# Appendix — Ashland Oil, Inc. v. Phillips Petroleum Co. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385006_1678%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1980 - **Citation:** 446 U.S. 936 ## Text 79-1241 : Supreme Ouest, In the Supreme Court of the United States 1 L E D October Term, 1979 i. x | FEB 11 (980 Ct a ee | : MICHAEL ROOAK, JR., ASHLAND OIL, INC., Petitioner, VS. PHILLIPS PETROLEUM COMPANY, and UNITED STATES OF AMERICA, Respondents. APPENDIX TO PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT GERALD SAWATZKY FouLSTON, SIEFKIN, Powers & EBERHARDT 700 Fourth Financial Center Wichita, Kansas 67202 Jay W. ELstcn FULBRIGHT & JAWORSKI 800 Bank of the Southwest Building Houston, Texas 77002 JoHN M. IMEL Moyers, Martin, Conway, SANTEE & IMEL 320 South Boston Building, Suite 920 Tulsa, Oklahoma 74103 ARLOE W. MAYNE Ashland Oil, Inc. 1409 Winchester Avenue P.O. Box 391 : Ashland, Kentucky 41101 Attorneys for Petitioner Ashland Oil. Inc. February 8, 1980. E. L. MENDENHALL, Inc., 926 Cherry Street, Kansas City, Mo. 64106, (816) 421-3030 INDEX Opinion, United States Court of Appeals for the Tenth Circuit dated October 15, 1979 (607 F.2d 335) ........ la Judgment, United States Court of Appeals for the Tenth Circuit entered October SEY 4a Order Denying Petition for Rehearing dated November BA tills 6a Opinion on Rehearing En Banc, United States Court of Appeals for the Tenth Circuit dated May 10, 1977 Oe Pe ONE) ca ee ee 8a Panel Opinion, United States Court of Appeals for Tenth Circuit dated January 27, 1975 0 43a Judgment, United States Court of Appeals for the Tenth Circuit entered wey 2 MF 60a Memorandum Opinion, United States District Court for the Northern District of Oklahoms dated December 28, 1978 (463 F.Supp. 619) 2 62a Opinion and Judgment, United States District Court for the Northern District of Oklahoma dated August 13, 1973, as corrected on August 31, 1973 (364 F.Supp. 6) 99a Excerpts From Record Concerning Plaintiff’s Reliance OM SURE ID icc caenacen ne ee 119a UNITED STATES COURT OF APPEALS TENTH CIRCUIT Nos. 79-1009, 79-1096, 79-1108 (Consolidated) ASHLAND OIL, INC., Plaintiff-Appellant, Cross-Appellee, V. PHILLIPS PETROLEUM COMPANY, Defendant-Appellee, Cross-Appellant, and UNITED STATES OF AMERICA, Intervenor-Appellee, Cross-Appellant. Appeals From The United States District Court For The Northern District Of Oklahoma (D.C. # 67-C-238) (Filed October 15, 1979) Gerald Sawatzky, Wichita, Kansas (John M. Imel, Arloe W. Mayne, Lillian Williams, W. O. Strong III, and of counsel, Foulston, Siefkin, Powers & Eberhardt, Ful- bright & Jaworski, and Moyers, Martin, Conway, Santee & Imel, on the brief), for Plaintiff-Appellant, Cross-Appellee. Don L. Jemison, Bartlesville, Oklahoma, and L. K. Smith, of Boone, Ellison & Smith, Tulsa, Oklahoma (Kenneth Heady and C. J. Roberts, on the brief), for Defendant- Appellee, Cross-Appellant. 2a John E. Lindskold, Department of Justice, Washington, D.C., for Intervenor-Appellee, Cross-Appellant. Before SETH, Chief Judge, BARRETT and DOYLE, Cir- cuit Judges. PER CURIAM. This case was remanded for the development of addi- tional facts relating to and to provide a basis for the valua- tion of the helium at the wellhead by the use of a work- back method. See Ashland Oil, Inc. v. Phillips Petroleum Company, 554 F.2d 381 (10th Cir.). The trial court was to determine a proper starting place and value for such method, the plant cost, return on investment, the costs chargeable to production of liquid hydrocarbons, and re- lated facts. On remand the trial court selected as a starting point the stated value of helium used in the contract between Phillips and the Government. For a brief description of ‘he contract, see 554 F.2d at 384. This determination by the court was based on the expert testimony relating to pure helium values and other possible starting points for the valuation of helium. A star.ing place for the work-back method can be at any point in the production - processing - sale chain where a dollar figure can be estab- lished by reliable evidence, and which may be demon- strated to be a realistic value. We see no objection to the use of the contract value for this purpose. It was a negotiated figure arrived at by parties dealing at arm’s length. There may have been other considerations in- volved, but on remand these do not appear to have been substantial enough to cast doubt ‘for our purposes on the contract price. This figure was not greatly different from those used in the contracts for other extraction plants. ¢ 3a Using this figure the trial court made findings as to plant investment and rate of return. These factual deter- minations were made after a consideration of the testi- mony and are supported by the record. The appellant urges that there are factors which should not have been included in the plant cost figure or in the total “capital employed” upon which Phillips was entitled to compute a return. However, again this was a fact-finding element, and the result was supported by the record. The parties are in essential agreement as to the costs to be allocated to the production of liquid hydrocarbons. The trial court’s figure on this element must be accepted. The rate of return is a departure from the figure used at the first trial, but this element was included in the remand and again is supported by the testimony of the several witnesses. It is within the fact-finding function of the district court. On the prior appeal we expressly approved the award of prejudgment interest. This factor was not in the remand and became the law of the case. Thus, as we previously held, plaintiff is entitled to pre- judgment interest. The plaintiff urges that postjudgment interest should commence upon the date of the first judgment and not at the end of the remand trial. However, we must hold under 28 U.S.C. § 1961, in view of the extent to which the case was reversed, “the judgment” for the purpose of interest was that entered by the trial court on remand. See Hysell v. Iowa Public Service Co., 559 F.2d 468 (8th Cir.). The judgment is affirmed as to the three dollar value at wellhead for the helium, but is reversed as to pre- judgment interest and remanded for the entry of a judg- ment to include such interest. 4a UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT SEPTEMBER TERM—October 15, 1979 Before Honorable Oliver Seth, Chief Judge, Honorable James E. Barrett and Honorable William E. Doyle, Circuit J udges Nos. 79-1009 79-1096 79-1108 (D.C. No. 67-C-238) ASHLAND OIL, INC., Plaintiff-Appellant- Cross-Appellee, VS. PHILLIPS PETROLEUM COMPANY, Defendant-Appellee- Cross-Appellant, and UNITED STATES OF AMERICA, Intervenor-Appellee- Cross-Appellant. JUDGMENT This cause came on to be heard on the record on appeal from the United States District Court for the Northern District of Oklahoma, and was argued by counsel. 5a Upon consideration whereof, it is ordered that the judgment of that court is affirmed as to the three dollar value at wellhead for the helium, but is reversed as to prejudgment interest. The cause is remanded to the United States District Court for the Northern District of Oklahoma for the entry of a judgment to include such interest. /s/ Howard K. Phillips Howard K. Phillips, Clerk 6a SEPTEMBER TERM—November 14, 1979 Before Honorable Oliver Seth, Chief Judge, Honorable Robert H. McWilliams, Honorable James E. Barrett, Honorable William E. Doyle, Honorable Monroe G. McKay and Honorable James K. Logan, Circuit Judges Nos. 79-1009 79-1096 79-1108 ASHLAND OIL, INC., Plaintiff-Appellant- Cross-Appellee, Vs e PHILLIPS PETROLEUM COMPANY, Defendant-Appellee- Cross-Appellant, and UNITED STATES OF AMERICA, Intervenor-Appellee- Cross-Appellant. This matter comes on for consideration of the petition for rehearing and suggestion for rehearing en banc filed by the appellant, Ashland Oil, Inc., in the captioned causes. Upon consideration whereof, the petition for rehearing is denied by Chief Judge Seth, Circuit Judges Barrett and Doyle, to whom the case was argued and submitted. 7a The petition for rehearing having been denied by the panel to whom the case was argued and submitted and no member of the panel nor judge in regular active service on the Court having requested that the Court be polled on rehearing en banc, Rule 35, Federal Rules of Appellate Procedure, the suggestion for rehearing en banc is denied. Circuit Judge Holloway did not participate in the consideration of the suggestion for rehearing en banc. /s/ Howard K. Phillips Howard K. Phillips, Clerk 8a UNITED STATES COURT OF APPEALS TENTH CIRCUIT Nos. 73-1797, 73-1798, 73-1799 ASHLAND OIL, INC., Appellee, Cross-Appellant, v. PHILLIPS PETROLEUM COMPANY, Appellant, Vv. UNITED STATES OF AMERICA, Intervenor-Appellant. Appeal From The United States District Court For The Northern District of Oklahoma (D.C. # 67-C-238) (Filed May 10, 1977) ON REHEARING EN BANC Richard B. McDermott, Tulsa, Oklahoma (Lloyd G. Minter and Don L. Jemison, Bartlesville, Oklahoma, with him on the Brief), for Appellant, Phillips Petroleum Com- pany. Gerald Sawatzky, Wichita, Kansas (Jay W. Elston, Houston, Texas, John M. Imel, Tulsa, Oklahoma, Arloe W. Mayne, Ashland, Kentucky, W. O. Strong III, Houston, Texas, and Foulston, Siefkin, Powers & Eberhardt, Wichita, Kansas, Fulbright, & Jaworski, Houston, Texas, and Martin, Logan, Moyers, Martin & Conway, Tulsa, Oklahoma, of Counsel, with him on the Brief) for Appellee-Ashland Oil, Inc. 9a Floyd L. France, Attorney, Department of Justice, Washington, D.C. (Peter R. Taft, Assistant Attorney Gen- eral, Nathan G. Graham, United States Attorney, Hubert A. Marlow, Assistant United States Attorney, E. Edward Johnson, United States Attorney, Jon K. Sargent, Assis- tant United States Attorney, Edmund B. Clark, Dennis A. Dutterer, George R. Hyde, and Jacques B. Gelin, Attor- neys, Department of Justice, with him on the Brief), for Intervenor-Appellant, United Siates of America. Before Lewis, Chief Judge, BrEITENSTEIN, SETH, Mc- WittiaMs, Barrett and Doyte, Circuit Judges, sitting en banc. SETH, Circuit Judge. Doyte, Circuit Judge, dissents. Dissenting opinion attached. This action was brought to recover the reasonable value of helium intermixed with natural gas, extracted therefrom, and sold by the defendant Phillips to the United States. The plaintiff prevailed against the defen- dant and the Government as intervenor in the lower court, and they both appeal. Plaintiff also appeals, but only as to the ultimate division of the proceeds derived from the helium as ordered by the trial court. The case was commenced in the Southern District of Texas, but transferred at defendant’s request to the North- ern District of Oklahoma. The complaint asserts juris- diction based on diversity, and this ground was estab- lished. The Government intervened as plaintiff, but was realigned as a defendant. The general description of the occurrence of helium, its characteristics, and how it became an issue is described in the several opinions hereinafter cited. It is, however, 10a necessary to describe the contractual relationship which existed between the defendant Phillips and the Bureau of Mines during the pertinent time period as it bears on the relationship with plaintiff. The Helium Act (50 U.S.C. §§ 167 et seq.) was di- - rected to the conservation of helium present in natural gas and which was being wasted by the use of the gas as fuel. It was determined that the best method to pre- vent this loss was to intercept the flow of helium-bearing natural gas after it had been gathered and where large volumes were being transported by pipeline to the fuel consumers, and to extract the helium therein intermingled. At these points the pipeline companies had possession of the gas stream. The Bureau of Mines pursuant to the Helium Act en- tered into contracts with those in possession of the natural gas stream to purchase helium after it was extracted from the stream. The record shows that this decision to con- tract apparently was brought about by the inability of the Bureau to then ascertain the identity of the interest owners in the helium and to deal with them within any reasonable time. The Bureau indicates that there were some 30,000 landowners involved and several hundred lessee-producers of the gas. The production is from sev- eral states and the interest owners reside in many different states. By the contracts with the defendant and others the Bureau made possible the construction of extraction plants and soon came into possession of the helium so removed from the large gas stream. Waste of the helium was so prevented, and the purpose of the Helium Act was accomplished. We are here concerned with the Government contract with defendant Phillips whereby the helium was phys- ically acquired by the Government, but the ownership and lia compensation problems were put off to another day. The Bureau thus used by this contract the advantageous posi- tion of one in=possession; postponed the inevitable legal problems, and placed itself in the position of a defendant when the problems came before a court. In the contract between the United States as buyer and the defendant as seller covering the purchase of helium, a specific amount was provided as compensation to defendant. The record shows that this figure was ar- rived at by comparison of the estimated cost to the Gov- ernment had it built its own plant. No relationship of this figure to any then market values was developed in the record. This was a base price of $10.30 per Mcf and was subject to escalation under Paragraph 7.3. Paragraph 7.4 provided that in addition to such amount the buyer would pay to the seller the amounts “. . . that Seller shall pay subsequent to the date of this contract . . . to parties other than itself... for the acquisition of helium in the natural gas . . . or for any interest therein.” It provided that such payments to qualify would have to be made with the consent of the buyer, and that “consent” included claims that “. . . have been judicially determined in favor of any claimants by any Federal Court or the highest appellate court of any state,” and payments made in ac- cordance with the findings, principles, and conclusions of such “judicial determination.” Under the contract for- mula the defendant would pay the first $3.00 per Mcf to third parties and the Government would pay the rest. The result would be that the ultimate payment to the “owners” was to be so shared by defendant and the United States, with the United States providing an indemnifica- tion for required payments above the stated amount. There are other qualifications also, It is obvious that this litigation wherein compensation is demanded by the interest owners of the helium was 12a contemplated and was provided for in the contract. It was apparent that some knotty legal problems would have to be met in order to determine who the interest owners were, and to decide whether or not they had already been compensated for the helium under the leases, the gas purchase contracts, or the Natural Gas Act. These post- poned legal problems were in large part decided in the Consolidated Helium Cases (Northern Natural Gas Co. v. Grounds, 441 F.2d 704 (lUth Cir.)), opinion by Judge Breitenstein. The basic legal relationships among the landowners, producers, and gas purchasers were there es- tablished, as was the relationship of the Natural Gas Act and the Helium Act. The controlling rules were set in the Grounds opinion, en banc consideration was denied, and the Supreme Court denied certiorari. 