Wallis v. Pan American Petroleum Corporation

Decision Date25 April 1966
Docket NumberNo. 341,341
Citation86 S.Ct. 1301,16 L.Ed.2d 369,384 U.S. 63
CourtU.S. Supreme Court

C. Ellis Henican, New Orleans, La., for petitioner.

E. L. Brunini, Jackson, Miss., and Lloyd J. Cobb, New Orleans, La., for respondents.

Mr. Justice HARLAN delivered the opinion of the Court.

This case presents a question concerning 'federal common law' best explained after a summary of the facts and the legal proceedings involved.

At stake in the litigation are rights in several tracts, aggregating 827 acres, of oil-rich 'mud lumps' or islands owned by the United States and located in a mouth of the Mississippi River near Burrwood, Louisiana.1 In 1954 petitioner, Floyd Wallis, filed with the Secretary of the Interior applications for a lease to exploit oil and gas deposits in the tracts. Because the tracts were deemed by Wallis to be 'acquired lands' of the United States rather than 'public domain lands,' these applications were filed under the Mineral Leasing Act for Acquired Lands, which governs the former, instead of the Mineral Leasing Act of 1920, which controls the latter.2 Subsequently, Wallis entered into a written joint venture agreement with respondent .patrick McKenna giving McKenna a one-third interest in the pending applications and any lease issued under those applications. Then Wallis, who had exclusive management of the property under his agreement with McKenna, sold respondent Pan American Petroleum Corporation an option to acquire any lease Wallis might obtain under the applications then on file with the Secretary.

In 1956, fearing that the tracts might prove to be public domain land, Wallis filed new applications for the same tracts under the Mineral Leasing Act of 1920.3 Thereafter the tracts were ruled to be public domain land, the conflicting applications of one or more competitors were rejected, and in 1958 the Secretary issued a lease of the tracts to Wallis under the 1920 Act. See Morgan v. Udall, 113 U.S.App.D.C. 192, 306 F.2d 799. After the lease was issued to Wallis, McKenna brought a diversity action against him in Federal District Court in Louisiana seeking to be declared a one-third owner of the lease by virtue of the original joint venture agreement. Pan American also brought a diversity action in the same court to oblige Wallis to perform the option agreement by transferring the lease to Pan American.

The actions were consolidated, and following a nonjury trial the District Court held that neither McKenna nor Pan American was entitled to any interest in the disputed lease. 200 F.Supp. 468. The trial judge ruled that Louisiana law governed the rights of the parties and required a written agreement to create or transfer any interest in a mineral lease, thus excluding oral agreements as a basis for relief in this case. The judge then decided that the written agreements available to McKenna and Pan American contemplated they would share only in leases obtained by Wallis under the Mineral Leasing Act for Acquired Lands and not in any leases granted him under any other law. The court's judgment in favor of Wallis on the question of lease ownership reserved to McKenna and Pan American whatever rights they might have to damages, restitution, or like remedies based on oral agreements or other conduct.

Over a dissent, the Court of Appeals for the Fifth Circuit reversed, filing an initial opinion, 344 F.2d 432, and after petitions for rehearing, a further opinion adhering to its earlier result, 344 F.2d 439. The court decided only that the trial judge had erred in applying Louisiana law to the controversy and it remanded for a new trial in which 'applicable principles of federal law' would control the issues. 344 F.2d, at 437, 442. In its latter opinion the Court of Appeals reasoned that the Mineral Leasing Act of 1920 imposed pervasive federal regulation and that the Act's policies and the federal interest would be impaired if Louisiana law were to thwart the transfer of these federally granted leases. The opinion acknowl- edged an apparent conflict with the Tenth Circuit's decision in Blackner v. McDermott, 176 F.2d 498.4 We granted certiorari and invited the views of the United States, 382 U.S. 810, 86 S.Ct. 80, 15 L.Ed.2d 59, which filed a brief amicus curiae. We now reverse the Court of Appeals.

The question before us is whether in general federal or state law should govern the dealings of private parties in an oil and gas lease validly issued under the Mineral Leasing Act of 1920.5 Several related matters in the case should be distinguished and laid aside at the outset.

