A three-judge panel of the U.S. Court of Appeals 10th Circuit on Wednesday rejected on a split 2-1 vote an appeal by oil/gas industry operators and local governments in eastern Utah, upholding the Obama administration's decision almost four years ago to withdraw 77 leases that had been sold at the tail end of the George W. Bush administration.

Companies with high bids on the leases in late 2008, along with the counties of Carbon, Uintah and Duchesne in Utah, appealed the action by then-newly installed Interior Secretary Ken Salazar to withdraw the leases sold by the federal Bureau of Land Management (BLM) on federal acreage in the eastern corner of the state (see Daily GPI, May 18, 2009).

Denver-based Impact Energy Resources LLC, Peak Royalty Holdings Inc. of Utah and Denver-based Questar Exploration and Production Co. (now QEP Resources Inc.) argued that Salazar violated the Mineral Leasing Act (MLA) and the Federal Land Policy and Management Act (FLPMA) by withdrawing the Utah leases after they had been awarded to high bidders in a December 2008 auction.

In September 2010, U.S. District Court Judge Dee Benson in an 18-page decision agreed that Salazar "exceeded his authority" by withdrawing the oil/gas leases in Utah after the government held a competitive lease sale, but he nevertheless rejected the challenge of three independent producers and Utah counties of Salazar's decision because they filed their lawsuit too late (see Daily GPI, Sept. 7, 2010).

Salazar's move came after producers had bought and paid for the leases and Interior cashed their checks. The money was later refunded.

At the center of the dispute was the date at which Salazar's decision had been final. The Interior Department claiming Feb. 4, 2009, and the plaintiffs alleging it was Feb. 12 that year. Judge Benson disagreed with both sides, concluding that a Feb. 6, 2009 intra-agency memo in which the secretary directed the Utah BLM state director to withdraw the leases was the final decision. The producers were not officially notified until Feb. 12.

A majority of the three appellate judges agreed with Benson's district court decision that the plaintiffs had waited too long and missed the statutory period for to filing their appeals. Senior Judge Stephanie Seymour and Judge Carlos Lucero agreed with the earlier court decision, but Judge Timothy Tymkovich dissented.

"Seymour held that the word 'final' bears the same meaning in the phrase 'final decision of the Secretary [Salazar]' as it does in the phrase 'final agency action' under the Administrative Procedures Act, and that final agency action occurred no later than Feb. 6 [2009]," the 64-page ruling said, noting that Tymkovich agreed with Seymour's conclusion but disagreed on the majority's conclusion.

"Judge Tymkovich agrees with Judge Seymour's conclusion that final agency action is necessary, but disagrees with the majority's conclusion that the suit is time-barred as explained in his dissent."

Tymkovich argued that a Feb. 6 memo could not have been the final agency action because it "did not withdraw the leases but instead anticipated that further steps would be needed to effectuate the withdrawals," the court decision said.

The decision goes on to cite the majority as agreeing with the district court that the energy operators were "not entitled to equitable tolling in this matter" since the BLM notified the high bidders six days after Salazar made his decision, and the government notified the operators of its position that Feb. 6 was "the operative date during agency proceedings."

While expressing its disappointment with the appeals court decision, a spokesperson for one of the operators, Denver-based QEP, said his company was "encouraged" by what they described as Judge Tymkovich's "sharp" dissent. "[He] concluded that we had made a timely appeal of BLM's lease withdrawal decision in 2009," the spokesperson said.

"While we continue to review the details of the decision, we believe the conflicting rationales offered by all three judges on the core procedural question make this case a potential candidate for retrial by the [entire] 10th Circuit Court of Appeals."

QEP's spokesperson said the decision "clearly sets a disturbing legal precedent," one he described as giving the use of internal communications among government officials the same standing as public notice.

Since it happened at the beginning of the Obama administration, environmental groups have supported Salazar's move, and an attorney for Southern Utah Wilderness Alliance hailed the appellate court panel's decision. The attorney told local news media the court action is the "final rejection" of the ongoing challenges.

However, the judicial panel's 64-page decision articulated some future problems in upholding the BLM handling of the leases, noting that giving "legal effect to internal agency documents will likely expose agencies to judicial challenges that would today be considered unripe," and it raises the potential "for agencies intentionally abusing [generic appellate court decisions] by keeping 'final decisions' secret for some time, or by failing to disclose the precise dates such decisions were made internally."

The judges acknowledged that "the notion that undisclosed, even secret, documents trigger a statute of limitations is contrary to the notion of open and accountable administrative decision-making."

A Uintah County commissioner, Mike McKee, told local news media that the court decision "sets a bad precedent," allowing government agencies to secretly make decisions.

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