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Del-Rio Drilling Programs v. United States

June 18, 1998

DEL-RIO DRILLING PROGRAMS INC., WESTERN UNITED MINES, INC., SYNDICATORS, INC., DEL-RIO RESOURCES, INC., HIKO BELL MINING & OIL COMPANY, OIL CANYON FUND #1, 1979-2, 1979-1, CHEROKEE TRADING COMPANY OF OLNEY, ILLINOIS, DIMARK INC, BGS ENERGY, NON-FERROUS METAL, SUNSTONE ENERGY, INC., INTERSTATE SOLAR FUTURES, INC., GERALD ARNDT, JOEL DANGERFIELD, TRUSTEE FOR TWT EXPLORATION, INC., STEVEN D. MARTENS, LAWRENCE C. CALDWELL, J.R. KIRK, JR., AMARON OIL CORPORATION, ED LEDDER, PIONEER OIL & GAS, INC., B. LEE WALDRAM, CARL WEBSTER, AND ROBERT F. DEIKE, PLAINTIFFS-APPELLANTS, AND MONO POWER COMPANY AND 1980-1, PLAINTIFFS,
v.
UNITED STATES, DEFENDANT-APPELLEE.



Before Clevenger, Circuit Judge, Smith, Senior Circuit Judge, and Bryson, Circuit Judge.

The opinion of the court was delivered by: Bryson, Circuit Judge

Appealed from: United States Court of Federal Claims

Judge Bruggink.

Del-Rio Drilling Programs, Inc., and the other named appellants (collectively "Del-Rio") filed a complaint in the Court of Federal Claims seeking to recover $17,000,000 from the United States. Del-Rio asserted that the government, acting through the Bureau of Land Management (BLM) and the Bureau of Indian Affairs (BIA), prevented Del-Rio from making beneficial use of mineral leases that the BLM had conveyed to Del-Rio. The government's conduct, Del-Rio charged, constituted a breach of its contractual obligations under the leases and a taking of Del-Rio's property for public use without just compensation. The Court of Federal Claims dismissed both counts of Del-Rio's complaint. Del-Rio Drilling Programs, Inc. v. United States, 37 Fed. Cl. 157 (1997). We reverse the dismissal of the complaint and remand for further proceedings.

I.

The pertinent facts are not in dispute. Until 1948, the United States owned certain land near the Uintah and Ouray Indian Reservation in eastern Utah. In that year, Congress extended the boundaries of the reservation by ceding some of the public lands in the area to form what was referred to as the Hill Creek Extension. Congress did not transfer all rights in the Hill Creek Extension, but instead divided its interest in the property into separate surface and mineral estates. Title to the surface estate was transferred to the United States as trustee for the Ute Indian Tribe, while title to the mineral estate remained with the United States.

The BLM subsequently made the mineral rights in the Hill Creek Extension available for leasing by private parties, and Del-Rio purchased leases in that area. Each lease gave Del-Rio the right "to drill for, mine, extract, remove, and dispose of all the oil and gas deposits, except helium gas, in the lands leased, together with the right to construct and maintain thereupon, all works, buildings, plants, waterways, roads," and other structures "necessary to the full enjoyment" of the leases. The leases were also subject to "all reasonable regulations of the Secretary of the Interior now or hereinafter in force, when not inconsistent with any express and specific provisions herein."

By regulation, the BLM required owners of mining leases on federal land to secure special permits before drilling or surveying on the land covered by the leases. The BLM approved Del-Rio's first permit application on December 20, 1979, subject to the condition that before drilling Del-Rio obtain rights-of-way over the trust lands.

Between 1979 and 1983, Del-Rio satisfied the rights-of-way condition by obtaining easements over the trust lands from the Ute Indian Tribe. In 1982, however, the Tribe expressed its opposition to any mining or drilling activity on the lands, and in 1983 the Tribal Business Council passed a resolution stating that the Tribe refused to grant, or to give permission to the BIA to grant, any easements or rights of way "relative to mineral exploration and/or roadway construction within . . . the Hill Creek Extension." In September 1983 the BIA notified Del-Rio of the Tribe's action and advised Del-Rio that "this office considers all of those applications previously submitted for rights-of-way in this area as void. Until such time as these restrictions are lifted, new applications for rights-of-way in this area will not be accepted."

