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Ernest K. Lehmann & Associates of Montana, Inc. v. Salazar

March 16, 2009


The opinion of the court was delivered by: Henry H. Kennedy, Jr. United States District Judge


Ernest K. Lehmann & Associates of Montana, Inc. and Mount Royal Joint Venture (collectively, "Lehmann") bring this action against Ken Salazar, Secretary of the U.S. Department of the Interior, Rich Cardinale, Acting Assistant Secretary for Land and Minerals Management, and Ron Wenker, Acting Director of the Bureau of Land Management ("BLM"), each in their official capacities,*fn1 and the U.S. Department of Interior and the BLM (collectively, the "BLM"). Lehmann alleges that the BLM acted arbitrarily and capriciously and without substantial evidence when it determined that Lehmann had not made a valid discovery of a valuable mineral deposit on six mining claims held by Lehmann. The parties have filed cross motions for summary judgment [## 18, 19]. Upon consideration of the motions, the oppositions thereto, and the record of this case, the court concludes that the BLM's motion must be granted and Lehmann's motion must be denied.


A. Legal Background

This case turns on whether Lehmann discovered valuable mineral deposits on six mining claims and therefore has a legal right to mine the claims. The Mining Law of 1872 ("Mining Law"), 30 U.S.C. § 22, et seq., provides that

[A]ll valuable mineral deposits in lands belonging to the United States, both surveyed and unsurveyed, shall be free and open to exploration and purchase, and the lands in which they are found to occupation and purchase, by citizens of the United States....

30 U.S.C. § 22.In other words, "citizens may enter and explore the public domain, and search for minerals." Andrus v. Shell Oil Co., 446 U.S. 657, 658 (1980). "[I]f they discover 'valuable mineral deposits,' they may obtain title to the land on which such deposits are located." Id.

The Mining Law itself does not define when a "discovery" has been made. In Castle v. Womble, 19 L.D. 455, 457 (D.O.I. 1894), the Secretary of the Interior set out a "prudent man" test that is still in application today. Under the "prudent man" test, a discovery has been made "where 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." Id.; see also United States v. Coleman, 390 U.S. 599, 602 (1968) (upholding the Department of Interior's use of a marketability test, which required that for a discovery to be made, it must be shown that the mineral can be extracted, removed and marketed at a profit).Once a discovery has been made, a claim is valid against the United States, although title to the lands remains with the United States until the claim is patented.United States v. Jim, 409 U.S. 80, 90 (1972).

Until the United States issues a patent, it has the right to determine whether a claim is valid, i.e., whether a discovery of a valuable mineral deposit has been made. If not, the United States may declare the claim null and void. Thus, if a mining claim is located on public lands that are later withdrawn or segregated from entry to explore for minerals (such as pursuant to an environmental law), the government has the authority to examine all claims within the withdrawn land to determine if they are valid. See Allen C. Kroeze, 153 IBLA 140, 144 (IBLA 2000).When the government contests the validity of a mining claim on such lands, in order for the claimant to show that he has a legal right to mine the claim, the evidence must show that a discovery existed within the boundaries of the claims at the time of withdrawal. United States v. Boucher, 147 IBLA 236, 242-43 (IBLA 1999).

When the United States, through the BLM, contests a mining claim, it does so before an Administrative Law Judge ("ALJ"). The BLM must first present sufficient evidence to establish a prima facie case that the claim is invalid. Foster v. Seaton, 271 F.2d 836, 838 (D.C. Cir. 1959). Such inquiry is limited to the evidence presented by the United States. The government presents a prima facie case where a governmental mineral examiner offers expert testimony, based on probative evidence, that the discovery of a valuable mineral deposit has not been made within the boundaries of a contested claim. United States v. Pass Minerals, Inc., 168 IBLA 115, 123 (IBLA 2006). Once the government has made a prima facie case, the burden shifts to the claimant to overcome this showing by a preponderance of the evidence, preponderating on each issue for which the government has established a prima facie case. Id. at 123. "[T]o prevail, a [claimant] must present sufficient proof of validity and cannot meet [his] burden of proof by asserting weakness in the Government's prima facie case." Boucher, 147 IBLA at 250. The claimant has the "ultimate burden of persuasion." United States v. Rannells, 175 IBLA 363, 380 (IBLA 2008) (citing Hallenbeck v. Kleppe, 590 F.2d 852, 856 (10th Cir.1979)).

