on the brief), Santa Fe, New Mexico, for Defendant,
Appellee, Cross-Appellant Gas Company of New Mexico.
23a
J. Douglas Foster of Hinkle, Cox, Eaton, Coffield &
Hensley (Harold L. Hensley, Jr., with him on the brief),
Roswell, New Mexico, for Defendant, Cross-Claimant,
Appellee, Cross-Appellant Exxon Corporation.
Thomas L. Dunigan, Assistant Attorney General, State
of New Mexico (Jeff Bingaman, Attorney General, and
Bill Primm, Assistant Attorney General, with him on the
brief), Santa Fe, New Mexico, for State of New Mexico,
Applicant in Intervention and Appellant in 81-1680.
Kenneth J. Guido, Jr., Reid Peyton Chambers, Harry R.
Sachse, Lloyd B. Miller, Kevin A. Griffin and Loftus E.
Becker, Jr. of Sonosky, Chambers, Sachse & Guido,
Washington, D.C., filed a brief on behalf of Amici Curiae
Shoshone and Arapahoe Indian Tribes.
Before SETH, Chief Judge, McWILLIAMS and SEY-
MOUR, Circuit Judges.
SETH, Chief Judge.
These are consolidated actions and appeals wherein
the plaintiff asserts a series of claims arising from oil
and gas leases executed 25 or 30 years ago. There are
several separate issues raised on appeal concerning com-
putation of royalty, development and antitrust claims.
The gas production was from wells located on the Jicarilla
Reservation and was sold and consumed in New Mexico.
Issues Relating to Value of Gas
The trial court held for all practical purposes that the
defendants should have paid royalty computed on a
“value” which was derived from the total net amount
realized by the Lybrook processing plant for all products
it developed from the gas it received from Southern
24a
Union which in turn had been purchased from and at
the leases of the defendants on the Jicarilla Indian lands.
The court required that there be a “dual accounting”
by all lessees which meant that there be determined both
the price received by the lessees for wet gas at the well-
head where title passed, but adjusted for btu content; and
secondly, that there be ascertained the value of the several
products derived from the gas stream, and sold by the
Lybrook plant operator/owner. This product figure was
to be a net figure or “net realization.” The trial court
held that the royalty from all leases concerned should be
computed on the larger of the two figures. The court thus
mandated that the “value” based on plant product values
(or net realization) be determined, and be used as an
alternate whether or not the lessee paying the royalty
had any interest in the processing plant and whether or
not the lessee received any added compensation for the
products developed by the plant. This blanket require-
ment was contrary to the position taken by the Secretary
through the years. The requirement of “dual accounting”
required of all lessees by the trial court is one of the
several basic issues raised on this appeal. It has a facet
which involves the Secretary of Interior as the trial court
also held that this dual accounting should have been
required by the Secretary from the outset and since it
was not done there was thereby a breach of fiduciary
duty.
The leases were executed in the early 1950’s and the
regulations then in effect were not changed since that
time in any respect material to this problem up to the
time in 1979 when the trial court entered orders directed
to dual accounting. From 1950 to 1979 without exception,
and without variation, the Secretary and the USGS had
construed the lease provisions and the regulations to re-
quire dual accounting not by all lessees, but only in
instances where the lessee owned the processing plant
(or received added money for its products).
sh the aiken shone
ads es haat be
25a
The trial court’s holding was thus contrary to a long
uniform administrative construction and application of
the regulations and the lease provisions. The trial court
did not build on any basis in the administration actions,
but instead developed a wholly new interpretation. It
made no finding that the Secretary or the USGS had acted
through the years with any abuse of discretion or in an
arbitrary and capricious manner.
The record shows that Supron was the only defendant
which at any material time had an interest in the Ly-
brook plant. This interest was recognized at the time it
existed by the USGS in its construction of the lease and
regulations. Thus royalty requirements and reports by it
were based on product value. This is an example of the
consistent application of administrative construction.
Since no other defendants had such an interest no such
requirement was placed on them until the trial court
sought to apply product values to all lessees although the
plant was operated/owned by strangers whose operations
and costs were not before the court and no reason was
advanced as to why they would be made available to the
defendants. The plant also processed gas from the gen-
eral area thus from leases not here concerned. It is
located outside of and about 20 miles west of the reser-
vation boundary.
Lease Provisions
The lease provision in paragraph 3(c) [in Southland
leases] provides that the royalty at 1624% be computed
on:
“the value or amount of all oil, gas, and/or natural
gasoline, and/or all other hydrocarbon substances
produced and saved from the land leased herein... .”
The lease form [Southland] provides that the Secretary
has discretion to ascertain “value” for the computation.
Thus paragraph 3(c) provides also that:
“During the period of supervision, ‘value’ for the
purposes hereof may, in the discretion of the Sec-
26a
retary, be calculated on the basis of the highest price
paid or offered (whether calculated on the basis of
short or actual volume) at the time of production for
the major portion of the oil or the same gravity, and
gas, and/or natural gasoline, and/or all other hydro-
carbon substances produced and sold from the field
where the leased lands are situated, and the actual
volume of the marketable product less the content of
foreign substances as determined by the oil and gas
supervisor. The actual amount realized by the lessee
from the sale of said products may, in the discretion
of the Secretary, be deemed mere evidence of or
conclusive evidence of such value. When paid in
value, such royalties shall be due and payable
monthly on the last day of the calendar month fol-
lowing the calendar month in which produced; when
royalty on oil produced is paid in kind, such royalty
oil shall be delivered in tanks provided by the lessee
on the premises where produced... .”
It appears that the royalty provisions are directed to
production and sale at the field thus “produced and sold
from the field.” The due date for royalty payments is
related to the month “in which produced” thus produced
from the ground. When royalty oil is paid in kind it is
to be delivered on the “premises.”
The phrase “[tjhe actual amount realized by the lessee
from the sale of said products” referred back to oil, gas,
natural gasoline, and “all other hydrocarbon substances
produced and sold from the field.” This portion is clearly
limited by the first few words—“[t]he actual amount
realized by the lessee.” The “actual amount realized” can
apply under the Secretary’s construction to a lessee who
realizes amounts from products sold or from his extrac-
tion plant but to those situations only.
The lease makes specific reference to the value of
products of gas for royalty purposes to allow for the
27a
cost of manufacture as one choice with the “value” of
the gas as the other. Thus:
“It is understood that in determining the value for
royalty purposes of products, such as natural gaso-
line, that are derived from treatment of gas, a rea-
sonable allowance for the cost of manufacture shall
be made, such allowance to be two-thirds of the value
of the marketable product unless otherwise deter-
mined by the Secretary of the Interior on application
of the lessee or on his own initiative, and that royalty
will be computed on the value of gas or casinghead
gas, or on the products thereof (such as residue gas,
natural gasoline, propane, butane, ete.), whichever
is the greater.”
This provision gives the typical gas value versus a rough
net “value” of the product. This lease provision refers
to the determination of the “value for royalty purposes
of products.” It thus describes what is to be done if
royalty is to be applied to “products,” but it does not
say under what circumstances royalty shall be computed
on products.
As described above, the Secretary has construed the
lease and the regulations to require a computation based
on products only when the lessee is the owner of the
plant producing the products or oi. those who realize
direct income from the sale of products.
Despite the several sentences following it, the con-
trolling limitation as to royalty is the phrase “the actual
amount realized,” and the subsequent provisions are
directed to such a determination with formulas and
choices to accomplish that end.
Regulations
The regulations expand on the several lease provisions
quoted above and quote portions, thus 30 C.F.R. § 171.13,
30 C.F.R. § 221.47, 30 C.F.R. §§ 221.51 and 221.52.
28a
30 C.F.R. § 221.50 makes reference to products and
subsection (b) provides:
“If the lessee derives revenue on gas from two or
more products, a royalty normally will be collected
on all such products.”
This is specific as to a lessee who “derives revenue” on
gas from products will pay a royalty on all such products.
Again, the term “derives revenue” points only to a lessee
who has a processing plant or a contract to share in
the sale of products.
Section 221.50(c) provides:
“For the purpose of computing royalty, the value
of wet gas shall be either the gross proceeds accruing
to the lessee from the sale thereof or the aggregate
value determined by the Secretary of all commodi-
ties, including residue gas, obtained therefrom,
whichever is greater.”
It appears that the trial court placed its principal re-
liance on this subparagraph (c) in arriving at an inde-
pendent judgment as to the proper construction of the
lease. ;
We cannot agree with the trial court that this sub-
section by itself or together with other regulations or
lease terms is sufficient to set aside the Secretary’s con-
struction of his regulation and lease which was followed
and applied without exception for these many years, a
construction which has a perfectly reasonable basis in the
lease and in the regulations. Furthermore it was and
is in conformance with the practices in the industry as
shown by the record.
We cannot overiook the express provision in the lease
which states relative to “value” for royalty:
“The actual amount realized by the lessee from the
sale of said products may, in the discretion of the
29a
Secretary, be deemed mere evidence of or conclusive
evidence of such value.”
The regulations contain similar provisions. These clear
grants of authority cannot be ignored in assessing the
discretion of the Secretary.
We have described and quoted at some length the lease
clauses and the pertinent provisions of the regulations.
This has been done not to determine whether or not
we agree with the administrative interpretation, but
instead to describe the issue and to show the basis for the
Secretary’s position. When the prevailing doctrine in this
circuit is then applied to these circumstances we must
conclude that the administrative interpretation which
prevailed through the years must be applied.
We have found no abuse of discretion in this respect
by the Secretary and the trial court found none. There
is no indication of action by the Secretary which could
be characterized as arbitrary or capricious. The Secre-
tary’s position is consistent with case law in this circuit.
See Barby v. Cabot Corporation, 465 F.2d 11 (10th Cir.).
The trial court’s determination that dual accounting
is required of all lessees must be and is set aside. The
original construction placed on the lease and regulations
by the Secretary as to this issue must be applied to and
through the conclusion of these proceedings. The Secre-
tary and the IBLA appear to have changed their posi-
tions in response to rulings on the point by the trial court
during these proceedings.
Fiduciary Duty of the Secretary
As noted above, the trial court held that the Secretary
of Interior violated fiduciary standards in not applying
the royalty provisions in the way in which the court
construed them: In view of our holding above as to the
basis for the Secretary’s construction, in view of the
discretion vestdd in the Secretary as to the regulation of
30a
oil and gas matters, in the absence of any finding or
indication of abuse of discretion, and in view of the
conformance of the construction to the general practices
in the industry and the controlling case law, we find no
basis for the trial court’s determination as to fiduciary
standards. We need not and do not decide whether or
not the Secretary owes the tribe a fiduciary duty as to
the matters under consideration.
Ges Volumes
We have concluded that the trial court was correct in
its holding that the volume measurements of gas in the
past were correct as was the application of field prices.
These points are fully developed in the record and by
the trial court and no purpose would be served by a
review of the facts in this opinion.
Lease Development
The trial court held that there was no proof adduced
to demonstrate a lack of development under the leases.
This matter was so examined under the legal standards
applicable to the circumstances which are well developed.
This is a much litigated matter and there are well de-
fined standards. The trial court applied these to the facts
and we agree with the conclusion so reached.
Since there was no violation of lease terms or regula-
tions as to development of the leaseholds, we do not
reach the question as to whether the Secretary had a
fiduciary duty as to this matter. The Secretary neces-
sarily functioned within the lease terms and the regula-
tions.
Antitrust Issues
In its complaints the plaintiff advanced several anti-
trust claims based on alleged price-fixing by the defend-
ants. In this position plaintiff’s reliance was placed on
the most part on the fact that long-term gas purchase
3la
contracts had been entered into between the lessees and
Southern Union, the gas purchaser. The court found no
evidence of price-fixing or restraint of trade. It found
that the gas purchase contracts were typical since the
1930’s of those used in the San Juan Basin by other
purchasers. The court found that the contracts entered
into by the lessees although similar in form were the
result of independent business judgments and sound busi-
ness reasons were evident.
The trial court laid particular emphasis on the uni-
form use by Southern Union of most favored nation
clauses in its gas purchase contracts throughout the San
Juan Basin. We agree that this is a significant factor.
The price evidence before the court demonstrates that
the prices were generally in accordance with the na-
tional trends. The tribe in 1976 sought to sell its royalty
gas to Southern Union at the same price.
As to the liquids produced at the Lybrook plant the
evidence showed that they were but a very small part of
the market. Supron produced when it operated the plant
no more than a 3% market share. Southern Union also
had a relatively small share of the market for liquids in
the Basin. Southern Union purchased about 4% of the
gas produced in the market area.
The extent of the market as determined by the trial
court—the San Juan Basin—is a factual matter. The
definition of a relevant market is a factual matter, only
to be disturbed if the trial court’s finding was clearly
erroneous. Telex Corp v. IBM, 510 F.2d 894 (10th Cir.).
The basis of the determination is the interchangeability
of the product controlled with other available products.
United States v. Du Pont & Co., 351 U.S. 377. We must
hold that the trial court’s finding is correct and supported
by the record.