First, we are not concerned with whether under Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, the Federal District Court might have diverged from state practice on the relevant issues of statute of frauds, parol evidence, estoppel, trust remedies, and so forth, on the ground that they were no more than 'procedural' rules or fell under some similar rubric. See generally Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8. Respondents do not argue that these rules are merely 'housekeeping' matters on which state and federal courts may ordinarily differ but rather that the federal interest in government-granted mineral leases requires supplanting Louisiana law, in which event the federal rule would normally govern any such case whether in state or federal court. See Dice v. Akron, C. & Y.R. Co., 342 U.S. 359, 72 S.Ct. 312, 96 L.Ed. 398. Second, apart from a pre-empting federal interest, we do not consider suggestions that some law other than Louisiana's should govern because the land at issue may be outside the legal boundaries of the State and transactions between the parties may have occurred elsewhere. The District Court sitting in Louisiana obviously assumed that the State as a choice of law matter would apply its own law to the questions. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477. If any challenge was offered on this point below, it has not yet been passed on by the Court of Appeals. Third, whether on the merits the trial court correctly interpreted and implemented Louisiana law is not before us; presumably that issue was presented to the Court of Appeals but not resolved because of its decision that federal law should apply.

We focus now on the central question in the case. In deciding whether rules of federal common law should be fashioned, normally the guiding principle is that a significant conflict between some federal policy or interest and the use of state law in the premises must first be specifically shown. It is by no means enough that, as we may assume, Congress could under the Constitution readily enact a complete code of law governing transactions in federal mineral leases among private parties. Whether latent federal power should be exercised to displace state law is primarily a decision for Congress. Even where there is related federal legislation in an area, as is true in this instance, it must be remembered that 'Congress acts * * * against the background of the total corpus juris of the states * * *.' Hart & Wechsler, the Federal Courts and the Federal System 435 (1953). Because we find no significant threat to any identifiable federal policy or interest, we do not press on to consider other questions relevant to invoking federal common law, such as the strength of the state interest in having its own rules govern, cf. United States v. Yazell, 382 U.S. 341, 351—353, 86 S.Ct. 500, 506 507, 15 L.Ed.2d 404, the feasibility of creating a judicial substitute, cf. U.A.W. v. Hoosier Cardinal Corp., 383 U.S. 696, 701, 86 S.Ct. 1107, 1111, and other similar factors.

If there is a federal statute dealing with the general subject, it is a prime repository of federal policy and a starting point for federal common law. See Deitrick v. Greaney, 309 U.S. 190, 60 S.Ct. 480, 84 L.Ed. 694; Reitmeister v. Reitmeister, 2 Cir., 162 F.2d 691. We find nothing in the Mineral Leasing Act of 1920 expressing policies inconsistent with state law in the area that concerns us here. In providing for development of public domain lands containing minerals, the Act comprehensively regulates various aspects of the process. For example, it governs issuance of leases among competing applicants, e.g., § 17(b), (c), 30 U.S.C. § 226(b), (c); it controls in some measure the actual use of the leased tract, to promote goals such as conservation and safety, e.g., § 30, 30 U.S.C. § 187; and it deals with rent and royalty payments to be made to the Government, e.g., § 17(d), 30 U.S.C. § 226(d). Few provisions lend themselves at all to the creation of a federal law of the rights inter se of private parties dealing in the leases.

Perhaps most prominent among those that are relevant is § 30a, 30 U.S.C. § 187a, which provides that oil and gas leases shall be assignable.6 The Court of Appeals' opinion relied on this provision, together with reasons why assignment of leases may promote federal policy, in justifying the use of federal rather than state law. How- ever, fitting this approach may be where a State interposes unreasonable conditions on assignability, it can have no force in this instance because Louisiana concededly provides a quite feasible route for transferring any mineral lease or contracting to do so, namely, by written instrument. See 200 F.Supp., at 471 and n. 13. Section 27(d)(2), 30 U.S.C. § 184(d)(2), also bears directly on the rights of the parties between themselves by rendering unenforcible any option not filed with the Secretary and any option running for more than...

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