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Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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PUBLISH 

FILED 

United State.a Court of Appeals 

'renth Circuit 

UNITED STATES COURT OF APPEALS MAR 2 0 1999 

ROBERT L. HOECKER 

Clerk 

TENTH CIRCUIT 

COTTON PETROLEUM CORPORATION and 

SHELL OIL COMPANY, 

Plaintiff-Appellants, 

v. 

) 

) 

) 

) 

) 

) 

) 

UNITED STATES DEPARTMENT OF THE ) 

INTERIOR, BUREAU OF INDIAN AFFAIRS; ) 

KENNETH L. SMITH, ASSISTANT SECRETARY, ) 

INDIAN AFFAIRS; RUPERT THOMPSON, ) 

SUPERINTENDENT, ANADARKO AGENCY; ) 

NEWTON ROSE, WINSTON ROSE, WESLEY ROSE, ) 

NELSON ROSE, THEODOSIA HARRIS, AND ) 

JOHN ROSE, ) 

Defendant-Appellees. 

) 

) 

No. 87-1191 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF WESTERN DISTRICT OF OKLAHOMA 

(CIV-84-1769-E) 

Kent L. Jones (Orval E. Jones with him on 

Estill, Hardwick, Gable, Collingsworth 

Oklahoma, attorney for Appellants. 

the brief) of Hall, 

& Nelson, Inc., Tulsa, 

Dirk D. Snel (F. Henry Habicht, II, Assistant Attorney General, 

and Laura E. Frossard, Department of Justice, with him on the 

brief; J. McLane Layton, Office of the Solicitor, Department of 

the Interior, Washington, D.C., of counsel, with him on the 

brief), Department of Justice, Washington, D.C., attorneys for 

federal Appellees. 

Patricia L. Brown (Jap w. Blankenship of Fellers, Snider, 

Blankenship, Bailey & Tippens, Oklahoma City, Oklahoma, of 

counsel, with her on the brief) of Wilkinson, Barker, Knauer & 

Quinn, Washington, D.C., attorney for Rose Appellees. 

Before McKAY, BARRETT and EBEL, Circuit Judges. 

BARRETT, Senior Circuit Judge. 

Appellate Case: 87-1191 Document: 01019300980 Date Filed: 03/20/1989 Page: 1 
Cotton Petroleum Corporation and Shell Oil Company, 

hereinafter jointly referred to as Cotton or lessee, appeal from 

the district court's order denying their motion to amend the 

court's order granting summary judgment unto the defendants, 

United States Department of the Interior, et al., and Newton Rose, 

et al. All parties filed motions for summary judgment. The 

parties agree that the material facts are uncontroverted. Our 

jurisdiction vests under 28 u.s.c. § 1291. 

Background 

The dispute in this case involves an 80-acre tract of 

restricted Indian allotment land owned by Newton Rose, et al., 

which was leased for oil and gas to Shell Oil Company, on January 

17, 1979, for a primary term of three years pursuant to terms 

approved by the Superintendent of the Anadarko Agency, Bureau of 

Indian Affairs {BIA), Department of the Interior. The lease was 

thereafter assigned by Shell to Cotton. The Rose tract is located 

within a 640-acre drilling and spacing unit for the production of 

gas, pursuant to a spacing order entered by the Oklahoma 

Corporation Commission in June of 1975. The Rose lease, issued 

following bids, involved a bonus payment of $11,021.00 or some 

$135.00 per acre. It contained, inter alia, the following express 

covenants: 

Par. 1:. 

[I]f the lessee shall commence to drill a well 

within the terms of this lease, the lessee shall have 

the right to drill such well to completion with 

reasonable diligence and if oil or gas, or either of 

them, be found in paying quantities, this lease shall 

continue and be in force with like effect as if such 

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Appellate Case: 87-1191 Document: 01019300980 Date Filed: 03/20/1989 Page: 2 
well had been completed within the term of years herein 

first mentioned. 

Par. 11: 

Unit operation. The parties hereto agree to 

subscribe to and abide by any agreement for the 

cooperative or unit development of the field or area, 

affecting the leased lands, or any pool thereof, if and 

when collectively adopted by a majority operating 

interest therein and approved by the Secretary of the 

Interior, during the period of supervision. 

(R., Vol. II, Tab 57, Exhibit D). 

All of the lands in Section 6, wherein the Rose 80-acre tract 

is situated, are restricted Indian allottment lands with the 

exception of one 40-acre non-Indian ownership tract. 

On December 30, 1981, Cotton, as operator, commenced drilling 

a well in the unit area and the well had been drilled to a depth 

of some 5200 feet when, in January, 1982, Cotton submitted a 

communitization agreement, which had been adopted by a majority of 

the Unit area working interest owners, to the Department of 

Interior for its approval as to the Rose tract and other Indian 

allotment tracts in the unit. On January 12, 1982, prior to the 

expiration of the primary term of the Rose lease (January 17, 

1982), the United States Geological Survey, Minerals Management 

Service (MMS), the first of a three-step Department of the 

Interior agency process of review for approval, recommended that 

the communitization agreement be approved by the Anadarko Area 

Director in that it "[o]ffers adequate protection to the 

restricted Indian interests." (R., Vol. II, Tab 69). The 

Superintendent of the Anadarko Agency concurred, completing the 

second step in the process, and forwarded the cornmunitization 

agreement to the Area Director for his review and approval on 

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January 15, 1982. Newton Rose contacted the Area Director prior 

to January 17, 1982, and requested that he not approve the 

communitization agreement and permit the Rose lease to expire so 

that it would be open for new leasing at a substantially ·greater 

bonus sum than that paid by Shell Oil Company. The Area Director 

requested additional information from the MMS which he received on 

January 22, 1982. The Area Director approved the communitization 

agreement on February 11, 1982, completing the 

process. 

three-stage 

The Area Director observed that: the primary purpose for 

leasing constitutes an agreement between lessor and lessee whereby 

the ultimate goal is production through a joint effort; refusal to 

approve a communitization agreement defeats the primary purpose of 

the lease; the agreement had been timely submitted before any 

affected lease had expired and the drilling operations on the 

unit had been diligent; and, it is not feasible to release an 

isolated 80-acre tract because it is not likely that an oil 

company would be interested in drilling the second well, when it 

has been determined that the common source of supply may be 

drained by one well. The Area Director further observed that the 

Indian lessors had no objection to the communitization agreement 

but simply wanted an opportunity to renegotiate lease terms and 

obtain a large bonus payment. 

On January 13, 1984, the Assistant Secretary for Indian 

Affairs (Operations), pursuant to personal jurisdiction over the 

Rose appeal authorized by the Secretary of the Interior under 43 

C.F.R. § 4.5(a)(l), issued the Department's final decision, 

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Appellate Case: 87-1191 Document: 01019300980 Date Filed: 03/20/1989 Page: 4 
holding that: (1) the communitization agreement, to the extent 

that it included the Rose 80-acre tract as leased lands, was not 

in the best interests of the Rose lessors when approved by the 

Area Director, (2) it is not now in the best interests of the Rose 

lessors to have their tract of land included in the 

communitization agreement as leased lands, (3) as to the Rose soacre tract, approval of the communitization agreement is reversed, 

(4) therefore, the Shell lease (on the Rose 80-acre tract) has 

expired, and (5) as unleased restricted Indian land within the 

unit, the Rose lessors are entitled to an 8/8th royalty under the 

terms of the Communitzation Agreement. (R., Vol. II, Tab 12, pp. 

1-2). The decision-order further directed that the Rose Indian 

owners were entitled, under the terms of the communitization 

agreement, to receive 12.65 percent of the value of any production 

already taken from the unit area plus . proper interest and to 

receive payment for future production at the same rate until such 

time as the tract is leased or other arrangements are made. Id. 

at p. 5. 

Cotton completed the drilling operations on the unit well 

prior to December 31, 1983. Total drilling and completion costs 

amounted to $7,765,462.63, while production revenues to that date, 

after payment of severance taxes, amounted to $407,317.91. 

