Shell Oil Co. v. Manley Oil Corporation

• Decision Date: 20 June 1942
• Docket Number: No. 393.,393.
• Citation: 50 F. Supp. 21
• Parties: SHELL OIL CO., Inc., v. MANLEY OIL CORPORATION et al.
• Court: U.S. District Court — Eastern District of Illinois

50 F. Supp. 21

SHELL OIL CO., Inc., v. MANLEY OIL CORPORATION et al.

No. 393.

District Court, E. D. Illinois.

June 20, 1942.

John C. Quilty, of New York City, and Craig & Craig, of Mattoon, Ill., for plaintiff.

Layman & Johnson, of Benton, Ill., for defendants.

WHAM, District Judge.

This cause was first before the court upon plaintiff's complaint claiming to own the oil and gas rights in the two-acre tract in question with application for injunction to prevent defendants from drilling an oil well which it had started upon said tract and from producing oil therefrom. Trial upon the merits resulted in a decree of this court denying plaintiff's right to an injunction and dismissing its complaint on the theory that the defendant J. C. Shoemate, from whom defendant Manley Oil Corporation held an oil and gas lease, was the owner of the oil and gas rights under said tract. Shell Oil Co. v. Manley Oil Corp., et al., D. C., 37 F.Supp. 289. Plaintiff appealed and the case was reversed. The plaintiff was held to own said oil and gas rights and to be entitled to an injunction. 7 Cir., 124 F.2d 714. The mandate of the Circuit Court of Appeals was filed in this court on February 12, 1942. A decree of this court was entered pursuant to the mandate and on February 21, 1942, plaintiff, by leave of court, filed its supplemental complaint against defendants for an accounting for oil taken and sold and for other relief, including the right to have and to operate the oil well which, pending the appeal, defendants had completed, equipped and operated, producing and selling therefrom substantial quantities of oil. To this supplemental complaint all of the defendants filed answers resisting the relief sought and defendants J. C. Shoemate, the surface owner, and Florence Shoemate, his wife, filed their counterclaim asserting that the tract is their homestead, that it has a value of less than $1,000, that the use of the tract by plaintiff for producing oil will constitute a nuisance, disturbing them and interfering with their homestead rights. They pray for the protection of the court against plaintiffs by injunction and for other relief. Trial was had and the case is now before the court upon said supplemental pleadings, the evidence, oral and written, and the written briefs and arguments of counsel.

The facts developed at the trial, in addition to those contained in the record made in the main suit and certain pertinent facts developed in the main suit, were briefly as follows: Before the Manley Oil Corporation began to drill the well in question it was given actual notice by plaintiff of plaintiff's title to the oil rights and its intention to assert and protect same. Disregarding said notice, the Manley Oil Corporation started to drill a well on said tract. After the suit was filed and before the trial said defendants ceased drilling operations until a decree favorable to defendants and denying plaintiff's right to an injunction had been obtained. Thereupon, it resumed drilling and completed the well, though aware that the plaintiff had filed its notice of appeal and was perfecting its appeal of the case. On April 11, 1941, the Manley Oil Corporation, L. B. Manley being the owner of ninety-eight per cent of the stock, transferred the lease to L. B. Manley. The defendants, Manley Oil Corporation and L. B. Manley, equipped the well for operation and began the recovery and sale of the oil. They sold the oil for cash and have accounted for none of it to the plaintiff but paid Shoemate on basis of one-eighth. After April 11, 1941, L. B. Manley alone operated the well and sold the oil. After July 1, 1941, he paid three per cent of the sale price of the oil to the State of Illinois. He continued to produce and sell the oil until December 3, 1941. After December 3, 1941, he continued to operate the well until February 12, 1942, but sold the oil to the Central Pipe Line Company by whom the proceeds have been impounded. The amount and value of the oil received by the Central Pipe Line Company is not disclosed by the evidence.

The two acre tract in question was part of a forty acre tract upon all of which the plaintiff had an oil and gas lease. At the time the controversy began this forty acre tract, including the two acres, was being developed by the plaintiff on a plan of one well to ten acres. The lease immediately adjacent to the two acre tract owned by one Adkins was likewise being developed on the plan of one well to ten acres. At the time the well was drilled it was uncertain to what extent, if any, the two acre tract was being drained by the nearest wells which had been put down on said leases of plaintiff and Adkins in accordance with above mentioned plan. The well drilled by defendants was located on the two acres approximately twenty-four feet from the line between the said two leases. It was not necessary or useful to the proper recovery of the oil under plaintiff's lease, including the two acres. The well disarranged the aforesaid plan of one well to ten acres and compelled Adkins to drill an offset well on his lease which was likewise drilled approximately twenty-four feet from the line separating the leases. By reason of said offset well which has been operated continuously and is still being operated the plaintiff's lease has been drained since the well on the two acre tract has been shut down and cannot be protected from future drainage except by the operation of the well drilled by the defendants.

The Shoemates gave the Manley Oil Corporation the lease with release of homestead, by authority of which lease the well in controversy was drilled and they thereby consented to its being drilled and operated at its present location with full knowledge that its operation would interfere with their undisturbed use and possession of the tract as their homestead. By said lease the Shoemates received one-eighth of the oil as royalty. The surface of said two acre tract is the homestead of the Shoemates and was such for many years before oil and gas were known to exist thereunder and is of a value considerably less than $1,000. They have not consented to the operation of the well on said tract by the plaintiff and resist plaintiff's right to do so as being without warrant of law.

The amount charged in the book account of L. B. Manley against said lease as expended in the drilling, equipping and operation of the well, producing and marketing the oil and procuring the lease is $24,625.18. He has recovered and sold from said well 24,606.25 barrels of oil for which he has received approximately $28,503.04. L. B. Manley testified that one-eighth was paid to J. C. Shoemate as royalty but the amount actually paid to him is not shown by the evidence. In disposing of the oil Manley sold most, if not all, of it approximately seven per cent below the market price, as posted in that area, but did obtain all he reasonably could under all the circumstances, including the dispute over the title to the oil. The oil for which the sale price was collected was disposed of through the American Pipe Line Company, a corporation, in which the defendant L. B. Manley owned fifty per cent of the stock. At the market price the oil would have brought approximately $31,682.00.

The defendants Helmerich and Payne, Inc., a corporation, Ed Morton and F. M. Loper were independent contractors or employees, have no personal interest in this suit and converted none of the oil. Defendants J. C. and Florence Shoemate did not personally convert any of the oil.

Before drilling the well the defendants L. B. Manley and Manley Oil Corporation had advice of counsel to the effect that their title to the oil rights under the land was good and that the title claimed by plaintiff was bad which advice they relied and acted upon. They knew the title was...