Plaintiffs here challenge a decision of the Department of Interior on the entitlement to a mineral lease of government land. While government officials are named as party defendants, this suit is essentially a contest between private parties plaintiffs and intervenor for the lease. The central question is whether the Department's interpretation of an administrative regulation should be applied retroactively or prospectively only. The Department and the district court held that the regulation was unambiguous, and that therefore the Department's interpretation was fully applicable in the administrative adjudication of the private parties' dispute. Since we conclude not only that the regulation is ambiguous but also that the Department's interpretation was a reversal of a well established agency practice on which plaintiffs and hundreds of other oil and gas lease applicants reasonably relied, we reverse and hold that the rule should be given prospective effect only.

The Mineral Lands Leasing Act authorizes the Secretary of Interior to lease wildcat oil and gas lands on a non-competitive basis. 30 U.S.C. § 226(a), (c). The Act expressly "entitles" the "first" "qualified" applicant to a lease.1 In order to determine which applicant is "first," the Secretary operates a "simultaneous filing program." Under the program, a list of available lands is posted monthly. Those who submit an offer2 during the short filing period are considered to have filed simultaneously. See 43 C.F.R. § 3112.1-2 (1979).3 A drawing is held, and the maker of the first offer drawn is awarded the lease, provided that he is "qualified." See id. § 3112.2-1(a)(3).

Plaintiff Stewart Capital Corp. ("Stewart") is a "filing service"; among its other functions, it files offers in lease drawings for its customers. In the fall of 1976, it was Stewart's usual practice to affix its customer's facsimile signature on an offer in order to avoid the logistical problem of having each customer sign personally. In late October of 1976, it filed an offer with the facsimile signatures of plaintiffs Maude McDonald and Harriet Walsh. Stewart's name did not appear on the offer.

At a drawing held on November 5, 1976, McDonald and Walsh's offer was drawn first. Intervenor Roy Thames' offer was drawn second. Thames filed a protest. He argued that McDonald and Walsh's offer was not "qualified" because it was not accompanied by certain statements of interest required "(i) f the offer is signed by an attorney in fact or agent." 43 C.F.R. § 3102.6-1(a)(2) (1979).4 McDonald, Walsh and Stewart, claiming reliance on prior administrative decisions and practice, as well as the history of the "accompanying statements" regulation, argued that offers bearing facsimile signatures were not "signed by" an agent but were signed by the offerors themselves.

To provide a better understanding of the Department's disposition of Thames' protest, we think it helpful at this point to examine the history, decisions, and practice on which plaintiffs claimed reliance. Prior to 1964, the "accompanying statements" regulation provided in pertinent part:

If the offer is signed by an attorney in fact or agent, or if any attorney in fact or agent has been authorized to act on behalf of the offeror with respect to the offer or lease, (the offer shall be accompanied by) separate statements over the signatures of the attorney in fact or agent and the offeror stating whether or not ... the attorney in fact or agent ... has received, or is to receive, any interest in the lease when issued ....

19 Fed.Reg. 8835, 9014 (1954) (codified as amended at 43 C.F.R. § 192.42(e)(4) (i) (1954 & Cum.Supp.1962)) (emphasis added).5 The italicized language in the pre-1964 regulation made it clear that the statements of interest were required whenever an agent was authorized to act "with respect to" an offer, whether or not the agent participated in its signing. In 1959, however, the agency adopted the "sole party in interest regulation," requiring the offeror to state directly whether he was the sole party with an interest in the offer and lease, and, if not, to disclose the names of all other interested parties. 24 Fed.Reg. 281, 282 (1959) (codified as amended at 43 C.F.R. § 192.42(e)(3) (iii) (Cum.Supp.1962)).6 The offeror and the other interested parties were further required to submit a separate statement, setting forth the nature and extent of the interest of each, within 15 days after the filing of the offer. Id., as amended by 26 Fed.Reg. 3420, 3422 (1961). This new procedure duplicated, to a certain extent, the regulation requiring accompanying statements of interest by agents;7 if an agent did have an interest, he and the offeror would be required to disclose it through the "sole party in interest" procedure.

In order to reduce the duplication,8 the Department amended the "accompanying statements" regulation in 1964 by deleting the language italicized above:

If the offer is signed by an attorney in fact or agent, it shall be accompanied by separate statements over the signatures of the attorney in fact or agent and the offeror ....

