United States v. Thompson-Powell Drilling Company

• Decision Date: 02 January 1961
• Docket Number: Cr. A. No. 1064.
• Parties: UNITED STATES of America v. THOMPSON-POWELL DRILLING COMPANY et al.
• Court: U.S. District Court — Northern District of Texas

196 F. Supp. 571

UNITED STATES of America v. THOMPSON-POWELL DRILLING COMPANY et al.

Cr. A. No. 1064.

United States District Court N. D. Texas, Lubbock Division.

January 2, 1961.

W. B. West III, U. S. Atty., Clayton Bray, Asst. U. S. Atty., Fort Worth, Tex., for plaintiff.

Baker, Botts, Andrews & Shepherd, Houston, Tex., Scott, Hulse, Marshall & Feuille, El Paso, Tex., Crenshaw, Dupree & Milam, Lubbock, Tex., for defendants Standard Oil Co. of Texas and Pasotex Pipe Line Co.

DOOLEY, District Judge.

Preliminary Statement

This is a prosecution under the Connally Hot Oil Act. 15 U.S.C.A. § 715 et seq. The defendants include several corporations and a number of individuals, with variations in the number and identity of the particular defendants named from count to count, there being 18 counts, in the indictment. The two defendants being dealt with in this present determination are the Standard Oil Company of Texas (Standard) and Pasotex Pipe Line Company (Pasotex), both corporations of Delaware. Most of the individual defendants were employees of one or the other of said two corporations. The locale is the Kelly-Snyder Field in Scurry County, Texas, a major oil reservoir, where the discovery well was drilled in 1948 by the Standard, which was the owner of the largest single block of leases located in said field.

The Standard derives most of its oil production from operations in Texas and owns a large refinery at El Paso, Texas, used to serve a marketing area in Texas, New Mexico and Arizona, and it is a subsidiary of the Standard Oil Company of California. Pasotex is a wholly owned subsidiary of Standard, and since 1950 it has owned and operated a pipe line gathering system serving a large number of leases in the said field, and its facilities include two pumping stations designated as No. 1 and No. 2, as well as a transportation pipe line from said field to El Paso. During the period involved in this case, the Pasotex system was handling approximately 800,000 barrels of oil a month, mostly from lease tanks in the field and all of such oil was transported for the account of Standard to El Paso, where it was used in the refinery for the recovery of gasoline and other products. The Standard marketed about one-half of such products in Texas and the other one-half in New Mexico and Arizona. That part of the gasoline output of the refinery marketed in New Mexico and Arizona was transported from El Paso into New Mexico and some on into Arizona by another pipe line, a facility of the Standard Products Pipe Line, a division of the Salt Lake Pipe Line Company, which was a wholly owned subsidiary of the Standard Oil Company of California.

In the meantime, the Kelly-Snyder Field was unitized on March 1, 1953, as Sacroc Unit, under which the previously owned holdings of the Standard, represented lease by lease, became a blanket interest of about 18.5% throughout the whole Unit, and it became, and continued to be, the operator of the North part of such Unit, known as Segment 1.

The defendant, Claude J. Thompson, now deceased, or one or more of the defendant corporations identified with him by name, owned or operated leases containing all together seven producing wells, which were drilled after the formation of the Sacroc Unit, and were located along or near the boundary thereof, but outside the said Unit. Three of said wells, the best known as York B, had been completed before July 1, 1955, and not only the York B but also the other two were capable of producing their allowable output of oil for a time after completion, but by July 1955, only the York B retained such productive capacity and the other two had become deficient wells. The other four of the seven wells mentioned, the best being known as the VFW well, were completed one a month successively in August, September, October and November 1955, and for a time after completion not only the VFW well but also the other three were capable of making their allowables, but the other three wells lost such capacity within a relatively short time, becoming deficient wells by January 1956, and only the VFW well retained the capacity to produce its allowable. In fact, the York B and the VFW wells were capable of producing much more than their respective allowables at the times pertinent in this action. The said seven wells were all connected to the Pasotex gathering system shortly after same, respectively, were completed, and the production from such wells went first to the Pasotex Station No. 2 and then, in turn, was forwarded therefrom to Station No. 1, which in due course pumped such oil, as well as other oil collected at the last named station, into the Pasotex pipe line for transportation.