There existed some interlocking directors and some
corporate affiliations from time to time. There were a
32a
series of reorganizations and mergers. The trial court
concluded as to section 8 of the Clayton Act there may
have been some technical violations. The tribe was, how-
ever, unable to show any ill effects flowing from inter-
locking directorships in some of the defendant companies.
In the absence of proof of anticompetitive effects, the
tribe could prevail only if interlocking directorships was
a per se violation of the Sherman Act. The Supreme
Court has shown great reluctance to add to the short
list of types of economic activity that are per se Sherman
Act violations. White Motor Co. v. United States, 372
U.S. 253. A per se violation is a naked restraint of trade
with no purpose except to stifle competition. The tribe
has not shown that interlocking directorships have this
kind of “pernicious effect on competition and lack of any
redeeming virtue.” Northern Pac. R. Co. v. United States,
356 U.S. 1, at 5. We agree with the trial court that the
tribe has not made out a case for damages under section
8 of the Clayton Act. Section 8 forbids interlocking
directorships, and there may have been a technical viola-
tion of this provision. However, the tribe offers only
speculation on possible ill effects of interlocking director-
ships and no evidence of injury caused by a possible
violation. It may be true that such a situation may indi-
cate an opportunity to conspire, but affiliation does not
by itself necessarily imply conspiracy to restain trade.
H & B Equipment Co., Inc. v. International Harvester
Co., 577 F.2d 239 (5th Cir.) ; Knutson v. Daily Review,
Inc., 548 F.2d 795 (9th Cir.). We affirm the trial court’s
holding that the tribe failed to carry its burden of show-
ing injury that is connected in a causal manner to the
violation. Gottesman v. General Motors Corporation, 436
F.2d 1205 (2d Cir.).
The State Law Ceiling on Gas
The trial court held that the New Mexico Natural Gas
Pricing Act, § 62-7-1 N.M.S.A. 1978, did not apply to
gas produced on the Jicarilla reservation. We must re-
88a
verse this determination because there are no exceptions
to the application of the state statute in its control of
ceiling price on intrastate natural gas, and we conclude
that the decisions of the Supreme Court demonstrate that
the state statute does apply to the gas sales here under
consideration.
The method for computing royalty is fixed in the lease
which created the business relationship between the lessor
and lessee, and which also granted the lessee an interest
in the land. We have in this opinion described the pric-
ing or value for royalty purposes. It is basically a field
price in a large producing area and the ceiling price is
fixed by federal and state laws as a price control designed
to protect the ultimate gas consumers from excessively
high prices. These ceilings necessarily override contractual
relationships and there are no exceptions based on who
the royalty owner may be. It appears that the State of
New Mexico as a royalty owner is subject to the ceilings.
It is a limit on the size of the royalty owner’s check and
the lessee’s check .
The transaction here concerned is a sale to non-Indians
on the reservation. This is the source of income to the
tribe from the commercial and land ownership arrange-
ment. The limit is thus on income as in Moe v. Salish &
Kootenai Tribes, 425 U.S. 463, and in Washington v.
Confederated Tribes of Colville Indian Reservation, 447
U.S. 184. We must hold that the determination of this
issue is controlled by the two cited cases.
There is by reason of the state price control act an
effect on the money the tribe receives from the sales but
there is no direct conflict with Indian self-government.
The relationship is with non-Indians as mentioned—
sales on the reservation to non-Indians. In this respect
we must consider the recent opinion of the Supreme Court
in Montana v. United States, U.S. ——, 49 U.S.L.W.
4296, and in United States v. Wheeler, 435 U.S. 313. In
34a
Montana, the Court quoting from Wheeler said of the
tribe’s right over the entire reservation:
“<‘The areas in which such implicit divestiture of
sovereignty has been held to have occurred are those
involving the relations between an Indian tribe and
nonmembers of the tribe....
“These limitations rest on the fact that the depend-
ent status of Indian tribes within our territorial ju-
risdiction is necessarily inconsistent with their free-
dom independently to determine their external rela-
tions. But the powers of self-government, including
the power to prescribe and enforce internal crimi-
nal laws, are of a different type. They involve only
the relations among members of a tribe.’ ”
The Court in Montana aiso said that the “exercise of
tribal power beyond what is necessary to protect tribal
self-government or to control inteal relations is incon-
sistent with the dependent status of the tribes, and so
cannot survive without express Congressional delegation.”
The Court in Merrion v. Jicarilla Apache Tribe, 455
U.S. 130, at 138, refers to the sharp distinction between
Indian taxing acts and the lease covenants. It there
said:
“As we observed in Colville, supra, the tribe’s in-
terest in levying taxes on nonmembers to raise ‘reve-
nues for essential governmental programs .. . is
strongest when the revenues are derived from value
generated on the reservation by activities involving
the Tribes and when the taxpayer is the recipient
of tribal services.’ 447 U.S., at 156-157. This surely
is the case here. The mere fact that the government
imposing the tax also enjoys rents and royalties as
the lessor of the mineral lands does not undermine
the government’s authority to impose the tax. See
infra, at 145-148. The royalty payments from the
mineral leases are paid to the Tribe in its role as
35a
partner in petitioners’ commercial venture. The sev-
erance tax, in contrast, is petitioners’ contribution
‘to the general cost of providing governmental serv-
ices.’ ”
In conclusion on the issue of the effect of the state
price limitation it should be mentioned that a state
regulation of prices is expressly provided for in the fed-
eral statute. Section 602(a) of the National Gas Policy
Act of 1978 (15 U.S.C. § 3001 et seg.). Also the Con-
ference Report on the National Gas Act states in part
that the reference to state authority to control expressly
states that authority is thereby “ceded” under the Com-
merce Clause to regulate prices to “affected states.” This
in itself would seem to answer a claim thai state price
control does not apply to the intrastate gas. Thus such
state price control prices are appiicable and further the
federal price control prices are applicable to royalties.
The judgment of the trial court is affirmed except as
to:
1. The dual accounting/value of gas issue, and as to
this it must be reversed and the matter is instead
to be controlled by the long-standing and pre-
litigation administrative construction of the leases
and regulations. The judgment must also be re-
versed as to the related holding of breach of
fiduciary duty by the Secretary.
2. We must aiso reverse as to the application of
state price control as hereinabove described, and
we also hold that federal price control prices are
applicable in the determination and computation
of royalty.
86a
SEYMOUR, J., concurring in part and dissenting in
part.
I concur in the majority’s holding on the antitrust is-
sues for the reasons set out in Part IV below. However,
I cannot agree with the remainder of the majority’s
opinion. The court today declares that it can determine
whether the Secretary properly interpreted and applied
regulations dealing with royalties from resources owned
by the Jicarilla Apache Tribe without first deciding
whether the Secretary owes any duty of trust to the
Tribe in these activities. The majority then rejects the
trial court’s interpretation of those regulations. Finally,
the court holds that the New Mexico Natural Gas Pricing
Act, N.M. Stat. Ann. §§ 62-7-1 to -10 (1978) (NMNGPA),
can function to diminish tribal royalties. Because I can-
not agree with any of these conclusions, I must respect-
fully dissent.
i
TRUST RESPONSIBILITIES
If the Secretary is obligated to act as a fiduciary to
the Tribe in his administration of the Tribe’s oil and gas
reserves, and in his determination of what royalties the
Tribe is due, then his actions must not merely meet the
minimal requirements of administrative law, but must
also pass scrutiny under the more stringent standards
demanded of a fiduciary. Therefore, the need to deter-
mine whether the Secretary owes any duty of trust to the
Tribe is unavoidable.
The notion that the Secretary, as a representative of
the federal government, stands in a special relationship
in general to the Indian tribes is not a novel proposition
and needs neither extensive discussion nor citation. See,
e.g.. United States v. Kagama, 118 U.S. 375, 383-84
(1886) ; Cherokee Nation v. Georgia, 30 U.S. (5 Pet.) 1,
17 (1831). The Supreme Court has continually recog-
nized “the distinctive obligation of trust incumbent upon
37a
the Government,” Seminole Nation v. United States, 316
U.S. 286, 296 (1942), in its dealings with the Indian
tribes. See, e.g., United States v. Mitchell (Mitchell II),
103 S.Ct. 2961, 2972 (1983). Because of this trust rela-
tionship the Government, in both its executive and legis-
lative branches, is held to a high standard of conduct, one
consonant with its “moral obligations of the highest obli-
gation and trust.” Seminole Nation v. United States, 316
U.S. at 297. For the same reason, whenever doubt or
ambiguity exists in federal statutes or regulations, such
doubt is resolved in favor of the tribes. See, ¢.g., Bryan
v. Itasca County, 426 U.S. 373, 392 (1976).
In addition to the all-pervasive “general trust relation-
ship between tne United States and the Indian peuple
. . . [that] has long dominated the Government’s deal-
ings with Indians,” Mitchell II, 103 S.Ct. at 2972, the
Supreme Court has declared that other, context-specific
trust relationships of varying depth and responsibility
exist. Id.; compare United States v. Mitchell (Mitchell
I), 445 U.S. 535, 542, 546 (1980) (General Allotment
Act creates a limited trust relationship, not a fiduciary
responsibility for management of allotted forest lands)
with Mitcheil II, 103 8.Ct. at 2972 (other federal stat-
utes and regulations establish a full fiduciary relation-
ship in management of allotted forest lands).
Both the Supreme Court and this circuit have recently
set out the test for determining a trust relationship. In
Whiskers v. United States, 600 F.2d 1332 (10th Cir.
1979), cert. denied, 444 U.S. 1078 (1980), we made it
clear that no particular words or phrases are critical to
1 Tne Government’s willing assumption of its obligations to Indian
tribes is exemplified by the language of the treaty entered into
July 1, 1852 in Santa Fe with the Apache Nation. Article 11 of
the Treaty contains the promise “that the government of the
United States shail so legislate and act as to secure the permanent
prosperity and happiness” of the Apache Nation. Treaty with the
Apaches, 10 Stat. 979, 980 (1855).
38a
the finding of a trust relationship. “[T]he use of the
word ‘trustee’ is not absolutely essential to the finding
of a trust relationship when it is otherwise clear that
Congress intended a trust relationship to exist.” Id. at
1338. Rather, the test is whether “the relevant statu-
tory and regulatory provisions [contain] an enumera-
tion of duties which would justify a conclusion that Con-
gress intended the Secretary to be a trustee.” Jd. In
Mitchell II, the Court reviewed the statutes and regula-
tions establishing the particular relationship between the
government and the Indians to determine whether they
“give the Federal Government full responsibility to man-
age Indian resources and land for the benefit of the In-
dians.” 103 S.Ct. at 2972. Finding that they did so, the
Court concluded, “[t]hey thereby establish a fiduciary
relationship and define the contours of the United States’
fiduciary responsibilities.” Id.
In Mitchell II, the Supreme Court determined that the
Secretary owed Indian tribes a duty of trust in adminis-
tering the sale of timber on Indian lands. Because the
statutory and regulatory scheme in Mitchell II parallels
that involved here, I believe Mitchell II governs the
resolution of this issue.
In finding a trust relationship in Mitchell II, the
Court noted that the Secretary plays a “pervasive role”
in sales of timber from Indian lands. 103 S.Ct. at 2969.
The Court then carefully examined the statutes dealing
with sales of timber on reservation land, the legislative
history underlying the statutes, and the regulations ex-
plicating them, finding it significant that “[{t]he Depart-
ment of the Interior . . . ‘exercises literally daily super-
vision over the harvesting and management of tribal
timber.’ ... Virtually every stage of the process is un-
jer federal control.” Jd. at 2971 (quoting White Moun-
tain Apache Tribe v. Bracker, 448 U.S. 136, 147 (1980) )
(footnote omitted). The Court found that “the Govern-
ment has ‘expressed a firm desire that the Tribe should
89a
retain the benefits derived from the harvesting and sale
of reservation timber,’” id. at 2972 (quoting White
Mountain Apache Tribe v. Bracker, 448 U.S. at 149).
Accordingly, it held that a fiduciary relationship was
established.
In addition to finding a trust duty expressed in the
statutes and regulations, the Court declared that
“a fiduciary relationship necessarily arises when the
Government assumes such elaborate control over
forests and property belonging to Indians. All of
the necessary elements of a common-law trust are
present: a trustee (the United States), a beneficiary
(the Indian allottees), and a trust corpus (Indian
timber, lands, and funds). ‘[Wlhere the Federal
Government takes on or has control or supervision
over tribal monies or properties, the fiduciary rela-
tionship normally exists with respect to such monies
or properties (unless Congress has provided other-
wise) even though nothing is said expressly in the
authorizing or underlying statute (or other funda-
mental document) about a trust fund or a trust or
fiduciary connection.’ Navajo Tribe of Indians v.
United States, 224 Ct. Cl. 171, 183, 624 F.2d 981,
987 (1980).”
Id. (footnote omitted) (emphasis added).
