Court Opinion

ID: 6316351
Source: CourtListenerOpinion
Date Created: 2022-02-22 18:00:35.205644+00
Date Added: 2024-06-11T09:01:43.488890
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

GRAND CANYON TRUST; CENTER              No. 20-16401
FOR BIOLOGICAL DIVERSITY; SIERRA
CLUB,                                      D.C. No.
             Plaintiffs-Appellants,     3:13-cv-08045-
                                             DGC
                and

HAVASUPAI TRIBE,                          OPINION
                           Plaintiff,

                 v.

HEATHER PROVENCIO, Forest
Supervisor, Kaibab National Forest;
UNITED STATES FOREST SERVICE, an
agency in the U.S. Department of
Agriculture,
               Defendants-Appellees,

                and

ENERGY FUELS RESOURCES (USA),
INC.; EFR ARIZONA STRIP LLC,
   Intervenor-Defendants-Appellees.
2            GRAND CANYON TRUST V. PROVENCIO

         Appeal from the United States District Court
                  for the District of Arizona
         David G. Campbell, District Judge, Presiding

            Argued and Submitted August 30, 2021
                  San Francisco, California

                      Filed February 22, 2022

    Before: Mary M. Schroeder, Johnnie B. Rawlinson, and
                Jay S. Bybee, Circuit Judges.

                     Opinion by Judge Bybee

                            SUMMARY*

                            Mining Law

    The panel affirmed the district court’s summary judgment
in favor of the United States Forest Service and intervenors
Energy Fuels Resources (USA), Inc. and EFR Arizona Strip
LLC in an action by environmental groups (collectively, the
Trust) challenging the Forest Service’s determination that
Energy Fuels held a valid existing right to operate Canyon
Mine, a uranium mine in the Kaibab National Forest.

   Canyon Mine is located within an area of public lands that
have been withdrawn from new mining claims by the

    *
      This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
           GRAND CANYON TRUST V. PROVENCIO                      3

Secretary of the Interior, although the withdrawal did not
extinguish “valid existing rights.”

     When this court last considered this case, the court held
that the Trust had Article III standing with respect to its
fourth claim – that the Forest Service violated federal law by
failing to take various costs into account when determining
whether Canyon Mine could be operated at a profit. The
panel held that the district court did not err in finding that the
law of the case doctrine applied to the issue of standing.

   The Trust argued that sunk costs – costs that have already
been incurred and that cannot be recovered – should be
considered when evaluating whether the discovery of a
“valuable mining deposit” was made under the Mining Act.

     The panel held that it was not arbitrary and capricious for
the Forest Service to ignore sunk costs in determining that
Energy Fuels had a claim to “valuable mineral deposits,”
30 U.S.C. § 22. Applying Chevron analysis, the panel held
at step one that the critical term in the Mining Act – “valuable
mineral deposits” – was ambiguous. Proceeding to step two,
the panel held that the Department of the Interior (“DOI”)’s
interpretation of the Mining Act – in which sunk costs are not
considered when determining whether a mine is profitable –
was a permissible one. First, the fact that the DOI excludes
sunk costs from its profitability analysis was not manifestly
contrary to the Mining Act because this interpretation was
consistent with the prudent person and marketability tests,
which the Supreme Court has repeatedly upheld. Second,
DOI’s interpretation was not arbitrary and capricious in
substance because it was consistent with established
economic principles. It is a basic principle of economics that
sunk costs should be ignored when making a rational decision
4          GRAND CANYON TRUST V. PROVENCIO

about whether to make further expenditures. Since the panel
would be required to give DOI deference under the Chevron
doctrine, it was appropriate for the Forest Service to do so as
well in its valid existing rights determination. Accordingly, it
was not arbitrary and capricious for the Forest Service to rely
on DOI’s interpretation of the Mining Act.

                         COUNSEL

Aaron M. Paul (argued), Grand Canyon Trust, Denver,
Colorado; Marc Fink, Center for Biological Diversity,
Duluth, Minnesota; Neil Levine, Public Justice, Denver,
Colorado; Roger Flynn, Western Mining Action Project,
Lyons, Colorado; for Plaintiffs-Appellants.

Thekla Hansen-Young (argued), Andrew C. Mergen, Michael
T. Gray, and Sean C. Duffy, Attorneys; Jean E. Williams,
Acting Assistant Attorney General; Environment and Natural
Resources Division, United States Department of Justice,
Washington, D.C.; Nicholas L. Pino, Attorney, Office of
General Counsel, United States Department of Agriculture,
Washington, D.C.; for Defendants-Appellees.

