321 U.S. 620 (1944), 232, Sartor v. Arkansas Natural Gas Corp.

Docket Nº:No. 232
Citation:321 U.S. 620, 64 S.Ct. 724, 88 L.Ed. 967
Party Name:Sartor v. Arkansas Natural Gas Corp.
Case Date:March 27, 1944
Court:United States Supreme Court

Page 620

321 U.S. 620 (1944)

64 S.Ct. 724, 88 L.Ed. 967



Arkansas Natural Gas Corp.

No. 232

United States Supreme Court

March 27, 1944

Argued February 3, 1944




Summary judgment under Rule 56 of the Rules of Civil Procedure should not have been granted defendant solely upon opinion affidavits of experts who either were officer of defendant or whose interests with respect to the subject matter of the litigation were similar to that of defendant, and who had given like testimony at a previous trial of the cause wherein a jury had found contrary to their testimony. P. 627.

134 F.2d 433, reversed.

Certiorari, 320 U.S. 727, to review the affirmance of a judgment (46 F.Supp. 111) for the defendant, upon a motion for summary judgment under Rule 56, in a suit to recover sums claimed to be due the plaintiffs under an oil and gas lease.

JACKSON, J., lead opinion

MR. JUSTICE JACKSON delivered the opinion of the Court.

This litigation, begun a decade ago, has been terminated by a summary judgment, and whether rightly so is the issue. The suit has weathered four adjudications, including two trials, in District Court and four decisions by the Court of Appeals.1 We will recite only such of its

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history as bears on the issues as to summary judgment, since we consider no other question.

Sartors are landowners in Richland Parish, Louisiana, who, in March of 1927, leased their lands for natural gas development. The lease, so far as here important, provides that

. . . the grantor shall be paid one-eighth (1/8) of the value of such gas calculated at the rate of market price and no less than three cents per thousand cubic feet, corrected to two pounds above atmospheric pressure. . . .

For many years, the lessee made settlement at the 3¢ rate. The suit was based upon the contention that, during all of the years from 1927 to 1932, inclusive, such market price was considerably above 3¢. At the last trial, the court held that the claims for gas produced prior to the 20th of March, 1930, were barred by the statute of limitations, or, as it is called in Louisiana, by prescription. The issues as to gas produced between March 20, 1930, and the commencement of the action were submitted to the jury, which returned a verdict:

We, the Jury, find for the Plaintiffs that the average price of gas at the well in Richland Parish, Louisiana, field during the period beginning March 20, 1930, and ending March 20, 1933, to be .0445 per 1000 cu. ft. at 8 oz. pressure.

The Circuit Court of Appeals affirmed "so far as the verdict of the jury fixed the market value of the gas upon which plaintiff is entitled to recover royalties." However, it reversed the ruling that part of petitioner's claims were barred by the statute of limitations, and remanded the case for trial of the same issues as to market price of gas produced prior to March 20, 1930. The respondent-defendant then filed a motion for summary judgment under Rule 56, Federal Rules of Civil Procedure. The motion was granted, and the Court of Appeals affirmed.2 The importance of questions raised under the summary judgment rule led us to grant certiorari.3

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The controversy, both as to whether there is a cause of action and, if so, in what amount, turns on whether the "rate of market price" during this period before March 20, 1930 was above 3¢ per m.c.f., as it is conclusively adjudged in this case to have been thereafter. It is held in Louisiana that the market price under such leases is to be ascertained at the wellhead, if there is an established market price at that point. Unfortunately, this rule requires that the price for royalty purposes be ascertained at a place and time at which few commercial sales of gas occur. The lessees who market this royalty gas along with their own production do not customarily make their deliveries at the wellhead, but transmit gas from the several wells some distance in gathering lines, turning it over to large buyers at points somewhat removed, and under conditions of delivery different from wellhead deliveries. The price producers receive at these delivery stations often is substantially above the 3¢ price to the landowner. The practice of fixing the price of landowner's royalty gas at one time and place and of marketing his gas for a different price at another delivery point raises the dissatisfaction and problems which produce this case.

The Court of Appeals, correctly, we think, followed the Louisiana substantive rule that the inquiry in a case of this kind shall determine (1) the market price at the well, or (2) if there is no market price at the well for the gas, what it is actually worth there, and,

in determining this actual value . . . , every factor properly bearing upon its establishment should be [64 S.Ct. 727] taken into consideration. Included in these are the fixed royalties obtaining in the leases in the field considered in the light of their respective dates, the prices paid under the pipeline contracts, and what elements, besides the value as such of the gas, were included in those prices, the conditions existing when they were made, and any changes of conditions, the end and aim of the whole inquiry, where there was no market price

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at the well, being to ascertain, upon a fair consideration of all relevant factors, the fair value at the well of the gas produced and sold by defendant.4

The defendant asked a summary judgment because it averred "there exists no reasonable basis for dispute" that, during the period in question there was a market price at the wells and that it did not exceed 3¢ per m.c.f. To sustain this position it filed affidavits, a stipulation of facts, and several exhibits. The plaintiffs resisted on the ground that the motion was inadequately supported on the face of defendant's papers. An affidavit by plaintiffs' counsel analyzed defendant's affidavits in the light of testimony given by the witnesses at prior trials; asserted that all were interested witnesses whose testimony was rejected on previous occasions; recited previous verdicts in the case, and, setting forth affiant's experience in ten trials of this character arising out of leases in this field, asserted his knowledge of the market prices there and declared it to be more than 5¢ per m.c.f. at the wellhead.

It should be observed that the entire controversy here turns on questions of valuation. The only issue relates to market price or value of plaintiffs' gas at the time and place of delivery. If there has been no damage in the sense of failure to pay the full market price, then there is no cause of action, and if there has been damage in such sense, there is a cause of action.

The summary judgment rule provides that

The judgment sought shall be rendered forthwith if the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that, except as to the amount of damages, there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

Rule 56(c). (Emphasis supplied.) Where the undisputed facts leave the existence of a cause of action depending on

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questions of damage which the rule has reserved from the summary judgment process, it is doubtful whether summary judgment is warranted on any showing. But at least a summary disposition of issues of damage should be on evidence which a jury would not be at liberty to disbelieve, and which would require a directed verdict for the moving party.

The defendant undertook to establish the absence of a triable issue by the affidavits of eight persons. It may be assumed for the purposes of the case that the witnesses offered admissible opinion evidence which, if it may be given conclusive effect, would sustain the motion. It will serve no purpose to review it in detail, and we recite only the facts which made it inconclusive. Affiant Harris was the vice-president and general manager of the defendant, clearly an interested witness. Hunter was a lessee and the producer of gas with interests apparently similar to those of the defendant. Hargrove was vice-president of a gas pipeline company, owning leases and producing gas, which the plaintiffs' attorney by affidavit avers is defending on similar cases brought by these plaintiffs and others. Florsheim is an executive officer of two gas producing companies with similar interests to the defendant, and he avers that the price in the Richland field was never in excess of 3¢, although in this very case it is adjudged at one time to have been more. Stokes is the chief clerk of a producing company, and recites that the records of his company show that,

after deducting from the gross price realized by these various corporations for gas produced from the Richland gas field during the period 1928-1930, inclusive, the actual average unit cost of gathering and delivering the aforesaid gas, the net realization of those corporations from the sale of gas during aforesaid period did not exceed 3¢ per MCF.

Waiving the question whether the contents of written records can thus be proved, it would hardly seem that a conclusion based [64 S.Ct. 728] on so complicated and indefinite a

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calculation should be accepted from an employee of a corporation with an interest in the market price of gas similar to the defendant's without...

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