Petition for Writ of Certiorari — FMC Wyoming Corp. v. Hodel

fo ee eee

" YOSEPS, -, —

IN THE hevhiiiiineceee

ai

Suprene Court of the United States

OCTOBER TERM, 1987

FMC WYOMING CORPORATION,

Petitioner,

Vv

DONALD P. HODEL, Secretary of Interior, et al.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

KENNETH D. HUBBARD

(Counsel of Record)

MICHAEL J. BRENNAN

HOLLAND & HART

1875 Eye Street, N.W.

Suite 1200

Washington, D.C. 20006

(202) 872-1101

MARILYN S. KITE

PATRICK R. DAY

HOLLAND & HART

2020 Carey Avenue

Suite 500

Cheyenne, WY 82001

(307) 632-2160

Counsel for Petitioner

WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

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Sey Ne:

QUESTION PRESENTED

Whether or not Congress sub silentio revoked vested

federal coal lease rights when it enacted the Federal

Coal Leasing Amendments Act of 1975.

(i)

il

LIST OF PARTIES

FMC Wyoming Corporation, Petitioner, v. Donald P.

Hodel, as Secretary of the United States Department of

the Interior; Robert F. Burford, as Director of the Bu-

reau of Land Management, United States Department of

the Interior; Jim H. Taylor, as Chief, Branch of Solid

Minerals, Wyoming State Office, Bureau of Land Man-

agement; Marla B. Bohl, as Former Chief, Land and

Mining, Wyoming State Office, Bureau of Land Manage-

ment; Harold G. Stinchcomb, as Former Chief, Branch

of Energy Minerals, Wyoming State BLM Office; J. Stan

McKee, as Former Acting Chief, Branch of Solid Min-

erals, Wyoming State Bureau of Land Management;

and the United States Department of the Interior,

Respondents.

RULE 28.1 LISTING

The parent company is FMC Corporation. Subsidiaries

(except wholly-owned subsidiaries) and Affiliates include

CBV—Industria Mecanica, S.A.—(Brazil); Centocor,

Inc.; FMC Gold Company; and Teknowledge, Inc.

TABLE OF CONTENTS

Genes Cee tee .................----.--

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LE

eg gy 8)

CE EE

ES EE

STATUTORY PROVISIONS fo ks |) re

Dememeeees Ge seem CAGE .........-......<...-

REASONS FOR GRANTING THE WRIT ----------

I. The Tenth Circuit’s Decision Squarely Conflicts

With Supreme Court Precedent ____._--------

II. The Tenth Circuit’s Decision Creates Taking

Issues of First Impression Which Strike at the

Heart of All Federal Mineral Leases .________--

III. The Tenth Circuit’s Opinion Ignored Explicit

Congressional Efforts to Avoid Taking Issues_-_

TCA Rh se aa mans etre wan areese=

APPENDICES

Appendix A. Opinion and Judgment of the United

States Court of Appeals --__---------

Appendix B. Opinion and Judgment of the United

States District Court for the District

NS RE a

la

iv

TABLE OF CONTENTS—Continued

Page

Appendix C. Decision of United States Department

of Interior, Interior Board of Land

BE ctiadccaaaddnccawekae kas 2la

Appendix D. Decision of the Wyoming State Office,

Bureau of Land Management _________ 32a

Appendix E. Federal Coal Leasing Amendments Act

OE STE aida dendlichieaenudacanbwemes 37a

Appendix F. FMC Corporation Federal Coal Leases,

NUNS Re SN a deeae ee ek 57a

Appendix G. FMC Corporation Federal Coal Lease

Readjustments, March 1, 1983 ________ 88a

Appendix H. Letters to Department of Interior From

John Corra, FMC Corporation Resident

Manager, February 11, 1983, June 2,

FES wdneca wie hained saad kcal aie 120a

Vv

TABLE OF AUTHORITIES

CASES: Page

Bennett v. New Jersey, 470 U.S. 632 (1985) ----- 9

Bowen v. Agencies Opposed to Social Security En-

trapment, 477 U.S. 41 (1986) ._--- lah dares 12

Farmers and Mechanics Savings Bank of Minne-

apolis v. Minnesota, 232 U.S. 516 (1914)-_----- 7

Federal Trade Commission v. American Tobacco

Crh Se Se ee CE ic cece manda te nanos 13

First English Evangelical Lutheran Church v. Los

Angeles, U.S. , 107 S.Ct. 2378 (1987) _ 11

FMC Wyoming Corp. v. Watt, 587 F. Supp. 1545

ee | 5 Re oe not ee eel 1, 2, 5, 6

FMC Wyoming Corp. v. Hodel, 816 F.2d 496 (10th

I ED: att wacechducecee alae eee 1, 6,9

Greene v. United States, 376 U.S. 149 (1964) ___- 9

Keystone Bituminous Coal Association v. De Bene-

dictis, 480 U.S. , 107 S.Ct. 12382 (1987) -.--- 10

Lorillard v. Pons, 434 U.S. 575 (1978) .--------- _9

Lynch v. United States, 292 U.S. 571 (1934) .---- 12

Nollan v. California Coastal Commission, USS.

| pis Be 8) 3 Bee aR ee 11

Pennsylvania Coal Co. v. Mahon, 260 U.S. 393

CT keke akc eae eeesee aoe 10, 11

Perry v. United States, 294 U.S. 330 (1935) .----- 12

Rosebud Coal Sales Co. v. Andrus, 667 F.2d 949

C20 See. Gee anavccumcnedtndsatkeccust anes 10, 11

Ross v. City of Berkeley, 655 F. Supp. 820 (N.D.

SR: RED cain esacahbteredeeees anne ea ane 8

Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984)_ 9,10

Sinking-Fund Cases, 99 U.S. 700 (1879) .-------- ae

Sun Oil Co. v. United States, 572 F.2d 786 (Ct. Ci.

BREE. ciwissiewadennaeswebee eee 11

Union Oil Co. of California v. Morton, 512 F.2d

TaN: CE CO Se ncecac dna Dibweke wees 11

Union Pacific Railroad Co. v. Laramie Stock Yards

Ca, Be Geek Be CE dunes, 8,9

United States v. General Motors, 323 U.S. 373

CREE etniietkcirecdibaiccmionuuadn a eee 11

United States v. Security Industrial Bank, 459 U.S.

TO CIE? sitidiadaddesnekonuasewdee es 9

vi

TABLE OF AUTHORITIES—Continued

STATUTES: Page

OR PEREEED TIOGED .cciiccedkumnnnnntaane 2

ee BE CPD keke nerd eencadccecéuaae 5

es 6 EE. CERES dwcwencnddncounsncsenn 5

Mineral Lands Leasing Act of 1920,

30 U.S.C. § 181, et seq. (1970) .

OCC T, De Cae. BOOE cmenencciiecnnecnes 2, 3, 6

Federal Coal Leasing Amendments Act of 1975,

2 Ue, S181, 006.. (IGRE) nnn nncccscnnns 3

Section 3, 30 U.S.C. § 201 (a) (2) (A) ~------- 13

Section 6, SOU.S.C.62707. .......-.-..c0n0 1,2, 3

section 6, 30 U.S.C. § 207(a) ......-......... 4

LEGISLATIVE MATERIALS:

51 Cong. Rec. 14,945 (1914) (statement of Rep.

DE hance ines heweeneuenmiouen 8,12

122 Cong. Rec. 488 (1976) (statement of Rep.

SE oe rie dae encar nh melabiners haemo aaa 13, 14

ADMINISTRATIVE AND EXECUTIVE

MATERIALS:

Decision of the United States Department of the

Interior Board of Land Appeals, FMC Corp., 74

IBLA 389 (July 29, 1983) (Appendix B)-_____-_ 3.&

Whether Leases Issued Prior to Aug. 4, 1976, Sub-

ject To Readjustment After That Date Must Be

Readjusted To Conform To The Federal Coal

Leasing Amendments of 1976, Opinion By Office

of Solicitor +M-36939, 88 Interior Dec. 1003

Ciena 39, Bees) ons dkinens ch accmese n> 4,5,8

United States Congress Office of Technology As-

sessmeril Special Report, “Potential Effects of

Section 3 of the Federal Coal Leasing Amend-

ments Act of 1976” (March 1986)___________~ 5, 6, 10

IN THE

Supreme Court of the United States

OCTOBER TERM, 1987

No.

FMC WYOMING CORPORATION,

Petitioner,

v.

DONALD P. HODEL, Secretary of Interior, et al.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

FMC Wyoming Corporation (“FMC”) respectfully

prays that a writ of certiorari issue to review the judg-

ment and opinion of the United States Court of Appeals

for the Tenth Circuit, entered on April 9, 1987, which

held that section 6 of the Federal Coal Leasing Amend-

ments Act of 1975' automatically applies as a matter

of law upon readjustment of federal coal leases issued

before the FCLAA was enacted.

OPINIONS BELOW

The Opinion of the United States Court of Appeals,

reproduced as Appendix A, is reported at 816 F.2d 496.

The Opinion of the United States District Court for the

District of Wyoming, reproduced as Appendix B, is re-

1 Although not_actually passed until 1976, the Act is commonly

known as the Federal Coal Leasing Amendments Act of 1975 and

will be referred to as such throughout this Petition.

2

poried at 587 F. Supp. 1545. The Decision of the United

‘ States Department of the Interior, Interior Board of

Land Appeals, reproduced as Appendix C, is reported at

74 IBLA 389. The Decision of the Wyoming State Office,

Bureau of Land Management is reproduced as Appendix

D.

JURISDICTION

The Judgment of the Court of Appeals was entered on

April 9, 1987. A Petition for Rehearing was filed on

May 22, 1987, and denied on July 8, 1987. Jurisdiction

to review the judgment of the Court of Appeals by Writ

of Certiorari exists under 28 U.S.C. § 1254(1) (1982).

STATUTORY PROVISIONS INVOLVED

Section 6 of the Federal Coal Leasing Amendments

Act of 1975, 30 U.S.C. § 207 (1982). Because analysis

of the issues presented also requires consideration of

other portions of the FCLAA, the Act is attached in its

entirety as Appendix E.

STATEMENT OF THE CASE

On March 1, 1963, FMC and the Secretary of Interior

(“Secretary” or “Interior”) entered into two federal

coal leases covering lands located near Kemmerer, Wyo-

ming. The basic contract and property rights conveyed

by the leases were established by section 7 of the Mineral

Lands Leasing Act of 1920, and the terms of the leases.

Section 7 of the 1920 Act provided:

[Coal] Leases shall be for indeterminate periods

upon condition of diligent development and continued

operation of the mine or mines ... and upon the

further condition that at the end of each-twenty-year

period succeeding the date of the lease such read- .

justment of terms and conditions may be made as

the Secretary of the Interior may determine, unless

otherwise provided by law at the time of the expira-

tion of such periods.

ee

3

30 U.S.C. § 207 (1970). The 1920 Act also provided for

payment of royalties on coal produced in an amount

determined by the Secretary. but not less than five cents

per ton. ZId.

FMC’s leases incorporated this statutory language and

granted FMC the right to mine federal coal for an in-

determinate term, subject only to ‘‘reasonable’”’ readjust-

ment every twenty years:

The lessor, in consideration of the rents and royal-

ties to be paid and the conditions to be observed as

hereinafter set forth does hereby grant and lease to

the lessee the exclusive right and privilege to mine

and dispose of all the coal in the following-described

tracts of land....

[The lessor expressly reserves:] The right reason-

ably to readjust and fix royalties payable hereunder

and other terms and conditions at the end of 20

years from the date hereof and thereafter at the

end of each succeeding 20 year period during the

continuance of this lease unless otherwise provided

by law at the expiration of any such period... .

Appendix F at 57a, 63a, 7la, 77a; Record at 59-61; 174-

176; 62-65; 319-323 (emphasis added). The royalty im-

posed by the Secretary in FMC’s leases was seventeen

and one-half cents per ton. Jd. Relying on the rights

created by these leases, FMC spent millions of dollars

developing its Skull Point mine. FMC also spent 70 mil-

lion dollars to convert boilers from natural gas to coal

power at FMC’s Trona Plant near Green River, Wyo-

ming. Appendix H at 128a-129a; Record at 86.

Thirteen years after FMC’s leases were issued, Con-

gress passed the Federal Coal Leasing Amendments Act

of 1975 (“FCLAA’’), 30 U.S.C. § 181, et seg., which

substantially revised the coal leasing portions of the

original Mineral Lands Leasing Act. Among other

things, section 6 of the FCLAA amended section 7 of the

Mineral Lands Leasing Act, creating for the first time

4

“primary term” federal coal leases much different than

the indeterminate term coal leases Congress originally

developed under section 7 of the Mineral Lands Leasing

Act. Instead of conveying an indefinite right to mine

coal, the new coal leases convey only a twenty year “pri-

mary term’ during which coal must be produced within

ten years or the lease expires. In addition, the readjust-

ment period has been shortened from twenty years to

ten and, of fundamental importance here, a new mini-

mum royalty rate of 12144% of the value of the coal

produced has been created:

A coal lease shall be for a term of twenty years and

for so long thereafter as coal is produced annually in

commercial quantities from that lease.... A lease

shall require payment of a royalty in such amount

as the Secretary shall d=termine of not less than

12'4% per centum of the value of coal as defined

by regulation. . . . Such rentals and royalties and

other terms and conditions of the lease will be sub-

ject to readjustment at the end of its primary term

of twenty years and at the end of each ten-year pe-

riod thereafter if the lease is extended.

30 U.S.C. § 207(a) (1982) ; Appendix E at 45a.

Congress expressed no intent in section 6 of the

FCLAA that the new primary term leases created by

that section—and their minimum 1214% royalty rate—

had to be applied upon readjustment of the 533 pre-

FCLAA indeterminate term leases issued by Interior

under section 7 of the Mineral Lands Leasing Act. After

several years of indecision, however, Interior decided it

was obligated as a matter of law to replace existing

indeterminate term coal leases with the new primary

term coal leases as those pre-FCLAA indeterminate term

leases became subject to readjustment. Whether Leases

Issued Prior to Aug. 4, 1976, Subject To Readjustment

After That Date Must Be Readjusted To Conform To

The Federal Coal Leasing Amendments of 1976, Opinion

5

By Office of Solicitor #M-36939, 88 Interior Dec. 1003

(September 17, 1981). As a result, when FMC’s leases

became subject to readjustment in early 1983, Interior

sent FMC two new primary term coal leases, each of

which incorporated the provisions of section 6 of the

FCLAA. Appendix G; Record at 68-74; 121-123; 254-

256. These new leases conveyed a primary term of

twenty years, shortened the readjustment period from

twenty years to ten, and imposed a 1000% increase in

FMC’s royalty rate. Appendix G; Record at 68-74; 121-

123; 254-256; Appendix H at 120a-125a; 126a; Record

at 75-78; 113-116; 247-250. Arguing it was legally com-

pelled to impose section 6 of the FCLAA at readjustment,

Interior made no effort to determine if these new leases

were “reasonable” in light of the circumstances of FMC’s

existing operations, contrary to the express terms of

FMC’s leases.

FMC appealed the readjustment to the Interior Board

of Land Appeals, arguing it was entitled to the reason-

able readjustment called for under the terms of its pre-

FCLAA leases. The Interior Board of Land Appeals

upheld the readjustment, however, relying upon a Solici-

tor’s Opinion which had concluded that section 6 of the

FCLAA must be imposed at readjustment as a matter

of law. FMC Corp., 74 IBLA 389 (1983) ; see Solicitor’s

Opinion +M-36939, supra.” Invoking federal jurisdiction

under 28 U.S.C. $§ 1331, 13861, FMC appealed to the

United States District Court for the District of Wyo-

ming. The district court reversed, holding that Inte-

rior could not impose the newly created “primary term”

coal leases—and their minimum 12!4% royalty—under

the guise of readjusting the existing indeterminate term

leases. The court concluded that to do so would inter-

fere with vested lease rights. Since section 6 of the

FCLAA did not even mention pre-FCLAA leases, much

2 FMC also objected to the timeliness of the readjustment. FMC

does not seek review of the Tenth Circuit’s decision on that issue.

6

less clearly express an intent that they be altered, the

district court held that section 6 of the FCLAA as a

matter of law did not apply to pre-FCLAA leases at

readjustment. FMC was entitled to a “reasonable” re-

adjustment of its lease terms, which necessarily entailed

a consideration of the facts and circumstances pertaining

to FMC’s leases. FMC Wyoming Corp. v. Watt, 587 F.

Supp. 1545, 1548 (D. Wyo. 1984).

The Secretary appealed this portion of the district

court’s Order and the Tenth Circuit reversed, holding

that section 6 of the FCLAA as a matter of law did apply

to pre-FCLAA leases. FMC Wyoming Corp. v. Hodel,

816 F.2d 496 (10th Cir. 1987). The Tenth Circuit

focused on language in the 1920 Act that the leases were

subject to the “condition that at the end of each twenty-

year period succeeding the date of the lease such read-

justment of terms and conditions may be made as the

Secretary of the Interior may determine, unless other-

wise provided by law at the time of the expiration of

such periods.” 30 U.S.C. § 207 (1970) (emphasis added).

Although FMC argued that Interior’s unilateral imposi-

tion of the new primary term leases effectively destroyed

many of the contract and property rights created by

FMC’s indeterminate term leases, the Tenth Circuit held

that section 6 of the FCLAA “otherwise provided” and

applied to pre-FCLAA leases at readjustment because

nothing in the Act indicated it should not. FMC Wyo-

ming Corp. v. Hodel, 816 F.2d 496, at 501 (10th Cir.

1987).

REASONS FOR GRANTING THE WRIT

If the Tenth Circuit decision is allowed to stand, al-

most 500 vested contracts, covering more than sixteen

billion tons of federal coal,* will have been revoked and

3 At the time the FCLAA was enacted there were 533 existing

coal leases. As of March 1986, there were 489 pre-FCLAA leases

still in effect covering sixteen billion tons of coal. United States

Congress Office of Technology Assessment Special Report, “Po-

7

replaced with new and less substantial contracts based

on the language of a statute which does not mention the

existing contracts. The effect of this decision will be

to sanction unreasonable readjustments, and to replace

existing leases with substantially different leases and an

increased royalty rate at some ten times the existing rate.