Bradley J. Glass (argued), Gallagher & Kennedy P.A.,
Phoenix, Arizona, for Intervenor-Defendants-Appellees.
          GRAND CANYON TRUST V. PROVENCIO                   5

                         OPINION

BYBEE, Circuit Judge:

    This dispute concerns Canyon Mine, a uranium mine
operated by Energy Fuels Resources (USA), Inc., and EFR
Arizona Strip LLC (collectively, Energy Fuels) in the Kaibab
National Forest. Canyon Mine is located within an area of
public lands that have been withdrawn from new mining
claims by the Secretary of the Interior, although the
withdrawal did not extinguish “valid existing rights.” The
Havasupai Tribe and three environmental groups—Grand
Canyon Trust, Center for Biological Diversity, and Sierra
Club (collectively, the Trust)—challenge the United States
Forest Service’s determination that Energy Fuels holds a
valid existing right to operate Canyon Mine. The primary
question in this appeal is, in determining that Energy Fuels
has a claim to “valuable mineral deposits,” 30 U.S.C. § 22,
whether it was arbitrary and capricious for the Forest Service
to ignore sunk costs. The district court held that it was not
and granted summary judgment to the defendants. Grand
Canyon Tr. v. Provencio, 467 F. Supp. 3d 797, 804–05,
812–23 (D. Ariz. 2020). We affirm.

        I. BACKGROUND AND PROCEEDINGS

    This is the second time this case has come before us.
Background concerning the history of Canyon Mine and this
case is discussed in Havasupai Tribe v. Provencio, 906 F.3d
1155, 1159–61 (9th Cir. 2018). Additional background may
be found in National Mining Ass’n v. Zinke, 877 F.3d 845,
854–60 (9th Cir. 2017), and Havasupai Tribe v. United
States, 752 F. Supp. 1471, 1475–77 (D. Ariz. 1990), aff’d sub
nom. Havasupai Tribe v. Robertson, 943 F.2d 32 (9th Cir.
6          GRAND CANYON TRUST V. PROVENCIO

1991) (per curiam). We will repeat the background here only
as necessary for the context of the issues before us.

A. Background

    1. Canyon Mine

    Uranium was first discovered near Grand Canyon
National Park in 1947. Uranium is often found in breccia
pipes—cylindrical deposits of broken sedimentary rock
located thousands of feet underground. See Nat’l Mining
Ass’n, 877 F.3d at 857. One such breccia pipe was located in
the Kaibab National Forest in northern Arizona, a few miles
south of Grand Canyon National Park and in the area around
Red Butte, a site of religious and cultural significance to the
Havasupai Tribe.

    In 1984, Energy Fuels Nuclear, Inc. (EFN) submitted a
plan of operations to mine uranium from the breccia pipe by
building and operating what became known as Canyon Mine.
The Forest Service approved the plan in 1986. The
Havasupai Tribe challenged the approval, but the district
court rejected the tribe’s claims and we affirmed the
judgment. See Havasupai Tribe v. Robertson, 943 F.2d
at 34–35. Over the next years, EFN built the mine’s surface
facilities and sank the first fifty feet of a 1,400-foot shaft.
However, EFN suspended operations in 1992 due to a drop in
uranium prices. Denison Mines Corp. (later acquired by
Intervenor-Defendant Energy Fuels Resources (USA), Inc.)
acquired the mine in 1997.
           GRAND CANYON TRUST V. PROVENCIO                   7

   2. The Grand Canyon Mineral Withdrawal

     In 2007, a spike in the price of uranium generated
renewed interest in mining operations near the Grand Canyon
and with it, thousands of new mining claims. The large
volume of new claims raised concerns about the potential
environmental impact of increased uranium mining on the
Grand Canyon area. Nat’l Mining Assoc., 877 F.3d at 857.
In response, the Secretary of the Interior published a Notice
of Intent to withdraw approximately one million acres of
public and National Forest System lands from new uranium
mining claims. Notice of Proposed Withdrawal and
Opportunity for Public Meeting; Arizona, 74 Fed. Reg.
35,887 (July 21, 2009). The withdrawn land would include
the land occupied by Canyon Mine. Grand Canyon Trust,
467 F. Supp. 3d at 802. However, consistent with the Federal
Land Policy and Management Act of 1976 (FLPMA), the
Secretary noted that the withdrawal was “subject to valid
existing rights.” 74 Fed. Reg. 35,887. After two years of
study, the Department of the Interior (DOI) issued the order
withdrawing the lands. Public Land Order No. 7787;
Withdrawal of Public and National Forest System Lands in
the Grand Canyon Watershed; Arizona, 77 Fed. Reg. 2563
(Jan. 18, 2012). We upheld the withdrawal decision in
National Mining Ass’n, 877 F.3d at 878. Before the decision
became final, Energy Fuels notified the Forest Service, which
is within the Department of Agriculture, that it intended to
return Canyon Mine to active operations. Although Forest
Service approval was not required for Energy Fuels to restart
its operations at Canyon Mine, at the Forest Service’s request,
Energy Fuels agreed not to resume sinking the mineshaft
pending review, known as a Valid Existing Rights
8            GRAND CANYON TRUST V. PROVENCIO

Determination (VER Determination), of its claim of existing
rights.1

    3. The Forest Service’s VER Determination

    The Forest Service issued its VER Determination in April
2012. The Forest Service concluded that “a discovery of a
valuable mineral deposit existed” on July 21, 2009 (the date
of the Secretary’s segregated withdrawal). It also concluded
that, under the economic conditions as of January 11, 2012
(the date of the mineral exam), “the uranium deposit on the
claims could be mined, removed, transported, milled and
marketed at a profit.”