Leasing of minerals located on Indian reservations is
also a creature of federal statute. As in timber harvest-
ing, the federal government’s role in mineral leasing is
pervasive and its responsibilities comprehensive. The In-
dian Mineral Leasing Act of 1938, 25 U.S.C. §§ 396a-
396g (1976), requires the Secretary to: set the “terms”
and “conditions” for leasing, id. § 396b; approve leases,
id. § 396a; establish lease sale procedures, id. § 396b; re-
ject unsatisfactory bids, id.; require satisfactory per-
formance bonds of lessees, id. § 396c; promulgate rules
and regulations governing “all operations” under leases,
40a
id. § 396d; and approve leases for subsurface storage
when necessary to avoid waste, or to promote conserva-
tion of resources, or to protect tribal welfare, id. § 396g.
The evident purpose of the statute is to ensure that In-
dian tribes receive the maximum benefit from mineral
deposits on their lands through leasing.
This interpretation is supported by the Act’s legisla-
tive history. When the Act was proposed, the Secretary
of the Interior urged that the legislation be enacted be-
cause “it is not believed that the present law is adequate
to give the Indians the greatest return from their prop-
erty.” Senate Report No. 985 at 2 (1937); House Re-
port No. 1872 at 2 (1938). Congress responded to the
need to ensure that the Indians’ welfare be protected
and their natural resources be managed to the tribes’
maximum benefit by emphasizing the Secretary’s fiduci-
ary obligations, directing the Secretary to approve lease
sales only when they are “in the interest of the Indians.”
Id.
Interior has promulgated extensive regulations for
managing leases under the Act. See 25 C.F.R. pt. 211
(1982). The regulations stress that the Secretary must
act in the best interests of the tribes. See, e.g., id.
§§ 211.3(b), .6(a), .9(b) (1), .12(a), .19, .21(a), .22,
.27. Additional regulations, published in 30 C.F.R. Part
221, require the government to maintain comprehensive
records of price and production, and to determine royal-
ties 30 C.F.R. § 221.12. These regulations detail in ex-
hausting thoroughness the government’s management and
regulatory responsibilities. See id. pt. 221.
Because the statutes and regulations contain such an
explicit and detailed enumeration of duties, in my view
Mitchell II compels the conclusion that Congress intended
the Secretary to be a trustee.* See 103 S.Ct. at 2971-72.
2 This conclusion is supported by the Supreme Court’s resolution
of a case involving Interior-approved oil and gas leases on lands
4la
II.
BREACH OF TRUST
The trial court in this case concluded that Interior had
breached its fiduciary duty in several respects: by failing
to interpret correctly the royalty terms in the lease and
regulations, by failing to insure that lessees comply with
lease terms requiring diligent development, and by failing
to insure the protection of leased lands from drainage.
Jicarilla Apache Tribe v. Supron Energy Corp., 479 F.
Supp. 536, 547-51 (D.N.M. 1979). The trial court en-
tered a declaratory judgment against the Secretary.* The
majority opinion reverses the trial court’s construction of
the lease and the regulations, and finds it unnecessary to
reach the other breach of trust issues. I disagree, and
would affirm the trial court on each of these matters.
held by Indians under allotment act trust patents. In Poafpybitty
v. Skelly Oil Co., 390 U.S. 365 (1968), the defendant lessee argued
that the plaintiff Comanche Indians had no standing to sue under
the lease because Interior “ha[d] such complete control over the
lease that only [the Secretary could] institute . . . court action”
for impairment of the Indians’ interests under the lease. Jd. at 372.
The Court, noting that the government had exercised supervisory
authority over oil and gas leases “in considerable detail,” rejected
the defendant’s argument, holding that the Indians were not pre-
cluded thereby from bringing suit. Jd. at 373. Concerning In-
terior’s duties in the situation, the Court declared that “[i]f the
Government does determine that there has been waste in violation
of a lease, it will of course satisfy its trust obligation by filing
the necessary court action.” Jd. (emphasis added).
3 The Tribe has, of course, another remedy for the Government’s
breach of its fiduciary obligations. “If in carrying out [its] role
as representative [of the Tribe], the Government violated its obli-
gations to the Tribe, then the Tribe’s remedy is against the Govern-
ment... .” Nevada v. United States, 108 S.Ct. 2906, 2925 n.16
(1983) (Rehnquist, J.). That action lies in the Court of Claims.
See 28 U.S.C. § 1505 (1976); United States v. Mitchell (Mitchell
II), 103 S.Ct. 2961, 2965 (1983). The Tribe has instituted a suit
against the Government in the Court of Claims, which has been
stayed pending this appeal.
42a
A. The Regulations
The trial court stated the issue to be whether “the
Secretary has breached his fiduciary duty because the
method by which he computed royalties did not derive
for the Tribe the highest royalties payable under the
lease terms and the federal regulations.” Id. at 549. The
court then found that a breach had occurred. Id. at 551.
The issue presented to us on appeal is one of interpreta-
tion of regulations, and not whether the Secretary was
acting in accordance with his fiduciary obligations in
promulgating the regulations initially.
At the time this litigation began, the Secretary used
the BTU method to calculate royalties due the Tribe.
One of the objectives sought by the Tribe was to compel
Interior to calculate royalties using the net realization
method as well, and to apply whichever method resulted
in the greatest income to the Tribe. Sometime during the
trial below, Interior evidently adopted the position that
the lease and regulation terms authorized utilization of
both methods of accounting (dual accounting), and that
it has the discretion to require payment of royalties based
on the method assuring the Tribe the highest return. See
Rec., supp. vol. I, at 141-44.
On its cross-appeal to this court, Interior specifically
“does not appeal the district court’s holding that the
‘dual accounting’ method is the appropriate means of
calculating royalties.” Brief for the Secretary of the
Interior at 9. Indeed, in its reply brief, Interior vigor-
ously defends the trial court’s holding on that issue
against attack by defendant-lessees, concluding: “In
short, the terms of the lease and the regulations grant
the Secretary the authority to determine the value of
the production at the lease on the basis of the value of
the constituent commodities.” Reply Brief for the Sec-
retary of the Interior at 7. Moreover, the Secretary
acknowledges his “broad discretion to determine the value
43a
of production in the way he considers will best protect
the royalty interest of the lessor.” Id. at 10-11. Thus,
the Secretary has adopted the view that interpreting the
royalty terms to require dual accounting by the Jicarilla’s
lessees is reasonable. This interpretation is in accord-
ance, so far as it goes, with the trial court’s holding.
Without considering either Interior’s current interpre-
tation of its royalty provisions or its role as trustee,
the majority disagrees with the trial court’s interpreta-
tion and finds instead that dual accounting is not re-
quired under the regulations. The majority refuses to
“set aside the Secretary’s construction of his regulation
and lease which was followed and applied without ex-
ception for these many years, a construction which has
a perfectly reasonable basis in the lease and in the regu-
lations.” Slip op. at 9. It bases its opinion on the dis-
cretion granted the Secretary specifically by the lease
terms and in “the regulation of oil and gas matters,”
because “the Secretary’s interpretation was and is in
conformance with the practices in the industry,” and be-
cause the Secretary’s action was not shown to be ar-
bitrary or capricious. Jd. The majority then states that
“Twlhen the prevailing doctrine in this circuit is then
applied to these circumstances we must conclude that the
administrative interpretation . . . must be applied,” id.
at 10, adding that “[t]he Secretary’s position is con-
sistent with case law in this circuit. See Barby v. Cabot
Corporation, 465 F.2d 11 (10th Cir.) ,” id.
I am at a loss to discern wnat the majority has in
mind when it refers to “the prevailing doctrine in this
circuit.” Initially, I note that Barby dealt with the in-
terpretation of lease terms entered into between two
private parties and is therefore irrelevant to this case
which involves the interpretation of federal regulations
and fiduciary duties. I also do not see what relevance
“industry practices” have to the Secretary’s interpreta-
tion of federal law.
44a
In my view, however, the most significant error the
majority makes is its employment of administrative law
analysis without considering what role, if any, the Sec-
retary’s fiduciary duty should play in a court’s examina-
tion of his administrative action. As I have pointed
out, the Secretary’s actions in a situation such as this
are constrained by principles of Indian trust obligations
as well as by standards of administrative law.
The Supreme Court has implicitly recognized that
stricter standards apply to federal agencies when admin-
istering Indian programs. See Morton v. Ruiz, 415 U.S.
199, 286 (1974); D. Getches, D. Rosenfelt & C. Wilken-
son, Federal Indian Law 135-36 (1979). When the Sec-
retary is acting in his fiduciary role rather than solely as
a regulator and is faced with a decision for which there
is more than one “reasonable” choice as that term is
used in administrative law, he must choose the alterna-
tive that is in the best interests of the Indian tribe. In
short, he cannot escape his role as trustee by donning
the mantle of administrator, a principle recently made
explicit by this court in Jicarilla Apache Tribe v. Andrus,
687 F.2d 1324 (10th Cir. 1982) :
“We are convinced . . . that the plain, mandatory
terms of the regulations do not leave room for def-
erence to this interpretation, which does not serve
the interest of the Indians. If there is any doubt,
the interpretation should be made liberally in favor
of the Indians for whose protections these provisions
were promulgated. Antoine v. Washington, 420 U.S.
194, 199, 200, 95 S.Ct. 944, 948, 48 L.Ed.2d 129;
Bryan v. Itasca County, 426 U.S. 378, 392, 96 S.Ct.
2102, 2112, 48 L.Ed.2d 710. This rule of construc-
tion pertaining to statutes and treaties should also
govern the interpretation of the regulations. Regu-
lations are generally subject to the same rules of con-
struction as statutes. Rucker v. Wabash Railroad
Co., 418 F.2d 146, 149 (7th Cir.).”
Id. at 1332.
45a
Thus, the true issue in this case is not whether the
Secretary’s earlier application of the royalty terms was
reasonable; rather, it is whether the alternative interpre-
tion requiring dual accounting is also reasonable and
better promotes the Tribe’s interest. If so, dual account-
ing should have been required from the beginning.
Two sets of regulations and the lease terms are de-
terminative of the Tribe’s royalty claim. Title 25 and
Title 30 of the C.F.R. each contain regulations address-
ing royalty calculations. The lease form at issue in-
corporates both sets of regulations by reference, and the
royalty provision contained in the leases either quotes or
paraphrases the relevant regulations printed in Title 25.
Accordingly, the following discussion referring to both
titles of the C.F.R. should be read as referring to the
lease as well. The regulations at issue are reproduced
in pertinent part in an appendix to this opinion.
The regulations contained in 25 C.F.R. require lessees
to pay a royalty on the value or amount of all gas and
other hydrocarbon substances produced from the lease.‘
* Natural gas is typically made up of several components in
varying proportions. Generally, the gas at the wellhead consists
of methane and ethane together with heavier components such as
butane, propane, and natural gasoline. Where heavier components
make up more than a standard percentage of the whole, the gas is
called “wet” gas. When gas contains less than that percentage
of heavier components, it is called “dry” gas. In the instant case,
all of the gas produced from the tribal leases is wet gas.
Gas lessees may market wet gas in two ways. First, a lessee
may choose to process the gas and market it separated into its
constituent parts. The lessee does this by extracting the heavier
components or “liquids” in a processing plant, and then selling
the various products. Alternatively, the lessee may choose to
sell the wet gas as is to a third party, who will then process the
gas for further resale.
This case involves two methods of royalty calculations. The
“BTU Method” calculates the value of gas produced by measuring
the volume and BTU content of the wet gas at the wellhead, from
which the “value” of the gas is derived. The second method, called
46a
25 C.F.R. § 211.18 (1982) (formerly codified at 25 C.F.R.
§ 171.13). Section 211.13 contains a “favored nation
clause” for calculating value: “ ‘value’... may... be
calculated on the basis of the highest price paid or
offered . . . at the time of production for the major
portion of ... gas... [and] all other hydrocarbon
substances produced and sold from the field .... The
actual amount realized by the lessee from the sale of said
products may . . . be deemed mere evidence of or con-
clusive evidence of such value.” Jd. The regulation adds
that the calculated value of products derived from treat-
ment of gas should include an allowance for manu-
facturing costs. More importantly for the purposes of
this case, however, the regulation states that “royalty will
be computed on the value of gas or casing-head gas, or
on the products thereof . . . whichever is the greater.”
Id. (emphasis added).
Title 30 of the C.F.R. contains extensive provisions
to be used in calculating royalties. The threshold regu-
lation, cited by the majority, states that
“(a) Royalty accrues on the dry gas, whether
produced as such or as residue gas after the extrac-
tion of gasoline.
“(b) If the lessee derives revenue on gas from two
or more products, a royalty normally will be_collected
on all such products.
the “net realization” or “aggregate value” method, is calculated
by determining the values of the component gases after they have
been extracted through processing. The “value” of the gas is
the aggregate value of the constitutent gases, less a cost of
processing allowance.
“Dual accounting,” requiring the computation of the value of
wet gas by both methods and the subsequent payment of royalties
on the basis of whichever method yields the higher value, allows
a lessee to market gas by whichever method it chooses and ensures
that the lessor royalty holder receives the maximum return on its
gas.