Factual Analysis-Discussion 

On May 2, 1983, Mr. John W. Fritz, Deputy Assistant 

Secretary-Indian Affairs (Operations), declined to decide the Rose 

appeal from the Anadarko Area Director's decision of February 11, 

1982, approving the communitization agreement submitted by Cotton. 

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Appellate Case: 87-1191 Document: 01019300980 Date Filed: 03/20/1989 Page: 5 
Rather, Fritz remanded the matter to the Anadarko Area Director 

with instructions to prepare and forward a written determination 

on whether approval of the unit agreemerit was in the best 

interests of the Rose allottees under this court's Kenai Oil and 

Gas, Inc. v. Department of the Interior, 671 F.2d 383 (lOth Cir. 

1982) opinion and in accordance with the Deputy Assistant's 

Memorandum of April 23, 1982. 

The Memorandum, which was sent to all BIA Superintendents and 

Area Directors, set forth the guidelines for the approval of 

communitization agreements. The memorandum provided in part: 

[The] recent decision of the lOth Circuit Court of 

Appeals in Kenai * * * provides us with some guidance on 

the scope of * * * [BIA's] authority [to approve 

communitization agreements of Indian oil and gas leases]. 

Therefore, the following guidelines have been developed 

to assist Area Directors and Superintendents in 

exercising this authority. 

* * * * * * * * * * * * 

2. The Secretary has the discretion to approve or 

disapprove Communitization or Unit Agreements based on a 

determination of whether approval would be in the best 

interests of the Indian lessor. Area Directors and 

Superintendents must prepare such a determination in 

writing, based on logical engineering and economic facts, 

whether the agreement is approved or disa~proved, and 

that document should be given to the appl~cant and the 

Indian lessor. In determining whether the agreement is 

or is not in the best interest of the Indian lessor, the 

following should be considered: 

a) The long term economic effects of the agreement 

must be in the best interest of the Indian lessor and we 

must be able to document these effects. 

b) The Minerals Management Service is required to 

recommend approval or disapproval based upon the 

engineering and technical aspects of the agreement to 

assure protection of the interests of the Indian lessor, 

and BIA officials should rely on that recommendation. 

c) The lessee in question must have complied with 

the terms of the lease in all respects, including the 

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commencement of drilling operations, or actual drilling, 

or actual production in paying quantities (depending on 

the terms of the lease), within the unit area prior to 

the expiration date of any Indian lease. 

d) Central office must approve any format of a 

Communitization Agreement developed by an Agency or Area 

Office before implementation. 

e) Applications to form Communitization Agreements 

should include an affidavit certifying that all Indian 

mineral owners have been given notice of the pending 

action. * * * 

f) The party applying for approval of a 

Communitization Agreement may be requested to provide 

copies of farm out or similar type agreements in cases 

where such agreements could have a bearing upon the 

qwnership of the working interest in the unit (emphasis 

supplied). 

(R., Vol. I, Tab 91, Plaintiffs' Exhibit C). 

On June 22, 1982, notice was given that the above guidelines 

were adopted on April 23, 1982. This notice was published in the 

Federal Register, 47 FR 26920. The explanatory policy stated: 

SUPPLEMENTARY INFORMATION: It is the intent of the 

BIA that in exerc1s1ng the Secretary's discretionary 

authority to approve or disapprove communitization or 

unit agreements, BIA officials should take into 

consideration the Indian owners' best interests and 

consider all of the factors, including economic 

consideration, as prescribed by the U.S. Court of 

Appeals in its decision in Kenai Oil and Gas, Inc. v. 

Department of the Interior, 671 F.2d 383 (February 17, 

1982). In that decision the Court of Appeals held that 

the Superintendent of the Uintah and Ouray Agency 

properly exercised his judgment and discretion in 

refusing to approve proposed communitization agreements 

based upon a finding that they did not serve the best 

economic interests of the Indian lessors. The Plaintiff 

had argued that the Superintendent's considerations were 

limited to considering matters involving production and 

conservation on restricted Indian lands. The Court 

concluded that the Secretary, acting in his capacity as 

a trustee, has the responsibility to manage Indian lands 

so as to make them profitable for the Indian and to 

maximize lease revenues. Accordingly, the new 

guidelines require that in the future BIA Area Directors 

and Superintendents must prepare a written 

determination, based upon logical engineering and 

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Appellate Case: 87-1191 Document: 01019300980 Date Filed: 03/20/1989 Page: 7 
economic facts, that a proposed agreement is in the best 

interests of the Indian lessor. The guidelines also 

requ~re that the long term effects of the lease 

agreement must be in the best interests of the Indian 

lessor and these effects must be documented. 

The Bureau is aware that the process of reaching 

the determinations required by the guidelines will 

require that Area Directors and Superintendents receive 

proposed agreements sufficiently in advance of the 

expiration of the primary term of any Indian lease 

within the proposed unit in order to conduct an adequate 

review of the engineering and economic factors involved. 

Consequently, in order to ensure adequate 

consideration, lessees of Indian lands are encouraged to 

submit all future communitization agreements to the 

appropriate Bureau of Indian Affairs office not less 

than 90 days prior to the date of expiration of the 

first Indian lease in the proposed unit (Emphasis 

supplied). 

On July 7, 1983, the Anadarko Area Director submitted a 

Memorandum to the Deputy Assistant Secretary - Indian Affairs 

(Operations) detailing, in accord with the aforesaid guidelines 

and the Assistant Secretary's request of May 2, 1983, the basis 

and rationale for the Area Director's decision of February 11, 

1982, approving the subject communitization agreement. (R., Vol. 

II, Tab 36). This memorandum set forth important chronological 

facts worthy of repetition: 

(1) The subject 80-acre tract in Section 6, T7N, 

R.9W., Caddo County, Oklahoma, was duly advertised for 

Lease Sale December, 1978, by the Anadarko Agency and 

approved for a bonus of $11,021.60 plus a 20% royalty on 

BIA Lease Form to Shell Oil Co. on January 17, 1979, for 

a three year term to January 17, 1982. The Lease, in 

Section 11 provided: 

Unit Operation - The parties hereto agree to 

subscribe to and abide by any agreement for 

the cooperative or unit development of the 

field or area affecting the leased lands, or 

any pool thereof, if and when collectively 

adopted by the majority operating interest 

-aAppellate Case: 87-1191 Document: 01019300980 Date Filed: 03/20/1989 Page: 8 
therein and approved by the Secretary of the 

Interior during the period of supervision. 

(2) In May, 1975, the Oklahoma Corporation 

Commission, by Order #113637, established a 640 acre 

spacing unit, providing for drilling of only one gas 

well in Section 6 to the common source of supply 

(Treating production from that well as proportionally 

attributable to all lands in Section 6). 

(3) Leasing in Section 6 commenced in January, 

1977, continuing through October, 1981. With the 

exception of a 40 acre tract, all other land in Sec. 6 

was Indian owned. 

(4) On December 20, 1981, a unit well was 

commenced in Sec. 6 on lands other than the Rose lease. 

(5) On January 13, 1982, the Mineral Management 

Service (MMS) transmitted the communitization agreement 

to the Anadarko Agency, recommending approval, while the 

Indian leases were still within primary terms, finding, 

inter alia: 

The Commissions hold hearings and secure 

testimony from expert witnesses as to the best 

well spacing for the reservoir using known or 

available geological and engineering data. 

Since the State Commission cannot pool Indian 

lands into an established spacing unit, 

joinder of the Indian tract(s) is achieved by 

a CA approved under the terms of the lease. 

If proper reservoir spacing were not followed, 

the reservoir would be developed under the 

simple rule of capture. This has a long-term 

result of lower ultimate recovery of oil and/ 

or gas (to the detriment of all interests). 

There may be times when spacing is not in the 

best interests of a particular individual in 

the short-term; but, the determination to 

communitize must be based upon the long-term 

overall conditions of the reservoir. 

(6) On January 15, 1982, the Anadarko Agency 

Superintendent transmitted the Communitization Agreement 

to the Anadarko Area Director's office recommending 

approval. 