    Two Forest Service certified mineral examiners
conducted the analysis for the VER Determination and their
findings were approved by a Forest Service locatable
minerals specialist. The mineral examiners conducted their
examination over several months, making multiple trips to
Canyon Mine as well as Energy Fuels’s offices, its Arizona
One Mine, and its White Mesa Mill. Their work included
verifying claim boundaries, documenting development
activities, observing drill core samples, and reviewing various
documents provided by Energy Fuels and the United States.
They also conducted an economic analysis that considered the

     1
       Although the Forest Service did not have to prepare a VER
Determination, such a determination was relevant to whether the Forest
Service would contest the mining claim before DOI. See Forest Service
Manual §§ 2814.11, 2819.1–2. See also 43 C.F.R. § 4.451 (DOI
regulations providing for the government to contest decisions). The Forest
Service’s determination would have been relevant, even if not binding, to
DOI’s own decision. See Havasupai Tribe v. Provencio, 906 F.3d
at 1162–63 (holding that the VER Determination was “final agency
action” for APA review).
           GRAND CANYON TRUST V. PROVENCIO                      9

tonnage and grade of uranium, the capital and operating costs,
commodity pricing, and a cash flow feasibility analysis. The
economic analysis treated costs incurred prior to 1992 (when
operations were suspended) to develop the surface structures
and sink the first fifty feet of shaft as “‘sunk’ costs since they
were previously completed for mine development and are
fixed assets on the claims.” As such, these costs were not
incorporated into its calculation of Canyon Mine’s “net sum
of cash flows.” The discounted cash flow feasibility analysis
showed that, at a uranium price of $56 per pound, Canyon
Mine would have a net sum of cash flows of $29,350,736.
The report describes this number as “the stream of income
generated by the project as a function of time. The sum of
cash flows shows whether the proposed mining operation
would result in a profit or a loss.”

    In addition to the VER Determination, the Forest Service
conducted a “Mine Review,” dated June 25, 2012. The
review was conducted by a thirteen-person interdisciplinary
team, which evaluated the 1984 plan of operations as well as
environmental, historical, and religious issues related to
continued operation of Canyon Mine. The Forest Service
concluded that “no modification or amendment to the existing
Plan of Operation [was] necessary” and “no new federal
action subject to further NEPA analysis [was] required.”

B. Proceedings

    In 2013, the Tribe and Trust asserted four claims under
the Administrative Procedure Act to challenge the Forest
Service’s determination. We found the VER Determination
reviewable and affirmed the district court’s grant of summary
judgment for three claims related to the National
Environmental Policy Act of 1969 and the National Historic
10         GRAND CANYON TRUST V. PROVENCIO

Preservation Act of 1966. Havasupai Tribe v. Provencio,
906 F.3d at 1163–65. On the fourth claim—that the Forest
Service violated federal law by failing to take various costs
into account when determining whether Canyon Mine could
be operated at a profit—the district court held that the Trust
did not have prudential standing. Id. at 1165. We reversed,
holding that the Trust had prudential standing to pursue claim
four because “the FLPMA, and not the Mining Act, forms the
legal basis of the Trust’s fourth claim” and that the claim fell
within the FLPMA’s zone of interests. Id. at 1166–67. We
remanded to the district court for consideration on the merits.

    On remand, the parties cross-moved for summary
judgment on the fourth claim, and the district court granted
summary judgment to the defendants. The district court held
that (1) the Trust had Article III standing based on the law of
the case doctrine; (2) assuming that environmental
monitoring and wildlife-conservation costs were omitted, the
error was harmless because the Trust had not shown that such
costs would change the Forest Service’s finding that Canyon
Mine would be profitable; and (3) the Forest Service’s failure
to consider sunk costs when evaluating the profitability of
Canyon Mine was consistent with the Bureau of Land
Management’s Handbook and the Interior Board of Land
Appeal’s (IBLA) precedent, the Forest Service’s reliance on
these sources was not arbitrary and capricious, and any error
was harmless. Grand Canyon Tr., 467 F. Supp. 3d at 804–05,
812–23.

    The Trust and the Tribe timely appealed the district
court’s ruling with respect to whether the VER Determination
should have considered sunk costs in its appraisal of the
mine’s profitability. The Forest Service continues to claim
that the plaintiffs lack standing.
          GRAND CANYON TRUST V. PROVENCIO                 11

              II. STANDARD OF REVIEW

     We review the district court’s grant of summary judgment
de novo. “Viewing the evidence in the light most favorable
to the nonmoving party, we must determine whether there are
any genuine issues of material fact and whether the district
court correctly applied the relevant substantive law.” Gordon
v. Virtumundo, Inc., 575 F.3d 1040, 1047 (9th Cir. 2009)
(quoting Devereaux v. Abbey, 263 F.3d 1070, 1074 (9th Cir.
2001) (en banc)).

