Opinion ID: 430939
Heading Depth: 2
Heading Rank: 1

Heading: The Prudent-Person and Marketability Test

Text: 11 To determine whether, prior to the withdrawal date, the deposits discovered were valuable mineral deposits under 30 U.S.C. Sec. 22 (1976), the ALJ and IBLA must apply the prudent-person test (whether the deposits were of such a character as to justify a person of ordinary prudence in expending further labor and means with a reasonable prospect of success in developing a valuable mine) as complemented by the marketability test (whether the mineral can be extracted, transported and marketed at a profit). United States v. Coleman, 390 U.S. 599, 602, 88 S.Ct. 1327, 1330, 20 L.Ed.2d 170 (1968); Melluzzo v. Morton, 534 F.2d 860, 862 (9th Cir.1976). In Barrows v. Hickel, 447 F.2d 80, 83 (9th Cir.1971), this court stated: 12 What is required is that there be, at the time of discovery, a market for the discovered material that is sufficiently profitable to attract the efforts of a person of ordinary prudence. 13 Although they referred to the test of marketability, the ALJ and IBLA failed to apply it properly. In holding the five disputed claims invalid, the ALJ based his conclusion on (1) the failure of the claimants to exploit their mines successfully, (2) the success of the Rodgers in developing the Bytownite claim and their resulting cornering of the market, and (3) the sales of the five disputed claims to the Rodgers. The ALJ's emphasis upon these facts demonstrates an erroneous application of the prudent-person/marketability test. 14 This court has made clear that although lack of actual marketing of the mineral by the claimant may be relevant to the question of marketability, it is not conclusive proof of invalidity of the claim. Verrue v. United States, 457 F.2d at 1203. 15 [T]he claimant need not rely on his own successful marketing efforts to prove marketability of his material. If the successful marketing by others has sufficiently established that the claimant's comparable material is itself marketable, that can suffice. 16 Melluzzo v. Morton, 534 F.2d at 863 [footnote omitted]. 17 The ALJ and IBLA pointed to the Rodgers' successful marketing as evidence that marketing of sunstones from the other claims would be unsuccessful. In effect, the ALJ and IBLA concluded that the Rodgers met the existing demand for sunstones. Invalidation of the claims on such grounds, however, gives insufficient weight to Rodgers' other evidence of marketability, and is inconsistent with this court's rulings that positive evidence of marketability overcomes a contention that other mines already produce an abundance of comparable material. Charlestone Stone Products Co., Inc. v. Andrus, 553 F.2d 1209, 1214 n. 6 (9th Cir.1977), rev'd on other grounds, 436 U.S. 604, 98 S.Ct. 2002, 56 L.Ed.2d 570 (1978); Verrue v. United States, 457 F.2d at 1204. Competition with existing sources may not be foreclosed because of their preemption of the market. In Verrue, this court expressly held that lack of sales of material from the disputed claims, together with evidence of an abundance of comparable material from other sources in the area, did not overcome the claimants' showing of marketability. 6 Id. 18 The ALJ also relied upon the sales of the five claims to the Rodgers for relatively low sums to support his conclusion that the claims lacked value. But an equally plausible explanation of the sales is that the claimants could not afford to litigate the validity of the claims. The fact that two of the three claimants retained the right to twenty-five percent of the sales from the claims indicates their subjective view that the claims have value. 19 We conclude that the ALJ and IBLA improperly applied the marketability and prudent-person test. It is therefore necessary for us to examine the record to ascertain whether there was substantial evidence justifying a finding of invalidity under a proper application of the test.