(7) Newton Rose, for himself and representing the 

Rose interests in the 80 acre tract, requested that the 

Area Director not approve the Communitization Agreement 

and expressed the hope that the Rose lease be permitted 

to expire and then open for new leasing. 

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{8) On January 19, 1982, the Area Director 

telephoned the MMS office and requested that he be 

provided additional information relative to 

Communitization. The MMS responded on January 22, 1982, 

and noted that the well being drilled on the unit had 

been drilled to a depth below 5200 feet and that 

drilling operations were continuing. 

{9) On January 22, 1982, the attorney for Newton 

Rose, et al., requested that the proposed 

communitization agreement be transmitted to the 

Department's Washington, D.C. office for review prior to 

final action. [The Area Director approved and signed the 

Communitization Agreement on February 11, 1982, and the 

Rose defendants appealed the approval to the Deputy 

Assistant Secretary for Indian Affairs]. 

(10) On February 2, 1982, the operator reported a 

drilling depth of 10,223 feet. 

In the Area Director's "Conclusions," he observed, inter 

alia, that: the communitization agreement had been received prior 

to expiration of the Indian leases and commencement of drilling 

operations within the unit area was within the primary terms; the 

primary purpose for leasing constitutes an agreement between 

lessor(s) and lessee(s) whereby the ultimate goal is production 

through joint effort; commencement of the unit well in December, 

1981, indicated probability of achievement; the isolation of or 

separation of the Rose 80-acre tract from the 640 acre unit for 

development from the other leaseholds within the spacing pattern, 

did not appear probable or feasible; the Corporation Commission 

may enforce a denial of requests for increased densities or 

effectively control well spacing by refusing permits authorizing 

the sale and/or purchase of oil and gas; most oil companies would 

be reluctant to carry an unleased tract because of the costs 

involved in drilling the spacing pattern, and it is unlikely that 

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Appellate Case: 87-1191 Document: 01019300980 Date Filed: 03/20/1989 Page: 10 
an oil company would be interested in drilling the second well 

when it has been determined that the common source of supply may 

be drained by one well. (R., Vol. II, Tab 36). 

Under the caption of "General Discussion" the Area Director 

observed that: Generally, Indian mineral owners do not object to 

communitization, per se, but rather object where the end of a 

primary term of a lease is in sight and a new lease may result in 

substantially larger bonus: the official having the responsibility 

of approving communitization agreements must weigh all factors, 

including that of orderly development and uniform sharing, in 

reaching a decision which will benefit the Indian mineral 

ownership: the March, 1982, top bid for Indian tracts anywhere 

near Section 6 was $1,375.00 per acre. Id. 

The record reflects that of all the Indian leases in Sec. 6, 

the Rose lease is the only Indian lease which administratively 

challenged the February 11, 1982, approval of the communitization 

agreement by the Anadarko Area Director. 

On August 17, 1983, the Rose family requested the Interior 

Board of Indian Appeals (IBIA) to assume jurisdiction of their 

appeal under 25 C.F.R. S 2.19 because no decision had yet been 

issued. Before the IBIA assumed jurisdiction, the Secretary of 

the Interior assumed jurisdiction over the Rose appeal and 

delegated his decision-making authority to the Assistant Secretary 

for Indian Affairs. 

On January 13, 1984, the Assistant Secretary for Indian 

Affairs rendered a final decision in the administrative chain of 

this case. Without any recognition of the mandates of his own 

guidelines which were carefully followed by the Area Director in 

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his July 7, 1983, memorandum, the Deputy Assistant Secretary 

found: 

(1) the communitization agreement, to the extent 

that it included appellants' (Rose, et al.) tract as 

leased lands, was not in the appellants' best interest 

when approved by the Area Director; 

(2) At this time it is 

appellants to have their 

communitization agreement 

Director as leased lands; 

not in the best interest of 

parcel included in the 

as approved by the Area 

(3) as to that tract, approval 

communitization agreement is reversed; 

of 

{4) therefore, the Shell lease has expired; and 

the 

(5) as unleased restricted Indian land within the 

unit, the appellants are entitled to an 8/8th royalty 

under the terms of the communitization agreement. 

(R., Vol. II, Tab 12). 

Further the Assistant Secretary instructed the Area 

Director: 

I also instruct the Area Director that until such 

time as the Rose tract is included in a new oil and gas 

lease, it is deemed to be unleased land within the 

communitized area and, therefore, the Indian owners are 

entitled under the terms of the agreement to receive 

12.65 percent of the value of any production already 

taken from [the unit area] plus proper interest and are 

entitled to receive payment for future production at the 

same rate until such time as the tract is leased or 

other arrangements are made . • • . 

Id. at p. 5. 

In granting summary judgment in favor of the defendants, the 

Secretary and Newton Rose, et al., the district court found that 

the Assistant Secretary's decision overturning the Area Director's 

approval of the communitization agreement as to the Rose lease was 

within the broad discretion vested in him under 43 C.F.R. § 

4.5(a)(l) and our Kenai opinion and that it was not arbitrary, 

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capricious, an abuse of discretion or otherwise not in accordance 

with law. The court found, inter alia: 

[T]here is adequate support for finding that the 

Assistant Secretary considered all relevant factors and 

made no clear error of judgment in overturning the 

decision of the Anadarko Area Director. 

* * * 

In this case, the Assistant Secretary's ruling 

articulates his findings and analysis for determining 

the agreement was not in the Rose family's best economic 

interests • His rationale is . supported by 

evidence in the record. 

(R., Vol. I, Tab 120, p. 8). 

Appellate Contentions 

On appeal, Cotton contends that (1) the Secretary erred, as a 

matter of law, in refusing to approve the geologically prudent 

communitization agreement for the sole purpose of causing the Rose 

lease to expire, (2) the Area Director had the authority to 

approve the communitization agreement at any time after it had 

been properly and timely submitted by Cotton, (3) the Secretary's 

order was arbitrary and capricious because his analysis consisted 

of a consideration of the merits of the Rose lease, (4) the 

Secretary's order was arbitrary and capricious and contrary to law 

because his decision placed the Rose lease both inside and outside 

the unit, and (5) the proceeds of production must be paid to a 

party who has expended funds to develop an oil and gas well under 

an invalid or expired lease until his costs have been recouped. 

Both the Rose appellees and the Secretary, on appeal, argue 

that the Rose lease had expired by its own terms before the 

communitization agreement was approved and that Cotton, as 

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operator of the gas production unit, is not entitled to recover 

all production costs for the unit attributable to the restricted 

Indian (Rose) tract until the Secretary so orders. The Secretary 

argues that this court lacks jurisdiction over this appeal from 

the district court's order remanding the case to the Secretary for 

further action. 

I. 

Our Jurisdiction 

We shall first consider the Secretary's contention that this 

court lacks jurisdiction over this appeal. In every case and at 

each stage of the proceeding, we must satisfy ourselves that our 

jurisdiction is proper. Delgado Oil Co., Inc. v. Torres, 785 F.2d 

857, 859 (lOth Cir. 1986). 

The Secretary acknowledges that while the district court's 

order of November 3, 1986, did resolve the threshold legal issues, 

i.e., whether the Rose lease had expired and whether it was part 

of the unit, still the order was not final because the district 

court remanded to the Secretary to determine how an equitable 

lease should be negotiated and what bonus the Rose family should 

receive, after which any remaining funds (from production) should 

be redistributed to Cotton. The Secretary points out that on 

remand, he must determine Cotton's rights, as unit operator, to 

recoup its production costs attributable to the Rose tract. This 

determination depends upon Cotton's status as a "good faith 

trespasser," which must be resolved by the Secretary on remand. 

Thus, argues the Secretary, the district court's order of January 

13, 1984, is not a final, appealable order. This court has held 

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that for a decision to be final under 28 u.s.c. S 1291, "it 

ordinarily must dispose of the litigation on the merits." Jeske 

v. United States, 713 F.2d 565, 567 (lOth Cir. 1983). 