The Standard, as operator in Segment 1 of the Sacroc Unit, was in charge of production of oil from all the wells in such segment, and accordingly was in charge of the wells on certain tracts in the segment formed from what had been known as the Mrs. Jesse Brown leases, and such constituent tracts numbered fourteen. The Pasotex gathering line connected with the wells on such Brown tracts, unlike the line to the Thompson wells, moved the oil directly to Pasotex No. 1, rather than intermediately through Pasotex Station No. 2.

The present prosecution has to do with alleged acts or omissions pertaining, in some instances exclusively, to the Thompson wells and in one instance pertaining exclusively to the Brown wells, but a bridge is posed in several other instances, due to the Government's theory that oil from the Brown leases was used to cover a shortage at the Pasotex Station No. 1 traceable to credits made at Pasotex Station No. 2 for fictitious production from five of the Thompson wells. This circumstance is reflected in the contemporaneous aspect of Counts 4, 5, 6 and 7 in one group and Counts 9, 10, 11 and 12 in another group.

The first fifteen counts in the indictment charge interstate transportation of contraband oil. In some of such counts the said italicized word is used to mean oil production over the lawful allowable of the given well, and in other instances the word is used to mean not necessarily oil produced over the lawful allowable, but equally well to mean oil otherwise unlawfully produced from a given well, and such inclusiveness is relevant in connection with production from the Brown leases, where the Government's contention is that if such oil, whether or not over the allowable of the Brown leases, was wrongfully credited, not to the real producing wells, but instead to the depleted Thompson wells, then it was contraband oil.

Counts 1, 2, 3, 5, 6 and 7

The proof is quite clear, in fact the defendant does not deny, that contraband oil was produced and run, at least in the approximate amounts and from the named wells, during the months of July, August and September 1955, respectively, as alleged in Counts 1, 2 and 3. The same thing is true under Counts 5, 6 and 7 for the months of December 1955, January and February 1956. All of such oil, in the approximate amounts alleged, was purchased by Standard and transported by Pasotex in its pipe line from the field to El Paso, where same was delivered to Standard and the path of such movement was wholly within the State of Texas. One Hart, a pipe line gauger for Pasotex, was aware of the contraband production alleged in Counts 1, 2 and 3, in fact he took part in the devious means used, acting in collusion with one Ware, an employee of the operator of the wells identified in said Counts. His activity was to credit oil produced by one well to another well and this served to avoid showing overproduction of the one well and, at the same time, the credited weak well did not reflect any infraction of its allowable limit. The duties of Hart were to gauge tanks and receive oil for transportation by Pasotex. The Pasotex collected its regular rate and tariff on this contraband oil, the same as any other oil run in its pipe line at or about the same time in question from the field to El Paso.

The same thing in substance, with much difference in detail, was true in respect to the subject oil mentioned in Counts 5, 6 and 7 of the indictment. In this instance, however, the gauger employee of Pasotex was one Morgan. There is no serious denial, however, of the fact that contraband oil, at least in the approximate amounts stated in said last named three Counts, was produced, purchased by Standard, received into the Pasotex pipe line and transported to El Paso, and again Pasotex collected its tariff freight charges on the shipments.

The defendant Pasotex relies on two points in defense against the aforesaid six counts of the indictment, to wit:

1. That its gaugers, respectively, acted in collusion with an outside party, did things contrary to company policy and breached the scope of their employment, thereby forestalling any imputation of their conduct and knowledge to the company.

2. That the defendant, Pasotex, did not transport any of such contraband oil in interstate commerce.

The first point is deemed unsound. The gaugers were employed to gauge oil in lease tanks preliminary to running the oil from such tanks to the facilities of Pasotex, for the purpose of transportation by its pipe line. What they did in this instance included the performance of such duties, though in a wrongful and illicit manner, but that did not detract from the resulting fact that their services contributed to the business of the employer and enabled it to realize revenue on the transportation of the large quantity of oil in question. The test, in deciding whether the conduct and knowledge of these employees should be imputed to the employer, does not turn on action consistent with or contrary to company policy, but instead the touchstone is the function of the employee. What these employees actually did, so far as impact on company business goes, was true to their function of measuring oil to be received and then running that oil into the facilities...