Mountain West Mines, Inc. v. Cleveland-Cliffs Iron Co.

F I L E D
United States Court of Appeals
Tenth Circuit

November 22, 2006
PU BL ISH
Elisabeth A. Shumaker
UNITED STATES COURT O F APPEALS Clerk of Court

TENTH CIRCUIT

M OUNTAIN W EST M IN ES, IN C.,

Plaintiff-Appellant,
v.
No. 05-8079
C LEV ELA N D -C LIFFS IR ON
CO M PANY, POW ER RESOURC ES,
INC ., and PATHFIND ER M INES
C ORPO RA TIO N ,

Defendants-Appellees.

Appeal from the United States District Court
for the District of W yoming
(D.C. No. 04-CV-122-CAB)

Patrick D. Frye, (Harold G. M orris, Jr., with him on the briefs) Lindquist &
Vennum, P.L.L.P., Denver, Colorado for the Plaintiff–Appellant.

David R. Hammon, Davis Graham & Stubbs LLP, Denver, Colorado (Stephen E.
Kapnik, Lohf Shaiman Jacobs H yman & Feiger P.C., and Frank D. Neville, Scott
P. Klosterman, W illiams, Porter, Day & Neville, P.C., Casper, W yoming with him
on the briefs) for Defendants–Appellees.

Before L UC ER O, SILER, * and O’BRIEN, Circuit Judges.

*
The Honorable Eugene E. Siler, Jr., Senior Circuit Judge, United States
Court of Appeals for the Sixth Circuit, sitting by designation.
L UC ER O, Circuit Judge.

M ountain W est M ines, Inc. (“M ountain W est”) brought suit against

Cleveland-Cliffs Iron Co. (“Cliffs”), Pow er Resources, Inc. (“Power”), and

Pathfinder M ines Corp. (“Pathfinder”) arguing it is owed royalty payments on

uranium production under a series of contracts between M ountain W est and

Cliffs. W ith the facts undisputed, all parties moved for summary judgment. The

district court denied M ountain W est’s motion, granted the defendants’ joint

motion, and ordered M ountain W est to pay defendants’ attorneys’ fees. M ountain

W est appeals both the grant of summary judgment and the fee award. Exercising

jurisdiction pursuant to 28 U.S.C. § 1291, we AFFIRM the grant of summary

judgment, but REV ER SE and R EM AND for further proceedings on the award of

attorneys’ fees.

In 1967 M ountain W est and Cliffs entered into an option and agreement

(“Option”) concerning property in W yoming’s Powder River Basin. Cliffs

obtained the option to purchase M ountain W est’s uranium leases and mining

rights in exchange for, inter alia, royalty payments on uranium production. The

Option included a future acquisition clause covering the area of m utual interest

(“A M I”):

W ith respect to “other lands” and any and all lands acquired by
“M ountain W est” in the “Powder River Basin,” . . . by lease or

-2-
otherwise after the date of this O ption and Agreement, said lands w ill
be assigned or deeded at “Cliffs” request . . . subject only to a two
and one-half percent (2-1/2% ) overriding royalty or reserved royalty
to “M ountain W est.” . . . It is further understood and agreed that
“M ountain W est” will be entitled to and “Cliffs” agree [sic] to
convey a two and one-half percent (2-1/2% ) royalty interest to
“M ountain W est” in any lands it may hereafter acquire in the
“Powder River Basin” . . . .

Additionally, the Option included an assignment clause:

This agreement shall not be assignable in whole or in part without
the prior written notification to “M ountain W est”. [sic] Subject to
the limitation herein the provisions hereof shall inure to the benefit
of and shall be binding upon the successors in interest, legal
representatives and assigns of the respective parties hereto . . . .
Nothing herein contained and no assignment of this Option and
Agreement shall be construed to relieve “Cliffs” of the obligation to .
. . convey a two and one-half percent (2-1/2% ) royalty interest to
“M ountain W est” of any lands acquired by it in the “Powder River
Basin.”

