Keenan v. Texas Production Co., 1311.

• Decision Date: 14 July 1936
• Docket Number: No. 1311.,1311.
• Citation: 84 F.2d 826
• Parties: KEENAN et al. v. TEXAS PRODUCTION CO. et al.
• Court: U.S. Court of Appeals — Tenth Circuit

84 F.2d 826 (1936)

KEENAN et al. v. TEXAS PRODUCTION CO. et al.

No. 1311.

Circuit Court of Appeals, Tenth Circuit.

July 14, 1936.

F. Chatterton, of Cheyenne, Wyo. (Geo. E. Brimmer, of Cheyenne, Wyo., and R. E. McNally, of Sheridan, Wyo., on the brief), for appellants.

Yates A. Land, of Denver, Colo. (Albert D. Walton, of Cheyenne, Wyo., on the brief), for appellees.

Before LEWIS and BRATTON, Circuit Judges, and VAUGHT, District Judge.

BRATTON, Circuit Judge.

This appeal presents for review the action of the court below in refusing to require the defendants to answer certain interrogatories which were propounded under Equity Rule 58 (28 U.S.C.A. following section 723).

Plaintiffs instituted an action at law against the defendants to recover damages in the sum of $996,724.17 for the failure, neglect, and refusal to develop certain land in Wyoming leased for oil and gas purposes. In November, 1917, the Secretary of the Interior leased the land to Milton S. Durrill. It consisted of 160 acres situated in the Wind River Indian Reservation and constituted a part of the Maverick Springs oil field. The lease was for a period of 20 years with preferential right in the lessee to renew it for successive periods of 10 years each upon such reasonable terms and conditions as the Secretary should prescribe. The lessee agreed and was obligated to exercise reasonable diligence in sinking wells and to conduct development in a workmanlike manner, to pay a royalty of 12½ per cent. of the gross production of crude oil and natural gas and, in addition, an annual cash rental of $1 per acre in advance; and to refrain from assigning or subleasing any part of the land without the written consent of the Secretary. In December of that year Durrill transferred the lease and leases on other lands to Keenan subject to the approval of the Secretary. Keenan assumed all of the duties, obligations, and liabilities of Durrill under the original lease, bound himself to pay the specified royalty to the United States, and, in addition, to pay Durrill 25 per cent. of the gross production. In August, 1925, Keenan conveyed an undivided half interest in the leasehold to Texas Production Company, subject to the approval of the Secretary. Coincident with the transfer and as a part of the transaction, Keenan and Sheridan-Wyoming Oil Company on one part and Texas Production Company on the other entered into a contract in which the latter agreed to pay the Sheridan Company $75,000 in cash and one-half of the net proceeds arising from development and operation until a further sum of $75,000 was paid; and the assignee was given an option to acquire the other half interest for $100,000 in cash. It was further provided that if there was a failure to exercise the option — and it was not exercised — the assignee should continue to develop and operate the premises for the joint account of itself and the Sheridan Company, each to receive one-half of the net proceeds. The assignee was given the right either to sell the oil and gas produced at the highest field market price prevailing at the time of production for oil produced in the Maverick Springs structure or to appropriate such product to its own use, in which event it should account therefor at the price just mentioned. In January, 1932, Texas Production Company sold and conveyed all of its rights and interests in the leasehold to the Texas Company, subject to the approval of the Secretary. The rights of Durrill in the lease, subject to those conveyed to Keenan, have passed by successive assignments to Continental Oil Company of Delaware. The Secretary approved all of the several described transfers and their validity is not challenged.

Plaintiffs alleged in the action at law that Texas Production Company was and is a wholly owned and controlled subsidiary of the Texas Company; that plaintiffs drilled 4 wells on the land or caused them to be drilled before the undivided half interest in the leasehold was transferred to Texas Production Company; that thereafter and before August 25, 1927, Texas Production Company drilled 4 additional producing wells; that on August 25, 1927, there was an available and proven potential production of approximately 3,000 barrels of oil per day from the leasehold estate; that as a result of drilling operations by others, there was available for production and marketing in the Maverick Springs field approximately 5,000 barrels per day; and that despite such available production, the defendants desisted, neglected, and refused ever since that date to develop the premises or to produce any oil therefrom. Damages were prayed in the sum previously stated.

Defendants denied that Texas Production Company was a wholly owned and controlled subsidiary of the Texas Company; admitted that no wells were drilled upon the land after August 25, 1927; and denied that they had failed, neglected, or refused to fulfill any of the obligations, conditions, and stipulations contained in the original lease, the transfer, or the agreement, except the obligation to pay the annual rental in cash. They affirmatively alleged that they had fulfilled each and every covenant, stipulation, and condition contained in the agreement between plaintiffs and Texas Production Company. A reply was seasonably filed and the issues joined...