U.S. v. 499.472 Acres of Land More or Less in Brazoria County, Tex., 81-2404

• Decision Date: 01 April 1983
• Docket Number: No. 81-2404,81-2404
• Citation: 701 F.2d 545
• Parties: UNITED STATES of America, Plaintiff-Appellant, v. 499.472 ACRES OF LAND MORE OR LESS IN BRAZORIA COUNTY, TEXAS, Freeport Minerals Company, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 545

701 F.2d 545

UNITED STATES of America, Plaintiff-Appellant, v. 499.472 ACRES OF LAND MORE OR LESS IN BRAZORIA COUNTY TEXAS, Freeport Minerals Company, et al Defendants-Appellees.

No. 81-2404.

United States Court of Appeals, Fifth Circuit.

April 1, 1983.

Jacques B. Gelin, Anne S. Almy, Atty., U.S. Dept. of Justice, Land & Resources Div., Washington, D.C., for plaintiff-appellant.

Alfred H. Ebert, Jr., Houston, Tex., for Freeport Minerals.

Ewing Werlein, Jr., Daniel A. Hyde, H. Dixon Montague, Houston, Tex., for Dow Chemical Co. USA.

David F. Beale, Houston, Tex., for Henry R. Hamman.

Appeal from the United States District Court for the Southern District of Texas.

Before BROWN and JOLLY, Circuit Judges, and MAHON,^* District Judge.

E. GRADY JOLLY, Circuit Judge:

This case involves the valuation of condemned property. In 1977 the government acquired 500 acres of land on the Bryan Mound Salt Dome, two and one-half miles southwest of Freeport, Texas. Freeport Minerals Company owned the surface interest; Dow Chemical Company owned an underlying lease from Freeport, pursuant to which it mined salt; and Henry Hamman and others owned title to the sulphur under the condemned land.

Shortly before trial in March 1981 in the district court, a severance was granted on the motion of Freeport and Dow, who have essentially joint interest herein, whereby that portion of the case involving the sulphur interests would be tried separately from that involving Dow and Freeport. The government proceeded against Freeport and Dow, and after a seventeen-day jury trial, the jury returned an award of $22.5 million. Shortly after judgment was entered the government paid the balance due.

On appeal, the government contends that the lower court erred in granting the Motion to Sever. Specifically, the government argues that the court abused its discretion in that the bifurcated trials may produce duplicative awards in excess of the actual value of the property.

For the reasons set forth in this opinion, we cannot find that the district court abused its discretion, and we therefore affirm.

I.

The land in issue had been owned by Freeport at least since 1912, when it began sulphur mining operations. This mining continued until 1935 when it was discontinued as unprofitable. American Sulphur Company purchased mining rights, which it leased to Monsanto Chemical Company. Between 1951 and 1953, Monsanto drilled seventeen sulphur recovery wells before abandoning the project. In 1967, Hooker Chemical Corporation obtained rights from American Sulphur and tried its hand, drilling forty sulphur recovery wells. The results were unsatisfactory, as in previous attempts, and the effort was abandoned.

At some point thereafter, American Sulphur went out of business. As shareholders in American Sulphur, Hamman and his family obtained 62.5 percent undivided interest in the sulphur title when American Sulphur dissolved. The remaining 37.5 percent of the sulphur interests is held among a number of other people.

Pursuant to a lease agreement with Freeport, Dow had been conducting salt mining operations since the 1940's. The mining was by a "brining" process, which involves injection of heated water into the underground salt dome. The recovered salt was used as feed stock in nearby Dow chemical plants. By 1977 the brining had created an underground storage capacity in four caverns sufficient to hold in excess of 57 million barrels of liquid hydrocarbons (LPG). Dow was using a nearby underground salt cavity, also emptied by brining, for LPG storage, and Dow and Freeport had discussed LPG storage in the Bryan Mound.

These discussions halted, of course, when the government announced its intention to take the property as a storage site for petroleum under the Strategic Petroleum Reserve program. The taking occurred on April 27, 1977. The government subsequently paid into the Registry of the Court $13,165,670, pursuant to an appraisal report which indicated that the highest and best use of the property was salt brining with gradual conversion to LPG storage. ¹ When the government filed suit, Freeport and Dow were the only parties named as owners of the land in question and they were given access to 99.5 percent of the deposit. On October 21, 1977, the government moved to add the Hammans and some sixteen other parties, or their heirs, owning mineral rights as additional defendants. Except for three parties who were listed as residing in Texas, no address was provided. The government assured the court that it was continuing the search for the whereabouts of all the parties listed and that personal service would be made on as many of them as possible. Failing personal service, service by publication pursuant to Fed.R.Civ.P. 71A(d)(3)(ii) was promised.

