# Petition — Ashland Oil, Inc. v. Phillips Petroleum Co.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1980
- **Citation:** 446 U.S. 936

## Text

Gupreme Court, U. &
v4 9 ee » 5 0 7 FILED
\ FEB 12 1980
4]
No. 79- | MICHAEL RODAK, JR., CLERR

IN THE

Supreme Court of the United States
October Term, 1979

PHILLIPS PETROLEUM COMPANY,

. Petitioner,

ASHLAND OIL, INC., et al.,
Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT

WILLIAM H. ALLEN
EUGENE D. GULLAND
SARAH E. BURNS
Covington & Burling
888 Sixteenth Street, N.W.
Washington, D.C. 20006

KENNETH HEADY

C.J. ROBERTS

DON L. JEMiSON
Phillips Petroleum Company
Bartlesville, Oklahoma 74004

Attorneys for Petitioner

February 1980

TABLE OF CONTENTS

Page
sR a er ree nr eee eee l |
ER Oe ETS OR 2
QUESTION PRESENTED ......... AES Ta ee ee 2
STATUTE INVOLVED .......... 0.0 seeeeeeeeeeeeeeeeee ees 2
SEE ea ctdawesds speenee sss ohh ee a aaa 3
REASONS FOR GRANTING THE WRIT ................-55- 9
ee FERS ee Pee Oe 21
APPENDIX A — Opinion of the District Court ............... la

APPENDIX B — Opinion of the Court of Appeals En Banc .... 20a

APPENDIX C — Memorandum Opinion of the District Court

a ee ee ied 5 wah cdiaee 54a
APPENDIX D —Opinion of Court of Appeals Affirming
District Court’s Judgment on Remand ....... 9la
APPENDIX E — Judgment of Court of Appeals .............. 95a
APPENDIX F —Court of Appeals’ Order Denying
ES 97a
INDEX TO CITATIONS
Cases:
Ashland Oil & Refining Co. v. FPC,
Pvil & Fs) le SS nen ret eer 16
Baltimore & O.R.R. v. United States,
a eckeasukp is CaKe es caenccrccce meses. 15
Brotherhood of Locomotive Firemen v. Bangor
& Aroostook R.R.,
EERE ES OE er ae ner rere 21

Cannon v. University of Chicago, .
toe aa a lank dctksaisadhseschinactenues 19

Communist Party v. Whitcomb,
a ad a ne i 2

Cort v. Ash,
an Se NN he i bes wes 19

Grounds v. Northern Natural Gas Co.,
404 U.S. 951 (1971), denying cert. to 441
F.2d 704 (10th Cir.), rehearing denied,

en IE she as okies oo Ge cn bud bes 0ecvw dace 2
Hamilton-Brown Shoe Co. v. Wolf Bros. & Co.,

i a Nn obacbue 21
Montana-Dakota Utilities Co. v. Northwestern
Public Service Co.,

ee IE Tecra. awk Wiad os cb bk oles dd evaeaseueee 18

Northern Natural Gas Co. v. Grounds,
441 F.2d 704 (10th Cir. 1971), cert. denied,
404 U.S. 951, 1063 (1972) . . 4, 5, 6, 7, 8, 9, 11, 15, 16, 17, 18, 20, 21

Northern Natural Gas Co. v. Grounds,
393 F.Supp. 949 (D.Kan. 1974) on remand
Po wT Eg ) a 8

Northern Natural Gas Co. v. Mobil Oil Corp.,
404 U.S. 1063 (1972), denying cert. to
Northern Natural Gas Co. v. Grounds,
a i I EUTIT ED ks dc 0d ccdd av bap oe vba was cvcaeces 3

Pan American Petroleum Corp. v. Superior Court,
A EE cS Od 5S bbe ensks ceeds bode esd cowees 11

Panhandle Eastern Pipe Line Co. v. FPC,
eT re I WUD ka d's bsoiev ule ied. pes cecpon ed oaua’ 14

Phillips Petroleum Co. v. Texaco Inc.,
ie a iia se on kins od wb mb- Gade Oe eeeS 7, 8, 17, 18