As the Tenth Circuit conceded, this result is reached

without a shred of evidence that Congress intended to do

so in 1976. |

Since this Court has repeatedly held that statutes will

not be construed to impair existing contract and property

rights absent express language compelling that result,*

the Tenth Circuit’s decision either squarely conflicts with

settled Supreme Court precedent or stands for the in-

defensible proposition that federal mineral leases do not

convey significant contract or property rights. Either

proposition has tremendous ramifications, since the Tenth

Cireuit’s decision affects hundreds of vested mineral

leases. Until now, federal mineral leases have always

been held to convey significant contract and property

rights. The Tenth Circuit’s decision calls that principle

into question, however, since it permits Interior to re-

write existing mineral leases even though Congress has

expressed no intent that this should occur. Ultimately

at stake, therefore, is the basic integrity of all federal

mineral leases. Given the importance of this issue to

the entire mineral industry, as well as to the nearly 500

owners of pre-FCLAA coal leases, the Tenth Circuit’s

decision warrants review.

tential Effects of Section 3 of the Federal Coal Leasing Amend-

ments Act of 1976,” at 43 (March 1986).

4 See, e.g., Farmers and Mechanics Savings Bank of Minneapolis,

v. Minnesota, 232 U.S. 516, 528 (1914), where this Court declared

that an intent to impair the obligation of a contract of the United

States “should not be presumed without the clearest legislative

language requiring it.”

8

I. The Tenth Circuit’s Decixies Squarely Conflicts With

Supreme Court Precedent.

Congress deliberately chose indeterminate term coal

leases over primary term coal leases when it enacted the

Mineral Lands Leasing Act in recognition of the tre-

mendous investment in time and money needed to develop

coal. Solicitor’s Opinion #M-36939, supra, 88 Interior

Dec. 1003, 1005 (1981); 51 Cong. Ree. 14,945 (1914)

(statement of Rep. Thompson). The contract and prop-

erty rights created by the indeterminate term coal leases

issued under that Act are therefore vastly more substan-

tial than those created and conveyed by the primary

term coal leases created by section 6 of the FCLAA.

Indeterminate terms have been reduced to twenty-year

primary terms, readjustment now occurs every ten years

instead of every twenty, coal leases are no longer sub-

ject only to judicial cancellation, and production must

occur within ten years or the lease expires. Cf. Ross v.

City of Berkeley, 655 F. Supp. 820 (N.D. Cal. 1987)

(changing a term lease to an indeterminate term lease

constituted a taking of the lessor’s reversionary interest).

Moreover, royalties have arbitrarily been increased ten

times their previous amount, with absolutely no consid-

eration of the facts and circumstances at FMC’s mines

or the “reasonableness” of the new rate.

Converting the almost 500 indeterminate term pre-

FCLAA leases into primary term leases at readjustment,

and dramatically increasing the royalty rate, substantially

diminishes the contract and property rights represented

by the pre-FCLAA leases. For this reason, FMC has

consistently maintained that section 6 of the FCLAA

applies only to new federal coal leases, because Congress

expressed no intent that existing leases be altered:

[T]he first rule of construction is that legislation

must be considered as addressed to the future, not

to the past. The rule is one of obvious justice and

prevents the assigning of a quality or effect to acts

or conduct which they did not have or did not con-

9

template when they were performed. The rule has

been expressed in varying degrees of strength but

always of one import, that a retrospective operation

will not be given to a statute which interferes with

antecedent rights or by which human action is regu-

lated, unless such be “the unequivocal and inflexible

import of the terms, and the manifest intention of

the legislature.”

Union Pacific Railroad v. Laramie Stock Yards Co., 281

U.S. 190, 199 (1913) (citations omitted) ; see also Greene

v. United States, 376 U.S. 149 (1964).

The Tenth Circuit, however, held that section 6 of the

FCLAA and the “unless otherwise provided” clause ap-

plied to pre-FCLAA leases because nothing in the FCLAA

or its legislative history indicated it should not apply. FMC

Wyoming Corp. v. Hodel, 816 F.2d_at 501. Surely, such

a radical change in the terms of existing contracts must

be based on more than mere silence. The “unless other-

wise provided” clause cannot cause the FCLAA to apply

in the absence of plainly expressed congressional intent

to do so. The Tenth Circuit’s reasoning flatly conflicts

with Supreme Court precedent, since this Court has re-

peatedly held that statutes which would substantially

disrupt pre-existing contract and property rights must

be presumed to operate only prospectively. Bennett v.

New Jersey, 470 U.S. 632, 638 (1985). By taking the

opposite approach, the Tenth Circuit ignored the long-

followed rule that “retrospective operation will not be

given to a statute which interferes with antecedent

rights. . . .” Union Pacific Railroad Co. v. Laramie

Stock Yards Co., 231 U.S. at 199; United States v. Se-

curity Industrial Bank, 459 U.S. 70, 79 (1982).

The Tenth Circuit’s decision also conflicts with the

settled principle that statutes should be construed to

avoid constitutional issues. Lorillard v. Pons, 484 U.S. ~

575, 577 (1978); United States v. Security Industrial

Bank, 459 U.S. 70 (1982). As FMC pointed out in its

brief, the application of section 6 to pre-FCLAA leases

10

raises substantial fifth amendment taking issues. See

Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984). In

addition to reducing the real property estate conveyed

by the indeterminate term leases, blanket imposition of

section 6 may force some pre-FCLAA lessees to abandon

valuable coal deposits. In FMC’s case, for example, the

new 1214% minimum royalty will likely require FMC

to abandon millions of tons of otherwise mineable coal.®

As this Court recently suggested, making it commer-

cially impossible to mine coal may constitute a taking,

and FMC has consistently pointed out that this is the

case here. Keystone Bituminous Coal Association v. De

Benedictis, 480 U.S. , 107 S.Ct. 1232, 1247-48

(1987); Pennsylvania Coal Co. v. Mahon, 260 U.S. 393,

414 (1922).

Given the substantial disruption of existing rights

caused by forcing section 6 of the FCLAA onto the pre-

FCLAA lessees, it is clear the Tenth Circuit applied the

wrong principle of statutory construction. This depar-

ture from precedent has tremendous implications, as

more than sixteen billion tons of federal coal are dedi-

cated to pre-FCLAA leases. In addition, approximately

90% of the nearly 500 pre-FCLAA leases are located

within the jurisdiction of the Tenth Circuit.® All of

° FMC’s mines have dipping coal seams, which require ever in-

creasing amounts of overburden to be removed. This causes the

cost of mining to increase continuously, and any cost of mining

which cannot be passed through to customers will cause FMC to

stop mining earlier than would otherwise be the case. FMC has

calculated that the 1000% royalty increase caused by the section 6

minimum royalty will cost FMC 3% to 41% million tons of coal.

Worse yet, FMC will be left with a royalty rate 1000% higher than

that imposed on the neighboring coal mine, whose readjustment

was waived by Interior. Appendix H, Record at 75-78; 113-116;

247-250; 84-95. This is clearly unreasonable, despite the “reason-

able” readjustment language of its leases. That contractual right

has been taken, however, by Interior’s mandatory application of

the new primary term leases.

6 See n.3, supra, at 42-43.

11

these leases are affected by the Tenth Circuit’s deci-

sion. Until now, coal leases were thought to convey

substantial property rights. See, e.g., Rosebud Coal Sales

Co. v. Andrus, 667 F.2d 949, 951 (10th Cir. 1982). In

holding that Congress revoked these fundamental lease

rights sub silentio, however, the Tenth Circuit has ignored

that well established principle. Sun Oil Co. v. United

States, 572 F.2d 786, 818 (Ct. Cl. 1978) ; Union Oil Co.

of California v. Morton, 512 F.2d 743, 747, 751 (9th Cir.

1975).

Il. The Tenth Circuit’s Decision Creates Taking Issues

of First Impression Which Strike at the Heart of

All Federal Mineral Leases.

Because the application of section 6 of the FCLAA to

pre-FCLAA leases represents a substantial diminution

in the contract and property rights represented by the

pre-FCLAA leases, the Tenth Circuit’s decision if upheld

will force pre-FCLAA lessees to litigate the extent to

which Congress constitutionally may diminish without

compensation the rights conveyed by federal coal leases.

Many coal lessees, like FMC, have invested millions of

dollars in reliance upon the property and contract rights

represented by their leases. Diminishing those rights

therefore raises complex fifth amendment issues. Cf.

United States v. General Motors Corp., 323 U.S. 373

(1945) (shortening a vested lease can constitute a tak-

ing); and see First English Evangelical Lutheran

Church v. Los Angeles, U.S. , 107 S.Ct. 2878

(1987) (citing Pennsylvania Coal Co. v. Mahon, 260

U.S. 393, 415 (1922) (if regulation goes too far it will

be recognized as a taking) ) ; Nollan v. California Coastal

Commission, U.S. , 107 S.Ct. 3141 (1987) (con-

ditioning grant of permission to rebuild a house on prop-

erty owners’ transfer to public of beachfront property

constitutes a taking for which the California Coastal

Commission must pay the owners compensation).

In fact, the issues raised are of first impression and

will affect all federal coal leases, and possibly all mineral

12

leases issued under the Mineral Lands Leasing Act. This

Court has never considered the extent to which federal

mineral leases create property rights, nor has this Court

ever been called upon to define the limits of congressional

authority to alter existing mineral leases under its re-

served powers. Those issues are squarely framed here,

however, if the Tenth Circuit’s decision is allowed to

stand. Although Interior argued below that no “taking”

can occur with changes in federal coal leases since Con-

gress initially reserved the power to “readjust” those

leases every twenty years, citing Bowen v. Public Agen-

cies Opposed to Social Security Entrapment, 477 U.S. 41,

106 S.Ct. 2390 (1986), it does not follow that Congress

constitutionally can rewrite with impunity leases the gov-

ernment has already entered into, even under its re-

served legislative powers. Congress specifically intended

to induce tremendous private investment when it created

indeterminate term coal leases. 51 Cong. Ree. 14,945

11914) (statement of Rep. Thompson). Those leases

therefore represent substantial property rights and Con-

gress may not “readjust” them out of existence without

compensation. Congress’ ability to change its mind is

necessarily limited by the fifth amendment. Sinking-

Fund Cases, 99 U.S. 700, 720-721 (1879); see Perry v.

United States, 294 U.S. 330, 351 (1935) (due process

clause may limit Congress from annulling contractual

obligations) ; Lynch v. United States, 292 U.S. 571, 579

41934).

The complex taking issues created by the Tenth Cir-

cuit’s decision should not have arisen, as Congress never

clearly expressed an intent to revoke existing coal lease

rights upon readjustment. By ignoring statutory con-

struction rules established by this Court, however, the

Tenth Circuit has raised the specter of constitutional liti-

gation. Since the Tenth Circuit’s decision affects hun-

dreds of leases covering billions of tons of coal, it will

not go unchallenged. Before difficult fifth amendment

13

issues are litigated, however, this Court should decide

whether or not they need be.’

III. The Tenth Circuit’s Opinion Ignored Explicit Congres-

sional Efforts to Avoid Taking Issues.

Congress explicitly sought to avoid taking issues when

it enacted the FCLAA. Recognizing it could not impose

fundamental policy changes on existing leases without

running into fifth amendment limitations, Congress care-

fully drafted the FCLAA to avoid unnecessary disrup-

tion of existing coal lease rights. This was clearly the

case, for example, with section 3 of the FCLAA. To spur

pre-FCLAA leases into production, Congress enacted a

provision denying existing lessees new federal mineral

leases if they did not develop their pre-FCLAA coal

leases within ten years of enactment of the FCLAA. 30

U.S.C. § 201(a) (2) (A) (1982). Significantly, this pro-

vision very carefully avoided interfering with the con-

tract rights created by the pre-FCLAA coal leases them-

selves, by only denying non-producing pre-FCLAA lessees

the opportunity to obtain new leases. Section 6, on the

other hand, provides that new leases must produce com-

mercial quantities in ten years, or else they will be ter-

minated. Applying this provision to pre-FCLAA leases

therefore threatens those leases with termination, de-

feating the entire purpose behind the carefully thought-

out production incentives contained in section 3. By

sanctioning Interior’s attempt to impose section 6 of the

FCLAA onto pre-FCLAA leases, therefore, the Tenth

Circuit’s opinion raises the precise taking issues Conu-

gress tried to avoid:

[We do not] wish to trigger sticky constitutional

questions involving the taking of legislatively con-

7 This Court has frequently stated that it will not attribute to

Congress an intent, in the enactment of a statute, to defy a provi-

sion of the Constitution, “or even to come so near to doing so as

to raise a serious question of constitutional law.” Federal Trade

Cmmission v. American Tobacco Co., 264 U.S. 298, 307 (1924).

14

ferred rights to reacting to the deficiencies of cur-

rent leasing law with the retroactive application of

tough new lease standards and terms to lessees who

legally gained their rights relying on the provisions

of current law. Rather, Mr. Chairman, it is the pur-

pose of the legislation before us today to insure that

any future leasing and lease administration is car-

ried out under congressionally mandated guidelines

that will require a fair return to the public, diligent,

efficient, and orderly development and production of

the coal resources in a leasing tract, and adequate

environmental and social planning.

122 Cong. Rec. 488 (1976) (statement of Rep. Mink,

principal author of the FCLAA).

The Tenth Circuit’s reliance on the “unless otherwise

provided by law” clause of the 1920 Act does not avoid

the taking issue. In the absence of clear legislative in-

tent to apply FCLAA upon readjustment of pre-FCLAA

leases, that provision is not triggered. As the Tenth Cir-

cuit admitted, there is not clear legislative intent. The

Tenth Circuit's analysis is in error.

15

CONCLUSION

The decision by the Tenth Circuit squarely conflicts

with United States Supreme Court precedent and calls

into question the basic contractual integrity of all fed-

eral mineral leases. It permits Interior to revoke funda-

mental rights held under hundreds of existing federal

coal leases even though the statute relied upon to do so

does not mention those leases or otherwise authorize

Interior to do so. For these reasons, it is respectfully

submitted that this petition for certiorari should be

granted.

KENNETH D. HUBBARD

(Counsel of Record)

MICHAEL J. BRENNAN

HOLLAND & HART

1875 Eye Street, N.W.

_ Suite 1200

Washington, D.C. 20006

(202) 872-1101

MARILYN S. KITE

PATRICK R. DAY

HOLLAND & HART

2020 Carey Avenue

Suite 500

Cheyenne, WY 82001

(307) 632-2160

October 1987 Counsel for Petitioner

APPENDICES

~

ee.

la

APPENDIX A

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

Nos. 84-2175, 84-2208

FMC WYOMING CORPORATION,

Plaintiff-A ppellee/Cross-A ppellant,

Ve

DONALD P. HODEL, as Secretary of the United States

Department of the Interior; ROBERT F. BURFORD, as

Director of the Bureau of Land Management, United

States Department of the Interior; JIM H. TAYLOR, as

Chief, Branch of Solid Minerals, Wyoming State Of-

fice, Bureau of Land Management; MARIA B. BOHL, as

Former Chief, Land and Mining, Wyoming State Of-

fice, Bureau of Land Management; HAROLD G. STIN-

CHCOMB, as Former Chief, Branch of Energy Minerals,

Wyoming State BLM Office; J. STAN MCKEE, as For-

mer Acting Chief, Branch of Solid Minerals, Wyoming

State Bureau of Land Management; and the UNITED

STATES DEPARTMENT OF THE INTERIOR,

Defendants-A ppellants /Cross-A ppellees,

COLORADO-UTE ELECTRIC ASSOCIATION, INC.; NORTHERN

STATES POWER COMPANY; PEABODY HOLDING Com-

PANY, INC.; SYSTEM FUELS, INC. ; WESTERN COAL

TRAFFIC LEAGUE; COLOWYO COAL COMPANY,

Amicus Curiae.

April 9, 1987

Rehearing Denied in No. 84-2175

July 8, 1987

2a

Marilyn S. Kite (Patrick R. Day of Holland & Hart,

with her, on the briefs), Cheyenne, Wyo., for plaintiff-

appellee/cross-appeilant.

Jean A. Kingrey, Sp. Litigation Counsel, Dept. of Jus-

tice (F. Henry Habicht II, Asst. Atty. Gen., Robert

Klarquist, Atty., Dept. of Justice, of counsel, Lyle K.

Rising and Stephen Brown, Office of Sol., Dept. of In-

terior, with her, on brief), Washington, D.C., for de-

fendants-appellants /cross-appellees.

L. Christian Hauck and John R. McNeill, Montrose,

Colo., for amicus curiae Colorado-Ute Elec. Ass’n.

Jack F. Sjoholm, Minneapolis, Minn., for amicus

curiae Northern States Power Co.

Terry O’Connor, Denver, Colo., for amicus curiae

Peabody Holding Co., Inc. and System Fuels, Inc.

Jon N. Halverson and Charles L. Kaiser of Davis,

Graham & Stubbs, Denver, Colo., for amicus curiae

Colowyo Coal Co.

William L. Slover, C. Michael Loftus, Donald G. Avery

and Pauline E. Waschek of Slover & Loftus, Washing-

ton, D.C., for amicus curiae Western Coal Traffic League.

Before LOGAN, MOORE, and MCWILLIAMS, Circuit

Judges.

McWILLIAMS, Circuit Judge.

This dispute concerns a readjustment by the Secre-

tary of the Interior of the terms and conditions of two

coal leases between the United States and FMC Cor-

poration, a Delaware corporation with its principal place

of business in Chicago, Illinois, and qualified to do busi-

ness in Wyoming. On administrative appeal, the Interior

Board of Land Appeals (IBLA) held that the royalty

readjustment was timely and that the adjusted royalty

rate was lawful. FMC Corp., 74 IBLA 389 (1983).