29 Fed.Reg. 2502, 2503 (1964) (codified at 43 C.F.R. § 3123.2(d)(1) (1965)) (pertinent version at 43 C.F.R. § 3102.6-1 (1979)). The amendment eliminated the need for accompanying statements in a broad class of filings involving "undisclosed" agents. Henceforth, accompanying statements would be required in only one instance when the offer was "signed by" the agent. No matter how great an agent's involvement in a transaction, no accompanying statements would be required unless the offer was "signed by" the agent.

More than one inference could have been drawn from this amendment of the regulation's language. One possible interpretation was that the regulation was now concerned with agent-formulated offers that never passed through the offeror's hands. There was nothing in the regulation, however, to prevent the offeror from signing blank offers in advance and having the agent fill the terms in later;9 thus, the purpose of ensuring that the offeror reviews the offer could easily have been circumvented without violating the regulation. A second possible interpretation was that the regulation was now concerned only with offers on which the agent's name appeared; i.e., when the offer was signed "O, offeror, by A, agent." This interpretation is also problematic.10

Whatever the relative merits of these two interpretations, when McDonald and Walsh filed their offer every existing administrative statement concerning the regulation favored the latter one.

The Secretary first interpreted the revised regulation in A.M. Shaffer, 73 Interior Dec. 293 (1966).11 Shaffer did not directly involve the question whether an agent had "signed" within the meaning of the regulation, but rather whether the person who had signed was indeed an "agent." In Shaffer, the persons signing the offers purported to be the offerors; their offers stated, however, that one D. E. Sanburg would acquire an interest. Pursuant to the sole party in interest regulation, they filed statements within 15 days declaring that they were actually agents for Sanburg, and that Sanburg owned a 100% interest in the offer and lease. The Secretary decided that the "accompanying statements" regulation was not clearly applicable to the Shaffers because they had signed as principals, not agents. The Secretary pointed out that the Shaffers had signed the signature line designated for a "lessee" rather than that designated for an attorney in fact or agent. Id. at 330 n.3. The Secretary reasoned that since the Shaffers were fully chargeable with the obligations of the offer and lease, and since they had fully disclosed all interests in the lease, "neither the letter nor the spirit of the agency regulation ha(d) been clearly violated." Id. at 300. The regulation could be reasonably interpreted by offerors "as covering only situations where the principal is named as the offeror and the agent signs the offer expressly as his agent." Id. (emphasis added). To apply the regulation to the situation in Shaffer, the Secretary said, would require its amendment. Id. at 301.

While Shaffer does not deal with the question presented here, it does represent an extremely narrow interpretation of the regulation. More importantly, the Secretary's statement that the regulation applied only when the agent signs the offer "expressly" as agent could be read to say that a statement of interest was required only when an agent's name appeared on the agent's signature line.

Further support for plaintiffs' reading of the regulation came in Mary I. Arata, 78 Interior Dec. 397, 4 I.B.L.A. 201 (1971). To be sure, Arata did not involve the regulation concerning agents' statements; rather, it involved the meaning of the word "signed" under a related regulation requiring each offer to be "signed" by the offeror or his agent, 43 C.F.R. § 3112.2-1(a) (1979) (then 43 C.F.R. § 3123.9(c) (1970)).12 Mrs. Arata had personally stamped her facsimile signature on an offer rather than signing it in ink. The Interior Board of Land Appeals ("IBLA") held that this was sufficient. "The law is well settled that a printed name (sic) upon an instrument with the intention that it should be the signature of the person is valid and has the same effect as though the name were written in the person's own handwriting." 78 Interior Dec. at 398.

While Arata did not directly involve the question whether an agent could stamp the principal's signature as long as the principal "inten(ded) that it should be (his) signature," the IBLA phrased the holding of Arata in language requiring only that the offeror intend the stamp to be his signature, not that the offeror actually do the stamping. Following Arata, it became the practice of the Bureau of Land Management ("BLM"), the departmental branch responsible for day-to-day administration of the leasing program, to apply this "intent" test for purposes of testing the qualifications of a rubber-stamped offer. When an offer with a facsimile signature was drawn first, the BLM would inquire whether the offeror intended the stamp to be his signature. If the offeror filed an affidavit declaring that this was his intent, the BLM did not disqualify the offer for lack of an accompanying statement, even if it was an agent who affixed the stamp.13

Thus, when McDonald and Walsh filed their lease offer, they had good reason to believe that they did not have to file an accompanying statement. Shaffer supported their belief that no agent had "signed" the offer within the meaning of § 3102.6-1(a)(2); Arata supported their belief that the facsimile stamp operated as their own signatures. On the basis of these precedents, the BLM had sanctioned Stewart's filing procedure for more than four years.