Phillips Petroleum Co. v. Wisconsin,
Beet a POE: 5 60 c RenG Wht haw K ia cicns ins (IRR 5,11

Phoenix Lumber Co. v. Houston Water Co.,

Se Bs ig Os WE nF CU Ss bods Fo sc akds ca ba weldvccie 12
Skelly Oil Co. v. Phillips Petroleum Co.,

prs UP RUMI be O00 sia a eek so cad conévwahess 11, 18
Texaco Inc. v. Phillips Petroleum Co.,

481 F.2d 70 (10th Cir. 1973),

TIVE, BA I PR whe eek kWh cc hekbbat ccd bawecsec 7
Touche Ross & Co. v. Redington,

eI 5 OS oo ad wins ue coda ba nile hehe 19
Transamerica Mortgage Advisors, Inc. v. Lewis,

PUG PE ee a ees cabhiccess chides ceaceeccs 18, 19
United States v. Wabash R.R.,

Bee ene MIE ih 0 Gide das sss oh un XS Kd wkd debs EEK ckS 15
Statutory Provisions:
Natural Gas Act of June 21, 1938, 52 Stat. 821,

FP is Gl Se os 5% dbase s becouse Beets ok Cake 15, 17, 18

Oe Rs ae Os wh nia oases o Chaseeune ve Seals i

eg REP ORG RIE havaptir cea apace ten “ok pe
ar Oe MEE. FS hare eas UN ARO aS a AUD EKG oy Ekin Ciawen 2
Be eee CY ws bik bh cae bn aed Rbk Week bd hea ek awe 7
Interstate Commerce Act, 49 U.S.C. §§ 1 ef seq. ..>........... 15
Helium Act Amendments of 1960, Pub. L. No. 86-777

74 Stat, 918, SO U.S.C. $B 1G7-1G7Fm nn ccc wcccecss 5,17

§ 3 (a)(2A) & (B), 50 U.S.C.

NE ean. ss bak cee ben RAs OvW cowed ban 13

Sti, seuSiC. FIM . oie eics. 2, 3, 6, 9, 10, 12, 13, 14, 15, 16, 19

DEA Fe rine CD Ske vk kad Bent heaswevenccevibassares 15

Miscellaneous:

Corbin, Contracts (1960) Peete teen eee eee cece eee enon ee eees
H.R. Rep. No. 1552, 86th Cong., 2d Sess. (1960) ...............
S. Rep. No. 1814, 86th Cong., 2d Sess. (1960) ............ 12, 13,
Pea WU os 5 sack Henne ee ae Oe
Hearings on H.R. 10548 and S. 3376 Before the Senate
Committee on Interior and Insular Affairs,

a PE I sea eo uk ec baa ew
Hearings on H.R. 8440, H.R. 8451, H.R. 10548, and

H.R. 11030 Before the Subcommittee on Mines and

Mining of the House Committee on Interior and Insular
Affairs, 86th Cong., 2d Sess. (1960) .......... 0. ccc ccc ee cc ween

IN THE

Supreme Court of the United States
October Term, 1979

No. 79-

PHILLIPS PETROLEUM COMPANY,

Vv. Petitioner,

ASHLAND OIL, INC., et al.,
“Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT

Petitioner Phillips Petroleum Company prays that a
writ of certiorari issue to review the judgment of the Court
of Appeals for the Tenth Circuit in this case.

OPINIONS BELOW

The original opinion of the district court is reported at
364 F. Supp. 6 and is reprinted as Appendix A at pages
la-19a below. An opinion of the court of appeals en banc
affirming the district court in part and reversing in part is
reported at 554 F.2d 381 and is reprinted as Appendix B at
pages 20a-53a below. The district court’s opinion on re-
mand is reported at 463 F. Supp. 619 and is reprinted as
Appendix C at pages 54a-90a below. The opinion of the

court of appeals affirming the district court’s judgment on
the remand is not yet reported and is printed as Appendix
D at pages 9la-94a below.

JURISDICTION

The judgment of the court of appeals (App. E, pp.
95a-96a, infra) was entered on October 15, 1979. An order
denying a petition for rehearing and suggestion for rehear-
ing en banc was entered on November 14, 1979. (App. F,
pp. 97a-98a, infra.)' The jurisdiction of this Court is in-
voked pursuant to 28 U.S.C. § 1254(1).

