Case Name: JICARILLA APACHE TRIBE, Plaintiff, Appellant, Cross-Appellee, v. SUPRON ENERGY CORPORATION, Southland Royalty Company, James G. Watt, Secretary of the Interior, Gas Company of New Mexico, Defendants, Appellees, Cross-Appellants, Exxon Corporation, Defendant, Cross-Claimant, Appellee, Cross-Appellant, State of New Mexico, Applicant in Intervention and Appellant in 81-1680
Court: United States Court of Appeals for the Tenth Circuit
Jurisdiction: United States
Decision Date: 1984-02-24
Citations: 728 F.2d 1555
Docket Number: Nos. 81-1680, 81-1860, 81-1871 to 81-1874 and 81-1939
Parties: JICARILLA APACHE TRIBE, Plaintiff, Appellant, Cross-Appellee, v. SUPRON ENERGY CORPORATION, Southland Royalty Company, James G. Watt, Secretary of the Interior, Gas Company of New Mexico, Defendants, Appellees, Cross-Appellants, Exxon Corporation, Defendant, Cross-Claimant, Appellee, Cross-Appellant, State of New Mexico, Applicant in Intervention and Appellant in 81-1680.
Judges: 
Reporter: Federal Reporter 2d Series
Volume: 728
Pages: 1555–1576

Head Matter:
JICARILLA APACHE TRIBE, Plaintiff, Appellant, Cross-Appellee, v. SUPRON ENERGY CORPORATION, Southland Royalty Company, James G. Watt, Secretary of the Interior, Gas Company of New Mexico, Defendants, Appellees, Cross-Appellants, Exxon Corporation, Defendant, Cross-Claimant, Appellee, Cross-Appellant, State of New Mexico, Applicant in Intervention and Appellant in 81-1680.
Nos. 81-1680, 81-1860, 81-1871 to 81-1874 and 81-1939.
United States Court of Appeals, Tenth Circuit.
Feb. 24, 1984.
Rehearing Granted March 30, 1984.
Robert J. Nordhaus and B. Reid Haltom of Nordhaus, Haltom & Taylor, Albuquer-
que, N.M., for plaintiff, appellant, cross-ap-pellee Jicarilla Apache Tribe.
Bruce D. Black of Campbell, Byrd & Black, P.A., Santa Fe, N.M. (Kemp W. Gor-they, Santa Fe, N.M., with him on the brief), for defendant, appellee, cross-appellant Supron Energy Corp.
Peter J. Adang and Susan Stockstill Julius of Modrall, Sperling, Roehl, Harris & Sisk, P.A., Albuquerque, N.M. (John R. Cooney, Albuquerque, N.M., with them on the brief), for defendant, appellee, cross-appellant Southland Royalty Co.
Christopher Harris, Atty., Dept. of Justice, Washington, D.C. (Carol E. Dinkins, Asst. Atty. Gen., Anthony C. Liotta, Deputy Asst. Atty. Gen., Land and Natural Resources Div., Washington, D.C., William L. Lutz, U.S. Atty., Raymond Hamilton, Asst. U.S. Atty., Albuquerque, N.M., and Edward J. Shawaker, Atty., Dept, of Justice, Washington, D.C., with him on the brief, William R. Murray, Jr., Dept. of the Interior, Washington, D.C., of counsel), for defendant, appellee, cross-appellant James G. Watt, Secretary of the Interior.
Gary R. Kilpatric of Montgomery & Andrews, P.A., Santa Fe, N.M. (Edward F. Mitchell and Mark F. Sheridan, Santa Fe, N.M., with him on the brief), for defendant, appellee, cross-appellant Gas Co. of New Mexico.
J. Douglas Foster of Hinkle, Cox, Eaton, Coffield & Hensley, Roswell, N.M. (Harold L. Hensley, Jr., Roswell, N.M., with him on the brief), for defendant, cross-claimant, ap-pellee, cross-appellant Exxon Corp.
Thomas L. Dunigan, Asst. Atty. Gen., State of N.M., Santa Fe, N.M. (Jeff Binga-man, Atty. Gen., and Bill Primm, Asst. Atty. Gen., Santa Fe, N.M., with him on the brief), for State of N.M., applicant in intervention and appellant in 81-1680.
Kenneth J. Guido, Jr., Reid Peyton Chambers, Harry R. Sachse, Lloyd B. Miller, Kevin A. Griffin and Loftus E. Becker, Jr. of Sonosky, Chambers, Sachse & Guido, Washington, D.C., filed a brief on behalf of amici curiae Shoshone and Arapahoe Indian Tribes.