    The Trust raises its challenge to the VER Determination
under the judicial review provisions of the APA, 5 U.S.C.
§§ 701–06. In general, “[t]he form of proceeding for judicial
review is the special statutory review proceeding relevant to
the subject matter.” 5 U.S.C. § 703. Because the Mining Act
does not contain a “special statutory review” provision, we
will review final agency action under § 706. See id. § 704;
Whitewater Draw Nat. Res. Conserv. Dist. v. Mayorkas,
5 F.4th 997, 1006–07 (9th Cir. 2021). Under § 706, we will
“hold unlawful and set aside agency action, findings, and
conclusions” when they are “arbitrary, capricious, an abuse
of discretion, or otherwise not in accordance with law.”
5 U.S.C. § 706(2)(A); see Kalispel Tribe of Indians v. U.S.
Dep’t of the Interior, 999 F.3d 683, 688 (9th Cir. 2021).

    An open question regarding the appropriate standard
under the APA for reviewing the Forest Service’s VER
Determination will be addressed below. See infra Part
III.B.2.
12         GRAND CANYON TRUST V. PROVENCIO

                     III. DISCUSSION

A. Standing

    The Forest Service argues that the Trust does not have
Article III standing to pursue its claim. It reasons that,
because the Trust alleges that it is injured by the continuation
of mining operations and the VER Determination was not
legally required for operations at Canyon Mine to resume, the
Trust’s injury cannot be traced to the VER Determination and
setting aside the VER Determination would not redress the
Trust’s alleged injury.

    When this case was last before us, we held that the Trust
had Article III standing with respect to its fourth claim. We
noted that:

       While the parties dispute whether continued
       mining required the Forest Service’s approval,
       we must assume that it did in assessing
       standing. If the Tribe and Trust are correct
       that continued mining required approval, then
       their injuries are fairly traceable to that
       approval and could be redressed by setting it
       aside.

Havasupai Tribe v. Provencio, 906 F.3d at 1162 n.3 (citation
omitted). The district court held that this conclusion was
“both law of the case and binding precedent.” Grand Canyon
Tr., 467 F. Supp. 3d at 804.

   “Under law of the case doctrine, one panel of an appellate
court will not as a general rule reconsider questions which
another panel has decided on a prior appeal in the same case.”
           GRAND CANYON TRUST V. PROVENCIO                    13

Valenzuela Gallardo v. Barr, 968 F.3d 1053, 1062 (9th Cir.
2020) (alteration omitted) (quoting Thomas v. Bible, 983 F.2d
152, 154 (9th Cir. 1993)). “[T]he law of the case doctrine is
subject to three exceptions that may arise when ‘(1) the
decision is clearly erroneous and its enforcement would work
a manifest injustice, (2) intervening controlling authority
makes reconsideration appropriate, or (3) substantially
different evidence was adduced at a subsequent trial.’”
Minidoka Irrigation Dist. v. Dep’t of Interior, 406 F.3d 567,
573 (9th Cir.) (quoting Old Person v. Brown, 312 F.3d 1036,
1039 (9th Cir. 2002)), amended on denial of reh’g No. 03-
35697, 2005 WL 1560395 (9th Cir. July 6, 2005). In
Nordstrom v. Ryan, we held that our prior determination that
the plaintiff had standing was “both the law of the case and
binding precedent that we must follow” when the case
returned “in virtually the same procedural posture.” 856 F.3d
1265, 1270 (9th Cir. 2017).

    The district court did not err in finding that the law of the
case doctrine applied to the issue of standing. The
government has not pointed us to any circumstances that
would trigger an exception to the general rule. See Minidoka,
406 F.3d at 573. We have already held that the Trust has
Article III standing, and the present appeal has returned “in
virtually the same procedural posture.” See Nordstrom,
856 F.3d at 1270.

B. Sunk Costs

    The Trust argues that sunk costs—costs that have
“already been incurred and that cannot be recovered,” Black’s
Law Dictionary (11th ed. 2019)—should be considered when
evaluating whether the discovery of a “valuable mineral
deposit” was made under the Mining Act. In order to rule on
14         GRAND CANYON TRUST V. PROVENCIO

this issue, we must first review the relevant law and the
standard of review.

     1. Statutory and regulatory background

    The General Mining Act of 1872 (Mining Act) allows
citizens of the United States to gain rights to “valuable
mineral deposits” on federal land. 30 U.S.C. § 22. To do so,
a claimant must first “locate” a mining claim by following
certain statutory and regulatory procedures, including posting
notice. United States v. Shumway, 199 F.3d 1093, 1099 (9th
Cir. 1999). Locating a mining claim gives the claimant a
vested possessory right to the real property at issue. Id.
at 1095. For the claimant to secure an enforceable property
right, a claimant must make a “discovery” of a “valuable
mineral deposit.” See 30 U.S.C. §§ 22–23. Congress has
delegated the authority to administer the Mining Act to the
Secretary of the Interior and the Bureau of Land
Management. Cameron v. United States, 252 U.S. 450,
459–60 (1920). The Mining Act does not define what
constitutes a “valuable mineral deposit,” so the Secretary has
applied a “prudent person” test to assess whether a claimant
has discovered a valuable mineral deposit. In the Secretary’s
view, the prudent person test means that

        where minerals have been found and the
        evidence is of such a character that a person
        of ordinary prudence would be justified in the
        further expenditure of his labor and means,
        with a reasonable prospect of success, in
        developing the valuable mine, the
        requirements of the statute have been met.
           GRAND CANYON TRUST V. PROVENCIO                  15

