United Nuclear Corporation v. The United States , 912 F.2d 1432 ( 1990 )

FRIEDMAN, Senior Circuit Judge.

The appellant, United Nuclear Corporation (United), entered into two leases with the Navajo Tribal Council (Tribal Council), which authorized United to conduct uranium mining on land in the Navajo Reservation. The leases were awarded to United through competitive bidding, and the Secretary of the Interior approved the leases, as well as United’s exploration plans for the leased land. United’s explorations, for which United spent more than $5 million, uncovered valuable uranium deposits. United then prepared a mining plan, which it submitted to the Secretary for approval, such approval being necessary before United could begin mining.

Although United’s mining plan satisfied all of the requirements of the Secretary’s regulations, the Secretary refused to approve it without tribal approval. During the next three years United unsuccessfully attempted to obtain tribal approval or to persuade the Secretary to approve the mining plan without tribal approval. The result was that United’s leases terminated because United failed to begin mining within the period the lease specified. United then filed the present suit in the United States Claims Court alleging that the Secretary’s refusal to approve the mining plan constituted a taking of its leases, for which it was entitled to just compensation.

The Claims Court dismissed the suit, holding that United had no “legally protected property right to approval of its mine plan” that was “the subject of a Fifth Amendment taking.” United Nuclear Corp. v. United States, 17 Cl.Ct. 768, 777, 775 (1989). We hold, however, that there has been a taking of United’s property interest in the leases, and remand the case to the Claims Court to determine the amount of just compensation to which United is entitled.

I

A. The basic facts, as found by the Claims Court and as shown by the record, are as follows:

The Navajo Reservation is located in the Grants Mineral Belt, “the premier uranium-producing area” in the United States. 17 Cl.Ct. at 769. Three hundred and thirty million pounds of uranium (approximately 55 percent of all uranium produced in the United States) has come from this area. The potential for uranium mining in this area has been generally recognized since at least the late 1960’s, when the Kerr-McGee Corporation had obtained uranium leases from the Tribal Council and conducted substantial exploration. These and other exploratory efforts “strongly suggested that there was a significant potential for uranium to be discovered on areas of the Navajo reservation not covered by the Kerr-McGee leases.” Id.

The Tribal Council in 1970 unanimously authorized the Secretary of the Interior to conduct public bidding for uranium mining of this area. In sealed bidding, United, a large domestic producer of uranium with extensive mining experience, was the successful bidder for the mining rights on two tracts of the reservation.

On June 29, 1971, United entered into two ten-year leases with the Navajo Tribe (Tribe). The leases were for “a term of 10 years from the date of ... approval and as long thereafter as the minerals specified are produced in paying quantities.” The leases provided for annual rent, a minimum annual royalty and additional royalties based upon the amount of minerals mined. United paid the Tribe a bonus of $79,000 upon signing the leases, and also paid' total rent and royalties of more than $220,000. 17 Cl.Ct. at 770. The Tribe has retained all this money.

On July 7, 1971, the Secretary approved the leases. Such approval was necessary for them to become effective. 25 U.S.C. § 396a (1970); 25 C.F.R. § 171.2 (1971).

The Secretary subsequently approved United’s exploration plan, which approval was necessary before United could begin exploration. 25 C.F.R. § 177.6 (1970) (now designated 25 C.F.R. § 216.6 (1989)). United spent $5,366,835 for exploration and related activities. Through this exploration, United discovered more than 20 million pounds of uranium on explored portions of the leased land, and believed there was a potential for 20 million additional pounds on unexplored portions.

Prior to commencing mining operations on the leased lands, United was required to obtain the Secretary’s approval of its mining plan. 25 C.F.R. § 177.7 (1971). On February 4, 1977, United submitted its mining plan to the United States Geological Survey (the “Survey”), a Bureau of the Department of the Interior. The Claims Court found that “[t]he mining plan satisfied each of the requirements set forth in the mining plan regulations,” 17 Cl.Ct. at 770, and the government concedes that United’s “plan satisfied the technical requirements of the Department’s regulations.” The Regional Mining Supervisor, an Interior Department official who had served in that position since 1960, testified that he had never disapproved any of the hundreds of exploration or mining plans submitted for his approval.

