Auster Oil & Gas, Inc. v. Stream
| Decision Date | 01 July 1985 |
| Docket Number | No. 84-4486,84-4486 |
| Citation | 764 F.2d 381 |
| Parties | AUSTER OIL & GAS, INC., Plaintiff-Appellant, v. Matilda Gray STREAM, et al., Defendants-Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Stockwell, Sievert, Viccellio, Clements & Shaddock, Bernard H. McLaughlin, Jr., William E. Shaddock, William B. Monk, Charles, La., for plaintiff-appellant.
Camp, Carmouche, Barsh, Hunter, Gray & Hoffman, Geralyn P. Garvey, David R. Frohn, Scofield, Bergstedt, Gerard, Mount
& Veron, Lake Charles, La., for defendants-appellees.
Appeal from the United States District Court for the Western District of Louisiana.
Before WISDOM, WILLIAMS and HILL, Circuit Judges.
The district court dismissed the complaint of appellant Auster Oil & Gas Company as to appellees Matilda Gray Stream and M.G.S. of Lake Charles, Inc., on the ground that Auster had failed to state a claim against them under 42 U.S.C. Sec. 1983. The court also denied Auster's motion to amend its pleading to allege facts it discovered after the dismissal. We hold that Auster's original complaint stated a section 1983 claim and that the district court should have allowed the amendment. We accordingly vacate the judgment and remand the case for further proceedings.
The events underlying Auster's claims could have arisen in Yoknapatawpha County, Mississippi, 1 but most of them happened in Calcasieu Parish, Louisiana, where Stream owned the surface and mineral rights in oil-producing property.
Stream's dealings with Auster appear to have commenced in the summer of 1971, when she granted to Auster and other lessees an oil, gas, and mineral lease covering her land in the Ged Field, which lies within Calcasieu Parish. The parties filed the lease on August 10, 1971, and the Parish officially recorded it the following day. Stream retained a significant royalty interest. The lease also reserved to her the right of "access to the premises at all times for the purpose of observing all operations hereunder...." In 1979, the lessees contractually designated Auster as the exclusive operator of the lease, and the company began to operate and control for the benefit of all lessees a variety of oil production, transportation, and storage facilities, including wells, pipelines, and other routing equipment. A 1982 amendment to the lease increased Stream's royalty interest and gave her an option to purchase a ten percent working interest in any new wells. Stream later bought such an interest in the M-1 well, but she did not sign the 1979 operating agreement.
Although her relationship with Auster apparently proceeded smoothly for several years, Stream began to suspect the company of stealing oil from the lease. In late 1982, a security agent for an oil company that owned an interest in the Ged Field heard rumors of thievery, and he initiated an investigation. The agent contacted Louisiana State Police officials, who opened a criminal investigation and assigned Trooper First Class Al Martin to determine whether grounds existed for filing criminal charges. Martin's efforts brought him into contact with Edward M. Carmouche, an attorney representing M.G.S. and Stream. Carmouche attended several meetings that law enforcement officials had called. The State Police closed their investigation in July 1983 without bringing any charges.
Carmouche's role, however, had only begun. In April 1983, Stream and M.G.S. had authorized the lawyer to investigate Auster's operations. On April 12, he wrote to Auster demanding cancellation of its leases. The letter alleged that Auster maintained "an unauthorized network of pumps, tanks and above ground and below ground pipes" and that Auster's "lack of attention to operations over an extended period of time has been of such a gross character as to have permitted the diversion of enormous quantities of oil beyond gauging equipment." Carmouche also threatened legal action. Auster responded by denying the allegations and demanding that Carmouche immediately withdraw his letter or risk litigation.
Carmouche did not stop at writing letters. He hired a private investigator, among others, to assist him in determining whether Auster had a secret pipeline network by which the company siphoned off oil. He also enlisted the aid of the State Police, and Martin rejoined the investigation. After several discussions, Carmouche, his private agents, and the State Police devised a plan for tracing the flow of oil from wells on the lease property.
