CHAPTER 2 PUBLIC LAND AND MINING LITIGATION

• Jurisdiction: United States

Natural Resources & Environmental Litigation II
(May 1996)
CHAPTER 2
PUBLIC LAND AND MINING LITIGATION
David A. Bailey
Laurie L. Korneffel
Habib Nasrullah
Parcel, Mauro, Hultin & Spaanstra, P.C.
Denver, Colorado

I. Introduction

Although numerous factors have combined to make successful operation of a domestic mining operation a challenging proposition at best, many mining companies in the United States continue to accept that challenge and to explore, develop and mine various properties through-out the country. For several years now, Congress has earnestly expressed its desire to fundamentally change the face of the Mining Law of 1872. However, while Congress attempts to determine which direction it will take, the federal, state and local governments continue their extensive regulation of the mining industry. Litigation abounds in this arena, as the industry attempts to discern the extent and nature of the legal requirements imposed upon all facets of its business, government imposes its policy choices in new and different regulatory initiatives and the environmental community explores the still evolving parameters of the citizen suit.

Of all the issues recently or currently under litigation, perhaps one of the most hotly contested issues industry concerns the ability of the Department of the Interior to delay consideration and issuance of land patents in connection with mining operations. Other issues of particular note concern water quality regulation at mine sites and condemnation proceedings.

Application of the environmental laws and regulations routinely adds uncertainty and expense to proposed mining operations. Many environmental statutes impose complex standards, permit and reporting requirements intended to maintain environmental quality which arise from project-specific issues. The Endangered Species Act, however, especially after the Sweet Home decision, may present the most amorphous and unpredictable regulatory issues that can stop a proposed or existing mining operation dead in its tracks. Sweet Home addressed the issue of a Section 9 "take" under the ESA and, in doing so, arguably injected a measure of uncertainty for the regulated community that may be remediated only by legislative action. Of similar significance, however, are the recent cases decided in the Ninth Circuit with respect to Section 7 consultation issues.

Finally, even when the morass of governmental requirements and regulation has been successfully negotiated, disputes between sellers and purchasers or among joint venture participants in a mining operation can threaten success. Disputes involving such parties most often are resolved prior to trial by agreement and as a matter of business expedience. Moreover, those cases that are litigated rarely reach the appellate courts. Nevertheless, several of the cases have been decided or settled over the past year or so provide useful insight into the relationships between private parties engaged in the mining business.

In the following text, the most recent decisions in each of these areas will be discussed in greater detail. First, litigation arising from governmental regulation and

[Page 2-2]

control of the mining business will be addressed, with a special emphasis on the cases concerning issuance of patents. Second, environmental regulation of the mining industry under the Endangered Species Act, the Sweet Home case and the Section 7 consultation cases will be addressed. Litigation involving private parties is discussed in the final section of the paper. In particular, last year's Gold Fields/Placer Dome litigation resulted in at least one court's perception of the disclosure obligations arising in a transaction concerning valuable mining properties.

II. Governmental Regulation and Control of the Mining Business

A. Land Patents

There is not, of course, any legal requirement that mining claims be patented. Claims that are validly located and maintained under law are valid claims without a patent. However, at the claimant's discretion, any of lode claims, placer claims and mill sites may be patented under the 1872 Mining Law. 30 U.S.C. § 29 35 & 42(a). See also 43 C.F.R. Part 3860; 2 The American Law of Mining § 9.2 et seq. (1983). The generally perceived benefits of patenting are summarized as follows:

• Eliminates the need to continue assessment work or pay annual maintenance fees (noncompliance with either requirement could adversely affect the continuing validity of an unpatented mining claim);

• The claimant obtains greater security and better title in the sense that it is no longer faced with issues such as the adequacy of the discovery, the sufficiency of the on-ground location procedures and challenges from rival claimants;

• The holder of a patent obtains an expanded use of the surface, which enables it to use the surface for virtually any purpose as opposed to mining-related purposes as deemed appropriate by the government;

• By obtaining title to the surface, the holder also is able to exclude conflicting uses of the surface;

• The validity of the underlying mining claim is expressly determined as part of the patent process and is not thereafter susceptible to challenge; and

• By obtaining title to the surface and the minerals, the holder makes the property and/or its mining project more secure and, therefore, more attractive to a potential lender or investor.

