United States v. Pan-American Petroleum Co.

• Citation: 55 F.2d 753
• Decision Date: 14 March 1932
• Docket Number: No. 6591.,6591.
• Parties: UNITED STATES v. PAN-AMERICAN PETROLEUM CO.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

55 F.2d 753 (1932)

UNITED STATES v. PAN-AMERICAN PETROLEUM CO.

No. 6591.

Circuit Court of Appeals, Ninth Circuit.

February 5, 1932.

Rehearing Denied March 14, 1932.

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Atlee Pomerene, Thomas M. Kirby, and Frank Harrison, Sp. Assts. to the Atty. Gen., Samuel W. McNabb, U. S. Atty., and Ignatius F. Parker, Asst. U. S. Atty., both of Los Angeles, Cal.

T. T. C. Gregory, of San Francisco, Cal., and Norman S. Sterry and Gibson, Dunn & Crutcher, all of Los Angeles, Cal., for appellee.

Before SAWTELLE, Circuit Judge, and NETERER and ST. SURE, District Judges.

SAWTELLE, Circuit Judge.

This case comes to us from the United States District Court for the Southern District of California, Central Division. It involves the validity of three certain oil leases in sections 1 and 2, township 31 south, range 24 east, Kern county, Cal., south of three offset strip leases across the northerly portion of the two sections. The first of the leases, the Visalia 010042 lease, hereinafter known as the E lease, covers 421 acres in section 1, and was issued to the defendant on December 14, 1921; the second, the Visalia 010043 lease, hereinafter known as the I lease, covers 63.2 acres in section 1, and was issued on December 14, 1921, to W. R. Ramsey, who subsequently assigned it to the defendant; the third, the Visalia 010097 lease, hereinafter referred to as the G lease, covers 176.78 acres in section 2, and was issued to defendant on February 8, 1922. This third lease has also been referred to as the lease given in compromise of the placer mining claim of White and Coffin for fuller's earth.

The prior case of United States v. Pan-American Petroleum & Transport Co., hereinafter referred to as the first Pan-American Case, has been reported in the opinions of the District Court, 6 F.(2d) 43-89, of the Circuit Court of Appeals for the Ninth Circuit, 9 F.(2d) 761-773, and of the Supreme Court, 273 U. S. 456-510, 47 S. Ct. 416, 422, 71 L. Ed. 734. The records in the first case give an exhaustive statement of the history and facts of that case, all of which records, by stipulation of counsel, are made as much a part of this case as if they were fully herein set forth. The stipulation provided that the records in the first case be admitted here for the purposes of proving: (1) what was litigated in that case; (2) the truth of the averments of the amended bill of complaint in the instant case and, indeed, "for all purposes." For that reason, we will, therefore, endeavor to confine our statement to the facts proved in the instant case, referring to the evidence adduced in the first case only when necessary to a proper understanding of the issues here involved. The cases of United States v. Belridge Oil Co. (C. C. A.) 13 F. (2d) 562, and Mammoth Oil Co. v. United States, 275 U. S. 13, 48 S. Ct. 1, 72 L. Ed. 137, also furnish collateral facts which will be referred to.

This suit was commenced on September 2, 1924, by the Attorney General at the request of Curtis D. Wilbur, now a member of this court, then Secretary of the Navy, and Hubert Work, then Secretary of the Interior. It was pending about two months before the trial of the first Pan-American Case. On July 12, 1926, the court below, by consent of counsel, ordered this case continued for the term pending disposition of the former suit which was then on appeal. Trial of the instant suit commenced December 2, 1929, and was decided by the court below on November 10, 1930. The bill is based upon allegations of (1) fraud tainting all the leases; (2) fraudulent conspiracy to secure the leases; (3) illegality in the terms of the leases, and illegality and lack of authority in the purposes and the making of them.

The particular land here involved is located in what is known as Naval Petroleum Reserve No. 1, which comprises some 37,000 acres of land in all. Between 4,400 and 5,900 acres within the reserve are held in fee, mostly by the Standard Oil Company of California, hereinafter referred to as Standard Oil, leaving about 32,000 acres owned by the government. These lands were a part of the unappropriated public domain of the United States, and as such they were, under the Act of February 11, 1897 (30 USCA § 101), subject to entry for oil under laws relating to placer mineral claims. They were also, under the Act of July 9, 1870 (30 USCA § 35), subject to entry for fuller's earth under the provisions of laws relating to placer mineral claims. On September 27, 1909, the Secretary of the Interior issued an order withdrawing from entry a large number of acres of supposedly oil lands "in aid of proposed legislation affecting the use and disposition of the petroleum deposits on the public domain. * * * All locations or claims existing and valid on this date may proceed to entry in the usual manner after field investigation and examination."