The Claims Court found that although United’s mining plan met all the regulatory requirements, the Department “withheld approval of the mining plan for a period of more than 4 years, deferring to the Navajo Tribe approval of the plan.” 17 Cl.Ct. at 770. In April 1978, at a meeting between United and Departmental officials, the latter informed United that the Department “was giving the Navajo Tribe a veto power over the mining plan and that the Department and the [Survey] were refusing to take any action on the mining plan until the Tribe approved it.” 17 Cl.Ct. at 771.

Tribal approval of mining plans never had been required previously. Only a few months earlier, when Kerr-McGee had sought the Secretary’s approval for a mining plan on tribal land that it had leased, the Acting Director of the Survey wrote the Tribal Council that if the Survey did not receive tribal comments regarding Kerr-McGee’s plan by a stated date, the Survey would “assume that the [Tribe] concurs with the plan as submitted and [the Survey] will proceed with administrative processing of the mine plan.” Letter of the Acting Director of the Survey to Peter McDonald, Chairman, Navajo Tribal Council, dated Feb. 3, 1976.

In a meeting on October 13, 1978, among tribal representatives, Department officials, and United, the General Counsel of the Tribe indicated that a “$10,000,000 adder might be needed” and a member of the Tribe indicated that “it was not enough.” It was stated that the Tribe was “[concerned about the depletion of Tribal water resources.” The Claims Court found, however, that United “had met necessary environmental impact requirements.” 17 Cl.Ct. at 771 n. 10.

The government itself recognized that the Tribe was using its veto power either to require United to pay more money or to cause the leases to lapse. The Chief of the Survey’s Branch of Mining Operations wrote in the fall of 1978:

The tribe is withholding comments and concurrence on approval of [United’s mining] plan[] in hopes of forcing the lessees to take the tribe on as a partner in the operations. This is real leverage since the tribal leases will expire on July 7, 1981, unless production has commenced in paying quantities.

Moreover, there is testimony indicating that the Bureau of Indian Affairs also was aware that the Tribe was withholding approval because “the tribe wanted more bucks, more money.” From the time of the April 1978 meeting, when United first was informed of the tribal approval requirement, United “made repeated and continuous efforts to gain such tribal approval ... [and] sought to convince the Secretary to withdraw the requirement of tribal approval of the mining plan.” 17 Cl.Ct. at 771. Neither endeavor succeeded.

Following an unsuccessful judicial attempt by United to compel the Secretary (1) to approve or act upon the mining plan,, or (2) to extend the leases, United Nuclear Corp. v. Watt, 17 ERC 1643 (D.D.C.1982), the leases expired as of July 7, 1981, because of United’s failure to begin mining.

B. On May 4, 1984, United filed a complaint in the United States Claims Court alleging that the Secretary’s failure to approve the mining plan constituted a taking of United’s property without just compensation, in violation of the fifth amendment, and seeking damages.

After a trial, the Claims Court dismissed the complaint. The court first held that the suit was timely filed within six years of the alleged taking. It ruled that the date of the alleged taking was October 1, 1978, which it found was the date on which under normal conditions United’s mining operations would have commenced. 17 Cl.Ct. at 772.

On the merits, the court held that

the property right which is the subject of this taking claim is not the leases. What is the subject property is UNO’s expectation that it would be permitted by defendant to engage in mining the leased tracts. According to Allied-General [Nuclear Services, Inc. v. United States, 839 F.2d 1572 (Fed.Cir.1988)], this is not a legally protected property right which can be the subject of a Fifth Amendment taking.

Id. 17 Cl.Ct. at 775.

The court concluded that United

had no legally protected property right to approval of its mining plan as against the declaration of policy to assure maximum participation by Indians in their affairs where the federal Government is involved.

17 Cl.Ct. at 777.

II

The determination whether government action constitutes a taking of property under the fifth amendment rather than a mere exercise of the government’s regulatory authority frequently is a close, difficult, and complex process. In Connolly v. Pension Benefit Guaranty Corp., 475 U.S. 211, 106 S.Ct. 1018, 89 L.Ed.2d 166 (1986), the Supreme Court noted that while its cases “have eschewed the development of any set formula for identifying a ‘taking’ forbidden by the Fifth Amendment, and have relied instead on ad hoc, factual inquiries into the circumstances of each particular case,” there are “three factors which have ‘particular significance’ ” “[t]o aid in this determination”: (1) “the economic impact of the regulation on the claimant”; (2) “the extent to which the regulation has interfered with distinct investment-backed expectations”; and (3) “the character of the governmental action.” Id. at 224-25, 106 S.Ct. at 1025-26. See also Atlas Corp. v. United States, 895 F.2d 745, 756-57 (Fed.Cir.1990); United States v. One (1) 1979 Cadillac Coupe de Ville, 833 F.2d 994, 1000 (Fed.Cir.1987).

