Auster Oil & Gas, Inc. v. Stream, 86-4584

• Decision Date: 14 January 1988
• Docket Number: No. 86-4584,86-4584
• Citation: 835 F.2d 597
• Parties: AUSTER OIL & GAS, INC., Plaintiff-Appellee Cross-Appellant, v. Matilda Gray STREAM, Harold H. Stream, III, M.G.S. Lake Charles, Inc., and Edward M. Carmouche, Defendants-Appellants Cross-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 597

835 F.2d 597

AUSTER OIL & GAS, INC., Plaintiff-Appellee Cross-Appellant, v. Matilda Gray STREAM, Harold H. Stream, III, M.G.S. Lake Charles, Inc., and Edward M. Carmouche Defendants-Appellants Cross-Appellees.

No. 86-4584.

United States Court of Appeals Fifth Circuit.

Jan. 14, 1988.

David R. Frohn, A.J. Gray, III, Lake Charles, La., for Carmouche.

Drew Ranier, Lake Charles, La., for Matilda Gray Stream, Harold H. Stream, M.G.S. Lake Charles.

William E. Shaddock, Bernard H. McLaughlin, Jr., William B. Monk, Lake Charles, La., for Auster Oil & Gas, Inc.

Appeal from the United States District Court for the Western District of Louisiana.

Before RUBIN, GARZA, and JONES, Circuit Judges:

EDITH H. JONES, Circuit Judge:

For the third time, this action for damages by reason of an unconstitutional search and seizure of property appears before us. A prior panel opinion, Auster Oil & Gas, Inc. v. Stream, 764 F.2d 381 (5th Cir.1985), reversed the dismissal of the plaintiff's complaint for failure to state a claim, and the case was remanded for a trial on the merits. At trial, the jury exonerated the defendant state trooper on the grounds of qualified immunity but found that defendants Matilda Gray Stream ("Mrs. Stream"), Harold H. "Spook" Stream ("Spook Stream"), M.G.S. Lake Charles, Inc. ("M.G.S."), and their attorney Edward M. Carmouche ("Carmouche") had violated the fourth amendment rights of Auster Oil & Gas, Inc. ("Auster"). The jury awarded Auster $250,000 actual and a total of $5,000,000 punitive damages. The district court remitted $4,350,000 of the punitive damages, and awarded Auster over $300,000 in attorneys' fees and expenses pursuant to 42 U.S.C. Sec. 1988. The Streams, M.G.S., and Carmouche now appeal from the judgment of the district court, and Auster cross-appeals certain aspects of the award of attorneys' fees. We reverse and render in part, remand for a new trial on damages and affirm in part.

The background and facts of this case are set out fully in the prior panel opinion, 764 F.2d at 384-86. To summarize briefly, Mrs. Stream and M.G.S. granted Auster and other lessees an oil, gas, and mineral lease on lands in Calcasieu Parish, Louisiana, in 1971, retaining significant royalty interests. Auster was designated as operator of the properties. In the early 1980's, allegations of oil thievery surfaced, and the Louisiana state police began a criminal investigation into whether Auster or anyone else had been stealing oil from the leases. Trooper First Class Al Martin, assigned to the case, was brought into contact with Carmouche, who was the attorney representing M.G.S. and the Streams. Shortly afterward Mrs. Stream and her son Spook Stream, authorized Carmouche to investigate Auster's operations.

In April 1983, Carmouche demanded that Auster cancel its leases, accusing Auster of operating a network of secret pipelines and tanks through which it was illegally siphoning off oil. Auster denied the allegations. Although the state police closed their investigation in July 1983 without bringing charges, Carmouche continued his own inquiries. After several meetings, Carmouche, his investigators, and Trooper Martin devised a high-tech surveillance plan to determine whether oil was being stolen from the leases.

The plan called for inserting plastic capsules containing microfilm, called microchips or microdots, into pipelines near the wellheads, and placing screens in the pipelines at the point where they left the Streams' lease property. In theory, the flow of the oil would carry the microdots through the pipeline and into the screens, where they would be recovered. If a substantial number of the microdots failed to appear in the screens, this could mean that Auster was diverting oil from the pipelines, and Carmouche's suspicions of theft would have been in some measure substantiated.

On September 25, 1983, several of Carmouche's agents, one of whom was Joe Mize, his son-in-law and law partner, executed this plan while Martin and other Louisiana state police officers served as lookouts. No search warrant had been obtained or sought.

Unfortunately for defendants, their sophisticated technology failed in its appointed task. The microdots got stuck in the wellheads and pipelines, damaging Auster's equipment, causing leaks of several barrels of oil, and, according to Auster, damaging the underground formations to such an extent that all production from one well was lost. When Auster discovered the cause of these problems, it demanded compensation from the Streams and sought an injunction in state court to prevent further intrusions.