Before SETH, Chief Judge, McWIL-LIAMS and SEYMOUR, Circuit Judges.

Opinion:
SETH, Chief Judge.
These are consolidated actions and appeals wherein the plaintiff asserts a series of claims arising from oil and gas leases executed 25 or 30 years ago. There are several separate issues raised on appeal concerning computation of royalty, development and antitrust claims. The gas production was from wells located on the Jicarilla Reservation and was sold and consumed in New Mexico.
Issues Relating to Value of Gas
The trial court, 479 F.Supp. 536, held for all practical purposes that the defendants should have paid royalty computed on a "value" which was derived from the total net amount realized by the Lybrook processing plant for all products it developed from the gas it received from Southern Union which in turn had been purchased from and at the leases of the defendants on the Jicarilla Indian lands.
The court required that there be a "dual accounting" by all lessees which meant that there be determined both the price received by the lessees for wet gas at the wellhead where title passed, but adjusted for btu content; and secondly, that there be ascertained the value of the several products derived from the gas stream, and sold by the Lybrook plant operator/owner. This product figure was to be a net figure or "net realization." The trial court held that the royalty from all leases concerned should be computed on the larger of the two figures. The court thus mandated that the "value" based on plant product values (or net realization) be determined, and be used as an alternate whether or not the lessee paying the royalty had any interest in the processing plant and whether or not the lessee received any added compensation for the products developed by the plant. This blanket requirement was contrary to the position taken by the Secretary through the years. The requirement of "dual accounting" required of all lessees by the trial court is one of the several basic issues raised on this appeal. It has a facet which involves the Secretary of Interior as the trial court also held that this dual accounting should have been required by the Secretary from the outset and since it was not done there was thereby a breach of fiduciary duty.
The leases were executed in the early 1950's and the regulations then in effect were not changed since that time in any respect material to this problem up to the time in 1979 when the trial court entered orders directed to dual accounting. From 1950 to 1979 without exception, and without variation, the Secretary and the USGS had construed the lease provisions and the regulations to require dual accounting not by all lessees, but only in instances where the lessee owned the processing plant (or received added money for its products).
The trial court's holding was thus contrary to a long uniform administrative construction and application of the regulations and the lease provisions. The trial court did not build on any basis in the administration actions, but instead developed a wholly new interpretation. It made no finding that the Secretary or the USGS had acted through the years with any abuse of discretion or in an arbitrary and capricious manner.
The record shows that Supron was the only defendant which at any material time had an interest in the Lybrook plant. This interest was recognized at the time it existed by the USGS in its construction of the lease and regulations. Thus royalty requirements and reports by it were based on product value. This is an example of the consistent application of administrative construction. Since no other defendants had such an interest no such requirement was placed on them until the trial court sought to apply product values to all lessees although the plant was operated/owned by strangers whose operations and costs were not before the court and no reason was advanced as to why they would be made available to the defendants. The plant also processed gas from the general area thus from leases not here concerned. It is located outside of and about 20 miles west of the reservation boundary.
Lease Provisions
The lease provision in paragraph 3(c) [in Southland leases] provides that the royalty at 16%% be computed on:
"the value or amount of all oil, gas, and/or natural gasoline, and/or all other hydrocarbon substances produced and saved from the land leased herein . . . "
The lease form [Southland] provides that the Secretary has discretion to ascertain "value" for the computation. Thus paragraph 3(c) provides also that:
"During the period of supervision, 'value' for the purposes hereof may, in the discretion of the Secretary, be calculated on the basis of the highest price paid or offered (whether calculated on the basis of short or actual volume) at the time of production for the major portion of the oil of the same gravity, and gas, and/or natural gasoline, and/or all other hydrocarbon substances produced and sold from the field where the leased lands are situated, and the actual volume of the marketable product less the content of foreign substances as determined by the oil and gas supervisor. The actual amount realized by the lessee from the sale of said products may, in the discretion of the Secretary, be deemed mere evidence of or conclusive evidence of such value. When paid in value, such royalties shall be due and payable monthly on the last day of the calendar month following the calendar month in which produced; when royalty on oil produced is paid in kind, such royalty oil shall be delivered in tanks provided by the lessee on the premises where produced . "
It appears that the royalty provisions are directed to production and sale at the field thus "produced and sold from the field." The due date for royalty payments is related to the month "in which produced" thus produced from the ground. When royalty oil is paid in kind it is to be delivered on the "premises."