QUESTION PRESENTED

Whether a federal statute that in terms merely excludes
helium from regulation under the Natural Gas Act is pro-
perly construed to imply a right on the part of a seller of
natural gas to disregard its unfrustrated contract of sale
for the entire gas stream and recover in quantum meruit
for helium contained in the gas stream.

STATUTE INVOLVED

Section 11 of the Helium Act of 1925, as added by the
Helium Act Amendments of 1960, 74 Stat. 922, 50 U.S.C.
§ 167i, provides:

The provisions of the Natural Gas Act of
June 21, 1938, as amended [15 U.S.C. 717 et

seq.], shall not be applicable to the sale, extrac-

'The petition for rehearing was that of respondent Ashland Oil,
Inc. The filing of the petition prevented the unitary judgment of the
court of appeals from becoming final until it was denied, so that the
time for petitioning for review in this Court was extended generally.
Corimunist Party v. Whitcomb, 414 U.S. 441, 445-46 (1974); com-
pare, as to a non-unitary judgment, Grounds v. Northern Natural Gas
Co., 404 U.S. 951 (1971), denying cert. to 441 F.2d 704 (10th Cir.),
rehearing denied, 404 U.S. 1065 (1972).

3

tion, processing, transportation, or storage of
helium either prior to or subsequent to the
separation of such helium from the natural gas
with which it is commingled, whether or not the
provisions of such Act apply to such natural gas,
and in determining the rates of a natural gas
company under sections 4 and 5 of the Natural
Gas Act, as amended [15 U.S‘C. 717c, 717d],
whenever helium is extracted from helium-
bearing natural gas, there shall be excluded (1) all
income received from the sale of helium; (2) all
direct costs incurred in the extraction, process-
ing, compression, transportation or storage of
helium; and (3) that portion of joint costs of ex-
ploration, production, gathering, extraction,
processing, compression, transportation or
Storage divided and allocated to helium on a
volumetric basis.

STATEMENT

Effectively, what the court below has done in this case is
to construe Section 11 of the Helium Act, which on its face
merely removes helium from regulatory control under the
Natural Gas Act, as enlarging the private rights of parties
that have contracted to sell helium as part of a natural gas
stream. That hoiding, embedded now in a final judgment |
of the court of appeals, presents a question that has been
presented before on requests to review interlocutory deci-
sions of the same court in this and another case. See Nor-
thern Natural Gas Co. v. Mobil Oil Corp., 404 U.S. 1063
(1972) (Nos. 71-238, 71-243) (Stewart and Blackmun, JJ.,
noting their opinion that certiorari should be granted);
Phillips Petroleum Co. v. Ashland Oil, Inc., 434. U.S. 921
(1977) (No. 77-221); United States v. Ashland Oil, Inc.,
434 U.S. 968 (1977) (No. 77-530).

4

The entry of the final judgment makes clear that the
question will not go away. It remains an important ques-
tion. And it is an even more substantial question than
when earlier presented because of the apparent incon-
sistency of the court of appeals’ decision with the recent
decisions in which this Court has confirmed that a private
right of action not evident on the face of a congressional
er.actment is not to be read into the enactment unless there
is some unmistakable indicium of a congressional intent to
create the private right.

Factual Background

The case concerns rights under contracts entered into in
1945 and 1953 by which petitioner Phillips Petroleum
Company purchases natural gas from wells in Texas pro-
duced by respondent Ashland Oil, Inc., which had obtain-
ed production rights under typical oil and gas leases. The
natural gas stream from these wells contains a small but
significant amount of helium, a noncombustible gas that
has uses in certain technologies. The wells are located in a
natural gas field rich enough in helium to make helium ex-
traction technologically feasible — a fact known when the
contracts for sale of the natural gas stream were made.