In 1968 M ountain W est and Cliffs executed an addendum that extended

Cliffs’ rights under the O ption for six months and clarified the parties’

responsibilities. The addendum included the following clause (the “Getty

Clause”):

W ith respect to all other persons, firms, corporations, or business
entities including, but not limited to, Getty Oil Company acting on
their own and independently of Cliffs, and not acquiring said lands
from Cliffs. [sic] M ountain W est recognizes their independent right
to acquire lands and mining property in the Powder River Basin as
defined in the Option and Agreement free and clear of any claim by
M ountain W est and M ountain W est disclaims any right to a two and
one-half percent (2-1/2% ) royalty interest or any interest at all in
lands acquired by such persons, corporations or other business
entities.

-3-
Cliffs exercised its option in 1969, purchasing the mining rights to four

properties: North Bing, Four M ile, North Butte, and Greasewood Creek

(collectively the “Original Four”). In 1976 the parties executed an additional

addendum clarifying the manner in which royalty payments would be computed.

They agreed to the following language:

The parties acknowledge and agree that the lands subject to the
Option and Agreement are all the lands in the Powder River Basin, as
it is defined in the Option and Agreement, in which Cliffs has
acquired or hereafter acquires any Ore and/or Other M inerals. Cliffs
will pay to M ountain W est royalties as provided in this Addenda on
all Ores and Other M inerals mined or produced from such lands by
whomsoever.

M ountain W est and Cliffs also entered into a deed and agreement reflecting

the revised royalty rights. That deed states: “All provisions of this Deed and

Agreement shall inure to the benefit of, and be binding upon, the successors in

interest, legal representatives and assigns of the respective parties hereto . . . .”

In 1986 Cliffs sold the mining rights on the North Bing and Four M ile

properties to the Central Electricity Generating Board (“CEGB”). The purchase

agreement in this transaction noted that the properties were “encumbered by

certain royalty and other obligations, including the royalty and other obligations

as described in the Option and Agreement between Cliffs and M ountain W est

M ines, Inc.” Cliffs also warranted in deeds and assignments that CEGB “does not

share or take any responsibility of [Cliffs] to pay a mineral production royalty to

-4-
[M ountain W est] from property other than the Subject Property.” CEGB sold its

rights in these two properties to Pow er in 1996.

In 1987 Cliffs sold its North Butte and Greasewood Creek mining rights to

Uranerz U.S.A., Inc. (“Uranerz”). In this purchase agreement, Cliffs disclosed

both the AM I clause and the royalty obligation: “Any land Cleveland-Cliffs

should acquire for uranium exploration and mining within a very large area of

interest falls under [the Option] . . . . The only monetary obligation to [M ountain

W est] that remains is a production royalty, and this goes with the two properties.”

The agreement further noted that “[i]n general, provisions in the [Option] follow

land sold by Cleveland-Cliffs.” Additionally, the Cliffs-Uranerz deeds included

the same w arranty used in the Cliffs-CEGB transaction, stating that the buyer

would only be responsible for royalties on the subject property. W hen Uranerz

sold its interest in these properties to Pathfinder in 1991, it incorporated into the

deed that same w arranty limiting royalty payments to the subject property. The

Original Four were reunited in 2001 when Pathfinder sold its rights in North

Butte and Greasew ood Creek to Power.

All parties agree that M ountain W est is due royalties from production on

the Original Four. This litigation concerns the responsibility for royalty payments

on two other mining properties in the AM I, the Highlands Uranium Project and

the Smith Ranch (collectively “Highlands Properties”), in which neither M ountain

W est nor C liffs has ever held an interest.

-5-
Power acquired a 74.25% interest in the Highlands U ranium Project in

1989. Pathfinder purchased a 25% interest in the Project in 1992, while it owned

mining rights on the North Butte and Greasewood Creek properties, but later sold

this interest. In 2002, while Power owned mining rights on all of the Original

Four, it purchased the remaining 25.75% interest in the Highlands Uranium

Project, as well as the nearby Smith Ranch.

W e review the grant of summary judgment de novo, applying the same

legal standard employed by the district court. Sequoyah County Rural W ater

Dist. No. 7 v. Town of M uldrow, 191 F.3d 1192, 1196 (10th Cir. 1999).