47a
“(e) For the purpose of computing royalty the
value of wet gas shall be either the gross proceeds
accruing to the lessee from the sale thereof or the
aggregate value determined by the Secretary of all
commodities, including residue gas, obtained there-
from, whichever is greater.”
80 C.F.R. § 221.50 (1982). The second clause of subsec-
tion 221.50(c) authorizes Interior to use the aggregate
value of the substances contained in wet gas, ensuring
that the lessor will receive the true value of the gas and
other hydrocarbons produced from its lands, regardless
of the lessee’s choice of marketing tactics. Subsection
(c) does not by its terms require that the lessee itself
extract liquids before the Secretary may utilize aggregate
value computing; to the contrary, it appears to apply in
all situations. By using the term “aggregate value,”
rather than “proceeds,” the subsection allows the Secre-
tary to use aggregate value in situations where the lessee
does not in fact process wet gas or otherwise directly
receive “proceeds” from the processing. The majority’s
interpretation ignores the distinction made in the regu-
lation and, in fact, makes the first clause of subsection
(ec) irrelevant and redundant in light of subsection (b).
The majority interprets subsection (c) to say in effect
that when the lessee processes wet gas itself (and, pre-
sumably, sells the constituent products), the lessee must
pay royalties on all the products—precisely what sub-
section (b) requires.
Moreover, practical considerations support this con-
struction. The lessees argue that the dual accounting
method of calculating royalties mandated by subsection
221.50(c) applies only when the lessees themselves extract
the liquids from the wet gas and market the various
products. They assert that dual accounting cannot be
used when they merely sell unrefined wet gas to another
company, because the other company is the one deriving
the higher proceeds from the sales of the various deriva-
48a
tive products. However, as I have stated, the purpose of
the Indian Mineral Leasing Act is to ensure that Indian
tribes receive the maximum benefit from mineral deposits
on their lands, see slip op., dissent, at 6, and we should
construe regulations enacted under this Act in light of
this purpose. Trustees of Indiana University v. United
States, 618 F.2d 736, 739 (Ct. Cl. 1980); Alaska Inter-
state Co. v. McMillian, 402 F.Supp. 532, 555 (D. Del.
1975); see also Jicarilla Apache Tribe v. Andrus, 687
F.2d 1324, 1332 (10th Cir. 1982) (regulations generally
subject to same rules of construction as statutes).
Adopting the lessee’s construction of the regulations
would too easily enabie lessees of Indian oil and gas
leases to avoid the purpose of the Act. If the value of
wet gas is increased by processing, it is in every lessees’
best interest to have their royalty payments calculated on
the value of unrefined wet gas, rather than on the aggre-
gate value of the various products. Under the lessee’s
construction, to obtain the advantage of royalties calcu-
lated on the lower, wellhead price, all a lessee need do is
sell the unprocessed wet gas to a cooperative third party,
pay the lower royalties, and then reap the benefits of the
higher proceeds from the extracted products through a
sweetheart deal with the third party. In my view, it is
as “reasonable” to construe these regulations in a way
that prevents easy avoidance of the clear congressional
intent of the Act as it is to adopt the majority’s position.
The regulations thus provide support for the position
urged by the Secretary on appeal. As I have noted, our
initial determination is whether the trial court’s and the
Secretary’s construction of the royalty regulations is
reasonable. I believe that it is. Given two reasonable
interpretations, Interior’s trust responsibilities require it
to apply whichever accounting method (BTU or net
realization) yields the Tribe the greatest royalties. I
would affirm the trial court on this point.
49a
B. The Secretary’s Administration of the Leases
The trial court found that the defendant-lessees had
not failed to diligently develop the leases in question.
Nonetheless, the trial court found that fact fortuitous
because the Secretary had “failed to adequately monitor
development of these leases sufficiently to insure com-
pliance with the terms thereof,” thereby breaching his
fiduciary duty to the Tribe. 479 F. Supp. at 547. Simi-
larly, the trial court found that there was no drainage,
but concluded that the Secretary had been negligent in
monitoring the potential problem, and thus had breached
his fiduciary duties. Jd at 548.
The record supports the trial court’s findings on both
of these issues, and I would affirm.
Il.
PREEMPTION
By order issued January 26, 1981, the district court
held that the New Mexico Natural Gas Pricing Act does
not apply either to sale prices received by lessees, or to
royalties received by the Tribe. The majority disagrees,
holding that the NMNGPA applies to both, even though
it “is a limit on the size of the royalty owner’s check.”
Slip op. at 15. The majority acknowledges that “[t]here
is by reason of the state price control act an effect on the
money the tribe receives from the sales,” but concludes
that this harmful aspect of state regulation is permissible
because “there is no direct conflict with Indian self-
government,” id. at 16.
Initially, I note that the State disagrees with the
majority’s viewpoint concerning tribal royalties. The
State argues that the Act’s price ceilings will not neces-
sarily affect the Tribe’s royalties, because royalties need
not be limited to proceeds received by the lessees.° See
5 Interior also argues that value for royalty purposes can exceed
governmentally imposed price ceilings. Reply Brief for the Secre-
tary of the Interior at 8-12.
50a
Brief of Cross-Appellant State of New Mexico at 56-58.
This argument is in line with my construction of the
federal regulations. In the State’s view, the trial court
correctly held that value for royalty purposes can exceed
sale prices, and thus can exceed the price limits estab-
lished by the NMNGPA. Indeed, the NMNGPA itself pro-
vides that the maximum allowable base prices established
by the Act for natural gas “shall be exclusive of, ...
if provided for by contract, that portion of royalty pay-
able on a value in excess of the contract sales price.”
N.M. Stat. Ann. § 62-7-3 (1982). Thus, in future con-
tracts the Tribe can clearly avoid any effect upon its
royalties by the Act. By implication, however, the Act
might be interpreted to limit tribal royalties when not
expressly avoided by contract terms, as in this case. I
reject this conclusion for the reasons set forth in this
opinion.
. The majority’s analysis of the effect of the New Mexico
* Act on “Indian self-government” relies upon a mistaken
view of the significance of Washington v. Confederated
Tribes of the Colville Indian Reservation, 447 U.S. 184
(1980), and Moe v. Confederated Salish & Kootenai
Tribes, 425 U.S. 463 (1976), which it cites as dispositive
of this issue. I disagree both with the majority’s analy-
sis and with its reliance on Confederated Tribes and
Moe. My analysis is limited to the question whether
federal law preempts the State from placing a ceiling on
royalties paid to Indians. I need not address whether
the NMNGPA may properly apply a ceiling on the sale
of gas produced from the reservation by non-Indian
lessees, because even if such a ceiling is appropriate it
would not limit the determination of the Tribe’s royal-
ties under my construction of the regulations.
The Indian Mineral Leasing Act guarantees to Indian
tribes maximum royalties from oil and natural gas lo-
cated on tribal lands. In spite of clear congressional
intent to ensure that Indian tribes receive the maximum
or
5la
return from their natural resources by way of royal-
ties, the majority holds that a state can frustrate that
policy. I would hold to the contrary, because I believe
that the New Mexico Act is preempted by federal law
to the extent that it adversely affects tribal oil and gas
royalties.
The Supreme Court has recently discussed at length
the principles to be used in determining whether a state
civil statute is applicable within a reservation. See White
Mountain Apache Tribe v. Bracker, 448 U.S. 136, 141-
45 (1980). In pertinent part, the Court noted that
“(There are] two independent but related barriers
to the assertion of state regulatory authority over
tribal reservations and members. First, the exercise
of such authority may be pre-empted by federal
law. . . . Second, it may unlawfully infringe ‘on
the right of reservation Indians to make their own
laws and be ruled by them.’ . . . 7 > two barriers
are independent because either, standing alone, can
be a sufficient basis for holding state law inappli-
cable to activity undertaken on the reservation or by
tribal members. ...
“The unique historical origins of tribal sovereignty
make it generally unhelpful to apply to federal en-
actments regulating Indian tribes those standards of
pre-emption that have emerged in other areas of the
law. Tribal reservations are not States, and the dif-
ferences in the form and nature of their sovereignty
make it treacherous to import to one notions of pre-
emption that are properly applied to the other. The
tradition of Indian sovereignty over the reservation
and tribal members must inform the determination
whether the exercise of state authority has been
pre-empted by operation of federal law. ... As we
have repeatedly recognized, this tradition is reflected
and encouraged in a number of congressional enact-
ments demonstrating a firm federal policy of pro-
52a
moting tribal self-sufficiency and economic develop-
ment. Ambiguities in federal law have been con-
strued generously in order to comport with these
traditional notions of sovereignty and with the fed-
eral policy of encouraging tribal independence. .. .
We have thus rejected the proposition that in order
to find a particular state law to have been preempted
by operation of federal law, an express congressional
statement to that effect is required. ... At the same
time any applicable regulatory interest of the State
must be given weight, ... and ‘automatic exemptions
“as a matter of constitutional law”’’ are unusual.”
Id. at 142-44.
As White Mountain Apache Tribe v. Bracker makes
clear, whether a state law interferes with Indian self-
government is only half of the appropriate analysis.°
The state law in question must also be examined for
possible conflict with federal law. The Supreme Court
has recently pointed out that the special doctrine of In-
dian preemption referred to in White Mountain Apache
Tribe v. Bracker is considerably broader than other,
more familiar forms of preemption. See New Mexico v.
Mescalero Apache Tribe, 103 S.Ct. 2378, 2386 (1983).
State law and jurisdiction are preempted by operation
®The majority’s reliance upon Montana v. United States, 450
U.S. 544 (1980), is also misplaced. That case involved very narrow
questions of tribal sovereignty and regulatory authority that are
not present in this case. As the Court itself noted, “the regulatory
issue before us is a narrow one... the question of the power of
the Tribe to regulate non-Indian fishing and hunting on reserva-
tion land owned in fee by nonmembers of the Tribe.” Jd. at 557.
The Tribe is not asserting regulatory authority in this case. Ad-
ditionally, the significance of a tribal land-base (lacking in Mon-
tana) to questions of a tribe’s sovereign authority has been noted
repeatedly by courts and commentators. See, e.g., New Mexico v.
Mescalero Apache Tribe, 108 S.Ct. 2378, 2384 (1983). Accordingly,
general principles of tribal sovereignty applicable to tribal author-
ity over tribal land should not be extrapolated from Montana, a
narrow, fact-bound case.
53a
of federal law if they interfere with or are incompatible
with federal and tribal interests reflected in federal law,’
unless the state interests at stake are sufficient to justify
the effect. Id. Without addressing the Indian self-
government issue, I would hold that to the extent the
state law is interpreted to place a ceiling on the Tribe’s
royalties, it conflicts impermissibly with federal law.
The Supreme Court has emphasized the existence of a
“firm federal policy of promoting tribal self-sufficiency
and economic development.” White Mountain Apache
Tribe v. Bracker, 448 U.S. at 148; see also New Mexico
v. Mescalero Apache Tribe, 103 §.Ct. at 2386-87. This
policy is demonstrated by federal statutes authorizing
the sale of tribal resources for the tribes’ benefit, such as
the Indian Mineral Leasing Act. See id. at 2387; see
also White Mountain Apache Tribe v. Bracker, 448 U.S.
at 143 & n.10. The right to receive maximum royalties
is a benefit granted by Congress to the tribes in the
Leasing Act. The state law here imposes a maximum
price ceiling lower than the federal ceiling on sales of
gas by non-Indian lessees, and thus could operate to
decrease tribal royalties. This result would interfere
with the congressional policy embodied in the Indian
Mineral Leasing Act.
It is therefore clear to me that the New Mexico Act
is preempted by operation of federal law insofar as it
has any harmful effect upon the Tribe’s royalty revenue,
unless sufficient state interests are at stake. The State
points to no on-reservation actions by it justifying this
intrusion. See id. at 2387, 2390-91; White Mountain
Apache Tribe v. Bracker, 448 U.S. at 150-51. In fact, as
I have pointed out, New Mexico has conceded in this
case that its ceilings on gas sales do not limit royalties.
Nevertheless, the lessees assert that the State’s justifica-
7™Congress need not make any explicit statement for state law
to be preempted in this context. White Mountain Apache Tribe v.
Bracker, 448 U.S. 1386, 144, 150-51 (1980).
a
54a
tion for imposition of state price ceilings on gas sales
by non-Indian lessees (that such price controls are neces-
sary for the benefit of natural gas consumers) also
justifies a comparable ceiling on tribal royalties under
current contracts. The record contains no showing that
the lack of a ceiling on royalties paid to Indians in New
Mexico would have such a significant effect upon New
Mexico consumers that imposition of the Act to limit
royalties would be of vital interest to the State.
