Standard Oil Company of Texas v. United States

• Decision Date: 15 August 1962
• Docket Number: No. 18888.,18888.
• Citation: 307 F.2d 120
• Parties: STANDARD OIL COMPANY OF TEXAS and Pasotex Pipe Line Company, Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

307 F.2d 120 (1962)

STANDARD OIL COMPANY OF TEXAS and Pasotex Pipe Line Company, Appellants, v. UNITED STATES of America, Appellee.

No. 18888.

United States Court of Appeals Fifth Circuit.

August 15, 1962.

COPYRIGHT MATERIAL OMITTED

J. C. Hutcheson, III, Houston, Tex., Thomas S. Milam, Lubbock, Tex., Louis A. Scott, El Paso, Tex., of counsel, Scott, Hulse, Marshall & Feuille, El Paso, Tex., Crenshaw, Dupree & Milam, Lubbock, Tex., Moulton A. Goodrum, Houston, Tex., Baker, Botts, Andrews & Shepherd, Houston, Tex., for appellants.

W. B. West, III, Barefoot Sanders, U. S. Attys., Fort Worth, Tex., for appellee.

Before JONES, BROWN and GEWIN, Circuit Judges.

JOHN R. BROWN, Circuit Judge.

This appeal by two corporate defendants, from fines imposed on judgments of conviction under the Connally Hot Oil Act,¹ raises this basic question. May a corporate employer be held liable for a crime committed by employees who, although ostensibly acting in the performance of their duties, were really cooperating with a third person in the accomplishment of a criminal purpose for the benefit of that third person, and whose acts not only did not benefit the employer, but in some instances, at least, result in a theft of its property? As to one count for failure to keep records,² there is a subsidiary question whether the indictment adequately alleged the element, as the statute prescribes, that this was done "knowingly."

The facts, as the trial Court sitting without a jury heard them, are indeed complicated and involved. This is pretty well indicated by the fact that in the excellent briefs which do credit to the case and their author-advocates, and which present these substantial legal questions to us in a way that avoids them being lost in a bewildering array of boldfaced points and counter points, points and counter points restated plus an unworkable index which it is our lot to struggle with too often, it takes twelve pages of solid nonargumentative statement in the appellants' brief plus three of the Government's to portray the factual detail which led to these convictions. Fortunately, we need not recite the facts in that detail for while they are complicated in many ways, they are surprisingly simple as to the crucial problem.

Standard and Pasotex³ are corporate affiliates. Pasotex, a wholly owned subsidiary of Standard, is a common carrier by pipe line within Texas.⁴ It maintained and operated an extensive gathering system in the Kelly-Snyder Field of Scurry County, Texas. Additionally, and primarily for account of Standard, it transported a very large quantity of oil from the Field to Standard's Refinery at El Paso from which substantial quantities of refined products subsequently moved in interstate commerce. All oil gathered and transported by Pasotex was handled under intrastate tariffs filed with the Railroad Commission of Texas, the regulatory agency for oil and gas matters in the State.

Standard's activities were even more comprehensive. The Kelly-Snyder Field, discovered in 1948, is a large field both in geographical area and in petroleum reserves. Covering an area of approximately five miles by seventeen miles, it included over 1300 wells. For conservation and operational efficiency, the Field was unitized into Segments 1, 2, and 3 of SACROC.⁵ Standard as an owner of approximately 19% of the total production in the Unit was the operator of Segment 1, located in the northerly part of the Unit.

Because it is of importance later on, it is helpful to point out here that Segment 1 included the wells on the Jesse Brown Leases. Oil from Segment 1 moved through Pasotex Pumping Station No. 1. Pumping Station No. 1 is important because of the movement through it of oil from the Jesse Brown Leases into the main El Paso trunk line, and also because most of the oil gathered at Pumping Station No. 2 moved through Station No. 1 and thence into the El Paso trunk line. Pumping Station No. 2 was the collecting point for oil run from the Thompson Leases⁶ through the gathering lines of Pasotex. Ultimately there were nine Thompson wells. None of these leases was in the SACROC Unit. The wells were, therefore, operated wholly by Thompson's employees. The interest of Pasotex was limited to gathering and transportation of the Thompson oil. Standard's interest was limited to that of a purchaser having a statutory duty of buying oil tendered to it by Thompson and other producers in the field. § 8, Art. 6049a, Texas Rev.Civ. Stat.

