## F I L E D United States Court of Appeals Tenth Circuit 

### DEC 15 1997 

### PATRICK FISHER Clerk 

### UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

JAMES BARLOW FAMILY LIMITED PARTNERSHIP; JOHN AND LOIS HAUN FAMILY PARTNERSHIP; BARLOW & HAUN, INC.; L.A. MCPEEK AND COMPANY; BARBARA B. CREWS; B.J. BRADSHAW ESTATE, by First Interstate Bank of Utah, Trustee; ALPHA EXPLORATION, INC.; CHEVRON U.S.A., INC., Plaintiffs-Appellees,

v. DAVID M. MUNSON, INC., Defendant-Appellant.

------------------------------------ UNITED STATES OF AMERICA, Amicus Curiae. No. 96-1202

ORDER Entered December 15, 1997

Before SEYMOUR, Chief Judge, and HENRY, and BRISCOE, Circuit Judges.The Barlows have filed a motion to clarify our orde r and opinion on

rehearing. Because our mandate issued on November 21, 1997, we treat the motion as one to recall the mandate. Under our inh erent authority to recall the mandate for the purpose of clarifying an ambiguous prior order of the court, see Coleman v. Turpen , 827 F.2d 667, 671 (10th Cir. 1987); Dilley v. Ale xander , 627 F.2d 407, 410-411 (D.C. Cir. 1980), we grant the mo tion and recall the mandate. We clarify the opinion by eliminating the phrase on page 3 stating that we grant summary judgment in favor of Munson and by st ating instead that we remand the matter for further consideration. In ad dition, on the last page we eliminate the phrase “and Munson thus has a complet e defense to the nonpayment of royalties to the Barrows.” The revised opinion is attached. Entered for the Court PATRICK FISHER, Clerk

## F I L E D United States Court of Appeals Tenth Circuit 

### AUG 26 1997 

### PATRICK FISHER Clerk 

### PUBLISH UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

JAMES BARLOW FAMILY LIMITED PARTNERSHIP; JOHN AND LOIS HAUN FAMILY PARTNERSHIP; BARLOW & HAUN, INC.; L.A. MCPEEK AND COMPANY; BARBARA B. CREWS; B.J. BRADSHAW ESTATE, by First Interstate Bank of Utah, Trustee; ALPHA EXPLORATION, INC.; CHEVRON U.S.A., INC., Plaintiffs-Appellees,

v. DAVID M. MUNSON, INC., Defendant-Appellant.

------------------------------------ UNITED STATES OF AMERICA, Amicus Curiae. No. 96-1202

Appeal from the United States District Court for the District of Colorado (D.C. No. 92-D-1817)

Craig R. Carver of Alfers & Carver, LLC, Denver, Co lorado, for Defendant--2-

Appellant. John F. Shepherd (Jane L. Montgomery with him on th e brief) of Holland & Hart LLP, Denver, Colorado, for Plaintiffs-Appellees. Peter Coppelman, Acting Assistant Attorney General; Robert L. Klarquist, Gerald L. Fish, and Jacques B. Gelin, Attorneys, Department of Justice, Environment and Natural Resources Division; and Karen Hawbecker, Of Counsel, Office of the Solicitor, Department of the Interior, Washington, D.C., on the brief for Amicus Curiae.

Before SEYMOUR , Chief Judge, HENRY and BRISCOE , Circuit Judges.

SEYMOUR , Chief Judge.-3-

This action involves a dispute between the Barlow F amily Limited Partnership and others (the Barlows), owners of ove rriding royalty interests in certain federal oil and gas leases located in weste rn Colorado, and David M. Munson, Inc. (Munson), as lessee and operator, overwhether the Barlows are entitled to royalty payments from the federal lease s. On cross motions for summary judgment, the district court held in favor of the Barlows. On Munson’s appeal, we reverse and remand.