During the four years between the taking and the trial, Freeport, Dow, and the government prepared diligently for trial. Extensive discovery was taken. Numerous interrogatories were served and answered. Fifteen depositions were taken. Stipulations were agreed to, and Dow, Freeport, and the government arrived at a $2,128,200 settlement as to offsite damages. Additionally, the government entered a stipulation with Dow and Freeport stating that any sulphur on the property contributed no value.

After three trial postponements and after being on the docket for three months, trial was set for March 16, 1981. On February 9, 1981, the Hammans moved to amend their answer on the grounds that they should be compensated for damages to their sulphur interests outside the 500-acre tract. Also on February 9, 1981, alleging that no personal service had been had on any of the sulphur-interest owners, including themselves, and alleging that the taking of property outside the 500-acre tract was arbitrary and capricious and damaging to their interests, the Hammans moved to vacate the Order of Possession which had granted the government authority to take the property almost four years before.

In response to these motions, Dow and Freeport stated their concern that yet another delay might result. Both asked that the court consider severing the case and holding separate trials.

On March 5, 1981, at the pretrial conference, numerous problems became apparent insofar as the Hammans were concerned. In addition to the Hammans' stated intention to pursue their effort to recover for damages outside the 500-acre tract, serious questions arose concerning the true extent of their ownership of sulphur rights. Also, the Hammans informed the government that they, the Hammans, still had not received their appraisal reports and therefore could not exchange such reports with the government and the other parties. Additionally, the Hammans had yet to produce for depositions their three claimed experts. Finally, because of the Hammans' inability to participate in discovery, the government refused to reveal its report or to produce its expert regarding the sulphur valuation.

In response to these impediments to a trial scheduled ten days later, the court denied the Hammans' motions to amend and to vacate the Order of Possession and considered the motion by Dow and by Freeport to sever under Fed.R.Civ.P. 42(b). The government's attorney objected to severance, arguing that separate trials "would expose [the government] to the possibility of double liability if [the jury] bought the Hammans' highest and best use which I don't know. I am operating in a vacuum. I have no reports." The government's attorney stated that the Hammans' use of the property--sulphur mining by injection of super-heated water--could be incompatible with Dow's brining process, and that while separate trials were "appealing," he had to oppose the motion to sever the defendants' trials.

Freeport's counsel suggested that, in view of the serious obstacles which the recently-raised Hamman problems presented to trial as scheduled, the judge sever the cases, order the Hammans to provide the sulphur reports and depositions before trial, and allow the government to move for reconsolidation if such were deemed necessary to protect the government's interests.

The judge found merit in this suggestion and an order for separate trial of the Hammans' interests was entered subsequently on March 12, 1981.

The Hammans' sulphur report was provided to the government on March 11. The government did not take any depositions of the Hammans' experts or move either to reconsolidate or to continue the March 16 trial date for Dow and Freeport prior to that trial.

The Dow-Freeport trial began on March 16, 1981. Dow and Freeport presented their evidence over an eleven-day period. The government presented its case over a six-day period.

Despite the stipulation that the sulphur present in the tract added no value to the property, Dow and Freeport chose as a matter of trial strategy to present a great deal of evidence to show that salt brining and LPG storage were not incompatible with sulphur recovery. Essentially, they showed that the salt mining occurred far below the surface within the salt columns. In contrast, sulphur mining occurs in the "caprock," near the surface, far removed from the areas of salt recovery. Sulphur mining was also shown to be separate from the areas which would be used for LPG storage. Dow and Freeport produced evidence showing that sulphur and salt mining operations had been conducted concurrently when Monsanto and Hooker had owned the sulphur interests, that the process of injecting LPG for storage was essentially the same as injection of water for brining, and that the uses were therefore not incompatible.

Perhaps because of the stipulation, the government chose not to produce evidence to refute the showing of compatible uses. In fact, the government's principal salt dome expert supported Dow's and Freeport's contentions that salt and sulphur mining (and LPG storage) were compatible. The government expert testified that he was, in fact, involved in such a...