United States v. Booth-Kelly Lumber Co.

• Decision Date: 26 November 1917
• Docket Number: 7337.
• Citation: 246 F. 970
• Parties: UNITED STATES v. BOOTH-KELLY LUMBER CO. et al.
• Court: U.S. District Court — District of Oregon

246 F. 970

UNITED STATES v. BOOTH-KELLY LUMBER CO. et al.

No. 7337.

United States District Court, D. Oregon.

November 26, 1917

Clarence I. Reames, U.S. Atty., and John J. Beckman, Asst. U.S. Atty both of Portland, Or.

Smith &amp Bryson, of Eugene, Or., and Mark Norris, of Grand Rapids Mich., for defendants.

WOLVERTON District Judge.

This is a suit by the government to set aside a patent issued to one Daniel H. Brumbaugh September 9, 1904, under the provisions of the Timber and Stone Act (Act June 3, 1878, c. 151, 20 Stat. 89). On December 17th following Brumbaugh conveyed the land by quitclaim deed to the defendant the Booth-Kelly Lumber Company. The basis of the suit is alleged fraud upon the government, committed by Brumbaugh in the procurement of the patent, in that the entry was not made for Brumbaugh's personal use and benefit, but under contract and understanding with the Booth-Kelly Lumber Company to convey the land entered to said company when patent was procured from the government.

The lumber company has interposed several defenses, namely, that it had no such contract or understanding with Brumbaugh, as alleged; that the statute of limitations for instituting the suit had elapsed when it was commenced; that the government had notice and knowledge of the alleged fraud for more than six years prior to the institution of the suit; that the government is chargeable with laches in the discovery of the alleged fraud; and that a large percentage of the stockholders, holding more than a majority of the capital stock of the lumber company, have become such since the perpetration of the alleged fraud, and are innocent purchasers for value of such stock. Of these in their order:

As to the first contention, it hinges upon a question of fact. Brumbaugh testifies in effect that he had a contract or understanding with Mr. John F. Kelly, who was the timberman for the lumber company, that he should make a timber and stone entry of the land in dispute, and that Kelly should pay all the expenses for making the entry and final proof, also the cash payment of $400 required by law, and pay him $100 additional for his claim, and that Brumbaugh was to deed the land to the lumber company when patent was issued.

I have no reason for doubting Brumbaugh's testimony, although for a time he made statements out of court contradictory thereof, in an effort, as he says, to cover up the transaction and to keep the true state of affairs from the knowledge of the government. He finally made a clean breast of the whole situation to government officials, and when called into court on a former case testified to the matters substantially as here narrated. Mr. Booth, who is a stockholder in the lumber company, and who was at the time manager, has given testimony tending in a measure to contradict Brumbaugh; but the books of the lumber company, which were introduced in evidence, corroborate Brumbaugh. They show that payments were made in accord with his statement. What is most significant, however, is that Kelly, who made the arrangement with Brumbaugh for the company, did not take the stand; nor was his absence accounted for. The agreement as detailed by Brumbaugh is therefore satisfactorily established.

Whether the statute of limitations had run against the government depends upon whether notice or knowledge of the fraud is imputable to it prior to six years preceding the institution of the suit. The statute (Act March 3, 1891, 26 Stat. 1093), limits the institution of a suit to set aside a patent to six years after the date of its issuance. It is insisted that, a specific event having been designated from which the statute will begin to run, the time of the occurrence of the event is controlling, whether the suit be founded upon fraud or not, and that such is the intendment of the act. The Circuit Court of Appeals of this Circuit, however, following the case of Bailey v. Glover, 21 Wall. 342, 22 L.Ed. 636, has differently interpreted the act, and has held that it is subject to the well-established equitable rule that, where there is concealed fraud, the statute will not begin to run against the party complaining until he has acquired notice or knowledge of the fraud. Linn & Lane Timber Co. v. United States, 196 F. 593, 116 C.C.A. 267; Id., 203 F. 394, 121 C.C.A. 498. The same interpretation has been given to the statute by the Circuit Court of Appeals, Eighth Circuit, in a well-considered case. United States v. Exploration Co., 203 F. 387, 121 C.C.A. 491.

I am, of course, bound by the principle enunciated by these cases. The exact doctrine of the Bailey Case is that, where there has been no negligence or laches on the part of the one complaining in coming to the knowledge of the fraud which is the foundation of the suit, and where the fraud has been concealed or is of such a character as to conceal itself, the statute does not begin to run until the fraud is discovered by, or becomes known to, the party suing or those in privity with him. In ascertaining the rule, Mr. Justice Miller has this to say:

'We also think that in suits in equity the decided weight of authority is in favor of the proposition that where the party injured by the fraud remains in ignorance of it without any fault or want of diligence or care on his part, the bar of the statute does not begin to run until the fraud is discovered, though there be no special circumstances or efforts on the part of the party committing the

...