Consistent with its practice, the Eastern States Office of the BLM dismissed Thames' protest on March 14, 1977. On May 19, 1977, however, the IBLA handed down its first decision in D. E. Pack, 84 Interior Dec. 192, 30 I.B.L.A. 166 (1977) ("Pack I "). In Pack I, the IBLA disapproved the BLM's practice, holding that an accompanying statement was required whenever an agent affixed the facsimile signature for his principal. The offeror did not always have to sign personally, the IBLA said; if the facsimile were affixed by an "amanuensis," one whose sole function was to affix the signature at the direction of the offeror, then accompanying statements were not required. But if the facsimile were affixed by an "agent," one with discretionary authority in the formulation of the offer, then the offer had to be accompanied by statements of interest. The IBLA believed that an "agent," such as Stewart, could not be converted into an "amanuensis" for the purpose of affixing the facsimile, even if he had done so at the direction of the offeror. See 84 Interior Dec. at 195-96. Therefore, in Pack I, the IBLA held the lease offer of Runnells, another Stewart customer, to be "unqualified," and it awarded the lease to the second offer drawn.

On July 5, 1977, the IBLA, following its decision in Pack I, reversed the BLM's dismissal of Thames' protest. Ray H. Thames, 31 I.B.L.A. 167 (1977). On September 30, 1977, this action was filed. It was held in abeyance while the IBLA, at the direction of the Secretary, was reconsidering Pack I. On November 9, 1978, the IBLA reaffirmed Pack I and rejected the argument, supported by the BLM itself, that the rule of Pack should be applied prospectively only. D. E. Pack, 85 Interior Dec. 409, 38 I.B.L.A. 23 (1978) (on reconsideration) ("Pack II "). In Pack II, the IBLA acknowledged a responsibility to limit new rules to prospective effect when the regulation at issue is ambiguous, id. at 418, 38 I.B.L.A. at 42; it held, however, that the "accompanying statements" regulation was entirely unambiguous, and that Stewart's interpretation was "bizarre and unreasonable." Id., 38 I.B.L.A. at 43. It recognized that the BLM agreed with Stewart's interpretation, but held that the BLM's practice did not require it to refrain from retroactive application of the new rule because the BLM's practice was not an "official decision." Id. at 420-21, 38 I.B.L.A. at 45-47.

Following Pack II, the court below granted defendants' motion for summary judgment on January 28, 1980. On February 19, 1980, a federal district court in Utah upheld the rule of Pack but held that it could not be applied retroactively to the Pack case itself and enjoined the Department from applying it to any other lease offer filed before November 9, 1978, the date of the final decision in Pack II. Runnells v. Andrus, 484 F. Supp. 1234, 1237-40 (D.Utah 1980). A district court in Wyoming has followed Runnells. Stewart Capital Corp. v. Andrus, No. C79-123K (D.Wyo. April 24, 1980), appeal pending, No. 80-1642 (10th Cir.). The government's acquiescence in Runnells and Stewart Capital is demonstrated by its confession of error on the issue of retroactivity in this court14 and by the IBLA's recent decision in Killian L. Huger, Jr., 52 I.B.L.A. 174, 177 (1981). Thus, McDonald and Walsh remain members of a select, unfortunate group: those whose offers were rejected pursuant to the final administrative decision in Pack and whose appeals were heard by the IBLA prior to the court decision in Runnells.

On this appeal, plaintiffs argue that the Pack rule is arbitrary and capricious and that its formulation was an improper exercise in administrative "rulemaking" by adjudication. It is clear, however, that these arguments are not substantial; the central issue is whether the agency should have applied the rule to offers filed before its decision in Pack I.