404 U.S. 951. We decline to reconsider Grounds. Further, in Grounds we held that “. . . the lessee-producers are entitled to the rea- sonable value of the contained helium.”’ The problem of the amount of reasonable compensation, and who should pay, was not decided in Grounds, and was remanded to the trial court. The Grounds case is again before this court en banc and was consolidated for hearing with this case, but is not considered in this opinion. When the matter of compensation is in issue we ar faced with a somewhat different aspect of the physical and legal journey helium makes from the natural gas well to the storage facilities of the Bureau of Mines than we have considered before. The possession and interception of the gas stream, the separation of the helium therefrom, and its delivery to the United States under the contract arrangement are, all still important, but the relationship of the contracting parties to those who now have been determined to own interests in the helium, and, of course, the value of the helium are the center of focus. l3a The position of the United States as a party herein is somewhat unusual. It filed a motion to intervene as a party plaintiff with a “Complaint in Intervention of the United States” attached. This motion was granted. The Complaint of the Government stated that the court had jurisdiction under 28 U.S.C. § 1345, cited 28 U.S.C. § 2201, and recited the existence of the contract for the purchase of helium from Phillips, asserted that Phillips had deliv- ered to the United States “large quantities of a helium- gas mixture” for which it had been paid “substantial sums of money.” This complaint acknowledges that the plaintiff Ashland is seeking the “fair market value” of helium in the gas it sold to Phillips which was processed for helium, and the helium in turn sold to the United States under the contract referred to above. The Govern- ment further alleges that Ashland has already been paid for the helium content along with the hydrocarbons, and in any event the value of the helium content is “nominal.” The complaint asserts that: “An actual controversy ex- ists between the United States and Ashland as to whether payments between Phillips and Ashland for the gas as produced was payment for the helium content.” The Government alsv asserts that it “. . . has a real and sub- stantial interest in this litigation because of a provision in its contract with Phillips under which it may be under a duty to indemnify Phillips for additional payments... .” The Government prayed for a determination that Ashland had already been paid in full, and if not, that the fair market value of the helium was “nominal.” Phillips and Ashland answered the Government’s complaint. Ashland in its answer prayed for costs and general relief. As the trial opened, the attorney for Phillips suggested that the United States be realigned as a party defendant. The court then said: “The Court will order that the style be changed to Ashland Oil and Refining Company, Plain- l4a tiff, versus Phillips Petroleum and United States of Amer- ica as defendants.” The findings recite that at the Gov- ernment’s request it was aligned as a defendant and was an intervenor. The Uniied States participated in the trial, cross-examined witnesses, put on a witness of its own, ob- jected to the plaintiff’s findings, and submitted proposed findings. The judgment entered ran against Phillips only. The United States has fully participated in this appeal. As indicated above, this action was brought by Ash- land against the defendant Phillips to recover the reason- able wellhead value of helium commingled with the FPC jurisdictional Gas, but separated at defendant’s plants con- structed pursuant to the Helium Act and delivered as “conservation helium” to the Bureau of Mines. The suit was tried within the holding of Northern Natural Gas Co. v. Grounds, 441 F.2d 704 (10th Cir.) (The Consolidated Helium Cases, or Grounds). On this appeal Phillips devotes much of its brief and argument to contentions which were advanced in Grounds, there considered and rejected. It would serve no purpose to again consider these arguments. Instead it is sufficient to refer to the Grounds opinion for the disposition of these points. It must be accepted that the “value” sought to be determined in this suit is basically a factual matter deter- mined through the application of the appropriate legal doctrines. This is the value at the wellhead of the helium commingled with the natural gas there being produced. The appellants here urge as a basic error by the trial court that it chose the wrong method in arriving at this “value.” The trial court determined that there was no prevailing market value for the commingled helium, there was no free competitive market for this helium at the 15a wellhead. The court thus used a market value for the ultimate product less the cost of beneficiation of the helium-bearing gas. The defendants urge that the trial court had sufficient evidence before it of a “market value” of the commingled helium at the wellhead. The defendants, on their “market value” theory, put on testimony and exhibits as to transactions concerning helium-bearing gas wherein a value was ascribed to the helium component. These described events covered a broad time span and a wide geographical distribution. They involved both governmental agencies and private parties. The trial court, in holding that there was no free competitive market, held that these transactions were of no probative value because they were not comparable. It thus concluded that the evidence failed to establish a “market price” by comparable sales. We reach the same conclusion. The transactions described by the wit- nesses for the defendant were too remote in time or place, and otherwise could not be considered as comparable. The testimony did not show a free market condition to establish a usable price. It is apparent that the gas stream here concerned with all its components was directed by the FPC, and was locked in by the jurisdictional gas. There was not an opportunity for free pricing at any point, nor for renegotiation of sales or the negotiation with new purchases. The helium thus had to go along with the stream. The purchasers of the stream here con- cerned, of course, took the position that they owned the entire contents, and were not required to pay anything more. This litigation demonstrates the character of the market, the Government domination of the market, and the strength of bare possession. l6a In the market price evidence of the defendant, con- siderable detail is presented as to purchases at the several Government helium plants. These include the plants at Exell, Otis, Cunningham, and Navajo. The helium pur- chases or gas purchases at these plants were made during World War II. The years which have passed since “The War” would seem to cast more than a doubt that these could possibly be comparable sales. The purchases at the Navajo plant were renegotiated after the War in 1955 and 1959, but again this cannot be’ a comparable trans- action. The stream from the Rattlesnake production had no use as a fuel. It did have a high helium content, but nothing is developed as to any other market for this gas. The Government had for all practical purposes a monopoly on sales of helium until about 1962. There was also testimony as to purchases of gas by the Government for the Keyes plant in 1958. The price was somewhere near $2.00 per Mcf. The production costs at this plant were about $15.50 per Mcf. The basic in- terest of the seller was to make the residue gas marketable by raising the BTU. The seller also assumed liability for possible additional payments to third parties. fhe Otis plant was also used to upgrade the gas for fuel purposes by separating out the noncombustible por- tions of the stream. Phillips also introduced evidence as to several con- tracts it had made for the payment for components of the gas production purchased. Some mentioned helium, some did not. This was a dollar price in some, and a formula as for all other components in others. These are not of particular significance, especially the casing- head gas contracts, because there was no evidence that the casinghead gas contained helium nor was ever pro- _ cessed for helium. As to the other Phillips contracts, l7a there was no showing that the gas had a helium content at all (with insignificant exceptions), nor that there was ever a remote possibility of extraction, again with insig- nificant exceptions. Contractual provisions in such a context, even where helium was mentioned, are a mean- ingless gesture of the parties, and cannot be considered as evidence of comparable sales. The Gas Sales Agreernent between Colorado Inter- state and Alamo Chemica] Company (a Phillips affiliate or subsidiary) was put in evidence. This provided for the processing of gas produced in Morton County, Kansas, for the removal of helium and liquefiable hydrocarbons. The plant operator was to pay $2.00 per Mcf for helium extracted at the plant. This price was not negotiated, and it seems reasonable to assume that this was because there was litigation pending as to the obligations to pay for helium involving the parties. The contract limited the sellers’ liability on the title warranty of helium to $2.00 per Mcf. There was no contract provision for pay- ment for hydrocarbons removed. This contract must be considered for all practical purposes as a post-litigation contract. There was also in evidence a gas exchange agreement between Phillips and Pioneer Natural Gas Company. This had a price for helium but there were other contractual considerations such as delivery of gas at other locations, and payment for only part of the helium. This agreement cannot be considered as a com- parable sale. The testimony of the defendants and evidence was thus directed to “other sales” in other places and other times. There was no substantial showing that these were “comparable sales.” Evidence of “other sales” falls far short of establishing a market without comparability being clearly established. 18a In addition to the evidence relating to particular contract provisions, and some sales, there was expert testi- mony. The plaintiffs and defendants had expert witnesses who testified as to what the value of helium should be. This testimony produced by both sides is of theoretical interest, presents a facet of the entire conservation pro- gram, and a description of the few independent private enterprises which tried to enter the field. No matter how interesting, this evidence is only opinion evidence, and does not establish facts. This testimony comes well down on the scale of acceptable evidence as to value. It is obvious that comparable sales or current market price is the best, and second would come the work-back method. The expert testimony of the type here presented would come somewhere after that. The experts were extremely capable, experienced persons who gave well considered and conscientious expression of their opinions, but never- theless it remained opinion evidence on a matter of ob- jective facts. We thus must agree that the trial court was correct in seeking an alternative method to “market price” for estab- lishing the reasonable value of, the helium component at the wellhead. It is obvious that the comparable sales- current market price is by far the preferable method when it can be used. However, it cannot be used when the elements necessary for its proper application are lacking. The trial court thus had to resort to a work-back method or price less costs of beneficiation. This was a less desir- able method but perfectly valid. Under this method a point was selected where there can be determined an estab- lished price and the cost of processing or beneficiation were deducted to move back to the place where the value must be established. The work-back valuation is well recognized in the production and early processing of natural gas. It is com- 19a monly used, according to this record, in placing a value on feed stock for gasoline plants and related processing. There is nothing unusual about the method, it is subject to proof, and can be just as accurate as any other method, but it is more difficult to apply. There is here concerned a single plant constructed and operated for the specific purpose of extracting helium. Other costs, and other ele- ments, can be established. This work-back method was used by the Government and the Court of Claims in mak- ing payment to the Navajos for gas supplied to the Navajo Helium Plant. See Navajo Tribe v. United States, 364 F.2d 320 (Ct.Cls.). The Government has used it on other occasions such as for Kerr-McGee royalty payment in Ari- zona, and under different circumstances. As to the work- back as a method for valuation, see also Brown, Law of Oil and Gas Leases, § 6.09; Harding v. Cameron, 220 F.Supp. 466 (W.D.Okl.); and Sneed, 25 Tax L. Rev. 641. This method to establish value has not only been used in the petroleum industry, but also in other natural re- sources cases. See United States v. Wyoming, 331 US. 440; Black Crystal Coal Co. v. Garland Coal & Mining Co., 267 F.2d 569 (10th Cir.); and Greer v. Stanolind Oil & Gas Co., 200 F.2d 920 (10th Cir.). See also the gasoline plant case, Freeland v. Sun Oil Co., 277 F.2d 154 (5th Cir.), which is a common use in the industry. Phillips argues that its right to acquire the helium component was covered by its contracts, and neither the Helium Act nor the Natural Gas Act altered these con- tracts. Thus there was a Fifth Amendment violation if its property was “given” to another. This court on the Grounds case really decided this issue and there would seem to be no need to consider it again other than to state that Phillips acquired the whole stream or production, but has only paid for part. We said in Grounds, “In our opinion private contract law and the principles appli- 20a cable thereto are not controlling.” Apparently the Govern- ment has yet to pay Phillips for much of it also. The appellant next argues that the value less expense method was not only inapplicable, but it was improperly applied in that the proof was deficient as to certain ele- ments, that mistakes were made, and that “trifling recog- nition” was given to certain evidence. We will take these references to mean that there was not substantial evidence on the several factors or elements of the method of valua- tion. As to the several elements, the appellants urge that the amount used as the “return on investment” expense was not sufficient. The trial court used a figure which was part of the testimony of plaintiff's witnesses, and the method by which it was arrived at was so presented. There was no substantial contrary evidence presented at trial although on appeal appellants assert deficiencies in the. method. This elemenf* however was not adequately developed by the proof and further hearing is required on this element. The appellants also object to the allowance made by the trial court of $2.00 per Mcf for the “treatment” of the “crude” helium sold to it by Phillips (to be incurred by the Government before resale), as insufficient in that it did not include transportation and storage. Matters of expense to be incurred subsequent to the delivery and perhaps some transportation from place of delivery to the underground storage are not shown to have been omitted from the $2.00 figure although it was denominated a “treat- ment” or “processing” cost. In any event, these costs are more properly attributable to the general conservation program as the duration of the storage and additional transportation are unknown factors under the record. The - 2la use of the deduction was proper and appellants have not shown that it was not supported by substantial evidence. The trial court. used a figure of $20.00 per Mcf for the selling price of helium, and this was the starting figure or element of the value less expense method. This figure was testified to by the witness for the plaintiffs; this price issue was not met by defendant by way of proof. On remand the validity of this figure must be examined by the trial court, and a determination made again as to the proper starting value. The Government, in an argument again based on con- demnation doctrine, urges that the helium values were created by its own purchase program—The Helium Con- servation Program, and it should not have to pay for such values. It cites several condemnation cases on this point, and United States v. Fuller, 409 U.S. 488, which in turn cited United States v. Cors, 337 U.S. 325. This again concerned payment for something requisitioned by the Government. The issue here is the determination of value of a commodity which was purchased and sold by the Government and by private concerns. It was a stock- piling of a commercial product. This cannot be equated to the cases where the condemnation or the reason for condemnation increases the value of the land taken. The helium has value by reason of its nature and usefulness. The Government may have made this helium available but did not create its value. The appellants vigorously attack the use by the trial court of the value of hydrocarbon liquids produced at the helium plants in the value less expense calculations. The trial court allocated part of the plant expense to these liquids as by-products. The evidence is unclear that an increase in the production of liquids would result from the helium plant operation over what had been experienced 22a before and over ordinary extraction plants. Appellants maintained that the increase in liquid production did not result at all from the treatment of the gas stream for helium extractions. The record shows that increased quantities of wet gas were directed to at least one of the plants, and this could make a difference in the produc- tion of liquids, but no figures were produced by defendants. Under this state of the record, we must hold that the trial court did not have adequate data to this element. Different quantities of liquids were produced at different plants, and this may result in different helium values at different plants. In view of the evidence, this was a consequence of the application of the expense element in the formula. However, further evidence on this aspect is needed. The Government makes the point that the value of helium at the wellhead determined by the trial court ex- ceeds the base figure for the helium-nitrogen mixture it was buying from Phillips under its contract. This may be a consequence of the decision, but there is no reason why the wellhead price should be determined by the con- tract price. This payment was not necessarily the “price” of the helium as other considerations were present. The contract between the appellants was negotiated between them alone, and the pricing was the evaluation by them of the entire economic consequences of the transaction including many significant factors such as its duration, warranties, and indemnities. We have described the contract at the outset of this opinion. Attention should however be directed again to the evaluations made of the legal questions, especially the title questions. Gov- ernment agreed basically to pay Phillips for its interest in the helium and then to pay more if other interest owners established their claims. This has been done, but 23a the price “paid” for all the interests in the helium has not yet been determined. The value here sought to be established is independent of the contract base amount, and is to be of all interests of the proper parties. We have considered Lippert v. Angle, 211 Kan. 695, 508 P.2d 920. It states the traditional preference for com- parable sales proof with which we agree, but the case does not involve the separate valuation of helium. The plant was very small, and the situation is not comparable in any way. See also Greenshields v. Warren Petroleum Corp., 248 F.2d 61 (10th Cir.). This appeal also raises issues as to the allowance of nrejudgment interest, attorney fees, and the matter of limitations. The trial court tried the case as a federal question case, relying on our opinion in Texaco Inc. v. Phillips Petroleum Co., 481 F.2d 70 (10th Cir.), which was thereafter reversed by the Supreme Court in Phillips Petroleum Co. v. Texaco Inc., 415 U.S. 125. That case was concerned only with federal question jurisdiction un- der 28 U.S.C. § 1331 (a), and not whether state or federal law controls. The United States was not there a party. Federal jurisdiction is here conceded. The original Consolidated Helium Cases were based on federal interpleader jurisdiction, and also federal law was applied. The case before us on this appeal started as a diversity suit, and the Government has asserted a claim or an interest. We have described at some length above the participation of the United States in this action, especially the initial intervention as a plaintiff expressly under 28 U.S.C. § 1345. It is apparent however that its alignment at all times was with the defendant Phillips on all important issues. No relief was sought by Ashland directly against the United States. The trial court found 24a the elements of a condemnation or seizure by the United States, but this analysis of the manner in which helium was acquired was considered in the Consolidated Helium Cases, and the arguments were rejected. As a matter apart from jurisdiction, we hold that the trial court’s applicaticn of federal law was proper. The action of the Government in entering the case as a plain- tiff under 28 U.S.C. § 1345 is a significant factor to be con- sidered. The real party in interest thus appeared formally to challenge the claims of Ashland. The Government so asserted that it had a real and substantial interest in the litigation, and that an actual controversy existed between it and Ashland. It is apparent that under the contractual arrangement, the United States undertook to pay to Phil- lips the amounts that Phillips “shall pay” to other parties for the acquisition of helium in the natural gas above a certain figure. This is in the nature of an indemnity agree- ment and the contract contains qualifications and limita- tions not here concerned. The United States is liable for some of the additional amounts which Phillips will have to pay. The Government has thus entered the litigation to assert its own position and interest under the contract. This is initially a matter of dollars, but the Government still has possession of a large part of the helium in ques- tion, and this possession can put a somewhat different cast on the problem. These circumstances and the intervention could very well have changed the action to something other than the usual diversity suit at least for the purpose of the application of Erie v. Tompkins. This has interesting possibilities, but in any event, the circumstances direct that federal law be applied. As indicated above, and as demonstrated in Northern Natural Gas Co. v. Grounds, 441 F.2d 704 (10th Cir.), and by the record here, the Government in the several cases : 25a before this court is faced with claims made by a multitude of interest owners from many states relating to production from Kansas, Oklahoma, and Texas. Each state has some- what different legal doctrines relating, among other things, to the nature of interests in oil and gas, and what rights are created by oil and’gas leases. With the primary liability for the dollars, and for the determination of ownership resting with the United States which obtained possession of the helium, we hold that the application of the rule expressed in Clearfield Trust Co. v. United States, 318 U.S. 363, is indicated. One of the most significant fac- tors is the one indicated above, that is, the fact that the United States ended up with the helium. It directed, by contracting, the diversion of the helium to itself before resolving the obvious ownership problems with a multi- tude of claimants having diverse legal relationships to the helium, depending upon the place where the natural gas was produced and upon their contractual positions. The United States, again by contract, sought to handle these problems by providing for reimbursement to Phillips, and it may have done so. The Government nevertheless ob- viously has the basic responsibility and liability, as it rec- ognizes by its intervention. Erie v. Tompkins does not demand the application of state law to all diversity actions. The Court in the Clear- field Trust case set out an exception which was there ap- plied to “obligations” of the United States and later ex- panded. The case concerned the forgery of a Government check, and a delay in notice by the Government to the bank beyond the period contemplated under state law. The Court held that rights of the Government relating to commercial paper it issues are determined by federal and not state law. The Court said that the authority to issue the check in question originated in the Constitution and statutes of the United States and was not dependent on the laws of 26a any state. In the matter before us, the helium was acquired by the United States by contracts as authorized by federal statutes. This contracting with private enterprise was sug- gested by statute. As stated by the Court in the cited case, “The desirability of a uniform rule is plain.” See also National Metropolitan Bank v. United States, 323 U.S. 454, limited by Bank of America v. Parnell, 352 U.S. 29. The War Bond cases in state and federal courts lead to the same result. See In re Stanley’s Estate, 80 P.2d 332 (Colo.). The Court in D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447, also indicated a considerable area to be excluded from the application of Erie. There an action by the FDIC was brought on a note given to a bank by the defendant, and the Court applied federal law. Also in the share- holders’ liability action in Holmberg v. Armbrecht, 327 U.S. 392, in the solution of a limitations problem, the fed- eral law was applied. Generally, see 59 Harv.L.Rev. 976, and 105 U.Pa.L.Rev. 797. Under Clearfield when the United States seeks to liti- gate or seek a remedy arising from transactions it has en- tered into in the ordinary commercial world to carry out its program, it has been held that federal law may be ap- plied. The federal courts can adopt a governing rule of law - in such circumstances if there is no statutory direction to the contrary. Clearfield expressly so held. 318 U.S. at 366. See also United States v. Allegheny County, 322 U.S. 174. Clearfield thus indicates that the Court may apply state doctrines or parts of them as “federal law.” In United States v. Standard Oil Co., 332 U.S. 301, the Court stated that the interests of the Government and its legal relation- ships may be so determined. The impact of the application of state law upon the governmental interests is a factor of great weight. See United States v. Mitchell, 403 U.S. 190. The Court in United States v. Little Lake Misere Land Co., 412 U.S. 580, considered the application of a Louisiana nein la 27a statute to the reservation of a mineral interest in land acquired by the United States. The factors discussed above were there treated, and the process was described as a “choice of law” (federal or state) matter. The Court there said: “However, in a setting in which the rights of the United States are at issue in a contract to which it is a party and ‘the issue’s outcome bears some relation- ship to a federal program, no rule may be applied which would not be wholly in accord“with that pur- pose.’” [The quotation included being from Mishkin, 105 U.Pa.L.Rev. at pp. 805-6. ] The Court found further that the federal land acquisition program in United States v. Little Lake Misere Land Co. conflicted with the state law on the duration of reserved mineral interests, and said: ‘The choice of law merges with the constitutional demands of controlling federal leg- islation; we turn away from state law by default.” In the case before us, the United States was seeking to carry out the Helium Conservation Program then con- sidered of great urgency and importance. It sought to, and did, acquire possession of the helium as directed by the legislation. The action of the Bureau of Mines was effi- cient and effective. In so doing it set up the contractual barriers between itself and the landowners and gas pro- ducers, and also put off the inevitable day of reckoning as to ownership. Phillips is really only a nominal party and looking at the substance, the Government has the re- sponsibility arising from its acquisition and possession of the helium. In the face of the multitude of claimants, the variations in state law, and the Clearfield doctrine, the trial court was correct in not applying Erie v. Tompkins. 