CHAPTER 2 HARDROCK MINERAL DISPUTES (Litigation of Mining Claim, Royalty, and Joint Venture Disputes)
| Jurisdiction | United States |
(Dec 1989)
HARDROCK MINERAL DISPUTES (Litigation of Mining Claim, Royalty, and Joint Venture Disputes)
Woodburn, Wedge & Jeppson
Reno, Nevada
TABLE OF CONTENTS
INTRODUCTION
PART ONE
MINING CLAIM LITIGATION
I. RULES OF LOCATION
II. PREPARATION
A. Litigation Team
B. Early Fact Gathering
C. Analysis
III. MAJOR DECISIONS
A. Trial Issues and Theories
B. Choice of Forum
C. To File or Wait
IV. COMMON LEGAL ISSUES
A. Burden of Proof—Strength of Plaintiff's Right v. Relative Strength
B. Burden of Proof—Rights Based on Location and Discovery
1. Plaintiff in Possession
2. Plaintiff Out of Possession
3. Rights Based on Location and Pedis Possessio
4. Special Rules and Presumptions
(a) Evidence Viewed in Favor of the Prior Locator
(b) The Burden of Proving Open Ground
(c) Presumptions of Discovery
(d) Possessor Presumed Owner
V. OTHER PROBLEMS
A. Mill Sites
B. Placer Problems
1. Associations—Can They Be Challenged?
2. Association Problems—What is Bona Fide?
C. The Bad Faith/Black Hat Defense
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VI. COMMENTS AND OBSERVATIONS
A. Discovery Prior to Trial
B. Motions
C. General
PART TWO
ROYALTY AND JOINT VENTURE DISPUTES
I. PREPARATION
II. BASIC LEGAL ISSUES
A. Royalties
B. Joint Ventures
III. CONTRACTS
A. Rules of Construction
B. Parol Evidence Rule
1. Reformation
2. Lack of Integration/The Merger Clause
IV. FACTUAL ISSUES RELATING TO ROYALTY DISPUTES
A. How Much Royalty is Due (or What is the Joint Venture's Share)?
B. Mining Methods
1. Dilution
2. High-grading
C. Processing Method
D. Commingling
E. Operational Problems
F. Overlapping Claims
III. FACT DISPUTES RELATING TO JOINT VENTURES
A. Increased Costs (Above Budget)
B. One Venturer Fails to Meet Cash Calls
C. The Sale or Assignment of a Joint Venturer's Interest
D. Sale of Product
E. Accountings
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F. Intellectual Property
G. Operating Disputes
H. Unpatented Claims
I. Force Majeure
IV. COMMENTS AND OBSERVATIONS
A. Discovery Prior to Trial
1. Experts
2. Accountants and Accounting Matters
B. Motions
C. General
CONCLUSION
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INTRODUCTION
Recent years have seen considerable litigation between rival mining claimants, between mine operators and royalty holders, and between joint venturers. Most of these cases are settled after a few rounds in the ring, so there are few reported cases. Nevertheless, when disputes of this nature arise, it is not possible for the parties or the lawyers to know in advance whether the case will settle or whether it will be one of the few where the conflict is ultimately determined by the legal process. Moreover, settlements tend to be based upon the parties' judgment of the probable outcome and cost of litigation. For this reason, lawyers must be prepared to litigate such cases effectively. Also, clients should know that such litigation is costly, both in dollars and in their time. Indeed, the time lost by a client's key personnel may be the highest cost of all. To some extent this paper will explain the dollars spent and the time lost.
This paper will discuss litigation techniques applicable to disputes between rival claimants, royalty owners and mine operators, and co-venturers. It will note issues frequently litigated, and will suggest others. Where possible, citations will be given to help start research. This paper will not treat substantive law in detail if the reader can be referred to a more detailed treatment of the subject.
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MINING CLAIM LITIGATIONPART ONE
This portion of the paper discusses private party mining claim litigation in which the validity of one or more unpatented mining claims is in issue. Patented claims (claims for which a deed from the government has been received) will not be discussed. While it is conceivable that the validity of an unpatented mining claim can be placed in issue without a second claimant being involved, the typical case involves a dispute between a junior locator and a senior locator of the same ground. Absent such a fact situation, it is rare that any person other than the federal government has standing to challenge the validity of an unpatented mining claim.