The oil and gas leases pursuant to which Ashland pro-
duces natural gas in these helium-rich fields convey to
Ashland title to the helium as well as other components of
the natural gas stream. And contracts such as those by
which Ashland sells the stream to Phillips convey title to
the helium entrained with the gas. The court below so rul-
ed as @ matter of the relevant state law in the consolidated
helium title litigation, Northern Natural Gas Co. v.
Grounds, 441 F.2d 704, 710-15, 717-18 (10th Cir. 1971).

The Ashland-Phillips contracts were filed with the
Federal Power Commission after this Court held in

5

Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672, 681-85
(1954), that sales of natural gas by producers for resale in
interstate commerce are subject to the Natural Gas Acct. .
The contracts thereby became rate schedules under Section
4 of the Act, subject to the power of the FPC (now the
Federal Energy Regulatory Commission) under Sections 4
and 5 to substitute other rates that it finds just and
reasonable. 15 U.S.C. §§ 717c, 717d. The FPC has never
exercised its power under these sections to prevent
Ashland from collecting the full contract price of the
natural gas stream.

The Helium Act Amendments of 1960

_ The occasion for the Grounds litigation and this
separate litigation was the enactment by Congress in 1960
of comprehensive amendments to the Helium Act of 1925
and actions pursuant to the amendments. The Helium Act
Amendments of 1960 constitute a wholly new, self-con-
tained statute authorizing a forward-looking program for
the conservation of helium. 74 Stat. 918, 50 U.S.C. §§
167-167m. The amendments, among other things, em-
powered the Department of the Interior to purchase and
store helium that otherwise would be wasted when the
combustible gas with which it was entrained was produced
for fuel. Under its new statutory authority, the Depart-
ment in 1961 concluded long-term contracts to buy helium
from Phillips and three other companies that had purchas-
ed and were engaged in processing natural gas from the
helium-rich Hugoton-Panhandle fields of Texas,
Oklahoma and Kansas. Under the contracts, the com-
panies agreed to extract helium from the natural gas
stream at plants designed by them and built at their own
risk and to convey the helium to the Government to be
stored for future use. Phillips and the other companies
warranted their title to the helium, and the Government

6

agreed to reimburse the contractors for any amounts in ex-
cess Of about $3 a thousand cubic feet (mcf) that they
might be compelled to pay for the acquisition of the
helium in the natural gas they processed.

Section 11 of the Helium Act as added by the 1960
Amendments provides that the Natural Gas Act does not
apply to the sale of helium and that costs and revenues at-
tributable to helium are to be disregarded by the FPC in
any determination of rates for natural gas companies. (Pp.
2-3, supra.)

Litigation over the Title to Helium

The Grounds litigation reflected a typical attempt by
sellers who witness an increase in the value of what they
have sold to repudiate their sales contracts and obtain a
share of the enhanced value.

As noted above, the court of appeals in Grounds re-
jected the producers’ argument that helium was not cov-
ered by their natural gas sales contracts. It went on to
hold, however, that Section 11 of the Helium Act, assisted
by the Natural Gas Act, freed the producers of their con-
tractual obligations so far as helium was concerned and
entitled them to a quantum meruit recovery. Its decision
seemed to rest on two separate bases. First, it depended on
the purely conceptual proposition that a “utility rate,” i.e.,
the contractual price for natural gas filed as a rate
schedule with the FPC, may not “be used to obtain a com-
modity or service which is not within the contemplation of
that rate”; helium could not be within the contemplation
of the filed natural gas rate because of Section 11, accor-
ding to the court. 441 F.2d at 723. Second, the court found
that FPC rate regulation had superseded contract prices
and had “largely nullified” the “[clommon provisions of
gas purchase contracts that call for periodic price escala-

tion, arbitration or renegotiation” so that the producers
had not been free to obtain for the natural gas stream in-
cluding helium even what their contracts entitled them to. -
441 F.2d at 722. (As indicated above, that was not true of
the Ashland-Phillips confracts.)

Accordingly, the court of appeals in Grounds reversed
judgments of the District Court for the District of Kansas,
which had denied recovery to the producers (and their
royalty owners) on the basis of the subsisting contracts.
The case was returned to the district court for a determina-
tion of the reasonable value of the helium. At about that
same time, this case was tried in the District Court for the
Northern District of Oklahoma.