Ta eeemeeniaamaeeneaniilll

3a

Thereafter, FMC Corporation filed a petition for review

in the United States District Court for the District of

Wyoming.: On cross-motions for summary judgment the

district court affirmed, in part, and reversed, in part, the

decision of the IBLA, the district court holding that the

royalty readjustment was timely but unlawful. FMC

Wyoming Corp. v. Watt, 587 F.Supp. 1545 (D.Wyo.

1984). Both parties appeal. We affirm, in part, and re-

verse, in part, the judgment of the district court, holding

that the royalty readjustment was both timely and law-

ful. This case is a companion case to Coastal States

Energy Co. v. Hodel, 816 F.2d 502 (10th Cir. 1987).

Our starting point is the Mineral Lands Leasing Act

of 1920 (MLLA). 41 Stat. 437 (1920), amended by 30

U.S.C. § 201 et. seq. (1976). That Act provided, inter

alia, that the Department of Interior could issue leases

on federal lands for an indeterminate term to private

parties to mine and remove coal at a royalty rate to

be fixed by the Secretary, such rate, however, not to be

less than five cents per ton of coal and subject to the

right of the Secretary to readjust the terms and condi-

tions of the lease, including the royalty rate, at the end

of each 20-year period following the issuance of the

lease.”

On March 1, 1963, the two leases here involved were

entered into by the Secretary of the Interior, on behalf

1 After instituting the present proceeding, FMC Corporation

assigned its interest in the two leases to FMC Wyoming Corpora-

tion, and the latter was substituted as the plaintiff in this proceed-

ing. However, FMC Wyoming Corporation will hereinafter be

referred to as simply FMC.

2 Specifically, Section 7 of MLLA (1920) provided as follows:

{l]eases shall be for an indeterminate period . . . upon the

further condition that at the end of each 20-year period suc-

ceeding the date of the lease such readjustment of terms and

conditions may be made as the Secretary of the Interior may

determine, unless otherwise provided by law at the expiration

of such periods.

4a

of the United States, and FMC. The leases covered land

near Kemmerer, Wvoming, now known as the Skull

Point Mine. Both leases were made subject to MLLA

(1920) and called for a royalty payment of 1714 cents

per ton of coal while providing for periodic readjust-

ment of the terms and conditions of the leases at 20-

year intervals.®

On August 4, 1976, the Federal Coal Leasing Amend-

ments Act (FCLAA) was enacted by Congress which

amended much of the Act of 1920. 30 U.S.C. § 201 et

seq. (1982). FCLAA (1976) included a provision that

royalty on a coal lease shall be in such amount as the

Secretary shal! determine, but not less than 1214% of

the value of the coal.t 30 U.S.C. § 207 (1982).

The 20-year anniversary date on the two coal leases

held by FMC was March 1, 1988. On August 23, 1982,

some six months before the March 1, 1983, anniversary

date, the Bureau of Land Management (BLM) sent for-

mal notice to FMC of its intent to readjust the terms

and conditions of these two leases on their anniversary

dates.© On December 22, 1982, 68 days prior to the

3 Specifically, both of FMC’s leases reserved the following right

to the lessor:

[t]he right reasonably to readjust and fix royalties payable

thereunder and other terms and conditions at the end of 20

years from the date hereof and thereafter at the end of each

succeeding 20-year period during the continuance of this lease

unless otherwise provided by law at the time of the expiration

of any such period.

4 Exempted from the 1214% royalty rate was coal recovered

by underground mining. The rate for this coal was left to the

discretion of the Secretary. 30 U.S.C. § 207 (1982). However as

the leases held by FMC cover only surface mined coal, the statu-

torily set rate of 1214% is the only rate at issue in this case.

5 This notice informed FMC that “the lease terms and conditions

will be readjusted under the provisions of 43 C.F.R. § 3451.” The

cited regulation provided that the lease royalty shall be readjusted

5a

March 1, 1983, anniversary date, the terms of BLM’s

readjustments were sent FMC. Included in these read-

justments was a readjusted royalty rate of 12!2% of

the value of the coal mined. The notice of the adjust-

ments provided that the readjustments would become ef-

fective on March 1, 1983, the 20-year anniversary date

of the two leases, but, at the same time, allowed FMC

60 days to file any objections. FMC filed objections on

February 11, 1983. These objections were dismissed by

the BLM on April 6, 1983. FMC appealed the BLM de-

cision to the IBLA, the latter upholding the BLM’s de-

cision on July 29, 1983. 74 IBLA 389 (1983). FMC

thereafter sought judicial review of the IBLA’s decision

in the United States District Court for the District of

Wyoming.

No. 84-2208

The district court held that the Secretary’s readjust-

ment of the royalty rate in FMC’s leases was timely.

FMC appeals from that part of the district court’s final

judgment. We are in accord with the district court’s

resolution of this matter.

Section 7 of MLLA (1920) stated that “readjust-

ments’ may be made “at the end of each 20-year period

succeeding the date of the lease. .. .”* In line with the

provisions in section 7 of MLLA (1920), FMC’s leases

also reserve to the Secretary the right to readjust the

terms and conditions of the lease “at the end of 20 years

from the date hereof [the date of the lease]. ...” As

stated, FMC’s two leases were dated March 1, 1963, and,

accordingly, the 20-year anniversary date for both leases

to conform to the minimum rate proscribed in § 3473.3-2. 43 C.F.R.

§ 3451.1(a) (2) (1986). Section 3473.3-2(a) (2) required a royalty

of not less than 1214% of the value of the surface mined coal.

6 FCLAA’s § 6 which replaced §7 of the MLLA (1920) adopted

the same language requiring readjustment to be “at the end

of” the applicable term. 30 U.S.C. § 207 (1982).

6a

was March 1, 1983. It is uncontested that BLM gave

FMC notice on August 23, 1982, over six months before

the anniversary date of the two leases, that BLM in-

tended to readjust the terms and conditions of the two

leases.

FMC’s position on the timeliness issue is that under

MLLA (1920) and the leases here involved the final

decision of the BLM to readjust terms and conditions

of an existing coal lease may not occur after the 20-

year anniversary date of the lease involved. In this

case, the final action of the BLM readjusting the terms

and conditions of FMC’s leases occurred on April 6,

1983, 387 days after the anniversary date of the two

leases, i.e., March 1, 1983. Thus, argues FMC, the re-

adjustments of the existing leases did not occur ‘‘at the

end” of 20 years after the date of the lease, as required

by MLLA (1920) and the leases themselves.

The Secretary’s position is that there is compliance

with both the statute and the language of the leases if

the notice of intent to readjust is given the lessee prior

to the 20-year anniversary date.’ In the instant case,

such notice was given more than six months prior to the

20-year anniversary date. Moreover, the Secretary points

out that, though under regulation he was not required to

advise the lessee before the 20-year anniversary date of

the particular readjustments to be made, in the instant

case FMC nonetheless advised of the readjustments, in-

cluding the increase of the royalty rate to the statutory

7™The Secretary has promulgated regulations covering coal lease

readjustments. These regulations require notice of intent to re-

adjust prior to the anniversary date but then allow for two years

in which to finalize the terms. 43 C.F.R. §3451.1(c) (1986).

Prior to being finalized, the Secretary published regulations ca'ling

for notice of intent on or before the readjustment date. 44 Fed.

Reg. 16832-33 (1979). Although many comments were received, not

one suggested that the BLM must complete the readjustment prior

to the anniversary date of the lease.

Ta

minimum set forth in FCLAA (1976), on December 22,

1982, 68 days before the March 1, 1983, anniversary

date. In connection with the timeliness issue, both FMC

and the Secretary rely on Rosebud Coal Sales Co., Inc.

v. Andrus, 667 F.2d 949 (10th Cir. 1982).

The coal lease in Rosebud was entered into on April

5, 1935, and, under MLLA (1920) and the terms of the

lease, was subject to readjustment by the Secretary at

the end of each succeeding 20-year period. Accordingly,

the end of the second 20-year period occurred on April

5, 1975. In Rosebud, there was no notice of any sort

sent the coal company by any representative of the De-

partment of the Interior until October 4, 1977, two and

one-half years after the expiration of the second 20-year

period. On this latter date a notice was sent the coal

company by the Department advising the former that the

terms and conditions of the existing lease were going to be

readjusted to conform with the requirements of FCLAA

{1976). The IBLA held that there could be a readjust-

ment of the terms and conditions of Rosebud’s lease at a

time over two and one-half years after the anniversary

date of the lease. California Portland Cement Co., Rose-

bud Coal Sales Co., 40 IBLA 339 (1979). Rosebud

sought judicial review of that administrative decision.

The United States District Court for the District of

Wyoming held that the lease could not be readjusted

two and one-half years after the anniversary date of the

lease and reversed the IBLA’s decision.

On appeal, in Rosebud, we affirmed the district court,

stating that the issue was a “narrow one”, i.e., ‘“whether

by a notice given about two and one-half years after the

anniversary date the Department has authority to exer-

vise a right given it under the Mineral Leasing Act to

readjust the terms of the coal lease.” 667 F.2d at 950.

Our answer in Rosebud to that narrow issue was that

such notice did not give the Department authority to

8a

readjust. In so holding, we stated that MLLA (1920)

and the lease provisions “provide a right to the govern-

ment in the nature of an option to make adjustments it

considers necessary or to let the opportunity pass.” Id.

at 951. Further, we indicated quite clearly that this

option must be exercised in timely fashion, or it is

waived by inaction, and that an attempt two and one-

half years after the anniversary date to serve notice on

the Coal Company of an intent to readjust is not timely.

In our view, Rosebud strongly suggests that a notice of

an intent to readjust terms and conditions of a coal lease

given a coal company on or shortly before the 20-year

anniversary date preserves the Department’s right under

MLLA and the lease provisions to readjust the terms

within a reasonable time thereafter, and we now so hold.®

No. 84-2175

The district court, after holding that the Secretary’s

readjustment of the royalty rate in FMC’s two leases

8In Rosebud, notice that there would be readjustments in the

terms and conditions of the lease was given the company on Oc-

tober 4 1977, two and one-half years after the 20-year anniversary

date. On November 28, 1977, Rosebud was given the readjusted

terms. Rosebud filed objections which were subsequently overruled

by the BLM. The decision of the IBLA upholding the ruling of

BLM occurred on May 10, 1979 (40 IBLA 339). On judicial review,

the focus of the district court, and of this court on appeal, was

exclusively on the date of notice, and the date of final action by

BLM was not mentioned, iet alone relied on, by either the district

court or this court. Rather, as stated, both the district court and

this court were concerned only with the date of the notice of intent

to readjust.

Option contracts are usually exercised by giving notice of ac-

ceptance. Restatement (Second) of Contracts, §63, comment f

(1979); A. Corbin, 1A Corbin on Contracts, § 264 (1963). Al-

though time is of the essence in accepting the option; once a timely

acceptance is made, additional time may be allowed to perform

the terms of the option. Jd., § 273 at 600. Hence once the Depart-

ment has exercised its option to readjust in a timely fashion, it has

a reasonable time thereafter in which to set the terms of the lease.

9a

to 1214% of the value of the coal was timely, thereafter

held that the readjustment was improper. The Secretary

appeals from that part of the district court’s judgment.

In essence, the district court held that section 6 of FCLAA

(1976) did not apply to leases pre-existing FCLAA

(1976) even where the anniversary date of the lease

was subsequent to FCLAA (1976) and that, such being

the case, by the terms of FMC’s leases any readjustment

must be “reasonable” and “should only be altered upon

a complete evaluation of all the factors involved in an

individual case.” We are not in accord with this rea-

soning or the result reached by the district court.

Section 7 of MILLA (1920), set forth above in foot-

note 2, provides, in effect, that a lease shall be for an

indeterminate period at a specified royalty rate, fixed by

the Secretary, of not less than five cents per ton, subject

to the further condition that at the end of each 20-year

period “such readjustment of terms and conditions may

be made as the Secretary of the Interior may determine,

unless otherwise provided by law at the expiration of

such periods.’ The leases at issue incorporated this lan-

guage reserving in the lessor the right to readjust terms

and conditions “unless otherwise provided by law.” The

quoted language in MLLA (1920) incorporated into the

leases is of particular importance. To us it quite clearly

means that at the end of a 20-year period the Secretary

may fix, inter alia, such a new royalty rate as he, or she,

may determine is proper, unless law in effect at the

expiration of such 20-year period provides differently.°

® We do not interpret the language in MLLA (1920), which was

incorporated verbatim in the two leases here involved, as only

meaning that the Secretary on an anniversary date may readjust

unless the law in effect at the time of readjustment has taken that

right away. It no doubt covers that possibility. But in our view

it also permits Congress to allow the Secretary to continue to

have the right to readjust, but at the same time circumscribe

that right by enacting, for example, a revised minimum royalty

rate. The power to do the greater includes the power to do the

lesser.

10a

Applied to the present case, such means that the Secre-

tary on the anniversary date of FMC’s leases could in-

crease the royalty rate as he deemed proper, subject,

however, to any statutory law in effect on such anni-

versary date. And statutory law in effect on FMC’s an-

niversary date provided, in essence, that though the Sec-

retary could, as before, change the previously existing

royalty rate to one he determined to be proper, the ad-

justed new rate could not be less than 1214% of the value

of the coal. 30 U.S.C. § 207 (1982). Stated differently,

MLLA (1920) had a minimum royalty rate of five cents

per ton of coal, and FCLAA (1976) raised the minimum

royalty rate to 12'4% of the value of the coal.’® Ad-

mittedly, this is a drastic increase in royalty rate, but

such is a matter for Congress. Further, and impor-

tantly, we find nothing in our reading of FCLAA (1976),

or in its legislative history, to indicate that FCLAA

(1976) was not to be applied to pre-FCLAA coal leases

on their post-FCLAA anniversary date.”

10FMC contends applying FCLAA’s terms at readjustment of

a pre-FCLAA leases constitutes a retroactive application of the

statute. In Rosebud we noted that FCLAA was not intended to

be retroactive. 667 F.2d at 952. While we continue to adhere to

that belief, we are not persuaded that the statute was applied

retroactively in this case. In Rosebud the lease at issue came due

for readjustment over a year before FCLAA was passed by Con-

gress. In contrast FMC’s leases could only be readjusted as of

March 1, 1983, over six years after FCLAA amended the MLLA

(1920). The Secretary clearly had the right to set new terms on the

readjustment date and it is not a retroactive application of FCLAA

to set the new terms in accordance with existing law.

11To the contrary, there is evidence that FCLAA terms were

meant to apply on post-FCLAA readjustments. Specifically when

Congress amended portions of FCLAA in 1978 it was aware of

Interior’s interpretation that FCLAA terms were to be applied at

the time of readjustment. See S.Rep. No. 1169, 95th Cong., 2d

Sess. 7 (1978) (In discussing the 1978 modification of FCLAA‘s

§ 3, the report noted that “all leases of course would be subject to

the provisions of the 1976 amendments at the expiration of their

original lease terms.”) ; see also Coal Leasing Amendments, Hear-

a |

lla

As stated, FMC’s leases generally tracked the lan-

guage of MLLA (1920) with the addition, however, of

the word “reasonably”, i.e., the lessors’ “right reasonably

to_readjust.” However, we do not regard the use of the

word “reasonably” to alter the present situation, since

the leases themselves used the additional statutory lan-

guage “unless otherwise provided by law at the expira-

tion of any such period.” And, as indicated, the law as

of March 1, 1983, did “otherwise provide.” ?”

In sum, on the readjusted royalty rate issue, we be-

lieve the result reached gives effect to the plain meaning

of the applicable statutes, which is of course controlling,

and at the same time squares with the language used

in the leases themselves.

Judgment affirmed in part and reversed in part, and

case remanded for further proceedings consonant with

this opinion.

ings on $3189, Before the Subcommittee on Energy Production

and Supply, 95th Cong., 2d Sess. 15 (1978) (statement of Guy

Martin, Assistant Secretary of Interior) ; Letter from Department

of Interior, Solieitor’s Office, to Senator Jackson (Sept. 12, 1978).

Congress’ failure to alter this interpretation while amending the

statute in other respects indicates that legislative intent has been

correctly discerned. Commodity Futures Trading C’mmn v. Schor,

U.S. , 106 S.Ct. 3245, 3255, 92 L.Ed.2d 675 (1986) ;

North Haven Board of Education v. Bell, 456 U.S. 512, 535, 102

S.Ct. 1912, 1925, 72 L.Ed.2d 299 (1982).

12 FMC argues it is at least entitled to an individualized evalua-

tion of its lease at readjustment. However, as the Secretary was

directed by law to raise the royalty rate to at least 1212% of the

value of the coal mined, and individualized evaluation could not

have produced any result more favorable to FMC. Further Interior

does allow objections to be filed and also provides a process by

which they may be considered. See 43 C.F.R. § 3452.1-1(d). In

addition Congress has provided for individualized rate relief in

§ 39 when necessary to promote development or to allow the leases

to be successfully operated. 30 U.S.C. § 209 (1982). FMC has not

yet applied for this relief.

12a

APPENDIX B

UNITED STATES DISTRICT COURT

D. WYOMING

No. C83-347-K

FMC WYOMING CORPORATION,

Plaintiff,

v.

JAMES G. WATT, as Secretary of the United States De-

partment of the Interior; ROBERT F. BURFORD, as Di-

rector of the Bureau of Land Management, United

States Department of the Interior; JIM H. TAYLOR,

as Chief, Branch of Solid Minerals, Wyoming State

Office Bureau of Land Management; MARLA B. BOHL,

as former Chief, Land and Mining, Wyoming State Of-

fice, Bureau of Land Management; HAROLD G. STIN-

CHCOMB, as former Chief, Branch of Energy Minerals,

Wyoming State BLM Office; J. STAN MCKEE, as for-

mer Acting Chief, Branch of Solid Minerals, Wyoming

State BLM Office; and the UNITED STATES DEPART-

MENT OF THE INTERIOR,

Defendants.

