Page v. Arkansas Natural Gas Corporation

• Decision Date: 05 October 1931
• Docket Number: No. 9102.,9102.
• Citation: 53 F.2d 27
• Parties: PAGE v. ARKANSAS NATURAL GAS CORPORATION.
• Court: U.S. Court of Appeals — Eighth Circuit

53 F.2d 27 (1931)

PAGE v. ARKANSAS NATURAL GAS CORPORATION.^*

No. 9102.

Circuit Court of Appeals, Eighth Circuit.

October 5, 1931.

F. J. Looney and J. M. Grimmet, both of Shreveport, La. (Jordan Sellers, of El Dorado, Ark., Yandell Boatner, of Shreveport, La., McNalley & Sellers, of El Dorado, Ark., and Pugh, Grimmet & Boatner, of Shreveport, La., on the brief), for appellant.

Jeff Davis, of El Dorado, Ark., and J. Merrick Moore, of Little Rock, Ark. (C. W. Gray, of Little Rock, Ark., and Frueauff, Robinson & Sloan, of New York City, on the brief), for appellee.

Before KENYON and BOOTH, Circuit Judges, and DEWEY, District Judge.

KENYON, Circuit Judge.

This suit, brought in a state court of Arkansas and removed to the federal court, is one in which appellant, trustee of the Mike Lyvers Syndicate (herein called the Lyvers Syndicate), seeks a decree that the Arkansas Natural Gas Corporation et al., successor in interest to the Natural Gas & Petroleum Corporation, holds in trust for appellant, as trustee, a certain gas and oil lease on what is known as the Bilyou (or Bilyeu) tract, viz.: The northwest quarter of the northwest quarter of section 9, township 16 south, range 15, Union county, Ark. The Lyvers Syndicate was organized under the laws of Arkansas February 21, 1923, by a declaration of trust, in which Mike Lyvers was appointed trustee, with almost unlimited powers as to the management of the trust and its properties. Beneficial interests in the trust, to the extent of 14,400 units, were sold all over the United States at the price of $10 per unit. The lease in question is one made in 1922 by J. A. Bilyou and wife to one Olvey, assigned by him to one Murphy and by Murphy to Otto L. Morris, who made two assignments thereof to Mike Lyvers, trustee of the Mike Lyvers estate, which together covered the entire lease. The lease was incumbered by an agreement between Morris and his assignor, Murphy, by the terms of which Murphy was to have some $32,000 out of the first oil and gas produced from the lease. At the time of organization of the Lyvers Syndicate, there existed an organization with the impressive title, "Harry Morris Guaranteed Gusher Syndicate No. 3" (hereinafter termed the Gusher Syndicate), which had been promoted by Harry N. David and Otto Morris, who were also the promoters of the Mike Lyvers Syndicate. These two syndicates worked together, somewhat interrupted by various events, one being an indictment on September 13, 1923, of Mike Lyvers, Harry and Otto Morris, for conspiring to defraud the unit holders of the Mike Lyvers Syndicate, and for using the United States mails to carry out the same. On August 28, 1923, the Gusher Syndicate was placed in the hands of a receiver in the state court, and one Williford was appointed receiver. He endeavored to find the books of this and other syndicates controlled by the Morrises, but was unsuccessful, they having been removed from the offices the previous day. Williford demanded from Lyvers the property of the Lyvers Syndicate, and some of it was conveyed to him by Lyvers. Certain of the unit holders learning of Williford's plans to sell the property of the Lyvers Syndicate formed a reorganization committee, which engaged one Dr. McComb to act for them, who with other members of this committee filed an involuntary petition in bankruptcy against the Gusher Syndicate, and it was adjudged a bankrupt December 24, 1923. Harry N. Morris was adjudged a bankrupt thereafter. Both proceedings were referred to one Pope, referee in bankruptcy. H. M. Barney, who had in November, 1923, been receiver of the Gusher Syndicate, was in January, 1924, made trustee in bankruptcy. He had as receiver obtained possession of all the property of the Gusher Syndicate by the aid of the federal court. He was as unsuccessful as Williford in finding the books of the Mike Lyvers Syndicate, the Gusher Syndicate, or the Morris Drilling Company, which was another concern controlled by the Morrises and operating out of the same offices. Barney took actual possession of the various properties of the Gusher Syndicate and the producing leases of the Lyvers Syndicate, and as to the Bilyou lease, he put up placards on the property stating that it was in his possession as receiver of the federal court. He continued to hold this possession of all of these properties as property of the bankrupt until they were sold by him as trustee in March, 1925. In May, 1924, he paid the annual rental due on the Bilyou lease in the sum of $40. The reorganization committee under Dr. McComb became active after the adjudication of the Gusher Company as a bankrupt. A plan was formulated to organize a new corporation to purchase the properties held by the trustee in bankruptcy. Meetings of unit holders of the Lyvers Syndicate were held throughout the United States, at which they were informed