The district court on the trial in this case followed
Grounds. It took a very expansive view of Grounds, as the
court of appeals itself had shortly before, attributing to it
the creation of a federal cause of action for the reasonable
value of the helium. (Pp. 14a-16a, infra.) That view was
expressed by the court of appeals ‘n Texaco Inc. v. Phillips
Petroleum Co., 481 F.2d 70 (10th Cir. 1973), another
helium title and compensation case in which both parties
were Delaware corporations and in which therefore there
was no federal jurisdiction by reason of diversity of
citizenship. The court of appeals held that the district
court nevertheless had jurisdiction because the case arose
under federal law within the meaning of 28 U.S.C. §
1331(a). Summarily reversing that decision on the certiorari
papers, this Court held that Grounds did not convert an
ordinary common-law contract or quantum meruit action
governed by state law into a federal case merely because of
the devision in Grounds that federal statutes deprived the
helium purchasers of a defense of payment. Phillips Petro-
leum Co. v. Texaco Inc., 15 U.S. 125 (1974\(per curiam).

The Decisions Below

The district court in the Ashland case, using a so-called
work-back method of valuation, determined a wellhead va-
lue of helium of about $11 to $17 per mcf. (Pp. 9a-10a, infra.)
Both Phillips and the United States appealed. The United
States, which had intervened in the district court pro-
ceeding, was most concerned because the valuation
adopted by the district court, if it became the pattern for
other cases, would impose a heavy liability on it under the
contractual indemnity clauses.

Even though this Court had by this time laid to rest in
Texaco the mistaken idea that helium title and compensa-
tion litigation arises under federal law, the court of ap-
peals panel that initially heard the appeals of Phillips and
the United States in most respects affirmed the district
court, which had proceeded on that mistaken premise.? A
petition for rehearing en banc was granted. Meanwhile,
the district court in the Grounds litigation had rendered
quite a different valuation decision on the remand. It
determined a wellhead value of only 60 to 70 cents per
mcf. Northern Natural Gas Co. v. Grounds, 393 F.Supp.
949, 992 (D.Kan. 1974), on remand from 441 F.2d 704
(10th Cir. 1971). Appeals from that decision were heard en
banc at the same time as the Ashland case was reheard en banc.

Phillips and the Government argued to the en banc
court that Grounds was wrong in allowing any quantum
meruit recovery and that, in any event, the Ashland-
Phillips contracts had not been nullified or superseded by
FPC regulation, as the court thought the contracts in
Grounds had been. The court said merely that “[w]e

?The opinion of the panel, never reported, is printed in the appen-
dices to the petitions for certiorari in Phillips Petroleum Co. v.

Ashland Oil, Inc., No. 77-221, pp. 37a-52a, and United States v.
Ashland Oil, Inc., No. 77-530, pp. 44a-63a.

9

decline to reconsider Grounds.” (P. 24a, infra.) The en
banc court differed from the panel in that, while approv-

ing the district court’s work-back valuation method, it did .

not agree completely with the court’s application of the
method. It therefore remanded for further proceedings on
that issue. (P. 42a, infra.)

After petitions for certiorari filed by Phillips and the
Government were denied, 434 U.S. 921, 968, the district
court proceeded on remand to redetermine the value of
helium. It arrived this time at a wellhead value of $3 per
mcf (p. 89a, infra), which by coincidence is approximate-
ly the amount that Phillips must pay under its helium con-
servation contract with the Government before the
Government becomes responsible to indemnify it (p. 82a,
infra). All parties appealled. The argument on the second
appeal and the court’s opinion relate to the revaluation of
the helium, but Phillips and the Government preserved on
the second appeal their positions that, in the light of the
binding, unfrustrated Ashland-Phillips contract, there was
never any occasion for determining the reasonable value
of helium. The court of appeals, by a panel, affirmed the
Cistrict court’s revaluation and remanded only for the
ministerial addition of prejudgment interest, which had
been expressly approved by the court of appeals on the
prior appeal. (Pp. 93a-94a, infra.) The district court has
since filed an order to include prejudgment interest in its
judgment. The consolidated Grounds cases remain pend-
ing before the court of appeals en banc, more than three
years after they were argued.

