Ohio Oil Co. v. Sharp

• Decision Date: 05 April 1943
• Docket Number: No. 2635.,2635.
• Citation: 135 F.2d 303
• Parties: OHIO OIL CO. v. SHARP.
• Court: U.S. Court of Appeals — Tenth Circuit

135 F.2d 303 (1943)

OHIO OIL CO. v. SHARP.

No. 2635.

Circuit Court of Appeals, Tenth Circuit.

April 5, 1943.

Villard Martin, of Tulsa, Okl. (H. G. Ross and Robert J. Stanton, both of Tulsa, Okl., on the brief), for appellant.

J. B. Dudley, of Oklahoma City, Okl. (Sumter Cousin, of Shreveport, La., and I. C. Saunders, of Shawnee, Okl., on the brief), for appellee.

Before PHILLIPS, BRATTON, and MURRAH, Circuit Judges.

MURRAH, Circuit Judge.

This is an equitable action by the appellant, the Ohio Oil Company, to impress a constructive trust upon certain oil and gas leases, alleged to have been acquired by C. W. Sharp, appellee, by the wrongful use of confidential information belonging to the Ohio. The trial court dismissed the action, holding in effect that the facts as pleaded in the complaint affirmatively show that the information wrongfully obtained and used by Sharp was also wrongfully obtained by the Ohio through a trespass upon the property of the parties from whom Sharp obtained the leases in question. The decision rests upon the further ground that it does not appear from the complaint that the Ohio would have obtained the oil and gas leases from the owners and lessors to Sharp, if Sharp had not wrongfully obtained the information. D.C., 45 F.Supp. 969. The same questions are here on appeal, based upon the facts as alleged in the complaint.

In substance, the complaint alleges that the Ohio is engaged in the business of searching for and locating lands believed to be productive of oil and gas, acquiring leases on said lands for the purpose of exploring the same, and producing the oil and gas therefrom. That certain subsurface formations and structures are known to be favorable to the accumulation of oil and gas, and for the purpose of locating such subsurface formations and structures, the Ohio makes use of the science of geophysics, and the art of seismograph, either directly or by hiring the services of others engaged in that business.¹ That by the geophysical use of the seismograph, it acquires certain scientific knowledge or information upon which it acts in acquiring leases on lands believed to be productive of oil and gas; that such information, when thus acquired, is a valuable property right of the one acquiring it, and is by its nature a closely guarded secret until the owner releases it, or utilizes it by the acquisition of oil and gas leases on the lands pertinent to the information. Accordingly, it is alleged that on or about December 29, 1939, the Ohio entered into a contract with the General Geophysical Company, by the terms of which the Geophysical Company agreed to conduct certain geophysical surveys for and on behalf of the Ohio. It was agreed that all information and data obtained by the geophysical survey would be the exclusive property of the Ohio, and the Geophysical Company would not divulge or use any of the information or data thus obtained, or permit its employees to do so, but would keep such information and data strictly confidential as the sole and exclusive property of the Ohio.

The complaint further alleges that pursuant to the terms of said contract, and on or about November 26, 1940, the Geophysical Company commenced a survey of lands located in Township 9 North, Range 3 East, and Township 9 North, Range 4 East, Pottawatomie County, Oklahoma. That the survey was conducted in accordance with the usual custom employed by those making such surveys in Oklahoma; was made in good faith, and with the honest belief that it had the right so to do. In the course of the survey, the Geophysical Company made tests by the use of the seismograph along the public highway adjacent to the lands involved here. No entry was made upon private lands, and the work was done openly, without concealment, and with the knowledge and written consent of the persons in possession of the lands in the area tested, including those in possession of the particular lands involved here. On and prior to January 27, 1941, the geophysical survey had developed information and data definitely indicating a structure or formation favorable to the accumulation of oil and gas in the area described as Sections 21 and 28, Township 9 North, Range 4 East. It is alleged that the information so obtained cost the Ohio many thousands of dollars, was its exclusive property, was secret and valuable, and as a result of the information thus acquired the lands located in this particular vicinity were valuable for oil and gas. That on or about February 18, 1941, the Ohio commenced to purchase oil and gas leases in the vicinity described, and on or about that date it learned for the first time that Sharp had acquired oil and gas leases upon lands located in Sections 21 and 28, Township 9 North, Range 4 East, and which are the subject matter of this action. On or about July 2, 1941, the Ohio learned for the first time that the defendant had wrongfully obtained the secret information and data developed by the geophysical survey from an employee of the Geophysical Company, with knowledge that it was the confidential and exclusive property of the Ohio. Relying upon this information, Sharp obtained the leases in question from the owners of the mineral interests in the lands, whose consent to make the tests had not been obtained by the Ohio or the Geophysical Company. It thus appears that the geophysical tests were made upon the public highway abutting the lands in question with the written consent of the owners of the surface rights who were in actual possession, but without the consent or approval of the owners of the mineral interests. Sharp, after acquiring the leases, while acting upon the information thus wrongfully obtained, drilled and completed a producing well in the SE¼ of the SE¼ of Section 21, Township 9 North, Range 4 East, and it is alleged that the Ohio would have acquired the oil and gas leases covering the said lands except for the wrongful acts of Sharp. Based upon these allegations, Ohio contends that Sharp holds upon a constructive trust for its use and benefit, and prays for a judgment decreeing it to be the legal and equitable owner of the leases, and for an accounting. It expressly offers to do equity in the premises.