The nature of the operation reflected the need to monitor the flow through segments that escaped visual observation because of their location underground. Carmouche and the others thus planned to introduce plastic capsules containing microchips into pipelines near the wells from which they carried oil and to place screens across the pipelines where they left the lease property. The movement of the oil would either lodge the microchips against the screens or carry them through other pipelines that circumvented the equipment that measured the amount of oil the lease produced. If the microchips failed to appear at the screens and the operation otherwise went well, Carmouche would have substantially confirmed Stream's suspicions of theft. Carmouche's private agents travelled to Oklahoma in the late summer of 1983 to buy the microchips, and M.G.S. supplied the funds for the purchase.
Participants in the investigation executed their plan on Sunday, September 25, 1983. The record does not clearly indicate who helped, but it does disclose that Martin observed the operation and that other State Police officers kept a lookout during the procedure. The participants disassembled well choke assemblies, shut off various valves, and broke open pipelines. Carmouche and the others apparently believed that the 1971 lease provision granting Stream and her representatives access at all times to the lease authorized their actions. No one had obtained a search warrant.
The tracing apparently failed. Microchips stuck in the packing in the M-1 well-head, blocking the flow and causing the well to spew several barrels of oil onto the ground. Some of the J-8 well microchips apparently reached the screens, but Carmouche and the others failed to retrieve them. They, too, blocked the pipeline, delaying Auster's transportation and sale of the oil.
Auster soon discovered the tampering, and it demanded that Stream explain her agents' behavior and pay compensation for damage to its equipment and operations. Stream answered that she and her agents had acted lawfully. Auster then sought preliminary and permanent injunctions in Louisiana state court to bar Stream from further intrusions upon Auster's property. The state court denied the request for a preliminary injunction, but discovery and other proceedings continued. At the instance of Stream, the state court also issued a protective order limiting the scope of Auster's discovery.
Auster filed this suit on December 20, 1983. The original complaint alleged that Stream, M.G.S., and Trooper Martin had conspired to deprive Auster of property without due process of law and to conduct an unlawful search and seizure of the company's property in violation of the Fourth and Fourteenth Amendments and that they had executed that conspiracy. Auster also asserted that appellees Stream and M.G.S. had planned and performed the microchip operation in an effort to break Auster's leases. 2 Auster demanded compensatory and punitive damages.
Less than a month after Auster filed its complaint, Stream and M.G.S. moved for dismissal of the claims against them. On April 17, 1984, the district court granted the motion pursuant to Fed.R.Civ.P. 12(b)(6). The court held that Auster had not alleged facts sufficient to establish the that section 1983 requires. It further found that the microchip operation did not violate Auster's constitutional rights because state remedies would adequately compensate any property damage and because the 1971 lease authorized Stream and her representatives to investigate the company's operations. Auster sought interlocutory review of the dismissal, but this Court dismissed the appeal because Martin remained a defendant and the district court had not certified the case for interlocutory appeal.
On June 22, 1984, Auster petitioned the district court to reconsider its order of dismissal, to allow amendment of the complaint, or to enter final judgment as to Stream and M.G.S. under Fed.R.Civ.P. 54(b) so as to permit an interlocutory appeal. Auster claimed that it had recently discovered evidence that would cure any defects in its original complaint. The district court denied the motions to reconsider and to amend, but it did enter final judgment against Auster on its claims against Stream and M.G.S. Auster appeals the judgment and the order denying its motion to amend.
Two principles determine the intensity of our scrutiny in this appeal. First, the Federal Rules of Civil Procedure erect a powerful presumption against rejecting pleadings for failure to state a claim. Rule 8 fosters that policy by sweeping aside the hypertechnical pleading rules that once defeated many an unwary but meritorious claimant; it requires nothing more than a plain recitation of the facts that a party believes entitles her to relief. Thus, although Rule 12(b)(6) authorizes prompt dismissal of claims where the party's belief proves mistaken, its sanction extends only to a formal testing of the legal sufficiency of the factual basis the pleader asserts in support of her claim. In reviewing such a dismissal, we accordingly have no license to question the truth of factual allegations, e.g., Trupiano v. Swift & Co., 755 F.2d 442, 443 (5th Cir.1985), and must reverse "unless it appears beyond...
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