Arizona Court of Appeals, Division One holds landowner’s right of first refusal is a valid reason to deny a mineral exploration permit application.

In September 2019, a man submitted applications for several mineral exploration permits to the Arizona State Land Department. The Department denied two of those applications. Those applications sought permits for privately owned land for which the state retained mineral rights, but, by statute, the private landowners held a first right of refusal to acquire mineral exploration permits over the land.

By statute, the Department should have provided notice of its decision by late October 2019, but did not issue the notices until July 2020. Around the same time, the Department notified the private landowners about the pending applications.

Upon receipt of the Department’s denial, the man appealed, arguing that the Department had provided insufficient justification for denying the permits. In the course of that appeal, the Department concluded that its reasons for denying the applications were insufficient, but did not issue a new notice. It was only when the private landowners informed the department that they would exercise their first rights of refusal that the Department orally informed the man that it was denying his applications on the basis of the landowners’ statutory right of first refusal.

The ALJ handling the appeal sided with the man, but the decision was rejected by the Department. The Department instead concluded that the permits were properly denied based on the private landowners’ exercise of their first rights of refusal. The man appealed the Department’s decision to superior court, and the superior court affirmed.

On appeal, the Arizona Court of Appeals affirmed the decision of the superior court. The decision turned on the interaction between A.R.S. § 37-2371(E)(2), which delineates the first right of refusal, and § 27-251, which allows the department to grant a permit only if it is in the best interest of the state land trust. So, although § 27-251 provided only five specific reasons that the Department could reject an application, it also required that granting a permit be in the best interest of the state, and it was upon that determination that the private landowners’ right of first refusal was triggered. If they exercised that right, then the permits would be awarded to them. Here, because the private landowners did exercise that right, the court concluded the Department was justified in denying the man’s applications.

The court did note that the Department failed to comply with the statutory deadlines governing notice that the applications had been denied. That, however, did not act as a waiver of the private landowners’ right of first refusal, and so the Department’s failure did not automatically result in the grant of the man’s applications.

Judge Foster authored the opinion for the court, joined by Judges Thumma and Howe.

Posted by: Joshua J. Messer