I. The leases at issue in this case cover federal land s in western Colorado on which unpatented oil shale claims were located. Fo r many years, oil shale claimants and the Department of the Interior were i nvolved in disputes over the claimants’ rights to mineral patents on these and o ther lands where oil shale claims were located. See generallyTosco Corp. v. Hodel , 611 F. Supp. 1130, 1145-56 (D. Colo. 1985) (discussing background of o il shale disputes). The government contended that many oil shale claims wer e void for lack of valid discovery and for failure of the claimants to perfo rm required annual assessment work. It therefore refused to issue mineral patent s to the subject lands. A title dispute ensued in which the oil shale claimants sue d the federal government seeking to compel issuance of mineral patents. Id. (Tosco claimants); Marathon-4-

Oil Co. v. Lujan , 751 F. Supp. 1454 (D. Colo. 1990) (Marathon claim ants); Ertl v. Hodel , No. 86-M-764 (D. Colo. filed Apr. 18, 1986) (Ertl claimants) (rec., vol. II at 382). Since the mineral claims were staked prio r to 1920, the claims would, if valid, entitle the claim holders to patents includi ng all minerals on the lands. See United States v. Etcheverry , 230 F.3d 193, 195-96 (10th Cir. 1956); Union Oil Co. of Cal. v. Udall , 289 F.2d 790, 791 n.1 (D.C. Cir. 1961). Notwithstanding the ongoing title dispute, the gove rnment issued federal oil and gas leases on some of the lands which were involved in oil shale disputes. The Barlows (or their predecessors-in-interest) acq uired in the early 1970s federal leases which were subject to outstanding oil shale claims. In the late 1970s, Munson became interested in expl oring for oil and gas on federal land in western Colorado. Since much of th e area of interest was covered by disputed oil shale claims, Munson was uncertain how to lease oil and gas rights. Faced with this uncertainty of title, Muns on prudently acquired both private and federal oil and gas leases. Munson acq uired the private leases from the estate of Tell Ertl and others (Ertl), and from Marathon Oil Company, both of which were successors in interest to oil shale clai mants. Munson acquired duplicative federal oil and gas leases by assignment from the Barlows. Under the parallel lease scheme, Munson secured its right to drill for and to produce oil and-5-

gas regardless of whether the private or the federa l claims ultimately prevailed in the title dispute. Munson also protected itself from duplicative royal ty payments under the private and federal leases. The terms of the private leases provided that Munson would pay the lessors royalty for one year: if titl e remained unresolved after expiration of that year, Munson would, at its optio n, pay royalty only to the federal government pending final resolution of the title dispute. In addition, the federal unit operating agreement under which oil an d gas was produced permitted Munson to hold in suspense payments of royalties du e unit members until settlement of any title disputes. There is one significant difference between the pri vate and federal leases acquired by Munson. On the federal leases, Munson would pay not only a standard 12.5% royalty to the United States, but al so a 5.8% to 11.25% overriding royalty to the Barlows which they retained as consi deration for the assignment. On the private leases, however, Munson would pay on ly a 12.5% royalty to Ertl and to Marathon. Because its royalty burden is les s under the private leases, it is in Munson’s interest to have the private leases val idated. Munson discovered gas on the leases in 1980. Since the beginning of production, Munson has exercised its right under cl ause 27 of the unit operating agreement, to hold in escrow the royalty payments p otentially due the Barlows-6-

pending resolution of the Barlows’ and Munson’s competing claims to royalty payments. The oil shale disputes were eventually settled. Se e Tosco Corp. v. Hodel , 826 F.2d 948 (10th Cir. 1987) (dismissing as moot the Tosco claimants’ cases); Marathon Oil Co. v. Lujan , 771 F. Supp. 1556 (D. Colo. 1991) (closing Marath on case upon issuance of patent to Marathon); rec., vo l. II at 384 (describing district court dismissal of the Ertl action). The Barlows c ontend that the settlements validated their federal leases, that Munson’s condu ct binds it to the contractual terms of the settlement agreements, and that any as sertion of rights under the private leases constitutes an impermissible collate ral attack on the validity of the settlements. Munson argues that the settlements re sulted in the issuance of federal mineral patents to the oil shale claimants which, under the canons of general mining law, validated its private leases an d voided the federal leases. The Barlows and Munson brought cross motions for summary judgment. The district court granted summary judgment for the Barlows and ordered Munson to pay to the Barlows the royalty payments held in suspense.

