Ernest K. Lehmann & Associates of Montana, Inc. v. Kempthorne ( 2009 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
ERNEST K. LEHMANN &
ASSOCIATES OF MONTANA, INC.,
et al.,
Plaintiffs,
Civil Action 07-00762 (HHK)
v.
KEN SALAZAR, Secretary, U.S.
Department of the Interior, et al.,
Defendants.
MEMORANDUM OPINION
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,1 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
1
Under Rule 25(d)(1) of the Federal Rules of Civil Procedure, Secretary of the Interior
Ken Salazar has been substituted for former Secretary Dirk Kempthorne, Acting Assistant
Secretary for Land and Minerals Management Rich Cardinale has been substituted for former
Assistant Secretary C. Stephen Allred, and Acting Director of BLM Ron Wenker has been
substituted for former Acting Director James M. Hughes.
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.
I. BACKGROUND
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
2
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
3
[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
4
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
5
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
6
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
7
discovery had been made. It is that decision, rendered by the IBLA, that is on review before this
court.
II. ANALYSIS
A. Standard of Review
Lehmann brings its challenge under the Administrative Procedure Act (“APA”).
Pursuant to 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)).2 Furthermore, the Administrative Record should support the agency’s action,
2
The D.C. Circuit has held that “the distinction between the arbitrary and capricious
standard and substantial evidence review is largely semantic.” Lead Indus. Ass’n, Inc. v.EPA,
647 F.2d 1130, 1146 (D.C. Cir. 2008) (quoting Pac. Legal Found. v. Dep’t of Transp., 593 F.2d
1338, 1343 n.35 (D.C. Cir. 1979)). “[S]crutiny of even the most complex evidentiary issues is
not inconsistent with the deferential standard of review, so long as the purpose of such scrutiny is
to enable the court to better understand the issues before the agency.” Id.8
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 not
apply typical summary judgment standards when reviewing a final action of an administrative
agency under the APA:
Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is
appropriate when the pleadings and the evidence demonstrate that “there is no
genuine issue as to any material fact and that the moving party is entitled to
judgment as a matter of law.” FED . R. CIV . P. 56(c). In a case involving review of
a final agency action under the [APA], however, the standard set forth in Rule
56(c) does not apply because of the limited role of a court in reviewing the
administrative record. See Sierra Club v. Mainella, 459 F. Supp. 2d 76, 89-90
(D.D.C. 2006). Under the APA, it is the role of the agency to resolve factual
issues to arrive at a decision that is supported by the administrative record,
whereas “the function of the district court is to determine whether or not as a
matter of law the evidence in the administrative record permitted the agency to
make the decision it did.” See Occidental Eng’g Co. v. INS, 753 F.2d 766, 769-70
(9th Cir. 1985); see also Nw. Motorcycle Ass’n v. U.S. Dep’t of Agric., 18 F.3d
1468, 1472 (9th Cir.1994) ( “[T]his case involves review of a final agency
determination under the [APA]; therefore, resolution of th[e] matter does not
require fact finding on behalf of this court. Rather, the court’s review is limited to
the administrative record.”).
9
Stuttering Found., 498 F. Supp. 2d at 207. Accordingly, in reviewing the cross-motions for
summary judgment, the court evaluates whether the evidence in the administrative record
supports the conclusion of the IBLA that Lehmann had not made a valid discovery on the six
contested claims.
B. The IBLA’s Decision that the BLM Presented a Prima Facie Case Was Not
Arbitrary & Capricious and Was Supported by Substantial Evidence.3
Lehmann argues that the IBLA acted arbitrarily and capriciously and without substantial
evidence when it ruled that “the Government establishes a prima facie case when a mineral
examiner testifies that he has examined a claim and found the mineral values insufficient to
support a finding of discovery,” AR 691, because the mineral examiner’s findings in this case
were not based on proper legal standards or probative evidence.
1. Cutoff grade
Lehmann argues that the IBLA erred with respect to EB 6 and RE 2 because Gruber’s
finding that “the mineral values [were] insufficient to support a finding of discovery” was based
on an erroneous interpretation of the Mining Law. AR 691. Gruber required a physical exposure
of above-cutoff-grade mineralized rock on each claim to support a finding of a discovery. AR
972. Lehmann asserts that ALJ Sweitzer approved this interpretation but the ALJ noted that, if an
exposure of cutoff-grade mineralization were not a requirement, then the BLM would not have
established a prima facie case with respect to these two claims. On appeal, Lehmann points out
3
As an initial matter, the court notes that Lehmann’s argument that the IBLA’s
longstanding practice of placing the burden of persuasion on the claimant in a government
contest violates the APA is completely without merit. The D.C. Circuit squarely addressed this
issue in Foster, 271 F.2d at 837-38, holding that the burden of persuasion shifts to the claimant
once the government has put on sufficient evidence to establish a prima facie case, and the court
is bound by that holding.