This paper assumes the typical situation in which two or more parties seek to assert, through unpatented mining claims, the right to the same ground at roughly the same time. It assumes that, in such a situation, an early trip to the courthouse is more likely than not. Also, clients have an immediate concern occasioned by budget planning, ore reserve calculations and other considerations which seem to require a rapid solution to the claim conflicts. If a claim contest can be found that can be handled in a leisurely fashion, the procedures suggested herein can be modified as required. The preparation, analysis and trial of these difficult and complex cases in a short time frame necessarily involves large expenditures of time and money in the very early stages of the case. Duplication of effort is the norm rather than the exception. Careful supervision can avoid some, but not all, such duplication.
A basic understanding of the requirements of the system whereby mining claims are located on public domain, and the factual problems occasioned thereby, is necessary to
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follow this paper. The reader should be cautioned, however, that, at least in my opinion, a basic understanding is not sufficient to litigate these cases effectively. One simply cannot learn enough mining law in a reasonable amount of time. For this reason, mining claim litigation is the domain of experts.
I. RULES OF LOCATION
The rules applicable to the location of mining claims on the public domain are as follows:
(1) Mining claims may be located only on public domain.
(2) Mining claims may be located only on that portion of the public domain which is available for location. The public domain is not available for location if it is occupied by a prior valid mining claim.
(3) Mining claims must be located in accordance with applicable law.
Factually, the following events must occur in order for a valid mining claim located on open public domain to be valid:
(1) The point of discovery must be marked. The marker is generally called a "location marker" or "discovery marker".
(2) A notice complying with the requirements of both federal and state law must be posted on the discovery or location marker.
(3) The boundaries of the mining claim must be marked or, sometimes in the case of a placer claim, located and described in accordance with a geographical subdivision.
(4) A document, usually called a "certificate", must be filed for record in the county where the mining claim is located.
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(5) A copy of the document filed with the county must be filed with the appropriate office of the Bureau of Land Management.1
In addition to proper location, the claim must have been maintained by:
(1) The performance of proper annual labor.
(2) The appropriate filing of proofs of labor in the appropriate state office and the appropriate office of the Bureau of Land Management.2
After a claim has been located, three other subjects of litigation arise. They are:
(1) Pre-discovery rights (pedis possessio).
(2) The fact of discovery and the nature of that discovery, i.e., placer or lode, or whether the discovery is a locatable mineral, a lease mineral or, perhaps, a sale mineral.3
(3) The misuse of confidential information by an employee.4
Most of the first seven items set out above give rise to two subjects for litigation. The first is the legal sufficiency of the paper trail; that is, content, signature, place and timeliness of filing and the like. The second is the nature and legal sufficiency of the facts, as distinguished from the paper trail which describes those facts. The last three litigation
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subjects are almost always fact questions, though there is a considerable amount of legal understanding required to understand those fact questions.
II. PREPARATION
When a claim holder is confronted, or may be confronted, with claim contest, that claim holder should immediately assemble a team to deal with the problem. The claim holder should recognize that, before any preparation has occurred or at any time thereafter, the opposing party may initiate litigation and seek an immediate order to enjoin further action. For this reason, preparation just cannot start too soon. Frequently the first skirmish in court sets the tone for further proceedings. Settlement negotiations usually reflect the outcome of the first skirmish. The team approach, while always better and usually more costly, is the only way to maximize speed of preparation and, thus, avoid the consequences of an early embarrassment.
A. Litigation Team
The litigation team should consist, at a minimum, of the following:
(1) A landman;
(2) A surveyor, preferably a licensed mineral surveyor;
(3) An investigator5 ;
(4) A liaison person to steer the team to the various company officials or individuals who have or may have information concerning facts;
(5) A litigator who understands mining law or a lawyer team comprised of a mining lawyer and a litigator; and
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(6) One or more experts in appropriate fields, determined as the case develops.
The functions described above may overlap, but all functions must be present if the case is to be properly handled. Each member of the team should have the potential to be a good witness. If not, change the team.
B. Early Fact Gathering
The litigation team should immediately commence the following:
(1) Establish an immediate method of communication with persons on site so that the team will be advised of developments, and so that directions can be given. Arrangements must be made to insure that these directions will be followed. The method of communication should be tested...
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