CHAPTER 15 THE SHADOWS OF KOSANKE

• Jurisdiction: United States

Mineral Patenting Procedures
(Feb 1975)
CHAPTER 15
THE SHADOWS OF KOSANKE
R. Franklin Erisman, Esq.
Holme Roberts & Owen
Denver, Colorado

In the Fall of 1962 Mr. George Omo examined and sampled portions of a massive sandstone deposit known as the Domengine Formation to determine the deposit's potential as a silica sand source for the glass industry in the San Francisco Bay area.^* The results of his analysis so interested him that he contacted Steven P. Kosanke, a geologist, who in turn located eight association placer mining claims of 40 acres each and 20 lode mining claims on the land which was situated three miles from Clayton Valley, California and approximately 28 miles from Oakland. Kosanke promptly thereafter took channel samples¹ at each of the discovery points which he shipped to Omo for testing at the El Paso Testing Laboratories which reported a composite sample content to be 95.90% silica, 1.25% alumina and .47% ferric oxide, plus small amounts of titanium oxide and calcium oxide. In addition the El Paso laboratory was able to effectively reduce the iron content of the sample to trace amounts by acid washing which increased the silica content to 97.6%. Prompted by the results of these tests and the fact that the claims were accessible by road, susceptible to open pit mining, located approximately 40 to 80 miles closer to the San Francisco area users than the major glass sand plants, and this land, along with other

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nearby land had been previously mined for silica sand for as long as 20 to 25 years, Kosanke on behalf of his newly formed corporation, Kosanke Sand Corporation, filed a patent application for the placer and lode mining claims in the Sacramento Land Office of the Bureau of Land Management on July 30, 1964.

Unfortunately for Kosanke Sand Corporation its claims were located three miles from a state game refuge, five miles from a state park and in the vicinity of "historic Nortonville" and the "unique Coulter pine grove."² Accordingly and as could be expected, on March 25, 1969 the Bureau of Land Management pursuant to 43 C.F.R. § 4.451 (1973) filed a complaint in the Sacramento Land Office contesting the validity of the Kosanke claims charging as to each of the claims that (1) the material found within the limits of the claims was not a valuable mineral deposit under Section 30 of the Common Varieties Act of July 23, 1955;³ and (2) a deposit of valuable mineral was not disclosed within the boundaries of the mining claims in sufficient quantity to constitute a valid discovery.⁴

As events later developed, it was also unfortunate for Kosanke that on September 30, 1970 the California State Director of the Bureau of Land Management classified the lands covered by the Kosanke claims as being subject to disposition under the Recreation and Public Purposes Act of 1954.⁵ Pursuant to that Act, this classification barred the lands from appropriation under any other public land law,⁶ including the General Mining Act of 1872.⁷

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I. HEARINGS DIVISION DECISION

A three-day contest hearing regarding the Kosanke claims was held before Administrative Law Judge Graydon E. Holt⁸ in Sacramento, California, commencing on January 27, 1970. At the hearing Mr. Kosanke, President of Kosanke Sand Corporation, appeared on behalf of the corporation without benefit of legal counsel. The BLM was represented by an attorney from the Office of the Solicitor, U. S. Department of Interior.

During the hearing the parties stipulated that there were no lode minerals on any of the lode claims and that a total of 80 acres out of the eight placer claims were either non-mineral in character or abandoned. This left at issue 160 acres of land consisting of three of the original 40 acre placer claims (the Earache No. III, Earache No. V and Pete) and two placer claims of 20 acres each (the N 1/2 of the Earache No. 2 and the N 1/2 of the Jeff).⁹ All of the remaining claims are located in the N 1/2 of Section 8, Township 1 North, Range 1 East, Mt. Diablo Meridian.