The Secretary correctly states that remand to an 

administrative agency by the district court is ordinarily not a 

final decision, citing to Bender v. Clark, 744 F.2d 1424, 1426-27 

(lOth Cir. 1984). That opinion, however, is authority for the 

proposition that the finality requirements of 28 u.s.c. S 1291 

(final decision) need not strictly come within the Cohen v. 

Beneficial Industrial Loan Corp., 337 U.S. 541 (1949) "collateral 

order" doctrine if, in a practical sense, justice may require 

immediate review. In Bender, we opined: 

[T]hus, in the unique instance where the issue is not 

"collateral" but justice may require immediate review, a 

balancing approach should be followed to make this 

jurisdictional decision. 

The circumstances • • • require the application of 

such a balancing test rather than the mechanical 

analysis of the collateral order doctrine. The critical ~nqu~ry is whether the danger of injustice by delaying 

appellate review outweighs the inconvenience and costs 

of piecemeal review. 

744 F.2d at 1427. 

We hold that the issues presented in this appeal are of such 

importance that any delay in review by this court would likely 

result in further disputes and litigation, confusion and danger of 

injustice. The doctrine of ripeness requires us to evaluate both 

the fitness of the issues for judicial decision and the hardship 

of the parties of withholding court consideration. In Re Grand 

Jury, April, 1979, 604 F.2d 69, 72 (lOth Cir. 1979). 

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II. 

The Rose Lease Expiration Contention 

Both the Rose appellees and the Secretary argue that the Rose 

lease expired by its own terms before the communitization 

agreement was approved by the Area Director. We disagree. 

Both in his brief and during oral argument, the Secretary 

contended that because the primary term of the Rose lease expired 

before the Area Director approved the communitization agreement, 

the Secretary may determine that it is in the best economic 

interest of the Rose lessors to recognize the fact that the lease 

has expired and for the Secretary to approve the communitization 

agreement of that tract as "unleased land." (Brief of Appellee 

Secretary, pp. 15-16). 

The Assistant Secretary, in issuing his January 13, 1984, 

decision reversing the Area Director's order approving the 

communitization agreement, specifically recognized that the 

communitization agreement had been timely submitted for approval: 

[1] The first factor pertains to the timeliness of 

the submission of the agreement to the Bureau for 

approval. Obviously, a proposed agreement must be 

submitted prior to the expiration of the primary term of 

an Indian lease if that lease is to be included in the 

proposed un~t. Indeed, the agreement ~n ~ssue was 

submitted only four days before the expiration date of 

Shell's lease .••. (underlining supplied). 

(R., Vol. II, Tab 12, p. 2). 

Thus, the Secretary found that the communitization agreement 

had in fact been timely submitted by Cotton to the Bureau for 

approval. This is buttressed by the fact that the Assistant 

Secretary, after so finding, proceeded to analyze what he 

considered to be the merits of the case in determining the best 

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interests of the Rose lessors. In his brief, the Secretary 

states: "The issue in the instant case is not whether Cotton was 

timely in the submission of the communitization agreement, but 

whether it was in the best interest of the Rose family." (Brief of 

Secretary, p. 21, footnote 9). We agree. The Secretary's finding 

that the submission of the communitization agreement by Cotton to 

the Department prior to the expiration of the Rose lease's primary 

term was timely was correct. The Secretary has held that 

submission of a communitization agreement to the Minerals 

Management Service affecting Indian lands constitutes delivery to 

the Department and was timely, rendering the agreement effective 

as of the date it was submitted for approval. (Brief of 

Appellants, Exhibit F).l 

The Secretary, on appeal, argues directly opposite his 

January 13, 1984, ruling that Cotton's submission of the 

communitization agreement was timely: "The lease expired because 

Cotton failed to do any one of three things which, by the lease's 

own terms, would have extended the life of the lease: production 

in paying quantities; commencement of drilling on the lease; or 

approval during the primary term of an unit agreement and 

1 By analogy, we note that in Hallam v. Commerce Mining & 

Royalty Co., 49 F.2d 103 {lOth Cir.), cert. denied, 284 U.S. 643 

(1931), this court held that the Secretary's approval of a m~n~ng 

lease on restricted Indian land related back to the date of the 

lease. We there observed the broad powers vested in the 

Secretary, including the power to suspend his regulations. Id. at 

108. The "relation back" doctrine applied in Hallam was likewise 

applied in Hood v. United States, 256 F.2d 522 (9th Cir. 1958) 

wherein the court held that the Secretary of the Interior's 

approval of conveyance by deed of restricted Indian land on August 

10, 1926, related back and became effective as of the date of the 

deed executed on November 10, 1925. Id. at 529. 

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commencement of drilling within the unit." (Brief of Secretary, p. 

15). 

In this case, the Secretary's authority to approve the 

communitization agreement had been delegated to the Anadarko Area 

Director of the Bureau of Indian Affairs. Cotton submitted the 

communitization agreement in a timely manner. A matter is 

properly "submitted" when it is left to the determination or 

decision of another. See People v. Terry, 466 P.2d 961, 969 (Cal. 

1970). A matter is "timely" when it is seasonable or opportune. 

Martin v. Murphy, 208 F.2d Supp. 562, 564 (D.C. N.Y. 1962). It's 

approval required a three-step process. On January 12, 1982, the 

communitization agreement was approved by the Department's 

Minerals Management Service, thus completing the first step. It 

was then forwarded to the Superintendent of the Anadarko Agency, 

who in turn approved the agreement and on January 15, 1982, 

forwarded it to the Anadarko Area Director, thus completing the 

second step. Thus, the process of approval of the communitization 

agreement had been completed in steps one and two, two days prior 

to expiration of the primary term of the Rose lease. The Area 

Director was contacted by Newton Rose prior to the expiration date 

of the Rose lease and requested not to approve the agreement. The 

Area Director thereupon requested additional information, delaying 

his approval of the communitization agreement until February 11, 

1982. 

It is to be noted that there are no time restrictions or 

limitations involving the decisions to approve or disapprove 

communitization agreements at any of the procedural stages above 

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identified. Furthermore, the record does not reflect that Cotton 

was requested to supply additional documentation in support of its 

initial submission. Accordingly, any delays could not be 

attributed to Cotton.2 

We have observed, however, that after the Area Director 

received the communitization agreement from the Superintendent 

prior to the expiration of the primary term of the Rose lease, he 

was contacted by Newton Rose and requested to disapprove the 

agreement. The Area Director did withhold his approval of the 

communitization agreement until February 11, 1982, which was after 

the expiration of the primary term of the Rose lease. It seems 

likely, in light of the Area Director's decision to approve the 

communitization agreement, that absent the intervention of Newton 

Rose, the Area Director would have approved the agreement prior to 

the expiration date of the Rose lease. This, in turn, may have 

been sufficient to bring into play the equitable application of 

the tolling doctrine. See Jicarilla Apache Tribe v. Andrews, 687 

F.2d 1324, 1341 (lOth Cir. 1982). 

In Appeal of Integrity Oil and Gas Co., 42 IBLA 222 (August 

22, 1987), a communitization agreement was approved by USGS on 

April 18, 1979, and backdated to effective date of October 1, 

2 In County of Sullivan v. Civil Aeronautics Board, 436 F.2d 

1096 (2nd Cir. 1971), Judge Friendly, in a case involving an 

application for renewal of a license, held that "(iJf the licensee 

has timely sought renewal, the valuable rights conferred by the 

license for a limited term shall not be lost simply because the 

agency has not managed to decide the application before expiration 

of the existing license." Id. at 1099. By analogy, the valuable 

rights conferred by the lease to Cotton for the limited term 

should not be lost where Cotton timely submitted for approval the 

communitization agreement. 

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1978, thus qualifying the subject federal oil and gas lease which 

had an expiration date of October 31, 1978, to a. two year 

extension. In the case at bar, the effective date of the 

communitization agreement was November 20, 1984 (R., Vol. II, Tab 

63). 