II. We review the district court’s grant of summary jud gment de novo, Ellis v. United Airlines Inc. , 73 F.3d 999, 1003 (10th Cir.), cert. denied , 116 S. Ct. 25001 The Ertl settlement agreement is identical to that reached by the Tosco

claimants. Ertl was not part of the Tosco law suitbecause its claims were still in administrative appeal during the pendency of that c ase. By the time the Tosco -7- (1996), applying the same legal standard used by th e district court under Fed. R. Civ. P. 56(c). Summary judgment should not be granted unless the evidence, viewed in the light most favorable to the party opp osing the motion, shows there are no genuine issues of material fact and the movi ng party is due judgment as a matter of law. Harrison Western Corp. v. Gulf Oil Co. , 662 F.2d 690, 691-92 (10th Cir. 1981). Where, as here, the parties file cross motions for summary judgment, we are entitled to assume that no evidenc e needs to be considered other than that filed by the parties, but summary judgment is nevertheless inappropriate if disputes remain as to material facts. Id. at 692. We begin our analysis by reviewing and analyzing th e settlement agreements to which Munson is alleged to be bound.

A. Settlement Agreements 1. United States/Ertl Settlement Agreement On August 4, 1986, Ertl entered into a settlement a greement with the United States. Rec., vol. II at 390 (Agreement To Settle Pending Litigation Between The United States And The Owners Of CertainOil Shale Mining Claims In Colorado). 1 In order for the claimants to be able to exploit oil shale while thesettlement negotiations were instituted, the Ertl a dministrative appeals had run

their course and Ertl had filed suit in district co urt. Since the Ertl claims were identical to those of the Tosco claimants, Ertl joi ned in the Tosco settlement negotiations. This agreement is the result of thos e negotiations. -8- United States retained the right to oil, gas and co al currently under federal lease, the United States agreed to grant the claim owners all minerals except oil, gas and coal. The United States attempted to effectuate th e agreement by issuing to the claim owners standard mining claim patents in return for the claim owners’ “simultaneous” conveyance by special warranty deed of all oil, gas and coal within the claims. The parties intended that the i ssuance of the patent and the reconveyance of the oil, gas and coal should “occurprecisely simultaneously, with no temporal gap whatsoever in ownership by the United States of the interests it retains.” Id. at 399. The conveyances under the settlement agre ement were intended “not [to] affect the validity or duration of [the] existing [federal] oil and gas leases.” Id. at 400. On November 7, 1986, Ertl was issued mine ral patents covering its claims. By warranty deed sign ed by the relevant parties between September 18 and November 7, 1986, Ertl con veyed to the United States oil, gas and coal. 2. United States/Marathon Settlement Agreement Marathon independently reached a settlement with th e United States on June 28, 1991. Id. at 242. Their agreement stipulates that Marathon has met all2 The district court held that Munson was bound by th e United

States/Marathon settlement until June 28, 1994, at which time a patent was delivered to which general mining law applied. The court therefore held that in 1994, Marathon (and Munson through its derivative r ights) had an ordinary patent which did not preserve the federal oil and gas leas es. Rec., vol. II at 739. -9- requirements to receive a patent and that the Unite d States will issue a patent without reservation to Marathon. The parties agree d that, pending a land exchange, an agent would hold the patent until June 28, 1994, and then release the patent to Marathon. During the time the agent held the patent, the parties agreed that the federal oil and gas leases on the subject lands would remain in effect. A patent was issued to Marathon on June 29, 1991. Al though the language employed in the Marathon settlement is different fr om that used in the Ertl settlement, the intent is similar. For at least so me period of time, the parties intended that, notwithstanding delivery of an unres erved patent, the federal leases would be held to be in full force and effect. 2 3. Effect of the Conveyances Pursuant to the Settl ement Agreements Despite the intent of the parties, the instruments of title executed pursuant to the settlements do not effectively preserve the federal leases. The patents were issued without reservation of oil, gas and coal. T he Ertl settlement agreement specifically describes the patent to be issued as astandard mining patent:-10- 2.3 The form of the patents to be issued by the Department of the Interior to the Claimowners shall be that of a standard mining claim patentgranting the Claimowners fee ownership of the entire claim , subject only to a right-of-way thereon for ditches and cana ls constructed by the authority of the United States, pursuant to the Act of August 30, 1890 (43 U.S.C. 9 45). Rec., vol. II at 397-98 (emphasis added). The rights accorded holders of such unreserved pate nts are clear: [W]hen a mining claim has been perfected under the law, it is in effect a grant from the United States of the exclusive right of possession to the same. It cons titutes property to its fullest extent, and is real property subject to be sold, transferred, mortgaged, taxed, and inhe rited without infringing any right or title of the UnitedStates. Etcheverry , 230 F.2d at 195. Upon issuance of a patent, titl e relates back to the date of original entry. Id. at 196. “‘A patent from the United States operate s to transfer the title, not merely from the date of the patent, but from the inception of the equitable right upon which it is based.’” Id. (quoting United States v. Detroit Timber & Lumber Co. , 200 U.S. 321, 334-35 (1906)). The consequence of relation back is that the claimant’s rights and tho se of the claimant’s assignee date from the time the claim was made, not from the time the patent was issued. Reed v. Munn , 148 F. 737, 757 (8th Cir. 1906). Under general m ining law, the issuance of federal mineral patents to Ertl and to Marathon related back to the date of the original claim and validated the privat e leases conveyed to Munson prior to the execution of the settlements or the is suance of the patents. See id.-11-

