Thompson v. Magnolia Petroleum Co

Citation84 L.Ed. 876,309 U.S. 478,60 S.Ct. 628
Decision Date25 March 1940
Docket NumberNo. 481,481
PartiesTHOMPSON v. MAGNOLIA PETROLEUM CO. *
CourtUnited States Supreme Court

Mr. Thomas T. Railey, of St. Louis, Mo., for petitioner.

Messrs. Craig Van Meter, of Mattoon, Ill., and Thomas H. Cobbs, of St. Louis, Mo., for respondent.

Mr. Justice BLACK delivered the opinion of the Court.

A rich oil field was discovered in Illinois in 1938. Thereupon, this dispute arose between a trustee of a railroad in reorganization under Sec. 77 of the Bankruptcy Act, 11 U.S.C. § 205, 11 U.S.C.A. § 205, and other claimants as to the legal right to drill for and capture fugitive oil under the railroad's right of way traversing the newly discovered field. The trustee asserts fee-simple ownership of the right of way lands with consequent right to reduce the underlying oil to possession. Respondents deny the trustee's alleged title or that he has any interest in the land beyond a mere easement—a limited right to use the surface for railroad purposes only. They allege that ownership of the fee is in others, from whom they have obtained oil leases. This determinative question of fee-simple ownership can be decided only by interpretation, under Illinois law, of instruments granting the railroad its right of way.

The questions here are whether the bankruptcy court has summary jurisdiction to adjudicate ownership of the right of way lands, and whether that court abused its discretion in ordering the fugitive oil captured and its proceeds impounded pending adjudication of the ownership.

Petitioner is trustee of the Missouri-Illinois Railroad Co., a subsidiary of the Missouri-Pacific Railroad Co., in process of reorganization in the same proceeding with the parent company in the United States District Court for the Eastern District of Missouri. The trustee petitioned the bankruptcy court '* * * for determination of title and for advice and directions respecting certain proposed oil operations on right-of-way near Salem, Illinois.' And his petition alleged that the right of way lands had been 'fenced and used by Trustee and his predecessors in interest without interruption, and with actual visible and exclusive possession acquired under claim of title inconsistent with the claims of title of any other owner for at least twenty years prior to institution of these proceedings'; that by reason of this adverse possession and various conveyances and decrees of record, the trustee had title to the lands and a right to the oil thereunder; that numerous wells had been dug in close proximity to the right of way and without prompt action to remove the oil under the right of way it would be drained into wells on adjacent lands and its value forever lost to the stockholders and creditors of the railroad. The prayer sought notice to claimants of rights to the oil to appear and show cause why they should not be 'estopped and enjoined from asserting any further title in and to the lands * * * upon which said right-of-way is located or to the mineral, oil or gas deposits in and under * * * (the) right-of-way or extracted therefrom'; and that, pending 'determination of adverse claims to title', the trustee be authorized to have wells drilled, oil captured and sold, and the proceeds, less cost of production, impounded and held for the account of the rightful owner as might be thereafter determined by the bankruptcy court.

Although they admitted that the railroad 'had been in possession of the * * * premises' using them for right of way and tracks, respondents denied both that the trustee owned the fee and that the railroad had been, or that the trustee was, in adverse possession of the oil and other minerals under the right of way.

The bankruptcy court found that the trustee was in 'actual possession of the property * * *, under assertion of claim to fee simple title thereto'; that the court accordingly had jurisdiction; and that immediate action was necessary 'to conserve the oil supply underlying the property for the benefit of the parties in interest as their rights, title, and interest thereto may hereafter be determined by this Court.' The trustee was therefore directed to provide for wells, production and sale of oil, with the proceeds—less expenses—to be impounded pending adjudication of ownership.

Upon consideration of Illinois law, which admittedly must govern, the Court of Appeals reversed with instructions to dismiss the trustee's petition, concluding that, as interpreted under Illinois law, the instruments relied on by the trustee conveyed an easement only and that the trustee's possession of the right of way lands under an erroneous claim of fee-simple ownership was not such possession of the oil and gas as to give the bankruptcy court summary jurisdiction to determine fee-simple ownership.1 Conveyances of rights of way in Illinois substantially similar to those here in dispute have been held by the Court of Appeals for the Seventh Circuit, in which Illinois is located, to convey a fee-simple title under that State's law.2 Because of this conflict and the importance of the question of the bankruptcy court's asserted summary jurisdiction, we granted certiorari.3

First. Bankruptcy courts have summary jurisdiction to adjudicate controversies relating to property over which they have actual or constructive possession. And the test of this jurisdiction is not title in but possession by the bankrupt at the time of the filing of the petition in bankruptcy.4 Here, the trustee succeeded to the physical pos- session, custody and control of the right of way lands which the railroad had enjoyed at the time of bankruptcy. In fact, however, no one had, when the petition was filed, physical possession of the fugitive oil apart from the lands under which it lay. The Supreme Court of Illinois has said, 'The grant of oil and gas is a grant of such oil and gas as the grantee may find, and he is not vested with any estate in the oil or gas until it is actually found.'5 And this entire controversy can only be resolved by solution of the primary question of fee-simple ownership. The parties agree that if ownership of the right of way lands is in the trustee he has the right to capture the underlying oil, and if not, that the trustee has no such right. Thus, the right to the disputed oil necessarily hinges upon where the ownership of the fee to these lands lies. And possession of those lands under claim of fee-simple ownership by the railroad and later by the trustee was an adequate basis for the District Court's summary jurisdiction. As previously determined in litigation involving another aspect of this same reorganization, the jurisdiction thus acquired by the...

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