June 29, 1984

Marilyn S. Kite, Holland & Hart, Cheyenne, Wyo., for

plaintiff.

Richard A. Stacy, U.S. Atty., for the District of

Wyoming, Cheyenne, Wyo., and Lyle K. Rising, Dept. of

the Interior, Denver, Colo., for defendants.

13a

ORDER REVERSING DECISION OF

INTERIOR BOARD OF LAND APPEALS

WITH FINDINGS

KERR, District Judge.

The above-entitled matter having come on regularly

for hearing before the Court upon cross motions for

summary judgment and upon request for judicial review

of the decision of the Interior Board of Land Appeals

(IBLA), plaintiff appearing by and through its attorney,

Marilyn S. Kite, and the federal defendants appearing

by and through their attorneys, Richard A. Stacy and

Lyle K. Rising, and the Court naving heard the argu-

ments of counsel in support of and in opposition to said

motions and having carefully considered the memoranda

on file herein and being fully advised in the premises,

FINDS as follows:

This matter was originally brought before this Court

as an appeal from the FBLA affirmance of a BLM deci-

sion which held (1) that notice of readjustment given on

or before the 20 year anniversary of the lease was suffi-

cient for timely readjustment under the statute, and (2)

that the 1214% royalty rate named in the Federal Coal

Leasing Amendments Act of 1976 (FCLAA) was man-

datory upon readjustment of pre-existing leases. The

relevant facts are as follows:

The United States, through defendant Secretary, issued

two federal coal Jeases to plaintiff on March 1, 1963. The

royalty rate fixed in the leases was 1714 cents per ton

for strip mined coal. The United States expressly re-

served the “right reasonably to readjust and fix royalties

payable hereunder and other terms and conditions at the

end of 20 years from the date hereof.” The leases were

also subject to the Mineral Lands Leasing Act of 1920

(MLLA) and all reasonable regulations of the Secretary

then in force.

iiss, |

l4a

Plaintiff opened the Skull Point Mine near Kemmerer,

Wyoming, making substantial investment in the develop-

ment and production of the coal therein. The mine has

been classified as a special bituminous coal mine wherein

the cost of extracting the coal increases over the life of

the mine due to dipping coal seams. Under that classifi-

cation the mine is exempt from certain reclamation

standards under the Surface Mining Control and Recla-

mation Act. Only one other mine is so classified in the

entire United States—the Pittsburgh and Midway Mine

neighboring plaintiff’s Skull Point Mine. Plaintiff’s roy-

alty was readjusted in April 1983. The anniversary date

allowing readjustment of the Pittsburgh and Midway

lease does not occur until 1998.

In 1976, Section 7 of the MLLA of 1920 which was

applicable to plaintiff, was amended to read as follows:

Sec. 7 (a) A coal lease shall be for a term of

twenty years and for so long thereafter as coal is

produced annually in commercial quantities from

that lease. Any lease which is not producing in com-

mercial quantities at the end of ten years shall be

terminated. The Secretary shall by regulation pre-

scribe annual rentals on leases. A lease shall require

payment of a royalty in such amount as the Secre-

tary shall determine of not less than 1214, per cen-

tum of the value of coal as defined by regulation,

except the Secretary may determine a Jesser amount

in the case of coal recovered by underground mining

operations. The lease shall inelude such other terms

and conditions as the Secretary shall determine.

Such rentals and royalties and other terms and con-

ditions of the lease will be subject to readjustment

at the end of its primary term of twenty years and

at the end of each ten-year period thereafter if the

lease is extended.

March 1, 1983 was the 20 year anniversary date of

plaintiff’s lease whereupon the leases could be readjusted.

15a

Plaintiff was notified on August 23, 1982 that BLM in-

tended to readjust the leases and then was notified by

BLM on December 22, 1982 of the proposed terms and

conditions of the readjustment. Plaintiff objected to the

proposed terms of the readjustment on February 11,

1983. The BLM’s response to objections and finalization

of the readjustment terms (which still included the

121% royalty rate) were contained in a decision dated

April 6, 1983. Plaintiff claims that readjustment was

untimely and is, therefore, barred.

Prior to the FCLAA, the terms of leases subject to

readjustment were readjusted on an individual basis. An

evaluation was made on the specific facts of each mining

operation. Plaintiff presented a factual statement to the

BLM and to the IBLA outlining their situation which

they contended made the 1214% royalty unreasonable.

No hearing was held on the matter. BLM, affirmed by

the IBLA, determined that the 1214% royalty rate was

absolute and mandatory upon readjustment of pre-

FCLAA leases. Plaintiff contends that such a readjust-

ment is arbitrary, capricious and an abuse of discretion.

Both parties rely on the case of Rosebud Coal Sales Co.

v. Andrus, No. C79-160B (D.Wyo. June 10, 1980), which

case was appealed and affirmed in the Tenth Circuit,

Rosebud Coal Sales Co. v. Andrus, 667 F.2d 949 (10th

Cir. 1982). This Court has made a careful reading of

the case, on both levels. As for the untimely readjust-

ment, this Court finds the Rosebud case dispositive and

concludes that readjustment was not untimely in the

present case. In the Rosebud case the anniversary date

of readjustment was April 5, 1975. Notice of Intent to

Readjust was not given until October 4, 1977. Both the

district court and the Tenth Circuit Court of Appeals

found that such readjustment was untimely and thereby

barred. However, both courts also indicate that it is

notice of intent to readjust that must be given prior to

the anniversary date. The district court stated:

16a

Rosebud did nothing here that would have prevented

the United States from giving it notice prior to the

twenty year anniversary date that the United States

intended to readjust the terms of the lease. (cita-

tions omitted) Rosebud, C79-160B supra at 10.

On October 4, 1977 the plaintiff was sent a notice

that the Department intended to readjust the lease

terms. No excuse was offered to show why that

simple notice couldn’t have been given as easily on

April 4, 1975, prior to the end of the term. 7d.

The failure to provide the plaintiff any type of

notice prior to the twenty year anniversary date

does not evidence good faith performance of the ex-

press terms of its contract by the government... .

Id. at 10, 11.

The government could easily have notified Rosebud

on April 5, 1975 at least that it intended to re-

adjust the terms of its lease. Id. at 14.

The Tenth Circuit Court of Appeals agreed with the

district court, affirmed its decision, and stated:

The Government made no showing that the giving of

notice at or before the anniversary date was not

‘feasible.’ 667 F.2d at 953.

The failure to give notice in 1975 without a reason

to demonstrate it was not ‘feasible’ must constitute

a failure by the Department to follow its own regu-

lations had an adjustment been contemplated. 7d.

It is clear from the ruling in Rosebud and the explana-

tions set forth by the courts therein, that notice prior

to the anniversary date made readjustment in the pres-

ent case timely.

17a

However, the second issue for consideration is whether

BLM and IBLA were arbitrary and capricious in man-

datorily applying the 1214% royalty rate to the leases in

question, without consideration of plaintiff’s specific fact

situation. This Court finds that such application of the

1214% royalty rate is arbitrary, capricious, and an abuse

of discretion.

Defendants contend that the amendment to Section 7

(cited above) which provides: “A lease shall require pay-

ment of a royalty in such amount as the Secretary shall

determine of not less than 1214 per centum of the value

of coal is defined by regulation” requires that the 1214%

royalty rate be applied, not only to new leases as of the

amendment date, but also mandatorily to pre-existing

leases upon readjustment. This is a change from the

method of readjustment applied to leases prior to the

1976 amendment, which method provided for an eviden-

tiary basis, an individual analysis of the lease subject to

readjustment. There is no indication in any part of the

amendment that the method of readjustment is to be

altered. Presumably, new leases, subject to the 1214%

royalty will be reviewed on their factual bases when the

readjustment period comes due. To impose a new royalty

rate at a 1000% increase without any type of factual

analysis or consideration is not only arbitrary, it also

defies the notion of equity. The leases in this ease, and

all leases issued prior to the 1976 amendment had a

minimum royalty rate set. At the time of readjustment,

that rate can be altered, but it can and should only be

altered upon a complete evaluation of all the factors in-

volved in an individual case. For example, one factor

which should be considered in the present matter is the

existence of a competitive bituminous coal mine which is

not subject to readjustment and, therefore, the allegedly

mandatory 1214% royalty rate could not be applied until

1998. A second factor is the very nature of plaintiff’s

mine, which presumably will be forced to produce less

18a

coal as a 1214% royalty rate contributes to making the

costs of mining prohibitive.

It should not be overlooked that the leases provided for

“reasonable” readjustment. It appears to this Court that

a readjustment increasing the royalty rate over 1000%,

which is based only upon mandatory application of a stat-

utory minimum to pre-existing leases, without any con-

sideration of facts involved in the individual leases is

far from reasonable.

The Rosebud case, discussed earlier and cited by both

parties, makes some reference to this issue, supportive of

this Court’s position. From the district court opinion:

The record fails to support the imposition of a roy-

alty of 12!1,%. No individual economic analysis of

this lease was made. C79-160B, slip op. at 15.

No evidentiary basis was provided for the royalty

rate established by the regulation. Jd. at 16.

Some mention is made by the parties concerning retro-

activity. Plaintiff contends that the 1976 1214% royalty

rate cannot be retroactively applied to old leases upon re-

adjustment. Defendants contend that applying the new

royalty rate to readjustments which occur after the 1976

amendment is not retroactive application. The Tenth

Circuit Court of Appeals in the Rosebud case stated:

The Section 7 amendment provided for a primary

term and also for the royalty to be not less than

12.5%. There is no suggestion whatever that the

amendment was to be retroactive and the contrary is

indicated. 667 F.2d at 952.

This Court is of the opinion that mandatory applica-

tion of the 1214% royalty rate to pre-existing leases,

without a factual evaluation, is retroactive application of

the provision, which everyone concedes was not intended

and is not proper. The readjustment of existing leases

a ee |

19a

is not a new event, rather it is an ongoing part of the

original lease. To mandatorily apply a minimum royalty

rate of 1214% is in essence to alter the original lease

issued on March 1, 1963 with a 1714 cent royalty rate

imposed under a statutorily minimum royalty rate of 5

cents per ton. That 5 cents royalty rate was, of course,

only a statutory minimum, subject to the terms of the

lease itself as well as the readjustment process, normally

occurring after a case-by-case factual evaluation. Now

defendants attempt to change the method of readjustment

and the minimum royalty rate is a change of the original

lease and thereby a retroactive application of the 1976

amendment.

Finally, the Court notes that defendants argue that

plaintiff has not exhausted its administrative remedies

in that it has not applied for a royalty reduction under

30 U.S.C. § 209. That provision provides:

The Secretary of the Interior, for the purpose of

encouraging the greatest ultimate recovery of coal,

oil, gas, oil shale * * * and in the interest of con-

servation of natural resources, is authorized to

waive, suspend, or reduce the rental, or minimum

royalty, or reduce the royalty on an entire leasehold,

or on any tract or portion thereof segregated for

royalty purposes, whenever in his judgment it is

necessary to do so in order to promote development,

or whenever in his judgment the leases cannot be

successfully operated under the terms provided

therein. * * *,

However, the Department of Interior in its interpretation

of this provision shows an intent for sparing use (if at

all), only upon a showing of hardship and for a tem-

porary period of time (there is some indication no re-

duction could exceed three years). 44 Fed.Reg. 42607

(1969) ; 87 I.D. 69 (Dec. 11, 1979). Even were the roy-

alty reduced in plaintiff’s case under this provision, it

i

20a

would not be a solution to plaintiff’s problems with the

lease readjustment. Furthermore, a temporary reduction

of the royalty rate is no substitute for a reasonable re-

adjustment. Were the readjustment properly based on

the individual factors in plaintiff’s case, it is likely that

a request for reduction under 30 U.S.C. § 209 would be

unnecessary.

In summary, while the readjustment process was timely

in the present case, the 1214% royalty rate was imposed

arbitrarily and capriciously. Before readjustment can be

completed, the BLM must make careful consideration of

the facts and circumstances involved in, and especially

those specific to plaintiff’s leases. The royalty rate re-

adjustment must be reasonable in light of those facts and

circumstances. The 1214% royalty rate, though now a

statutory minimum, cannot be flatly and mandatorily

imposed on pre-existing leases at the time of readjust-

ment.

For the above-stated reasons,

NOW, THEREFORE, IT IS

ORDERED that the decision of the IBLA be, and the

same is, hereby reversed and the matter is remanded for

proceedings consistent with this opinion.

2la

APPENDIX C

[LOGO]

UNITED STATES DEPARTMENT OF THE INTERIOR

OFFICE OF HEARINGS AND APPEALS

INTERIOR BOARD OF LAND APPEALS

4015 Wilson Boulevard

Arlington, Virginia 22203

FMC CORP.

{BLA 83-594 Dated July 29, 1983

Appeal from a decision of the Wyoming State Office,

Bureau of Land—~Management, dismissing a protest re-

garding readjustment of coal leases, W-061421 and W-

061422.

Affirmed.

APPEARANCES: Marilyn S. Kite, Esq., Carol A.

Statkus, Esq., Cheyenne, Wyoming, and John F. Shep-

herd, Esq., Washington, D.C., for appellant.

OPINION BY ADMINISTRATIVE JUDGE STUEBING

FMC Corporation (FMC) appeals an April 6, 1983,

decision of the Wyoming State Office, Bureau of Land

Management (BLM), dismissing FMC’s objections to

BLM’s proposed readjustment of coal leases W-061421

and W-061422.

The two leases were issued to FMC on March 1, 1963,

pursuant to the Mineral Leasing Act of 1920. Under

section 3(d) of both leases, the United States reserved

the right to readjust royalties and other terms and con-

ditions at the end of 20 years from the date of the lease.

BLM informed FMC of its proposed readjustment of the

two leases in a notice dated August 23, 1982. In a no-

tice dated December 22, 1982, BLM presented the pro-

22a

posed terms and conditions to FMC and informed it that

the readjustment would be effective March 1, 1983, the

anniversary date of the lease. On February 11, 1983,

appellant filed a protest with BLM objecting to the pro-

posed increase of the production royalty and the advance

royalty requirement. BLM dismissed the protest in a de-

cision dated April 6, 1983, addressing each objection pre-

sented by appellant.’

1 The following are FMC’s points of objections and BLM’s re-

sponses to those points as contained in the Apr. 6, 1983, decision.

“Objection 1: ‘Nonapplicability of FCLAA to existing leases.’

“Response: Leases issued prior to August 4, 1976, subject to

readjustment after August 4, 1976, must be readjusted to include

mandatory terms and conditions of the FCLAA. See Solicitor’s

Opinion M-36939, 88 I.D. 1003 (1981) and Coastal States Energy

Co., 70 IBLA 386 (1983).

“Objection 2: ‘FMC is only subject to regulations in force at

the time of execution of the lease.’

“Response: Current regulations promulgated to implement the

FCLAA must be imposed on pre-FCLAA leases readjusted after

August 4, 1976.

“Objection 3: ‘Readjustment must be reasonable.’

“Response: The new royalty rates imposed in the readjusted

leases conform to the mandatory royalty rates as set out in FCLAA.

“Objection 4: ‘The proposed production royalty increase is an

unconstitutional taking of property without compensation.’

“Response: The question of constitutionality is not properly

one the Bureau or the Department may rule on. (Madison D. Locke,

65 IBLA 122 (1982) ).

“Objection 5: ‘The 12% percent production royalty fails to

consider the unique nature of FMC’s special bituminous coal mine.

“Response: The 121% percent royalty is mandatory and pre-

scribed by the FCLAA. Relief from the mandatory royalty rate is

provided a lessee through a separate petition process pursuant to

30 U.S.C. 209 and regulations in 43 CFR 3473.3-2(d) and 30 CFR

Part 211.

“Objection 6: “The proposed readjustment of the royalty rate

will place the FMC Skull Point operation at a competitive dis-

advantage.’

[Continued ]

23a

FMC filed its appeal of BLM’s decision to dismiss its

protest on May 4, 1983, and asserts in its statement of

reasons the following reasons for its appeal of the BLM

decision:

1. The proposed 12.5% production royalty vio-

lates the terms of the leases, which bind-the United

States as lessor to reasonable royalty rates.

2. The automatic imposition of a 12.5% royalty

rate upon readjustment without any factual evalua-

tion to determine an appropriate and reasonable

royalty for FMC’s mining operations, is arbitrary,

capricious, and an abuse of discretion.

8. The 12.5% statutory minimum royalty, estab-

lished by the FCLAA [Federal Coal Leasing Amend-

ments Act of 1976, 30 U.S.C. § 207 (1976)] for new

leases issued on and after August 4, 1976, is not

mandatory upon readjustment of pre-FCLAA leases.

1 [Continued ]

“Response: The royalty rates imposed in readjustment of your

leases are mandatory. Our failure to timely readjust adjacent

leases in no way affects the readjustment of your leases. To not

readjust your leases would be a dereliction of our duty in adminis-

tering Federal Coal leases and in assuring a fair return to the

United States.

“Objection 7: ‘Extreme increases in production royalty are

inflationary.’

“Response: The response to objection 3 above applies to this

objection.

“Objection 8: ‘FMC objections to the payment of advance

royalties on the Federal coal leases which are part of this ongoing

operation. If an advance royalty is in fact imposed, it should be

clarified that the intent of Section 7 is to credit all advance royalties

paid, with no maximum limit, against production royalties incurred.’

“Response: Advance royalty provisions are mandatory terms

prescribed by FCLAA. Section 7 states that payment of advance

royalties in lieu of continued operations will be consistent with

regulations in 43 CFR 3478 and 30 CFR 211. We feel that Section

7 with references to applicable regulations is sufficient.”

24a

4. FMC’s leases are subject only to regulations

in force at the time they were executed; therefore,

post-FCLAA regulations setting a 12.5% minimum

royalty are inapplicable.

5. Lease provisions governing royalties for under-

ground and strip mines do not apply to special bi-

tuminous coal mines.