10
that the IBLA rejected the ALJ’s ruling, holding that “Judge Sweitzer went too far in adopting
cutoff grade as if it were a rule of law.” AR 740. Lehmann contends that this ruling should have
resulted in the IBLA holding that the BLM failed to present a prima facie case with respect to
these two claims.4
The BLM rejoins that the IBLA’s decision was not dependent on whether an exposure of
above-cutoff-grade mineralization was present on each claim. Instead, the BLM argues, the
IBLA analyzed the available samples and the gold values found in such samples prior to
concluding that the claims were invalid irrespective of any cutoff grade. With respect to the RE
2 claim, the BLM contends that the IBLA credited Gruber’s testimony, based on the objective
data, that no trend could be found across the claim with high averages and that exposures on the
claim were not well oxidized. With respect to EB 6, the BLM contends that the IBLA based its
decision upon Gruber’s testimony that a large part of the only identified deposit was shared with,
and thus attributable to, a senior claim, and that the only other exposure above cutoff grade was
not valuable because it was located in a sulfide zone. The BLM underscores that while the IBLA
ruled that adopting a cutoff grade should not be a rule of law, it noted that “[t]he use of a cutoff
grade is an indicator of fact” and that its opinion was “not to be construed in any way as rejecting
the notion of establishing a cutoff grade for purposes of determining and assessing facts
regarding a mining claim.” AR 740.
4
Lehmann also argues more broadly that Gruber’s interpretation of the Mining Law
erroneously required the physical exposure of ore-grade mineralization, thus asking a claimant to
prove certain profitability, and therefore IBLA’s determination that the BLM had established a
prima facie case was arbitrary and capricious with regard to all six claims. The court concludes
that this argument is without merit, as discussed in greater detail later in this opinion.
11
The IBLA discussed the issue of Gruber’s cutoff grade at length in its opinion. See AR
736-44. The IBLA agreed that a valid discovery required the actual exposure of a mineral
deposit within the limits of each claim. AR 739-40. It agreed that a cutoff grade can be a useful
indicator of whether an actual exposure of a mineral deposit has been made, however it
concluded that ALJ Sweitzer went too far in adopting Gruber’s cutoff grade as if it were a rule of
law. AR 740. This was particularly true, according to the IBLA, because ALJ Sweitzer had
found that Gruber’s cost and operating estimates were too high and therefore his cutoff grade was
too high. AR 741 (“To the extent Judge Sweitzer failed to consider this necessary mathematical
result of his conclusions because he had adopted the requirement that the mineral exceed the
BLM cutoff grade as law of the case, this was error.”). The IBLA, however, found that ALJ
Sweitzer had missed the significance of his other factual analysis, AR 740, and after
“proceed[ing] to conduct the analysis as the factual inquiry it should have been,” the IBLA
concluded that the BLM had made a prima facie case with respect to each claim. AR 741.
In evaluating the factual case for EB 6 and RE 2, the IBLA found that the “BLM
concedes that an actual exposure of mineral exists on the EB 6 and RE 2 claims . . . [b]ut BLM
argues that to the extent there is an exposure it is random and fails to expose a valuable mineral
deposit, or to correlate with the valuable mineral deposit the existence of which is inferred from
exposures on surrounding mining claims.” AR 741. Stating that Lehmann misperceives the
requirement that the exposure be within a valuable mineral deposit (and not a non-valuable
deposit or isolated bit of mineralization), the IBLA found that the BLM had made its prima facie
case. AR 742-44. The court finds no fault in this analysis.
12
Lehmann correctly points out that in the portion of the opinion in which the IBLA
“look[ed] . . . to the Government’s proof to determine whether it met its burden to establish a
prima facie case” with respect to EB 6, its explanation appears to be completely dependent upon
Gruber’s erroneous cutoff grade. See AR 743 (discussing only exposures that are above cutoff
grade). And the IBLA’s statement that, “[t]he prima facie case was presented when Gruber
‘testifie[d] that he has examined a claim and found the mineral values insufficient to support a
finding of discovery,’” AR 743-44 (quoting Boucher, 147 IBLA at 248) surely is wrong if
Gruber’s determination was based upon assumptions about what constitutes a sufficient mineral
value that were wrong. Nonetheless, the court finds that the rest of the IBLA’s explanation
adequately demonstrates that the IBLA based its decision that the BLM had established a prima
facie case on the fact that any exposures were random and failed to expose a valuable mineral
deposit independent of Gruber’s cutoff grade. This is even more clear with respect to RE 2, for
which the IBLA does not refer to Gruber’s cutoff grade at all in its explanation of its conclusion
that a prima facie case had been made.
