701 F.

2d 846

STEWART CAPITAL CORPORATION, et al., PlaintiffsAppellees,

v.
Cecil D. ANDRUS, Secretary of the Interior of the United
States of America, Defendant,
and
Collins C. Diboll, Intervening-Defendant-Appellant.
No. 80-1642.

United States Court of Appeals,

Tenth Circuit.
Feb. 4, 1983.

Craig R. Carver and Pamela A. Ray, Head, Moye, Carver & Ray, Denver,
Colo., for plaintiffs-appellees.
Jack M. Weiss and Thomas F. Duchen, Phelps, Dunbar, Marks, Claverie
& Sims, New Orleans, La., and Kenneth G. Vines, Vines, Rideout &
Gusea, Cheyenne, Wyo., for intervenor-defendant-appellant.
Before DOYLE, McKAY and SEYMOUR, Circuit Judges.
WILLIAM E. DOYLE, Circuit Judge.

This is an appeal from a judgment of the District Court for the District of
Wyoming which considered a ruling of the Interior Board of Land Appeals
(IBLA) and affirmed it in part but also reversed it in part. The latter ruling
pertained to a determination by the IBLA that plaintiff Stewart had suffered
rejection of offers submitted by him for oil and gas leases based upon his
failure to comply with an agency regulation. The IBLA had affirmed the actions
of the Wyoming BLM rejecting offers submitted by Stewart. He, in turn, on
behalf of the applicants, appealed this IBLA decision to the United States
District Court for the District of Wyoming. There the current assignee of the
leases, that is the substitute owner one Diboll, was allowed to intervene. Judge
Kerr affirmed the IBLA's interpretation of the regulations in H.R. Delasco, Inc.,

et al., 39 IBLA 194 (1979), but the court determined this interpretation could
not be applied retroactively to the leases offered by Stewart now in the hands of
Diboll. The judge thereby reinstated Stewart's principals as the first drawees of
the lottery.
2

Appeals were then filed from the decision. However the government
subsequently dismissed its appeal. Diboll assumed the burden of the appeal in
order to try to protect his interest in the leases, the subject matter here.

As is apparent from the above discussion the Bureau of Land Management is

authorized to offer the public oil and gas leases on federal land. This is pursuant
to the Mineral Lands Leasing Act of 1920, 30 U.S.C. Sec. 226(c). A lottery
type drawing system is employed by BLM for the purpose of handling the
many applications for leases. A basic requirement is that each applicant submit
a drawing entry card (DEC) "signed and fully executed by the applicant or his
duly authorized agent in his behalf." 43 C.F.R. Sec. 3112.2-1(a). In the monthly
drawing three DECs are drawn. The lease is awarded to the first qualified
applicant whose DEC has been drawn.

As we indicated above the appellee Stewart operates a filing service for people
wishing to participate in these drawings. Stewart advises the offerors of leases
being offered. It is authorized to submit DECs on their behalf. Stewart types the
customer's name on a card and affixes the customer's facsimile signature to it
by use of a stamp. The evidence in this case showed that the clients fully
approved of Stewart utilizing the facsimile signature in connection with the
leasing. The regulation which is the center of interest here is 43 C.F.R. Sec.
3102.6-1(a)(2). This provides as follows:

5 the offer is signed by an attorney-in-fact or agent, it shall be accompanied by

If
separate statements over the signature of the attorney-in-fact or agent and the offeror
stating whether or not there is any agreement or understanding between them or with
any other person, either oral or written, by which the attorney in fact or agent or such
other person has received or is to receive any interest in the lease when issued. * * *
"
6

Stewart, of course, is not the real party in interest but it is plain that he is the
representative of the real parties in interest on behalf of whom Stewart
submitted the applications and on whose behalf this action is brought. The
applications that Stewart submitted here did not contain any agency statement
similar to the one described in the regulation above quoted. Diboll, who did not
use Stewart's service, drew a second priority on these leases and he, of course,
maintains that he is now entitled to have the leases awarded to him.

The regulation in question has been in effect in substantially the same form
since 1964. Stewart has submitted several thousand applications of the same
type at issue here. Four hundred sixteen of these were first drawn in those
lotteries. Notwithstanding that the leases were awarded to Stewart's clients, the
BLM ruled in D.E. Pack, 30 IBLA 166, 84 I.D. 192 (1977) that Stewart's
application did not comply with the requirements of 43 C.F.R. Sec. 3102.6-1(a)
(2). The basis was that there was a lack of an agency statement. Because of this
the BLM ruled that Stewart's principals had not complied with the regulations
inasmuch as their DECs were similarly defective. The IBLA conducted a
review in Pack at the request of the Secretary of the Interior. However the
decision was affirmed. 38 IBLA 23 (Nov. 8, 1978) (Pack II). On the basis of
the decisions just described in Pack the IBLA issued the Delasco decision
which rejected the lease offers of plaintiffs. The Pack decisions of the IBLA
were appealed to the United States District Court in Utah.