I conclude that the New Mexico Act is preempted un-
der the principles enunciated in White Mountain Apache
Tribe v. Bracker insofar as it might be applied to limit
royalties received by the Tribe. The cases relied on by
the majority are inapposite. The enterprise here—the
production of reservation oil and gas—is far removed
from those involved in Confederated Tribes and Moe,
where the tribal contributions to the enterprises were
“de minimus,” New Mexico v. Mescalero Apache Tribe,
103 S.Ct. at 2390, and the product marketed was not
generated from reservation resources, compare Confed-
erated Tribes and Moe with White Mountain Apache
Tribe v. Bracker. To the contrary, the production cf
tribal oil and gas clearly involves “ ‘value generated on
the reservation by activities involving the Trib[e],’”
New Mexico v. Mescalero Apache Tribe, 103 S.Ct. at
2390 (quoting Confederated Tribes, 447 U.S. at 156-57),
and thus is protected from state interference.
The majority accepts the proposition that Congress
delegated to the states the authority to regulate gas
prices, and thus royalties, of gas produced on Indian
reservations and sold intrastate. Far from being com-
pelled, in my view this conclusion is belied both by the
language of the Natural Gas Policy Act of 1978, 15
U.S.C. §§ 3311-3432 (Supp. V 1981) (NGPA) and by
our prior caselaw.
The NGPA provides in a section entitled “Effect on
State laws”:
55a
“Nothing in this chapter shall affect the authority of
any State to establish or enforce any maximum law-
ful price for the first sale of natural gas produced
in such State which does not exceed the applicable
maximum lawful price, if any, under subchapter I
of this chapter.”
Id. § 3432(a). The power to regulate on Indian reserva-
tions has always resided in the federal government. That
power can only be delegated by express language.
“As this court has recently emphasized, ‘[T]he cases
stress that regulatory powers in Indian country or
on indian lands belong to the Congress except for
inherent jurisdiction of the tribes. Congress may
delegate this authority to the state, but when it does
so it must be in specific terms.’ ”
Mescalero Apache Tribe v. New Mexico, 630 F.2d 724,
730 ¢10th Cir. 1980) (quoting United States v. New
Mexico, 590 F.2d 323, 328 (10th Cir. 1978), cert. denied,
444 U.S. 832 (1979) (emphasis added)), vacated and
remanded, 450 U.S. 1036 (1981), aff'd, 677 F.2d 55
(10th Cir. 1982), aff'd, 103 S.Ct. 2878 (1988) ; see, e.g.,
Bryan v. Itasca County, 426 U.S. 378, 392 (1976);
Donovan v. Navajo Forest Products Industries, 692 F.2d
709, 711, 718 (10th Cir. 1982). Section 3432(a) does
not refer to Indian reservations, and clearly grants no
authority to the states to regulate on-reservation activi-
ties. Absent a specific statement of congressional intent,
it cannot represent congressional authorization for New
Mexico to override the benefits conferred to the Indian
tribes in the Indian Mineral Leasing Act.®
® The lessees argue that part of the legislative history of the
National Ga. Policy Act of 1978, 15 U.S.C. §§ 3811-3432 (Supp. V
1981) (NGPA), supports their delegation-of-authority argument.
The Conference Report on the NGPA states:
“The conference agreement provides that nothing in this Act
shall affect the authority of any State to establish or enforce
Ee
56a
Even assuming that New Mexico has authority to reg-
ulate the sale price of gas sold by non-Indian lessees of
Indian reservation leases, an issue that I have not
reached, I conclude that Congress did not delegate to
the states authority to place ceilings on the royalties the
tribes are entitled to receive from such leases. Constitu-
tionally, the New Mexico Act may not be permitted to
affect the amount of royalties received by the Jicarilla
Apache Tribe. The Secretary should not consider him-
self limited by wellhead prices conforming to the Act
when establishing “value” for the purpose of computing
tribal royalties.
IV.
ANTITRUST
In discussing section 8 of the Clayton Act, 15 U.S.C.
$19 (1981), the majority opinion employs a rule of
reason analysis to determine whether the existence of
interlocking directors in violation of the Act is illegal.
The few courts and authorities that have considered the
issue have held that conduct violative of section 8 is
illegal per se. See, e.g., Protectoseal Co. v. Baracek, 484
F.2d 585, 589 (7th Cir. 1973); P. Areeda, Antitrust
Analysis § 666 (8d ed. 1981); 4 Von Kalinowski, Anti-
trust Laws and Trade Regulation § 21.02 [2]. It seems
any maximum lawful price for sales of gas in intrastate com-
merce which does not exceed the applicable maximum lawful
price, if any, under Title I of this Act. This authority extends
to the operation of any indefinite price escalator clause. The
Congress enacts this provision with a recognition that it is
ceding its authority under the commerce clause of the Consti-
tution to regulate prices for such production to affected States.”
H.R. Conf. Rep. No. 1752, 95th Cong., 2d Sess. 124-25, reprinted in
1978 U.S. Code Cong. & Ad. News 8983, 9041. The first sentence
of this discussion confirms the clear language of the statute. The
last sentence is apparently at variance with the enacted language.
As stated in text, Congress’ power to regulate Indian affairs can
only be delegated expressly.
Tn le
57a
to me that if an interlocking directorate falls within
section 8, which is very specific, the interlock is unlaw-
ful and no rule of reason analysis is necessary. Because
the purpose of section 8 is to nip antitrust violations in
the bud, TRW Inc. v. FTC, 647 F.2d 942, 946-47 (9th
Cir. 1981), injunctive relief for such a violation without
proof of actual anticompetitive effect should be available
under 15 U.S.C. § 26 (1982) to protect “against threat-
ened loss or damage by a violation.” Jd. (emphasis
added).
In this case, however, plaintiff is seeking treble dam-
ages under section 4 of the Clayton Act, 15 U.S.C. § 15
(1982), which requires “some showing of actual injury
attributable to something the antitrust laws were de-
signed to prevent.” J. Truett Payne Co. v. Chrysler
Motors, 451 U.S. 557, 562 (1981) (emphasis added).
Because I agree with the majority’s conclusion that plain-
tiff here has failed to make the requisite showing of
damage under section 4, I would affirm the district court
on that basis only.
58a
APPENDIX
Pertinent Regulations
25 C.F.R. pt. 211, Bureau of Indian Affairs (1982).
Ҥ 211.18 Rates of rentals and royalties under oil
and gas leases.
“(a) The lessee shall pay ...a rental of $1.25
per acre per annum in advance during the conunu-
ance thereof, together with a royalty of 12% per-
cent or the value of amount of all oil, gas, and/or
natural gasoline, and/or all other hydrocarbon sub-
stances produced and saved from the land leased,
save and except oil, and/or gas used by the lessee
for development and operation purposes on the
lease, which oil or gas shall be royalty free... .
During the period of supervision, ‘value’ for the pur-
poses of the lease may, in the discretion of the Sec-
retary of the Interior, be calculated on the basis of
the highest price paid or offered (whether calculated
on the basis of short or actual volume) at the time
of production for the major portion of the oil of the
same gravity, and gas, and/or natural gasoline, and/
or all other hydrocarbon substances produced and
sold from the field where the leased lands are situ-
ated, and the actual volume of the marketable prod-
uct less the content of foreign substances as de-
termined by the supervisor. The actual amount real-
ized by the lessee from the sale of said products may,
in the discretion of the Secretary of the Interior, be
deemed mere evidence of or conclusive evidence of
such value.... In determining the value for royalty
purposes of products, such as natural gasoline, that
are derived from treatment of gas, a reasonable
allowance for the cost of manufacture shall be made,
such allowance to be two-thirds of the value of the
marketable product unless otherwise determined by
a ee ae Ae
59a
the Secretary of the Interior on application of the
lessee or on his own initiative, and that royalty will
be computed on the value of gas or casing-head gas,
or on the products thereof (such as residue gas,
natural gasoline, propane, butane, etc.), whichever
is the greater.”
“$211.21 Restrictions on operations.
“(a) Oil and gas leases issued under the provi-
sions of the regulations in this part shall be subject
to imposition by the Secretary of the Interior of
such restrictions as to time or times for the drilling
of wells and as to the production from any well or
wells as in his judgment may be necessary or proper
for the protection of the natural resources of the
leased land and in the interest of the lessor. In the
exercise of his judgment the Secretary of the In-
terior may take into consideration, among other
things, the Federal laws, State laws, regulations by
competent Federal or State authorities, lawful agree-
ments among operators regulating either drilling or
production, or both, and any regulatory action de-
sired by tribal authorities.”
30 C.F.R. pt. 221, Minerals Management Service
(1982).
Ҥ 221.46 Quality basis for computing royalties on
natural gasoline, butane, propane, and other liquid
hydrocarbon substances extracted from gas.
“(a) If the net output of a plant is derived from
the gas obtained from only one leasehold, the quan-
tity of gasoline or other liquid hydrocarbon sub-
stances of which computations of royalty for the
lease are based is the net output of the plant.
“(e) The supervisor is authorized, whenever in
his judgment neither method prescribed in para-
60a
graph (b) and (c) of this section is practicable, to
estimate the production of natural gasoline, butane,
propane, or other liquid hydrocarbon substances from
any leasehold from: (1) The quantity of gas pro-
duced from the leasehold and transmitted to the
extraction plant, (2) the gasoline, butane, propane,
or other liquid hydrocarbon content of such gas as
determined by test, and (3) a factor based on plant
efficiency or recovery and so determined as to insure
full protection of the royalty interest of the lessor.”
“$221.47 Value basis for computing royalties.
“The value of production, for the purpose of com-
puting royalty shall be the estimated reasonable
value of the product as determined by the supervisor,
due consideration being given to the highest price
paid for a part or for a majority of production of
like quality in the same field, to the price received
by thé\lessee, to posted prices and to other relevant
matters. Under no circumstances shall the value of
production of any of said substances for the pur-
poses of computing royalty be deemed to be less than
the gross proceeds accruing to the lessee from the
sale thereof or less than the value computed on such
reasonable unit value as shall have been determined
by the Secretary. In the absence of good reason to
the contrary, value computed on the basis of the
highest price per barrel, thousand cubic feet, or gal-
lon paid or offered at the time of production in a
fair and open market for the major portion of like-
quality oil, gas, or other products produced and sold
from the field or area where the leased lands are
situated will be considered to be a reasonable value.”
Ҥ 221.50 Royalty on gas.
“The royalty on gas shall be the percentage estab-
lished by the terms of the lease of the value or
amount of the gas produced. A
—_—
6la
“(a) Royalty accrues on dry gas, whether pro-
duced as such or as residue gas after the extraction
of gasoline.
“(c) For the purpose of computing royalty the
value of wet gas shall be either the gross proceeds
accruing to the lessee from the sale thereof or the
aggregate value determined by the Secretary of all
commodities, including residue gas, obtained there-
from, whichever is greater.”
Ҥ 221.51 Royalty on casing-head or natural gaso-
line, butane, propane, or other liquid hydrocarbon
substances extracted from gas.
“A royalty as provided in the lease shall be paid
on the value of one-third (or the lessee’s portion
if greater than one-third) of all casing-head or nat-
ural gasoline, butane, propane, or other liquid hydro-
carbon substances extracted from the gas produced
from the leasehold. The value of the remainder is an
allowance for the cost of manufacture, and no roy-
alty thereon is required. The value shall be so de-
termined that the minimum royalty accruing to the
lessor shall be the percentage established by the
lease of the amount or value of ali extracted hydro-
carbon substances accruing to the lessee under an
arrangement, by contract or otherwise, for extrac-
tion and sale that has been approved by the super-
visor.”
Pertinent Lease Terms
Lease Form No. 157, Oil and Gas Mining Lease—Tribal
Indian Lands.
“3. In consideration of the foregoing, the lessee
hereby agrees:
“(a) Bond.—To furnish such bond as may be
required by the regulations of the Secretary of the
62a
Interior, with satisfactory surety, or United States
bonds as surety therefor, conditioned upon compli-
ance with the terms of this lease.
“(b) Wells—(1) To drill and produce all wells
necessary to offset or protect the leased land from
drainage or in lieu thereof, to compensate the lessor
in full each month for the estimated loss of royalty
through drainage; Provided, That during the period
of supervision by the Secretary of the Interior, the
necessity for offset wells shall be determined by the
oil and gas supervisor and payment in lieu of drill-
ing and production shall be with the consent of, and
in an amount determined by the Secretary of the
Interior; (2) at the election of the lessee to drill and
produce other wells; Provided, That the right to
drill and produce such other wells shall be subject
to any system of well spacing or production allot-
ments authorized and approved under applicable law
or regulations, approved by the Secretary of the
Interior and affecting the field or area in which the
leased lands are situated; and (3) if the lessee elects
not to drill and produce such other wells for any
period the Secretary of the Interior may, within 10
days after due notice in writing, either require the
drilling and production of such wells to the number
necessary, in his opinion, to insure reasonable dili-
gence in the development and operation of the prop-
erty, or may in lieu of such additional diligent drill-
ing and production require the payment on and after
the first anniversary date of this lease of not to ex-
ceed $1 per acre per annum, which sum shall be in
addition to any rental or royalty hereinafter speci-
fied.