that the properties of the Lyvers Syndicate had been taken over by the trustee in bankruptcy of the Gusher Syndicate. In January, 1924, the reorganization committee mailed to the unit holders a form of proof of claim in bankruptcy to be used by them in filing their claims as creditors in the matter of the Gusher Syndicate and Harry Morris, bankrupts. This committee organized the Moco Oil Corporation, the purpose of which was to acquire the Morris properties. The unit holders were constantly advised of the situation by the publication and distribution of a paper called "The Moco News." In one copy it listed properties which the Moco Oil Corporation intended to buy from the trustee in bankruptcy, and this list included the Bilyou lease. In February, 1924, Mike Lyvers filed an intervention before the referee in bankruptcy claiming certain property taken by the trustee in bankruptcy, among which was the Bilyou lease. February 15, 1924, the trustee filed response, admitting possession of the property, and claiming it as trustee in bankruptcy, and denying ownership in Lyvers, and asking for a summary order directing Lyvers to execute a quitclaim deed conveying certain leases of the Lyvers Syndicate to him as trustee, alleging that said leases were purchased with moneys and assets of the bankrupt estate, and that they were held by Lyvers only as trustee for the benefit of said estate. The matter was heard by the referee, who held that Lyvers had no interest in this property and that all the property of the Gusher Syndicate and the Lyvers Syndicate belonged to a common fund. The District Court affirmed the order of the referee requiring Lyvers to convey the property in question to Barney, trustee, and on October 13, 1924, Lyvers personally and as trustee of the Lyvers Syndicate conveyed the same, which included the Bilyou lease, to Barney as trustee. The property in the Bilyou lease was erroneously described in the deed, but was afterwards corrected by a second quit claim deed by Lyvers as trustee of the syndicate to Barney, trustee in bankruptcy. In October, 1924, the referee in bankruptcy mailed to the unit holders of the Lyvers Syndicate a notification to file their claims in bankruptcy as creditors of the estate, and the unit holders, representing more than ten thousand units, filed claims in the Gusher Syndicate bankruptcy proceeding. These claims were allowed and a dividend of 2½ cents per unit was paid. January 23, 1925, Barney, as trustee in bankruptcy, made a contract with the Natural Gas & Petroleum Corporation to sell to it the properties remaining in his hands for $125,000. This was approved by the referee and duly recorded. At that time the Bilyou lease was unexplored. It was difficult to sell it separately because of the $32,000 oil payment to Murphy standing against it. The best offer which the referee had received was $100,000, and he had been authorized by the trustee to accept this. About a week after the contract between Barney as trustee and the Natural Gas & Petroleum Corporation was made, McComb caused a petition to be filed by the Moco Oil Corporation, in which it was alleged that it was willing to pay $155,000 for the properties. This attempt does not seem to have borne fruit or to have been seriously considered. After this the Natural Gas & Petroleum Corporation took over and operated the properties embraced in the contract. A deed of assignment of all these properties carrying out the contract of January 23, 1925, was executed by Barney as trustee to the Natural Gas & Petroleum Corporation on March 2, 1925, and the balance of purchase money was paid. The Bilyou lease was included in the properties conveyed. March 12, 1925, the purchaser entered on the Bilyou lease and drilled a gas well. As oil wells were drilled in the vicinity the value of the lease increased, and on March 12, 1925, it had a value of $6,000 above the $32,000 against it. The Natural Gas & Petroleum Corporation in buying these properties relied on its attorney's opinion as to title and assumed that it had a valid title. March 18, 1925, a petition was filed before Pope, referee, by unit holders, Zug, Wilson, and Turner, alleging they filed it for all unit holders as a class proceeding, and asking that the sale of the Bilyou lease be set aside on the ground that it was in fact the property of the Mike Lyvers Syndicate and not the property of the Gusher Syndicate or Harry N. Morris, bankrupts. Response was filed by the trustee, and the petition was denied. No review by the District Court was ever asked. The Bilyou lease continued to be developed by the purchaser, and a number of wells were drilled. The peak of production was reached on May 10, 1925, when the lease was producing 40,000 barrels of oil per day of twenty-four hours, and the gas well was producing much gas. The Bilyou lease had come into its own, and was of great value, estimated as of May 10, 1925, to be $600,000 to $800,000. In its development the purchaser paid for the period from March 1, 1925, to January 1, 1928, a total of $221,554.33. Under the terms of the trust Lyvers...