Transwestern Pipeline Co. v. Kerr-McGee Corp.

• Decision Date: 26 February 1974
• Docket Number: No. 73-1521.,73-1521.
• Citation: 492 F.2d 878
• Parties: TRANSWESTERN PIPELINE COMPANY, Plaintiff-Appellant, and United States of America, Intervening Plaintiff-Appellee, v. KERR-McGEE CORPORATION, a Delaware corporation, Defendant-Appellee, Olen F. Featherstone et al., Intervening Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

492 F.2d 878 (1974)

TRANSWESTERN PIPELINE COMPANY, Plaintiff-Appellant, and United States of America, Intervening Plaintiff-Appellee, v. KERR-McGEE CORPORATION, a Delaware corporation, Defendant-Appellee, Olen F. Featherstone et al., Intervening Defendants-Appellees.

No. 73-1521.

United States Court of Appeals, Tenth Circuit.

Argued January 7, 1974.

Decided February 26, 1974.

Ben H. Rice, III, Houston, Tex. (James W. McCartney and Ted A. Hodges, Houston, Tex., on the brief, Vinson, Elkins, Searls, Connally & Smith, Houston, Tex., and Modrall, Sperling, Roehl, Harris & Sisk, Albuquerque, N. M., of counsel), for plaintiff-appellant.

John D. Robb, Albuquerque, N. M., (Mark K. Adams, Albuquerque, N. M., Willard P. Scott, Oklahoma City, Okl., Henry S. Glascock, Gallup, N. M., and Don M. Fedric, Roswell, N. M., on the brief), for Kerr-McGee Corp. and Olen F. Featherstone.

Neil T. Proto, Dept. of Justice, Washington, D. C. (Victor R. Ortega, U. S. Atty., Richard J. Smith, Asst. U. S. Atty., Wallace H. Johnson, Asst. Atty. Gen., Albuquerque, N. M., Edmund B. Clark and Jacques B. Gelin, Dept. of Justice, Washington, D. C., on the brief), for United States of America.

Before HILL, BARRETT and DOYLE, Circuit Judges.

BARRETT, Circuit Judge.

Transwestern Pipeline Company, (Transwestern), appeals from the dismissal of its three count complaint filed against Kerr-McGee Corporation, (Kerr-McGee), the United States of America, and Olen F. Featherstone, et al., wherein it had attempted to prevent Kerr-McGee from mining potash from under one of its natural gas compressor stations.

The area in dispute is Section 31, T 20 W, R 32 E, NMPM, Lea County, New Mexico. The land is located within the Carlsbad Potash Basin, (Basin). The Basin is approximately twenty miles by thirty-eight miles and has been mined since 1931.

In 1954 the Department of the Interior, (Interior), leased to a corporate predecessor of Kerr-McGee the right to mine potash on certain lands within the Basin, including Section 31. Under the terms of the lease, the lessee was to undertake the mining of potash with reasonable diligence, skill, and care, and the United States was to receive a royalty based on production. The United States reserved the surface of the land for easements or rights of way, insofar as same did not interfere with the use by the lessee in mining potash.

From 1954 to 1965 Kerr-McGee conducted exploratory operations to determine the density and location of potash throughout the leased area, including Section 31. It also constructed a processing mill and related facilities between 1963 and 1965. In October of 1965, after receiving approval for its proposed mining plan, Kerr-McGee began substantial mining operations within the Basin. Neither Kerr-McGee's approved plan nor its initial operations included the mining of Section 31. Thereafter, in June, 1971, when Kerr-McGee submitted a "courtesy plan" to mine in Section 31 under one of Transwestern's compressor stations, United States Geological Survey approval was not required because this was not considered a significant departure from the 1965 plan.

Transwestern was afforded a right of way for a pipeline through, and a compressor station site on, Section 31 by the Bureau of Land Management of the Interior in 1959, after a determination by the Federal Power Commission that a gas pipeline system through the Basin was vested with the public's interest and was required by public convenience and necessity. This right of way was issued subject to all valid existing rights.

Construction of the pipeline and compressor station started in 1959. Both were in service in 1960. During the acquisition of the right of way through the Basin and construction of the compressor station, Transwestern was fully aware of Kerr-McGee's lease. It knew that mining would cause surface subsidence and damage to, or destruction of the compressor station. Transwestern negotiated, unsuccessfully, with Kerr-McGee to acquire part of its leasehold interests.