The lands here involved were covered by that withdrawal order.

On June 25, 1910, Congress passed an act expressly giving the President power to withdraw from entry lands for "public purposes to be specified in the orders of withdrawals, and such withdrawals or reservations shall remain in force until revoked by him or by an Act of Congress." 43 USCA § 141.

This act further protected the rights of any locator who, at the date of any order of withdrawal, was a bona fide occupant or claimant of oil lands, and who, at such date, was in diligent prosecution of work leading to the discovery of oil, so long as such locator continued in diligent prosecution of work. 43 USCA § 142. Following the above act, the President, on July 2, 1910, confirmed a number of withdrawal orders made theretofore covering a large number of acres, including the lands here considered. On September 2, 1912, President Taft created Naval Petroleum Reserve No. 1 "for the exclusive use or benefit of the United States Navy until this order is revoked by the President or by Act of Congress." By similar orders in 1912 and 1915 Naval Petroleum Reserves Nos. 2 and 3 were created.

By the General Leasing Act of February 25, 1920 (30 USCA § 181 et seq.), Congress attempted to fix a general policy for the handling of placer mining claims, excluding lands withdrawn or reserved for naval purposes except as therein otherwise expressly provided. Section 17 thereof (30 USCA § 226) provides for leasing, pursuant to competitive bidding, unappropriated deposits of oil in the known geological structure of a producing field, with a royalty fixed in the lease not less than 12œ per cent., and also that: "Whenever the average daily production of any oil well shall not exceed ten (10) barrels per day, the Secretary of the Interior is authorized to reduce the royalty on future production when in his judgment the wells cannot be successfully operated upon the royalty fixed in the lease. The provisions of this section shall apply to all oil and gas leases made under this subchapter."

Section 18 of the same act provides:

"Upon relinquishment to the United States, filed in the General Land Office within six months after February 25, 1920, of all right, title, and interest claimed and possessed prior to July 3, 1910, and continuously since by the claimant or his predecessor in interest under the preexisting placer mining law to any oil or gas bearing land upon which there has been drilled one or more oil or gas wells to discovery embraced in the Executive order of withdrawal issued September 27, 1909, and not within any naval petroleum reserve, and upon payment as royalty to the United States of an amount equal to the value at the time of production of one-eighth of all the oil or gas already produced except oil or gas used for production purposes on the claim, or unavoidably lost, from such land, the claimant, or his successor, if in possession of such land, undisputed by any other claimant prior to July 1, 1919, shall be entitled to a lease thereon from the United States for a period of twenty years, at a royalty of not less than 12œ per centum of all the oil or gas produced except oil or gas used for production purposes on the claim, or unavoidably lost: * * *

"Provided, however, That as to all like claims situate within any naval petroleum reserve the producing wells thereon only shall be leased, together with an area of land sufficient for the operation thereof, upon the terms and payment of royalties for past and future production as herein provided for in the leasing of claims. No wells shall be drilled in the land subject to this provision within six hundred and sixty feet of any such leased well without the consent of the lessee: Provided, however, That the President may, in his discretion, lease the remainder or any part of any such claim upon which such wells have been drilled, and in the event of such leasing said claimant or his successor shall have a preference right to such lease: And provided further, That he may permit the drilling of additional wells by the claimant or his successor within the limited area of six hundred and sixty feet theretofore provided for upon such terms and conditions as he may prescribe. * * *" 30 USCA § 227.

A section of temporary character, 18a (34 USCA § 524a note) dealt with the manner of settlement of claims: "That whenever the validity of any gas or petroleum placer claim under pre-existing law to land embraced in the executive order of withdrawal issued September 27, 1909, has been or may hereafter be drawn in question on behalf of the United States in any departmental or judicial proceedings, the President is hereby authorized at any time within twelve months after the approval of this Act to direct the compromise and settlement of any such controversy upon such terms and conditions as may be agreed upon, to be carried out by an exchange or division of land or division of the proceeds of operation."

The terms of the act are elaborated by Regulations of the Department of the Interior in Circular No. 672 that...