Moreover, the issuance of patents to holders of val id mining claims ordinarily voids federal leases. See, e.g. Union Oil Co. of Cal. , 289 F.2d at 791 n.1 (federal oil and gas leases issued pursuant to the Mineral L easing Act of 1920 not valid if the holder of a valid mining claim subsequently rec eives a patent); 1 R OCKY M TN
. M IN
. L. F OUND ., L AW OF F EDERAL O IL AND G AS L EASES § 3.10 (1996); cf. Letter from Thomas L. Sansonetti, Associate Solicitor, Ene rgy and Resources, United States Dep’t of the Interior, to Assistant Secretary, Land and Minerals Management, United States Dep’t of the Interior (Fe b. 23, 1989) (rec., vol. I at 293). Because Munson’s rights under the Marathon lease re late back, the issuance of the Marathon patent voided the federal leases, r egardless whether the patent is considered to have issued in 1991 or 1994. Thus, c ontrary to the district court’s conclusion, rec., vol. II at 739, delivery of the p atent to an agent was not effective to preserve the federal leases. Similarly, the fic tion engaged in by Ertl and the United States that the patent issuance and the warr anty deed were executed simultaneously so as to preserve the federal leases and to cut off Munson’s rights under the private leases is simply not legally effe ctive. Despite the recitals of the settlement, the conveyances could not be made simul taneously. Ertl must have received a patent before it could deed oil, gas and coal to the government. As the special warranty deed acknowledges, Ertl could not convey title to oil, gas and-12-

coal unless Ertl at least momentarily held legal ti tle. This title held by Ertl related back, and thus validated Ertl’s lease to Mu nson. When Ertl did make the conveyance, it conveyed to the government only whatit had at the time it signed the deed: rights to oil, gas and coal encumbered bya lease to Munson. We hold that the instruments of conveyance employedto effectuate the Ertl and Marathon settlements did not cut off the rights of Munson under the private leases, notwithstanding the intent of the settling parties. Ordinarily, we would therefore conclude under general mining law that Mu nson has no obligation to pay the Barlows royalty on leases voided by the iss uance of patents. The Barlows argue, however, and the district court held, that M unson is barred for other reasons from asserting the validity of its private leases. We address these arguments in turn.

B. Collateral Attack The Barlows and the United States contend that Muns on’s attempt to assert its rights under the private leases is an impermiss ible collateral attack on the validity of the settlement agreements. They assertMunson knew of the ongoing settlement negotiations, chose not to participate i n them, and thereby waived its rights, much as those who chose not to participate in the original Tosco litigation did by failing to timely intervene in that case. T osco Corp. v. Hodel , 804 F.2d-13-