Newton Rose, et al., consistently argued to the Secretary 

that the main issue in this case is whether the Area Director was 

empowered to revive an expired oil and gas lease by communitizing 

Indian lands after the expiration of the lease. The Secretary, 

however, did not initially accept the Rose arguments that the 

lease had expired. Rather, the Secretary remanded the matter to 

the Area Director for his determination of whether the 

communitization was in the best 

Thereafter, on appeal from the 

communitization agreement by the 

addressed the merits of the case. 

interest of the Rose lessors. 

remand approval of the 

Area Director, the Secretary 

In so doing, the Secretary 

concluded that the Rose lease had expired. 

In apparent reliance of his erroneous ruling that the Rose 

lease had expired at the end of its primary term, the Secretary 

proceeded to insert the Rose land, as an "unleased" tract within 

the unit. The result: the Rose 80-acre tract was, by order of the 

Secretary, entitled to a full 8/8th share of production proceeds 

from the Cotton well on the unit as "unleased Restricted Indian 

land" until the land be re-leased or its ownership established. 

(R., Vol. II, Tab 63, p. 2). 

Cotton argues that the Secretary cannot have it "both ways," 

in that the Secretary's choice was that of recognizing the 

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validity of the Rose lease and placing it in the unit subject to 

the approved communitization agreement or not placing it in the 

unit for purposes of the communitization agreement, in which case 

the lessors would not be lawfully entitled to share in the unit 

revenues. (Brief of Appellant, p. 41). 

III. 

Our Disposition 

Even though title has been distributed to an individual 

Indian allottee in order to qualify as allotted lands, the 

Secretary of the Interior nevertheless serves as a trustee in 

relation to oil and gas leases covering such lands, over which he 

has been held to have control. See Poafpybitty v. Skelly Oil Co., 

390 U.S. 365 (1968). The Congress has vested the Secretary with 

wide discretion in the leasing and development of all lands 

allotted to Indians. 25 u.s.c. S 396 provides, inter-alia: 

All lands allotted to Indians in severalty, except 

• may by said allottee be leased for mining purposes 

for any term of years as may be deemed advisable by the 

Secretary of the Interior; and the Secretary is 

authorized to perform any and all acts and to make such 

rules and regulations as may be necessary for the 

purposes of carrying the provisions of this section into 

full force and effect. 

Under this statute, restricted allottees may lease their land 

with the consent and subject to terms approved by the Secretary of 

the Interior. The Secretary has promulgated various regulations 

governing operations and production applicable to leases of 

restricted Indian lands. 25 C.F.R. 212.24(c) specifically 

provides that leases of restricted Indian lands are subject to 

cooperative or unit development plans when approved by the 

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Secretary. 25 C.F.R. 212.24(b) provides that the Secretary may 

impose such restrictions as to time or times for the drilling of 

wells and as to the production from any well or wells on 

restricted Indian lands which may be necessary, in his judgment, 

for the protection of the natural resources of the leased land and 

in the interests of the Indian lessor. Thus, the Secretary must 

consider the conservation factor. In Phillips Petroleum Co. v. 

Peterson, 218 F.2d 926, 932-33 (lOth Cir. 1954), cert. denied, 349 

u.s. 937 (1955), we observed: 

After all of the parties have consented to the 

agreement, either by executing it, or a counterpart 

thereof, or by consent and commitment pursuant to a 

unitization clause such as § 12, the unit plan is 

submitted to the Secretary or his authorized agent for 

final approval, which is by certificate upon a 

determination that such agreement is necessary and 

advisable in the public interest and is for the purpose 

of more properly conserving natural resources. 

Thus, it will be seen that unitization is a 

conservation measure which benefits both lessor · and 

lessee and tends to prevent waste of a natural resource. 

* * * 

The practice of unitization by a power granted the 

lessee in advance, if faithfully carried out, will be 

fair and profitable both to the lessor and lessee, and 

is vital to the oil and gas industry in the interests of 

the conservation of both natural and material resources. 

It should be upheld, although the grant of power is in 

general terms, because it is subject to implied terms 

that will prevent arbitrary and unfair dealing, will 

require compliance with the implied covenants in the 

lease for the benefit of the lessor and will impose a 

rigid standard of good faith on the part of the lessee. 

The Secretary's decision reversing the Area Director's remand 

approval of the communitization agreement timely submitted by 

Cotton is discretionary action subject to judicial review to 

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determine whether the Secretary acted in a manner that was 

arbitrary, capricious, an abuse of discretion, or contrary to law. 

5 u.s.c. § 706(2)(A). The district court conducted its review 

under this standard, but did not find, as we must, that the 

Secretary failed to discuss or analyze all of the relevant factors 

required in reaching his decision, mandated under his,guidelines 

to all Superintendents and Area Directors. In Kenai, we observed 

that "[I]f the Superintendent considered all relevant factors in 

reaching his decision and made no clear error of judgment, his 

action cannot be overturned." 671 F.2d at 386. The same standard 

was applied in Citizen to Preserve Overton Park v. Volpe, 401 u.s. 

404, 416, where the Court observed that it is required to 

determine "[w]hether the decision was based on a consideration of 

all the relevant factors and whether there is a clear error of 

judgment." 

Significant to this appeal, the Assistant Secretary did not 

discuss or analyze the various factors required under the 

guidelines set forth in his memorandum of April 23, 1982, issued 

to all BIA Superintendents and Area Directors. He did not (a) 

assess the long term economic effects of the communitization 

agreement in relation to whether it would be in the best interest 

of the (Rose) Indian lessor, nor was any attempt made to document 

this matter, (b) rely upon or give any reasons for not relying on 

the recommendation of the Minerals Management Service approving 

the communitization agreement based upon expert geologic and 

engineering opin_ions as serving the best interests of the Indian 

lessor, and (c) assess whether the lessee had complied with the 

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terms of the Rose lease in all respect. Instead, the Assistant 

Secretary purported to dispose of the Rose appeal "[o]n the narrow 

question of whether approval of the communitization agreement was 

in appellants' best interest • • • . " (R., Vol. II, Tab 12, p. 2). 

Thus, the Assistant Secretary predicated his decision simply 

upon the "narrow question" that by his disapproval of the 

communitization agreement only as it relates to the Rose lease, 

thus effecting a termination thereof, he would serve the "best 

interest" of the Rose appellants in the "economic" sense set forth 

in Kenai Oil & Gas, Inc. v. Dept. of Int. of u.s., supra, based 

upon the likelihood of an enhanced bonus payment and greater 

reserved royalty under a new lease. The Assistant Secretary 

acknowledged that development of the Rose tract as a separate or 

isolated tract within the 640-acre unit was probably not 

economically feasible. ( R., Vol. II, 3 Tab 12, p. 3) . In thus 

proceeding, the Assistant Secretary violated the mandates of his 

own guidelines. He did not recognize or discuss any obligation to 

approve the agreement there may be by virtue of the express 

language contained in Par. 11 of the Rose lease. He was clearly 

obligated to analyze and discuss the long term economic effects of 

the communitization agreement on the Rose lessors and to reason on 

the engineering and technical aspects of the unit and the 

communitization agreement covering it insofar as it assures the 

3 -Indeed, where a small tract owner has been afforded a fair 

chance to join in a fair unitization agreement (and in this case, 

there is no contention that the communitization agreement 

submitted by Cotton is unfair) with an equitable opportunity to 

ratably participate in the pooled drilling unit, no permit to 

drill on the small tract will be granted. See 6 Williams and 

Meyer, Oil and Gas Law, § 933.6 (1987). 

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best protection to the interests of the Rose lessors. There is no 

discussion or analysis of these factors in the Assistant 

Secretary's decision. An administrative agency must explain its 

departure from prior norms (guidelines). Atchison, Topeka & Santa 

Fe Railway Co. v. Wichita Bd. of Trade, 412 u.s. 800, 808 (1973); 

Secretary of Agriculture v. United , States, 347 u.s. 645, 653 

(1954). Here, the Assistant Secretary did not address the very 

factors required under the guidelines he issued and he made no 

effort to explain his failure to do so. 