B. Factual Background

In this case, the BLM withdrew certain public lands from mining and contested the validity of mining claims thereon, including those of Lehmann. Lehmann's claims are located on public lands in the Tootsie Creek area of the Sweet Grass Hills of Montana. Beginning in 1983, Lehmann explored the Tootsie Creek area seeking valuable minerals. Between 1983 and 1991, Lehmann located fourteen unpatented mining claims in this area named Patricia ("P") 7, 8, 14-16, 18, and 20; Butte ("B") 47-48; East Butte ("EB") 4-6; and Royal East ("RE") 1-2. In 1984 or 1985, Lehmann carried out geological sampling and, in 1985 or 1986, submitted a plan of operations to the BLM to continue mining exploration in the area. The plan was approved and shortly thereafter, Lehmann began a drilling program, drilling eleven holes in order to take samples. In 1988, Lehmann submitted a revised plan of operations to the BLM to drill several more holes; the revised plan was approved and Lehmann drilled three more holes.

In 1992, Lehmann submitted a new plan of operations, seeking to build 28,000 feet of road and drill 38-39 new holes. In response, the BLM prepared an Environmental Assessment under the National Environmental Policy Act and determined that an Environmental Impact Statement ("EIS") needed to be prepared before the new plan of operations could be approved. Thus, the BLM delayed approval. According to the government, the EIS raised significant environmental concerns. Therefore, the BLM decided to segregate from mining, subject to valid existing rights, the Sweet Grass Hills, including the Tootsie Creek area. The BLM suspended processing Lehmann's 1992 plan of operations and informed Lehmann that its claims would be subject to a validity examination.

Between 1993 and 1995, the BLM asked Lehmann for its sampling data and conducted an independent examination to verify Lehmann's data. This effort was led by James Gruber, a mineral examiner at the BLM. In 1995, Gruber concluded his examination and presented his findings in a report ("Gruber Report"). In it, he concluded that eight of the claims were valid (i.e., a discovery of a valuable mineral deposit had been made within the claim at the time of withdrawal), but that six claims (P 14-16, RE 1-2 and EB 6) were invalid for lack of a discovery. Alleged errors in the Gruber Report, and the IBLA's reliance on it, encompass a great deal of Lehmann's challenge before this court.

In 1996, the BLM formally contested Lehmann's P 14-16, RE 1-2 and EB 6 claims before ALJ Harvey Sweitzer, alleging that minerals had not been found within the limits of each claim in sufficient quantities and/or quality to constitute a discovery of a valuable mineral deposit. Lehmann filed a motion for partial summary judgment regarding the validity of the EB 6 and RE 2 claims. The motion was denied, and the ALJ commenced a 5-day hearing. That hearing centered largely on the Gruber Report and Lehmann's opposition to the report, and Lehmann's own evidence. A brief summary of each side's argument at the hearing is useful to an understanding of this case.

The Gruber Report identified gold deposits in the Tootsie Creek area within three main zones: the Main Gold Zone, the East Gold Zone, and the South Fork Gold Zone. Based on the drill hole data and samples collected by Lehmann, Gruber found that the gold in the Tootsie Creek area was not well oxidized. This is important, according to the BLM, because in areas that are not well oxidized (called sulfide areas), gold is harder to recover. Based on the experience of similar mines, Gruber concluded that a prudent miner would mine the oxidized zones, but not the sulfide zones. Gruber then calculated the amount and type of gold on Lehmann's claims using U.S. Geological Survey Circular 831. Using the classification system outlined in Circular 831, he identified "measured" and "indicated" reserves and determined the amount of gold that could be prudently mined from the three zones.

Gruber then created a mine model to determine whether each claim could be economically mined. Factoring in the costs of operating the mine and the price of gold, Gruber established a "cutoff grade," which he defined as the lowest grade that would meet project costs. The cutoff grade is the volume or weight of gold per the volume or weight of other material. Gruber defined a cutoff grade of 1163 parts gold per billion parts of other material (ppb). Gruber thus found the P 14-16 claims invalid because the surface samples on those claims (no holes had been drilled on these claims) had gold values much lower than his cutoff grade (ranging from 34-308 ppb). He also found that there were no deposits valuable enough to mine on RE 1-2 because the surface and drill hole samples revealed low amounts of gold found only in sulfide zones. On EB 6, Gruber found an exposure of above-cutoff-grade mineral, but he concluded that it was isolated and located in a sulfide zone and thus would not be prudently mined.

