Magnolia Petroleum Co. v. Thompson

• Decision Date: 04 December 1939
• Docket Number: No. 11410-11413.,11410-11413.
• Citation: 106 F.2d 217
• Parties: MAGNOLIA PETROLEUM CO. v. THOMPSON et al. OHIO OIL CO. v. SAME.
• Court: U.S. Court of Appeals — Eighth Circuit

106 F.2d 217 (1939)

MAGNOLIA PETROLEUM CO. v. THOMPSON et al. OHIO OIL CO. v. SAME.

Nos. 11410-11413.

Circuit Court of Appeals, Eighth Circuit.

August 29, 1939.

Rehearing Denied September 26, 1939.

Writ of Certiorari Denied November 22, 1939.

Order Vacated and Writ of Certiorari Granted December 4, 1939.

COPYRIGHT MATERIAL OMITTED

Thomas H. Cobbs, of St. Louis, Mo., and Craig Van Meter, of Mattoon, Ill. (William H. Armstrong, of St. Louis, Mo., and Fred H. Kelly, of Mattoon, Ill., on the brief), for appellants.

Thomas T. Railey, of St. Louis, Mo. (Russell L. Dearmont, of St. Louis, Mo., on the brief), for appellees.

Before SANBORN and THOMAS, Circuit Judges, and SULLIVAN, District Judge.

Writ of Certiorari Denied November 22, 1939. See 60 S.Ct. 180, 84 L.Ed. ___.

Order Vacated and Writ of Certiorari Granted December 4, 1939. See 60 S.Ct. 261, 84 L.Ed. ___.

THOMAS, Circuit Judge.

These are four appeals in bankruptcy consolidated by stipulation of the parties and presented upon a single record. There are but two appellants, and two of the appeals are precautionary only. The issues arise in summary proceedings under section 77 of the Bankruptcy Act (Section 205, Title 11, U.S.C.A.) for the reorganization of a railroad in In the Matter of Missouri Pacific Railroad Company, Debtor, and Missouri-Illinois Railroad Company, Subsidiary, Debtor. The appeals are from an interlocutory order entered November 14, 1938.

The summary proceeding in which the dispute arises was commenced by the appellee trusteee on November 1, 1938, on which date he filed a petition in the bankruptcy court having jurisdiction of the reorganization proceedings. The petition was entitled "Petition of Trustee for Determination of Title and for Advice and Directions Respecting Certain Proposed Oil Operations on Right-of-way Near Salem, Illinois."

The petition alleged that by orders previously entered in the reorganization proceedings the trustee had been granted blanket authority to enter into gas and oil leases and to contract for the drilling of oil wells on the rights of way of the debtor companies; that the right of way of the subsidiary Missouri-Illinois Railroad traverses territory in Illinois where oil deposits under the ground have been proved to exist in paying quantities; and that the trustee had accordingly solicited bids for lease of oil rights upon the right of way of the subsidiary across section 20, township 2 north, range 2 east of the 3rd P. M., in Marion County, Illinois.

It was further alleged that the appellant oil companies had served notice upon the trustee questioning his right and title to the oil under the right of way; that he is advised that there may be other parties, unknown by name, who will contend that they own certain interests in portions of the oil and gas underlying the right of way; and that "because of these possible adverse claims, Trustee now seeks advice and directions of the Court in the premises."

It is then alleged that the subsidiary had, and that the trustee has succeeded to, the title originally conveyed to the Centralia & Chester Railroad Company by the three following warranty deeds. The first, dated August 13, 1896, conveys "A strip of land for right of way for said railroad Company Sixty feet wide over and across the Southwest Quarter (¼) of the Northeast quarter (¼) of Section Twenty (20), Township Two (2) North, Range Two (2) East of the Third Principal Meridian."

The second deed, dated August 14, 1896, conveys "A strip of ground Sixty-six (66) feet wide for right-of-way for said Railroad Company over and across the East Half (½) of the Northwest quarter (¼) of the Southwest Quarter (¼) of Section Twenty (20) in Township Two (2) North, Range Two (2) East of the Third principal Meridian."

The third deed, dated January 3, 1898, was executed by Caroline Rusler, a widow, and purports to convey "A strip of ground for right-of-way for said Company Sixty feet (60) wide over and across the Southeast Quarter (¼) of the Northeast Quarter (¼) and the West Half (½) of the Northwest Quarter (¼) of the Southwest Quarter (¼) and the Southeast Quarter (¼) of the Northwest Quarter (¼), all of said lands in Section Twenty (20), Town Two (2) North, Range Two (2) East of the third principal Meridian, it being the strip of land over and across said above described tracts of land where the said Railroad is now located."