6. Failure to complete readjustment of the leases

at the end of the initial 20-year-period is contrary

to statutory authority and the terms of the leases.

7. The proposed edvance royalty requirement is

ambiguous and should be clarified.'*!

At the time each lease was issued, section 7 of the

Mineral Leasing Act of 1920, 30 U.S.C. §207 (1970)

provided:

Leases shall be for indeterminate periods upon con-

dition * * * that at the end of each twenty-year

"period succeeding the date of the lease such readjust-

ment of terms and conditions may be made as the

Secretary of the Interior may determine, unless

otherwise provided by law at the time of the ex-

piration of such periods.

Section 7 was amended by section 6 of FCLAA to read

in pertinent part as follows: “Such rentals and royalties

and other terms and conditions of the lease will be sub-

ject to readjustment at the end of its primary term of

twenty years and at the end of such ten-year period

thereafter if the lease is extended.” 30 U.S.C. § 207(a)

(1976).

2 BLM has not declared what royalty rate FMC’s operation will

be assessed under the readjusted lease. Despite its arguments

that its operation is neither an underground nor strip mine, FMC

assumes and therefore argues that the 1242 percent minimum

royalty pertinent to strip mine operations will be assessed.

25a

FCM asserts that FCLAA and its pertinent regula-

tions are not applicable to pre-FCLAA leases and that

imposition of the 1244 percent production royalty vio-

lates the terms of the lease. In support of its asser-

tions, FMC argues that FCLAA is silent on readjust-

ment of existing leases and that the express terms of the

lease limit the right of readjustment to the imposition

of reasonable terms and conditions. It charges that it

has been deprived of the benefits of the bargain it has

made.

Where readjusted lease terms or conditions are ad-

dressed by statute or regulation, BLM is required to im-

pose those terms and conditions. Likewise, this Board

must apply those provisions imposed by law, and we are

without authority to waive or disregard legal obliga-

tions merely because a lessee challenges their imposition

in the administrative appeals process. Coastal States

E'nergy Ce., 70 IBLA 386, 391 (1983)*; Lone Star Steel

Co., 65 IBLA 147, 150 (1982).

FCLAA amended the Mineral Leasing Act to require

new mandatory lease terms, most notably the minimum

121% percent production royalty for surface mined coal

and a 10-year production requirement. 30 U.S.C. § 207

(1976). The 12% percent minimum royalty rate is by

its terms absolute. FCM contends that, based on legisla-

tive history and statutory interpretation, FCLAA does

not apply to coal leases issued prior to enactment (Au-

gust 4, 1976) of that Act. That issue was addressed in

Solicitor’s Opinion, M-36939, 88 I.D. 1003 (1981).

Therein, the Solicitor concluded that “when the Secre-

% Appeal pending, Coastal States Energy Co. vy. Watt, No. Cg3-

0730J (D. Utah filed June 1, 1983).

es in oe

26a

(1983), Coastal States Energy Co., supra, Blackhawk

Coal Co., 68 IBLA 96 (1982), and Lone Star Steel Co.,

supra.

FCLAA certainly cannot alter leases issued prior to

its enactment before those leases become subject to re-

adjustment. But FCLAA does affect conduct, events, and

circumstances which occur after its enactment. The

lessee of a pre-FCLAA lease has no vested rights to the

indefinite continuation of existing lease terms, since all

the terms and conditions were prescribed subject to

periodic readjustment. Solicitor’s Opinion, supra at 1008.

We also reject FCM’s assertion that it is somehow

insulated from regulations promulgated pursuant to

FCLAA and in effect at the time of readjustment (43

CFR 3541.1 (1982) )* because of general provisions of

its leases relating to regulations “‘in force at date hereof.”

That general lease language cannot serve to negate the

statutory authority of the Secretary to readjust lease

terms and conditions. Regulations in effect at the time

of readjustment are applicable to leases subject to read-

justment. Just as the statute authorizes readjustment

of terms and conditions, so too may the procedures for

implementation be adjusted. Coastal States Energy Co.,

supra. Those procedures were revised pursuant to

FCLAA. We find no ban to applying those regulations

to readjustment of these leases.

Thus, the readjustment of the leases to include an

increase in production royalty to 1214, percent is re-

quired by both statute and regulation. Because the Board

must adhere to statutory and regulatory authority, de-

443 CFR 3451.1(a) (2) reads: “Any lease subject to readjust-

ment which contains a royalty rate less than the minimum royalty

prescribed in § 3473.3-2 of this title shall be readjusted to conform

to the minimum prescribed in that section.” 43 CFR 3473.3-2(a) (2)

establishes that ‘“[a] lease shali require payment of royalty of not

less than 121% percent of the value of the coal removed from a

surface mine.”

, |

27a

cisions by BLM properly applying statutory or regula-

tory requirements will be affirmed on appeal.

FMC asserts that BLM failed to recognize the unique

nature of its special bituminous coal mine and that the

lease provisions governing royalties is inapplicable to

such a mine. FCM refers to special relief afforded special

bituminous coal mines under section 527 of the Surface

Mining Control and Reclamation Act, 30 U.S.C. § 1277

(Supp. V 1981). However, that statutory provision is

directed towards providing authority in the Department

to adjust several environmental standards. 1977 US.

Code Cong. & Ad. News 593, 659. Such authority does

not address royalty payments. As pointed out to FMC in

BLM’s decision, if special circumstances warrant relief

from imposition of the royalty rate established by BLM,

such relief is to be sought pursuant to 43 CFR 3473.3-2

(d) and 30 CFR 211.63(c).

FCM questions the timeliness in readjusting these

leases, stating that readjustment was not completed until

“weeks after the March 1, 1983 deadline,” and argues

530 CFR 211.63(c)(1) (47 FR 33179, 33191 (July 30, 1982) )

provides:

“The District Mining Supervisor may waive, suspend, or reduce

the rental on a Federal lease, or reduce the Federal royalty, but not

advance royalty, on a Federal lease or portion thereof. The District

Mining Supervisor shall take such action for the purpose of en-

couraging the greatest ultimate recovery of Federal coal, and in

the interest of conservation of Federal coal and other resources,

whenever in his judgment it is necessary to promote development,

or if he finds that the Federal lease cannot be successfully operated

under its terms. In no case shall the District Mining Supervisor

reduce to zero any royalty on a producing Federal lease.” See also

43 CFR 3473.3-2(d).

The record indicates that FMC filed a detailed letter with BLM

on June 2, 1983, discussing the uniqueness of its situation. Al-

though this letter is not framed as an application under 30 CFR

211.63(c) (1), FMC’s circumstances as presented therein may he

sufficient to merit the requested relief if an application is filed.

28a

that such readjustment was outside statutory authority

and contrary to the terms of the lease. However, FMC

incorrecly interprets the readjustment process and im-

properly compares BLM’s actions with those require-

ments.

BLM’s initial notice to FMC that the leases were to be

readjusted was dated August 3, 1982. The proposed

terms and conditions were received by FMC on Decem-

ber 27, 1982, with the announcement that those terms and

conditions were to be effective March 1, 1983. In its

notice, BLM also informed FMC of an opportunity to

file within 60 days objections to the proposed terms and

conditions. FMC filed its objections. However, such fil-

ing of objections did not alter the effective date of the

readjustment. 43 CFR 3451.2(b). BLM informed FMC

of that fact in the notice.

We find that where administration of new terms and

conditions is postponed pending review of a lessee’s ob-

jections concerning the imposition of such new terms and

conditions, such practice is not inconsistent with statu-

tory requirements for readjustment. This Board has held

that notice of intent to readjust is all that is necessary

on or prior to the anniversary of the lease and that such

policy is consistent with Rosebud Coal Sales Co. V.

Andrus, 667 F.2d 949 (10th Cir. 1982), which FMC

significantly relies upon. See Coastal States Energy Co.,

supra. In this case not only was the required notice

given, but the specific terms and conditions for readjust-

ment were also provided and scheduled to become effec-

tive prior to the end of the 20-year period. -BLM’s re-

adjustment of the terms and conditions was timely and

in accordance with the statutory and regulatory require-

ments.

Finally, FMC alleges that section 7 of the readjusted

lease, governing advance royalty payment, is ambiguous

because it does not specify within the clause either the

=

29a

minimum tcnnage or the percent of value on which the

advance royalty is to be based. FMC argues that im-

position of an ambiguous requirement is arbitrary and

capricious and requests that section 7 be reworded to

eliminate such ambiguity. Section 7 of the readjusted

lease reads:

Upon request by the lessee the District Mining Su-

pervisor may accept, for a total of not more than

10 years, the payment of advance royalties in lieu of

continued operation consistent _with the regulations

in 43 CFR 3473 and 30 CFR 211. The advance

royalty shall be based on a percent of the value of

a minimum number of tons which shall be deter-

mined in the manner established by the regulations

in 30 CFR 211.

FMC charges that such reference to regulations does not

express the conditions of the clause with clarity since

the regulations are subject to change.

The opportunity afforded FMC to submit advance

royalty in lieu of continued operation arises under statu-

tory authority. “The Secretary of the Interior, upon

determining that the public interest shall be served

thereby, may suspend the condition of continued opera-

tion upon the payment of advance royalties.” 30 U.S.C.

§207(b) (1976). Thus, the privilege to seek suspension

of a lease obligation is not a right peculiar to the con-

tract and subject to bargaining, but it is an opportunity

made available by Congress and appears in the lease to

implement the statute and regulations. See 30 CFR

211.62(c) (1) (47 FR 33179, 33191 (July 30, 1976) );

43 CFR 3473.3-2(b).

The applicable statute, 30 U.S.C. § 207 (b) (1976), also

provides that such advance royalty “shall be no less than

the production royalty which would otherwise be paid and

shall be computed on a fixed reserve to production ratio

(determined by the Secretary).” That fixed ratio and

i iii i

30a

the advance royalty determination process are elaborated

with clear meaning in 30 CFR 211.23 (47 FR 33179,

33188 (July 30, 1982)). Such duly promulgated regu-

lations have the force and effect of law and are binding

on the Department. See Sam P. Jones, 71 IBLA 42

(1983); Altex Oil Corp., 61 IBLA 270 (1982).° It is

also generally accepted in contract law that independent

elements of an agreement may be determined by a process

set forth separate from the agreement and that where

a writing refers to another document, that other docu-

ment, or so much of it as is referred to, is to be inter-

preted as part of the writing. See 1 Corbin on Contracts

§ 95, 393 (1963); 4 Williston on Contracts § 628, 901-04

(3d. ed. 1961). This is particularly applicable in this r

situation, for BLM is governed by the statute and regu-

lations in the manner in which it may grant the de-

scribed relief. Accordingly, section 7 of the readjusted

lease reflects BLM’s balance between notification of the

availability of a statutory opportunity and its duty to

administer the public land in accordance with applicable

statutes and regulations.

FMC requests the Board to address circumstances that

may not occur during the term that the lease is effective.

It is the usual policy of the Board to forego adjudication

where no actual controversy exists and no cognizable in-

terest has been adversely affected, avoiding advisory

opinions based on hypothetical circumstances. See 43

CFR 4.410; Hal V. Carlson, Jr., 62 IBLA 305 (1982).

FMC may choose not to avail itself of the opportunity

to petition for suspension of the continued operation re-

quirement, the operating circumstances may never war-

rant application of the denoted relief, or t! e regulations

may not be altered or amended prior to a petition under

the lease clause. If new regulations are promulgated, the

Department must adhere to proper administrative pro-

6 Appeal dismissed, Altex Oil Corp. Vv. Watt, No. 82-0424A (D.

Utah Oct. 19, 1982) (dismissed without prejudice).

3la

cedures found in 5 U.S.C. § 553 (1976), which afford

interested parties the Opportunity to become involved in

the rulemaking process. Such guidelines and publie in-

BLM’s reply to FMC’s protest was cogent and well

presented. FMC has not shown that any part thereof was

erroneous.

Accordingly, pursuant to the authority delegated to

the Board of Land Appeals by the Secretary of the In-

terior, 43 CFR 4.1, the decision is affirmed.

/8/ Edward W. Stuebing

EDWARD W. STUEBING

Administrative J udge

~ We concur:

/8/ Will A. Irwin

WILL A. IRwIn

Administrative J udge

/8/ James L. Burski

JAMES L, BURSKI

Administrative J udge

32a

APPENDIX D

EXHIBIT F

State Office

P.O. Box 1828

Cheyenne, Wyoming 32001

W-061421 April 6, 1983

W-061422

3400

(922-4)

CERTIFIED-RETURN RECEIPT REQUESTED

DECISION

FMC Corporation

Natural Resources Operation

Box 750

Kemmerer, Wyoming 83101

OBJECTIONS TO READJUSTED TERMS AND

CONDITIONS DISMISSED

Coal leases W-061421 and W-061422 were issued effec-

tive March 1, 1963, and were subject to readjustment on

February 23, 1983. FMC Corporation was notified by

decision of this office dated August 23, 1982, of our in-

tention of readjusting the lease terms, a right expressly

reserved by the lessor in Section 3(d) of the leases. Re-

adjusted lease terms and conditions were forwarded to

the lessee on December 22, 1982, to become effective

March 1, 1983.

On February 11, 1983, FMC Corporation filed objections

to the readjusted lease terms and conditions. The follow-

ing are the points of objection and our response to those

points:

33a

Objection 1:

“Nonapplicability of FCLAA to existing leases.”

Response:

Leases issued prior to August 4, 1976, subject to re-

adjustment after August 4, 1976, must be readjusted

to include mandatory terms and conditions of the

FCLAA. See Solicitor’s Opinion M-36939, 88 I.D.

1003 (1981) and Coastal States Energy Co., 70

IBLA 386 (1983).

Objection 2:

“FMC is only subject to regulations in force at the

time of execution of the lease.”

Response:

Current regulations promulgated to implement the

FCLAA must be imposed on pre-FCLAA leases re-

adjusted after August 4, 1976.

Objection 3:

“Readjustment must be reasonable.”

Response:

The new royalty rates imposed in the readjusted

leases conform to the mandatory royalty rates as

set out in FCLAA.

Objection 4:

“The proposed production royalty increase is an un-

constitutional taking of property without compen-

sation.”

Response:

The question of constitutionality is not properly one

the Bureau or the Department may rule on. (Madi-

son D. Locke, 65 IBLA 122 (1982) )

34a

Objection 5:

“The 1214 percent production royalty fails to con-

sider the unique nature of FMC’s special bituminous

coal mine.

Response:

The 1214 percent royalty is mandatory and pre-

scribed by the FCLAA. Relief from the mandatory

royalty rate is provided a lessee through a separate

petition process pursuant to 30 U.S.C. 209 and reg-

ulations in 43 CFR 3473.3-2(d) and 30 CFR Part

211.

Objection 6:

“The proposed readjustment of the royalty rate will

place the FMC Skull Point operation at a competi-

tive disadvantage.”

Response:

The royalty rates imposed in readjustment of your

leases are mandatory. Our failure to timely re-

adjust adjacent leases in no way affects the read-

justment of your leases. To not readjust your leases

would be a dereliction of our duty in administering

Federal coal leases and in assuring a fair return

to the United States.

Objection 7:

“Extreme increases in production royalty are in-

flationary.”

Response:

The response to objection 3 above applies to this

objection.

Objection 8: -

“FMC objects to the payment of advance royalties

on the Federal coal leases which are part of this

35a

ongoing operation.—If an advance royalty is in fact

imposed, it should be clarified that the intent of

Section 7 is to credit all advance royalties paid, with

no maximum limit, against production royalties in-

curred.”

Response:

Advance royalty provisions are mandatory terms

prescribed by FCLAA. Section 7 states that pay-

ment of advance royalties in lieu of continued oper-

ations will be consistent with regulations in 43 CFR

3473 and 30 CFR 211. We feel that Section 7 with

references to applicable regulations is sufficient.

All objections filed by FMC Corporation are hereby dis-

missed for the reasons set out in the above responses.

The right of appeal to the Board of Land Appeals, Office

of the Secretary, is allowed in accordance with the regu-

lations in 48 CFR Part 4, Subpart E. However, if an

appeal is to be taken, the Notice of Appeal must be filed

in this office (not with the Board) so that the case file

can be transmitted to the Board. To avoid summary

dismissal of the appeal, there must be strict compliance

with the regulations (see enclosed information sheet out-

lining procedures to be followed when filing an appeal).

Please note that the Rules of Practice now require that

you serve a copy of the Notice of Appeal, any Statement

of Reasons, written arguments or briefs on the Regional

Solicitor, Rocky Mountain Region, U.S. Department of

the Interior, P. O. Box 25007, Denver Federal Center,

Denver, Colorado 80225 within 15 days of filing any doc-

ument in connection with an appeal.

/s/ J. Stan McKee

J. STAN MCKEE

Acting Chief, Branch of

Solid Minerals

36a

Enclosure

Appeal Information

ce:

Marilyn Kite, Holland & Hart, Suite 500, 2020 Carey

Ave. Cheyenne, WY 82001 Royalty Management Pro-

gram, P. O. Box 5760, Denver, Colorado 50217-5760

DMS, P. O. Box 1170, Rock Springs, Wyoming 82901

DM, Rock Springs

CM, Casper

J Moffitt :ag] 4-6-83

37a

APPENDIX E

PuBLIC LAw 94-377 [S. 391]; Aug. 4, 1976

FEDERAL COAL LEASING AMENDMENTS

ACT OF 1975

For Legislative History of Act, see p. 1948

An Act to amend the Mineral Leasing Act of 1920, and

for other purposes.

Be it enacted by the Senate and House of Representa-

tives of the United States of America in Congress as-

sembled, That (a) this Act may be cited as the “Federal

Coal Leasing Amendments Act of 1975”.

(b) Except as otherwise expressly provided, whenever

in this Act an amendment or repeal is expressed in terms

of an amendment to, or repeal of, a section or other pro-

vision of the Mineral Lands Leasing Act, the reference

shall be considered to be made to a section or other pro-

vision of the Act of February 25, 1920, entitled “An Act

to promote the mining of coal, phosphate, oil, oil shale,

gas, and sodium on the public domain” (41 Stat. 437).

