Pullman v. Chorney
| Decision Date | 02 March 1981 |
| Docket Number | Civ. A. No. 80-C-1095. |
| Citation | 509 F. Supp. 162 |
| Parties | Paul PULLMAN, individually, and on behalf of other unsuccessful applicants similarly situated for oil and gas leases in Wyoming offered by the Bureau of Land Management under the Simultaneous Oil and Gas System, Plaintiff, v. Raymond CHORNEY, Joan Chorney, Chorney Oil Company, Seabrook Corporation, Lancaster Corporation, L. Stanley, Hazel Stanley, Cecil D. Andrus, Secretary of the Interior of the United States, Charles W. Duncan, Jr., Secretary of Energy of the United States and Maxwell T. Lieurance, Director of the Bureau of Land Management for the State of Wyoming, Defendants. |
| Court | U.S. District Court — District of Colorado |
Lowey, Dannenberg & Knapp, P. C., New York City, Theodore S. Halaby, Halaby & Bahr, Denver, Colo., for plaintiffs.
James E. Nesland and John E. Evans, Ireland, Stapleton & Pryor, Denver, Colo., W. H. Brown, Brown, Drew, Apostolos, Massey & Sullivan, Casper, Wyo., Daniel R. Christopher, Asst. U. S. Atty., Denver, Colo., Richard W. Levi, Asst. Atty. Gen., Land & Natural Resources Division, U. S. Dept. of Justice, Washington, D. C., for defendants.
This case raises some novel and complex issues regarding the ability of an unsuccessful applicant for a federal oil and gas lease to seek judicial invalidation of the lease after it has been granted to another person. The complaint, filed by the plaintiff on his own behalf and "on behalf of other unsuccessful applicants similarly situated for oil and gas leases in Wyoming offered by the Bureau of Land Management under the Simultaneous Oil and Gas System," seeks declaratory, injunctive, and monetary relief for alleged fraudulent practices in the simultaneous oil and gas leasing system (SOG system).
The defendants have filed motions to dismiss or alternatively for summary judgment, asserting inter alia that the plaintiff has failed to exhaust administrative remedies, that the complaint fails to state a claim upon which relief can be granted, that the plaintiff does not have standing to sue, and that even if the complaint does state an actionable claim, it is barred by the applicable statute of limitations.
The complaint alleges that the plaintiff was a "qualified offeror and drawee" in connection with a lottery conducted by the Bureau of Land Management for a lease of certain lands under the SOG system, as that system was in effect on February 20, 1979. Although this allegation implies that the plaintiff was one of the three successful drawees under the system, as will be explained more fully below, there is no dispute that the plaintiff's application was not actually drawn.
There are two groups of defendants: (1) the "private defendants," who allegedly submitted multiple lease applications to increase the probability that their applications would be drawn; and (2) the "government defendants," who are the Secretaries of the Departments of Interior and Energy, and the Wyoming Director of the Bureau of Land Management, all allegedly persons responsible for conducting the SOG system.
Although the complaint's class action allegations purport to encompass several leases, the primary focus of the complaint is on one oil and gas lease, Number W-67438, issued May 1, 1979. This lease was issued to defendant Hazel Stanley, and subsequently assigned to defendant Seabrook Corporation. The complaint further alleges that Seabrook Corporation is controlled by the defendants Chorney, and that Hazel Stanley's husband, L. Stanley, was a vicepresident of that corporation at times relevant to this case.
The plaintiff charges that the private defendants acquired Lease Number W-67438 by an illegal scheme involving multiple applications for oil and gas leases offered under the SOG system in Wyoming. The defendants allegedly used numerous "dummies" who agreed to file lease applications, and then assign any leases obtained to the defendants if their applications were drawn. Thus, the gist of the complaint is that the SOG drawings were rigged in favor of the private defendants.
The government defendants are joined in the case for allegedly "failing to adopt and implement appropriate regulations for leasing; permitting fraudulent bidding practices ... by the Chorneys and others in connection with the Wyoming leases; and in failing to take action, upon discovery of the frauds, to set aside the Leases and all assignments thereof, and to either reoffer the Leases through competitive bidding or other fair and equitable procedures, or to compel the Chorney interests to account to all bona fide unsuccessful drawees for the profits obtained" as a result of their fraud.