“(¢e) Rental and royalty.—To pay, beginning with
the date of approval of the lease by the Secretary of
the Interior or his duly authorized representative, a
rental of $1.25 per acre per annum in advance dur-
63a
ing the continuance hereof, the rental so paid for
any one year to be credited on the royalty for that
year, together with a royalty of 16% percent of the
value or amount of all oil, gas and/or natural gaso-
line, and/or all other hydrocarbon substances pro-
duced and saved from the land leased herein, save
and except oil, and/or gas used by the lessee for de-
velopment and operation purposes on said lease,
which oil or gas shall be royalty free. During the
period of supervision, “value” for the purposes
hereof may, in the discretion of the Secretary, be
calculated on the basis of the highest price paid or
offered (whether calculated on the basis of short or
actual volume) at the time of production for the
major portion of the oil of the same gravity, and gas
and/or natural gasoline, and/or all other hydro-
carbon substances produced and sold from the field
where the leased lands are situated, and the actual
volume of the marketable product less the content of
foreign substances as determined by the oil and
gas supervisor. The actual amount realized by the
lessee from the sale of said products may, in the
discretion of the Secretary, be deemed mere evidence
of or conclusive evidence of such value. When paid
in value, such royalties shall be due and payable
monthly on the last day of the calendar month fol-
lowing the calendar month in which produced, when
royalty on oil produced is paid in kind, such royalty
oil shali be delivered in tanks provided by the lessee
on the premises where produced without cost to the
lessor unless otherwise agreed to by the parties
thereto, at such time as may be required by the
lessor; Provided, That the lessee shall not be re-
quired to hold such royalty oil in storage longer than
30 days after the end of the calendar month in
which said oil is produced; And provided further,
That the lessee shall be in no manner responsible or
held liable for loss or destruction of such oil in
64a
storage caused by acts of God. All rental and royalty
payments, except as provided in sec.’.n 4(c) shall
be made by check or draft drawn on a solvent bank,
open for the transaction of business on the day the
check or draft is issued, to the payee designated by
the Area Director. All such rental and royalty pay-
ments shall be mailed to the oil and gas supervisor
for transmittal to the payee designated by the Area
Director. It is understood that in determining the
value for royalty purposes of products, such as nat-
ural gasoline, that are derived from treatment of
gas, a reasonable allowance for the cost of manufac-
ture shall be made, such allowance to be two-thirds
of the value of the marketable product unless other-
wise determined by the Secretary of the Interior on
application of the lessee or on his own initiative, and
that royalty will be computed on the value of gas or
casinghead gas, or on the products thereof (such as
residue gas, natural gasoline, propane, butane, etc.),
whichever is the greater.
“(f) Diligence, prevention of waste.-—To exercise
reasonable diligence in drilling and operating wells
for oil and gas on the lands covered hereby, while
such products can be secured in paying quantities;
to carry on all operations hereunder in a good and
workmanlike manner in accordance with approved
methods and practice, having due regard for the
prevention of waste of oil or gas developed on the
land, or the entrance of water through wells drilled
by the lessee to the productive sands or oil or gas-
bearing strata to the destruction or injury of the
oil or gas deposits, the preservation and conserva-
tion of the property for future productive operations,
and to the health and safety of workmen and em-
ployees; to plug securely all wells before abandoning
the same and to effectually shut off water from the
65a
oil or gas-bearing strata; not to drill any well within
200 feet of any house or barn now on the premises
without the lessor’s written consent; to carry out
at the expense of the lessee all reasonable orders
and requirements of the oil and gas supervisor rela-
tive to prevention of waste, and preservation of the
property and the health and safety of workmen; to
bury all pipe lines crossing tillable lands below plow
depth unless other arrangements therefor are made
with the superintendent; to pay the lessor all dam-
ages to crops, buildings, and other improvements of
the lessor occasioned by the lessee’s operations; Pro-
vided, That the lessee shall not be held responsible
for delays or casualties occasioned by causes beyond
the lessee’s control.”
Rec., jt. app. vol. I, at 18-15.
66a
APPENDIX C
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
No. 75-247-M Civil
JICARILLA APACHE TRIBE,
Plaintiff,
v.
SOUTHERN UNION GAS COMPANY, ¢ al.,
Defendants.
[Filed Sept. 7, 1978]
MEMORANDUM OPINION
This matter came up on cross motions for partial sum-
mary judgment by the plaintiff and all remaining de-
fendants, and having considered said motions, and the
memoranda of counsel, affidavits, depositions and ex-
hibits, the following opinion will dispose of the points
raised by the parties.
POINT I
Plaintiff alleges that the defendants have not calcu-
lated royalties on the “value” of natural gas, oil and
liquid hydrocarbon substances as required by the leases
involved herein. I conclude, however, that as a matter
of law the “value” was determined by the Secretary of
the Interior (Secretary), and that retroactive reassess-
ment of the value is improper. The defendants’ motions
for partial summary judgment as to this issue should
67a
be granted, as all parties agree and I find that there is
no issue of material fact which would necessitate a trial
on this issue.
The essence of plaintiff’s claim is that the Secretary
did not determine “value” prior to the institution of this
lawsuit as that term is defined in the leases and that
this Court should determine “value” after an evidentiary
hearing or order the Secretary to do so. The Secretary
has in fact already determined “value” for royalty pur-
poses in accordance with the terms of the leases and
regulations, and the plaintiff disagrees with this deter-
mination.
The leases are Standard Form 157 Department of In-
terior lease forms, paragraph 3(c) of which defines the
term “value”:
During the period of supervision, “value” for the
purposes hereof may, in the discretion of the Secre-
tary, be calculated on the basis of the highest price
paid or offered (whether calculated on the basis of
short or actual volume) at the time of production
for the major portion of the oil of the same gravity,
and gas, and/or natural gasoline, and/or all other
hydrocarbon substances produced and sold from the
field where the leased lands are situated, and the
actual volume of the marketable product less the con-
tent of foreign substances as determined by the oil
and gas supervisor. The actual amount realized by
the lessee from the sale of said products may, in the
discretion of the Secretary, be deemed mere evidence
of or conclusive evidence of such value.
Certain provisions of 30 CFR are made applicable by
the leases to the determination of value on which royal-
ties are based. 30 CFR 221.47 provides:
The value of production, for the purpose of comput-
ing royalty shall be the estimated reasonable value
of the product as determined by the Supervisor, due
68a
consideration being given to the highest price paid
for a part or for a majority of production of like
quality in the same field, to the price received by the
lessee, to posted prices and to other relevant matters.
Under no circumstances shall the value of produc-
tion of any of said substances for the purposes of
computing royalty be deemed to be less than the
gross proceeds accruing to the lessee from the sale
thereof or less than the value computed on such
reasonable unit value as shall have been determined
by the Secretary. In the absence of good reason to
the contrary, value computed on the basis of highest
price per barrel, thousand cubic feet, or gallon paid
or offered at the time of production in a fair and
open market for the major portion of like-quality oil,
gas, or other products produced and sold from the
field or area where the leased lands are situated will
be considered to be reasonable value.
Royalties have been paid by all defendants based upon a
determination and billing by the Secretary. The defend-
ants filed regular monthly Statements of Oil and Gas
Runs and Royalties on each of the leases. The value for
royalty purposes shown in these monthly statements were
the sales prices received by defendants at the wellhead.
The Secretary, through the United States Geological Sur-
vey (USGS) issued monthly billings of royalties to the
defendants based upon these wellhead sales prices re-
ceived by the defendants. This was an exercise of the
Secretary’s discretion based upon the regulations and the
leases, whereby he conclusively established value for
royalty purposes as the sale price received at the well-
head. The rendition of these statements and billings by
the USGS constitutes an official act of the Secretary. 25
CFR 171.138.
This determination by the Secretary may be chal-
lenged in an administrative appeal, and this court would
then be able to review the agency action under 5 USC
69a
706. However, the plaintiff did not exhaust this ad-
ministrative remedy, and failed to provide the Secretary
witk “good reason” to compute “value” differently. In
addition, the plaintiff has failed to allege any arbitrary,
capricious or unlawful actions, or abuse of discretion by
the Secretary.
In Continental Oil Co. v. United States, 184 F.2d 802
(Tenth Cir. 1950), the court specifically held that deter-
minations of value for royalty payments could not be
applied retrospectively to recompute gas royalties. I con-
clude therefore, that plaintiff’s request that this Court
redetermine the “value” for royalty purposes for years
past, where billings have been made and royalties have
been paid, would be improper.
Point II
The plaintiff alleges that the leases involved herein
require the defendants to account for liquid hydrocarbon
substances in the natural gas stream by both the net
realization method and the BTU adjustment method, and
that royalties should be paid on the basis of whichever
accounting method creates the greater revenue. In De-
cember, 1976, the Secretary of the Interior directed
Southern Union Gas Company to make a duel account-
ing for plaintiff’s .iquid hydrocarbon substances, as plain-
tiff has requested herein; the Secretary’s decision is being
appealed, and the determination upon appeal may well
dispose of this issue, subject to possible review here. I
therefore conclude that a ruling here on this issue should
be deferred until such time as the appeal is complete,
unless it appears that the disposition upon appeal has
been unreasonably delayed.
POINT III
The plaintiff asserts that there is no genuine issue of
material fact and that as a matter of law it is entitled
to have the cost of manufacture allowance, which has
70a
been determined by the Secretary, implemented and used
in accounting for liquids by the net realization method
of accounting. The resolution of this issue, however, is
necessarily contingent upon the determination of Point
II above, which has been reserved until the conclusion of
the appeal process. Ruling on this issue will therefore
be deferred until such time as Point II is again before
this court for adjudication.
Point IV
The plaintiff has requested partial summary judgment
granting the relief prayed for in paragraphs 2, 4, and
5 of the prayer for relief of the Fourth Cause of Action
of the Amended Complaint. As to the claim for dual
accounting for liquids, this issue has been deferred until
the appeal process is complete (see Point II above). On
the issue of the value of natural gas, oil and liquids for
royalty purposes, the plaintiff's motion for summary
judgment should be denied and the defendants’ motions
granted on the basis of the law set forth in Point I above.
The plaintiff has further alleged that the defendants
are required by the leases to drill offset wells or alterna-
tively that defendants’ rights in the spacing units of
each case where offset wells should have been drilled be
cancelled. In addition, the plaintiff alleges that the
defendants must, as a matter of law, explore and develop
plaintiff’s lands to the fullest extent possible, or suffer
cancellation of their leases as to any undeveloped geo-
logical formations. Paragraph 3(b) of the leases requires
the defendants to:
drill and produce all wells necessary to offset or pro-
tect the leased lands from drainage [by wells on ad-
joining lands not the property of the lessor] or in
lieu thereof, to compensate the lessor in full each
month for the estimated loss of royalty through
drainage . . . if the lessee elects not to drill and
T1la
produce such other wells for any period the Secre-
tary of the Interior may, within 10 days after due
notice in writing, either require the drilling and
production of such wells to the number necessary, in
his opinion, to insure reasonable diligence in the de-
velopment of the property, or may, in lieu of such
additional diligent drilling and production, require
the payment on and after the first anniversary date
of this lease of not to exceed $1 per acre per annum,
which sum shall be in addition to any rental or
royalty hereinafter specified.
It is not clear whether the bracketed language appears
in paragraph 3(b) of the leases involved herein. A re-
view of the record indicates that there are outstanding
questions of material fact which make summary judg-
ment improper at this point. However, the determina-
tion of: these outstanding questions of fact should be
made in the first instance by the Secretary of the In-
terior, as is provided for in the leases in this case. Pan
American Petroleum Corp v. Udall, 192 F.Supp 626
(D.D.C. 1961). Ruling on this issue wili therefore be
deferred for a period of 120 days so that the Secretary
will have the opportunity to determine whether offset
wells are necessary; whether there has been a failure to
develop; whether the leases limit the necessity for offset
wells to drainage “by wells on adjoining lands not the
property of the lessor” or whether there is a duty to drill
offset wells on lands owned by the plaintiff; which leases
have not been diligently developed in each geological
formation; whether additional development wells can and
should be drilled which will probably produce a profit
for the defendants and which are necessary to insure
“reasonable diligence in the operation of the property”;
and whether cancellation is required of defendants’ rights
to undeveloped geological formations or spacing units
where offset wells should have been drilled. The Secre-
tary should make these determinations and issue direc-
72a
tives in accordance with his authority under the leases
and the law, subject to review by this court. If the
Secretary has failed to make such determinations within
120 days, these issues will be resolved after a full hear-
ing on the merits.
An order will be entered consistent with this Opinion.
/s/ EK. L. Mechem
United States District Judge
73a
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
No. 75-246-M Civil
JICARILLA APACHE TRIBE,
- Plaintiff,
SOUTHERN UNION GAS COMPANY, e¢ al.,
Defendants.