Castle v. Womble, 19 Pub. Lands Dec. 455, 457 (D.O.I.
1894). That test has been repeatedly cited with approval by
the Supreme Court. See Watt v. West. Nuclear, Inc., 462 U.S.
36, 58 n.18 (1983); Andrus v. Charlestone Stone Prod. Co.,
436 U.S. 604, 607 n.4 (1978); United States v. Coleman,
390 U.S. 599, 602 (1968); Best v. Humboldt Placer Mining
Co., 371 U.S. 334, 335–36 (1963); Chrisman v. Miller,
197 U.S. 313, 322 (1905).

    In 1962, the Secretary issued an opinion restating the
“prudent person” test in terms of a “marketability test,” which
requires that a claimant show that a mineral can be
“extracted, removed and marketed at a profit” for it to be
considered “valuable” under the Mining Act. See Coleman,
390 U.S. at 600. The Supreme Court approved the
restatement as “an admirable effort to identify with greater
precision and objectivity the factors relevant to a
determination that a mineral deposit is ‘valuable.’ It is a
logical complement to the ‘prudent-man test’ which the
Secretary has been using to interpret the mining laws since
1894.” Id. at 602. The Court explained that the Mining Act
“was to reward and encourage the discovery of minerals that
are valuable in an economic sense.” Id. “Thus, profitability
is an important consideration in applying the prudent-man
test, and the marketability test” because if a claimant is
pursuing a mineral deposit that lacks “economic value and
cannot in all likelihood be operated at a profit” it “may well
suggest that a claimant seeks the land for other
purposes”—purposes not sustainable under the Mining Act.
Id. at 602–03.

   In 1980, DOI first announced that when determining
whether a mine is profitable, it would not consider sunk costs.
United States v. Mannix, 50 IBLA 110 (1980). In Mannix,
16         GRAND CANYON TRUST V. PROVENCIO

the government attorneys argued that “all earlier expenses in
development of the property must be considered, e.g., the cost
of constructing cabins, shed, and an access road and the
purchase of rail and ore cars and that such expenses must be
recouped before it can be said the mine is a profitable
venture.” Id. at 119. DOI rejected the argument, reasoning
that “[t]here is no case law of which we have knowledge . . .
that compels consideration of the above mentioned
development costs in determining if an ongoing operation is
presently profitable.” Id. So long as “the mineral material
may be now mined, removed, and marketed at a present profit
over and above the costs of such operations,” the mine may
be considered “valuable” under the Mining Act. Id. DOI has
applied this rule for over forty years. See United States v.
Clouser, 144 IBLA 110, 131–32 (1998); United States v.
Collord, 128 IBLA 266, 288 n.24 (1994); United States v.
Copple, 81 IBLA 109, 129 (1984).

     In this case, the mineral examination was conducted by
the U.S. Forest Service. Although DOI has primary
jurisdiction to determine the validity of mining claims, the
Forest Service is authorized to conduct mineral examinations
on National Forest System lands and to recommend that DOI
initiate administrative contests of invalid mining claims. See
16 U.S.C. §§ 478, 482; Forest Service Manual §§ 2810.41,
2814.11, 2819, 2819.1–2.

     2. Standard of review

    The Forest Service determined that Energy Fuels has a
valid existing right to operate Canyon Mine. The VER
Determination relied on the legal standard for discovery of a
valuable mineral deposit announced by DOI. It twice cited
DOI’s core decision in Castle v. Womble, and it noted which
           GRAND CANYON TRUST V. PROVENCIO                    17

costs it regarded as sunk. The parties disagree over what
standard of review we should apply here. The Trust argues
that we can review DOI’s interpretation of the Mining Act de
novo, because it is a pure question of law. The district court
disagreed, finding that the question was whether the Forest
Service’s reliance on DOI’s construction of the act was
arbitrary and capricious, rather than whether the
interpretation itself was valid. See Grand Canyon Tr., 467 F.
Supp. 3d at 819–21. The Forest Service argues that, since an
action by DOI is not being challenged and DOI is not a party
to this lawsuit, the validity of DOI’s interpretation is not
before us.