The phrase "[t]he actual amount realized by the lessee from the sale of said products" referred back to oil, gas, natural gasoline, and "all other hydrocarbon substances pro duced and sold from the field." This portion is clearly limited by the first few words —"[t]he actual amount realized by the lessee." The "actual amount realized" can apply under the Secretary's construction to a lessee who realizes amounts from products sold or from his extraction plant but to those situations only.
The lease makes specific reference to the value of products of gas for royalty purposes to allow for the cost of manufacture as one choice with the "value" of gas as the other. Thus
"It is understood that in determining the value for royalty purposes of products, such as natural gasoline, that are derived from treatment of gas, a reasonable allowance for the cost of manufacture shall be made, such allowance to be two-thirds of the value of the marketable product unless otherwise determined by the Secretary of the Interior on application of the lessee or on his own initiative, and that royalty will be computed on the value of gas or casinghead gas, or on the products thereof (such as residue gas, natural gasoline, propane, butane, etc.), whichever is the greater."
This provision gives the typical gas value versus a rough net "value" of the product. This lease provision refers to the determination of the "value for royalty purposes of products." It thus describes what is to be done if royalty is to be applied to "products," but it does not say under what circumstances royalty shall be computed on products.
As described above, the Secretary has construed the lease and the regulations to require a computation based on products only when the lessee is the owner of the plant producing the products or on those who realize direct income from the sale of products.
Despite the several sentences following it, the controlling limitation as to royalty is the phrase "the actual amount realized," and the subsequent provisions are directed to such a determination with formulas and choices to accomplish that end.
Regulations
The regulations expand on the several lease provisions quoted above and quote portions, thus 30 C.F.R. § 171.13, 30 C.F.R. § 221.47, 30 C.F.R. § 221.51 and 221.52.
30 C.F.R. § 221.50 makes reference to products and subsection (b) provides:
"If the lessee derives revenue on gas from two or more products, a royalty normally will be collected on all such products."
This is specific as to a lessee who "derives revenue" on gas from products will pay a royalty on all such products. Again, the term "derives revenue" points only to a lessee who has a processing plant or a contract to share in the sale of products. Section 221.50(c) provides:
"For the purpose of computing royalty, the value of wet gas shall be either the gross proceeds accruing to the lessee from the sale thereof or the aggregate value determined by the Secretary of all commodities, including residue gas, obtained therefrom, whichever is greater."
It appears that the trial court placed its principal reliance on this subparagraph (c) in arriving at an independent judgment as to the proper construction of the lease.
We cannot agree with the trial court that this subsection by itself or together with other regulations or lease terms is sufficient to set aside the Secretary's construction of his regulation and lease which was followed and applied without exception for these many years, a construction which has a perfectly reasonable basis in the lease and in the regulations. Furthermore it was and is in conformance with the practices in the industry as shown by the record.
We cannot overlook the express provision in the lease which states relative to "value" for royalty:
"The actual amount realized by the lessee from the sale of said products may, in the discretion of the Secretary, be deemed mere evidence of or conclusive evidence of such value." ignored in assessing the discretion of the Secretary.
The regulations contain similar provisions. These clear grants of authority cannot be
We have described and quoted at some length the lease clauses and the pertinent provisions of the regulations. This has been done not to determine whether or not we agree with the administrative interpretation, but instead to describe the issue and to show the basis for the Secretary's position. When the prevailing doctrine in this circuit is then applied to these circumstances we must conclude that the administrative interpretation which prevailed through the years must be applied.
We have found no abuse of discretion in this respect by the Secretary and the trial court found none. There is no indication of action by the Secretary which could be characterized as arbitrary or capricious. The Secretary's position is consistent with case law in this circuit. See Barby v. Cabot Corporation, 465 F.2d 11 (10th Cir.1972).
The trial court's determination that dual accounting is required of all lessees must be and is set aside. The original construction placed on the lease and regulations by the Secretary as to this issue must be applied to and through the conclusion of these proceedings. The Secretary and the IBLA appear to have changed their positions in response to rulings on the point by the trial court during these proceedings.
Fiduciary Duty of the Secretary
As noted above, the trial court held that the Secretary of Interior violated fiduciary standards in not applying the royalty provisions in the way in which the court construed them. In view of our holding above as to the basis for the Secretary's construction, in view of the discretion vested in the Secretary as to the regulation of oil and gas matters, in the absence of any finding or indication of abuse of discretion, and in view of the conformance of the construction to the general practices in the industry and the controlling ease law, we find no basis for the trial court's determination as to fiduciary standards. We need not and do not decide whether or not the Secretary owes the tribe a fiduciary duty as to the matters under consideration.