It was further alleged that the petitioner is advised, and believes that shortly after the conveyances were delivered, the lands so conveyed had been fenced and used by the trustee and his predecessors without interruption for at least 20 years; and that he believes that he is lawfully vested with title to all the oil and mineral rights under the land.

The petition then alleges:

"Petitioner is advised and believes that numerous oil wells have been drilled in close proximity to Trustee's right-of-way, and that unless prompt action be taken to remove the oil underlying said right-of-way, it will be drained into the wells on adjacent lands, and the value thereof will be forever lost to the stockholders and creditors of the Missouri-Illinois Railroad Company.

"This court of bankruptcy, by reason of Trustee's possession of said property, has jurisdiction, under Section 77 of the Bankruptcy Act, to determine all questions respecting title thereto, and pending the determination of said title, has jurisdiction to instruct and direct Trustee to take such action as the Court may deem advisable to prevent the waste of said oil and to recover and salvage it for the interest of the owners as their rights may by this Court be hereinafter determined, and has authority to direct that the expenses thereof be paid out of the proceeds of the oil so recovered. It is not, in the opinion of Trustee, practicable or advisable to await the adjudication of adverse claims and the possible review of this Court's decision respecting title before beginning the drilling for oil upon said right-of-way.

"After a careful analysis of the various bids hereinabove referred to, and having due regard for financial backing, experience, and reputation of the bidders, and the terms and conditions offered, Trustee is advised and believes that the bid most favorable to the trust estate is that made by the Blackstock Oil Company.

"Subject to the approval of this Court, Trustee has therefore negotiated a contract with Blackstock Oil Company, copy of which is filed herewith as `Exhibit A.'"

The proposed contract with the Blackstock Oil Company is then set out in full.

The petitioner recommended that appellants be subpoenaed and that notice be published directed to other claimants to appear and show cause, upon a day fixed, why the court should not decree that the oil and mineral rights under the right of way across section 20 is not vested in the petitioner, and that upon their failure to show cause they be enjoined from asserting title to the land or to the oil and gas thereunder; and that the petitioner be authorized to execute the contract with the Blackstock Oil Company, to sell the oil and to impound the profits for the benefit of the owners as finally determined by the court.

On November 9, 1938, the appellant oil companies appeared and filed answers to the trustee's petition. They alleged that they held oil leases from the owners of the fee titles to the lands in question by virtue of which they were the owners of the oil, gas and minerals underlying said lands. They admitted the execution and delivery of the deeds relied upon by the trustee, but alleged that the deeds conveyed only railroad right of way easements over the land and did not convey the oil and gas rights thereunder; and they denied that the trustee or his predecessors in interest had ever had title to or possession of the oil, gas and mineral rights underlying the right of way. They denied that the court had jurisdiction in this summary proceeding to determine the adverse claims of the parties to the oil and gas rights on the ground that the trustee had neither actual nor constructive possession of the underlying oil and gas. They alleged that the trustee, having only an easement, had no right to let a contract for the drilling of wells on the right of way to the underlying oil deposits, and that the court was without jurisdiction to direct him to do so. They denied title by adverse possession; and it was alleged that Caroline Rusler at the time she executed and delivered the third deed, set out above, owned only an undivided one-half interest in the land described therein.

A hearing was had before the court upon the petition of the trustee and the answers of the appellants on November 9, 1938. In his opening statement to the court, counsel for the trustee said that the trustee asked the court to issue an order of publication bringing in any adverse claimants who are unknown and that the court hear evidence and determine the claims to adverse title. He then proceeded:

"Since the printing of this publication will require some time, or may require some time and the oil under the right of way be dissipated and drawn into other wells pending this delay, the Trustee, following precedents often followed in these oil cases, has asked the Court to vest Mr. Thompson, as Trustee of the Missouri-Illinois Railroad, with the same authority that is usually vested in an independent receiver appointed pendente lite, that is, with the power to drill — to enter into a drilling contract, to conserve and sell the oil, and to hold the proceeds of the oil for the account of whom concerned, as determined by the subsequent order of this Court, paying out in oil, as far as possible, the reasonable expenses of drilling, conserving and selling the oil. * * *

"The question, therefore, is whether the conveyance of a strip of land for right of way sixty feet wide is a conveyance of a fee simple title of that land, the description of right of way being merely descriptive and...