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James Barlow Family Ltd. Partnership v. David M. Munson, Inc.

Citation: 28 ELR 20483
(08/26/1997)

The court holds that the owners of royalty interests in federal oil and gas leases are not entitled to royalty payments from their lessee. During ongoing title disputes over mineral patent rights between the federal government and several private parties, the lessee acquired both federal and private oil and gas leases. The title disputes were eventually settled. The settlement provided for the issuance of federal mineral patents to the private parties, and the parties intended that, notwithstanding the delivery of an unreserved patent, the federal leases would be held to be in full force and effect. Moreover, the patents were issued without reservation of oil, gas, and coal. The court first holds that the instruments of conveyance employed to effectuate the settlements did not cut off the rights of the lessee under the private leases, notwithstanding the intent of the settling parties. Under general mining law, the issuance of federal mineral patents to the private parties relates back to the date of the original claim and validates the private leases that were conveyed to the lessee before the execution of the settlements or the issuance of the patents. Moreover, the issuance of patents to holders of valid mining claims ordinarily voids federal leases. Because the lessee's rights under the private lease relate back, the issuance of the private patents voided the federal leases. Thus, under general mining law, the lessee has no obligation to pay the owners of the royalty interests in the federal leases, as the federal leases were voided by the issuance of patents.

The court next holds that the lessee's attempt to assert its rights under the private leases is not an impermissible collateral attack on the validity of the settlement agreements. The lessee's assertion of its rights in this proceeding, rather than in the settlement negotiations, would constitute an impermissible collateral attack only if the lessee—despite being a nonsignatory—is by reason of his conduct bound by the terms of the settlement agreements themselves, rather than by the instruments of conveyance. However, the court concludes that none of the documentary evidence offered supports the contention that the lessee gave up its rights to assert the validity of its private leases on the issuance of federal patents to the private parties. The attorney general's power to settle litigation does not allow the United States to avoid the legal effect of the documents executed pursuant to its chosen manner of settlement. The government and the owners of the royalty interests in the federal leases could have secured the result they now seek by requiring that the lessee assign its private leases back to the private parties before the execution of the settlement agreements. Further, the lessee's knowledge of the ongoing settlement proceedings simply is not relevant to the meaning of federal patents. The instruments of title ultimately executed under the agreements validated the private leases and thereby gave the lessee a complete defense to the nonpayment of royalties under the federal leases.

Counsel for Plaintiffs
John F. Shepherd
Holland & Hart
555 17th St., Ste. 2900, Denver CO 80201
(303) 295-8000

Counsel for Defendant
Craig R. Carver
Alfers & Carver
Equitable Bldg.
730 17th St., Ste. 340, Denver CO 80202
(303) 592-7674

Before Henry and Briscoe, JJ.