28a We find no merit to the contention of Phillips that it is entitled to a setoff for any sums previously paid to Ashland for purchases of jurisdictional gas. The court in the Consolidated Helium Cases considered the ownership of the interests, title to the helium, and de- scribed how these passed down the gas stream. This de- termination prevails. The trial court, as to the interest of the landowners-lessors, apparently followed a confiscation- condemnation theory and divided the value of the helium to be recovered from defendant Phillips equally between the lessors and lessees. Our opinion in the Consolidated Helium Cases requires that this division be in accordance with the lease terms, and thus the same division as ap- plied to the hydrocarbons. The judgment of the trial court making an equal division between lessor and lessee of the proceeds attributable to helium values must be and is re- versed with directions to enter judgment providing for a division in accordance with the terms of the leases, and the terms of other agreements relating to the shares of production, or payment for shares of production, if such be applicable. The issue of limitations has been raised together with the tolling of whatever statute may be applicable. This litigation concerning the property interests in helium and the right to compensation, considering the related cases, has been protracted and equitable considerations applica- ble to periods of limitation have come into play. See deHaas v. Empire Petroleum Co., 435 F.2d 1223 (10th Cir.). We must conclude that this action has not been barred. American Pipe & Construction Co. v. Utah, 414 U.S. 538. The trial court acted within its discretion under federal law in the allowance of prejudgment interest. Royal In- demnity Co. v. United States, 313 U.S. 289; St. Paul Mer- 29a cury Indemnity Co. v. United States, 201 F.2d 57 (10th Cir.). As to attorney fees awarded by the trial court, we are unable to find any statutory provision for them or any rule of practice which would authorize such fees. The Supreme Court has, since the trial court’s decision, de- cided F. D. Rich Co. v. Industrial Lumber Co., 417 U.S. 116, a Miller Act case. The opinion includes a direct and intensive consideration of attorney fees. The Court there defines the basic rule: “The so-called ‘American Rule’ governing the award of attorneys’ fees in litigation in the federal courts is that attorneys’ fees ‘are not ordinarily recoverable in the absence of a statute or enforceable contract providing therefor.’ ” The Court concluded that Miller Act suits are “plain and simple commercial litigation,” and the Court would not change the American Rule “in the context of everyday commercial litigation.” We must hold that this litigation is not so dissimilar to Miller Act suits as to bring about a different result as to attorney fees than expressed in F. D. Rich Co. See also Alyeska Pipeline Co. v. Wilderness So- ciety, 421 U.S. 240. The judgment of the trial court is thus REVERSED as to the award of attorney fees, and as to the equal division between lessor and lessee of the proceeds attributed to the value of the helium, as above indicated. The judgment is also set aside as to the valuation determination with di- rection to hear further the matters or elements of the work- back method, referred to above, wherein there was in- sufficient evidence in the record. Thus some elements have been considered in this opin- ion and ruled on. 30a On remand the trial court shall also consider whatever other elements that may be developed at further hearing, in making the value less expense or work-back determina- tion. Thus, we affirm the use of the work-back method of de- termining value and the use therein of the $2.00 figure for treatment of crude helium. We set aside the values which the trial court determined by the use of the work-back method. On remand the trial court shall give further con- sideration to, and receive such evidence as may be admis- sible bearing on, (1) the proper starting value, (2) the amount chargeable to return on investment, (3) the ex- pense properly allocable to production of hydrocarbons, and (4) such other matters, as are pertinent and not fore- closed herein, that bear on the determination of value by the work-back method. We affirm the decision of the trial court that the action is not barred by any statute of limitation and that pre- judgment interest may be allowed. We reverse those por- tions of the judgment that (1) allow attorneys’ fees and (2) divide the recovery equally between the lessors and the lessees. The lessors may recover only the amounts determined by the royalty provisions of their leases. AFFIRMED IN Part, REVERSED IN Part, and remanded for further proceedings in the light of this opinion. Each party shall bear its own costs. Dove, Circuit Judge, dissenting. I respectfully disagree with the result of the majority opinion and, particularly, that part of it which affirms the trial court’s use of the work-back theory or approach in determining a reasonable value for the commingled helium at the wellhead. My disagreement stems from see 3la the following: the work-back approach is not the preferred way to determine market value of a commodity; the start- ing point for determining value is wrong; and the result of its application here is an excessively high price to the government. Both the government and Phillips Petroleum favor the comparable sales plus expert testimony method; this is the view that I prefer. I. WHETHER THE UNITED STATES CONTEMPLATED, AS THE MAJORITY MAINTAINS, THE PAYING OF A SUBSTANTIAL AMOUNT AT A SUBSEQUENT TIME TO LESSEE-PRODUCERS AND LANDOWNERS I must disagree with the conclusion in the majority opinion that it was within the contemplation of the con- tracting parties that there would be a large amount paid to interest owners of the commingled helium at some future time. My reasons are as follows: The Bureau of Mines had entered into contracts for the purchase of extracted helium with four companies, including Phillips, who had possession of the natural gas stream. By so doing the government avoided the necessity for identifying and dealing with all possible interest owners of the helium. It is true that paragraph 7.4 of the contract with Phillips provided for the partial indemnification of Phillips by the United States for amounts paid subsequent to the date of the contract for the acquisition of helium in the natura! gas or for any interest therein. But to raise the obligation of indemnification, the United States had to consent to the payments or the payments must have been judicially determined or they must have been made in 32a accordance with guidelines established in judicial proceed- ings. In the Phillips contract indemnification came into being only after Phillips paid in excess of about $3.00 per mcf to third parties for interests in the helium. The point that is here made is that although the gov- ernment might have been aware of some indemnification possibility, it did not contemplate the kind of payments that would be necessary if the work-back method were to be followed in both the Ashland and the Helex cases. The findings of the trial court do not support the statement in the majority opinion that it was contemplated by Phillips and the United States that there would ulti- mately be substantial compensation paid to the interest owners. Memoranda written by the Associate Solicitor of the Division of Mineral Resources, Department of the Interior, and by the chief helium contract negotiator for the Bureau of Mines mentioned the possibility of increased contract prices if the government required the extraction companies to give a warranty of title without some govern- ment indemnification for helium payments. But there is no evidence that the original amounts to be paid were simply a down payment. There was no prior experience of paying large sums of money for this helium. Mr. Wheeler of the Bureau of Mines testified that in building the cost model to arrive at a government negotiation posi- tion, a $2.00 per mcf amount for the commingled helium had been used because that amount reflected the govern- ment’s experience in obtaining a supply of helium-bearing gas. It had never paid more than $3.00 per mcf. The $3.00 per mcf indemnification level was not an arbitrary figure. It represented a ceiling above actual payments on previous occasions. It was an estimation of the probable maximum price that might be paid. There- _ fore, it is not an established fact that here would be pay- 33a ments in excess of $3.00 per mcf as the majority assumes. Even if some excess above $3.00 per mcf was in the minds of the negotiators of the contracts, it was not any great amount. For example, there is no evidence that it was contemplated that the price would go to $10.30. There was no evidence of a belief that it would exceed $2.00 to $3.00. If it was thought that the $2.00 to $3.00 was just the beginning, it seems likely that the extraction companies would have not left the remaining amounts up to $10.00 to $14.00 to chance. Their contemplation would in some way have been expressed. II. WHETHER THE EVIDENCE OF COMPARABLE SALES WAS, AS THE MAJORITY MAINTAINS, SO LACKING IN PROBATIVE VALUE AS TO REQUIRE THAT IT BE DISREGARDED The reasons which the majority opinion gives for re- jecting evidence of comparable sales for the purpose of establishing reasonable value include, first, that the trans- actions described by the witnesses which showed com- parable transactions or sales were said to be too remote in time or place. The opinion goes on to say that the testimony did not show a free market condition capable of establishing a usable price. Secondly, it is said that the helium was part of the gas stream and that this was subject to regulation by the FPC and that this also restricted the opportunities for renegotiation of sales or the negotiation “with new purchases.” The fact that the government was the dominant factor in the market should not, we submit, produce a higher price, for it only tends to show that there was no market 34a for the conservation program gas, Stated differently, there was no demand for it. Where that is the situation it usually means that it is not worth much. The only reason that it was worth something to the government was because the government had some interest in conserving it. It had some defense projects and space projects in which it might be used and also there is belief by some that in the future it might be of some value in creating an atmosphere for the performance of special tasks. If, as the opinion states, there is neither demand nor market for this, it would seem reasonable to adopt a pricing policy which gives to the lessee-producers such as Ashland actual cost plus a reasonable profit. My objection to the work-back method is in its arti- ficiality. Interestingly, it fails to start with real cost fig- ures—its beginning is with opinion evidence given by Mr. Garwin, who was employed as manager of the Kerr-McGee plant. He testified on behalf of Ashland. His opinions were based on the price of pure helium sold by the gov- ernment and private companies. He referred to present sales of pure helium on the private market as being $20.00. The government had charged $35.00 not because this rep- resented a fair price. Rather, the government had no choice since it was required by law to charge that amount. The majority apparently has questions about the validity of the $20.00 starting point. It does not give a reason for its dissatisfaction. My objection is its gross excessive- ness and its lack of reality. Moving backward from a $20.00 price for pure helium to the cost of the gas purchased by the government which was not pure helium but was composed of about 50 per- cent helium and 50 percent nitrogen, deductions for the cost of extracting helium were made. The end result are prices ranging from $11.76 to $16.98 per mcf for the — — — 35a years 1963-71. The government has already paid to Phillips $10.30 per mcf which includes the cost to Phillips of build- ing an extraction plant. Inasmuch as the government is obligated to indemnify Phillips for all sums exceeding $3.00, this means that the difference between the $11.76 to $16.98 figures and the $3.00 indemnification threshold will in all probability be paid in addition by the govern- ment. The trial court and the majority opinion here made no effort to isolate a rule or procedure to ascertain actual market value either from the standpoint of comparable sales or original cost or reproduction cost, It gave its full and exclusive blessing to the work-back theory. The legal objection to this is its secondary evidentiary character. It is secondary because it is called into use only if it is impossible to ascertain actual market value, from com- parable sales, for example. It would have been valid to have used it for comparison purposes, that is to test end to compare the validity of the price arrived at by some other more accepted method, but this has not been done. We find them embracing it wholly and completely. This was not justifiable since there was evidence of com- parable sales either at the wellhead or at the inlet of the plant. It is more specifically objectionable because of the $20.00 starting point. If they were going to select a stage in the process and deduct costs in order to arrive at the selling price at the wellhead or at the plant inlet, they should not have started with a product which has ~ nothing whatever to do with this case, that is they should not have attempted to discover a price for pure helium. Instead they should have looked to prices of conservation helium gas with 50 percent helium content and the remainder nitrogen, for this is the product that is sold 36a to the government, The beauty of starting with crude conservation helium is that they had a demonstrable sale in front of them and that is the sale from Phillips to the government for the sum of $10.30 for conservation helium. From this point it would only have been neces- sary to deduct the costs of extraction and of transportation from the wellhead to the extraction plant. Had they done this they would have come up with a price close to $3.00. It could be more or less. For comparison purposes they could look at the actual sales at the wellhead or at the plant inlet and this would have given them a true picture. It is worthy of note that this is exactly what Judge Brown did in the Helex cases, and his result is realistic and reliable. Judge Brown, needless to say, did not accept the work-back theory as an exclusive formula. In the cases which have used the work-back method, I find that in each instance the court started out with a clearly supported market price and not a contrived one— a price well established in a real market for the specific commodity to be valued—or with proceeds from the actual sale of the commodity at some later point in its processing. See Freeland v. Sun Oil Company, 277 F.2d 154 (5th Cir. 1960); Black Crystal Coal Co. v. Garland Coal and Mining Co., 267 F.2d 569 (10th Cir. 1959); Greer v. Stanolind Oil and Gas Co., 200 F.2d 920 (10th Cir. 1952). See also Stafos v. Missouri Pacific Railroad Co., 367 F.2d 314 (1966). This court in United States