Summary judgment is appropriate only where there is no genuine issue of

material fact and one party is entitled to judgment as a matter of law. Fed. R.

Civ. P. 56(c). The parties do not dispute the underlying facts, limiting our

analysis to whether the district court correctly applied the law. W olf v.

Prudential Ins. Co. of Am., 50 F.3d 793, 796 (10th Cir. 1995). Because the

district court exercised diversity jurisdiction under 28 U.S.C. § 1332(a) and the

events at issue occurred in W yoming, we apply the substantive law of that state.

Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938).

M ountain W est argues that the district court erred in determining that the

after-acquired property clause was not a covenant running with the land. Under

-6-
W yoming law, a party seeking to establish a covenant running w ith the land must

prove four elements: “a. The original covenant must be enforceable; b. The

parties to the original covenant must intend that the covenant run with the land; c.

The covenant must touch and concern the land; and d. There must be privity of

estate between the parties.” Jackson Hole Racquet Club v. Teton Pines, 839 P.2d

951, 956 (W yo. 1992); see also North Finn v. Cook, 825 F. Supp. 278, 282 n.8

(D . W yo. 1993).

The parties agree that the series of agreements between M ountain W est and

Cliffs were initially enforceable. W e turn then to the second prong of the

covenant determination: whether M ountain W est and Cliffs intended the after

acquired property clause to run with the land.

Covenants are “contractual in nature” and must be construed according to

the principles of contract law. Stevens v. Elk Homeowners’ Ass’n, 90 P.3d 1162,

1165-66 (W yo. 2004). W yoming’s general rules of contract interpretation were

reiterated in W yo. Game & Fish Comm’n v. M ills Co., 701 P.2d 819, 822 (W yo.

1985):

Our basic purpose in construing or interpreting a contract is to
determine the intention and understanding of the parties. If the
contract is in writing and the language is clear and unambiguous, the
intention is to be secured from the words of the contract. And the
contract as a whole should be considered, with each part being read
in light of all other parts.

-7-
Id. at 822 (quoting Cheyenne M ining and Uranium Co. v. Fed. Res. Corp., 694

P.2d 65, 70 (Wyo. 1985)). In construing the intent of the parties, “common sense

and good faith are the leading characteristics of contract construction.” Busch

Dev. v. Cheyenne, 645 P.2d 65, 69 (W yo. 1982). However, because covenants

restrict the use of land, they are “to be strictly construed, will not extend by

implication, and in case of doubt the restrictions will be construed in favor of the

free use of the land.” Jackson Hole, 839 P.2d at 956.

M ountain W est asserts that the intent of the parties to bind Cliffs’

successors is manifested by the combination of the after acquired property clause

and the assignment clause in the Option. Reading those clauses together provides

a fairly compelling argument: “‘Cliffs’ agree [sic] to convey a two and one-half

percent (2-1/2% ) royalty interest to ‘M ountain W est’ in any lands it may hereafter

acquire in the ‘Pow der River Basin’” and “the provisions hereof shall inure to the

benefit of and shall be binding upon the successors in interest, legal

representatives and assigns of the respective parties hereto.” However, just as the

parties found the original Option insufficient for their purposes, our analysis must

continue to their subsequent addenda. See Slane v. Curtis, 269 P. 31, 33 (W yo.

1928) (holding that multiple instruments concerning the same transaction are to

be construed as one instrument).

The Getty Clause, in the 1968 addendum, conclusively settles the intent

issue:

-8-
W ith respect to all other persons, firms, corporations, or business
entities including, but not limited to, Getty Oil Company acting on
their own and independently of Cliffs, and not acquiring said lands
from Cliffs. [sic] M ountain W est recognizes their independent right
to acquire lands and mining property in the Powder River Basin as
defined in the Option and Agreement free and clear of any claim by
M ountain W est and M ountain W est disclaims any right to a two and
one-half percent (2-1/2% ) royalty interest or any interest at all in
lands acquired by such persons, corporations or other business
entities.

