United States v. Sinclair Refining Co.

• Decision Date: 11 March 1942
• Docket Number: No. 2348.,2348.
• Citation: 126 F.2d 827
• Parties: UNITED STATES v. SINCLAIR REFINING CO.
• Court: U.S. Court of Appeals — Tenth Circuit

126 F.2d 827 (1942)

UNITED STATES v. SINCLAIR REFINING CO.

No. 2348.

Circuit Court of Appeals, Tenth Circuit.

March 11, 1942.

Frank J. Dugan, of Washington, D. C. (Norman M. Littell, Asst. Atty. Gen., Whit Y. Mauzy, U. S. Atty., of Tulsa, Okl., John F. Cotter and Charles R. Denny, Jr., both of Washington, D. C., Macdonald & Files, of Pawhuska, Okl., and Moss & Young, of Tulsa, Okl., on the brief), for appellant.

Bradford J. Williams and Paul B. Mason, both of Tulsa, Okl. (Edward H. Chandler, Summers Hardy, and Roscoe E. Harper, all of Tulsa, Okl., on the brief), for appellee.

R. H. Wills, of Tulsa, Okl. (Donald Campbell, Clay Tallman, L. G. Owen, Guy H. Woodward, and Ray S. Fellows, all of Tulsa, Okl., on the brief), amici curiae.

Before PHILLIPS, BRATTON, and HUXMAN, Circuit Judges.

BRATTON, Circuit Judge.

The United States, in its own behalf and on behalf of the Osage Tribe of Indians, instituted this action against Sinclair Refining Company, a common carrier of oil by pipe line, to recover damages. After answering to the merits, the defendant filed a motion for summary judgment. The amended complaint in cause numbered 2569, entitled United States v. Sinclair Prairie Oil Company, lately pending in the trial court, motion to dismiss such cause, order dismissing it, and the opinion, judgment and the mandate of this court in a companion case were adopted by reference. United States v. Stanolind Crude Oil Purchasing Co., 113 F.2d 194. The basis of the motion was that the issues, matters and things involved in this action were finally and conclusively determined adversely to the United States in that cause. A motion for judgment on the pleadings was joined with the motion for summary judgment. The basis of that motion was that the amended complaint failed to state a claim upon which relief could be granted. The court entered judgment sustaining both motions and dismissing the cause. The judgment recited that it was predicated upon a consideration of the amended complaint, the motion for summary judgment, the exhibits made a part of it by reference, the briefs of the United States filed in the other case, the pleadings of the United States in all cases theretofore filed against various companies which had purchased oil produced on lands of the Osage Tribe, oral arguments, and the response of counsel to the interrogation of the court. The United States appealed.

The parties renew grips here on the question whether the amended complaint stated a cause of action on which relief could be granted. It was alleged in the complaint that pursuant to various enumerated treaties and acts of Congress the tribal lands of the Osage Indians situated in Osage County, Oklahoma, were leased on a royalty basis to divers persons, firms and corporations for the production and marketing of oil, a copy of the form of the leases being attached to the pleading; that all purchases of oil belonging to the tribe were made under and in accordance with division orders, a copy of the form of such orders likewise being attached; that under the provisions of such orders the defendant (and its predecessors in interest whose liability had been assumed by the defendant — hence for convenience reference will be made herein only to the defendant) had at all times mentioned been designated and selected by the various lessees and the various purchasers of oil produced from lands of the tribe as trustee and common carrier to receive such oil, and to correctly measure and report the quantity or volume thereof; that the division orders provided that the measurements of the defendant should in all instances govern and control settlements and payments to be made to the tribe for its royalty oil; that by reason of such provisions, and by reason of a certain regulation promulgated by the Secretary of the Interior, a copy of which was attached, the defendant became and was the agent, representative and trustee of the various purchasers of oil and of the plaintiff in respect to measuring, gauging, and reporting the quantity of oil delivered to it for transportation; that the defendant occupied toward plaintiff a relationship of trust and confidence and was therefore obligated to exercise the utmost good faith in performing the terms of the division orders and regulations; that, acting as the agent of the purchasers, the defendant did over a period of approximately twenty-one years purposely and fraudulently measure the oil purchased by such purchasers and delivered to the defendant for transportation in such manner as to receive an amount largely in excess of the quantity reported, the amount of such excess being unknown to plaintiff; that defendant retained and appropriated such excess oil to its own use; and that the amount of such excess oil could not be ascertained or determined without an examination and audit of the books and records of the defendant. The prayer was for an order authorizing such audit, and on final hearing, for judgment for the value of the property interest and royalty interest of the tribe in the excess oil above that reported.