In 1962 Transwestern acquired a patent to eighty acres of Basin land which included the compressor station site. By reason of the patent, Transwestern was conveyed the land in fee, subject to the reservation by the United States of "all minerals in the land so granted, together with the right to prospect for, mine, and remove the same as authorized." Under the terms of an exchange, Transwestern's compressor station. When an rights of prior permittees or lessees to use so much of the surface as is required for mining operations, without compensation to the patentee for damages resulting from proper mining operations.

In 1969 Transwestern and Kerr-McGee began discussing the latter's intent to conduct mining operations in Section 31, including the area under Transwestern's compresor station. When an agreement could not be reached on the amount of ore to be left in place and the amount of compensation to be paid for it, Transwestern filed suit. Transwestern's three count complaint attempted to establish its right to lateral and subjacent support for its compressor station, its right to restrict some of the mining operations of Kerr-McGee in Section 31 by the power of eminent domain, and the unlawful approval of Kerr-McGee's mining plan.

The trial court dismissed Transwestern's first count on Kerr-McGee's motion. After trial, the Court also dismissed the second count. The trial court held that Transwestern took its right of way subject to Kerr-McGee's right to remove the potash; that there was no obligation to Transwestern with respect to the approval or disapproval of Kerr-McGee's mining plan; and that such plan was proper. In so ruling, the trial court recognized that Transwestern was the holder of a certificate of public convenience and necessity and that it claimed its right of condemnation pursuant to 15 U.S.C.A. § 717f(f) and (h), but that since the United States was the owner in fee of the potash beneath the compressor station, and had only leased the land to Kerr-McGee, thereby affording it the right to remove the potash subject to a royalty payment to the United States, Transwestern's power of condemnation did not extend to the United States, and, accordingly, did not extend to Kerr-McGee's lease of Section 31. The trial court further held that such a condemnation would be contrary to the purpose of the Government's lease granted to Kerr-McGee and that, in any event, the condemnation powers afforded by 15 U.S.C.A. § 717f(f) and (h) relate only to the taking of privately owned land.

On appeal Transwestern contends that: (1) Congress intended that pipeline facilities, authorized by the Mineral Leasing Act of 1920, have surface support; (2) that Kerr-McGee's mining plan as submitted to the United States Geological Survey does not extend to the removal of the lateral and subjacent support of its compressor station, nor could the United States Geological Survey lawfully approve a mining plan which did so; and (3) that Transwestern may protect its rights to lateral and subjacent support of its compressor station through the exercise of eminent domain.

I.

Transwestern contends that Congress intended that pipeline facilities, authorized by the Mineral Leasing Act of 1920, have surface support. This contention, though viable from a practical sense point of view, is without merit under the facts of this case.

Transwestern was fully aware of Kerr-McGee's lease. Paragraph 39 of the Stipulation within the pre-trial order notes:

Prior to the construction of its compressor station and pipeline in Section 31, Transwestern knew of the existence of the 1954 lease now held by Kerr-McGee. Transwestern had been advised by a Kerr-McGee representative with respect to the location of a potash ore body underneath Section 31 as reflected in Exhibit D5 and with respect thereto was also advised that mining thereof by the methods used in the Basin involving high . . . percentage of ore extraction would probably result in surface subsidence and that such mining under the compressor station and pipeline would probably result in damage to the pipeline and damage to or destruction of the compressor station.

Also, under the terms of Kerr-McGee's lease, Kerr-McGee was afforded "the exclusive right and privilege to mine, remove, and dispose of all the potassium and associated deposits in, upon, or under the following described lands: — Sec. 31, All." This lease, furthermore, reserved to the United States: "The right to dispose of the surface of the land embraced herein under existing law, or laws, hereinafter enacted, insofar as said surface is not necessary for use of the lessee in extracting and removing the deposits therein."

These conditions, standing alone, vitiate Transwestern's contention that it should be afforded lateral and subjacent support for its compressor station. However, even if we were inclined to disregard these factors, which we are not, Transwestern's right of way rights acquired in June, 1959, were subject to "all valid existing rights" and its patent had the following express reservation:

Reserving, also, to the United States all minerals in the land so granted, together with the right to prospect for, mine, and remove the same as authorized by the provisions of Section 8 as amended as aforesaid. This entry is made . . . and the patent is issued subject to the rights of the prior permittees or lessees to use so much of the surface of said lands as is required for mining operations, without compensation to the patentee for damages resulting from proper mining operations.

Since Transwestern opted to build a compressor station on and a pipeline system through Section 31, notwithstanding its knowledge of Kerr-McGee's lease, its knowledge that subsidence of the land could damage or destroy its station, and its knowledge of the restrictions within its own right of way and patent, Transwestern cannot now prevail in its bid for surface support. The control of public...