Pow er and Pathfinder certainly qualify as “other . . . corporations” under

the terms of this clause. Similarly, the Highlands Properties are undoubtedly

“lands and mining property in the Powder River Basin” that were not acquired

from Cliffs. The only remaining question is whether Pow er and Pathfinder

acquired the Highlands Properties while “acting on their own and independently

of Cliffs.” If they did, then “M ountain W est disclaims any right to a two and one-

half percent (2-1/2% ) royalty interest or any interest at all” in those lands – the

very interest they assert in this case.

M ountain W est urges us to construe “independently” to require a complete

absence of any connection whatsoever. They contend that any company holding

title to property acquired from Cliffs is not independent of Cliffs. Under this

strained reading, it is unclear how the Getty Clause could ever take effect. A

company cannot become bound by the after acquired property clause except by

obtaining property from Cliffs, but M ountain W est would have us hold that any

company obtaining such property is no longer independent of Cliffs. Such a

-9-
reading violates the presumption that every provision of a contract is “placed

there for a purpose.” W yo. Game & Fish Comm’n, 701 P.2d at 822.

M ountain W est’s construction also defies the common understanding of

“independent.” See Amoco Prod. Co. v. EM Nominee P’ship, 2 P.3d 534, 540

(W yo. 2000) (“According to our established standards for interpretation of

contracts, the words used in the contract are afforded the plain meaning that a

reasonable person would give to them.”). To act “independently” is to act in an

independent manner. In customary usage, “independent” means not controlled by,

or affiliated with, another. M ountain W est does not allege that Cliffs ever had a

joint venturer, partner, or parent-subsidiary relationship with either Pow er or

Pathfinder. Nor is there any indication that Cliffs attempted to evade the after

acquired property clause by creating a new entity to hold its interests. Pow er and

Pathfinder are each independent of Cliffs according to the ordinary meaning

afforded that term.

The assignment clauses appearing in subsequent agreements do not change

the fact that M ountain W est expressly disclaimed its interest in asserting the after

acquired property clause against Cliffs’ successors. Those clauses simply extend

the terms of the Option, as modified by the Getty Clause, to subsequent

purchasers of the Original Four.

Nor does the follow ing clause in the 1976 addendum requires Cliffs’

successors to pay royalties on after acquired property:

- 10 -
The parties acknowledge and agree that the lands subject to the
Option and Agreement are all the lands in the Powder River Basin . .
. in which Cliffs has acquired or hereafter acquires any Ore and/or
Other M inerals. Cliffs will pay to M ountain W est royalties as
provided in this Addenda on all Ores and Other M inerals mined or
produced from such lands by whomsoever.

By its own terms this clause does not apply to the Highlands Properties, in which

Cliffs never acquired any ore or property interest whatsoever.

Similarly, Cliffs’ disclosure of its obligations under the Option in its deeds

to CEGB and Uranerz did nothing to eliminate or even limit operation of the

Getty Clause. Each of those deeds warranted that the grantee “does not share or

take any responsibility of [Cliffs] to pay a mineral production royalty to

[M ountain W est] from property other than the Subject Property.” Even without

those warranties, the deeds and purchase agreements do not evince any intent to

revive the royalty obligations M ountain W est expressly disclaimed in the Getty

Clause.

M ountain W est has failed to establish that the “parties to the original

covenant . . . intend[ed] that the covenant run with the land.” Jackson Hole, 839

P.2d at 956. Because a party must prove each of the four elements of a restrictive

covenant, the failure to establish intent is fatal to M ountain W est’s claim. 1

1
Because the Jackson Hole test is conjunctive, we need not reach the
remaining elements in rejecting M ountain W est’s restrictive covenant claim. See
Jackson Hole, 839 P.2d at 956.

- 11 -
Accordingly, we hold that the after acquired property clause is not a covenant

running with the land.

To the extent that M ountain W est asserts a cause of action under contract

law against Pow er and Pathfinder, we reject that claim as well. It is undisputed

that M ountain W est never entered into any agreement with either Pow er or

Pathfinder. As a general matter, a party is not liable for “an obligation under a

contract except by his consent.” Lingle W ater Users’ Ass’n v. Occidental Bldg.