Gas Volumes
We have concluded that the trial court was correct in its holding that the volume measurements of gas in the past were correct as was the application of field prices. These points are fully developed in the record and by the trial court and no purpose would be served by a review of the facts in this opinion.
Lease Development
The trial court held that there was no proof adduced to demonstrate a lack of development under the leases. This matter was so examined under the legal standards applicable to the circumstances which are well developed. This is a much litigated matter and there are well defined standards. The trial court applied these to the facts and we agree with the conclusion so reached.
Since there was no violation of lease terms or regulations as to development of the leaseholds, we do not reach the question as to whether the Secretary had a fiduciary duty as to this matter. The Secretary necessarily functioned within the lease terms and the regulations.
Antitrust Issues
In its complaints the plaintiff advanced several antitrust claims based on alleged price-fixing by the defendants. In this position plaintiff's reliance was placed on the most part on the fact that long-term gas purchase contracts had been entered into between the lessees and Southern Union, the gas purchaser. The court found no evidence of price-fixing or restraint of trade. It found that the gas purchase contracts were typical since the 1930's of those used in the San Juan Basin by other purchasers. The court found that the contracts entered into by the lessees although similar in form were the result of independent business judgments and sound business reasons were evident.
The trial court laid particular emphasis on the uniform use by Southern Union of most favored nation clauses in its gas purchase contracts throughout the San Juan Basin. We agree that this is a significant factor. The price evidence before the court demonstrates that the prices were generally in accordance with the national trends. The tribe in 1976 sought to sell its royalty gas to Southern Union at the same price.
As to the liquids produced at the Lybrook plant the evidence showed that they were but a very small part of the market. Su-pron produced when it operated the plant no more than a 3% market share. Southern Union also had a relatively small share of the market for liquids in the Basin. Southern Union purchased about 4% of the gas produced in the market area.
The extent of the market as determined by the trial court — the San Juan Basin — is a factual matter. The definition of a relevant market is a factual matter, only to be disturbed if the trial court's finding was clearly erroneous. Telex Corp. v. IBM, 510 F.2d 894 (10th Cir.1975). The basis of the determination is the interchangeability of the product controlled with other available products. United States v. Du Pont & Co., 351 U.S. 377, 76 S.Ct. 994, 100 L.Ed. 1264. We must hold that the trial court's finding is correct and supported by the record.
There existed some interlocking directors and some corporate affiliations from time to time. There were a series of reorganizations and mergers. The trial court concluded as to section 8 of the Clayton Act there may have been some technical violations. The tribe was, however, unable to show any ill effects flowing from interlocking directorships in some of the defendant companies. In the absence of proof of anticompetitive effects, the tribe could prevail only if interlocking directorships was a per se violation of the Sherman Act. The Supreme Court has shown great reluctance to add to the short list of types of economic activity that are per se Sherman Act violations. White Motor Co. v. United States, 372 U.S. 253, 83 S.Ct. 696, 9 L.Ed.2d 738. A per se violation is a naked restraint of trade with no purpose except to stifle competition. The tribe has not shown that interlocking directorships have this kind of "pernicious effect on competition and lack of any redeeming virtue." Northern Pac. R. Co. v. United States, 356 U.S. 1, at 5, 78 S.Ct. 514, at 518, 2 L.Ed.2d 545. We agree with the trial court that the tribe has not made out a case for damages under section 8 of the Clayton Act. Section 8 forbids interlocking directorships, and there may have been a technical violation of this provision. However, the tribe offers only speculation on possible ill effects of interlocking directorships and no evidence of injury caused by a possible violation. It may be true that such a situation may indicate an opportunity to conspire, but affiliation does not by itself necessarily imply conspiracy to restrain trade. H & B Equipment Co., Inc. v. International Harvester Co., 577 F.2d 239 (5th Cir.1978); Knutson v. Daily Review, Inc., 548 F.2d 795 (9th Cir.1976). We affirm the trial court's holding that the tribe failed to carry its burden of showing injury that is connected in a causal manner to the violation. Gottesman v. General Motors Corporation, 436 F.2d 1205 (2d Cir.1971).
The State Law Ceiling on Gas
The trial court held that the New Mexico Natural Gas Pricing Act, § 62-7-1 et seq. N.M.S.A.1978, did not apply to gas produced on the Jicarilla reservation. We must reverse this determination because there are no exceptions to the application of the state statute in its control of ceiling price on intrastate natural gas, and we conclude that the decisions of the Supreme Court demonstrate that the state statute does apply to the gas sales here under consideration.