It is in this setting that the plot was hatched, the minimum effect of which was to give Thompson credit for production in excess of that which some of his wells were making and, as to other phases, involved the actual misappropriation of large quantities of oil purchased by Standard from the Jesse Brown Segment 1 leases and for which Standard paid Thompson. Here individuals start to play the indispensable part to any corporate crime. The cast of characters includes Morgan, Ware and Purcell.⁷

The scheme was really very simple in origin and execution. Nothing was subtle. Thompson has nine wells. Some were capable of producing their daily allowable under rules of the Texas Railroad Commission. Some of them could not. But under the Texas Conservation Laws and Regulations, the underage from one lease may not be made up from other commonly owned leases which have a capacity in excess of their assigned allowables. Oil swapped in this fashion is most certainly hot oil under the Connally Act which, forbidding "the transportation in interstate commerce * * * of contraband oil * * *," 15 U.S.C.A. § 715b, defines this as "petroleum which, * * * was produced * * * or withdrawn * * * in excess of the amounts permitted to be produced * * * or withdrawn * * * under the laws of a State * * *," 15 U.S.C.A. § 715a(1).

Over a period of approximately twelve months, Morgan (or Hart as his relief) issued false run tickets covering oil supposedly received at Pumping Station No. 2 from or produced by specified Thompson wells. Some of these purported to show that the oil actually received (and receipted for) was produced by a given well rather than the one from which it was known by Morgan (or Hart) to have come. But in numerous other instances, a false run ticket was used showing receipt of Thompson oil which had never been produced or received at all. For rendering this vital and knowing participation in these two schemes which benefited Thompson, these two Pasotex employees were paid or received substantial sums in cash or merchandise from Thompson.⁸

In those instances where, though receipted for, no oil was actually received at Pumping Station No. 2, a new problem came up. Oil received at Station No. 2 moved to Station No. 1 where Purcell was in charge. But since Station No. 2 had less oil than it had receipted for, the shortage continued at Station No. 1 when No. 2 "moved" all of its oil to No. 1. This was an actual shortage of oil in contrast to mere swapping of oil among leases. This shortage had to be made up or the whole scheme would collapse.

This is where Standard becomes involved.⁹ As operator of Segment 1 of SACROC, it operated all of the wells including those on the Jesse Brown leases. It therefore had control over the movement of the oil from the leases. More than that, by reason of the unitizing agreement Standard was an owner of a substantial undivided interest (approximately 19%) in all such oil. Purcell, aware of the continuing shortages from Station No. 2, gave instructions to pumpers to increase production from Segment 1 sufficient to make up the shortage. This amounted to 6,000 or so barrels every month for a considerable period. Records, of course, had to be falsified so that this "excess" oil moving through Station No. 1 to make up Station No. 2 "shortages" would be concealed. Standard had still another role. It was the purchaser of the oil. Since this make-up of Station No. 2 shortage was the only way Standard was getting oil ostensibly purchased earlier by it from Thompson at Station No. 2, Standard was, in effect, paying Thompson for oil which belonged to Standard (and the other Unit co-owners).

How Standard or Pasotex may be held criminally liable for "knowingly violating"¹⁰ the statute by transportation of oil "* * * produced * * * in excess of the amounts permitted to be produced * * * under the laws of the state" of Texas when all of such oil came into the custody of each corporation solely as a result of a deliberate purpose by unfaithful employees to cheat or steal is the legal question for our determination. Adding irony to what some might regard as amazement is the fact that the very first moment knowledge of this activity came to light, Pasotex, after preliminary verification of its suspicions, reported the matter immediately to the Texas Railroad Commission. Thereafter followed this prosecution.

We start with the proposition that what is involved is statutory construction. We may assume that Congress can subject corporations to criminal accountability for acts of this kind committed by unfaithful servants. But the question is whether any such purpose was intended with regard to the Connally Hot Oil Act.

Since the record is absolutely barren of even the most remote whisper of suspicion that this was the case of corporations winking at dereliction by energetic, zealous employees, the Government stresses, for both a legal and psychological purpose, the contention that the two corporations received some benefit. But as we point out later, no benefit was either intended or obtained.

We have some difficulty in understanding the contentions which the Government makes in its effort to support the District Court's finding of guilt which, in turn, was based almost wholly on the idea that what these unfaithful agents were doing was their usual function for the corporation. Underlying its thesis is, first, a complete misunderstanding of the conceptual theory of the defense, second, a...