1. The Economic Impact of the Regulation on the Claimant. As the Claims Court found, the economic impact of the regulation (giving the Tribe a veto power over the mining plan) upon United “has been severe.” 17 Cl.Ct. at 773. United has paid the Tribe approximately $300,000 as a bonus for the leases and as rent and minimum royalties. It also expended more than $5 million in exploration and related activity. It is unlikely that United will be able to recover any of this money.

Equally or perhaps more significant, United’s exploration indicated that a substantial amount of uranium existed on the leased land. The extraction and sale of this uranium by United presumably would have produced significant profits for the company. The Secretary prevented United from commencing mining operations by refusing to approve United’s mining plan, thus causing the leases to expire. As a result, United lost whatever profits it would have made had it been permitted to mine the leased land.

2. The Extent to Which the Regulation Has Interfered With Distinct Investment-Backed Expectations. United invested more than $5 million in the project and presumably expected to derive substantial profits from the venture. Prior to the April 1978 meeting with Departmental officials, United had no indication or even suggestion that tribal approval of the mining plan would be required before the Secretary would approve it. Indeed, previously tribal approval of mining plans had not been required. United’s mining plan con-cededly satisfied the requirements of the applicable regulations. Prior to the meeting, United justifiably believed and expected that if its mining plan met the requirements, the Secretary would approve it — as he had done for United’s exploration plan.

Although the Claims Court recognized that United had these expectations, it held that the expectations were not reasonable because “[i]t would have been reasonable and prudent for [United] to question at the outset whether rules, regulations and requirements under the existing scheme, to which it voluntarily submitted itself, would change during the 10-year term of its lease.” 17 Cl.Ct. at 775. The court referred to a provision of the leases that required United to abide by and conform to the leases “and all regulations of the [Secretary] now or hereafter in force and relative to such leases.... ” Id.

The Secretary’s new requirement of tribal approval of the mining plan was not adopted or included in any regulation of the Secretary. If the Secretary had proposed such a regulation, United would have had the opportunity to oppose it. Indeed, at one point the Secretary had proposed (although never adopted) a regulation, applicable only to future and not to existing leases, Proposed § 177.2(c), that required only that the “Mining Supervisor shall be available to consult with the Indian mineral owner before acting to approve or disapprove any such plan,” Proposed § 177.5, and not that the plan be approved by the tribe. Dep’t of Interior, Mining on Indian Lands, Proposed Rules, 42 Fed.Reg. 18,-083, 18,088-89 (Apr. 5, 1977).

The fact that United agreed that the leases would be subject to future regulations does not indicate that United fairly can be said to have anticipated that the Secretary would apply a new policy requiring tribal approval of mining plans to leases entered into almost six years earlier, in reliance on which United had expended some $5 million.

The Claims Court held, however, that the Secretary’s decision had not interfered with United’s investment-backed expectations because the property “right” that United alleges was taken was “not the leases,” but United’s “expectation that it would be permitted by defendant to engage in mining the leased tracts.” 17 Cl.Ct. at 775. Relying upon Allied-General, the court reasoned:

It was not a reasonable investment-backed expectation that merely achieving technical adequacy of the mine plan under the regulations automatically required Secretarial approval of [United’s] mine plan ministerially. A sophisticated company like [United], schooled in the vicissitudes of Government, should have reasonably contemplated the possibility of Government inaction and delay.

The Court believes it was reasonable for [United], in dealing with the Navajos and the Government, to assume that there would be tribal involvement in the mine plan decisionmaking process when weighed against the trust responsibilities of the Secretary created by the Indian Mineral Leasing Act of 1938 (25 U.S.C. §§ 396a-396f) and the Government’s policy of Indian Self-Determination which had its origins in a policy statement by President Nixon in 1970 which, in turn, culminated in the enactment of the Indian Self-Determination and Education Assistance Act, 25 U.S.C. §§ 450, et seq., some 2 years before [United] submitted its mine plan to [the Survey] for approval.