Because of the lack of rights-of-way, Del-Rio was forced to cease its oil and gas operations on the leased properties. In early 1984, the BIA referred the matter to the BLM with a recommendation that Del-Rio's leases be terminated for non-compliance with the requirement in the leases that Del-Rio maintain production throughout the lease periods. Rather than terminating the leases, the BLM granted Del-Rio's request for a Suspension of Operations and Production for the leases, based on what the BLM termed the "restrictive measure imposed by the Ute Indian Tribe resolution denying access to the unit across Tribal land." The Suspension of Operations and Production remained in effect until 1986, when the BLM notified Del-Rio that it had to establish production or risk expiration of the leases. In October 1987, Del-Rio and the Ute Indian Tribe entered into a surface access agreement for the affected leases. Del-Rio did not commence production at that time because, as it explained to the trial court, an agreement that allowed groups of individual leases to be operated jointly had lapsed. As of January 1989, the relevant leases expired without producing paying quantities of oil or gas.

Del-Rio filed suit in the Court of Federal Claims, alleging that the government had breached its obligations to Del-Rio under the leases and, in the alternative, that the leasehold interests had been taken from Del-Rio for public use without just compensation, in violation of the Fifth Amendment. The parties filed several sets of motions for summary judgment on both the contract and takings claims.

On March 15, 1996, in an opinion that was subsequently withdrawn, the Court of Federal Claims denied both parties' motions for summary judgment. The court addressed and rejected the government's contention that the Tribal Consent Act, 25 U.S.C. §§ 323-324, justified the decision of the Interior Department requiring Del-Rio to obtain rights-of-way from the Ute Indian Tribe. Under the court's analysis, the government retained an easement by necessity when it conveyed the surface estate in the Hill Creek Extension to the Tribe, and that easement was conveyed to Del-Rio under the leases. However, the court invited additional briefing on whether Del-Rio could maintain its action under the Tucker Act when "what is really challenged is the applicability of the [Tribal Consent Act] to the subject leases." Del-Rio Drilling Programs, Inc. v. United States, 35 Fed. Cl. 186, 197-98 (1996).

In response to the court's invitation for further briefing, the government filed a motion contending that the Court of Federal Claims lacked jurisdiction over the complaint because Del-Rio refused to concede the validity of the government's actions in denying the permits. The government argued that Del-Rio sought to draw into question the legality of agency conduct, a question that is not properly within the jurisdiction of the Court of Federal Claims in a takings action. The government did not argue in the Court of Federal Claims (and has not argued here) that Del-Rio improperly failed to exhaust its administrative remedies within the Department of the Interior.

The court granted the government's motion and dismissed the complaint. Del-Rio Drilling Programs, Inc. v. United States, 37 Fed. Cl. 157 (1997). With respect to the takings claim, the court ruled that a person claiming that his property was taken "must be prepared to allege that the Government is not acting in violation of any law other than the failure to pay compensation called for by the Fifth Amendment. . . . The Government should not be forced to buy private property if its agents act without authority, or, if merely perfecting the particular way power was exercised obviates any claim for relief." Id. at 161.

The court noted that it had already ruled in its prior opinion that the BIA and the BLM had erred as a matter of law in giving the Ute Tribe a "veto" over access to Del-Rio's mineral leases in reliance on the Tribal Consent Act. That legal ruling was a necessary part of Del-Rio's case, the court explained. If the Tribal Consent Act required that the leaseholds be subject to the Tribe's exercise of veto power, the government's actions "would not have deprived Del-Rio of a property interest," because the leases "would have been encumbered from the outset by the need to get tribal consent." Id. at 162. The gravamen of Del-Rio's complaint, in the court's view, was that "the BLM, acting in its regulatory capacity, erred in ...


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