2. Circular 831
Lehmann also contends that the IBLA erred with respect to all six of the claims because it
relied on Gruber’s testimony and Gruber both erroneously used and erroneously applied the U.S.
Geological Survey’s Circular 831 when he conducted his validity examination. Circular 831 and
the terminology it uses to describe resources, according to Lehmann, were not designed to be
used by mineral examiners in conducting validity determinations; instead mineral examiners are
directed to use the BLM Handbook for Mineral Examiners. Lehmann points out that the most
recent version of that handbook, published in 2007, expressly advises mineral examiners not to
13
use the terminology found in Circular 831. The BLM rejoins that Circular 831 is merely a
revision of the system published as U.S. Geological Survey Bulletin 1450-A, a bulletin that the
IBLA has repeatedly recognized is an appropriate guide. Moreover, the BLM points out the
IBLA’s statement that it “find[s] no support for finding that errors that allegedly may have
resulted from use of the Circular are material.” AR 750. Lehmann replies that this “finding” was
not supported by any evidence. The BLM is correct.
Gruber’s use of Circular 831 does not render the IBLA’s decision arbitrary and capricious
or unsupported by substantial evidence. In several cases, the IBLA has upheld determinations
based on the use of Bulletin 1450-A, and Lehmann does not argue that this Bulletin is not a
precursor to Circular 831. See Vanderbilt Gold Corp., 126 IBLA 72, 78 (IBLA 1993); United
States v. Feezor, 74 IBLA 56, 83 n.8, 84 (IBLA 1983). Lehmann fails to raise any argument that
convinces the court that the IBLA has erred in this regard.
Lehmann further argues that even if Gruber’s use of Circular 831 was not in error, his
application of it was erroneous. Specifically, it contends that Gruber mistakenly believed that a
showing of “reserves,” as defined in Circular 831, was an absolute prerequisite to finding a
discovery. This is wrong, according to Lehmann, because “reserves,” as defined in Circular 831,
means guaranteed success and this is not required by the prudent man rule. Instead, Lehmann
argues, Gruber should have looked at inferred reserves, which he completely ignored. The BLM
rejoins that the IBLA concluded that the evidence failed to support a finding of a deposit on these
claims, a prerequisite to using geologic inference. And specifically with respect to RE 1-2 and
EB 6, which bordered deposits found on other claims and thus presented the strongest cases, the
BLM argues that the IBLA found that the isolated samples found on these claims were
14
insufficient to support a finding that the valuable mineral deposit that existed on the adjoining
claims could be inferred to extend onto these claims. The BLM’s arguments are well-taken.
Lehmann’s argument essentially boils down to whether Gruber erred in not using
geologic inference to infer that the valuable mineral deposits on adjoining claims extended onto
the contested claims and whether the IBLA’s decision is thus fatally flawed because it is based
on this error.5 Geologic inference may be used as a basis upon which to show the extent of a
deposit to support a discovery under some circumstances. See Feezor, 74 IBLA at 71. In Feezor,
the IBLA discussed at length the appropriate use of geologic inference. It stated that “where
values have been high and relatively consistent, geologic inference can be used to infer sufficient
quantity of similar quality mineralization beyond the actual exposed areas, such that a prudent
man would be justified in expending labor and means with a reasonable prospect of success . . .
.” Id. at 79. Geologic inference, however, may not be used to show the existence of a mineral
deposit in the first place, and only may be used to show its extent. Id. at 71. In other words,
“[g]eologic inference may not be used to establish the existence of a valuable mineral deposit”
(i.e., “a mineral deposit of sufficient quantity and quality so as to justify a prudent man in
expending both labor and money in developing a paying mine,”) “where no mineral deposit has
5
To support its position, Lehmann points to ALJ Sweitzer’s statement that “[t]here is no
doubt that Mr. Gruber inaccurately characterized the [IBLA’s] standard regarding the use of
inferred reserves as an absolute prohibition against their use in proving a discovery.” Pls.’ Mot.
Summ. J. at 24. ALJ Sweitzer, however, went on to say that “there may be circumstances in
which an ‘inferred reserve’ could be considered in support of a discovery finding.” AR 423
(internal citations omitted). This does not show that the circumstances of this case were such
that inferred reserves should be considered.
15
been exposed within the claim.” Id. at 75.6 In addition, where the evidence shows that results
obtained by surface sampling are unreliable as a basis upon which to predicate estimates of a
value at depth, such samples cannot serve as a factual predicate for inferring an extension beyond
the exposed area. Id. at 77-79 (“Mere exposure of isolated mineralization in a vein structure,
which mineralization is not, itself, the mineral deposit on which the claim’s validity is
predicated, affords an inadequate factual basis for the utilization of geologic inference”).