Where it is shown that an administrative agency deviated from 

its established procedures, the presumption of administrative 

regularity does not apply. Wilson v. Hodel, 758 F.2d 1369 (lOth 

Cir. 1985). The Assistant Secretary issued the April 23, 1982, 

guidelines following the Kenai opinion handed down by this court. 

While Kenai rejected the contention that the decision relative to 

approval of a communitization agreement should be confined to 

matters of conservation and production (or geologic and 

engineering expertise) relating to the unit, it did hold that the 

decision-maker must 

best interests. 

consider all factors affecting the Indians' 

In the instant case, it has been noted that all of the lands 

leased in Section 6 with the exception of a 40-acre tract are 

Indian owned. The Assistant Secretary's decision in this case was 

anchored to the potentially large bonus the Rose family likely 

would receive for a new lease once the Secretary disapproved the 

_communitization agreement as it applied to the Rose 80-acre tract, 

coupled with the order that because the Rose lease had expired 

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(upon the Assistant Secretary's disapproval of the communitization 

agreement only as to this tract), the lessee (Cotton by 

assignment) must, under the terms of the communitization 

agreement, pay the Roses a full 8/8th of production attributable 

to the 80-acre unleased tract in the unit or 12.65 percent of the 

total production from the Cotton well. In Cheyenne & Arapaho 

Tribes of Western Oklahoma v. Deputy Ass't Secretary-Indian 

Affairs, et al., 12 IBIA 241, 91 I.D. 229, 234 (May 22, 1984), the 

Board of Indian Appeals affirmed an Acting Area Director's 

decision approving a communitization agreement (after Kenai) on 

the grounds that: 

If proper reservoir spacing were not followed, the 

reservoir would be developed under the single rule of 

capture. This has a long-term result of lower ultimate 

recovery of oil and/or gas (to the detriment of all 

interests). There may be times when spacing is not in 

the best interests of a particular individual in the 

short-term; but, the determination to communitize must 

be based upon the long-term overall conditions of the 

reservoir. 

* * * 

We are of the opinion that a uniform policy of 

refusing to approve communization agreements in 

logically spaced areas solely for the reasons that the 

mineral owners might receive additional revenues will 

eventually diminish the sale of Indian land leases and 

will not be in the best long term interests of the 

Indians. 

The Assistant Secretary in the case at bar did not analyze or 

discuss - or ever recognize - the possible adverse effect that his 

decision on behalf of the Rose appellants could or likely might 

have on the Rose family or on the remaining Indian land owners in 

relation to long-term mineral development. The Secretary refers 

to Cotton's contention that his action in disapproving the 

communitization agreement only as it applied to the Rose tract was 

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taken for the sole purpose of causing the Rose lease to expire as 

"impassioned rhetoric," because: 

[t]he Secretary did not cause the lease to expire by 

reversing the Area Director's decision; he ~erely 

recognized what had already happened -- the lease had 

expired of its own terms on January 17, 1982. The lease 

expired because Cotton failed to do any one of three 

things which, by the lease's own terms, would have 

extended the life of the lease: production in paying 

quantities; commencement of drilling on the lease; or 

approval during the primary term of an unit agreement 

and commencement of drilling within the unit. 

(Brief of Appellee Secretary, pp. 14-15). 

The Secretary was clearly wrong in holding, as the Rose 

appellees had urged, that the Rose lease expired at the end of its 

primary term. 

In this case, relevant factors do involve the economic 

effects of the communitization agreement on the Rose lessors but 

also on many other Indian lessors with lands in the 640-acre unit. 

In any event, as previously discussed herein, the Secretary simply 

failed to set forth, discuss and analyze all of the factors his 

own guidelines and our Kenai opinion required of him. The 

Secretary did not articulate the grounds for his decision or the 

essential facts upon which it is made. Dunlap v. Bachowski, 421 

U.S. 560 (1975); Camps v.Pitts, 411 U.S. 138 (1973). On the other 

hand, the Area Director did comply with these mandates. Simmons 

v. Block, 782 F.2d 1545, 1550 (11th Cir. 1986) ("The failure of an 

agency to comply with its own regulations constitutes arbitrary 

and capricious conduct"); Graphic Communications International 

Union v. Salem-Gravure Div. of World Color Press, Inc., 843 F.2d 

1490, 1493 (D.C. Cir. 1988) ("Agency decisions that depart from 

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established precedent without a reasoned explanation will be 

vacated as arbitrary and capricious"). 

The Secretary's abuse of discretion is further established by 

the inconsistencies within the Assistant Secretary's ruling 

itself. In one sentence, the ruling disapproves the 

communitization agreement for the express purpose of causing the 

underlying lease to expire: "[A]s to [the Rose] tract, approval of 

the communitization agreement is reversed." (R., Vol. II, Tab 12, 

p. 1.) In another sentence, the ruling approves the agreement and 

orders that the Rose tract be placed in the unit and be given 

royalties under the very agreement that had just been disapproved: 

"[A]s unleased restricted Indian land within the unit, the 

appellants are entitled to an 8/8th royalty under the terms of the 

communitization agreement." Id. at 2 (emphasis added). To reject 

the communitization agreement and then immediately to affirm it 

and to award the Rose appellees retroactive benefits under it 

exposes the arbitrary and capricious nature of the Secretary's 

action. 

In addition, the Assistant Secretary's ruling is inconsistent 

in its treatment of the other Indian lessors in the same unit 

area. As noted above, the Rose appellees own only a portion of 

the mineral interests in the unit, and nearly all of the other 

tracts are owned by other Indian lessors. As to the tracts of the 

other Indian lessors, for whom the Secretary 

fiduciary responsibility, the Secretary 

communitization agreement (through his 

owes an 

approved 

delegate, 

equivalent 

this very 

the Area 

Director). The Assistant Secretary rejected the communitization 

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agreement as to the Rose tract alone. The Assistant Secretary 

gave no adequate and reasoned explanation for inconsistent 

treatment of similarly situated Indian lessors under the identical 

communitization agreement. 

Finally, the Assistant Secretary's ruling is inconsistent 

with the Secretary's prior approval of the lease between the Rose 

appellees and the oil company. Three years earlier, the Secretary 

approved that lease as being in the best interest of the Indians. 

(R., Vol. II, Tab 74, p. 3.) Implicit in that approval was the 

Secretary's approval of the parties' express promise to abide by 

any communitization agreement adopted for the unit and approved by 

the Secretary. This does not mean that the Secretary forfeited 

his right to examine the appropriateness of a proposed 

communitization agreement. It does, however, provide additional 

proof that the Secretary was acting arbitrarily and capriciously 

when he thereafter refused to approve an otherwise fair and proper 

communitization agreement for the sole purpose of causing the 

underlying lease -- which the Secretary had previously approved --

to expire. 

Here, neither the Secretary nor any other government office 

reviewing the communitization agreement found any fault with it. 

There was no substantial argument that the communitization 

agreement was not fair, or that the Rose appellees were not 

getting the economic benefits under it for which they had 

bargained. Instead of evaluating the communitization agreement on 

its merits, the Secretary used its rejection as a triggering event 

to cause the termination of a separate instrument, the lease. 

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See, ~, Green Country Mobilephone, Inc. v. Federal 

Communications Commission, 765 F.2d 235, 237 (D.C. Cir. 1985) { 11We 

find that the Commission has not treated similar cases similarly. 

A 'sometimes-yes, sometimes-no, sometimes-maybe policy • 

cannot . . . be squared with our obligation to preclude 

arbitrary and capricious management of [an agency's] mandate. ' 11 ) 

(quoting NLRB v. Washington Star Co., 732 F.2d 974, 977 (D.C. Cir. 

1984)). 4 

We see no reason to remand this matter for further 

consideration by the Secretary as suggested by Judge McKay in his 

dissent. 5 The facts were fully developed in the record and are 

4 Our decision in Kenai, 671 F.2d 383 (lOth Cir. 1982) is not to 

the contrary. There, the Secretary (through his delegate, the 

Superintendent of the BIA) was not taking inconsistent positions 

as to whether the Indian lessor was in or out of the 

communitization unit. Rather, the Secretary in Kenai refused to 

approve the communitization agreement for any purpose. we were 

not faced there with a situation where the Secretary was seeking 

simultaneously to free the Indian lessor from the burdens of the 

communitization agreement while retaining for the Indians its 

benefits. Additionally, the lessee in Kenai acted much less 

diligently than did the lessee here. In Kena1, the lessee had ten 

years to drill a producing well on the property and did not do so. 