We have little difficulty in concluding that the IBLA's interpretation of the regulation in Pack was a reasonable one. We must give even greater deference to an agency's interpretation of its own administrative regulation than we would to its interpretation of the statute it is charged with administering. Udall v. Tallman, 380 U.S. 1, 16, 85 S. Ct. 792, 801, 13 L. Ed. 2d 616 (1965). We think that it was reasonable for the IBLA to conclude that when an agent places the offeror's facsimile signature on an offer, the offer is "signed by" the agent within the meaning of the regulation. The purpose of the regulation, according to the IBLA, is to ensure that the named offeror is the actual offeror by requiring the statements of both the offeror and the agent. Reliance on the "sole party in interest" regulation is inadequate, the IBLA reasoned, since its procedure requires only the statement of the offeror concerning the absence of interests in any other party. The offeror's statement is inadequate when an agent stamps the form because of the danger that the agent may be manufacturing the offeror or acting without his prior consent. See Pack II, 85 Interior Dec. at 418-19, 38 I.B.L.A. at 43-44. Such unscrupulous rubber-stamp wielders could defeat an important purpose of the noncompetitive leasing program "that all offerors ... shall have an equal opportunity for success in the drawings to determine priorities." 43 C.F.R. § 3100.0-5(b) (1979). The IBLA's conclusion that this danger would be alleviated by requiring the accompanying statements of both the putative offeror and the agent was not unreasonable, arbitrary, or capricious.

Nor can we agree with plaintiffs' contention that the IBLA engaged in "rulemaking" without following the requirements of the Administrative Procedure Act (the "APA"), 5 U.S.C. §§ 552(a)(1)(D), 553. While the courts have experienced difficulty in articulating a "bright line" distinction between "rulemaking" and "adjudication," see 2 K. Davis, Administrative Law § 7:2 (2d ed. 1979), we have no doubt that the Department properly used its adjudicatory procedures in resolving the dispute between these contestants. The existence of a dispute concerning particular individuals is a distinguishing characteristic of adjudication. See United States v. Florida East Coast Railway Co., 410 U.S. 224, 245, 93 S. Ct. 810, 821, 35 L. Ed. 2d 223 (1973). The adjudication of Thames' protest was not converted into an exercise in "rule-making" when the IBLA applied an existing regulation, passed in compliance with APA procedures, to a particular set of facts. Its decision that an offer stamped by an agent is "signed by" the agent within the meaning of § 3102.6-1, while inconsistent with the practice of the BLM and arguably inconsistent with the reasoning of prior decisions, did not overrule any previous decision to the contrary; in fact, when the IBLA decided Thames' protest, the only previous case on point was Pack I, a precedent the IBLA was bound to follow.15

In SEC v. Chenery Corp., 332 U.S. 194, 67 S. Ct. 1575, 91 L. Ed. 1995 (1947), the Supreme Court held that the decision to make new law through rulemaking or adjudication "is one that lies primarily in the informed discretion of the administrative agency." Id. at 203, 67 S.Ct. at 1580. To hold that the agency abused this discretion by not following the rulemaking provisions of the APA in this case would rigidify the administrative decisionmaking process far beyond the permissible bounds outlined in Chenery.

Having concluded that the legal rule followed in this case was properly established through adjudication, we turn to the related but separate question whether the agency should have applied the rule to this case. While at one time the determination that a rule was properly established through adjudication would have compelled the conclusion that it should be applied with full retroactive effect, see Linkletter v. Walker, 381 U.S. 618, 622-24, 85 S. Ct. 1731, 1734-35, 14 L. Ed. 2d 601 (1965), "the accepted rule today is that in appropriate cases the Court may in the interest of justice make the rule prospective." Id. at 628, 85 S.Ct. at 1737. The Department itself has recognized this very principle in its own adjudications; since 1917, it has refused "to give its later decisions retroactive effect, especially when to do so would adversely affect actions taken and rights and interests acquired by private persons on the faith of the earlier decisions and would inure to the benefit of other private persons." Safarik v. Udall, 304 F.2d 944, 949 (D.C.Cir.) (collecting administrative decisions), cert. denied, 371 U.S. 901, 83 S. Ct. 206, 9 L. Ed. 2d 164 (1962).16 In Safarik, the Court of Appeals for the District of Columbia Circuit upheld the Department's power to give its decisions prospective effect only. Id. at 950.17

In Retail, Wholesale & Department Store Union v. NLRB, 466 F.2d 380 (D.C.Cir.1972), the same court went a step further and held that, under some circumstances, a reviewing court could require an agency to give a rule established by adjudication prospective effect only. The court adopted the balancing test enunciated by the Supreme Court in Chenery : " '(The effects of) retroactivity must be balanced against the mischief of producing a result which is contrary to a statutory design or to legal and equitable principles.' " 466 F.2d at 390 (quoting SEC v. Chenery Corp., 332 U.S. at 203, 67 S.Ct. at 1581). The court further held that the application of this test "is in each case a question of law, resolvable by reviewing courts with no overriding obligation of deference to the agency decision." Id. at 390.