    The district court was correct. When reviewing the Forest
Service’s VER Determination, the proper standard of review
is arbitrary and capricious. We have consistently applied the
arbitrary and capricious standard to cases in which an agency
relies on or defers to the opinions or interpretations of another
agency. See, e.g., San Luis & Delta-Mendota Water Auth. v.
Jewell, 747 F.3d 581, 640 (9th Cir. 2014); Wild Fish
Conservancy v. Salazar, 628 F.3d 513, 532 (9th Cir. 2010);
Pyramid Lake Paiute Tribe of Indians v. U.S. Dep’t of Navy,
898 F.2d 1410, 1415 (9th Cir. 1990). The Trust argues that
arbitrary and capricious review applies only when an agency
defers to another agency’s judgment about factual matters, as
opposed to pure questions of law. Our law is to the contrary.
In Defenders of Wildlife v. U.S. EPA, we concluded that the
Fish and Wildlife Service had prepared a biological opinion
that relied on legal errors. 420 F.3d 946 (9th Cir. 2005),
rev’d on other grounds and remanded sub nom. Nat’l Ass’n
of Home Builders v. Defs. of Wildlife, 551 U.S. 644 (2007).
EPA had, in turn, relied on the biological opinion. We held
EPA was arbitrary and capricious when it relied on the flawed
opinion. Id. at 976. Although we observed that an agency
18           GRAND CANYON TRUST V. PROVENCIO

“should be able to rely on the expert judgments that underlie
[a] Biological Opinion[]” prepared by another agency, in this
case “the Biological Opinion’s flaws are legal in nature.
Discerning them requires no technical or scientific expertise.”
Id. They were errors “EPA should have understood.” Id.

    Since the VER Determination cited and applied DOI’s
interpretation of the Mining Act,2 we may reach through the
VER Determination and review DOI’s interpretation “only to
the extent that [it] demonstrate[s] whether [the Forest
Service’s] reliance on the [interpretation] is ‘arbitrary and
capricious.’” Pyramid Lake, 898 F.2d at 1415 (quoting Stop
H-3 Ass’n v. Dole, 740 F.2d 1442, 1460 (9th Cir. 1984)).
Because DOI has authority to administer the Mining Act, its
interpretation is analyzed under Chevron, U.S.A., Inc. v.
National Resources Defense Council, Inc., 467 U.S. 837
(1984).3 Lambert v. Saul, 980 F.3d 1266, 1275 (9th Cir.

     2
      Although the VER Determination cited Castle v. Womble, it did not
refer explicitly to Mannix. That suggests the possibility that the Forest
Service expressed its own views on the irrelevance of sunk costs, rather
than reflecting DOI’s view of such costs. Since both agencies took the
same view of sunk costs, and we conclude that such position is not
arbitrary and capricious, we do not need to explore further this question.
The result would be the same in either case.
     3
      The Trust argues that Chevron deference should not apply because
DOI failed to provide the “minimal level of analysis” required. Encino
Motorcars, LLC v. Navarro, 579 U.S. 211, 221 (2016) (requiring that an
agency give “adequate reasons for its decisions,” meaning that the
agency’s explanation must be “clear enough that its ‘path may be
reasonably discerned’” (quoting Bowman Transp., Inc. v. Arkansas-Best
Freight Sys., Inc., 419 U.S. 281, 286 (1974)). While DOI’s analysis in
Mannix is brief, it cites cases that use language consistent with its
interpretation. See Mannix, 50 IBLA at 117–18 (citing Castle, 19 Pub.
Lands Dec. at 457; United States v. McKenzie, 20 IBLA 38, 45 (1975)
(“[E]vidence should focus on current estimates of costs and prices.”)).
            GRAND CANYON TRUST V. PROVENCIO                          19

2020). If DOI’s interpretation of the Mining Act is not
entitled to Chevron deference, then it is arbitrary and
capricious for the Forest Service to rely on the erroneous
interpretation. This approach is consistent with that of our
sister circuits. See, e.g., Florida Key Deer v. Paulison,
522 F.3d 1133, 1145 (11th Cir. 2008) (“If [one agency’s
opinion is] arbitrary and capricious, an[other] agency’s
decision to adopt [it] is likewise arbitrary and capricious and
may be challenged.”); CTIA-Wireless Ass’n v. FCC, 466 F.3d
105, 117 (D.C. Cir. 2006) (finding that, if the court must
defer to the agency’s interpretation, it is not arbitrary and
capricious for another agency to do so).

    3. Chevron deference

     Chevron analysis has two steps: “[W]e must first exhaust
the traditional tools of statutory construction to determine
whether Congress has directly spoken to the precise question
at issue.” Turtle Island Restoration Network v. U.S. Dep’t of
Com., 878 F.3d 725, 733 (9th Cir. 2017) (internal quotations
omitted). If the statute is “silent or ambiguous on the
question at hand, then at Chevron step two we must respect
the agency’s interpretation so long as it is based on a
permissible construction of the statute”—that is, one not
“arbitrary, capricious, or manifestly contrary to the statute.”
Id. (internal quotations omitted).

This would indicate that DOI was reading the Mining Act to be consistent
with its prior case law on the prudent person and marketability tests,
which the Supreme Court approved of on multiple occasions. This is
sufficient for us to proceed with a Chevron analysis. See Encino
Motorcars, 579 U.S. at 222 (“[S]ummary discussion may suffice . . . .”).
20         GRAND CANYON TRUST V. PROVENCIO

     At Chevron step one, “[t]o maintain the proper separation
of powers between Congress and the executive branch, we
must ‘exhaust all the traditional tools of construction’ before
we ‘wave the ambiguity flag.’” Route v. Garland, 996 F.3d
968, 978 (9th Cir. 2021) (quoting Medina Tovar v.
Zuchowski, 982 F.3d 631, 634 (9th Cir. 2020)). In this case,
however, we have little difficulty determining that the critical
term in the Mining Act—“valuable mineral deposits”—is
ambiguous. See 30 U.S.C. §§ 22–23. It is neither a defined
term nor a term of art in the industry. In Chrisman, the Court
first considered, and approved the Secretary’s “prudent
person” test. 197 U.S. at 322–23. The Court stated the
statutory requirement in the most general of terms: “[T]here
must be such a discovery of mineral as gives reasonable
evidence of the fact, either that there is a vein or lode carrying
the precious mineral, or, if it be claimed as placer ground,
that it is valuable for such mining.” Id. at 323.