REASONS FOR GRANTING THE WRIT

This case presents the important question whether
federal statutes — Section 11 of the Helium Act when read
with provisions of the Natural Gas Act — override state
law and deprive certain purchasers of natural gas streams

— SaaS

10

of the defense of payment according to contractual terms
when they are sued for the value of the helium content of
the streams. The question is important to the parties to the
transactions — the natural gas producers and their royalty
owners and the companies that purchase the helium-
bearing natural gas. It is vitally important in principle to
the Government because of the indemnification provision
of each of its helium supply contracts.

The question has persisted through the many years of
the helium title and compensation litigation without autho-
ritative resolution by this Court. That litigation, except
for this small piece of it, is still pending. So far as the
federal courts are concerned the litigation has been and
will continue to be confined to the Tenth Circuit. There
will be no conflict of decisions among the circuits. The
Tenth: Circuit’s handling of the cases demonstrates the
need for guidance by this Court.

The question is important doctrinally. The decision of
the Tenth Circuit that Section 11 and the other statutes af-
fect private rights as they have been held to do is inconsis-
tent with the recent decisions of this Court holding that
private rights of action are not to be read into federal
statutes when Congress has not put them there. The deci-
sion below makes an intrusion into the province of the
states at least as serious as the intrusion threatened in the
Court’s private right of action cases of this term and last.

The Tenth Circuit has at long last entered a final judg-
ment in a helium compensation case embodying its in-
trusive reading of Section 11. There are no longer possible
reasons of judicial economy for this Court’s not undertak-
ing review, as there may have been thought to be when the
question was presented before. The question is not going
to disappear.

11

It is a basic principle of contract law that, when one par-
ty purchases from another party under a freely negotiated ~
contract a commodity that later attains a greater value, the
purchaser gets the benefit of the bargain and is not re-
quired to pay compensation beyond the contract price. See
3 Corbin, Contracts § 605, at 645 (1960). By the same rule,
when the commodity declines in value, the seller is entitled
to enforce the contract price. Any other rule would make
commercial transactions so uncertain as to impair the free
transfer of goods.

Here Phillips and Ashland freely entered into natu-
ral gas sales contracts by which, as the court ruled in
Grounds, Phillips received full title to the entire gas
stream, including the helium. Each was aware of the pres-
ence of the helium and the characteristics and uses of that
element. The sales contracts were filed with the Federal
Power Commission after Phillips Petroleum Co. v.
Wisconsin, 347 U.S. 672 (1954), and became rate
schedules under the Natural Gas Act. But that did not
make them any the less contracts whose construction and
performance are governed by state law. Pan American
Petroleum Corp. v. Superior Court, 366 U.S. 656, 661-65
(1961); Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S.
667 (1950). The contract price was of course subject to ad-
justment by the FPC to make it accord with the statutory
standards of justness and reasonableness or to avoid
statutorily proscribed discrimination, preference or pre-
judice. At all times, however, the contract price was below
the rate level prescribed by the FPC as just and reasonable
for the area in which the gas was produced. So the FPC
never had occasion to interfere with the operation of the
contracts and never did so. In the circumstances, under the
relevant state law, that of Texas, the unfrustrated con-
tracts are conclusive of Ashland’s right to recover under

12

an implied contract for the reasonable value of the helium.
See Phoenix Lumber Co. v. Houston Water Co., 94 Tex.
456, 464, 61 S.W. 707, 709 (1901).

If the court below was moved to ignore the contracts by
a concern that Phillips and the other helium conservation
contractors would otherwise enjoy a windfall, it was
wrong as a matter of contract law, as we have just seen. It
was also mistaken in its concern as a matter of fact.
Phillips and the other contractors built expensive extrac-
tion plants and assumed the attendant risks associated
with the helium conservation program. Any profits they
earned, which derived from the helium conservation con-
tracts that took account of the risks, are no windfall. The
existence of the profits affords no basis for overturning
the contracts by which the conservation contractors ac-
quired the helium in order to give the original sellers of the
helium a share of the profits.

Moved in any event the court surely was, and its vehicie
for avoiding the conclusive effect of the contracts on the
sellers’ claims for a share of the helium contractors’ profits
was Section 11 of the Helium Act, added in 1960.