The scientific information obtained by the geophysical survey was undoubtedly a valuable property right; it was essentially confidential and belonged to the Ohio. It was acquired by the Geophysical Company while acting as the confidential fiduciary of the Ohio, and the Geophysical Company, its agents and employees, were expressly forbidden to use or communicate the information thus obtained to anyone for any purpose without the written consent of Ohio. Manifestly therefore, a broad and comprehensive trust relationship existed between the Ohio and the Geophysical Company, and one which by the very nature of the subject matter exacted a high degree of fidelity and integrity from the Geophysical Company. If, acting on the confidential information thus obtained, the Geophysical Company, or its agents and employees, had acquired the leases in question for their own use and benefit, equity would regard the Geophysical Company, its agents and employees, as the constructive trustee of the Ohio, and would impress a constructive trust upon the leases for the benefit of Ohio. In these circumstances, the Geophysical Company, or its agents, would be deemed to hold the legal title for the use and benefit of Ohio, and in order to accomplish complete justice, equity would vest the legal title in the Ohio. Pratt v. Shell Petroleum Corporation, 10 Cir., 100 F.2d 833; Trice v. Comstock, 8 Cir., 121 F. 620, 61 L.R.A. 176; Ballard v. Claude Drilling Company, 149 Kan. 506, 88 P.2d 1021; Beatty v. Guggenheim Exploration Company, 225 N. Y. 380, 122 N.E. 378; Quinn v. Phipps, 93 Fla. 805, 113 So. 419, 54 A.L.R. 1173; 3 Pomeroy Equity, Sec. 1044, 1058; Restatement Restitution 200; Restatement Agency 395.

Neither the Geophysical Company nor its agents and employees used the information to acquire the leases in question, nor does it appear that the information was used for the personal enrichment of the Geophysical Company or its employees. But an unfaithful employee of the Geophysical Company did surreptitiously and in violation of the trust relationship, impart the valuable information to Sharp, who obtained it with knowledge that it was confidential; that it belonged to the Ohio, and that it was disclosed to him in breach of the fiducial relationship. In these circumstances, Sharp is an accessory to the unconscionable wrong, and he stands on the same footing as his benefactor. Scott on Trusts, Sec. 506; Restatement Agency 312(c); Restatement Restitution 201. He was also constituted the constructive trustee of the Ohio, and as such acted for and on its behalf in the acquisition of the leases. It is therefore unnecessary for Ohio to show detriment, injury or damage, or that it would have secured the leases in question if Sharp had not wrongfully used the information he obtained from the agent of the Geophysical Company, although it is so alleged. Pratt v. Shell Petroleum, supra.

To avoid the application of these well settled equitable principles to his wrongful conduct, Sharp invokes the equally well settled maxim of equitable jurisprudence which excludes from the portals of equity one who is himself guilty of inequitable conduct in respect to the subject matter or transaction of which he complains. He contends that the complaint clearly shows that the geophysical testing, (including explosion of heavy charges of dynamite) was conducted upon the public highway immediately adjacent to the lands in question; that in so doing, the Ohio used and utilized the right-of-way and a portion of the lands abutting thereon for an "unusual extraordinary commercial purpose" without the consent of the county or state authorities having control of such public highway, or the owners of the mineral interests in and unto the...