In response, Ernest Lehmann, a mining geologist, submitted his own report (the "Lehmann Report"). The Lehmann Report characterized the Tootsie Creek area as a low-grade, large-tonnage, disseminated gold deposit that covered the six contested claims, the eight valid claims, and surrounding property interests held by Lehmann. As such, the Lehmann Report concluded that the claims could be profitably mined in a single, large volume, open pit operation covering all of this area. Under this model, according to the Lehmann Report, the mine would be profitable, and a prudent man would be justified in expending more money to mine it. Based on this different model, Lehmann vigorously objected to Gruber's requirement of above-cutoff-grade mineralization to support a finding that a discovery had been made.

In 1998, ALJ Sweitzer issued a decision in favor of the BLM with respect to all six claims. The ALJ noted that the law was not clear regarding whether an exposure of above-cutoff-grade mineralization is required to support a discovery, but decided to apply this requirement. Doing so, he determined that the government had made a prima facie case with respect to all six claims. Turning to whether Lehmann overcame that prima facie case by a preponderance of the evidence, ALJ Sweitzer determined that it had not for several reasons including Lehmann's failure to show whether, or to what extent, the sulfide nature of the area would affect the mining operation, and Lehmann's lack of a specific cost estimate.

In 1999, Lehmann appealed ALJ Sweitzer's decision to the Interior Board of Land Appeals ("IBLA"), which affirmed the ALJ's decision in 2004. In doing so, however, the IBLA stated that ALJ Sweitzer "went too far in adopting cutoff grade as if it were a rule of law," AR 740, while indicating that cutoff grades can be an important indicator of fact relevant to the overall validity determination. The IBLA then stated that it reviewed the contested claims de novo and determined that the BLM had made a prima facie case because the minerals exposed on these claims were of low value or were not within a valuable mineral deposit. Turning to whether Lehmann overcame this prima facie case by a preponderance of the evidence, the IBLA determined that Lehmann's case was speculative and lacked sufficient proof, and therefore no discovery had been made. It is that decision, rendered by the IBLA, that is on review before this court.


A. Standard of Review

Lehmann brings its challenge under the Administrative Procedure Act ("APA"). Pursuantto the APA, a "reviewing court shall... hold unlawful and set aside agency action, findings, and conclusions found to be... arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." Bowman Transp., Inc. v. Ark.-Best Freight Sys., Inc., 419 U.S. 281, 284 (1974) (quoting 5 U.S.C. § 706(2)(A)). A court must ensure that the deciding body has "examine[d] the relevant data and articulate[d] a satisfactory explanation for its action including a rational connection between the facts found and the choices made." Kennecott Greens Creek Mining Co. v. Mine Safety & Health Maint., 476 F.3d 946, 952 (D.C. Cir. 2007) (quoting Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto Ins. Co., 463 U.S. 29, 43 (1983)). An agency's factual findings must be based upon substantial evidence. JSG Trading Corp. v. Dep't of Agric., 235 F.3d 608, 611 (D.C. Cir. 2001) (stating that substantial evidence is "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion when taking into account whatever in the record fairly detracts from its weight.") (internal quotation marks omitted)).*fn2 Furthermore, the Administrative Record should support the agency's action, and the reviewing court should base its decision on the record at the time of the agency's decision. Fla. Power & Light Co. v. Lorion, 470 U.S. 729, 743-44 (1985); see also Ass'n of Data Processing Serv. Orgs., Inc., v. Bd. of Governors of Fed. Reserve Sys., 745 F.2d 677, 683 (D.C. Cir. 1984) (noting that "in the case of formal proceedings the factual support must be found in the closed record as opposed to elsewhere").

The parties have filed cross-motions for summary judgment as to all of Lehmann's claims. Summary judgment is the proper mechanism for deciding, as a matter of law, whether an agency action is supported by the administrative record and consistent with the APA standard of review. Stuttering Found. of Am. v. Springer, 498 F. Supp. 2d 203, 207 (D.D.C. 2007) (citing Richards v. INS, 554 F.2d 1173, 1177 & n. 28 (D.C. Cir. 1977)). However, this court does ...

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