Sec. 2. The first sentence of section 2(a) of the

Mineral Lands Leasing Act (30 U.S.C. 201(a)) is

amended to read as follows:

“(1) The Secretary of the Interior is authorized to

divide any lands subject to this Act which have been

classified for coal leasing into leasing tracts of such size

as he finds appropriate and in the public interest and

which will permit the mining of all coal which can be

economically extracted in such tract and thereafter he

shall, in his discretion, upon the request of any qualified

applicant or on his own motion, from time to time, offer

such lands for leasing and shall award leases thereon by

competitive bidding. No less than 50 per centum of the

38a

total acreage offered for lease by the Secretary in any

“one year shall be leased under a system of deferred bonus

payment. Upon default or cancellation of any coal lease

for which bonus payments are due, any unpaid remainder ©

of the bid shall be immediately payable to the United

States. A reasonable number of leasing tracts shall be

reserved and offered for lease in accordance with this

section to public bodies, including Federal agencies, rural

electric cooperatives, or nonprofit corporations controlled

by any of such entities: Provided, That the coal so of-

fered for lease shall be for use by such entity or entities

in implementing a definite plan to produce energy for

their own use or for sale to their members or customers

(except for short-term sales to others). No bid shall be

accepted which is less than the fair market value, as de-

termined by the Secretary, of the coal subject to the lease.

Prior to his determination of the fair market value of the

coal subject to the lease, the Secretary shall give oppor-

tunity for and consideration to public comments on the

fair market value. Nothing in this section shall be con-

strued to require the Secretary to make public his judg-

ment as to the fair market value of the coal to be leased,

or the comments he receives thereon prior to the issuance

of the lease.”’.

Src. 3. The last sentence of section 2(a) of the

Mineral Lands Leasing Act (30 U.S.C. 201(a)) is

amended to read as follows:

““(2) (A) The Secretary shall not issue a lease or leases

under the terms of this Act to any person, association,

corporation, or any subsidiary, affiliate, or persons con-

trolled by or under common control with such persons,

association, or corporation, where any such entity holds

a lease or leases issued by the United States to coal de-

posits and has held such lease or leases for a period of

ten years when such entity is not, except as provided for

in section 7(b) of this Act, producing coal from the lease

deposits in commercial quantities. In computing the ten-

39a

year period referred to in the preceding sentence, periods

of time prior to the date of enactment of the Federal

Coal Leasing Amendments Act of 1975 shall not be

counted.

“(B) Any lease proposel which permits surface coal

mining within the boundaries of a National Forest which

the Secretary proposes to issue under this Act shall be

submitted to the Governor of each State within which the

coal deposits subject to such lease are located. No such

lease may be issued under this Act before the expiration

of the sixty-day period beginning on the date of such

submission. If any Governor to whom a proposed lease

was submitted under this subparagraph objects to the

issuance of such lease, such lease shall not be issued be-

fore the expiration of the six-month period beginning on

the date the Secretary is notified by the Governor of such

objection. During such six-month period, the Governor

may submit to the Secretary a statement of reasons why

such lease should not be issued and the Secretary shall,

on the basis of such statement, reconsider the issuance

of such lease.

(3) (A) (i) No lease sale shall be held unless the lands

containing the coal deposits have been included in a com-

prehensive land-use plan and such sale is compatible with

such plan. The Secretary of the Interior shall prepare

such land-use plans on lands under his responsibility

where such plans have not been previously prepared. The

Secretary of the Interior shall inform the Secretary of

Agriculture of substantial development interest in coal

leasing on lands within the National Forest System.

Upon receipt of such notification from the Secretary of

the Interior, the Secretary of Agriculture shall prepare

a comprehensive land-use plan for such areas where such

plans have not heen previously prepared. The plan of the

Secretary of Agriculture shall take into consideration the

proposed coal development in these lands: Provided, That

where the Secretary of the Interior finds that because of

40a

non-Federal interest in the surface or because the coal

resources are insufficient to justify the preparation costs

of a Federal comprehensive land-use plan, the lease sale

can be held if the lands containing the coal deposits have

been included in either the comprehensive land-use plan

prepared by the State within which the lands are located

or a land use analysis prepared by the Secretary of the

Interior.

“(ii) In preparing such land-use plans, the Secretary

of the Interior or, in the case of lands within the Na-

tional Forest System, the Secretary of Agriculture, or

in the case of a finding by the Secretary of the Interior

that because of non-Federal interests in the surface or

insufficient Federal coal, no Federal comprehensive land-

use plans can be appropriately prepared, the responsible

State entity shall consult with appropriate State agencies

and local governments and the general public and shall

provide an opportunity for public hearing on proposed

plans prior to their adoption, if requested by any person

having an interest which is, or may be, adversely affected

by the adoption of such plans.

“(iii) Leases covering lands the surface of which is

under the jurisdiction of any Federal agency other than

the Department of the Interior may be issued only upon

consent of the other Federal agency and upon such condi-

tions as it may prescribe with respect to the use and pro-

tection of the nonmineral interests in those lands.

“(B) Each land-use plan prepared by the Secretary

(or in the case of lands within the National Forest Sys-

tem, the Secretary of Agriculture pursuant to subpara-

graph (A) (i)) shall include an assessment of the amount

of coal deposits in such land, identifying the amount of

such coal which is recoverable by deep mining operations

and the amount of such coal which is recoverable by sur-

face mining operations.

“(C) Prior to issuance of any coal lease, the Secretary

shall consider effects which mining of the proposed lease

4la

might have on an impacted community or area, including,

but not limited to, impacts on the environment, on agri-

cultural and other economic activities, and on public serv-

ices. Prior to issuance of a lease, the Secretary shall

evaluate and compare the effects of recovering coal by

deep mining, by surface mining, and by any other method

to determine which method or methods or Sequence of

methods achieves the maximum economic recovery of the

coal within the proposed leasing tract. This evaluation

and comparison by the Secretary shall be in writing but

shall not prohibit the issuance of a lease; however, no

mining operating plan shall be approved which is not

found to achieve the maximum economic recovery of the

coal within the tract. Public hearings in the area shall

be held by the Secretary prior to the lease sale.

“(D) No lease sale shall be held until after the notice

of the proposed offering for lease has been given once a

week for three consecutive weeks in a newspaper of gen-

eral circulation in the county in which the lands are

situated in accordance with regulations prescribed by the

Secretary.

“(E) Each coal lease shall contain provisions requiring

compliance with the Federal Water Pollution Control Act

(33 U.S.C. 1151-1175) and the Clean Air Act (42 U.S.C.

1857 and following).”.

SEC. 4. Subject to valid existing rights, section 2(b) of

the Mineral Lands Leasing Act (30 U.S.C. 201(b)) is

amended to read as follows:

“(b) (1) The Secretary may, under such regulations as

he may prescribe, issue to any person an exploration

license. No person may conduct coal exploration for com-

mercial purposes for any coal on lands subject to this

Act without such an exploration license. Each explora-

tion license shall be for a term of not more than two

years and shall be subject to a reasonable fee. An ex-

ploration license shall confer no right to a lease under

42a

this Act. The issuance of exploration licenses shall not

preclude the Secretary from issuing coal leases at such

times and locations and to such persons as he deems

appropriate. No exploration license will be issued for any

land on which a coal lease has been issued. A separate

exploration license will be required for exploration in

each State. An application for an exploration license

shall identify general areas and probable methods of ex-

ploration. Each exploration license shall contain such

reasonable conditions as the Secretary may require, in-

cluding conditions to insure the protection of the environ-

ment, and shall be subject to all applicable Federal, State,

and local laws and regulations. Upon violation of any

such conditions or laws the Secretary may revoke the

exploration license.

“(2) A licensee may not cause substantial disturbance

to the natural land surface. He may not remove any coal

for sale but may remove a reasonable amount of coal

from the lands subject to this Act included under his

license for analysis and study. A licensee must comply

with all applicable rules and regulations of the Federal

agency having jurisdiction over the surface of the lands

subject to this Act. Exploration licenses covering lands

the surface of which is under the jurisdiction of any

Federal agency other than the Department of the Interior

may be issued only upon such conditions as it may pre-

scribe with respect to the use and protection of the non-

mineral interests in those lands.

“(3) The licensee shall furnish to the Secretary copies

of all data (including, but not limited to, geological, geo-

physical, and core drilling analyses) obtained during

such exploration. The Secretary shall maintain the con-

fidentiality of all data so obtained until after the areas

involved have been leased or until such time as he de-

termines that making the data available to the public

would not damage the competitive position of the licensee,

whichever comes first.

43a

“(4) Any person who willfully conducts coal explora-

tion for commercial purposes on lands subject to this

Act without an exploration license issued hereunder shall

be subject to a fine of not more than $1,000 for each

day of violation. All data collected by said person on

any Federal lands as a result of such violation shal] be

made immediately available to the Secretary, who shall

make the data available to the public as soon as it is

practicable. No peralty under this subsection shall be

assessed unless such person is given notice and oppor-

tunity for a hearing with respect to such violation.”.

SEC. 5.:(a) Subject to valid existing rights, subsections

2(c) and 2(d) of the Act of August 31, 1964 (78 Stat.

710; 30 U.S.C. 201-1) are hereby repealed.

(b) Section 2 of the Mineral Lands Leasing Act is

amended by the addition to the following new subsection

at the end thereof:

“(d) (1) The Secretary, upon determining that maxi-

mum economic recovery of the coal deposit or deposits

is served thereby, may approve the consolidation of coal

leases into a logical mining unit. Such consolidation may

only take place after a public hearing, if requested by

any person whose interest is or may be adversely af-

fected. A _ logical mining unit is an area of land in

which-the coal resources can be developed in an efficient,

economical, and orderly manner as a unit with due re-

gard to conservation of coal reserves and other resources.

A logical mining unit may consist of one or more Fed-

eral leaseholds, and may include intervening or adjacent

lands in which the United States does not own the coal

resources, but all the lands in a logical mining unit must

be under the effective control of a single operator, be

able to be developed and operated as a single operation

and be contiguous.

“(2) After the Secretary has approved the establish-

ment of a logical mining unit, any mining plan approved

44a

for that unit must require such diligent development, op-

eration, and production that the reserves of the entire

unit will be mined within a period established by the

Secretary which shall not be more than forty years.

“(3) In approving a logical mining unit, the Secre-

tary may provide, among other things, that (i) diligent

development, continuous operation, and production on

any Federal lease or non-Federal land in the logical

mining unit shall be construed as occurring on all Fed-

eral leases in that logical mining unit, and (ii) the

rentals and royalties for all Federal leases in a logical

mining unit may be combined, and advanced royalties

paid for any lease within a logical mining unit may be

credited against such combined royalties.

““(4) The Secretary may amend the provisions of any

lease included in a logical mining unit so that mining

under that lease will be consistent with the require-

ments imposed on that logical mining unit.

“(5) Leases issued before the date of enactment of

this Act may be included with the consent of all lessees

in such logical mining unit, and, if so included, shall be

subject to the provisions of this section.

“(6) By regulation the Secretary may require a

lessee under this Act to form a logical mining unit, and

may provide for determination of participating acreage

within a unit.

“(7) No logical mining unit shall be approved by the

Secretary if the total acreage (both Federal and non-

Federal) of the unit would exceed twenty-five thousand

acres.

“(8) Nothing in this section shall be construed to

waive the acreage limitations for coal leases contained in

section 27(a) of the Mineral Lands Leasing Act (30

U.S.C. 184(a)).”.

45a

SEC. 6. Section 7 of the Mineral Lands Leasing Act

(30 U.S.C. 207) is amended to read as follows:

“SEC. 7. (a) A coal lease shall be for a term of twenty

years and for so long thereafter as coal is produced an-

nually in commercial quantities from that lease. Any

lease which is not producing in commercial quantities at

the end of ten years shall be terminated. The Secretary

shall by regulation prescribe annual rentals on leases.

A lease shall require payment of a royalty in such

amount as the Secretary shall determine of not less

than 121% per centum of the value of coal as defined by

regulation, except the Secretary may determine a lesser

amount in the case of coal recovered by underground

mining operations. The lease shall include such other

terms and conditions as the Secretary shall determine.

Such rentals and royalties and other terms and condi-

tions of the lease will be subject to readjustment at the

end of its primary term of twenty years and at the end

of each ten-year period thereafter if the lease is extended.

“(b) Each lease shall be subject to the conditions of

diligent development and continued operation of the mine

or mines, except where operations under the lease are

interrupted by strikes, the elements, or casualties not

attributable to the lessee. ‘The Secretary of the Interior,

upon determining that the public interest will be served

thereby, may suspend the condition of continued opera-

tion upon the payment of advance royalties. Such ad-

vance royalties shall be no less than the production roy-

alty which would otherwise be paid and shall be com-

puted on a fixed reserve to production ratio (determined

by the Secretary). The aggregate number of years dur-

ing the period of any lease for which advance royalties

may be accepted in lieu of the condition of continued

operation shall not exceed ten. The amount of any pro-

duction royalty paid for any year shall be reduced (but

not below 0) by the amount of any advance royalties

paid under such lease to the extent that such advance

46a

royalties have not been used to reduce production royal-

ties for a prior year. No advance royalty paid during

the initial twenty-year term of a lease shall be used to

reduce a production royalty after the twentieth year of

a lease. The Secretary may, upon six months’ notifica-

tion to the lessee cease to accept advance royalties in lieu

of the requirement of continued operation. Nothing in

this subsection shall be construed to affect che require-

ment contained in the second sentence of subsection (a)

relating to commencement of production at the end of

ten years.

“(e) Prior to taking any action on a leasehold which

might cause a significant disturbance of the environ-

ment, and not later than three years after a lease is

issued, the lessee shall submit for the Secretary’s ap-

proval an operation and reclamation plan. The Secre-

tary shall approve or disapvrove the plan or require that

it be modified. Where the land involved is under the

surface jurisdiction of another Federal agency, that

other agency must consent to the terms of such ap-

proval.”.

Sec. 7. The Mineral Lands Leasing Act is amended

by inserting after section 8 the following new section

8A:

“Sec. 8A. (a) The Secretary is authorized and di-

rected to conduct a comprehensive exploratory program

designed to obtain sufficient data and information to eval-

uate the extent, location, and potential for developing the

known recoverable coal resources within the coal lands

subject to this Act. This program shall be designed to ob-

tain the resource information necessary for determining

whether commercial quantities of coal are present and

the geographical extent of the coal fields and for esti-

mating the amount of such coal which is recoverable by

deep mining operations and the amount of such coal

which is recoverable by surface mining operations in or-

der to provide a basis for—

47a

“(1) developing a comprehensive land use plan

pursuant to section 2;

“(2) improving the information regarding the

value of public resources and revenues which should

be expected from leasing;

“(3) increasing competition among producers of

coal, or products derived from the conversion of coal,

by providing data and information to all potential

bidders equally and equitably ;

“(4) providing the public with information on

the nature of the coal deposits and the associated

stratum and the value of the public resources being

offered for sale; and

“(5) providing the basis for the assessment of the

amount of coal deposits in those lands subject to this

Act under subparagraph (B) of section 2(a) (3).

“(b) The Secretary, through the United States Geo-

logical Survey, is authorized to conduct seismic, geo-

physical, geochemical, or stratigraphic drilling, or to

contract for or purchase the results of such exploratory

activities from commercial or other sources which may

be needed to implement the provisions of this section.

“(e) Nothing in this section shall limit any person

from conducting exploratory geophysical surveys includ-

ing seismic, geophysical, chemical surveys to the extent

permitted by section 2(b). The information obtained

from the exploratory drilling carried out by a person not

under contract with the United States Government for

such drilling prior to award of a lease shall be provided

the confidentiality pursuant to subsection (d).

“(d) The Secretary shall make available to the public

by appropriate means all data, information, maps, in-

terpretations, and surveys which are obtained directly by

the Department of the Interior or under a service con-

48a

tract pursuant to subsection (b). The Secretary shall

maintain a confidentiality of all proprietary data or in-

formation purchased from commerciai sources while not

under contract with the United States Government until

after the areas involved have been leased.

“(e) All Federal departments or agencies are au-

thorized and directed to provide the Secretary with any

information or data that may be deemed necessary to

assist the Secretary in implementing the exploratory pro-

gram pursuant to this_section. Proprietary information

or data provided to the Secretary under the provisions

of this subsection shall remain confidential for such

period of time as agreed to by the head of the depart-

ment or agency from whom the information is requested.

In addition, the Secretary is authoribed and directed to

utilize the existing capabilities and resources of other

Federal departments and agencies by appropriate agree-

ment.

“(f) The Secretary is directed to prepare, publish,

and keep current a series of detailed geological, and

geophysical maps of, and reports concerning, all coal

lands to be offered for leasing under this Act, based on

data and information compiled pursuant to this section.

Such maps and reports shall be prepared and revised at

reasonable intervals beginning eighteen months after the

date of enactment of this Act. Such maps and reports

shall be made available on a continuing basis to any

person on request.

“(g) Within six months after the date of enactment

of this Act, the Secretary shall develop and transmit

to Congress an implementation plan for the coal lands

exploration program authorized by this section, includ-

ing procedures for making the data and information

available to the public pursuant to subsection (d), and

maps and reports pursuant to subsection (f). The im-

plementation plan shall include a projected schedule of

exploratory activities and identification of the regions

49a

and areas which will be explored under the coal lands

exploration program during the first five years follow-

ing the enactment of this section. In addition, the im-

plementation plan shall include estimates of the ap-

propriations and staffing required to implement the coal

lands exploration program.

“(h) The stratigraphic drilling authorized in subsec-

tion (b) shall be carried out in such a manner as to

obtain information pertaining to all recoverable reserves.