With respect to the P 14-16 and RE 1 claims, the IBLA based its conclusion that the BLM
had made a prima facie case on its discussion of the facts and on its agreement with ALJ
Sweitzer. AR 748. In its discussion of the facts, the IBLA states that Gruber testified that there
were no “identified reserves” in the P 14-16 claims “because he had no verification at depth of
mineral values, and no ability to extrapolate information from known data points.” AR 720. He
also testified with respect to RE 1 that gold values were significantly low throughout the area.
Id. ALJ Sweitzer found that even putting aside Gruber’s testimony,
[T]he sample data and other facts presented in the Government’s case-in-chief
independently show that no basic equivalency exists between the surface samples
and drill hole samples, that each of the contested claims lacks an exposure of at
least cutoff grade mineralization within a valuable mineral deposit, and that each,
except the RE 2 and EB 6 claims, lack an exposure of any grade of mineralization
within a valuable mineral deposit.
AR 424.
6
Lehmann appears to misstate this rule when it argues that “[i]t is well established . . .
that where minerals are exposed (as demonstrated by the hundreds of samples outside of
Gruber’s green arcs, geological inference may be used to evaluate the deposit to determine
whether a valuable mineral deposit exists.” Pls.’ Opp’n to Defs.’ Mot. Summ. J. at 18. Lehmann
appears to assume that exposing minerals is the same thing as exposing a mineral deposit. The
BLM, however, correctly points out that the mere presence of gold on a claim does not indicate
the presence of a mineral deposit and does not support the use of geologic inference to infer that
the deposit is valuable. See Feezor, 741 IBLA at 77-79.
16
With respect to EB 6, the IBLA found that “the isolated samples [pointed to by Lehmann]
are not related to the inferred oxide deposit, and so cannot be used to support a discovery.” AR
746. With respect to RE 2, the IBLA found that the data from the drill holes showed notably low
values and that the highest value appeared isolated. Id. As stated above, the IBLA was correct to
require that the mineralization upon which the inference is to be based be part of the deposit
about which the inferences are to be made. The burden is on Lehmann to show that the IBLA
was arbitrary and capricious when it relied on Gruber’s testimony and the ALJ’s finding that,
with respect to these claims, geologic inference was inappropriate. Here, Lehmann has not
shown that there was mineralization within the mineral deposit on which it believes the BLM
should have inferred reserves, and that such mineralization was a reliable basis from which to
predict estimates of a value at depth. Therefore, it has not met its burden.
3. Prudent Man Model
The BLM argues that Gruber wrongly employed a model that only looked at isolated,
high-grade zones despite the fact that Lehmann had advised Gruber that it planned to mine a low-
grade, large-tonnage, disseminated gold deposit, as supported by the U.S. Bureau of Mines. By
doing this, according to Lehmann, Gruber left a great deal of valuable ore in the ground,
something a person of ordinary prudence would not do. The BLM rejoins that Lehmann’s mine
model was flawed because it failed to account for the added reclamation costs associated with
mining in sulfide zones, and therefore the IBLA correctly concluded that Lehmann’s mine model
must be rejected. The BLM is correct.
The IBLA found that Gruber based his model on the fact that below a shallow oxidized
zone, the values indicated that the rock was sulfide, a factor which would severely reduce the
17
recoverability of the mineral and that for these reasons a prudent miner would not mine below
the oxidized level. AR 744. The IBLA stated, “[c]ontestees failed to refute this evidence.” AR
744. The court concludes that Lehmann still fails to refute this evidence and that the IBLA’s
determination was sensible and not arbitrary or capricious.
4. Group Claim Rule
Lehmann argues that Gruber failed to apply the group claim rule, which it asserts “may
allow for the mining of marginal claims” “by spreading costs over a larger tonnage.” Pls.’ Mot.
Summ. J. at 28. Gruber, Lehmann contends, admitted that Lehmann had exposed gold and silver
on each contested claim, and therefore, according to Lehmann, Gruber should have aggregated
the minerals from all of its claims to determine whether there was a reasonable prospect of
success in developing one valuable mine. The BLM rejoins that Lehmann misapplies the group
claim rule. Lehmann’s interpretation of the rule, they contend, ignores two important aspects of
the rule. First, according to the BLM, the rule requires the demonstration of a deposit on each
claim to be grouped. Second, according to the BLM, each claim must bear its proportionate
share of the costs. The IBLA was therefore correct, the BLM contends, to reject use of the group
claim rule because Gruber testified to gold values that would have been insufficient to bear a
proportionate share of the costs and to the absence of a deposit of valuable mineral on the
contested claims.