[Filed Sept. 7. 1978]
ORDER
This matter having come up on cross-motions for sum-
mary judgment by the plaintiff and the remaining de-
fendants herein, and a memorandum opinion having been
entered constituting the findings of fact and conclusions
of law in this case; Now, Therefore,
IT IS ORDERED that the plaintiff’s motion for sum-
mary judgment as to the issue of “value” for royalty
purposes is hereby denied and the defendants’ motions
for summary judgment on this same issue are hereby
granted;
IT IS FURTHER ORDERED that a ruling on the
issue of dual accounting, the cost of manufacture allow-
ance, and the relief prayed for in paragraph two of the
prayer for relief of the Fourth Cause of Action of the
Amended Complaint is hereby deferred until the adminis-
trative appeal on the issue of dual accounting is com-
plete, unless there is unreasonable delay in the disposi-
tion of this appeal;
T4a
IT IS FURTHER ORDERED that as to paragraph
four of the prayer for relief of the Fourth Cause of
Action of the Amended Complaint, summary judgment in
favor of the defendants is hereby granted and the plain-
tiff’s motion for summary judgment is hereby denied;
IT IS FURTHER ORDERED that as to paragraph
five of the prayer for relief of the Fourth Cause of
Action of the Amended Complaint, the issue of offset
wells and diligent development of the property, are
hereby remanded to the Secretary of Interior for a period
of 120 days for his determination of all facts and neces-
sary or relevant issues which will enable him to issue
directives consistent with his authority under the law,
leases and regulations applicable herein, subject to review
by this court.
/8/ EK. L. Mechem
United States District Judge
75a
APPENDIX D
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
No. 75-247-M Civil
THE JICARILLA APACHE TRIBE,
Plaintiff,
vs.
SOUTHERN UNION GAS Co., et al.,
Defendants.
[Filed Dec. 19, 1978]
MEMORANDUM OPINION AND ORDER
This matter comes up for consideration on plaintiff’s
motions to revise the Memorandum Opinion and Order
filed September 7, 1978, and for leave to file a Second
Amended Complaint. That portion of the Memorandum
Opinion and Order of which plaintiff seeks revision
granted summary judgment to defendants on the issue of
whether the Secretary of Interior has determined “value”
for royalty purposes in accordance with the terms of the
leases and applicable federal regulations. I conclude in
that Opinion that royalties have been paid by defendants
“based upon a determination and billing by the Secre-
tary,” that “value for royalty purposes . . . were [sic]
the sales prices received by defendants at the wellhead,”
that “[t]he Secretary, through the United States Geo-
logical Survey (USGS) issued monthly billings or royal-
ties to the defendants based upon these wellhead sales
76a
prices... ,” and “[t]his was an exercise of the Secre-
tary’s discretion... .”
Plaintiff, in its Motion to Revise, suggests that I am
uninformed as to the actual import of the monthly State-
ments of Account filed by defendants with the USGS and
on which I have concluded the Secretary bases his de-
termination of “value” for royalty purposes. Plaintiff
further suggests that contrary to the language of the
Memorandum Opinion, no appeal can be taken from the
Secretary’s billing procedure as described above.
Plaintiff argues that the monthly Statements of Ac-
count cannot possibly be construed as billings for royalty
purposes because the Secretary cannot have taken into
account the requisite factors in determining value for
royalty purposes on the basis of those Statements of
Account alone. I adhere to my conclusion that whatever
factors go into the formulation of those Statements of
Account, the Statements reflect sales price received by
the lessees for the quantities of oil and gas reported
therein. Sales price may be taken by the Secretary to be
conclusive evidence of value for royalty purposes. Stand-
ard Form 157, paragraph 3(c); 30 CFR 221.47 (1977).
His action in doing so does not constitute an abuse of
its discretion.
Plaintiff’s claim that it has no means by which to
timely appeal the Secretary’s monthly determination of
value is raised for the first time in the Motion to Revise.
It is true that the procedure in actual practice by which
the Bureau of Indian Affairs receives no copy of the
monthly Statements of Account until ninety days after
payment is made by defendants appears to be in conflict
with the requirement that notice of appeal be given with-
in thirty days of the action complained of. See 30 CFR
290 (1977). While the Secretary’s month by month de-
termination of value for royalty purposes may not for
all practical purposes be appealable, the procedure itself
is subject to appeal. If the Secretary’s procedure does
77a
not afford plaintiff an opportunity to make timely appeal
under the regulations, plaintiff may seek one of two
alternatives. It may institute an action to require that
the billing procedure in practice be altered to afford plain-
tiff its due process right to pursue administrative appeal
of the month by month determinations of value or it may
seek to require that the regulation setting out the re-
quirements for appeal of administrative action, i.e., 30
CFR 290 (1977), be conformed to actual practice to
permit plaintiff sufficient time in which to timely prose-
cute appeals from the monthly Statements of Account.
Neither of these alternatives conflict with my finding that
the Secretary has made a determination of value for roy-
alty purposes.
While it is regrettable that the Secretary’s action, or
more accurately his inaction, in doing no more than ac-
cepting the lessees’ monthly Statements of Account and
basing his determination of value for royalty purposes
thereon, may not be in the best interests of plaintiff and
further may not result in most profitable royalties due
plaintiff from its leases, such action falls within the
range of discretion allowed the Secretary. Unfortunately,
whether or not I am in agreement with the Secretary’s
course of action or whether I think the Secretary ought to
have done, or ought to be doing, more on behalf of plain-
tiff is not the point. It is not within my province, having
found the Secretary to have acted within his discretion,
to order him to do otherwise. Plaintiff’s motion to revise
will be denied.
Plaintiff has moved for leave to file its Second Amended
Complaint. Rule 15(a) of the Federal Rules of Civil
Procedure dictates that leave to amend “shall be freely
given when justice so requires.” Leave to amend shall
be granted absent good reason to the contrary. Foman v.
Davis, 371 U.S. 178, 182 (1962). Whether or not to
permit a party to amend its pleadings is left to the sound
discretion of the trial court. Jd. Undue delay and preju-
78a
dice to the opposing party are the primary factors to be
considered regarding leave to amend. R.E.B., Inc. v.
Ralston Purina Co., 525 F.2d 749, 751 (10th Cir. 1975).
Only prejudice amounting to “grave injustice” justifies
refusal to permit amendment. Patton v. Guyer, 443 F.2d
79, 86 (10th Cir. 1971). Having considered the motion
and memorandum briefs of counsel and being fully ad-
vised in the premises, I find that plaintiff’s Second
Amended Complaint raises no substantially new legal
issues, that it raises claims arising out of the same nu-
cleus of facts and transactions described in plaintiff’s
original Complaint and therefore relates back to the
date of that Complaint, that the issues raised in the
Second Amended Complaint will not result in an unrea-
sonable amount of additional discovery or a substantial
delay in this action’s progress toward trial, that plain-
tiff has not sought to amend after undue delay and that
permitting plaintiff to so amend will not cause defend-
ants prejudice amounting to grave injustice. Now, There-
fore,
IT IS ORDERED that plaintiff be, and hereby is,
granted leave to file its Second Amended Complaint.
The Clerk of the Court shall file plaintiff’s Second
Amended Complaint this date. Defendants shall file their
answers to the Second Amended Complaint within ten
(10) days.
IT IS FURTHER ORDERED that plaintiff’s motion to
revise the Memorandum Opinion and Order of this Court
filed September 7, 1978, be, and hereby is, denied.
IT IS FURTHER ORDERED that this action be, and
hereby is, set for trial on the merits on April 2, 1979,
at 9:00 A.M.
/s/ EK. L. Mechem
United States District Judge
79a
APPENDIX E
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
No. 75-247-M Civil
THE JICARILLA APACHE TRIBE,
Plaintiff,
vs.
SUPRON ENERGY CORPORATION, SOUTHLAND ROYALTY
CORPORATION, EXXON CORPORATION, and CECIL B. AN-
DRUS, Secretary of Interior of United States of America,
Defendants.
[Filed Apr. 13, 1979]
MEMORANDUM OPINION
Plaintiff, the Jicarilla Apache Tribe (Tribe), filed its
Second Amended Complaint on December 19, 1978, alleg-
ing in two separate Causes of Action that defendants,
Supron Energy Corporation (Supron), formerly South-
ern Union Production Company, Southland Royalty Cor-
poration (Southland), successor to Aztec Oil and Gas
Company, and Exxon Corporation (Exxon), all foreign
corporations, breached various oil and gas leases per-
taining to Tribal lands entered into by defendants, or
their precedessors in interest, with the Secretary of
Interior (Secretary) on behalf of the Tribe. The Secre-
tary, Cecil B. Andrus, is also a named defendant in this
action.
80a
Plaintiff further alleges in its Second Amended Com-
plaint that the defendant energy companies have engaged
in concerted illegal activities between and among them-
selves in violation of the federal antitrust laws. Specif-
ically, it is alleged in the First Cause of Action that
Supron, Southern Union Gas Company (now Gas Com-
pany of New Mexico (GCNM)) and Southern Union
Gathering Company’, respectively, conspired to fix prices
and conceal the actual consideration received for gas
from Tribal leaseholds. The Tribe alleges that royalties
accounted for to the United States Geological Survey
(USGS) were paid to the Tribe on the basis of prices
set below market value for gas drawn from the Tribe’s
lands and sold by defendants Supron and Southland to
GCNM. Plaintiff claims that the alleged conspiracies are
continuing in nature and are in violation of Section 1 of
the Sherman Antitrust Act, 15 U.S.C. §1 (1976). Plain-
tiff seeks treble damages based on defendants’ concerted
activities pursuant to § 4 of the Clayton Antitrust Act,
15 U.S.C. § 15 (1976).
Plaintiff alleges in the Second Cause of Action that
Supron and Southland, and Supron and Exxon, respec-
tively, conspired to conceal from the USGS and the Tribe
the potential for development of leases held by defendants
on Tribal lands in order to hold the leases without pro-
duction for speculative purposes, in restraint of trade
and in violation of Section 1 of the Sherman Antitrust
Act, 15 U.S.C. § 1. As with its claim in the First Cause
1 Both GCNM and Southern Union Gathering Company were
originally named defendants in this action. Defendants’ Stipulation
for Settlement, agreed to by plaintiff and these two defendants on
October 21, 1976, was filed in this action (Docket #112). A Partial
Final Judgment and Decree based on the Stipulation for Settlement
(and on a Supplemental Stipulation for Settlement not relevant
hereto) and filed November 10, 1976, terminated these defendants’
participation in the case. The terms of the Stipulation nevertheless
continue to affect the parties and issues remaining. See, infra at
p. 10.
8la
of Action, plaintiff alleges the continuing nature of the
conspiracies herein alleged. Plaintiff seeks treble dam-
ages on the alleged antitrust violations and further seeks
declaratory judgment based on the alleged breach of con-
tract insofar as it claims defendants have failed to dili-
gently develop their leases and drill offset wells as re-
quired by the leases. Such a declaration would subject
the leases by their own terms to cancellation by the
Secretary.
In response to plaintiff’s Second Amended Complaint,
Southland answered as to the First Cause of Action, rais-
ing several affirmative defenses, and filed a motion to
dismiss the Second Cause of Action for failure to state
a claim, pursuant to Rule 12(b) (6), F.R.C.P. Southland
later filed a motion to dismiss the Second Amended Com-
plaint for lack of subject matter jurisdiction, pursuant
to Rule 12(b) (1), or, in the alternative, for summary
judgment, pursuant to Rule 56. Supron filed its Answer
to the Second Amended Complaint and having set out its
affirmative defenses, requested that they be treated as
motions under Rule 12(b), pursuant to Local 5(c), Rules
of the United States District Court for the District of
New Mexico. Exxon answered as to the First Cause of
Action, listing its affirmative defenses thereto, and in a
Second Amended Motion to Dismiss plaintiff’s Second
Cause of Action for failure to state a claim, seeks dis-
missal of the Second Cause of Action, or, in the alterna-
tive, dismissal of the antitrust claim against it in the
Second Cause of Action. Plaintiff filed a consolidated
response to defendants’ motions and oral argument on
the motions was held on March 16, 1979.
Subject Matter Jurisdiction
Defendants’ various motions are directed primarily at
plaintiff’s antitrust claims. Defendants all asserted that
lack of subject matter jurisdiction bars cognizance of
the antitrust claims set out in both Causes of Action in
82a
plaintiff’s Second Amended Complaint. Unlike a motion
to dismiss for failure to state a claim on which relief
can be granted, on a motion to dismiss for lack of sub-
ject matter jurisdiction, plaintiff’s allegations of fact are
not necessarily taken to be presumptively true. The
Court may evaluate for itself the merits of plaintiff’s
jurisdictional claims and the plaintiff has the burden of
proving that jurisdiction does exist. Mortensen v. First
Federal Savings and Loan Ass’n, 549 F.2d 884, 891 (3rd
Cir. 1977). The difficulty in resolving questions as this in
antitrust cases arises from the language of Section 1 of
the Sherman Act which binds together the jurisdictional
basis for the action and a necessary element of the claim
itself. This procedural problem has resulted in varying
conclusions among the Circuits. See, cases collected in
Mortensen, 549 F.2d at 892-94. See also, George C. Frey
Ready-Mix Concrete, Inc. v. Pine Hill Concrete Mix Corp.,
554 F.2d 551, 554 n.3 (2nd Cir. 1977).
The Supreme Court, in Hospital Building Co. v. Trus-
tees of Rex Hospital, 425 U.S. 738 (1976), considered this
problem and concluded that whether viewed under Rule
12(b) (1) or 12(b) (6), the analysis is not different:
In either event, the initial inquiry is into the ade-
quacy of the nexus between respondents’ conduct and
interstate commerce that is alleged in the complaint.