The plaintiff prays for a judgment declaring that the private defendants' actions were fraudulent and that any leases obtained by these fraudulent practices are void. He further seeks to enjoin the Chorneys from assigning any lease interest fraudulently obtained. In addition, he asks for equitable relief requiring the Chorneys to hold the Wyoming lease interests "as trustees ex maleficio" for the benefit of the plaintiff and purported class members. He seeks an order requiring the government defendants to take appropriate steps "in accordance with applicable federal statutes and regulations to make effective any order or judgment of this Court affecting the title or ownership of the Wyoming Leases or interests therein." Finally, the plaintiff asks for a pro rata distribution to the class members of all benefits the Chorneys have received from their allegedly illegal activities.
The Mineral Leasing Act, 30 U.S.C. sections 181, et seq., authorizes the Secretary of the Interior to lease government lands with oil and gas producing potential. 30 U.S.C. sections 181, 226. If the Secretary determines that the land in question is in a "known geological structure," as that term is defined in the MLA, then the lease must be offered to the "highest responsible qualified bidder by competitive bidding." 30 U.S.C. section 226(b). If the lands to be leased are not within any known geological structure of a producing oil and gas field, then "the person first making application for the lease who is qualified to hold a lease under the MLA shall be entitled to a lease of such lands without competitive bidding." 30 U.S.C. section 226(c). A "qualified bidder" is a person who is a United States citizen and who does not have interests in other federal oil and gas leases in excess of certain acreage limitations. 30 U.S.C. sections 181, 184. The Secretary has the discretion to decide whether to lease lands or not, "but once he has decided to lease it is mandatory that he issue a lease to the first qualified applicant, if he is going to lease at all." Southwestern Petroleum Corporation v. Udall, 361 F.2d 650, 654 (10th Cir. 1966).
The simultaneous oil and gas leasing system is not established by the MLA itself. Rather, pursuant to the authority granted by 30 U.S.C. section 189, the Secretary promulgated regulations setting up the system. Prior to institution of the SOG system, land offices were frequently chaotic when numerous applicants competed to be the first to file upon termination or cancellation of a non-competitive lease, or when lands were otherwise first offered on a non-competitive basis.
The SOG system in effect at the times relevant to this case was established in regulations published at 43 C.F.R. section 3112. When lands became available for non-competitive leasing, the appropriate BLM office would post a notice to that effect, specifying a five-day period during which applications could be filed. A separate application was required for each parcel, and an offeror could submit only one application for each parcel. 43 C.F.R. section 3112.2-1(a)(1). All applications which would result in the applicant having a greater probability of obtaining a lease than any other applicant — e. g., filings made on behalf of or in collusion with another party also filing an application — would be rejected. 43 C.F.R. 3112.5-2. Section 3112.5-2 also provided that if "a lease is issued on the basis of any such offer, action will be taken for the cancellation of all interests in said lease held by each person who acquired any interest therein as a result of collusive filing unless the rights of a bona fide purchaser ... intervene...."
All applications filed during the five-day period were then considered filed simultaneously, and the BLM would hold a drawing for each parcel to determine who would be deemed the "first" applicant. Three cards were drawn and marked according to their respective priorities in the drawing; all other applications were returned to the applicants with a notice stating "you were not successful in the drawing and your offer to lease the land is rejected."
The lease would then be tendered to the first applicant whose name was drawn. If that applicant was determined to be qualified, and the lease was in fact issued, the number 2 and 3 applications would be returned to the applicants.
If the first drawee did not accept the lease, or failed to qualify, the lease would next be offered to the second, and, if necessary, the third drawee. 43 C.F.R. section 3112.4-1. If none of the three drawees accepted, or if all were disqualified, the parcel in question would no longer be available through that particular drawing, and the Secretary would have to make a decision about what to do next. The parcel could be withdrawn, pursuant to the Secretary's authority; if the land had become part of a known geologic structure in the interim, it would have to be offered, if at all, on a competitive basis; or the parcel could be offered again under the non-competitive SOG system, by way of a new notice, application, and drawing proceeding.
An unsuccessful applicant was...
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