The argument between Lehmann and the BLM boils down to what must be shown on a
particular claim before it can be grouped with others under the group claim rule. Lehmann,
citing Schlosser v. Verle Pierce, asserts that it must only show that a valuable mineral (as
opposed to a valuable mineral deposit) is present on each claim. See 92 IBLA 109, 132 (IBLA
18
1986) (“it is apparent the practice of the Department has been to allow the consideration of a
group of claims as a mining unit where the issue of profitability is at stake.”). The BLM, citing
United States v. Collord, asserts that a mineral deposit that is reasonably perceived as marketable
at profit is required before the group claim rule may be applied such that the recovery expected
from each claim would bear a proportionate share of the development and capital costs attributed
to the combined operations. See 128 IBLA 266, 287 (IBLA 1994) (“[i]n order to be considered
valid under the mining law, each claim in a group must have, within its borders, a valuable
mineral deposit capable of producing income that exceeds the cost of mining.”).
The IBLA rejected Lehmann’s argument stating, “[w]e need not address this difficult
issue because we find that appellants have not overcome the Government’s prima facie case with
probative evidence of more than isolated, random gold values.” AR 751. Schlosser, cited by
Lehmann, supports this determination. See Schlosser, 92 IBLA at 133 (quoting, with approval,
another IBLA decision holding that the mere presence of low-grade mineralization does not
relieve the claimant from the responsibility for presenting the suitability of the project to low-
grade high-tonnage extraction). The IBLA’s rejection of the group claim rule because gold
values were isolated and random is thus consistent with both Schlosser and Collord. The court
does not find the IBLA’s failure to require use of the group claim rule arbitrary and capricious.
19
C. The IBLA’s Conclusion that Lehmann Failed to Prove by a Preponderance of the
Evidence that a Discovery of Valuable Mineral Deposits Had Been Made Was Not
Arbitrary and Capricious and Was Supported by Substantial Evidence.
1. All Six Claims
Lehmann argues with respect to all six claims that the IBLA’s decision that Lehmann had
not proven that a discovery of valuable mineral deposits had been made was arbitrary and
capricious and not supported by substantial evidence because the IBLA inappropriately rejected
Lehmann’s mine model. Lehmann’s model was for a low-grade, large-tonnage, disseminated
gold mine covering the six contested claims, the eight valid claims, and Lehmann’s surrounding
claims. Lehmann contends that the IBLA inappropriately rejected this model by (1) relying on
the oxidation issue and (2) requiring greater proof of marketability and thus guaranteed success.
The BLM rejoins that the IBLA appropriately concluded that Lehmann’s mine model was
deficient because it failed to consider the additional costs of recovering gold from a sulfide zone
and that the IBLA did not require guaranteed success.
Under Lehmann’s model the claims would be mined in a single, large volume, open pit
operation covering nearly the entire claim block. AR 1229-30. The higher-grade material
(containing most of the gold) would be crushed and agglomerated prior to leaching, while the
lower grade material would be removed and placed directly on the heaps without further
processing. AR 1231. Using this model, Lehmann concluded that the mine would generate
profits of $77.7 million (before income taxes) and that a prudent man would be justified in
expending more money with a reasonable prospect of success in developing a valuable mine. AR
1251-52.
20
The IBLA rejected this model finding that “the issue of oxidation is critical.” AR 744. It
cited Gruber’s conclusion that mining in the sulfide zones would increase costs and reduce
recovery rendering it uneconomic, and found that Lehmann had failed to refute Gruber’s
evidence. Id. The IBLA stated that Lehmann agreed that the Tootsie Creek region contained
primarily sulfide material, but argued that oxidation would not matter at this stage of mine
development to a prudent miner. Id. “To accept this argument,” the IBLA stated, “would require
us to accept, based on an admitted lack of knowledge of the extent and nature of the deposits by
contestees’ witnesses, that when mining sulfide deposits, as opposed to oxidized deposits, there
would be no significant change in the costs of mining or rate of recovery.” Id. The IBLA found
that the record did not support this notion.
Lehmann argues that the oxidation/leachability issue was not an appropriate basis on
which to reject its mine model for several reasons. First, it contends that Gruber made his
conclusion that oxidation is the controlling factor in the ability to recover gold by improperly
relying on a report prepared in 1983 by M. Stephen Enders and Leslie M. Rogers (“Enders
Report”). The Enders Report, according to Lehmann, is not a textbook on how to evaluate low-
grade, large-tonnage, disseminated gold deposits, but instead describes the mining program at
two other mines, the Zortman and Landusky mines. While at the time of the Enders Report, the
Zortman and Landusky mines were only mining in the oxidized zone, a 1993 form filed by the
operators of the mines stated that, while ores exploited to date were from the oxidized zones,
there were additional probable oxide and sufide reserves. Second, Lehmann argues that the
BLM’s own “bottle roll” tests conducted on samples from his claims showed a recovery of 77.78,
44.84, 45.70, and 42.86 percent of the gold in place in sulfide zones.