Id., at 742n.1. But see, George C. Frey Ready-Mixed
Concrete, Inc. v. Pine Hill Concrete Mix Corp., 551 F.2d
at 554n.3 (“A motion to dismiss for lack of jurisdiction
. . 1S inappropriate in antitrust] cases unless the inter-
state commerce claim is patently frivolous. [citations
omitted].”). The Court in the Rex case also noted
that as to Congress’ power under the Commerce Clause,
“{s]ubsequent decisions by this Court have permitted the
reach of the Sherman Act to expand along with expanding
notions of congressional power. [citations omitted).” Jd.,
at 743n.2; Gulf Oil Corp. v. Copp Paving Co., Inc., 419
88a
U.S. 186, 194-95 (1974). And the fear of preventing
plaintiffs from litigating viable antitrust claims because
of a questionable jurisdictional foundation has resulted
in the conclusion that less is required to withstand a pre-
trial jurisdictional attack in antitrust cases. Canadian
American Oil Co. v. Union Oil Co. of California, 577
F.2d 468, 471 (9th Cir. 1978); Mortensen, supra.
Absent a finding that there exists some nexus between
defendants’ concerted activities and interstate commerce,
subject matter jurisdiction over a federal antitrust claim
cannot exist. Defendants contend that because the gas
drawn from the Tribe’s lands is sold, processed, trans-
ported and consumed solely in intrastate commerce, with-
in the borders of the State of New Mexico, plaintiff can-
not maintain its federal antitrust claims. Plaintiff, how-
ever, has produced evidence by affidavit that liquid by-
products extracted from gas from its iands is transported
in interstate commerce. Southland insists this fact, if
true, is irrelevant as to itself since it sells gas it draws from
the Tribe’s iands at the wellhead, in New Mexico, and
any entry of that gas into interstate commerce further
down the line may not be imputed to it to establish he
nexus required under the federal antitrust laws. S_ th-
land’s argument is misconceived insofar as it ignores its
own status as an alleged coconspirator. The entire scope
of the alleged conspiracy may be considered in determin-
ing whether the requisite nexus exists, and, if found, it
is sufficient to permit the Tribe to maintain its antitrust
claims against all co-conspirators. In any event, the
teaching of the Rex case permits a look beyond whether
the gas produced from the Tribe’s lands crosses state
lines. Hospital Building Co. v. Trustees of Rex Hospital,
425 U.S. at 744-76.
On the basis of the case law and the facts presented,
I conclude plaintiff has sustained its burden to withstand
notions of congressional power. {citations omitted].” Zd.,
at 743n.2; Gulf Oil Corp. v. Copp Paving Co., Inc., 419
84a
the oil and gas business, of which their New Mexico ac-
tivities, including their development of plaintiff’s leases,
are a part, and interstate commerce to sustain a finding
that defendants’ activities, if not necessarily “in” inter-
state commerce, “affect”? interstate commerce. Rex, 425
U.S. at 744. “The effect on interstate commerce need
not [be] gargantuan nor precisely mathematicized. It
is sufficient if it is more than merely inconsequential.
[citations omitted].” Woods Exploration & Producing
Co., Inc. v. Aluminum Company of America, 438 F.2d
1286, 1303 (5th Cir. 1971).
The requirement of the Rex case, that there be an
“‘“ygnreasonable burden on the free and uninterrupted
flow’ ” of interstate commerce, Rex, 425 U.S. at 746, is
met here by the fact that defendants are large interstate
corporations whose business of gathering, producing and
selling, natural gas taken from the Tribe’s lands must
necessarily have been an integral part of their larger,
clearly interstate, business operation. As the Supreme
Court noted in the Rex case, defendants in seeking to
dismiss plaintiff’s antitrust claim on the basis of juris-
diction face a “concededly rigorous standard.” Id., at
746. And, again, as the Court noted, whether plaintiff
can make a prima facie case on its antitrust claims is
another question. Jd., at 747n.5.
Subject matter jurisdiction is a question of law which
may be raised at any time by the parties or the Court.
Therefore, my decision that plaintiff’s action withstands
defendants’ pre-trial jurisdiclional attacks does not settle
the question conclusively. The standard by which I have
decided defendants’ 12(b) (1) claims is not the same as
the one to be applied on the merits of plaintiff’s antitrust
claims, an element of which, as discussed above, is the
nexus between defendants’ activities and interstate com-
merce. Canadian American Oil Co. v. Union Oil Co. of
California, supra. Should it appear at trial, or there-
after, that subject matter jurisdiction over plaintiff’s anti-
85a
trust claims may not in fact exist, the question will be
taken up at that time.
Defendants also claim that subject matter jurisdiction
over plaintiff’s Second Cause of Action is lacking because
the claims therein are based in contract, are not based on
a federal question and therefore form no basis for the
assertion of federal jursdiction. I have determined that
plaintiff’s antitrust claims state a claim sufficient to with-
stand defendants’ pre-trial attacks, clearly forming a
basis for federal jurisdiction when coupled with the lan-
guage of 28 U.S.C. 1862 (1976). Aside from this, how-
ever, the Tribe’s contract claims, based on its leases with
defendants, themselves suffice to establish federal juris-
diction over the Second Cause of Action.
The Tribe’s leases, entered into on its behalf by the
Secretary, are subject to the continuing supervision of the
Secretary. Poafpybitty v. Skelly Oil Co., 390 U.S. 365,
372-73 (1968). Given the fiduciary obligation of the Sec-
retary to protect the Tribe’s proprietary interests, such
as their interests in the leases held by defendants, the
nature of the Tribe’s contract claims is decidedly federal.
Oneida Indian Nation of New York v. County of Oneida,
New York, 414 U.S. 661 (1974). This supports my con-
clusion that the Tribe’s contract claims are independently
founded in federal law and that jurisdiction is proper
under 28 U.S.C. § 1362.
Standing
The second defect attributed to plaintiff’s antitrust
claims by all defendants is its asserted lack of standing
to sue under the federal antitrust laws. Standing to sue
under § 4 of the Clayton Antitrust Act, 15 U.S.C. § 15,
is a question of law to be determined by the trial court.
John Lenore & Co. v. Olympia Brewing Co., 550 F.2d
495, 498 (9th Cir. 1977). Three tests for standing have
been adopted by the federal Circuit Courts of Appeals.
The “direct injury” test requires just that, a direct in-
86a
jury to plaintiff resulting from defendants’ acts alleged
to have been in violation of the antitrust laws. Loeb v.
Eastman Kodak Co., 188 Fed. 704 (8rd Cir. 1910). Un-
der this test, incidental, consequential or derivative in-
jury to plaintiff is judged to be “too remote” to confer
standing to sue under the antitrust laws. Nationwide
Auto Appraiser Service, Inc. v. Ass’n of Casualty and
Surety Cos., 382 F.2d 925, 929 (10th Cir. 1967). It is
well to note that the questions of who has sustained anti-
trust injury and whose injury is too remote to confer
standing to sue under the antitrust laws are distinct
from one another. Illinois Brick Co. v. Illinois, 431 U.S.
720, 728n.7 (1977).
The “target area” test requires that
[t]here ... be an identification of the affected area
of the economy which is the target of the alleged
anticompetitive conduct. And, it must be determined
that the alleged injury was in that area. [citations
omitted].
John Lenore & Co. v. Olympia Brewing Co., 550 F.2d at
499; Conference of Studio Unions v. Loew’s, Inc., 193
F.2d 51 (9th Cir. 1951), cert. den., 342 U.S. 919 (1952).
Under the target area test, it is not enough for plaintiff
to show it was “hit” by defendants’ concerted activities;
it must show it was “aimed at.” Karseal Corp. v. Rich-
field Oil Corp., 221 F.2d 358, 362 (9th Cir. 1955).
The third test for standing, recently adopted by the
United States Court of Appeals for the Third Circuit, is
essentially the standing test developed by the United
States Supreme Court in Ass’n of Data Processing Service
Organizations, Inc. c. Camp, 397 U.S. 150 (1970). Mala-
mud v. Sinclair Oil Corp., 521 F.2d 1142 (6th Cir. 1975).
In a reasoned opinion, the Third Circuit concluded that
the two-pronged approach of Data Processing, looking to
see if plaintiff has alleged “ ‘injury in fact,’” and if
“ ‘the interest sought to be protected ... [was] arguably
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within the zone of interests to be protected,” Malamud
v. Sinclair Oil Corp., 521 F.2d at 1145, quoting from
Data Processing, 397 U.S. at 152-53, sufficiently satisfied
Congress’ intent that the antitrust laws be limited in
their application to plaintiffs who have suffered an “anti-
trust injury ... of the type the antitrust laws were
intended to prevent and that flows from that which makes
defendants’ acts unlawful.” Brunswick Corp. v. Pueblo
Bowl-O-Mat, 429 U.S. 477, 489 (1977) (emphasis in
original).
Plaintiff argues that the “direct injury” test ought to
be applied in this case, citing the Tenth Circuit’s decision
in Nationwide Auto Appraisers Service, Inc. v. Ass’n of
Casualty and Surety Cos., supra. Defendants claim the
“target area” test to be the better rule and the majority
rule, and assert further that-its application in this case
is not foreclosed by the Nationwide case. Neither side
has claimed knowledge of or reliance on the Data Pro-
cessing test set out in Malamud v. Sinclair Oil Corp.,
supra. I need not decide which test to use to determine
whether plaintiff has standing to prosecute its antitrust
claims, as I have concluded that plaintiff has made the
requested showing of standing to sue under any of these
tests.
Under the terms of its leases, plaintiff may give timely
notice to its lessees and take its royalties in kind. Plain-
tiff alleges in its Second Amended Complaint that it
desires to take royalties in kind but that the Stipulation
for Settlement Agreement it effected with GCNM and
Southern Union Gathering Company, see, supra at p. 2n.1,
prevents it from doing so. As set out in the Stipulation,
it appears that other parties, including Supron, have
exclusive contractual rights to process gas and liquid
by-products derived from plaintiff’s leases. The Tribe’s
decision to take royalties in kind might impair those
parties’ contractual rights. The Stipulation states that
GCNM is excused from gathering or processing the
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Tribe’s royalty gas taken in kind until the contractual
rights and obligations referred to are settled by agree-
ment of the parties, which has not occurred, or by a
court of competent jurisdiction. Stipulation for Settle-
ment, ff] 2, 3.
I understand this language in the Stipulation to mean
that it is the Tribe’s desire to become a competitor in
the business of the sale of natural gas, necessarily then,
a competitor with defendant energy companies. As a
potential competitor, plaintiff falls within the target area
of defendants’ alleged concerted activities and has alleg-
edly sustained direct injury by reason thereof. Solinger
v. A & M. Records, Inc., 586 F.2d 1804, 1309-10 (9th
Cir. 1978), petition for cert. filed, 47 U.S.L.W. 3587
(U.S. Mar. 6, 1979) (Nos. 78-1315, 78-1317). Defend-
ants resist such an interpretation of the standing doctrine
by asserting that plaintiff is not a competitor and there-
fore cannot have standing to sue under the federal anti-
trust laws. “The antitrust laws, however, were enacted
for ‘the protection of competition, not competitors,’ [cita-
tion omitted].” Brunswick Corp. v. Pueblo Bowl-O-Mat,
429 U.S. at 488 (emphasis in original).
Plaintiff’s claim that defendants’ activities have re-
sulted in lesser royalties as a result of both the alleged
price fixing and restraint of trade constitutes direct and
tangible injury. Defendants insist that plaintiff, as a
non-operating owner/lessor, has no standing to sue its
lessees for antitrust violations. Defendants rely primar-
ily on the theatre cases for their contention. Calderone
Enterprises Corp. v. United Artists Theatre Circuit, Inc.,
454 F.2d 1292 (2d Cir. 1971), cert. den., 406 U.S. 930
(1972) ; Melrcse Realty Co. v. Loew’s, Inc., 284 F.2d 518
(3rd Cir.), cert. den., 352 U.S. 890 (1956), reh. den.,
355 U.S. 900 (1957); Harrison v. Paramount Pictures,
Inc., 115 F.Supp. 312 (E.D.Pa. 1953). In these cases, as
defendants correctly point out, the lessor was denied
>>
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standing to sue his lessee because the conspiracy alleged
was not directed at the lessor; the lessor’s injury was
incidental to the conspiracy. As such, the cases are in-
apposite.
Here the Tribe alleges that the price fixing conspiracy
was directly aimed at the Tribe by causing lesser royal-
ties to accrue on defendants’ leases than were actually due.
The result of the alleged conspiracy to limit development
was not mate
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