The method for computing royalty is fixed in the lease which created the business relationship between the lessor and lessee, and which also granted the lessee an interest in the land. We have in this opinion described the pricing or value for royalty purposes. It is basically a field price in a large producing area and the ceiling price is fixed by federal and state laws as a price control designed to protect the ultimate gas consumers from excessively high prices. These ceilings necessarily override contractual relationships and there are no excep tions based on who the royalty owner may be. It appears that the State of New Mexico as a royalty owner is subject to the ceilings. It is a limit on the size of the royalty owner's check and the lessee's check.
The transaction here concerned is a sale to non-Indians on the reservation. This is the source of income to the tribe from the commercial and land ownership arrangement. The limit is thus on income as in Moe v. Salish & Kootenai Tribes, 425 U.S. 463, 96 S.Ct. 1634, 48 L.Ed.2d 96, and in Washington v. Confederated Tribes of Colville Indian Reservation, 447 U.S. 134, 100 S.Ct. 2069, 65 L.Ed.2d 10. We must hold that the determination of this issue is controlled by the two cited cases.
There is by reason of the state price control act an effect on the money the tribe receives from the sales but there is no direct conflict with Indian self-government.
The relationship is with non-Indians as mentioned — sales on the reservation to non-Indians. In this respect we must consider the recent opinion of the Supreme Court in Montana v. United States, 450 U.S. 544, 101 S.Ct. 1245, 67 L.Ed.2d 493 and in United States v. Wheeler, 435 U.S. 313, 98 S.Ct. 1079, 55 L.Ed.2d 303. In Montana, the Court quoting from Wheeler said of the tribe's right over the entire reservation:
" 'The areas in which such implicit divestiture of sovereignty has been held to have occurred are those involving the relations between an Indian tribe and nonmembers of the tribe .
" 'These limitations rest on the fact that the dependent status of Indian tribes within our territorial jurisdiction is necessarily inconsistent with their freedom independently to determine their external relations. But the powers of self-government, including the power to prescribe and enforce internal criminal laws, are of a different type. They involve only the relations among members of a tribe.' "
The Court in Montana also said that the "exercise of tribal power beyond what is necessary to protect tribal self-government or to control internal relations is inconsistent with the dependent status of the tribes, and so cannot survive without express Congressional delegation."
The Court in Merrion v. Jicarilla Apache Tribe, 455 U.S. 130, at 138, 102 S.Ct. 894, at 902, 71 L.Ed.2d 21, refers to the sharp distinction between Indian taxing acts and the lease covenants. It there said:
"As we observed in [Washington v. Confederated Tribes of the ] Colville [Indian Reservation], supra [447 U.S. 134, 100 S.Ct. 2069, 65 L.Ed.2d 10 (1980)], the tribe's interest in levying taxes on nonmembers to raise 'revenues for essential governmental programs . is strongest when the revenues are derived from value generated on the reservation by activities involving the Tribes and when the taxpayer is the recipient of tribal services.' 447 U.S., at 156-157 [100 S.Ct., at 2082-2083]. This surely is the case here. The mere fact that the government imposing the tax also enjoys rents and royalties as the lessor of the mineral lands does not undermine the government's authority to impose the tax. See infra, [455 U.S.] at 145-148 [102 S.Ct. at 906-907], The royalty payments from the mineral leases are paid to the Tribe in its role as partner in petitioners' commercial venture. The severance tax, in contrast, is petitioners' contribution 'to the general cost of providing governmental services.' "
In conclusion on the issue of the effect of the state price limitation it should be mentioned that a state regulation of prices is expressly provided for in the federal statute. Section 602(a) of the Natural Gas Policy Act of 1978 (15 U.S.C. § 3301 et seq.). Also the Conference Report on the Natural Gas Act states in part that the reference to state authority to control expressly states that authority is thereby "ceded" under the Commerce Clause to regulate prices to "affected states." This in itself would seem to answer a claim that state price control does not apply to the intrastate gas. Thus such state price control prices are applicable and further the federal price control prices are applicable to royalties.
The judgment of the trial court is affirmed except as to:
1. The dual accounting/value of gas issue, and as to this it must be reversed and the matter is instead to be controlled by the long-standing and pre-litigation administrative construction of the leases and regulations. The judgment must also be reversed as to the related holding of breach of fiduciary duty by the Secretary.
2. We must also reverse as to the application of state price control as herein-above described, and we also hold that federal price control prices are applicable in the determination and computation of royalty.