590, 592 (10th Cir. 1986). Moreover, the United St ates claims Munson’s attack on the validity of the settlements contravenes the power of the attorney general to settle litigation in whatever manner he considers e fficacious. We disagree with both of these propositions. Munson is attempting to enforce the legal effect of the instruments of title executed pursuant to the settlement agreements. As we have concluded, the normal effect of these instruments would be to vali date Munson’s rights. Munson’s assertion of its rights in this proceeding , rather than in the settlement negotiations, would constitute an impermissible col lateral attack only if Munson-- despite being a nonsignatory--is by reason of his c onduct bound by the terms of the settlement agreements themselves, rather than by the instruments of conveyance. We conclude, infrapart C, that it is not so bound. Nor does this case derogate the right of the federa l government to settle litigation. The government chose to settle the oil shale litigation by issuing patents. The patents were instruments of title with a particular legal significance, which would ordinarily conclusively determine the p riority of Munson’s private leases despite the agreement of the Ertls and Marat hon to the contrary. The attorney general’s power to settle litigation does not allow the United States to avoid the legal effect of the documents executed pu rsuant to its chosen manner of settlement. The government and the Barlows could h ave secured the result they-14-

now seek by requiring that Munson assign its privat e leases back to the Ertls and to Marathon prior to the execution of the settlemen t agreements.

C. Munson’s Conduct The Barlows contend Munson’s conduct, evidenced in written letters, memoranda and contracts, indicates Munson’s intenti on to be bound by all the terms and conditions of the United States/Ertl Sett lement Agreement. These documents, they assert, estop Munson from claiming the validity of the private leases by operation of ordinary principles of minin g law, or constitute waiver of its rights thereunder. When reviewing this evidenc e, the district court focused on whether the documents support the conclusion that M unson knew of the ongoing settlement negotiations. We agree the documents do support such an inference. We disagree, however, that the documents reveal the expression by Munson of any intent regarding the relevant question: whetherMunson intended to give up its right to assert the priority of the private lea ses should the settlements result in their validation. We consider each type of documen tary evidence in turn. 1. Letters/Memoranda a. Pre-Lease Negotiation Letters Before Munson acquired either private or federal le ases, it entered into negotiations with Ertl for acquisition of the rightto drill and produce oil and gas-15-

on land subject to the Ertl oil shale claims. In t he first of those negotiation letters, Munson expressed a desire to “be a neutral party to any claims between [Ertl] and the United States,” and it proposed leas ing acreage from Ertl “[t]he primary term [of which] would not start until . . . [the Ertl] claims for patent had issued as to the oil and gas minerals on these land s.” Rec., vol. I at 261. The second negotiation letter indicated Munson understo od Ertl was willing to agree either that it would “not claim[] the oil and gas r ights or that it would lease [Munson] the oil and gas rights.” Id. at 264. The third negotiation letter contained a counter-offer which proposed the lease arrangement ultimately agreed to: a private lease to run parallel with any future -acquired federal leases. Id. at 265. In that letter, Munson stated its belief thatsuch a lease arrangement “would perhaps reinforce [the Ertl] title position.” Id. at 266 These letters represent preliminary negotiations re garding the issuance of oil and gas leases on the Ertl oil shale claims. T hey do not reflect the final agreement reached between the parties. It is the l ease agreement itself which embodies the full agreement between the parties, an d that document shows that Munson and Ertl ultimately rejected the previously discussed options and resolved matters through execution of an oil and gas lease g iving Munson legally protected interests in the Ertl oil shale claims. Even if th e negotiation letters were relevant,3 The relevant portion of the unit operating agreemen t says: “In the event of

a dispute as to title as to any royalty . . . payme nt or delivery on account thereof may be withheld without liability for interest unti l the dispute is finally settled . . -16- they express no intent by Munson to compromise its ability to assert the validity of its private leases.

b. Memoranda to Munson’s Ertl Lease File In 1985, Munson inserted a memorandum in its Ertl l ease file from which it is evident that Munson understood the government wanted to trade oil shale for oil and gas rights, and that Ertl contemplated assi gning the government a substantial portion of the oil and gas royalty to s ecure title to the oil shale. Another similar memorandum indicates that if title is resolved in favor of the government, Munson will need to pay royalties prese ntly held in suspense. Although these documents indicate Munson’s general awareness of the Ertl position on securing oil shale title, they do not i ndicate that Munson would fail to assert the validity of its private leases, should t itle be resolved in a way that preserved those leases. 2. The Unit Operating Agreement In 1978, prior to establishing production on the le ases, Munson signed a Unit Operating Agreement (UOA). The Barlows ascrib e particular significance to a clause in the UOA permitting Munson to suspend ro yalty payments in the event of a title dispute. 3 They suggest, and the district court agreed, rec. , vol. II at 737,. .” Rec., vol. I at 126. -17-