This lawsuit was filed in December 1983, alleging that Mrs. Stream, M.G.S., and Trooper Martin had conspired, inter alia, to conduct an unlawful search and seizure in violation of the fourth amendment. It also asserted that the operation was instigated, not to investigate reports of thievery, but for the purpose of breaking Auster's leases so the Streams could use the property for other purposes. In April 1984, the district court granted Mrs. Stream and M.G.S.'s motion to dismiss for failure to state a claim, concluding that Auster had failed to allege the state action requisite for a Sec. 1983 action. The court also held that because the leases entitled the private defendants to investigate Auster's operations, there had been no constitutional violation. Auster sought interlocutory review of this dismissal, which this court refused.

Auster immediately attempted to amend its complaint to cure the pleading defects and moved for reconsideration of the district court's dismissal of the prior complaint. Alternatively, it sought to have the district court enter a final judgment regarding Mrs. Stream and M.G.S. to facilitate an interlocutory appeal. The court denied the motions to amend and to reconsider, but it did enter the requested final judgment.

Our prior panel held that Auster's allegations that Mrs. Stream and M.G.S. had acted "in concert" with Trooper Martin were sufficient to support a claim of state action under 42 U.S.C. Sec. 1983. The decision went on to hold that the complaint adequately stated a claim under Sec. 1983 for a violation of the fourth amendment, and it rejected arguments that the lease agreements or provisions of the Louisiana Mineral Code authorized the operation. Finally, the court held that Auster should have been allowed to amend its complaint to cure the pleading defects. The case was remanded for trial.

Back in the district court, Auster amended its complaint not only to cure the prior defects but also to add Carmouche and Spook Stream as defendants. Except as to Trooper Martin, the jury found liability with a vengeance. Actual damages of $250,000 were assessed against the private defendants in solido, and the jury imposed punitive damages of $2,500,000 against Carmouche, $1,500,000 against Spook Stream, $500,000 against M.G.S., and $500,000 against Mrs. Stream. The district court reduced the punitive damages to $500,000 against Carmouche, $100,000 against Spook Stream, $40,000 against M.G.S., and $10,000 against Mrs. Stream. This vigorously contested appeal followed.

I. Fourth Amendment Violation

Appellants re-assert their defense, raised in the prior appeal of this case, that no unlawful search or seizure occurred because Auster had no reasonable expectation of privacy in the production operations, well bore, pipelines or production equipment on the Ged Lease. Our prior panel held that, if Auster had a reasonable expectation of privacy, the conduct alleged on the part of defendants would be unconstitutional. The panel specifically rejected assertions that Sec. 31:177 of the Louisiana Mineral Code or the defendants' lease agreement with Auster would vitiate the reasonableness of Auster's expectations. 764 F.2d 390-91. At trial, Auster introduced evidence supporting its contention that it has a reasonable expectation of privacy in conducting lease operations without surreptitious interference by appellants. An expert witness confirmed that under the various agreements between the appellants and Auster, appellants were not authorized to conduct the non-consensual microdot operations. The parties stipulated that Auster had an exclusive right to operate the production facilities and equipment. It was further uncontested that the defendants' operation interfered with Auster's production activities. There was evidence that the interference with Auster's "possessory" interest was not insubstantial, involving the dismantling of choke assemblies on the wells with resulting damage to Auster's equipment and permanent loss of all production from the J-8 well. The fact that the seizure proceeded without a warrant necessitates a presumption of unreasonableness. United States v. Karo, 468 U.S. 705, 718, 104 S.Ct. 3296, 3304, 82 L.Ed.2d 530 (1984). In sum, there was sufficient evidence that Appellants engaged in an unreasonable search and seizure, as defined by the prior panel, and thus the jury could properly find a violation of the fourth amendment. We find no meaningful distinction between the arguments advanced by Appellants on the prior appeal to qualify Auster's expectation of privacy, and those they now assert. We are bound by our prior rejection of those arguments.

II. Qualified Immunity

Appellants assert that they should have been allowed the defense of qualified immunity as a matter of law, because, as private parties acting under color of state law, they are entitled to the same immunity as state officials performing discretionary functions. Folsom Investment Co., Inc. v. Moore, 681 F.2d 1032, 1037 (5th Cir.1982). After careful review of the record, we are unable to conclude that the defendants raised or preserved a qualified immunity defense in the trial court, and we must decline to review this issue. Nissho-Iwai Co. v. Occidental Crude Sales, 729 F.2d 1530, 1549 (5th Cir.1984). Unlike Trooper Martin, whose defense of qualified...