United States v. Southern Pac. R. Co.

• Decision Date: 03 March 1926
• Docket Number: No. 97.,97.
• Citation: 11 F.2d 546
• Parties: UNITED STATES v. SOUTHERN PAC. R. CO. et al.
• Court: U.S. District Court — Southern District of California

11 F.2d 546 (1926)

UNITED STATES v. SOUTHERN PAC. R. CO. et al.

No. 97.

District Court, S. D. California, S. D.

March 3, 1926.

Joseph C. Burke, U. S. Dist. Atty., of Los Angeles, Cal., and George A. H. Fraser, Sp. Asst. Atty. Gen.

Frank Thunen, of San Francisco, Cal., for defendants Southern Pac. R. Co., Southern Pacific Land Co., Central Trust Co. of New York, Equitable Trust Co. of New York, Homer S. King, and James K. Wilson.

Joline, Larkin & Rathbone, of New York City, for Central Union Trust Co. of New York (sued herein as Central Trust Co. of New York).

Murray, Prentice & Howland, of New York City, for Equitable Trust Co. of New York.

Arvin B. Shaw, Jr., and I. W. Stewart, both of Los Angeles, Cal., for defendant Sugar Lime Rock Co.

JAMES, District Judge.

This is an action in equity to cancel a patent to land described as section 13 in township 11 north, range 6 east S. B. B. & M. Damages are also prayed for. Patent was issued to Southern Pacific Railroad Company pursuant to the provisions of the act of grant of July 27, 1866 (14 Stat. 292). The Southern Pacific Land Company holds legal title to the land covered by the patent. The land company is of the same ownership as the Southern Pacific Railroad Company, acts as a subsidiary of the former, and occupies no position in this action which would entitle it to assert any of the rights of an innocent transferee. All of the other defendants named, except the Sugar Lime Rock Company, are trustees holding security property of the two defendants first named. The Sugar Lime Rock Company, under lease contract made on June 5, 1914, took lime rock from a quarry in the northwest quarter of the section. This company is made a defendant because the government seeks to recover damages on account of the removal of that rock from the land.

By the terms of the act referred to there was granted to the railroad company sections of odd numbers, to the amount of "ten alternate sections of land per mile on each side of said railroad." "Mineral" lands were excluded. It was provided that in place of mineral lands there might be patented unappropriated agricultural lands. It was declared by the act that the word "mineral," when therein used, should not be held to include coal or iron.

The section of land described in the bill of complaint was included in a list of selection which embraced a large number of other sections, which list was filed in the local land office on the 19th day of August, 1905. Under the regulations of the land office, in effect in the year 1905, the railroad company, claiming grant lands, filed with local land officers its selection list, accompanied by affidavits as to the nonmineral character of the land. The local officers then transmitted the list to the General Land Office, with their report showing any conflict or protests, and the list was there noted on the books and sent to the Land Grant Division. In the latter division it was again checked and entered upon a clear list. This list was transmitted to the Mineral Division for report as to the mineral or nonmineral character of the land. In making this report the Mineral Division confined its examination to its own records, field notes of survey, and tract books for mineral claims affecting the selected lands within a radius of six miles thereof. If a mineral claim was found to exist upon the selected land, a hearing was ordered before the local officers to determine the mineral or nonmineral character of the land, and the findings of the local officers were subject to review by the Commissioner of the General Land Office. If no mining claim was found registered against the selected tract, but a claim existed or mineral indications were reported within six miles of the selected land, the railroad's list was by the local land officers published for 60 days in a newspaper and also posted on the local office bulletin board. The published notice invited persons to protest or contest the selection made by the railroad company.

At the end of the publication period, no protests being made, proof was made by affidavit that the local land officers had fully performed the requirement as to posting and publication, and the list, together with this proof, was returned to the General Land Office, and, if found regular, was entered as clear for railroad patent. The course of procedure as outlined was followed respecting the list of selected lands which contained the section 13 involved in this action. There were no protests made and no notice of any contest as against the selection of the railroad company. Patent issued in due course to the railroad company on November 20, 1905. This action was commenced on August 3, 1918. almost 13 years after patent.

The Act of Congress of March 3, 1891 (26 Stat. 1099 Comp. St. § 5114), provides that "suits by the United States to vacate and annul any patent heretofore issued shall only be brought within five years from the passage of this act, and suits to vacate and annul patents hereafter issued shall only be brought within six years after the date of the issuance of such patents." At the threshold of the inquiry in this case, the government is met with the objection, pleaded and urged at the trial on the part of the defendants, that the action is barred by the terms of the statute. The ground of the cause of action alleged, being affirmative fraud of the defendant Southern Pacific Railroad Company, furnishes a basis for the government's reply to this defense, which is that its action was in fact brought within 6 years after it discovered the alleged fraud under which the patent was obtained.

It is now well settled that in actions to annul patents to lands issued by the government, as to which the statute of limitations quoted applies, the equitable rule that a cause of action does not accrue until the discovery of the fraud, where there are acts of concealment, is given full force, and in such a case the limiting period will commence to run at the date of discovery rather than the date of patent. Exploration Co. et al. v. U. S., 38 S. Ct. 571, 247 U. S. 435, 62 L. Ed. 1200; U. S. v. Diamond Coal & Coke Co., 41 S. Ct. 335, 255 U. S. 323, 65 L. Ed. 660; U. S. v. Bellingham Bay Imp. Co. et al., 281 F. 522 (C. C. A. 9th). The government asserts that it had no notice of the alleged falsity of statements regarding the mineral character of the land contained in affidavits filed by the railroad company until about August 21, 1912, so that, if fraud has been established and that fraud is shown to have continued, without laches on the part of the government in discovering the same until the date last mentioned, the suit is in time. The defendants have further met the merits of the action by evidence intended to negative the alleged fraud.

Two affidavits were filed by Charles W. Eberlein, land agent of the Southern Pacific Railroad Company, with the selection list, when application for patent was made. One of these affidavits recited that "said lands are vacant, unappropriated, and are not interdicted mineral or reserved lands, and are of the character contemplated by the grant." The other of the affidavits declared that the affiant "has caused the lands selected in said company's list No. 134 to be carefully examined by the agents and employees 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." The chief mineral claimed to exist is limestone; that was the only mineral asserted by the complaint, as originally filed, to be contained in the land; but on the day of the trial, which occurred several years after the commencement of the action, government's counsel asked and obtained leave to include allegations in his complaint stating the presence also of fluorspar.

Limestone in some quality of purity and refinement has various uses, such as in the fluxing of ore, to remove impurities from the metal, the manufacture of glass, and in the processing of sugar to refine it. It also enters into the composition of cement. Fluorspar finds its principal use in the treatment of ores. The Land Department has classified limestone as mineral, unless it be of so low a grade as to be but slightly removed from the character of clay. It seems, also, that where the stone is suitable only for use in cement manufacture the lands are not subject to mineral location.

The government relied upon the affidavits as prima facie stating the facts regarding the character of the land, and at that time had no practice, and apparently its officers had no authority, to explore the ground for the purpose of verifying the statements made by the selecting railroad. It did check its records, both local and in the General Land Office and Mining Department, and did invite protests to be made against the nonmineral claim of the railroad, before allowing the patent to issue; but by so doing it did not, by any act of its officers or in any way, attempt to conduct any independent investigation as to the physical conditions on the ground. The presence of limestone in section 13 was called to the attention of the Attorney General in a letter written by D. F. Baxter under date of August 21, 1912.

It must be said, I think, that, until such notice was received by the government, it relied, and had the right to rely, upon the statements made...