For the purpose of complying with subsection (a), the

Secretary shall require all those authorized to conduct

stratigraphic drilling pursuant to subsection (b) to sup-

ply a statement of the results of test boring of core

sampling including logs of the drill holes; the thickness

of the coal seams found; an analysis of the chemical

properties of such coal; and an analysis of the strata

layers lying above all the seams of coal. All drilling ac-

tivities shall be conducted using the best current tech-

nology and practices.”’.

Sec. 8. The Mineral Lands Leasing Act is further

amended by adding after section 8A the following new

section 8B:

“Sec. 8B. Within six months after the end of each

fiscal year, the Secretary shall submit to the Congress a

report on the leasing and production of coal lands subject

to this Act during such fiscal year; a summary of man-

agement, supervision, aft enforcement activities; and

recommendations to the Congress for improvements in

management, environmental safeguards, and amount of

production in leasing and mining operations on coal lands

subject to this Act. Each submission shall also contain a

report by the Attorney General of the United States on

competition in the coal and energy industries, including

an analysis of whether the antitrust provisions of this

Act and the antitrust laws are effective in preserving or

promoting competition in the coal or energy industry.”.

50a

Sec. 9. (a) Section 35 of the Mineral Lands Leasing

Act, as amended (30 U.S.C. 191) is further amended by

deleting “521% per centum thereof shall be paid into,

reserved” and inserting in lieu thereof: “40 per centum

thereof shall be paid into, reserved”, and is further

amended by striking the period at the end of the proviso

and inserting in lieu thereof the following language:

“: Provided further, That an additional 12% per centum

of all moneys received from sales, bonuses, royalties, and

rentals of public lands under the provisions of this Act

and the Geothermal Steam Act of 1970 shall be paid by

the Secretary of the Treasury as soon as practicable af-

ter December 31 and June 30 of each year to the State

within the boundaries of which the leased lands or de-

posits are or were located; said additional 12'4% per cen-

tum of all moneys paid to any State on or after January

1, 1976, shall be used by such State and its subdivisions

as the legislature of the State may direct giving pri-

ority to those subdivisions of the State socially or eco-

nomically impacted by development of minerals leased

under this Act for (1) planning, (2) construction and

maintenance of public facilities, and (3) provision of

public services: Provided further, That such funds now

held or to be received, by the States of Colorado and

Utah separately from the Department of the Interior oil

shale test leases known as ‘C-A’; ‘C-B’; ‘U-A’ and ‘U-B’

shall be used by such States and subdivisions as the legis-

lature of each State may direet giving priority to those

subdivisions socially or economically impacted by the de-

velopment of minerals leased under this Act for (1)

planning, (2) construction and maintenance of public

facilities, and (3) provision of public services.”’.

(b) In the first sentence of section 35 of the Mineral

Lands Leasing Act, before the words “shall be paid into

the Treasury of the United States” insert “and -the

5la ~

Geothermal Steam Act of 1970, notwithstanding the pro-

visions of section 20 thereof,”; before the words “from

lands within the naval petroleum reserves” insert “and

the Geothermal Steam Act of 1970”; and, in the second

sentence, before the words “not otherwise disposed of”

insert “and the Geothermal Steam Act of 1970”.

Sec. 10. The Director of the Office of Technology As-

sessment is authorized and directed to conduct a complete

study of coal leases entered into by the United States

under section 2 of the Act of Febraury 25, 1920 (com-

monly known as the Mineral Lands Leasing Act). Such

study shall include an analysis of all mining activities,

present and potential value of said coal leases, receipts

of the Federal Government from said leases, and recom-

mendations as to the feasibility of the use of deep min-

ing technology in said leased area. The Director shall

submit the results of his study to the Congress within

one year after the date of enactment of this Act.

Sec. 11. (a) Section 27(a)(1) of the Mineral Lands

Leasing Act (30 U.S.C. 184(a)(1)), is amended to read

as follows:

“(1) No person, association, or corporation, or any

subsidiary, affiliate, or persons controlled by or under

common control with such person, association, or corpora-

tion shall take, hold, own or control at one time, whether

acquired directly from the Secretary under_this Act or

otherwise, coal leases or permits on an aggregate of

more than forty-six thousand and eighty acres in any one

State and in no case greater than an aggregate of one

hundred thousand acres in the United States: Provided,

That any person, association, or corporation currently

holding, owning, or controlling more than an aggregate

of one hundred thousand acres in the United States on

the date of enactment of this section shall not be re-

quired on account of this section to relinquish said leases

—

52a

or permits: Provided, further, That in no case shall

such person, association, or corporation be permitted to

take, hold, own, or control any further Federal coal

leases or permits until such time as their holdings, own-

ership, or control of Federal leases or permits has been

reduced below an aggregate of one hundred thousand

acres within the United States.”.

(b) Subject to vaild existing rights, section 27(a) (2)

of the Mineral Lands Leasing Act (30 U.S.C. 184(a)

(2)) is hereby repealed.

Sec. 12. (a) Section 3 of the Mineral Leasing Act for

Acquired Lands (30 U.S.C. 352) is amended by striking

out ‘“(b) set apart for military or naval purposes, or

(c)” and insert in lieu thereof ‘or (b)”.

(b) Such section 3 is further amended by inserting

the following after the first sentence thereof: ‘Coal or

lignite under acquired lands set apart for military or

naval purposes may be leased by the Secretary, with the

concurrence of the Secretary of Defense, to a govern-

mental entity (including any corporation primarily act-

ing as an agency or instrumentality of a State) which

produces electrical energy for sale to the public if such

governmental entity is located in the State in which such

lands are located.”’.

Sec. 13. (a) Subject to vaild existing rights, section

4 of the Mineral Lands Leasing Act (30 U.S.C. 204) is

hereby repealed.

—

(b) Subject to valid existing rights, section 3 of the

Mineral Lands Leasing Act (30 U.S.C. 203) is amended

to read as follows:

“Sec. 3. Any person, association, or corporation hold-

ing a lease of coal lands or coal deposits under the pro-

visions of this Act may with the approval of the Secre-

tary of the Interior, upon a finding by him that it would

53a

be in the interest of the United States, secure modifica-

tions of the original coal lease by including additional

coal lands or coal deposits contiguous to those embraced

in such lease, but in no event shall the total area added

by such modifications to an existing coal lease exceed one

hundred sixty acres, or add acreage larger than that in

the original lease. The Secretary shall prescribe terms

and conditions which shall be consistent with this Act and

applicable to all of the acreage in such modified lease.”’.

SEc. 14. Section 39 of the Mineral Lands Leasing Act

(30 U.S.C. 209) is amended by adding the following sen-

tence at the end thereof: “Nothing in this section shall

be construed as granting to the Secretary the authority

to waive, suspend, or reduce advance royalties.”.

Sec. 15. Section 27 of the Mineral Lands Leasing Act

of 1920 (30 U.S.C. 184) is amended by adding at the

end thereof the following new subsection:

“(1) (1) At each stage on the formulation and pro-

mulgation of rules and regulations concerning coal leas-

ing pursuant to this Aet, and at each stage in the issu-

ance, renewal, and readjustment of coal leases under this

Act, the Secretary of the Interior shall consult with and

give due consideration to the views and advice of the

Attorney General of the United States.

“(2) No coal lease may be issued, renewed, or re-

adjusted under this Act until at least thirty days after

the Secretary of the Interior notifies the Attorney Gen-

eral of the proposed issuance, renewal, or readjustment.

Such notification shall contain such information as the

Attorney General may require in order to advise the

Secretary of the Interior as to whether such lease would

create or maintain a situation inconsistent with the anti-

trust laws. If the Attorney General advises the Secretary

of the Interior that a lease would create or maintain such

a situation, the Secretary of the Interior may not issue

Lelia antenatal

54a

such lease, nor may he renew or readjust such lease for

a period not to exceed one year, as the case may be, un-

less he thereafter conducts a public hearing on the record

in accordance with the Administrative Procedures Act

and finds therein that such issuance, renewal, or read-

justment is necessary to effectuate the purposes of this

Act, that it is consistent with the public interest, and

that there are no reasonable alternatives consistent with

this Act, the antitrust laws, and the public interest.

“(3) Nothing in this Act shall be deemed to convey to

any person, association, corporation, or other business

organization immunity from civil or criminal liability, or

to create defenses to actions, under any antitrust law.

“(4) As used in this subsection, the term ‘antitrust

law’ means—

“(A) the act entitled ‘An Act to protect trade and

commerce against unlawful restraints and monopo-

lies’, approved July 2, 1890 (15 U.S.C. 1 et seq.),

as amended;

“(B) the Act entitled ‘An Act to supplement exist-

ing laws against unlawful restraints and monopo-

lies, and for other purposes’, approved October 15,

1914 (15 U.S.C. 12 et seq.), as amended;

“(C) the Federal Trade Commission Act (15

U.S.C. 41 et seq.), as amended;

“(D) sections 73 and 74 of the Act entitled ‘An

Act to reduce taxation, to provide revenue for the

Government, and for other purposes’, approved Au-

gust 27, 1894 (15 U.S.C. 8 and 9), as amended; or

“(E) the Act of June 19, 1936, chapter 592 (15

U.S.C. 18, 18a, 13b, and 21a).”.

SEc. 16. Nothing in this Act, or the Mineral Lands

Leasing Act and the Mineral Leasing Act for Acquired

55a

Lands which are amended by this Act, shall be con-

strued as authorizing coal mining on any area of the

National Park System, the National Wildlife Refuge

System, the National Wilderness Preservation System,

the National System of Trails, and the Wild and Scenic

Rivers System, including study rivers designated under

section 5(a) of the Wild and Scenic Rivers Act.

CARL ALBERT

Speaker of the House of Representatives.

LEE METCALF

Acting President of the Senate pro tempore.

IN THE SENATE OF THE UNITED STATES,

August 3, 1976.

The Senate having proceeded to reconsider the bill

(S. 391) entitled “An Act to amend the Mineral Leasing

Act of 1920, and for other purposes”, returned by the

President of the United States with his objections, to

the Senate, in which it originated, it was

Resolved, That the said bill pass, two-thirds of the

Senators present having voted in the affirmative.

Attest:

FRANCIS R. VALEO

Secretary.

I certify that this Act originated in the Senate.

FRANCIS R. VALEO

Secretary.

56a

IN THE U.S. HOUSE OF REPRESENTATIVES

August 4, 1976.

The House of Representatives having proceeded to re-

consider the bill (S. 391) entitled “An Act to amend the

Mineral Leasing Act of 1920, and for other purposes’,

returned by the President of the United States with his

objections, to the Senate, in which it originated, and

passed by the Senate on reconsideration of the same, it

was

57a

APPENDIX F

UNITED STATES

DEPARTMENT OF THE INTERIOR

BUREAU OF LAND MANAGEMENT

COAL LEASE

Act of February 25, 1920 (41 Stat. 437)

S Land Office

Cheyenne, Wyoming

Serial Number

Wyoming 061421

This lease, entered into on March 1, 1963, by the

United States of America, the lessor, through the Bu-

reau of Land Management, and

FMC Corporation

P.O. Box 1728

Pocatello, Idaho

the lessee, pursuant and subject to the terms and pro-

visions of the act of February 25, 1920 (41 Stat. 437),

as amended, hereinafter referred to as the act, and to all

reasonable regulations of the Secretary of the Interior

now in force which are made a part hereof,

Witnesseth:

Section 1. Rights of lessee. The lessor, in considera-

tion of the rents and royalties to be paid and the condi-

tions to be observed as hereinafter set forth does hereby

grant and lease to the lessee the exclusive right and

privilege to mine and dispose of all the coal in the fol-

lowing-described tracts of land, situated in the State of

Wyoming:

T. 19 N., R. 117 W.. 6th P.M.

Sec. 22: All

Sec: 28: N16, SE14

Sec. 34: NW'4

58a

containing 1280 acres, more or less, together with the

right to construct all such works, buildings, plants, struc-

tures, and appliances as may be necessary and conven-

ient for the mining and preparation of the coal for mar-

ket, the manufacture of coke or other products of coal,

the housing and welfare of employees, and, subject to

the conditions herein provided, to use so much of the

surface as may reasonably be required in the exercise

of the rights and privileges herein granted.

See. 2. In consideration of the foregoing, the lessee

hereby agrees:

(a) Bond. To maintain the bond furnished upon the

issuance of this lease, which bond is conditioned upon

compliance with all the provisions of the lease, and to

increase the amount or furnish such other bond as may

be required.

(b) Rental. To pay the lessor annually, in advance,

for each acre or part thereof covered by this lease, be-

ginning with the date hereof, the following rentals: 25

cents for the first year, 50 cents for the second, third,

foyrth, and fifth years, respectively, and $1 for the sixth

and each succeeding year during the continuance of the

lease, such rental for any year to be credited against

the first royalties as they accrue under the lease during

the year for which the rental was paid.

(c) Royalty. [To pay the lessor a royalty of cents

on every ton of 2,000 pounds of coal mined during the

first 20 years succeeding the execution of this lease.

Royalties shall be payable quarterly within 30 days from

the expiration of the quarter in which the coal is mined.]*

(c) Royalty. To pay the lessor a royalty of 15¢ a ton

for coal mined from underground operations and 1714¢

a ton for coal that is strip mined on every ton of 2,000

pounds of coal mined during the first 20 years succeed-

* Bold bracketed material] struck through on original.

Bi

59a

ing the execution of this lease. Royalties shall be pay-

able quarterly within 30 days from the expiration of

the quarter in which the coal is mined.

(d) Minimum production. Beginning with the sixth

year of the lease, except when operations are interrupted

by strikes, the elements, or casualties not attributable to

the lessee, or unless on application and showing made,

operations shall be suspended when market conditions

are such that the lessee cannot operate except at a loss

or suspended for the other reasons specified in section 39

of the act, to mine coal each year and pay a royalty

thereon to a value of $1 per acre or fraction thereof.

Operations under this lease shall be continuous except in

the circumstances described or unless the lessee shall pay

a royalty, less rent, on such minimum amount of the

leased deposits, for one year in advance, in which case

operations may be suspended for that year. ~

(e) Payments. To make rental payments to the Man-

ager of the appropriate Land Office, except that when

this lease becomes productive the rentals and royalties

shall be paid to the appropriate Regional Mining Super-

visor of the United States Geological Survey, with whom

all reports concerning operations under the lease shall

be filed. All remittances to the Manager of the Land

Office shall be made payable to the Bureau of Land Man-

agement, those to the Geological Survey shall be made

payable to the United States Geological Survey.

(f) Plats, reports, maps. At such times and in such

form as the lessor may prescribe, to furnish a plat show-

ing development work and improvements on the leased

lands and a report with respect to stockholders, invest-

ment, depreciation, and costs. To furnish in such form

as the lessor may prescribe, within 30 days from the

expiration of each quarter a report covering such quar-

ter, certified by the superintendent of the mine, or by

such other agent having persona] knowledge of the facts

60a

as may be designated by the lessee for such purpose,

showing the amount of leased deposits mined during the

quarter, the character and quality thereof, amount of its

products and -byproducts disposed of and price received

therefor, and amount in storage or held for sale. To keep

and prepare maps of the leased lands in accordance with

the regulations in 30 CFR, part 211.

(g) Weights. To determine accurately the weight or

quantity and quality of all leased deposits mined, and to

enter accurately the weight or quantity and quality

thereof in due form in books to be kept and preserved

by the lessee for such purposes.

(h) Inspection. To permit at all reasonable times (1)

inspection by any duly authorized officer of the Depart-

ment, of the leased premises and all surface and under-

ground improvements, works, machinery, equipment, and

all books and records pertaining to operations and sur-

veys or investigations under this lease; and (2) the

lessor to make copies of and extracts from any or all

books and records pertaining to operations under this

lease, if desired.

(i) Assignment. To file for approval in the appropri-

ate Land Office within 90 days from the date of execu-

tion, any assignment or transfer made of this lease,

whether by direct assignment, operating agreement,

working or royalty interest, or otherwise. Such instru-

ment will take effect the first day of the month follow-

ing its approval by the Bureau of Land Management, or

if the assignee requests, the first day of the month of

approval. The showing required to be made with an as-

signment or transfer is set forth in the regulations. 43

CFR 193.25.

(j) Nondiscrimination. In connection with the per-

formance of work under this lease, the lessee agrees not

to discriminate against any employee or applicant for

employment because of race, religion, color, or national

6la

origin. The aforesaid provision shall include, but not be

- limited to, the following: Employment, upgrading, de-

motion, or transfer, recruitment or recruitment adver-

tising; layoff or termination; rates of pay or other forms

of compensation; and selection for training, including

apprenticeship. The lessee also agrees to post hereafter

in conspicuous places, available for employees and appli-

cants for employment, notices to be provided by the con-

tracting officer setting forth the provisions of the non-

discrimination clause. The lessee further agrees to insert

the foregoing provision in all subcontracts hereunder,

except subcontracts for standard commercial supplies or

raw materials.

(k) Land disposed of with coal deposits reserved to

the United States. If the lands embraced herein have

been or shall hereafter be disposed of under laws reserv-

ing to the United States the deposits of coal therein, to

comply with all conditions as are or may hereafter be

provided by the laws and regulations reserving such coal.

(1) Operations, wages, freedom of purchase. To comply

with the operating regulations (30 CFR, part 211), to

exercise reasonable diligence, skill, and care in the op-

erations of the property, and to carry on all operations

in accordance with approved methods and practices as

provided in the operating regulations, having due regard

for the prevention of injury to life, health or property,

and of waste or damage to any water or mineral de-

posits; to fairly and justly weight or measure the coal

mined by each miner, to pay all wages due miners and

employees, both above and below ground, at least twice

each month in lawful money of the United States: to

accord all miners and employees complete freedom of

purchase; to restrict the workday to not exceeding eight

hours in any one day for underground workers, except

in cases of emergency; to employ no boy under the age

of sixteen and no girl or woman, without regard to age,

in any mine below the surface, unless the laws of the

62a

State otherwise provide, in which case—the State laws

control.