21
Neither of these pieces of evidence, however, render the IBLA’s decision arbitrary,
capricious or unsupported by substantial evidence. The IBLA directly addressed these arguments
and found that Lehmann had assumed a recovery of 50 percent, failing to distinguish between
oxide and sulfide ores, while at the Zortman mine recovery in the sulfide zones was 40 percent.
AR 745 n.22. Moreover, the court finds that while the 1993 form may indicate that ores in the
sulfide zone may be mined, Lehmann does not point to any evidence that the cost of mining does
not differ significantly between the sulfide and oxide zones. In fact, the IBLA points to evidence
that it does. AR 745 (taking judicial notice of the Supplemental Draft EIS for reclamation at the
Zortman mine discussing the metallurgical problems involved with sulfide ore as opposed to
oxide ore). Nor do the results of several bottle roll tests convince the court that the IBLA acted
arbitrarily and capriciously in determining that Lehmann did not meet its burden where Lehmann
did not consider the higher costs of mining in the sulfide zone.
Lehmann next argues that its mine model was inappropriately rejected because the IBLA
set the bar too high, requiring that it prove a guaranteed success on each claim before a finding of
a discovery could be made. The IBLA did this, according to Lehmann, by relying “on the so-
called ‘marketability’ test from United States v. Coleman, 390 U.S. 599, 600-03 (1968).” Pls.’
Mot. Summ. J. at 36. Lehmann contends that the BLM interprets this test to require a claimant to
show, as a present fact, that the minerals on his claim can be extracted, removed and marketed at
a profit to demonstrate a discovery. But while the Supreme Court believed that the prudent man
rule and this “marketability test” were complementary, according to Lehmann, they are
irreconcilable. Because “reasonable prospect of success” and “presently marketable at a profit”
cannot be reconciled, Lehmann contends that the marketability test cannot be applied to minerals,
22
such as silver or gold, which are indisputably marketable. The BLM rejoins that Lehmann was
not required to prove that success was guaranteed in order to validate its claims. Instead,
according to the BLM, the IBLA evaluated whether Lehmann had shown a reasonable prospect
that the deposits, if any, could be mined, removed and marketed at a profit.
The IBLA stated that “[d]iscovery requires a showing of a reasonable prospect that the
deposit can be mined, removed, and marketed at a profit.” AR 690. Further, “[a] mineral deposit
will be considered valuable where there is a reasonable likelihood that the value of the deposit
exceeds the costs of extracting, transporting, processing, and marketing it.” Id. (quoting United
States v. Clouser, 144 IBLA 110, 113 (IBLA 1998)). The court does not read this standard,
articulated by the IBLA, and which focuses on a reasonable prospect of profitability, to require
guaranteed success. Nor does the court see how requiring Lehmann to expose consistent values
of a valuable mineral within a mineral deposit is tantamount to a requirement of guaranteed
success. Moreover, this court sees no reason to revisit the Supreme Court’s decision in Coleman,
applied to valuable minerals such as gold and silver by the Ninth and Tenth Circuits, as well as
the IBLA, in its resolution of the instant motion. See Dredge Corp. v. Conn, 733 F.2d 704 (9th
Cir. 1984); Hallenbeck, 590 F.2d 852; United States v. Bush, 157 IBLA 372, 376 (IBLA 2002).
2. EB 6 and RE 2
Lehmann further argues, with respect to the EB 6 and RE 2 claims, that the IBLA acted
arbitrarily and capriciously when it required Lehmann to expose minerals on the claim within a
valuable mineral deposit. Even if the IBLA did not err in this requirement, Lehmann contends
that with respect to each of these claims, the IBLA acted arbitrarily and capriciously and without
substantial evidence when it found that Lehmann failed to expose valuable minerals within a
23
valuable mineral deposit on each of these claims. The court will address the first question jointly
and the second with respect to each of the two claims.
Lehmann argues that with respect to both of these claims, the BLM found valuable
mineral deposits running through the claim, but erroneously required Lehmann to expose
minerals within that valuable mineral deposit on each claim. For example, with respect to EB 6,
Lehmann argues that Gruber identified a valuable mineral deposit extending across three claims,
including an approximately 10-foot-wide sliver of EB 6. Because Gruber calculated that this
valuable mineral deposit contained 4,723 tons of reserves, and that 4,447 of these reserves were
located on the other two claims, Lehmann argues that EB 6 must contain 276 tons of reserves
within this valuable mineral deposit. This, however, the IBLA did not find sufficient to prove a
discovery, according to Lehmann, because the IBLA required Lehmann to expose minerals on
EB 6 within the valuable mineral deposit inferred by Gruber. Lehmann contends that this
requirement is unprecedented. Where the BLM’s mineral examiner determines that a valuable
mineral deposit containing reserves exists on a mining claim, Lehmann argues, that is the end of
the matter and a discovery is proven.