671 F.2d at 384, 388 n.3. Here, in contrast, the Secretary 

acknowledged that the lessee had 11 acted diligently 11 with respect 

to the three-year Rose lease. (R., Vol. II, Tab 12, p. 1.) 

Moreover, unlike Kenai, the record here clearly established that, 

from a geological and engineering point of view, the 

communitization agreement was beneficial to the Rose appellees and 

to the other Indian lessors in the unit. In addition, here we 

have a finding by the Area Director, who ordinarily is the final 

decisionmaker concerning the merits of communitization agreements, 

approving the agreement in a reasoned manner. 

5 The dissent cites Camp v. Pitts, 411 U.S. 138, 142-43 (1973), 

for the proposition that the 11most we can do under [these] 

circumstances is to remand for consideration of all relevant 

factors... We do not think that Camp goes that far. Camp merely 

holds that a district court charged with reviewing an agency's 

decision for abuse of discretion should not conduct a de novo 

hearing, but rather should rely on the facts and reasoning 

developed in the administrative record supplemented by such 

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largely undisputed. The Secretary cannot cure the fundamental 

inconsistencies discussed above and still preserve the Rose 

appellees' clear economic interest in remaining in the unit 

without reinstating the Area Director's decision, which was 

reasoned and consistent. See generally Gatson v. Bowen, 838 F.2d 

442, 450 (lOth Cir. 1988) (court reverses Social Security 

determination without remanding case back to the agency for 

further findings because no purpose would be served by a remand 

for further findings where the record sufficiently established 

disability); Byron v. Heckler, 742 F.2d 1232, 1236 (lOth Cir. 

1984) (remand to agency for further findings held not necessary 

because "it is highly doubtful that there would be substantial 

evidence in the record [on remand] to support a finding that 

appellant's condition had improved to the requisite extent"). 

On the totality of the record before us, we conclude that the 

Secretary's rejection of the Area Director's decision constituted 

an abuse of discretion and that the Area Director's reasoned 

judgment should be reinstated. Accordingly, we REVERSE the order 

and judgment of the district court and we REMAND the case to the 

district court with instructions to reverse the orders of the 

Assistant Secretary, to reinstate the decision of the Anadarko 

additional affidavits or testamony as may be necessary to explain 

the agency decision. Camp contemplates a remand when "further 

explanation is necessary to a proper assessment of the agency's 

decision." Id. at 143. But the problem here is not that further 

explanation is necessary. The record makes it very clear why the 

Assistant Secretary disapproved the communitization agreement. 

Rather, the problem here is that the Assistant Secretary's 

proffered explanation and his ruling are inconsistent and 

arbitrary. Camp does not speak to that issue. 

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Area Director approving the communitization agreement, and to 

declare that the lease has not expired. 

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No. 87-1191 - Cotton Petroleum Corporation and Shell Oil Company 

v. United States Department of the Interior, et al. 

McKay, Circuit Judge, dissenting: 

In my judgment, the court has not properly focused on whose 

interest the Secretary has a duty to protect. Thus, the court has 

erroneously overturned the Secretary's exercise of discretion 

without any support in the law. I therefore must respectfully 

dissent. 

At issue in this case is an eighty-acre tract of restricted 

Indian allotment land owned by Newton Rose and others. The Rose 

tract was leased to Shell Oil Company on January 17, 1979. Shell 

assigned the lease to Cotton Petroleum. The three-year lease term 

was to expire on January 17, 1982, unless Cotton did one of three 

things to extend the life of the lease: (1) produce oil or gas in 

paying quantities; (2) commence drilling on the lease; or (3) 

secure approval during the primary term of the unit agreement and 

commence drilling within the unit. Cotton failed to meet any of 

the lease-extending terms. Nine days prior to the lease's expiration, Cotton submitted a communitization agreement for government 

approval. Cotton knew that the agreement had to be approved by 

three separate federal agencies. Two of the three agencies 

approved the communitization agreement prior to the lease's expiration. However, the Assistant Secretary for Indian Affairs, acting pursuant to proper authority from the Secretary of Interior, 

determined that it was in the best interest of the Indians to 

allow the lease to expire before approving the communitization 

Appellate Case: 87-1191 Document: 01019300980 Date Filed: 03/20/1989 Page: 33 
agreement. Clearly, the duty of the Secretary in this matter was 

to act in the best interest of the Rose lessors. The court has, 

in effect, held that it was in the Indians' best interest not to 

let the lease expire. Nevertheless, I am unable to find anything 

in the opinion which persuasively argues that the Secretary abused 

his discretion by determining that it was in the Indians' best 

interest to have the lease expire so as to renegotiate the lease 

and bonus payments. The majority lists various factors including 

the long-term economic effects of the agreement and not relying on 

the recommendation of the Minerals Management Service as indicating that the Secretary violated his own guidelines. Given the 

breadth of the Secretary's discretion, our duty to defer to it, 

and the burden on the Secretary to act in the best interest of the 

Indians, I find it totally inconsistent with our cases to suggest 

that his economic judgment was, as a matter of law, wrong. Moreover, to suggest that, as a matter of law, it was in the Rose 

lessee's interest to forego the renegotiation of the lease in 

order to obtain the larger bonus payment turns the deference owed 

to the Secretary on its head. 

If we recognize that the Secretary's duty is to the Rose 

lessors, then we must also accept that so long as in his considered judgment his action will be to their benefit (whether he is 

in the end right or wrong), he may do anything which at law may be 

done in order to protect their interests. Indeed, he is legally 

bound to do so. It would be an extraordinary proposition indeed 

to suggest that it would be "arbitrary or capricious" for the 

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Secretary to let a lease expire by its own terms if that would be 

in the Indians' best interest. 

Although the exact basis of the court's opinion is somewhat 

unclear, it apparently rests, at least in part, on the view that 

the act of "submitting" the communitization agreement prior to the 

expiration of the lease constituted "approval" of the agreement, 

thereby extending the life of the lease. The two cases cited by 

the majority in support of this view are, at best, of doubtful 

authority. Both cases deal with the power of the Secretary to 

make his post-expiration approval retroactive. Neither holds that 

the Secretary's post-expiration approval, as a matter of law, constitutes a retroactive decision which saves an expiring lease 

despite the Secretary's intention otherwise. See Hallam v. 

Commerce Mining & Royalty Co., 49 F.2d 103 (lOth Cir.), cert. 

denied, 284 U.S. 643 (1931); Hood v. United States, 256 F.2d 522 

(9th Cir. 1958). 1 In fact, in Hallam we recognized the strong 

policy of permitting the Secretary the broadest possible powers, 

including the power to suspend his regulations. Id. at 108. The 

entire thrust of that case was the breadth of the Secretary's 

power, including the power to relate approval back to the date of 

1 In Hallam the court was dealing with an overlapping lease 

that related back to the date the lease was made. It was not 

dealing with a lease that had expired prior to the submission of a 

communitization agreement. In Hood, while the court refers to the 

retroactivity doctrine, it expressly states that "[i]t is probable 

here that there is no necessity to rely upon the doctrine of 

'relation back' to make the approval of the Secretary .•• 

effective." 256 F.2d at 529. Thus, the Hood court understood 

that the application of retroactivity was not automatic. 

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submission. Hallam is a far cry from the majority's apparent 

position that the Secretary has no choice but to relate approval 

back in order to revive an expired lease. In my view it is an 

extraordinary feat to convert the Secretary's broad power to 

relate an approval back to the date of submission, if doing so is 

in the Indians' best interest, into a mandate which in effect 

removes the Secretary's power to permit the expiration of the 

lease if it does not serve the Indians' interest. Indeed, the 

tenor of the majority's discussion on this issue appears to be 

more concerned with what is in the best interest of Cotton Petroleum, the lessee, rather than what is in the best interest of the 

Indian lessors. I find no authority for such an emphasis anywhere 

in the law. 