It was provided by regulation of the Secretary of the Interior that the superintendent of the Five Civilized Tribes should be authorized to make arrangements with the purchasers of oil for the payment of the royalty oil but that such arrangements should not relieve the lessee from responsibility for payment in the event the purchaser should fail, neglect, or refuse to pay for it; that no oil should be run to any purchaser or delivered to the pipe line or other carrier for shipment, or otherwise conveyed or removed from the leased premises, until a division order had been executed, filed, and approved by the superintendent; that the lessee or his representative should be present when oil was taken from the leased premises under any division order, should be responsible for the correct measurement, and should report all oil run; and that the lessee should authorize the pipe line company or the purchaser to furnish the superintendent with monthly statements showing the gross barrels run as common-carrier shipment or purchased from his lease or leases. The division orders, executed by the lessee and the purchaser and approved by the superintendent, provided that the oil should be delivered by the seller f. o. b. the pipe line; that payment should be made to the persons named therein, or their assigns, in proportion to their respective interests, as shown therein; that settlement should be made monthly; and that pipe line grades and measurements should govern and control in all settlements. The procedure in the field was that tank tables showing the measurements and volumes of the respective receiving tanks were filed with the superintendent of the agency; oil was run from the wells into the tanks; a guager for the defendant or other pipe line carrier, in company with a representative of the lessee, measured the depth of the oil in each tank before any oil was run into the pipe line; the measurement was placed on a so-called run ticket made out in quadruplicate by the gauger and witnessed by the representative of the lessee; the oil was then run from the tank into the pipe line, and after the run had been completed the tank was again measured by the gauger of the defendant or other pipe line carrier in company with the representative of the lessee, and that measurement was likewise placed on the run ticket; and the lessee then furnished the superintendent of the agency copies of all tank tables and run tickets. That general custom or procedure in the industry was of long standing and substantially uniform. Judicial knowledge may therefore be taken of it. United States v. Stanolind Crude Oil Purchasing Co., 10 Cir., 113 F. 2d 194. And it was pursuant to the regulation, the division orders, and the trade custom that the defendant made measurements of the oil produced on lands belonging to the tribe and furnished run tickets.

Manifestly, it was attempted in the amended complaint to state a cause of action in deceit, and the gist of such a cause is fraud. The essential elements of the claim attempted to be pleaded were that the defendant made false representations relating to a material matter, that it knew such representations were false, that they were intended or reasonably calculated to influence the superintendent of the agency or some other person acting on behalf of the tribe, that the superintendent or such other person relied and acted upon such representations, or was induced not to act, and that such representations caused injury to the tribe. Ming et al. v. Woolfolk, 116 U.S. 599, 6 S.Ct. 489, 29 L.Ed. 740; Kimber v. Young, 8 Cir., 137 F. 744; Stafford v. McDougal, 171 Okl. 106, 42 P.2d 520. But no particular form or manner of making the false representation was essential, and recovery for damages proximately and reasonably arising from deceit is not always limited to the immediate parties to a contract. Highland Motor Transfer Co. v. Heyburn Bldg. Co., 237 Ky. 337, 35 S.W.2d 521.

Neither the United States nor the Osage Tribe was a formal party to the division orders, but it was provided by regulation that copies of them should be filed with the superintendent and be approved by him; and the facts expressly pleaded together with the prevailing custom and usage in the industry make it clear that the defendant knew or reasonably anticipated that copies of the run tickets were being and would be filed with the superintendent, and that settlements for the royalty oil were being and would be made in reliance upon them. When the defendant assumed to act and did act in the circumstances and under the conditions outlined, it was obligated to exercise good faith toward the tribe and those representing it in respect to correctly measuring and reporting the quantity of oil passed from the storage tanks into its pipe lines, even though no express contractual relationship existed between them. The law...