The BLM rejoins that Lehmann’s arguments are based, in part, on the incorrect use of
geologic inference to assume deposits on contested claims. Lehmann cannot, according to the
BLM, prove a discovery based only on Gruber’s inferences of deposits on those claims. Instead,
before using geologic inference to infer that those deposits extended onto the contested claims,
Lehmann needed to demonstrate the exposure of a deposit within the contested claim and that
demonstrated values within that exposure are high and relatively consistent. With respect to RE
2 and EB 6, the BLM asserts that Lehmann did not do so, and instead pointed only to isolated
24
high value samples, unconnected to the inferred valuable deposit. Therefore, according to the
BLM, Lehmann cannot use geologic inference to prove that a valuable mineral deposit exists on
RE 2 and EB 6. The BLM further argues that the IBLA’s requirement that Lehmann expose
valuable minerals within a deposit for the deposit to be considered valuable is merely a reflection
of the discovery rule, which requires demonstrating a valuable mineral deposit.
The court has already addressed the proper use of geologic inference when proving the
discovery of a valuable resource. In accordance with that discussion, the court finds that the
BLM is correct and that Lehmann cannot prove a discovery based on Gruber’s geologic
inferences without more. Further, the court agrees with the BLM that it makes sense that the
discovery of a valuable mineral deposit requires more than the exposure of valuable minerals
unconnected to the deposit alleged to be valuable.
Even if the BLM applied the correct standard, Lehmann asserts it has met the BLM’s
standard for both claims. With respect to EB 6, Lehmann points to a sample that was taken on
EB 6 and had a grade of 960 ppb. Lehmann further points to drill hole data which produced a
sample of 220 ppb on EB 6 within the valuable mineral deposit as inferred by Gruber.7 The
BLM rejoins that the IBLA evaluated Lehmann’s high grade samples on the claim but found that
the evidence showed the samples to be anamolous and located within a sulfide zone. Within the
oxide zone, the IBLA found that the data revealed low values. Therefore, the BLM argues, the
high value samples could not serve as evidence of a valuable mineral deposit.
The IBLA stated, with respect to EB 6,
7
Lehmann further argues that Gruber’s identification of the valuable mineral deposit was
flawed and that three other samples, measuring 360 ppb, 210 ppb and 222 ppb should have also
been considered as samples within the inferred valuable mineral deposit.
25
The Government’s case acknowledged the two data points relied on by appellants
and found them to be isolated examples within a sulfide zone such that the data
points, standing alone, did not disclose a valuable mineral deposit. Contestees’
rebuttal consisted of Gruber’s inference of a narrow band of mineral deposit
extending across the EB 6 claim within the shallow oxide zone. But the isolated
samples are not related to the inferred oxide deposit, and so cannot be used to
support a discovery . . . .
AR 746. The court finds that the IBLA did not act arbitrarily and capriciously or without
substantial evidence when it found that isolated high grade samples within a sulfide zone
did not prove a discovery of consistent high values within a mineral deposit.
With respect to RE 2, Lehmann points to a 692 ppb rock sample that it alleges is within
the inferred valuable mineral deposit and within the portion of RE 2 that does not overlap a
senior claim. Lehmann also argues that approximately 75 meters north of the inferred valuable
mineral deposit as inferred by Gruber are numerous rock samples with grades ranging from 204
ppb to 3,389 ppb, and that some of these may have been mined had Gruber correctly delineated
the valuable mineral deposit. The BLM rejoins that the IBLA examined the evidence and
determined that the high-grade samples on RE 2 were “some distance from the South Fork Gold
Zone” and that the data from the drill holes showed notably low values. AR 746. Based on this
lack of equivalency, the IBLA rejected Lehmann’s suggestion that the South Fork Gold Zone
should be inferred to run across the RE 2 claim.
The IBLA found that the drill-hole data on the part of RE 2 that Gruber inferred the South
Fork Gold Zone to cross demonstrated notably low values. AR 746. With respect to the two
very high-grade samples north of the boundary of Gruber’s inferred deposit, the IBLA stated that
nearby drill hole, outcrop and trench samples do not come close to the values of these high-grade
samples. AR 747. Instead, the IBLA concluded that
26
Contestees can only argue unconvincingly that a prudent miner would extend the
line of the South Fork Gold Zone to ‘catch’ an anomalous rock chip sample some
distance away randomly interspersed with low value samples. Such conjecture is
not probative of whether appellants have made the requisite exposure of a
valuable mineral deposit.