[Page 2-3]

In Independence Mining Co. v. Babbitt, 885 F. Supp. 1356 (D.Nev. 1995), Independence Mining Co. ("IMC") sought mandamus relief requiring the Secretary and the Department of the Interior to consider and make a decision concerning its applications of patents covering lode mining and millsite claims. By its Orders issued February 6, 1995 and, upon reconsideration, April 7, 1995, Judge Edward Reed of the federal district court in Reno held that the mandamus relief could not be granted. Segregating the Secretary's motivations from his power and authority as a matter of law the court determined that:

The Secretary's conduct may well be, as the Barrick court put it, "shameful," and it seems clearly contrary to Congress's intent, as expressed in the 1872 mining statute. But the truly extraordinary measure of a writ of mandamus, reaching into an agency of the executive branch and dictating the details of its internal operations, is not warranted.

885 F. Supp. at 1364.¹

Secretary Babbitt's opposition to the 1872 Mining Law, including in particular the portions thereof that authorize issuance of patents, is well documented. Indeed, the Secretary has characterized the patenting process as "the unnecessary privatization of federal lands and other resources." Hearing before the Subcommittee on Mineral Resources Development and Production of the Senate Committee on Energy and Natural Resources, March 16, 1993 at 138 (copy attached to IMC's Brief filed in the Ninth Circuit on August 9, 1995). Indeed, the court in Barrick Goldstrike Mines, Inc. v. Babbitt, No. CV-N-93-550-HDM (PHA) (D.Nev. March 24, 1995), held that Secretary Babbitt purposefully "dismantled an efficient system and replaced it with a system intended to delay." The district court in Barrick Gold, on the magistrate judge's recommendation, ordered the Secretary to complete his review of the subject patent applications within 90 days.²

[Page 2-4]

The court in Independence Mining boiled the plaintiff's complaint down to whether the Secretary's delay in making a decision on the patent applications was unreasonable. To analyze this issue, the court adopted the six criteria set forth in Telecommunications Research & Action [TRAC] v. F.C.C., 750 F.2d 70, 79-80 (D.C. Cir. 1984):

(1) the time agencies take to make decisions must be governed by a "rule of reason";

(2) where Congress has provided a timetable or other indication of the speed with which it expects the agency to proceed in the enabling statute, that statutory scheme may supply content for this rule of reason;

(3) delays that might be reasonable in the sphere of economic regulation are less tolerable when human health and welfare are at stake;

(4) the court should consider the effect of expediting delayed action on agency activities of a higher or competing priority;

(5) the court should also take into account the nature and extent of the interests prejudiced by the delay; and

(6) the court need not 'find any impropriety lurking behind agency lassitude in order to hold that agency action "unreasonably delayed."

885 F. Supp. at 1360. With respect to the claims awaiting mineral examination, the Court held that the fourth factor was key and that, for it to rule in favor of IMC, the Court essentially would need to reorder the internally established priorities of the BLM to require it to address IMC's patent applications in advance of other pending matters. Id. at 361 (notwithstanding that "a five-year wait for a mineral examination and report is troubling, and cannot instill confidence in the federal government").

As to those claims awaiting Secretarial review, the court characterized the sixth TRAC factor as most important and summarized that factor as asking "whether the agency acted in good faith." Id. at 1361. However, in its specific consideration of these particular patent applications, the court ruled, "[t]he question, it seems to us, is not what the Secretary's motivations were, but whether his actions were within the scope of his powers." Id. at 1363. Holding, certainly implicitly if not explicitly, that the Secretary Babbitt was authorized to revise BLM's practices and procedures to

[Page 2-5]

intentionally delay issuance of patents, the court refused to issue a writ of mandamus. On reconsideration, the court purported to expand the basis for this portion of its holding by relying upon a post-hoc explanation of the Department of the Interior of the real reasons why it reorganized the patent program. Id. at 1369 (on reconsideration, Interior...