In the case of Runnells v. Andrus, 484 Fed.Supp. 1234 (D.Utah 1980) the court
reversed the portion of the Pack decision giving an interpretation of the
regulation retroactive effect. Pack did not, however, involve the specific leases
at issue in the case at bar.

There is one other decision which is relevant and authoritative. We refer to

McDonald v. Watt, 653 F.2d 1035 (5th Cir.1981). The Fifth Circuit in
McDonald reversed a lower court decision in McDonald v. Andrus. It found
that the IBLA interpretation of 43 C.F.R. 3102.6-1(a)(2) could only be applied
prospectively. This is the initial circuit court decision having to do with the
question.

10

The questions which are to be considered here are:

11

1. Should the interpretations of 43 C.F.R. Sec. 3102.6-1(a) be applied

retroactively?

12

2. Diboll raises an additional issue. It is whether this case presents a situation of

retroactivity at all. He did not raise it below and we need not consider it. Nulf v.
International Paper Co., 656 F.2d 553, 59 (10th Cir.1981).

The Trial Court's Ruling

13

The trial court, the Honorable Ewing Kerr, reviewed the Delasco decision. As
noted, Diboll, whose offer had been drawn second, intervened in the Wyoming
case as a party defendant. The trial court, Judge Kerr, upheld the IBLA decision

in part and reversed it in part on the ground that the decision, while correct, is
to have prospective application and not retroactive, as was the ruling of the
Department. The Secretary of the Interior and the party involved, Dr. Diboll,
originally appealed from this order. Now the Secretary has moved to dismiss its
appeal. The motion was granted on July 22, 1980 and only Diboll remains as an
appellee. Judge Kerr carefully considered the regulation that is here in question.
The judge recognized that an administrative agency's interpretation of its own
regulation is to be given some deference by a reviewing court. The trial court
employed a highly rational balancing test for determining whether an
administrative decision such as that in our case ought to be applied retroactively
or prospectively. SEC v. Chenery, 332 U.S. 194, 67 S.Ct. 1575, 91 L.Ed. 1995
(1947). The Supreme Court there said in effect that an administrative decision
such as that before us should be carefully balanced to ascertain whether or not it
should be applied prospectively only. The standards to be utilized are set forth
in Retail, Wholesale, and Department Store Union v. NLRB, 466 F.2d 380
(D.C.Cir.1972). They are as follows:
14

1. Whether the particular case is one of first impression;

15

2. Whether a new rule represents an abrupt departure from well established

practice or merely attempts to fill a void in an unsettled area of the law;

16

3. The extent to which a party, against whom the new rule is applied, relied on
the former rule;

17

4. The degree of burden which a retroactive order imposes on a party; and

18

5. The statutory interest in applying a new rule despite reliance of a party on an

old standard.

19

The trial court applied the tests outlined above and concluded that the facts thus
tested did not favor Diboll's claim.

20

An important factor from the standpoint of the Stewart people is the good faith
reliance by that group on the prior BLM practice of accepting DECs filed with
stamped facsimile signatures and doing so without requiring that they be
accompanied by separate statements of the agent and offeror. Indeed, Stewart
had been using this facsimile process in filing its offers for approximately six
years and during that time no question of compliance with the regulation had
been raised. Pack II, supra, at 85 I.D. 418-19. The position of the majority in
Pack II was that even if the BLM had disregarded or failed to apply the

regulation, the BLM is not estopped to reject an offer on the basis of previous
lack of enforcement. Pack II, supra, at 85 I.D. 416-17. Moreover, the opinion in
Pack II said that the failure of the BLM to give notice to the requirement for
filing separate interest statements provides no basis for granting a lease in
contravention of the oil and gas regulations. Pack II, supra, at 85 I.D. 416-22.
21

The Board also considered SEC v. Chenery Corp., 332 U.S. 194, 67 S.Ct. 1575,
91 L.Ed.2d 1995 (1947). To the extent that it considered retroactivity the
Chenery opinion states:

22 ... [agency] action might have a retroactive effect ... [is] not necessarily fatal to
That
its validity. Every case of first impression has a retroactive effect, whether the new
principle is announced by a court or by an administrative agency. But such
retroactivity must be balanced against the mischief of producing a result which is
contrary to a statutory design or to legal and equitable principles. If that mischief is
greater than the ill effect of the retroactive application of a new standard, it is not the
type of retroactivity which is condemned by law. Id. at 203, 67 S.Ct. at 1581.
23

1. The Board observed that the instant case was one of first impression. It
acknowledged that its previous decisions interpreting 43 C.F.R. Sec. 3102.61(a)(2) came after the filing of Runnells' offer and also that plaintiff Stewart
had not received notice of those decisions. Nonetheless, the Board concluded
that the "ill effect" of applying the regulation to Runnells' offer was far less
than the "mischief" to the oil and gas simultaneous offer system, especially the
"mischief" to other qualified oil and gas offerors such as Diboll who would
otherwise be entitled to obtain the leases affected. We note once again that the
Supreme Court in Chenery Corp., supra, held that the ill effects of retroactive
application in agency decisions are to be balanced against the beneficial need
for such application. Another decision clarifies that this type of determination is
not to be made on any automatic basis is Retail, Wholesale and Department
Store Union v. NLRB, supra.

24

McDonald v. Watt, supra, accepted totally the Chenery balancing test as the
appropriate inquiry. McDonald, supra, at 1043. McDonald did not follow the
lead of the Retail court, which had held that the propriety of retroactive
application of an agency decision was a question of law for the court. It
nonetheless found no justification for retroactive application of the Pack
decisions. The McDonald court did rely somewhat on the fact that the
leaseholders believed in good faith that they were complying with the letter of
the regulation as the BLM had treated it in practice. That practice, of course,
simply had been to ignore the regulation. Indeed, until the Pack decisions, the
regulation had been a dead letter which had not been honored in observance.

25

At any rate the McDonald court concluded that the IBLA had abused its
discretion by applying Pack retroactively. Similar conclusions have been
reached by two district courts. In Runnells v. Andrus, supra, the Retail case was
applied in the course of prohibiting retroactive application of Pack I and Pack
II. Of even more importance, the five-fold test was employed by Judge Kerr in
the district court in finding against retroactive application of the Pack decisions.
Stewart Capital Corp. v. Andrus, No. C79-123K (D. Wyoming 1980).

26

Virtually all of the courts which have considered this issue have agreed that the
Pack decisions should not be given retroactive effect. The only exception would
be the district court decision in McDonald, supra. But the fifth circuit ruled the
other way on review. Also important is the fact that the government itself has
now conceded there is no purpose to be served by retroactively applying Pack.
The government even dismissed its appeal in this proceeding. The standards
other than number 3 (reliance)1 that are set forth in the Retail, Wholesale and
Department Store Union v. NLRB, supra, also give support.

27

In the Runnells, supra, case the district court for the district of Utah noted that
at the time the Runnells case was filed in August 1976 there were no IBLA
decisions on whether agency statements were required based on the stamped
signature so that Pack was, for all practical purposes, a case of first impression.
See Runnells, supra, at 1238. The IBLA treated it as a case of first impression
also. See Pack II, supra, at 84 I.D. 421. So the first standard supports the
appellee.

28

2. As to the second standard, whether the new rule is an abrupt departure from
well established practice, it can be said that it is so held by Judge Jenkins in
Runnells, supra, at 1238.

29

3. We have heretofore considered this test.

30

4. Is the degree of burden which a retroactive decision might create significant?

The trial court noted the burden for such a change should not fall on plaintiffs
such as these who felt that they were in good faith compliance. We agree with
this viewpoint.

31

5. Finally, is there a statutory interest in applying a new rule despite the

reliance of a party on the old standard. It is asserted by Diboll that there is a
substantial statutory interest in applying the Pack decision in the instant case.
The trial court refuted this assertion in strong terms and said:

32 final factor to be considered is statutory interest. Retroactive application would

The
certainly cloud title to leases issued under a filing system used by companies such as
Stewart. Such a procedure is contrary to statutory intent. Furthermore, the statute
and regulations appear to be directed at reducing fraud and collusion. There is no
evidence of fraud or collusion in this case and none was alleged. The only allegation
was non-compliance with the regulation.
33

In sum, we conclude that the IBLA abused its discretion by applying the Pack
decisions retroactively to the offers submitted by Stewart's clients. Cf. Brick v.
Andrus, 628 F.2d 213 (D.C.Cir.1980); Winkler v. Andrus, 594 F.2d 775 (10th
Cir.1979).

34

Our decision is that the judgment of the district court should be and is hereby
affirmed.

We have shown above that number 3 is supportive