On September 16, 1970 Judge Holt's decision declaring all claims for which patent was applied null and void was issued.¹⁰ This decision was dated 14 days before the California Director of the BLM classified the land for disposal under the Recreation and Public Purposes Act. The basis of this ruling was that Kosanke had failed by a preponderance of the

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evidence to rebut the prima facie showing established by the Government that there had been no discovery of a valuable mineral deposit on any of the claims.¹¹ Kosanke timely appealed this decision to the Interior Board of Land Appeals¹² which on September 3, 1971 reversed the Administrative Law Judge with respect to the claims in issue holding that Kosanke had successfully rebutted the Government's evidence.¹³ However, on reconsideration by the Board sitting en banc, the Board on August 3, 1973 set aside its September 3, 1971 decision and remanded the case for further hearings.¹⁴

In his decision Judge Holt found the parties to be in agreement that: (a) silica sand which is used in the manufacturing of glass is an uncommon variety;^* (b) there exists a market for glass sand in the San Francisco Bay area; (c) the claims were accessible; and (d) a substantial quantity of sand exists on the claims.¹⁵ He accepted the opinion of the Government's principal expert witness, Mr. George O. Scarfe, Jr., that the available glass sand market in the Bay area was around 600,000 tons annually at a price of $4.75 per ton, although the Board in its original decision considers this tonnage estimate as maybe not "sufficiently encompassing" as Mr. Scarfe indicated he was unaware of amounts used locally by several large consumers.¹⁶ In the Judge's opinion the disagreement between the parties was primarily related to a determination of the quality of the silica sand on the claims.¹⁷ In support of this he observed that "if the sand can be

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beneficiated to glass grade material at a price competitive with the Ione deposits¹⁸ there is every reason to believe that the contestee could capture a portion of the market,"¹⁹ with the unresolved issue thereby being a question of whether Kosanke's proposed acid wash process could improve the quality of the sand to permit competition with the existing sources of glass sand on an economical basis.

Judge Holt properly recognized that the essential elements requisite to the existence of a discovery of a valuable mineral deposit were defined by the Interior Department in Castle v. Womble, as occurring:

"[W]here minerals have been found and the evidence is of such a character that a person of ordinary prudence would be justified in the further expenditure of his labor and means, with a reasonable prospect of success in developing a valuable mine...."²⁰

Application of this "prudent man test" has been specifically approved by the U. S. Supreme Court on several occasions,²¹ as has its complement the "marketability test."²² The marketability test recognizes profitability as a function of whether a valuable mineral deposit has been discovered and requires a showing that the mineral in question can be developed, mined, extracted, removed and presently marketed at a profit.

At the hearing there was introduced a BLM mineral report dated July 29, 1963 which covered the N1/2N1/2 of Section 8, T. 1 N., R. 1 E., M.D.M. This report was prepared by a mining engineer in connection with an application for an

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equitable adjudication filed by the Southport Land and Commercial Company to determine if the land was mineral in character.²³ The report confirms the existence of the Domengine sandstone formation on the claims and concludes that the land in question is mineral in character:

"...because it contains large reserves of an uncommon variety of high silica sand that is suitable for the manufacture of glass and for use in the foundry industry. The sand is suited to this market because of its physical and chemical properties, and production from adjacent lands has established this fact. The subject lands are accessible, and there is a large market for the material within a radius of 40 miles."²⁴

From the decision it appears that Judge Holt accorded little weight to the testimony regarding this mineral report and in fact discredited it by stating there was no indication that the samples on which the report was partially based were actually taken from the claims.²⁵ This conclusion seems more based on testimony of a Government witness rather than an actual reading of the report.²⁶

Apparently Mr. Kosanke reviewed this report in the BLM's Sacramento Land Office, probably some time after his claims were located and prior to the filing of the patent application, and was thereby "encouraged to continue his efforts."²⁷ As reported in the decisions in this case to date, this mineral report would seemingly offer any reasonably prudent man encouragement to believe that the threshold test of marketability could be easily reached with regard to

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these claims. Little did Mr. Kosanke realize at the time of his application that he would spend 11 years arguing the patentability of his claims and still not have received a patent.

Portions of two letters written by Russell E. Manley of Manley Bros. are reproduced in the Judge's decision. Manley Bros., a foundry sand producer, leased the claims from Kosanke in 1966 holding them for about one year. In his letter of July 19, 1965 Mr. Manley advised Kosanke that the quality of the sand from the claims could produce a "first quality glass and foundry sand," that the reserves were "excellent" and that the economic and market potential of the claims would justify their development.²⁸ Kosanke included this letter with its patent application. Manley's second letter was dated June 30, 1967 and was addressed to the BLM. It was written after Manley had paid Kosanke $13,000.00 to terminate the lease. In it Manley...