AR 747. The IBLA examined the relevant evidence and adequately explained its conclusions.
Once again, the court concludes that Lehmann does not show that the IBLA was arbitrary and
capricious, or acted without substantial evidence, when it determined that Lehmann’s evidence
did not prove a discovery.
D. The IBLA Was Not Arbitrary and Capricious When It Found that the BLM Did
Not Unlawfully Prevent Lehmann from Gathering More Data to Prove Its
Discoveries.
Lehmann contends that the IBLA may not declare mining claims invalid for lack of a
discovery when the BLM has prevented the claimant from acquiring the evidence necessary to
prove a discovery. Lehmann alleges the BLM did so when it refused to approve Lehmann’s 1992
plan of operations. The BLM rejoins that a claimant may enter claims to gather evidence that a
discovery already existed but not to seek a discovery that has not already been made (i.e., not to
expose a deposit not exposed prior to withdrawal).
A claim cannot be declared “void for lack of a discovery when it is shown that the
Government prevented the claimant from entering their claim to gather the information necessary
to prove the existence of a discovery.” United States v. Mavros, 122 IBLA 297, 310 (IBLA
1992). The IBLA has explained this requirement as follows:
For example, if the claimant had driven an adit which exposed valuable mineral
prior to withdrawal, the claimant should be allowed to reopen a caved portion of
the adit to take samples of the mineral he had previously exposed. He could also
drill in order to sample a previously disclosed valuable mineral deposit. On the
other hand, the claimant may not drive an adit on what appears to be a promising
27
structure in hopes of finding valuable mineral, as that activity would be
considered further exploration to disclose a deposit not exposed prior to
withdrawal.
Id. at 310-11. “The existence of an exposure of valuable minerals that would support a discovery
if quantity and continuous quality of these minerals continues for a reasonably projectable
distance is critical to the right to enter withdrawn land for the purpose of drilling to confirm a
discovery.” Id. at 313; see also United States v. Parker, 82 IBLA 344, 384 (IBLA 1984).
Lehmann asserts that the 1992 plan of operations contemplated road building and
trenching on all six contested claims and drilling three holes in the RE 1 claim, one hole on the
EB 6 claim and two holes on both the P 15 and P 16 claims. The BLM replies that Lehmann’s
1992 plan of operations (1) did not propose to test any sites on the RE 2 or P 14 claims, and (2)
proposed to drill, for the first time, on the P 15 and 16 claims and on a previously untested
portion of EB 6. Thus, the BLM concludes, with respect to these five claims, Lehmann cannot
argue that the 1992 plan of operations was intended to confirm pre-existing discoveries.
The IBLA considered this argument at length. See AR 753-56. The IBLA distinguished
between “permitting a party to conduct sufficient exploration to prove its case that it had found a
discovery . . . prior to withdrawal, and exploring to find a discovery in the first place.” AR 754.
It stated that “a crucial requirement is that the deposit be physically exposed as of the date of
segregation from mineral entry. No further exploration to obtain such an exposure may be
permitted after that date.” AR 755 (quoting United States v. Conner, 139 IBLA 361, 364 (IBLA
1997)). Finding that it was clear from the testimony of Lehmann’s witnesses that the purpose of
the 1992 plan of operations was to obtain geologic information to identify future drilling targets,
it found “no basis for concluding that a purpose of the 1992 plan was to confirm a pre-existing
28
discovery on any of the contested mining claims.” Id. The IBLA further noted that the 1992 plan
of operations did not propose to drill in RE 2, P 14 or the relevant portion of EB 6 and that it
would constitute the first drilling on P 15 and 16. AR 756. With respect to RE 1, the IBLA
found that the evidence disclosed that “claimants were attempting to expand their exploration
based upon ‘encouraging’ soil data ‘to assess the property as a whole,’” and concluded that this
did not show that the BLM had deprived Lehmann of their right to prove the existence of a pre-
existing discovery. Id.The court concludes that the IBLA’s determination is not arbitrary or capricious, or
unsupported by substantial evidence. The record shows that the IBLA considered Lehmann’s
arguments and examined them with respect to each of the contested claims. While Lehmann
must be allowed to enter the contested claims to take samples of the mineral it had previously
exposed or to sample a previously disclosed valuable mineral deposit, the BLM need not allow
Lehmann to seek new exposures, which appears to be the goal of the 1992 plan of operations.
See Mavros, 122 IBLA at 310.
III. CONCLUSION
For the foregoing reasons, the court concludes that the BLM’s motion for summary
judgment [# 19] must be granted and Lehmann’s motion for summary judgment [#18] must be
denied. An appropriate order accompanies this memorandum opinion.
Henry H. Kennedy, Jr.
United States District Judge
29