(m) Taxes. To pay when due, all taxes lawfully as-

sessed and levied under the laws of the State or the

United States upon improvements, output of mines, or

other rights, property, or assets of the lessee.

(n) Overriding royalties. Not to create, by assign-

ment or otherwise, an overriding royalty interest in ex-

cess of 50 percent of the rate of royalty first payable to

the United States under this lease or an overriding roy-

alty interest which when added to any other outstanding

overriding royalty interest exceeds that percentage, ex-

cepting, that where an interest in the leasehold or in an

operating agreement is assigned, the assignor may retain

an overriding royalty interest in excess of the above limi-

tation if he shows to the satisfaction of the Bureau of

Land Management, that he has made substantial invest-

ments for improvements on the land covered by the as-

signment.

(0) Delivery of premises in case of forfeiture. In ease

of forfeiture of this lease, to deliver up to the lessor in

good order and condition the land leased, including all

buildings, and underground timbering and such other

supports and structures as are necessary for the preser-

vation of the mine or deposit.

Sec. 3. The lessor expressly reserves:

(a) Rights reserved. The right to permit for joint

or several use such easements or rights-of-way, including

easements in tunnels upon, through, or in the land leased.

occupied, or used as may be necessary or appropriate to

the working of the same or other lands containing the

deposits described in the act, and the treatment and ship-

ment of the products thereof by or under authority of

the Government, its lessees or permittees, and for other

public purposes.

63a

(b) Disposition of surface. The right to lease, sell, or

otherwise dispose of the surface of the leased lands un-

der existing law or laws hereafter enacted, insofar as

said surface is not necessary for the use of the lessee in

the extraction and removal of the coal therein, or to dis-

pose of any resource in such lands which will not un-

reasonably interfere with operations under this lease.

(ec) Monopoly and fair prices. Full power and author-

ity to promulgate and enforce al! the provisions of sec-

tion 30 of the act to insure the sale of the production

of said leased lands to the United States and to the pub-

lie at reasonable prices, to prevent monopoly, and to safe-

guard the public welfare.

(d) Readjustment of terms. The right reasonably to

readjust and fix royalties payable hereunder and other

terms and conditions at the end of 20 years from the

date hereof and thereafter at the end of each succeeding

20-year period during the continuance of this lease other-

wise provided by law at the time of the expiration of any

such period. Unless the lessee files objections’ to the pro-

posed terms or a relinquishment of the lease within 30

days after receipt of the notice of proposed terms for a

20-year period, he will be deemed to have agreed to such

terms.

(e) Waiver of conditions. The right to waive any

breach of the conditions contained herein, except the

breach of such conditions as are required by the act, but

any such waiver shall extend only to the particular

breach so waived and shall not limit the rights of the

lessor with respect to any future breach; nor shall the

waiver of a particular cause of forfeiture prevent can-

cellation of this lease for any other cause, or for the

same cause occurring at another time.

Sec. 4. Relinquishment of lease. Upon a satisfactory

showing that the public interest will not be impaired,

the lessee may surrender the entire lease or any legal

subdivision thereof. A relinquishment must be filed in

duplicate in the appropriate Land Office. Upon its ac-

64a

ceptance it shall be effective as of the date it is filed,

subject to the continued obligation of the lessee and his

surety to make payment of ali accrued rentals and royal-

ties and to provide for the preservation of any mines or

productive works or permanent improvements on the

leased land in accordance with the regulations and terms

of the lease.

Sec. 5. Protection of the surface, natural resources,

and improvements. The lessee agrees to take such rea-

sonable steps as may be needed to prevent operations

from unnecessarily: (1) Causing or contributing to soil

erosion or damaging any forage and timber growth

thereon; (2) polluting the waters of springs, streams,

wells, or reservoirs; (3) damaging crops, including for-

age, timber, or improvements of a surface owner; or

(4) damaging range improvements whether owned by

the United States or by its grazing permittees or lessees;

and upon any partial or total relinquishment or the can-

cellation or expiration of this lease, or at any other time

prior thereto when required by the lessor and to the ex-

tent deemed necessary by the lessor, to fill any samp

holes, ditches and other ‘excavations, remove or cover all

debris, and, so far as reasonably possible, restore the

surface of the-teased land to its former condition, in-

cluding the removal of structures as and if required.

The lessor may prescribe the steps to be taken and res-

toration to be made with respect to lands of the United

States and improvements thereon.

See. 6. Removal of equipment, etc., on termination of

lease. Upon termination of this lease, by surrender or

forfeiture, the lessee shall have the privilege at any time

within a period of 90 days thereafter of removing from

the premises all machinery, equipment, tools and mate-

rials, other than underground timbering placed by the

lessee in or on the leased lands, which are not necessary

for the preservation of the mine. Any materials, tools,

appliances, machinery, structures, and equipment, sub-

ject to removal as above provided, which are allowed to

‘ 65a

remain on the leased lands shall become the property of

the lessor on expiration of the 90-day period or such ex-

tension thereof as may be granted because of adverse

climatic conditions, but_the lessee shall remove any or

all of such property where so directed by the lessor.

See. 7. Proceedings in case of default. If the lessee

shall not comply with any of the provisions of the act or

the regulations thereunder or default in the performance

or observance of any of the provisions of this lease, and

such default shall continue for a period-of 30 days after

service of written notice thereof by the lessor, the lessor

may institute appropriate proceedings in a court of com-

petent jurisdiction for the forfeiture and cancellation of

this lease as provided in section 31 of the act (30 USC,

sec. 188). If the lessee fails to take prompt and neces-

sary steps to prevent loss or damage to the mine, prop-

erty, or premises, or danger to the employees, the lessor

may enter on the premises and take such measures as

may be deemed necessary to prevent such loss or damage

or to correct the dangerous or unsafe condition of the

mine or works thereof, which shall be at the expense of

the lessee. However, the lessee shall not be held responsi-

ble for delays or casualties occasioned by causes beyond

the lessee’s control.

Sec. 8. Heirs and successors in interest. Each obliga-

~tion hereunder shall extend to, and be binding upon, and

every benefit hereof shall inure to, the heirs, executors,

administrators, successors, or assigns of the respective

parties hereto.

See. 9. Unlawful interest. No member of, or Dele-

gate to, Congress or Resident Commissioner, after his

election or appointment, or either before or after he has

qualified and during his continuance in office, and no

officer, agent, or employee of the Department of the In-

terior, except as provided in 43 CFR 7.4(a) (1), shall be

admitted to any share or part in this lease or derive any

benefit that may arise therefrom; and the provisions of

66a

section 3741 of the Revised Statutes of the United States,

as amended (41 USC, sec. 22), and sections 431, 432,

and 433, title 18, U. S Code, relating to contracts, enter

into and form a part of this lease so far as the sare may

be applicable.

IN WITNESS WHEREOF:

Witnesses to Signature of Lessee

ATTEST:

/s/ W. A. Kebba

W.A. KEBBA

Assistant Secretary

/s/ Richard J. McNamara

RICHARD J. MCNAMARA

/s/ A. M. Bretschger

A.M. BRETSCHGER

THE UNITED STATES OF AMERICA

By /s/ Thomas H. Floyd, Jr.

(Signing Officer )

THOMAS H. FLoypD, JR.

Manager, Land Office

Bureau of Management

Cheyenne, Wyoming

March 22, 1963

(Date)

FMC CoRPORATION

By /s/ W.N. Williams

(Signature of Lessee)

W.N. WILLIAMS

Senior Vice President

(Signature of Lessee)

(If this lease is executed by a corporation, it must bear

the corporate seal) '

67a

CITY, COUNTY & STATE OF NEW YORK, ss:

On this 14th day of March 1963, before me personally

Stephen Pium and Mary E. Asplund to me known, who,

being by me duly sworn, did depose and say that they

reside in Orange, New Jersey and Brooklyn, New York

respectively; that they are Assistant Secretary and At-

torney-in-Fact respectively of the FEDERAL INSUR-

ANCE COMPANY, the corporation described in and

which executed the annexed instrument; that they know

the corporate seal of said corporation; that the seal af-

fixed to said instrument is such corporate seal; that it

was so affixed by order and authority of the Board of

Directors of said corporation, and that they signed their

names thereto by like order and authority.

Sworn to and Acknowledged

before me on the date above

~ written

/s/ Marion J. McGrath

MARION J. MCGRATH

Notary Public,

State of New York

No. 24-7337850

Qualified in Kings County

Cert. filed in New York

County ~

Commission Expires

March 30, 1964

68a

Certified Copy of Resolution Authorizing

Execution of Bonds

At a regular meeting of the Board of Directors of the

FEDERAL INSURANCE COMPANY, duly held at the

office of the Company in New York, N.Y., on the 30th

day of November, 1961, a quorum being present, on

motion it was unanimously

“RESOLVED, That any two of the following: Percy

Chubb, 2nd, President; Nathan Mobley, Ernest W. Fields,

Alexander Kerner, Vice Presidents; Frederick C. Gard-

ner, Fred Moran, Assistant Vice Presidents; Joseph J.

Magrath, Secretary; Bradley C. Drowne, Donald H.

Haeseker, John C. Harden, Richard G. Hight, George C.

Josephson, Willis Koenig, Arthur A. Kuhne, Walter La-

Forge, Roy Little, Horace C. Neville, Stephen Plum,

Davis Quinn, Daniel F. Randolph, Assistant Secretaries

of this Company; OR that any one of said persons AND

Clara Aragona or Mary E. Asplund or Richard L. Boyle

or Elaine M. Cordes on Marie C. Gotthard or M. C.

Hoefer or Emily Kraft or Richard H. Lewis or John P.

Madigan, Jr., or Richard D. O’Connor or Matilda Smith,

who are hereby appointed Attorneys-in-Fact of this Com-

pany for the purposes specified in this Resolution; be and

they are hereby authorized to jointly execute under their

respective designations, in this Company’s name and to

affix its Corporate seal to, and deliver for and on its be-

half, as surety thereon or otherwise, bonds or obligations

given or executed in the course of this Company’s busi-

ness, and any instruments amending or altering the

same, and consents to the modification or alteration or

assignment of any instruments referred to in said bonds

or obligations, and the execution of any and all instru-

ments in this Company’s name and on its behalf as surety

thereon or otherwise by such persons in the authorized

manner and under their respective designation, under the

seal of this Company, in pursuance of the authority

hereby conferred, shall be valid and binding upon this

Company.”

69a

Financial Statement of Federal Insurance Company

as of December 31, 1961

ASSETS

United States Government Bonds ----..------- $ 57,011,442

State and Municipal Bonds ---------------- 36,588,942

TI silat ceca eeeiadakds ecard tee 8,463,257

Preferred and Guaranteed asides. hiasnisia iia 5,437,332

I I iii nccichickentinkaonmeneee 91,519,891 ‘

Capital Stock of Vigilant Insurance Company -_ 18,102,440

Capital Stock of Great Northern Insurance

RII cintésccstneaeibonmednekalamedaan 5,951,397

Capital Stock (97%) of The Colonial Life

Insurance Company of America ~_-------- 7,609,150

SOGRE, SNVERTMIINGE nn cciccnncwinncndnn 230,683,851

ON iis tl ae bicelles el ae ler els aed Reheat 9,330,191

Premiums not over 90 days due -__--------- 6,010,808

Ce. BI 2. cxasannsteenabekdateawceke 6,688,841

TOTAL. ADMITTED ASSETS ..............- $252, 718, _—

LIABILITIES AND SURPLUS TO POLICYHOLDERS

LIORTT TONED ccm dkwienncennmccancnne $ 50,122,412

Outstanding Losses and Clams _____-__----- 40,266,885

Be NG i is oc tates eens 1,748,353

Taxes, Expenses and Other Liabilities _____-_ 7,159,182

Funds Held Under Reinsurance Treaties ____ 5,052,768

Non-Admitted Reinsurance _____- ha ceiteacncmiace 6,579,100

Toran Laenatwe .................... 110,928,700

Cnt I ck seen nea aeeen ees 13,986,828

IE Miceasis ccna m naa oem aida eee 61,894,342

Unrealized Appreciation of Investments ____- 65,903,821

SURPLUS TO POLICYHOLDERS ____------__- 141, ,784, 991

IIA deat aici ns sles uted icon ea 0a eens aoe eer nee enae 252,713, 691

Investments are valued in acocrdance with siden of

the National Association of Insurance Commissioners.

Investments valued at $7,576,436 are deposited with govern-

ment authorities and trustee as required by law.

ol reer

70a

Certification

CITY, COUNTY & STATE OF NEW YORK, ss:

I, Willis Koenig, Assistant Secretary of the FEDERAL

INSURANCE COMPANY, do hereby certify that I have

compared the foregoing resolution with the original

thereof as recorded in the Minute Book of said Company,

and that the same is a correct and true copy of the whole

of said original resolution and that said resolution has

not been modified or rescinded; that the Company is duly

and legally incorporated under the laws of the State of

New Jersey and has complied with the provisions of the

Act of Congress August 18, 1894, as amended, allowing

certain corporations to be accepted as Surety on bonds;

that the Company is duly licensed to transact fidelity and

surety business in each of the States of the United States

of America, Puerto Rico, and in each of the Provinces of

the Dominion of Canada with the exception of Prince Ed-

ward Island.

Given under my hand and seal of said Company at the

City of New York, this 14th day of March 1968.

/s/ Willis Koenig

Assistant Secretary

Tla

UNITED STATES

DEPARTMENT OF THE INTERIOR

BUREAU OF LAND MANAGEMENT

Land Office

Cheyenne, Wyoming

~ Serial Number

Wyoming 061422

COAL LEASE

Act of February 25, 1920 (41 Stat. 437)

This lease, entered into on March 1, 1963, by the

United States of America, the lessor, through the Bureau

of Land Management, and

FMC Corporation

P.O. Box 1728

Pocatello, Idaho

the lessee, pursuant and subject to the terms and pro-

visions of the act of February 25, 1920 (41 Stat. 4387),

as amended, hereinafter referred to as the act, and to all

reasonable regulations of the-Secretary of the Interior

now in force which are made a part hereof,

Witnesseth:

Section 1. Rights of lessee. The lessor, in considera-

tion of the rents and royalties to be paid and the co idi-

tions to be observed as hereinafter set forth does hereby

grant and lease to the lessee the exclusive right and privi-

lege to mine and dispose of all the coal in the following-

described tracts of land, situated in the State of Wyo-

ming:

T. 19 N., R. 117 W., 6th P.M.

Sec. 4: Lots 1, 2, SANEY, SEY

Sec. 10: All

T. 20N., R. 117 W., 6th P.M.

Sec. 28: El

See. 34: All

72a

containing 1921.68 acres, more or less, together with the

right to construct all such works, buildings, plants, struc-

tures, and appliances as may be necessary and conven-

ient for the mining and preparation of the coal for mar-

ket, the manufacture of coke or other products of coal,

the housing and welfare of employees, and, subject to

the conditions herein provided, to use so much of the sur-

face as may reasonably be required in the exercise of

the rights and privileges herein granted.

Sec. 2. In consideration of the foregoing, the lessee

hereby agrees:

(a) Bond. To maintain the bond furnished upon the

issuance of this lease, which bond is conditioned—upon

compliance with all the provisions of the lease, and to

increase the amount or furnish such other bond as may

be required.

(b) Rental. To pay the lessor annually, in advance,

for each acre or part thereof covered by this lease, be-

ginning with the date hereof, the following rentals: 25

cents for the first year, 50 cents for the second, third,

fourth, and fifth years, respectively, and $1 for the sixth

and each succeeding year during the continuance of the

lease, such rental for any year to be credited against the

first royalties as they accrue under the lease during the

year for which the rental was paid.

(c) Royalty. [To pay the lessee a royalty of cents

on every ton of 2,000 pounds of coal mined during the

first 20 years succeeding the execution of this lease.

Royalties shall be payable quarterly within 30 days from

the expiration of the quarter in which the coal is mined.]*

(ec) Royalty. To pay the lessor a royalty of 15¢ a

ton for coal mined from underground operations and

1714¢ a ton for coal that is strip mined on every ton of

2,000 pounds of coal mined during the first 20 years

succeeding the execution of this lease. Royalties shall be

* Bold bracketed material struck through on original.

73a

payable quarterly within 30 days from the expiration of

the quarter in which the coal is mined.

(d) Minimum production. Beginning with the sixth

year of the lease, except when operations are interrupted

by strikes, the elements, or casualties not attributable to

the lessee, or unless on application and showing made,

operations shall be suspended when market conditions

are such that the lessee cannot operate except at a loss

or suspended for the other reasons specified in section 39

of the act, to mine coal each year and pay a royalty

thereon to a value of $1 per acre or fraction thereof.

Operations under this lease shali be continuous except in

the circumstances described or unless the lessee shall pay

a royalty, less rent, on such minimum amount of the

leased deposits, for one year in advance, in which case

-. operations may be suspended for that year.

(e) Payments. To make rental payments to the Man-

ager of the appropriate Land Office, except that when

this lease becomes productive the rentals and royalties

shall be paid to the appropriate Regional Mining Super-

visor of the United States Geological Survey, with whom

all reports concerning operations under the lease shall

be filed. All remittances to the Manager of the Land

Office shall be made payable to the Bureau of Land Man-

agement, those to the Geological Survey shall be made

payable to the United States Geological Survey.

(f) Plats, reports, maps. At such times and in such

form as the lessor may prescribe, to furnish a plat show-

ing development work and improvements on the leased

lands and a report with respect to stockholders, invest-

ment, depreciation, and costs. To furnish in such form

as the lessor may prescribe, within 30 days from the

expiration of each quarter a report covering such quar-

ter, certified by the superintendent of the mine, or by

such other agent having personal knowledge of the facts

as may be designated by the lessee for such purpose,

showing the amount of leased deposits mined during the

quarter, the character and quality thereof, amount of its

T4a

products and byproducts disposed of and price received

therefor, and amount in storage or held for sale. To keep

and prepare maps of the leased lands in accordance with

the regulations in 30 CFR, part 211.

(g) Weights. To determine accurately the weight or

quan

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