    Examining the purpose and history of the Mining Act
similarly yields no definitive understanding of the term. In
Coleman, the Supreme Court said that the purpose of the
Mining Act was to make “public lands available to people for
the purpose of mining valuable mineral deposits and not for
other purposes. The obvious intent was to reward and
encourage the discovery of minerals that are valuable in an
economic sense.” 390 U.S. at 602. That description is far too
general to cabin the definition of “valuable mineral deposits.”
That does not mean that an enforcing agency such as DOI can
define it in any way it pleases, but it also means that we may
not insist that the phrase is so clear as to be capable of a
single meaning.

    If the terms of the statute are not capable of precise
definition at step one, we cannot see how we could determine
          GRAND CANYON TRUST V. PROVENCIO                  21

that “valuable mineral deposits”—which the agency has
concluded means that the deposits would be pursued by a
prudent person—forecloses how the agency accounts for
“sunk costs,” which is not a statutory term, but is a commonly
used economic phrase. Concluding that the statute is
ambiguous, we may now proceed to step two.

    At Chevron step two, we hold that DOI’s interpretation of
the Mining Act—in which sunk costs are not considered
when determining whether a mine is profitable—is a
permissible one and not “arbitrary and capricious in
substance, or manifestly contrary to the statute.” Mayo
Found. for Med. Educ. & Rsch. v. United States, 562 U.S. 44,
53 (2011) (quoting Household Credit Servs., Inc. v. Pfennig,
541 U.S. 232, 242 (2004)). First, we find that the fact that
DOI excludes sunk costs from its profitability analysis is not
manifestly contrary to the Mining Act because this
interpretation is consistent with the prudent person and
marketability tests, which the Supreme Court has repeatedly
upheld. See West. Nuclear, Inc., 462 U.S. at 58 n.18;
Coleman, 390 U.S. at 602. Although the Court has not
addressed the question of sunk costs specifically, the
language of these tests and the cases in which they are
applied suggest that the profitability analysis is forward
looking. See, e.g., Coleman, 390 U.S. at 602 (“. . . a person
of ordinary prudence would be justified in the further
expenditure of his labor and means.”); see also McKenzie,
20 IBLA at 38, 45 (“[E]vidence should focus on current
estimates of costs and prices.”). Sunk costs, on the other
hand, are backward looking.

    More importantly, DOI’s interpretation is not arbitrary
and capricious in substance because it is consistent with
established economic principles. It is a basic principle of
22         GRAND CANYON TRUST V. PROVENCIO

economics that sunk costs should be ignored when making a
rational decision about whether to make further expenditures.
See N. Gregory Mankiw, Principles of Economics 275 (8th
ed. 2016) (“Because nothing can be done about sunk costs,
you should ignore them when making [rational] decisions
about various aspects of life, including business strategy.”);
Richard A. Posner, Economic Analysis of Law 8 (9th ed.
2014) (“‘Sunk’ (already incurred) costs do not affect a
rational actor’s decisions on price and quantity. . . . Fully
rational people base their decisions on expectations of the
future rather than on regrets about the past.”); Paul A.
Samuelson & William D. Nordhaus, Economics 179 (18th ed.
2005) (“One of the most important lessons of economics is
that you should look at the marginal costs and marginal
benefits of decisions and ignore past or sunk costs.”
(emphasis omitted)); Thomas Kelly, Sunk Costs, Rationality,
and Acting for the Sake of the Past, 38 Noûs 60, 61 (2004)
(“[I]t is widely agreed that honoring sunk costs is obviously
and clearly irrational, and that doing so is, without exception,
to be avoided. In economics and business textbooks, the
tendency to honor sunk costs is treated as an elementary
fallacy.”); Armen A. Alchian & William R. Allen, Exchange
and Production: Theory in Use 288 (1969) (a “fixed or sunk
cost” is “‘fixed’ upon you and irrevocable. For any
subsequent decision this ‘cost’ is totally irrelevant and can be
forgotten.”). Federal courts have acknowledged the validity
of the sunk cost principle in other contexts. See, e.g., Verizon
Commc’ns, Inc. v. FCC, 535 U.S. 467, 499 n.17 (2002)
(stating that “costs” in an economic sense do not include sunk
costs); Alenco Commc’ns, Inc. v. FCC, 201 F.3d 608, 615–16
(5th Cir. 2000); Fresno Mobile Radio, Inc. v. FCC, 165 F.3d
965, 969 (D.C. Cir. 1999) (rejecting an argument that a
business’s actions are motivated by its past investment
because “[t]his is a foolish notion that should not be
           GRAND CANYON TRUST V. PROVENCIO                  23

entertained by anyone who has had even a single
undergraduate course in economics,” and collecting sources);
MCI Commc’ns Corp. v. Am. Tel. & Tel. Co., 708 F.2d 1081,
1117 (7th Cir. 1983). See also United States v. Park Place
Assoc., Ltd., 563 F.3d 907, 921 (9th Cir. 2009).