Id. at 776 (emphasis in original).

In part 3 below, we explain why Allied-General is significantly different from, and therefore does not control, this case. Here we note only that the property interest that is the subject of the taking claim is United’s leasehold interest in the minerals, which the government took by preventing United from mining under the leases, and not the mere expectation that United would be permitted to engage in mining. Contrary to the ruling of the Claims Court, we hold that the Secretary’s refusal to approve the mining plan seriously interfered with United’s investment-backed expectations by destroying them.

3. The Character of the Governmental Action. When the Interior Department officials first informed United that tribal approval was required for the mining plan, they gave no reason for or explanation of that decision. The Claims Court specified two factors that it believed explained the Secretary’s decision: “[T]ribal concerns about potential reduction of scarce drinking water supplies in an arid region and the addition of another major uranium mining operation to an already large number of such mines operating in an area which could not handle the burgeoning population and increased traffic that would impact the area.” 17 Cl.Ct. at 777. The court also noted that United “had met necessary environmental impact requirements,” id. at 771 n. 10 — a finding that seemingly undercuts and perhaps vitiates the court’s speculation regarding the reasons for the Secretary’s decision.

The record leaves no doubt that the real reason for the Tribe’s refusal to approve United’s mining plan was an attempt to obtain substantial additional money from United. The general counsel of the Tribe indicated at a meeting that an additional $10 million would be necessary. Interior Department officials were aware that the Tribe’s true motive for refusing to approve the mining plan was that the Tribe “wanted ... more money.” This fact, which the Claims Court did not mention, is inconsistent with that court’s view that the reason the Tribal Council would not approve the mining plan was “tribal concerns regarding potential loss of the Tribe’s drinking water supplies and the cumulative effects of the proliferation of uranium mines in the area,” 17 Cl.Ct. at 777, since these concerns apparently would have disappeared if United had paid the Tribe substantia] additional money.

In its brief before us, the government asserts that the Secretary’s requirement of tribal approval of the mining plan was intended to promote the Indians’ right to and development of self-determination. It is difficult to understand, however, how encouraging the Indians not to live up to their contractual obligations, which they entered into freely and with the Secretary’s approval, could be said to encourage self-determination. To the contrary, one would think that the best way to make the Indians more responsible citizens would be to require them to live up to their contractual commitments.

The present case is very different from Allied-General. In that case a company had constructed a plant for reprocessing used nuclear fuel. While the Nuclear Regulatory Commission was considering the company’s application for an operating permit for the plant, the President barred the operation of any reprocessing plants because of concern that permitting the plant to operate could lead to a proliferation of nuclear weapons that could threaten the safety of the United States.

The Claims Court dismissed a suit for just compensation based on the government’s alleged taking of the plant. This court affirmed, holding that “the claimant had no legally protected property right to operate the plant, which could have been the subject of a fifth amendment taking, as against the fear it would injure the national security.” 839 F.2d at 1573. This court applied “the basic rule ... that as against reasonable state regulation, no one has a legally protected right to use property in a manner that is injurious to the safety of the general public.” Id. at 1576 (citing Mugler v. Kansas, 123 U.S. 623, 8 S.Ct. 273, 31 L.Ed. 205 (1887)).

The Secretary’s requirement of tribal consent in the present ease is a far cry from the kind of Presidential power invoked in Allied-General. The Secretary’s action reflects not concern over national safety, but an attempt to enable the Tribe to exact additional money from a company with whom it had a valid contract, which the government euphemistically describes as an attempt to encourage and promote Indian self-determination. The considerations upon which the court based its decision in Allied-General are inapplicable here. See also Atlas Corp., 895 F.2d 756-58 (federal statute requiring uranium producers to take costly action to decontaminate production sites and stabilize residue from uranium production known as “tail-ings,” not a taking where Congress determined that the tailings were “potentially hazardous to the public health”).

CONCLUSION

We hold that there was a taking, and accordingly reverse the judgment of the Claims Court dismissing the complaint. The case is remanded to that court to determine the just compensation to which United Nuclear Corporation is entitled. In so remanding, we indicate no views concerning the basis upon which just compensation is to be determined or the amount to be awarded.

REVERSED and REMANDED.