The purpose of the Helium Act Amendments of 1960
was to authorize the Department of the Interior to carry
out a long-range program of helium conservation because
the growing helium needs of the government and of in-
dustry in missile and atomic energy programs were ex-
pected to outstrip available helium resources by 1985
unless some of the helium wasted in the consumption of
combustible gas was saved. See S. Rep. No. 1814, 86th
Cong., 2d Sess. 2 (1960).

To effect this purpose in the least expensive way, Con-
gress included statutory provisions designed to encourage

a ao

13

the participation of private industry in the helium pro-
gram.’ The Secretary of the Interior was authorized to ac-
quire helium by exercise of the power of eminent domain .
only if he made a national interest determination and
found also that the Government was unable to obtain
helium by private contract “upon reasonable terms and at
the fair market value.” 50 U.S.C. § 167a(a)(2)(A) & (B).
Congress empowered the Secretary to enter into long-term
helium purchase contracts so that private industry could
negotiate with banks and financial institutions for the
capital necessary to build the costly extraction plants. S.
Rep. No. 1814, supra, at 4.

That is the context of Section 11. The section itself is a
direction that the Natural Gas Act does not apply to “the

sale, extraction, processing, transportation, or storage of -

helium either prior to or subsequent to the separation of
such helium from the natural gas with which it is com-
mingled”; it further directs that related revenues and costs
be excluded in ratemaking proceedings for natural gas
companies under Sections 4 and 5 of the Natural Gas Act.
(P. 3, supra.) It is obviously addressed to the FPC (now
the FERC), the agency that administers the Natural Gas
Act. Just as obviously, it is designed to ensure that a party
holding title to helium and undertaking the risks of extrac-
ting helium is not constrained by rate ceilings prescribed by
the FPC pursuant to the Natural Gas Act from being fairly
compensated for the added cost and risk of helium extrac-
tion. The imposition of such public utility type constraints

Section 15 of the Helium Act states that it is in the national interest
to foster and encourage individual enterprise in the development and
distribution of supplies of helium. 50 U.S.C. § 167m; cf. S. Rep. No.
1814, supra, at 4 (Congress expects Secretary of the Interior to en-
courage growth of privately owned and operated helium industry to
keep Government costs to a minimum).

14

on compensation for helium activities and transactions
would have undermined the whole idea of the Helium Act
Amendments, which was to enlist private enterprise and
the profit motive in furthering helium conservation.

Precisely what Section 11 means as a direction to the
FPC has been a matter of contention. Congress attempted
to make itself clear by the language of the section and by
the authoritative commentary of committee and individual
sponsors; specifically it tried to avoid any possible in-
ference that the FPC’s power over combustible gas en-
trained with helium was affected.* There has nevertheless
been litigation, before the FPC and in court, over the
meaning of Section 11 in its intended sphere of operation...
See, e.g., Panhandle Eastern Pipe Line Co. v. FPC, 359
F.2d 675 (8th Cir. 1966). But there is not a hint in
the committee reports, in the debates, in the hearings, or in
the agency and court opinions, any more than on the face of
the statute, that Section 11 might entitle sellers under
pre-1960 contracts that did not distinguish the value of
helium from the value of the balance of the gas stream to
disregard those contracts and recover a judicially deter-
mined reasonable value for their helium.

‘The history of § i! itself is in S. Rep. No. 1814, 86th Cong., 2d
Sess., Pt. 1, at 5, 10 (Committee Report) & Pt. 2 (individual views of
Mr. Carroll) (1960); H.R. Rep. No. 1552, 86th Cong., 2d Sess. 9, 20,
22-25 (1960); 106 Cong. Rec. 15119, 18603-08 (1960); Hearings Before
the Senate Comm. on Interior and Insular Affairs on H.R. 10458 and
S. 3376, 86th Cong., 2d Sess. 10-i1, 41-49, 69-94 (1960); Hearings
Before the Subcomm. on Mines and Mining of the House Comm. on
Interior and Insular Affairs on H.R. 8440, H.R. 8451, H.R. 10548,
and H.R. 11030, 86th Cong., 2d Sess. 18-19, 39-43, 55 (1960).