    To illustrate, let us suppose that ABC Mining spent
$31 million to develop what it thought was a valuable mine,
but had to take it out of operation when the market value of
the mineral declined. Let us also suppose that if ABC Mining
wishes to restart operation of the mine, it will earn
$50 million in revenue but incur $20 million in further capital
and operating expenses. If we ignore sunk costs, ABC
Mining should reopen the mine because the benefit from
mining ($50 million) still exceeds the nonsunk cost of
operating the mine ($20 million). In fact, the revenue far
exceeds the nonsunk cost. The operation stands to make
$30 million by extracting the deposit; by any measure that
makes the mineral deposit a valuable one.

    By contrast, if ABC Mining considers the sunk costs as
part of its decision whether to re-start operations, it would
refuse to continue operation because it would stand to lose
$1 million after considering sunk costs ($31 million +
20 million ! 50 million). But if ABC Mining decides not to
re-open the mine, it will lose $31 million total, instead of
$1 million, because it chose not to offset its prior losses
against the promise of a $30 million benefit. No prudent
person should follow such a plan. ABC Mining will have
misjudged the situation by considering its total costs rather
than its nonsunk costs. It is true that the mine operator will
have lost $1 million over the life of the mine, but if the
24           GRAND CANYON TRUST V. PROVENCIO

operator declines to proceed when its revenues will exceed its
costs, it will have lost $31 million at the mine.4

    DOI’s sunk costs rule from Mannix5 simply recognizes
that a prudent person cannot change sunk costs, and thus
those costs should not be considered when determining
whether that person is “justified in the further expenditure of
his labor and means.” Castle, 19 Pub. Lands Dec. at 457; see
also Thomas T. Nagle, John E. Hogan, & Joseph Zale, The
Strategy and Tactics of Pricing: A Guide to Growing More
Profitably 224 (5th ed. 2011) (“Since nonincremental
fixed and sunk costs do not change with a pricing decision,
they do not affect the relative profitability of one
price versus an alternative.”); David D. Friedman, Price

     4
       Of course if a mine operator knew from the outset that it would lose
even one dollar over the life of the mine, it would decline to file the
mineral claim. But the operator—and DOI, which must approve such
claims—can only work off the information they have. They are not
responsible for accurately predicting the vagaries of the market over the
life of the mine. And DOI has decided not to punish operators whose
claims, once unprofitable, have returned to profitability.
     5
      The Trust argues that, even if DOI’s interpretation is entitled to
deference, the Forest Service erred in applying Mannix because Mannix
has an exception for withdrawn land. The Trust relies on the “absent a
prior withdrawal” language in the Mannix opinion and a concurrence in
Collord, in which the concurring ALJ stated that the existence of the
withdrawal was “critical” to the Mannix decision. Mannix, 50 IBLA
at 119; Collord, 128 IBLA at 304 (Burski, J., concurring in the result).
However, the majority in Collard decided to exclude sunk costs even in
the face of a withdrawal. See Collard, 128 IBLA at 288 n.24.
Furthermore, DOI has applied the Mannix rule consistently—without an
exception for withdrawal—for the past forty years. See, e.g., Clouser,
144 IBLA at 131; Copple, 81 IBLA at 129. Given this precedent, the
Forest Service did not act arbitrarily and capriciously by failing to apply
a nonexistent exception for withdrawn land.
           GRAND CANYON TRUST V. PROVENCIO                   25

Theory: An Intermediate Text ch. 13, pt. 1 (2d ed. 1990),
http://www.daviddfriedman.com/Academic/Price_Theor
y/PThy_ToC.html (“The significance of sunk costs is that
a firm will continue to produce even when revenue does not
cover total cost, provided that it does cover nonsunk costs
(called recoverable costs), since nonsunk costs are all the firm
can save by closing down.”).

    We need not go so far as to pronounce DOI’s approach to
sunk costs required by the statute or correct as a matter of
principle. See Friends of Santa Clara River v. U.S. Army
Corps of Eng’rs, 887 F.3d 906, 922 (9th Cir. 2018). We do
not decide that any other approach would be arbitrary and
capricious. It is sufficient that we can conclude that DOI’s
rule excluding sunk costs is not arbitrary and capricious. And
since we would be required to give DOI deference under the
Chevron doctrine, it was appropriate for the Forest Service to
do so as well in its VER Determination. As such, it was not
arbitrary and capricious for the Forest Service to rely on
DOI’s interpretation of the Mining Act.

                     IV. CONCLUSION

   The judgment of the district court is AFFIRMED.