& Loan Ass’n, 297 P. 385, 387 (W yo. 1931). There are few exceptions to this

rule. The primary example is the covenant running with the land which, as

discussed in Section II.A, supra, is not applicable to the after acquired property

clause.

A second possibility is voluntary assumption; however, that too is

inapposite. Both CEGB and Uranerz, the predecessors in interest to Pow er and

Pathfinder respectively, expressed in their deeds that they did not “share or take

any responsibility of [Cliffs] to pay a mineral production royalty to [M ountain

W est] from property other than the Subject Property.” M ountain W est argues that

Pow er and Pathfinder assumed the after acquired property clause “by

implication,” but neither cites authority endorsing such a broad notion of contract

liability nor provides a compelling rationale to deviate from W yoming’s general

rule as set forth in Lingle.

- 12 -
Finally, M ountain W est has no claim against Cliffs for deeding the Original

Four to CEG B and U ranerz free of the after acquired property obligation. As

discussed at length in Section II.A, supra, the Getty Clause removed any

obligation Cliffs’ successors may have had to pay royalties on after acquired

property in the AM I.

III

The district court ordered M ountain W est to pay appellees’ costs and fees.

Although federal courts have the inherent power to award fees, Alyeska Pipeline

Serv. Co. v. W ilderness Soc’y, 421 U.S. 240, 259 (1975), such aw ards are

appropriate “only in exceptional cases and for dominating reasons of justice.”

Cornwall v. Robinson, 654 F.2d 685, 687 (10th Cir. 1981) (quotation omitted).

W hen a party acts “in bad faith, vexatiously, wantonly, or for oppressive

reasons,” a court may properly depart from the traditional American rule

disfavoring fee awards. Sterling Energy, Ltd. v. Friendly Nat’l Bank, 744 F.2d

1433, 1435 (10th Cir. 1984) (quotation omitted). This Circuit sets a high bar for

bad faith awards, “otherwise those with colorable, albeit novel, legal claims

would be deterred from testing those claims in a federal court.” Id. (quoting

Browning Debenture Holders’ Comm. v. DASA Corp., 560 F.2d 1078, 1088 (2d

Cir. 1977)). Accordingly, “we have insisted that a trial judge make a finding of

bad intent or improper motive.” Id. at 1437.

- 13 -
The district court made no explicit finding of bad faith, but it did state: “It

astounds the Court that M ountain W est asserts that it is owed royalty payments on

land which it has never owned by companies with which it has never entered into

a contract or agreement.” M ountain W est’s claims may have stretched the bounds

of reason, but they revolved around numerous contracts, addenda, purchase

agreements, and deeds spread over almost forty years, as well as the law of

servitudes, of w hich one commentator states:

The law in this area is an unspeakable quagmire. The intrepid soul
who ventures into this formidable wilderness never emerges
unscarred. Some, the smarter ones, quickly turn back to take up
something easier like the income taxation of trusts and estates.
Others, having lost their way, plunge on and after weeks of effort
emerge not far from where they began, clearly the worse for w ear.
On looking back they see the trail they thought they broke obscured
with foul smelling waters and noxious weeds. Few willingly take up
the challenge again.

E. Rabin, Fundamentals of M odern Real Property Law 489 (1974).

Although a claim may be “so frivolous as to reflect impermissible

conduct,” Rutledge v. Sunderland, 671 F.2d 377, 382 (10th Cir. 1982) (quoting

Americana Indus. v. W ometco de Puerto Rico, Inc., 556 F.2d 625, 628 (1st Cir.

1977)), the present matter falls into the much larger category of cases in which a

finding of subjective wrongdoing is required to support a fee award. Rather than

reverse the fee award outright, we remand to the district court to determine

whether M ountain W est indeed possessed such improper motives.

- 14 -
IV

Because M ountain W est expressly disclaimed the interest it now seeks to

vindicate, we A FFIR M the dismissal of its claims and the district court’s grants

of summary judgment on appellees’ counterclaims. However, because the district

court made no finding of bad faith we REV ER SE the award of attorneys’ fees

and costs, and R EM A N D for further proceedings on that issue.

- 15 -