v. Sowards, 370 F.2d 87, 91 (1966), showed that no one method need be exclusive unless it clearly establishes the price. It pointed out that the federal concept of market value is closely related to selling price on the market and that the best evidence is comparable sales even though the determination is not limited to that method. It approved the use of other _ data where there are no comparable sales and noted that ee 37a in condemnation cases market value may also be based upon reproduction costs or capitalization of net income or an interaction of these methods together with com- parable sales. It said that all of this must look to what a willing seller would sell for and a willing buyer would pay. The Soward decision nevertheless showed a preference for comparable sales. On the other hand, the work-back method is to be resorted to only where every- thing else fails. In summary, then, it was wrong to adopt the work-back method as an exclusive one. It was wrong to start at the point where the trial court started and, of course, the re- sult is an untenable one because it unnecessarily produces an excessive price. What about the comparable sales which the majority opinion condemns? We must bear in mind that the contracts entered into by the government looked to prices in 1961. The Keyes plant was cited for example and this involved purchases of gas by the government in 1958 at prices approximating $2.00 per mcf at the extraction plant inlet. The production costs were about $15.50 per mcf, but the basic interest of the seller was to make residue gas marketable by raising the BTU. This was the approach that was used in the Otis plant also. It was seeking to upgrade gas for fuel purposes. I would submit that the fact that there was this kind of motivation does not outlaw the comparable sales evidence. Removal of helium as an aid to the heating quality of the gas ought not to render the evidence of the sale non- cogent. The purchases of the government plants at Navajo, Exell, Otis and Cunningham are said to be out of time be- cause they occurred in 1945 during the War. They are 38a hardly more remote from 1961 than are the sales cited by Mr. Garwin, that is the $20.00 sales which occurred in rela- tively recent times. There were also purchases of helium- bearing gas for the Navajo plant in 1955, 1959, and 1962; all at about $2.00 per mcf for helium context at the plant inlet. The gas sales agreement between Colorado Interstate and Alamo Chemical Company, a Phillips affilate, which were at $2.00 per mcf does not appear to be out of line. The 1945 Navajo sales just referred to were determined by the Court of Claims to have a value of $2.99 per mcf. The fact that they occurred in 1945 could be taken into account, but this is a two-edged sword because there was some actual demand for this gas during the World War II period. I am not saying that the comparable sales should be accepted as gospel. This does not mean, however, that we should bury our heads in the sand to them. We can at least view them without fear of being contaminated. The probative value of actual sales is that they provide a more rational and realistic view of value than does some theo- retical approach such as the work-back approach because these are actual demonstrations. The majority opinion does not tell us where the social or other value is in the work- back theory. As suggested before, it might be palatable if actual cost figures were used in arriving at a starting point. It is, however, lacking in palatability when the opinion of the chief witness for Ashland that $20.00 is a fair price for pure helium is accepted completely as the starting point for a work-back process. The foregoing is important because we are dealing not with $100,000 or even a few million. Ultimately if the work-back formula is used this could mean—and we con- sider not only this case but its companion, the Helex II 39a cases which have yet to be handed down but which are likely to follow this same formula—hundreds of millions of additional dollars to be paid by the government for a commodity which at best has an uncertain value now and which does not promise to have any added value in the future. III. WHETHER TODAY’S DECISION WILL RESULT IN THE GOVERNMENT’S BEING COMPEL ED TO PAY AN UNREASONABLY HIGH PRICE, AN AMOUNT WHICH IS BEYOND THE MARKET VALUE OF THE HELIUM GAS What would be the effect if the work-back method were applied to the Helex II cases? Most of the helium in the United States occurs in Kan- sas, Oklahoma and Texas. It is not surprising, therefore, that the companion case to this present one, the so-called Helex II cases, arose in Kansas. The enormity of the oc- currence was probably responsible for the helium conserva- tion program in the beginning. These Kansas cases have been before this court previously. They were filed in 1964. The first one was decided at trial in 1968. It is reported in 292 F. Supp. 619. That decision was reviewed by this court in 1971. Northern Natural Gas Co. v. Grounds, 441 F.2d 704. This initial case was primarily concerned with title to the helium. Following remand, trial was had in order to determine value. As in the instant case, the government had already paid a substantial amount, about $12.00 per mcf, which purported to represent the cost of the extrac- tion plants as well as the cost of the helium. The action was in interpleader. Its purpose was to determine the value of the helium and hence the obligation, if any, of the govern- ment or a party to pay additional amounts. At the trial 40a evidence of comparable sales was not dissimilar to the evi- dence offered at the Ashland case. There was a difference. A good deal of opinion and interpretative evidence was offered on behalf of the government. In sum, the govern- ment presented a real case in this instance—a much stronger case than was brought forth in Ashland. The trial court’s findings were much different. Utilizing the com- parable sales, and the opinion: evidence, the trial court found that the value of helium at the wellhead was .60 to .70 per mcf. As a result, the government was not required to pay any more than $12.00 which it had paid for the gas at the well plus extraction expense including building a plant. This was because the value found was less than the $3.00 amount beyond which the government was required to indemnify. The additional amount, .60 to .70 had to be paid by the Helex companies to the lessee-producers. If the formula approved in the present case were to be applied to the Helex cases there may be a far differ- ent result. I am not saying that it will. I do not know. The trial record is superior in the Helex cases and this could change it. On the other hand, the work-back doc- trine is firmly adopted. If this present Ashland ruling becomes a precedent for the upcoming Helex II cases, the result could be a disaster to the government in that it could virtually double its cost. The price could go from $12.00 (the amount already paid and which under the Helex trial court’s decision is the entire sum), to as high as $24.00. The Ashland case is in sharp contrast. The trial court, as we already know, employed the work-back method in arriving at values of commingled helium. The prices which it adopted were $11.76 to $16.98 per mcf for the years 1963- 72. This was in addition to the $10.30 already paid by the government to Phillips to cover the total cost of extraction ee eS eee = 4la plus cost of gas at the well. The majority opinion in this case gives restricted approval to the work-back method. It remands for additional proceedings to reconsider three fac- tors used. In remanding the case the majority opinion has not, as we have also noted, given the trial court any guidance as to what is sought and as to how these factors are to be determined. Therefore, the outcome of the re- mand as it affects the values in the Ashland case cannot be anticipated. These values may be lower or they could just as easily be higher. Thus, both the viewpoint and the result in Ashland are entirely different from the ap- proach and result in the Helex II cases. That is why I am apprehensive as to possible results in the Helex cases when the court gets around to applying the work-back theory as now enunciated to the Helezx cases. We are mindful that the government has already paid the extraction companies a total of about $12.00 per mcf for the 36,500,000 mcf’s of crude helium in Helex. This is a sum of about $438 million for helium which has been purchased and which has been stored under the conserva- tion program. We cite it to show the magnitude of this purchase and the extent to which the government would be called upon to indemnify if the work-back method were to be applied in the Helex II cases. If the pattern of the present case continues, there could be additional payment of from $9.00 to $12.00 per mcf. It remains to multiply 36,500,000 mcf by the $9.00 or $12.00 addition in order to view the dismal views. I submit that the Helex II cases ought to have been the precedent and the model rather than the Ashland case. 42a Finally, this entire helium conservation program is affected with a public interest. As the majority notes, there is no competition to provide low prices. It is a monopoly condition and the determination of reasonable- ness of prices has devolved on the courts. The court should, of course, see to it that the companies involved in the production of the helium receive fair compensation. Fair compensation does not mean that the participants should receive profits of the possible magnitude indicated here. 43a UNITED STATES COURT OF APPEALS TENTH CIRCUIT Nos. 73-1797, 73-1798, 73-1799 ASHLAND OIL, INC., Plaintiff, v. PHILLIPS PETROLEUM COMPANY, Defendant, and UNITED STATES OF AMERICA, Intervenor. (Filed January 27, 1975.) Richard B. McDermott, Tulsa, Oklahoma (Lloyd G. Minter and Don L. Jemison, Bartlesville, Oklahoma, with him on the Brief), for Appellant. Gerald Sawatzky, Wichita, Kansas (Stanley G. Andeel and Charles E. Cole, Jr., Wichita, Kansas, Jay W. Elston, Houston, Texas, John M. Imel, Tulsa, Oklahoma, Ar- loe W. Mayne, Ashland, Kentucky, J. M. O’Loughlin, Houston, Texas; Foulston, Siefkin, Powers & Eber- hardt, Wichita; Kansas, Fulbright & Crooker, Houston, Texas, and Martin, Logan, Moyers, Martin & Conway, Tulsa, Oklahoma, of Counsel, with him on the Brief), for Appellee. Jacques B. Gelin, Attorney, Department of Justice, Wash- ington, D.C. (Wallace H. Johnson, Assistant Attorney Hubert A. Marlow, Assistant United States Attorney, Edmund B. Clark, Floyd L. France, and Dennis A. Dutterer, Attorneys, Department of Justice, with him on the Brief), for Intervenor-Appellant. Before BREITENSTEIN, SETH and Dov Lg, Circuit Judges. SETH, Circuit Judge. This action was brought to recover the reasonable value of helium intermixed with natural gas, extracted therefrom and sold by the defendant Phillips to the United States. The plaintiff prevailed against the defendant and the Government as intervenor in the lower court, and they both appeal. Plaintiff also appeals, but only as to the ultimate division of the proceeds derived from the helium as ordered by the trial court. The case was commenced in the Southern District of Texas, but transferred at defendant’s request to the Northern District of Oklahoma. The complaint asserts jurisdiction based on diversity and this ground was estab- lished. The Government intervened as plaintiff, but was realigned as a defendant. The general description of the occurrence of helium, its characteristics, and how it became an issue is described in the several opinions hereinafter cited. It is, however, necessary to describe the contractual relationship which existed between the defendant Phillips and the Bureau of Mines during the pertinent time period as it bears on the relationship with plaintiff. The Helium Act (50 U.S.C. §§ 167 et seq.) was directed to the conservation of helium present in natural gas and which was being wasted by the use of the gas as fuel. It was determined that the best method to prevent this loss was to intercept the flow of helium-bearing natural gas after it had been gathered and where large volumes were being transported by pipeline to the fuel consumers, and to extract the helium therein intermingled. At these points the pipeline companies had possession of the gas stream. £0 een Se a Ee Se ee ee eee 45a The Bureau of Mines pursuant to the Helium Act entered into contracts with those in possession of the nat- ural gas stream to purchase helium after it was extracted from the stream. The record shows that this decision to contract apparently was brought about by the inability of the Bureau to then ascertain the identity of the interest owners in the helium and to deal with them within any reasonable time. The Bureau indicates that there were some 30,000 landowners involved and several hundred les- see-producers of the gas. The production is from several States and the interest owners reside in many different states. By the contracts with the defendant and others the Bureau made possible the construction of extraction plants and soon came into possession of the helium so removed from the large gas stream. Waste of the helium was so prevented, and the purpose of the Helium Act was accomplished. By the contract with defendant Phillips the helium was physically acquired, but the ownership and compensa- tion problems were put off to another day. The Bureau thus used by this contract the advantageous position of one in possession; postponed the inevitable legal problems, and placed itself in the position of a defendant when the problems came before a court. In the contract between the United States as buyer and the defendant as seller covering the purchase of helium, a specific amount was provided as the sales price; further, in paragraph 7.4 it was provided that in addition to such amount the buyer would pay to the seller the amounts “. . . that Seller shall pay subsequent to the date of this contract . . . to parties other than itself .. . for the acquisition of helium in the natural gas ... or for any interest therein.” It provided that such payments to qualify would have to be made with the consent of 46a the buyer, and that “consent” included claims that “. . . have been judicially determined in favor of any claimants by any Federal Court or the highest appellate court of any state,” and payments made in accordance with the findings, principles, and conclusions of such “judicial deter- mination.” Under the contract formula the defendant would pay the first $3.00 per Mcf to third parties and the Government would pay the rest. The result would be that the ultimate payment to the “owners” was to be so shared by defendant and the United States. It is obvious that litigation such as this wherein com- pensation is demanded by the interest owners of the helium was contemplated and was provided