The majority faults the Secretary for failing to make the 

communitization approval retroactive. Yet, the majority itself 

suggests that the Secretary's decision not to exercise his broad 

retroactivity discretion was altogether deliberate. As the court 

notes, the Secretary did not initially accept the Indians' argument that the lease had expired; instead, he remanded the matter 

to the Area Director for his determination of whether communitization was in the best interest of the Rose lessor. Majority 

Opinion at 8-9. Thereafter, the Secretary concluded that the Rose 

lease had expired. It therefore is beyond cavil that the Secretary deliberately determined not to exercise his retroactivity 

authority, but rather to let the Rose lease remain expired. Thus 1 

in concluding that the Secretary should have made the approval 

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retroactive, the majority impermissibly substitutes its judgment 

for that of the Secretary. 

I also disagree with the majority's view that the Secretary 

violated his own regulations. 2 In my view, the proper analysis 

requires us to begin with the proposition established in Kenai Oil 

& Gas v. Department of Interior, 671 F.2d 383 (lOth Cir. 1982). 

In that case we made clear that "all communitization agreements on 

restricted Indian lands must be approved by the Secretary of 

Interior or his designate, in this case, the Superintendent of the 

BIA." Id. at 384-85. In Kenai, the proposed communitization 

agreement which would have extended the lease was clearly, like 

the instant case, submitted timely to prevent the expiration of 

the lease. The Superintendent, acting for the Secretary, refused 

to approve the proposed communitization agreement, resulting in 

the expiration of the lease. The only difference between this 

case and that one is that, in Kenai, the Superintendent refused to 

approve the agreement at all. Here, the Secretary simply refused 

to approve it retroactively. 

It seems to me that the majority has turned Kenai on its 

head. The thrust of the Kenai decision is that the Secretary acts 

2 Assuming arguendo that the Secretary did violate his own 

guidelines, it is an unprecedented leap for this court to do something other than remand the case to the Secretary for action in 

compliance with those guidelines. That is precisely what the 

majority has done in this case. I cannot agree with the court's 

conclusion or action in this regard. 

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in a fiduciary responsibility to the Indian lessor, and that judicial review of the Secretary's decision is severely limited. It 

was in that context that this court held "if the [Secretary] considered all relevant factors in reaching his decision and has made 

no clear error of judgment, his action cannot be overturned." Id. 

at 386. Indeed, apropos to this case, in Kenai we rejected the 

lessee's two-part argument that the Secretary exceeded the scope 

of his discretion by basing his decision on economic factors and 

that the manner in which the Secretary reached his decision was 

procedurally defective. Id. 

It is clear that the Secretary precisely followed Kenai in 

this case. He issued regulations which outlined the matters which 

subordinates should include in their reports to him, so that he 

could exercise his (not their) discretion in looking after the 

interests of the Indian lessors. Thus, in this case the Secretary 

clearly "considered all relevant factors in reaching his decision 

II . . . . Id. 

The majority acknowledges that in Kenai we rejected the argument that the Secretary's discretion was limited to consideration 

of specific factors. See ante at 25. Nevertheless, the court now 

seeks to impose its own set of limitations on the Secretary's 

decisionmaking process. The majority dwells on the notion that 

the Secretary must consider all relevant factors in reaching his 

decision and faults the Secretary for failing to .do so. However, 

the record indicates that the Secretary was cognizant of, and his 

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actions were at all times consistent with the Indians' economic 

interests. By requiring Cotton to renegotiate the lease at current market rates, and possibly to pay a sizeable bonus to the 

Indian lessors, the Secretary's decision clearly was grounded in 

his fiduciary responsibility to the Indians. Whether or not the 

court agrees with the effect of the decision on the lessee is 

irrelevant. As long as there is a rational basis for the Secretary's conclusion that a bonus based on a renegotiation of the 

lease would improve the revenues flowing to the Indian lessor, his 

decision must be upheld. We are without authority to question or 

overturn that determination. 

I am particularly concerned by the majority's suggestion that 

the Secretary must list and specifically explain his disposition 

of each and every factor which was considered in reaching a final 

decision. Nothing in the cases cited by the majority suggests 

that the decisionmaker must itemize each and every factor discarded as well as the factors taken into account in order to reach 

a reasoned decision.3 All that those cases suggest is that the 

3 The fact is that Kenai can only fairly be read as requiring 

the Secretary to consider all relevant factors. There is no language in Kenai or anywhere else that requires the Secretary to 

specifically articulate in a written opinion the details of the 

factors he considered, so long as the record is clear that he had 

all the factors before him. Nothing could be more clear than the 

fact that his remand demonstrates that he had before him and considered all of the relevant factors. 

The reasoning employed in cases involving Rule 52 of the 

Federal Rules of Civil Procedure is analogous here. For example, 

this court has held: 

The rule does not require the making of elaborate 

findings of fact extending into minute and unnecessary 

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Secretary must (1) take into account and have before him factors 

which are relevant to the decision, and (2) provide enough of an 

explanation "to enable the court to determine whether the • . • 

decision was reached for an impermissible reason or for no reason 

at all." Dunlop v. Bachowski, 421 u.s. 560, 573 (1975); Camp v. 

Pitts, 411 U.S. 138, 142-43 (1973). Here the Secretary clearly 

did that. First, under guidelines designed to conform to Kenai, 

the Secretary remanded to his subordinates for the precise purpose 

of ensuring that he had all of the relevant factors before him 

before he made his final decision. Second, as the court itself 

noted, in rendering his decision the Secretary stated that by disproving the communitization agreement with respect to the Rose 

lease, he was serving the best economic interests of the lessors. 

Ante, at 24. I find no error in either the procedure followed, or 

the outcome achieved, by the Secretary. The Secretary may have 

been incorrect in his determination, but the correctness of his 

findings are not at issue here. The issue is whether or not the 

Secretary's opinion was arbitrary or capricious. All the majority 

has shown are rational reasons for disagreeing with the 

detail in respect to every feature or phase of the 

case. . • • The court did not dictate into the record 

findings of fact and conclusions of law. Neither did it 

file formal written findings of fact and conclusions of 

law. But the court did file a written opinion which 

contained findings of fact and conclusions of law. And 

while the opinion may not have been as complete as might 

have been desired in respect to the making of findings 

of fact, we think it is wholly unnecessary to remand the 

case for the making of additional findings. 

Trentman v. City and County of Denver, 236 F.2d 951, 953 (lOth 

Cir.), cert. denied, 352 u.s. 943 (1956). 

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• 

Secretary's determination, not that the Secretary's broad discretionary power was abused. 

An even greater source of concern to me is the court's suggestion that if the Secretary can be faulted for failing to articulate his reasoning or follow his guidelines, then this court must 

declare, as a matter of law, a particular result. As stated previously, the most we can do under those circumstances is to remand 

for consideration of all relevant factors. See Camp v. Pitts, 411 

u.s. at 142-43. 

To summarize, in this case the Secretary had all of the relevant information before him. There is no suggestion that data 

were unavailable or withheld from the Secretary. There is no dispute that the Secretary's sole responsibility is to exercise his 

discretion as a trustee for the Indian lessors according to a reasoned assessment of the lessors' best interests--in this case the 

Rose lessors. Kenai itself makes clear that one of the things the 

Secretary has discretion to do is let leases expire if that will 

be in the best interest of the Indians. The Secretary did no more 

than that in this case. Finally, our role in reviewing this case 

is terribly limited by the deference we owe to the Secretary, and 

any shortcomings in the Secretary's decision may only be remedied 

by remand to the Secretary for appropriate action. 

These considerations therefore dictate that we ought not 

overturn the Secretary's decision, and particularly we ought not 

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mandate a particular result. For the foregoing reasons, I 

respectfully dissent, believing that the Secretary's decision 

should be affirmed. 

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