United States v. Southern Pac Co

• Decision Date: 17 November 1919
• Docket Number: No. 179,179
• Citation: 251 U.S. 1,64 L.Ed. 97,40 S.Ct. 47
• Parties: UNITED STATES v. SOUTHERN PAC. CO. et al
• Court: U.S. Supreme Court

251 U.S. 1

40 S.Ct. 47

64 L.Ed. 97

UNITED STATES

v SOUTHERN PAC. CO. et al.

No. 179.

Argued March 5 and 6, 1919.

Decided Nov. 17, 1919.

Messrs. J. Crawford Biggs, of Raleigh, N. C., and Assistant Attorney General Kearful, for the United States.

Messrs. Charles R. Lewers, and William F. Herrin, both of San Francisco, Cal., for appellee.

[Argument of Counsel from pages 2-6 intentionally omitted] Mr. Justice VAN DEVANTER delivered the opinion of the Court.

This is a suit by the United States to cancel a patent issued December 12, 1904, to the Southern Pacific Railroad Company for eight full and two partial sections of land within the indemnity limits of the grant made to that company by an act of Congress (Act July 27, 1866, c. 278, 14 Stat. 292), it being charged in the bill that the railroad company fraudulently obtained the patent by falsely representing to the land department that the lands were not mineral but agricultural, when it was known that they were mineral. From the evidence presented the District Court found that the charge was true and entered a decree of cancellation, and this was reversed by the Circuit Court of Appeals, one judge dissenting. Southern Pac. Co. v. United States, 249 Fed. 785, 162 C. C. A. 19.

'All mineral lands' other than those containing coal or iron were excluded from the grant, and this exclusion embraced oil lands. Burke v. Southern Pacific R. R. Co., 234 U. S. 669, 676-679, 34 Sup. Ct. 907, 58 L. Ed. 1527. As will be seen presently, there can be no doubt that the patent was procured by representing that the lands were not mineral. Whether this representation was false turns upon the character of the lands as known when the patent was sought and obtained. If they then were known to be valuable for oil, as the government asserts they were, they were mineral in the sense of the granting act.

To compensate for losses to the grant within its primary limits the railroad company was entitled to select other lands of like area within the indemnity limits, approval by the Secretary of the Interior being essential to passing the selections to patent. The established mode of making the selections was by presenting at the local land office selection lists designating the lands lost and those selected, with supporting affidavits showing, among other things, that the lands selected were of the character contemplated, that is to say, were not mineral but agricultural. These lists and affidavits would then be examined in that office and in the General Land Office, and until mately the selections would be passed to the Secretary of the Interior for his action. That course was followed here.

The original list was presented November 14, 1903, but it encountered obstacles which led to the presentation of a substituted list covering the same lands on September 6, 1904. Both lists were presented by the company's land agent, Mr. Eberlein, and were accompanied by affidavits made by him stating that the lands selected 'are not interdicted mineral,' but 'are of the character contemplated by the grant,' and that 'he has caused' them 'to be carefully examined by the agents and employes of said company as to their mineral or agricultural character, and that to the best of his knowledge and belief none of the lands returned in said list are mineral lands.' In acting on the substituted list the officers of the Land Department relied upon and gave effect to the statements in the supporting affidavits, and the selections were accordingly approved and passed to patent.

In truth Mr. Eberlein had not examined the lands or caused them to be examined by others. Nor had any examination of them been made on behalf of the railroad company, save such as is inferable from the conduct of its geologists and others presently to be noticed.

The lands were in the Elk Hills in Kern county, California; were rough, semi-arid and unfit for cultivation; were devoid of timber, springs or running water; and had but little value for grazing. Oil had been discovered in that region as early as 1899, and this had been followed by development and production on an extensive scale. In 1903 and 1904 there were many producing wells about 25 miles to the east and many within a much shorter distance to the west and south, some within 3 or 4 miles. The railroad company was then maintaining a corps of geologists—all informed by experience in the California oil fields—and under their supervision was searching for, developing and producing oil for fuel purposes. In 1902, upon the recommendation of one of its geologists, it withdrew from sale many of its patented lands surrounding and adjacent to those in suit 'because they were in or near oil territory,' and early in 1903 it entered upon a systematic examination of its lands in that territory 'to determine as far as can be done from surface indications and geological structure where oil is to be expected in this region.' In a letter to Mr. Kruttschnitt, one of the company's vice presidents, the chief geologist said when about to take up the examination:

'So far as I can judge from the trip I have just made over this territory, this work promises results of greatest value to the company.'

The lands in suit were surveyed in 1901 and the approved plat was filed in the local land office in May, 1903. The field notes denominated the lands as mineral and described them as in a mineral district 'within which many successful oil wells have been developed.' As before stated, the original selection list was presented November 14, 1903. Mr. Kruttschnitt already had written to the company's attorney at Washington requesting that 'special attention' be given to securing a patent for the lands when selected, and shortly thereafter Mr. Eberlein wrote to the attorney, saying:

'I am particularly anxious in regard to this list as the lands adjoin the oil territory, and Mr. Kruttschnitt is very solicitous in regard to it.'

Other letters and telegrams show that this special concern or anxiety persisted until the patent was issued.

In 1903 the company concluded to lease such of its lands as were considered 'valuable for oil purposes' to a subsidiary company, which was to be a sort of fuel department and to have charge of the development and production of oil. The geologists were requested to designate the lands to be thus leased and as a result of their investigation and recommendation several sections adjacent to and some immediately adjoining those in suit were included. The lease was to be signed on behalf of the railroad company by Mr. Eberlein as land agent and was laid before him for that purpose on August 2, 1904. Perceiving at once that its execution would not be in accord with his action in pressing the pending selection list he took the matter up with some of his superiors. To one he said in a letter:

'We have selected a large body of lands interspersed with the lands sought to be conveyed by this lease, and which we have represented as non-mineral in character. Should the existence of this lease become known it would go a long way toward establishing the mineral character of...