for in the contract. It was apparent that some knotty legal problems would have to be met in order to determine who the interest owners were, and to decide whether or not they had al- ready been compensated for the helium under the leases, the gas purchase contracts, or the Natural Gas Act. These postponed legal problems were in iarge part considered in the Consolidated Helium Cases (Northern Natural Gas Co. v. Grounds, 441 F.2d 704 (10th Cir.)). The basic legal relationships among the landowners, producers, and gas purchasers were established, as was the relationship of the Natural Gas Act and the Helium Act. The problem of reasonable compensation, and who should pay, was not decided and was remanded to the trial court. These were decided under federal law in a federal interpleader action. When the matter of compensation is in issue we are faced with a different segment of the physical and légal journey helium makes from the natural gas well to the storage facilities of the Bureau of Mines than we have considered before. The possession and interception of the gas stream, the separation of the helium therefrom, and its delivery to the United States under the contract ar- 47a rangement all become important. The relationship of the contracting parties to those who now have been determined to own interests in the helium, and the values of the helium are the center of focus. The position of the United States as a party herein is somewhat unusual. It filed a motion to intervene as a party plaintiff with a “Complaint in Intervention of the United States” attached. This motion was granted. The complaint of the Government stated that the court had jurisdiction under 28 U.S.C. § 1345, recited the ex- istence of the contract for the purchase of helium from Phillips, asserted that Phillips had delivered to the United States “large quantities of a helium-gas mixture” for which it had been paid “substantial sums of money.” This com- plaint acknowledges that the plaintiff Ashland is seeking “fair market value” of helium in the gas it sold to Phil- lips which was processed for helium, and the helium sold to the United States under the contract referred to. The Government further alleges that Ashland has already been paid for the helium content along with the hydrocarbons, and in any event the value of the helium content is “nomi- nal.” The complaint asserts that: “An actual controversy exists between the United States and Ashland as to whether payments between Phillips and Ashland for the gas as produced was payment for the helium content.” The Government also asserts that it “. . . has a real and substantial interest in this litigation because of a provision in its contract with Phillips under which it may be under a duty to indemnify Phillips for additional payinents.. .” The Government prayed for a determination that Ashland had already been paid in full, and if not, that the fair market value of the helium was “nominal.” Phillips and Ashland answered the Government’s complaint, Ashland in its answer prayed for costs and general relief. 48a As the trial opened, the attorney for Phillips sug- gested that the United States be realigned as a party defendant. The court then said: “The Court will order that the style be changed to Ashland Oil and Refining Company, Plaintiff, versus Phillips Petroleum and United States of America as defendants.” The findings recite that at the Government’s request, it was aligned as a defendant and was an intervenor. The United States par- ticipated in the trial, cross-examined witnesses, put on a witness of its own, objected to the plairitiff’s findings, and submitted proposed findings.. The judgment entered ran against Phillips only. The United States has fully participated in this appeal. As indicated above, this action was brought against the defendant Phillips to recover the reasonable wellhead value of helium commingled with the FPC jurisdictional gas, but separated at defendant’s plants constructed pur- suant to the Helium Act and delivered to the Bureau of Mines. The contract between the defendant and the Bureau of Mines is considered above. The suit was tried within the holding of Northern Natural Gas Co. v. Grounds, 441 F.2d 704 (10th Cir.) (The Consolidated Helium Cases, or Grounds). On this appeal Phillips devotes much of its brief and argument to contentions which were advanced in Grounds, ‘ there considered and rejected. It would serve no purpose to again treat these arguments in this opinion. Instead it is sufficient to refer to the Grounds opinion for the disposition of these points. The Grounds case was remanded for a determination of the reasonable value of the helium in issue, the other points having been decided, and the basic legal relation- ships determined. Thus here we are faced with the value 2 aie —— 49a problem, and some related issues which have not come from the remanded case but from another direction. It must be accepted that the “value” sought to be determined in this suit is a factual matter arrived at through the application of the proper legal doctrines. The appellants do not attempt to separate the factual issues from the legal issues in the application of Rule 52. The appellants urge as a basic error on the part of the trial court that it chose the wrong method in arriving at a valuation. The defendants put on extensive testimony and exhibits as to transactions concerning helium-bearing gas wherein a value was ascribed to the helium component on a market value theory. These events covered a broad time and geographical space, and involved both govern- mental agencies and private parties. The trial court held that there was no free competitive market, and inferen- tially held that these transactions were of no probative value because they were not comparable. Instead the trial court used a different valuation method—a value less expense of beneficiation. The appellants urge that the use of such a value less ex- pense method was error in the face of their market value evidence. The Government on this point cites a number of condenination cases, including United States v. Miller, 317 U.S. 369; United States v. Sowards, 370 F.2d 87 (10th Cir.); and United States v. Featherston, 325 F.2d 539 (10th Cir.). The record discloses that the rejection by the trial court of the evidence of “sales” was well within its discre- tion. As indicated above, the transactions which ha7,/an arguable similarity were very remote in time or place, and those closer in time and space had little or no similarity. As a matter of law, the trial court was within its discretion, in view of the evidence before it, in selecting the value less ex- 50a pense formula as a secondary method. There was ample evidence before it on the elements of the method. The appellants also argue that the value less expense method was improperly applied in that the proof was deficient as to certain elements, that mistakes were made, and that “trifling recognition” was given to certain evi- dence. We will take these references to mean that there was not substantial evidence on the several factors or elements of the method of valuation. As to the several elements, the appellants” urge that the amount used as the “return on investment” expense was not sufficient. The trial court used a figure which was part of the testimony of plaintiff’s witnesses, and the method by which it was. arrived at was so presented. There was no substantial contrary evidence presented at trial although on appeal appellants assert deficiencies in the method. This was a factual determination and there was substantial evidence to support the trial court’s find- ings although we might not have reached the same result. The appellants also object to the allowance made by the trial court of $2.00 per Mcf for the “treatment” of the “crude” helium sold to it by Phillips, but to be incurred by the Government before resale by it, as insufficient in that it did not include transportation and storage. Mat- ters of expense to be incurred subsequent to the delivery and perhaps some transportation from place of delivery to the underground storage are not shown to have been omitted from the $2.00 figure although it was denominated a “treatment” or “processing” cost. In any event, these costs are more properly attributable to the general conser- vation program as the duration of the storage and addi- tional transportation are unknown factors under the record. The use of the deduction was proper and appellants have 5la not shown that it was not supported by substantial evi- dence. The trial court used a figure of $20.00 per Mcf for the selling price of helium, and this was the “value” ele- ment of the value less expense method. This figure was testified to by the witness for the plaintiffs, and the amount is well within the Bureau of Mines Yearbook figures for the several years in issue. The evidence supports this figure also, and this price issue was not directly met by defendant by way of proof. The Government, in an argument again based on con- demnation doctrine, urges that the helium values were created by its own purchase program—The Helium Con- servation Program, and it should not have to pay for such values. It cites several condemnation cases on this point and United States v. Fuller, 409 U.S. 488, which in turn cited United States v. Cors, 337 U.S. 325. This again concerned payment for something requisitioned by the Government. The issue here is the determination of value of a commodity which was purchased and sold by the Government and by private concerns. This cannot be equated to the cases where the condemnation or the reason for condemnation increases the value of the land taken. The helium has value by reason of its nature and useful- ness. The Government may have made this helium aveil- able but did not create its value. The appellants vigorously attack the use by the trial court of the value of hydrocarbon liquids produced at the helium plants in the value less expense calculations. The trial court, on the basis of extensive testimony, and also on exhibits consisting of letters from Phillips, allo- cated part of the plant expense to these liquids as by- products. The evidence is clear that an increase in the 52a production of liquids would result from the helium plant operation. This would be an increase over what had been experienced before and over ordinary extraction plants. The witnesses calculated the amount to be so used in the formula. This was not contradicted in amount by appellants, as instead they maintained that the increase in liquid production did not result at all from the treatment of the gas stream for helium extraction. The record shows that increased quantities of wet gas were directed to at least one of the plants and this could make a difference in the production of liquids, but no figures were produced by defendants. Instead the defendants maintained in the face of overwhelming evidence to the contrary that the helium extraction made no difference. Under this state of the record, we must hold that the trial court was justi- fied in using the figures it did as they were supported by substantial evidence. Different quantities of liquids were produced at different plants, and this resulted in different helium values at different plants. This, in view of the evidence, was a consequence of the application of the expense element in the formula. Evidence on this issue was presented by the parties as indicated above, and although the result may not have been as precise as it could have been, it is again a factor supported by substantial evidence. ihe The Government makes the point that the value of he- lium at the wellhead determined by the trial court exceeds the base price for the helium-nitrogen mixture it was buy- ing from Phillips under its contract. This is the conse- quence of the decision, but there is no reason why the well- head price should be determined by the contract price. The contract between the appellants was negotiated between them alone, and the pricing was the evaluation by them of the entire economic consequences flowing from the con- oe ” 53a tract including many significant factors such as its duration, warranties, and indemnities. We have described the con- tract at the outset of this opinion. Attention should how- ever be directed again to the evaluations made of the legal questions, especially the title questions. The Government agreed basically to pay Phillips for its interest in the helium and then to pay more if other interest owners es- tablished their claims. Thus the price “paid” for all the interests in the helium has not yet been determined. The considerations leading to this method were described above. The value here sought to be established is independent of the contract base amount and covers all interests of the proper parties. We have considered Lippert v. Angle, 211 Kan. 695, 508 P.2d 920. It states the traditional preference for com- parable sales proof. The case does not involve the separate valuation of helium. The plant was very small, and the situation is not comparable in any way. See also Green- shields v. Warren Petroleum Corp., 248 F.2d 61 (10th Cir.). This appeal also raises issues as to the allowance of prejudgment interest, attorney fees, and the matter of limitations. The trial court tried the case as a federal question case, relying on our opinion in Texaco Inc. v. Phillips Petroleum Co., 481 F.2d 70 (10th Cir.), which was thereafter reversed by the Supreme Court in Phillips Pe- troleum Co. v. Texaco Inc., 415 U.S. 125. The original Consolidated Helium Cases were based on federal interpleader jurisdiction, and also federal law was applied. The case before us on this appeal started as a diversity suit. We have described at some length above the participation of the United States in this action, espe- cially the initial intervention as a plaintiff expressly under 28 U.S.C. 1345. It is apparent however that its alignment at all times was with the defendant Phillips on all impor- 54a tant issues. No relief was sought by Ashland directly against the United States. The trial court found the ele- ments of a condemnation or seizure by the United States, but this analysis of the manner in which helium was ac- quired was considered in the Consolidated Helium Cases, and the arguments were rejected. As a matter apart from jurisdiction, we hold that the trial court’s application of federal law was proper. The action of the Government in entering the case as a plain- tiff under 28 U.S.C. § 1345 is a significant factor to be con- sidered. The real party in interest thus appeared formally to challenge the claims of Ashland. The Government so asserted that it had a real and substantial interest in the litigation, and that an actual controversy existed between it and Ashland. It is apparent that under the contractual arrangement, the United States ‘s to pay to Phillips the amounts that Phillips “shall pay” to other parties for the acquisition of helium in the natrual gas. Thus the United States is liable for the additional amounts which Phillips will have to pay by reason of this action. The Gov- ernment has here entered the litigation to assert its own position and interest.