that this clause demonstrates Munson’s affirmative intent to be bound by the contractual terms of the United States/Ertl or the United States/Marathon “settlements,” and by an “Agreement Not To Contest, ” discussed infra , rather than by the instruments of title executed pursuant to the settlement agreements. First, we note that the unit operating agreement is a standard form unit agreement imposed by the federal government. 2 L AW OF F EDERAL O IL AND G AS L EASES § 18.02[2]. As part of the standardized form, the clause in question holds no particular significance for the oil shale disput es; rather, it is inserted in federal forms to direct payment of royalties in the event o f title disputes. It is not used to prescribe the manner by which the operator of the u nit may become bound to settlements. Second, the unit agreement was signed by Munson on June 28, 1978, well before the “Agreement Not To Contest” was signed wi th Ertl. It therefore cannot inform us regarding ambiguities which may exist in a document executed three years later. Finally, the language employed in the unit agreemen t says only that, in the event of a title dispute, the unit operator may wit hhold payments of royalties to any entity, other than the federal government, unti l such time as the dispute over-18-

who should be paid is resolved. The UOA refers to a dispute regarding proper recipients of royalties. The Barlow/Munson dispute before the court is precisely such a dispute, and it has not been settled. The U OA does not itself provide a basis upon which the settlements between the UnitedStates and Ertl and Marathon must be considered as having “settled” the Barlow/Munson dispute; the UOA merely provides that if the Barlow/Munson dispute is deemed settled by the Ertl and Marathon settlements, Munson must pay roya lties. The unit operating dispute will not be settled until the present case is settled. The UOA in no way prevents Munson from contesting its obligation to p ay royalty payments to the Barlows. 3. Munson/Ertl Agreement Not To Contest The Barlows have identified one last document whichthey say indicates Munson’s intent to be bound by the contractual term s of the United States/Ertl settlement agreement. On September 30, 1981, befor e Ertl settled with the United States and shortly after Munson acquired federal le ases by assignment from the Barlows, Munson entered into an “Agreement Not To C ontest” with Ertl. In this agreement, Munson promises to neither “initiate, jo in in, support, defend or in any way become involved in a contest of the Claims or o therwise object to Claim Owner’s right to apply for, process and receive pat ents from the United States of America covering the Land and the Claims.” Rec., v ol. I at 275. Ertl’s rights as a4 There was no evidence submitted to support a contention that Munson was

aware of or agreed to be bound by the Marathon sett lement negotiations. -19- claim owner is described as entitling it to a rightof “exclusive possession of the Land.” Id. at 274. This document, in conjunction with the le tters and memoranda, and a statement by Munson that it would not seek to intervene in the United States/Ertl settlement agreement because it “did not believe that its property rights would be affected and therefore sawno reason to participate,” rec. vol. II at 382, suggest to the Barlows and to the d istrict court that Munson gave up its right to assert the validity of its private leases. We disagree. Although Munson might have been boundhad Ertl acquired title to the oil and gas which did not relate back to the establishment of its mining claim, the language in the agreement does not suppo rt an inference that Munson would refrain from asserting the validity of its pr ivate leases if Ertl were to receive a standard mining patent. We conclude that none of the documentary evidence o ffered by the Barlows supports the contention that Munson gave up its rig hts to assert the validity of its private leases upon issuance of patents to Ertl andto Marathon. Munson’s knowledge of the ongoing Ertl settlement proceeding s 4 is simply not relevant to the meaning of the federal patents. The instrument s of title ultimately executed pursuant to the agreements validated the private le ases and thereby gave Munson-20-

a complete defense to the nonpayment of royalties t o the Barlows.

III. In sum, we are convinced the evidence does not supp ort an inference that Munson gave up its right to assert the validity of its private leases. The issuance of patents to Ertl and to Marathon fully validates Munson’s private leases. Consequently, the district court erred in granting summary judgment to the Barlows.
We REVERSE the order of the district court granting the Barlow s’ motion for summary judgment and REMAND for further proceedings to resolve outstanding issues if any remain.