While we accept the Chenery balancing test as the appropriate inquiry,18 we need not go quite as far as the Retail Union court to decide this case. It may be that an agency's decision concerning retroactivity is entitled to some deference: after all, in Chenery itself the Supreme Court said that the decision to make new law by adjudication "is one that lies primarily in the informed discretion of the administrative agency," and the Court clearly made this remark in light of the general rule that adjudication operates retroactively.19 We need not resolve the question of the precise standard of review, however, because we believe that the Department abused its discretion by applying the Pack rule to this case.

In general, the ill effect of retroactivity is the frustration of the expectations of those who have justifiably relied on a prior rule; the ill effect of prospectivity is the partial frustration of the statutory purpose which the agency has perceived to be advanced by the new rule. See Retail Union, 466 F.2d at 390;20 cf. Linkletter v. Walker, 381 U.S. at 636, 85 S.Ct. at 1741 (weighing reliance placed by law enforcement officials on prior rule against extent to which retroactive application of new rule would advance its purpose in the administration of justice). In this case, we believe that the harm to plaintiffs' justifiable reliance interests is substantial and that it is unfairly and unnecessarily inflicted. Meanwhile, we can see absolutely no harm to the statutory design from limiting the Pack rule to prospective application; in fact, we think that retroactive application would be contrary to the statutory purpose.

We first examine the reasonableness of plaintiffs' reliance on the practice established by the BLM. The regulation did not clearly require plaintiffs to file accompanying statements; the phrase "signed by" an agent is at best ambiguous on the question whether an offer bearing the offeror's facsimile signature but not the agent's signature is required to comply. The only administrative interpretations of this language when McDonald and Walsh filed their offer strongly indicated that such an offer was not within the meaning of the regulation: in Shaffer the Secretary said the regulation applied only when the agent signed "expressly" as agent, and in Arata the IBLA held that an offer with a facsimile signature was signed by the offeror if the offeror intended it to be his signature.21 On the basis of these precedents, one branch of the agency itself the branch immediately responsible for filing matters had concluded that accompanying statements were not necessary and followed that interpretation for over four years.22 Thus, while the IBLA's decision in Pack did not technically overrule any "official decision,"23 it was unquestionably "an abrupt departure from (a) well established practice" of the agency. Retail Union, 466 F.2d at 390.

In these circumstances, we must conclude that plaintiffs' interpretation of the regulation was a reasonable one indeed. The extreme prejudice to plaintiffs and others who relied on the BLM's practice the denial of an entitlement expressly created by statute, see 30 U.S.C. § 226(c) must be justified by at least some statutory or regulatory interest in retroactive application.

In this case we can find no such justification. The statute itself certainly does not require the definition of a "qualified" applicant adopted by the agency in this case. And while the regulation was adopted to further the general statutory purpose of equal access to leases through full disclosure of interests, there is no serious contention that this purpose will be furthered by applying the Pack rule retroactively to this case. Plaintiffs have complied with the spirit of the regulations by fully disclosing all interests in the lease; they also believed in good faith that they were complying with its letter as that letter had been spelled out in previous decisions and in the practice of the BLM.24

Rather than advancement of the statutory purpose through retroactive application of Pack, we can see only its frustration. More than 400 individuals using Stewart's filing service alone have been awarded leases on offers rendered "unqualified" by the Pack decision. Since leases are often open to challenge long after they have been issued,25 the effect of retroactivity is to cloud title to hundreds of issued leases. This "emerging specter of chaotic, piecemeal title challenge(s)," Oil Shale Corp. v. Morton, 370 F. Supp. 108, 127 (D.Colo.1973), threatens a disruption of the entire statutory leasing program for the sake of a new interpretation of an ambiguous and inconsistently implemented regulation.

Finding the prospectivity side of the scale full and the retroactivity side empty, we conclude that the agency abused its discretion by applying Pack to the McDonald and Walsh offer, which was filed before the date of the IBLA's decision in Pack I.26

The judgment of the district court is REVERSED. The case is REMANDED to that court for entry of judgment in accord with this opinion.