- This is initially a matter of dollars, but the Government still has possession of a large part of the helium in question, and this possession can put a some- what different cast on the problem. These circumstances and the intervention could very well have changed the ac- tion to something other than the usual diversity suit at least for the purpose of the application of Erie v. Tomp- kins. This has interesting possibilities, but in any event, the circumstances direct that federal law be applied. - As indicated above, and as demonstrated in Northern Natural Gas Co. v. Grounds, 441 F.2d 704 (10th Cir.), and by the record here, the Government is ultimately faced with claims made by many thousands of interest owners ——— 55a from many states relating to production from Kansas, Oklahoma, and Texas. Each state has different legal doc- trines relating, among other things, to the nature of in- terests in oil and gas, and what rights are created by oil and gas leases. With the primary liability for the dollars, and for the determination of ownership resting with the United States which obtained possession of the helium, we hold that the application of the rule expressed in Clear- field Trust Co. v. United States, 318 U.S. 363, is indicated. One of the most significant factors is the one indicated above, that is, the fact that the United States ended up with the helium. It directed, by contracting, the diversion of the helium to itself before resolving the obvious owner- ship problems with ‘a multitude of claimants having di- verse legal relationships to the helium, depending upon the place where the natural gas was produced and upon their contractual positions. The United States, again by contract, sought to handle these problems by pzoviding for reimbursement to Phillips, and it may have done so. The Government nevertheless obviously has the basic responsi- bility and liability, as it recognizes by its intervention. Erie v. Tompkins does not demand the application of state law to all diversity actions. The Court in the Clear- field Trust case set out an exception which was there ap- plied to “obligations” of the United States and later ex- panded. The case concerned the forgery of a Government check, and a delay in notice by the Government to the bank beyond the period contemplated under state law. The Court held that rights of the Government relating to com- mercial paper it issues are determined by federal and not state law. The Court said that the authority to issue the check in question originated in the Constitution and stat- utes of the United States and was not dependent on the laws of any state. In the matter before us, the helium was acquired by the United States by contracts as authorized 56a by federal statutes. This contracting with private enter- prise was suggested by statute. As stated by the Court in the cited case, “The desirability of a uniform rule is plain.” See also National Metropolitan Bank v. United States, 323 U.S. 454, limited by Bank of America v. Par- nell, 352 U.S. 29. The War Bond cases in state and federal courts lead to the same result. See In re Stanley’s Estate, 80 P.2d 332 (Colo.). The Court in D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447, also indicated a considerable area to be omitted from the application of Erie. There an action by the FDIC was brought on a note given to a bank by the defendant, and the Court applied federal law. Also in the shareholders’ liability action in Holmberg v. Armbrecht, 327 U.S. 392, in the solution of a limitations problem, the federal law was applied. Generally, see 59 Harv. L. Rev. 976, and 105 U.Pa.L.Rev. 797. Under Clearfield when the United States seeks to liti- gate or seek a remedy arising from transactions it has entered into in the ordinary commercial world to carry out its program, it has been held that federal law may be ap- plied. The federal courts can adopt a governing rule of law in such circumstances if there is no statutory direction to the contrary. Clearfield expressly so held. 318 U.S. at 366. See also United States v. Allegheny County, 322 U.S. 174. Clearfield thus indicates that the Court may apply state doctrines or parts of them as “federal law.” In United States v. Standard Oil Co., 332 U.S. 301, the Court stated that the interests of the Government and its legal relationships may be so determined. The impact of the application of state law upon the governmental interests is a factor of great weight. See United States v. Mitchell, 402 U.S. 190. The Court, in United States v. Little Lake Misere Land Co., 412 U.S. 580, considered the application of a Louisiana 57a statute to the reservation of a mineral interest in land ac- quired by the United States. The factors discussed above were there treated, and the process was described as a “choice of law” (federal or state) matter. The Court there said: “However, in a setting in which the rights of the United States are at issue in a contract to which it is a party and ‘the issue’s outcome bears some relation- ship to a federal program, no rule may be applied which would not be wholly in accord with that pur- pose.’” [The quotation included being from Mishkin, 105 U.Pa.L.Rev. at pp. 805-6. ] The Court found further that the federal land acquisition program in United States v. Little Lake Misere Land Co. conflicted with the state law on the duration of reserved mineral interests and said: “The choice of law merges with the constitutional demands of controlling federal leg- islation; we turn away from state law by default.” In the case before us, the United States was seeking to carry out the Helium Conservation Program then consid- ered of great urgency and importance. It sought to, and did, acquire possession of the helium as directed by the legislation. The action of the Bureau of Mines was effec- tive. In so doing it set up the contractual walls between itself and the land owners and gas producers, and put off the inevitable day of reckoning as to ownership. Phillips is really only a nominal party and looking at the substance, the Government has the responsibility arising from its ac- quisition and possession of the helium. In the face of the multitude of claimants, the variations in state law, and the Clearfield doctrine, the trial court was correct in not applying Erie v. Tompkins. 58a We find no merit to the contention of Phillips that it is entitled to a setoff for any sums previously paid to Ash- land for purchases of jurisdictional gas. The court in the Consolidated Helium Cases considered the ownership of the interests, title to the helium, and described how these passed down the gas stream. This de- termination prevails. The trial court, as to the interest of the landowners-lessors, apparently followed a confiscation- condemnation theory and divided the value of the helium to be recovered from defendant Phillips equally between the lessors and lessees. Our opinion in the Consolidated Helium Cases requires that this division be in accordance with the lease terms, and thus the same division as applied to the hydrocarbons. The judgment of the trial court making an equal division between lessor and lessee of the proceeds attributable to helium values must be and is reversed with directions to enter judgment providing for a division in accordance with the terms of the leases, and the terms of other agreements relating to the shares of pro- duction, or payment for shares of production, if such be applicable. The issue of limitations has been raised together with the tolling of whatever statute may be applicable. This litigation concerning the property interests in helium and the right to compensation, considering the related cases, has been protracted and equitable considerations applicable to periods of limitation have come into play. See deHaas v. Empire Petroleum Co., 435 F.2d 1223 (10th Cir.). We must conclude that this action has not been barred. Ameri- can Pipe & Construction Co. v. Utah, 414 U.S. 538. The trial court acted within its discretion under federal law in the allowance of prejudgment interest. Royal In- demnity Co. v. United States, 313 U.S. 289; St. Paul Mer- aA ak 5 OBR Ra ay 59a cury Indemnity Co. v. United States, 201 F.2d 57 (10th Cir.). As to attorney fees awarded by the trial court, we are unable to find any statutory provision for them or any rule of practice which would authorize such fees. The - Supreme Court has, since the trial court’s decision, decided F. D. Rich Co. v. Industrial Lumber Co., 417 U.S. 116, a Miller Act case. The opinion includes a direct and in- tensive consideration of attorneys fees. The Court there defines the basic rule: “The so-called ‘American Rule’ governing the award of attorneys’ fees in litigation in the federal courts is that attorneys’ fees ‘are not ordinarily re- coverable in the absence of a statute of enforceable contract providing therefor.’ ” The Court concluded that Miller Act suits are “plain and simple commercial litigation,” and the Court would not change the American Rule “in the context of everyday commercial litigation.” We must hold that this litigation is not so dissimilar to Miller Act suits as to bring about a different result as to attorney fees than expressed in F. D. Rich Co. The judgment of the trial court is thus REverseEp as to the award of attorney fees, and as to the equal division between lessor and lessee of the proceeds attributed to the value of the helium, as above indicated. The judgment is AFFIRMED in all other respects. 60a UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT MARCH TERM—May 10, 1977 Before The Honorable David T. Lewis, Chief Judge, The Honorable Jean S. Breitenstein, Senior Circuit Judge, The Honorable Oliver Seth, Circuit Judge, The Honorable Robert H. McWilliams, Circuit Judge, The Honorable James E. Barrett, Circuit Judge, and The Honorable William E. Doyle, Circuit Judge No. 73-1797 No. 73-1798 No. 73-1799 (D.C. No. 67-C-238) | ASHLAND OIL, INC., Plaintiff-Appellee and Cross-Appellant, VS. PHILLIPS PETROLEUM COMPANY, Defendant-Appellant, vs. UNITED STATES OF AMERICA, Intervenor-Appellant. JUDGMENT This cause came on to be heard en banc on the con- solidated record on appeal from the United States District Court for the Northern District of Oklahoma and was argued by counsel and submitted to the Court. RSI RCs cant wai SA Sd Re a Sen nel te NS es SS NE A AIOE Bt ot ee a am) 6la Upon consideration whereof, it is the judgment of this Court that the judgment of the district court is affirmed in part and reversed in part as more fully set forth in this Court’s opinion. The cause is remanded to the United States District Court for the Northern District of Oklahoma for further proceedings in light of the opinion of this Court. Each party shall bear its own costs. /s/ Howard K. Phillips Howard K. Phillips Clerk /s/ Linda A. Hall Deputy Clerk 62a IN THE UNITED STATES STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OKLAHOMA No. 67-C-238 ASHLAND OIL, INC., Plaintiff, vs. PHILLIPS PETROLEUM COMPANY, Defendant, and UNITED STATES OF AMERICA, Intervenor. MEMORANDUM OPINION (Filed December 28, 1978) Gerald Sawatzky of Foulston, Siefkin, Powers & Eberhardt, Wichita, Kansas; John M. Imel of Martin, Logan, Moyers, Martin & Conway, Tulsa, Oklahoma; and W. O. Strong, III, Ashland Oil, Inc., Houston, Texas, At- torneys for Plaintiff Ashland Oil, Inc. Don L. Jemison, Phillips Petroleum Company, Bartlesville, Oklahoma; and L. K. Smith of Boone, Ellison & Smith, Tulsa, Oklahoma, Attorneys for Defendant Phillips Petroleum Company. John E. Lindskold, Dennis A. Dutterer and Andrew F. Walch, Department of Justice, Washington, D. C.; and Hubert H. Bryant, United States Attorney, and Hubert A. Marlow, Assistant United States Attorney, Attorneys for Intervenor United States of America. Cy a ee ee 4h 63a Before LUTHER BOHANON, United States District Judge Introduction (See also Findings Nos. 1-13) Plaintiff Ashland seeks compensation for helium con- tained in the natural gas stream acquired from plaintiff by defendant Phillips, which was subsequently extracted and sold separately to the United States government. Originally tried in 1973, this case was remanded on appeal to retry controlling factual issues. In the first trial plain- tiff and defendants’ legal theories and approaches were suf- ficiently divergent to prevent a joining of issues. Conse- quently, crucial factual considerations were never fully developed evidentially. At retrial the significant factual matters were developed more fully and thoughtfully than before. Thus, the court must be amenable to discarding earlier erroneous conclusions. The interests of justice, aptly perceived by the circuit court opinion in this case, require no less. In adjudicating this controversy a second time, the court was assisted by the appellate court’s enunciation of certain controlling legal principles. The basic legal re- lationships among the landowners, producers and gas pur- chasers were established, notably including the lessee- producer’s right to the reasonable value of the contained helium. Northern Natural Gas Company v. Grounds, 441 F.2d 704 (10th Cir. 1971); Ashland Oil, Inc. v. Phillips Pe- troleum Company (hereafter Ashland v. Phillips), 554 F. 2d 381 at 384 (10th Cir. 1975). The prime responsibility of this Court is to determine the reasonable value of the helium herein when com- mingled at the wellhead with other natural gas. Ashland v. Phillips, supra at 385-386. Such “value” is basically a factual matter to be ascertained through application of the 64a appropriate legal doctrines. Ashland v. Phillips, supra at 385. Optimally, a product’s “fair market value” is deter- minable by examining comparable sales of the same product. Ashland v. Phillips, supra at 387. Significantly, some sales of commingled helium offered in evidence here were too remote in time, and otherwise incomparable, to be relied on solely. The “Work-Back” Method The next best approach is the “work-back” or “value less expense” method whereby a raw material’s value is extrapolated by using as a starting point an end product of that material whose value is certain. The costs of transforming the raw material from the stage where its value is unknown to that where its value is certain are subtracted from the starting value to reveal the value being sought. “The work-back valuation is well recognized in the production and early processing of natural gas... . There is nothing unusual about the method, it is subject to proof, and can be just as accurate as any other method, but it is more difficult to apply.” Ashland v. Phillips, supra at 387. Effective application of this method requires selec- tion of an appropriate starting value in the form of a processing stage whose product possesses a value certain; accurate assessment of the costs accruing between the known stage and the one in question is also essential. In developing a resource from a raw material into a finished product, each production stage will add economic value to what was initially only the value of the raw material. The value added at each stage of production is essentially the cost of resources used in taking the material through that stage of production. The work-back method es- nb thie Mire AOS Anh Se Let mil it Sates. ~ Pads whiter oa ae oS ella at ie da SEs a 65a sefitially establishes at each production stage the value of the product at that point. By subtracting out all produc- tion costs, the value of the raw material is revealed.’ Ap- plication of this approach, however, can be difficult. Market structures vary at different production stages and cor- relating figures from one stage to the next can require abstruse analytical calculations, easily resulting in error. The selected starting point should be as close as possible to the production stage in question.” With these theoretical considerations in mind, two potentially viable starting points emerge. One is helium in its crude form; the other is helium in its pure Grade A refined form, the starting point initially adopted by this court. 1. “Yes, I am familiar with the workback method of dis- covering the value of a raw material where there are no com- parable sales that can be used to attribute value to it. Essentially, as I understand it, if a raw material is scarce enough to command a price or to have an economic value, then, this raw material may go through several stages of production and production process to turn it into an end product. At each of the production stages, there will be value added to what was originally a value of the raw material. The value added at each stage of production is essentially the cost of resources used in taking the material through that stage of production. Now, then, a workback amounts to determining at some stage, at some market, at one of the stages of production, what the value of the product up to that point really is. Then, we subtract out the costs and that should leave us with the economic value of the raw material, if the starting point is correct, if the workback is correctly done.” (Tr. 368-369, Dr. Richard H. Leftwich, Regents Professor of Economics and former head of the Department of Economics at Oklahoma State University.) 2. “...[I]f you work back through several successive stages in going from one stage of the production process to another, there are likely to be errors involved, errors involved in compu- tations. There will be errors involved because market structures differ at differing stages of production, and the more stages of production that you work back through, the more likely we are to compound these errors and to wind up with an erroneous computation, an erroneous value for the raw material.... [I]t seems to me that the appropriate starting point is the closest identifiable market to the raw material.” (Tr. 369-370, Dr. Leftwich, supra) See also the testimony of Dr. Ezra Solomon, Dean Witter Professor of Finance at Stanford University, at Tr. 418. 66a Refined Helium Market (See also Findings Nos. 14-18) If one fact has clearly emerged at retrial, it is the inappropriateness of using refined helium prices as a start- ing value in extrapolating commingled helium’s value at the wellhead. Possession of a production phase where the raw mate- rial has been processed to a point of possessing a value certain is crucial to the work-back method, whose efficacy is based on employing known data to extrapolate the un- known. Refined helium prices for the time period relevant to this case were not only distorted by monopolistic market conditions which prevented pure helium’s prices from re- flecting the product’s “fair market value,” but even more significantly there was never any relationship whatsoever established between the commingled helium in this case and any refined helium market. All of the commingled helium in this case was pro- cessed into crude helium and placed in underground storage by the government, where it remains today. None has been refined in Grade A helium.* It was acquired with 3. “. .. [T]he crude helium that has been put into the government’s Cliffside field . . . was never produced to supply current demands. ... We don’t know when it’s going to be used. We don’t know what purpose it’s going to be used for, and we don’t know what price it’s going to be sold for sometime in the future, when and if it’s ever used... . So, it’s setting there, and it’s in the Cliffside field, and there is 36 billion cubic feet of it. Now, 2 billion cubic feet of that was put in there by the Bureau of Mines, so only 34 billion cubic feet represents helium that was obtained from the conservation companies ....” (Tr. 321-322, Henry P. Wheeler, Jr., former Assistant Director to the Bureau of Mines responsible for the government’s helium conservation program) “Q Of all of the helium acquired under the conservation program is all of it in storage at Cliffside? A Yes, it is.” (Tr. 283, 284, Ray D. Munnerlyn, Chief of the Helium Division of the Bureau of Mines) ee ES eat AEG nn a Pwo Stger Bee AE 1 67a conservational intent and for consumption at some unde- termined future time. Any suggestion that the helium in this case could have been refined and subsequently sold at then prevailing market prices of $20 to $35 per Mcf is at variance with what the most persuasive evidence before this court demonstrates to be the truth.‘ Refined helium prices during the period in question consistently were distorted by effects of a monopolistic seller’s market and never were determined by free and open competition. Government prices based on long-term policy considerations completely dominated the market in the initial years significant to this case, and were influen- tial throughout the entire course of the pertinent time period. Introduction into the refined helium market of even a small percentage of the large helium quantities at issue here would have plummeted prices industry-wide, not only because any reasonable competition would have constituted an effective assault on the then prevailing arti- ficially high price structure, but also due to the relatively inelastic helium demand at the time. Only a small number of end uses for refined helium exist, and those end uses can absorb only limited quantities of refined helium.® When a product is available in quantities greatly exceeding anything the market requires or can absorb, the excess amount is worth very littlesand will tend to severely 4. “. . . Ashland’s calculations assume that if more crude had been refined, that the price would not have changed. Basic economic principle called the law of demand tells us that this is false, and the numerical analyses that I have just gone through show just how false this kind of an assumption, an underlying assumption can be. Because only a very small increase in the quantity of crude refined would lead to a relatively large decrease in the price of the Grade A helium.” (Tr. 794, Dr. Ronald Braeutigam, Professor of Economics at Northwestern University) 5. “There are a small number of end uses of refined helium and each of these end uses can absorb only limited quantities of refined helium.” (Tr. 386, Dr. Leftwich, supra) 68a depress prices, as competition forces sellers to unload their product for virtually anything they can get.® Large quantities of crude helium were produced and sold in the United States during the years in question. In comparison, very small quantities of refined helium were bought and sold. In light of the inelasticity of de- mand for refined helium, and the marked disparity volume- wise between crude and refined helium, the best evidence indicates that a 1 percent increase in the refinement of available crude helium would have led to a drop in refined helium prices of at least 5 percent, and possibly in excess of 9 percent, depending on the year chosen.’ Introduction of a large quantity of such helium into the market would have driven the price down to near zero.° The salient fact questions herein can in no manner be resolved by reference to the refined helium market. The helium here was never refined, and it never influenced or was affected by any refined market. Simply stated, in this case refined helium prices represent an inappro- priate and unsatisfactory starting point for application of 6. “We could have gone out and been very hard bargainers, playing one of these companies against the other, because ob- viously some of them are going to get something for their helium and some of them were not....” (Tr. 324, Wheeler, supra) 7. “. .. [T]he volume of the crude helium was something like five to nine times the volume of the helium in the Grade A market, depending on which year you pick. So, for example, if we were to take one percent of the crude in any given year that had been produced and convert that to Grade A, then, you would get from five to nine percent change in the quantity of Grade A helium. And using this information on elasticity of demand, we conclude that the one percent increase in the quantity of crude which is refined would lead to a drop in price in the Grade A market, at least five percent, and maybe even more than nine percent, depending on the year we pick.” (Tr. 793, Dr. Braeuti- gam, supra) 8. “If a very large quantity of Grade A helium or refined helium were thrown on the market, this would drive the price down to near zero.” (Tr. 387, Dr. Leftwich, supra) Si at etn A torte hitler vw HLF x 5 ABO a id li ce Cin Sin AY are Se on bio KES Hott Ok. ees ae hh wa TS Oh jee eT ma Pathe 69a the work-back method. The best evidence repeatedly em- phasizes the ineffectiveness of attempting to infer the value of large quantities of crude or commingled helium, based upon the relatively small number of refined helium market transactions.° Crude Helium Market (See also Finding No. 19) The other potential starting point for application of the work-back method is the crude helium market. It represents the first processing stage at which helium per se is freely marketed and the first form into which com- mingled helium is separated. The close proximity of the two stages makes work-back calculations easier and more reliable. During the relevant years, crude helium produc- tion was much more comparable in quantity to commingled helium production than was refined helium production, 9. “It is simply not proper to infer the value of a large amount of crude helium, based upon the small amount of helium in the Grade A market. And to illustrate this. Suppose we did start with that $20 price of Grade A helium and suppose following the workback method we subtracted off the cost of converting crude helium to Grade A helium to arrive at some kind of net price for crude helium. The next step in the workback method then would be to try to compute a value for all of that crude helium, and this would be done by taking the net price that we calculated and multiplying it by the quantity of crude. The problem which arises is simply this. It imputes a value to all of the crude helium, based upon the $20 attached to only a very small volume in the Grade A market. In other words, the method that was proposed by Ashland assumes, in principle, if not in fact, that we could have refined all of that crude helium and sold it in the Grade A markets and that the price would not change from $20. This violates the fundamental law which economists call the law of demand, namely, we know that if the quantity of Grade A helium had been larger, that the price would have dropped. And this is exactly the point that Ashland has ignored in coming up with this workback method and applying the $20 figure as though we can impute a value to all of that crude heliurn based on that quantity, which is very small in the Grade A market.” (Tr. 789-790, Dr. Braeutigam, supra) ~ 70a and all the helium at issue was sold and maintained in ~ crude helium form. The crude helium market was by far the largest helium market existent during the pertinent ten year period. Beginning the work-back method here would allow us to make computations on the basis of events and transactions which actually occurred, and would minimize the need for speculation of the type refined helium figures require. Supply and demand characteristics of the crude helium market were similar in size and structure to those which would have attended a commingled helium market if one had been independently identifiable, and the comparability of these economic factors makes comparisons between the commingled and crude stages much more realistic than comparisons with the refined stage. Several factors made crude helium prices more repre- sentative of helium’s fair market value at that level than pure helium prices were at the refined level. When the conservation program was initiated, a great many potential sellers received notice from the government of its intention to buy crude helium, and some 13 or 14 companies ex- pressed interest in contracting as crude helium suppliers. The contracts which finally emerged, including Phillips’ contract, followed extensive “good faith’ and “arm’s length” negotiations. The price paid for crude helium to the “‘Helex” companies, including Phillips, averaged about $12 per Mcf. While the evidence reveals that the crude helium market was not a perfectly competitive market in the classical economic sense, throughout most of the relevant period there were at least four sellers in the market, dealing at prices freely negotiated, and substantial amounts of crude helium were exchanged within a fairly . . si i Sesleri re eI CEST ELAE aaa RE . Po ee Ds oe a ; 4 _ E 5 4 3 7 i ee ae 7la . harrow range of prices.” This market was at least im- perfectly competitive and significantly more competitive than the refined market. A rather well developed crude helium market existed, then, during the time period rele- vant here, generally operating within a price range of $11.00 to $14.00. Phillips Contract Price Since the evidence of both Ashland and defendant Phillips offers work-back calculations based on Phillips’ actuai extraction costs, employing Phillips’ actual contract price as a starting value would be ideal if shown to repre- sent a fair and reasonable price for crude helium."! The Phillips contract was one of four negotiated with the four “Helex” companies and, like the others, resulted from ex- tensive “arms length” negotiations. The court is now per- suaded that Phillips’ contract price of approximately $10.3 [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385006_1678%3A2. Public record. Not legal advice.