Other discussion of compensation for helium appears in Hearings
Before the Senate Comm.., supra, at 32-39, 50-51, 53, 59, 62: Hearings
Before the House Subcomm., supra, at 30-38, 82-88 & 106-13.

15

Ill
The court below held that Section 11, because it frees

helium from regulation under the Natural Gas Act, re- -

quires Phillips and the other helium conservation contrac-
tors to pay their producer/suppliers additional compensa-
tion for a constituent element of the natural gas that the
contractors have already paid for pursuant to their con-
tracts with the producers. The reasons given by the court
for attributing this effect to Section 11 are unsound. One
of the reasons, moreover, is wholly inapplicable to the
Ashland-Phillips contracts.

The first of the reasons that can be divined from the
Grounds opinion amounts to an exercise in the driest of
logic: When filed with the FPC or FERC, the contract
price for natural gas becomes a tariff rate under the
Natural Gas Act, and Section 11 says that the Natural Gas
Act does not apply to helium. Thus, the court reasoned,
the tariff rate cannot cover the helium. The purchasers
therefore are obtaining the helium without paying for it.
The en banc court said on the first appeal in this case that
“Phillips acquired the whole stream or production, but has
only paid for part.” (P. 31a, infra.) The “free” helium was
equated by the court with non-transportation services pro-
vided at less than cost by rail carriers and condemned by
the Interstate Commerce Commission as effecting discri-
minations and preferences forbidden by the Interstate
Commerce Act. See United States v. Wabash R.R., 321
U.S. 403 (1944); Baltimore & O.R.R. v. United States,
305 U.S. 507 (1939). The court emphasized that the
Natural Gas Act in Section 4(b) similarly condemns undue
preferences or advantages. 441 F.2d at 720.

A short answer to this highly theoretical line of reason-
ing is that the Power Commission, the agency responsible
for ensuring the integrity of the rate schedules filed with it

16

and ensuring that natural gas companies do not give undue
preferences or advantages to some customers and not
others, has not shown the slightest concern since Section
11 was enacted in 1960 over the existence of contract rates
that cover helium as well as combustible gas. The reason
for the lack of official concern is, obviously enough, that
no one is injured in any respect relevant to the public in-
terest served by the Natural Gas Act by continuing to give
effect to freely negotiated contracts that treated helium in
common with the rest of the natural gas stream.

The fragility of the theoretical “filed rate” underpinning
of its decision caused the court in Grounds to go on to
advert to the fact that all or most of the contracts involved
in that case had seemingly been affected by FPC rate
regulation. It said that the price provisions of the natural
gas contracts “have been superseded by FPC rate regula-
tion” and the common contractual provisions for escala-
tion, arbitration and renegotiation “have been largely
nullified by the FPC regulations.” 441 F.2d at 722.

That is not true of the Ashland-Phillips contracts. At no
time has the FPC made any order under Section 4 or 5 of
the Natural Gas Act that prevented Ashland from collect-
ing the full escalated contract price. Ashland during some
years did not file with the FPC to take advantage of the
contractual price escalation provisions, but that was its
own choice. See Ashland Oil & Refining Co. v. FPC, 421
F.2d 17 (6th Cir. 1970). The court below has simply refus-
ed to recognize this distinction of this case from what it
conceived to be the situation in Grounds.°

‘In its petition to review the original, en banc, judgment in this case,
the Government urged the broader point that, even so far as the con-
tracts in Grounds were concerned, there had been no showing that the
FPC had ever interfered with the parties’ ability to negotiate and con-
tract freely with respect to helium or had altered their contract rights
with respect to helium. \n short, § 11 is not a ground for retroactively

17

IV

It is significant that the court below regarded itself as
having established in the Grounds opinion a federal cause -
of action, based on Section 11 and the Natural Gas Act,
for the reasonable value of helium. It took this Court’s
decision in Phillips Petroleum Co. v. Texaco Inc., 415
U.S. 125 (1974), to disabuse the court 7 appeals of that
idea. The Court there said that there is nd “language either
in the Natural Gas Act and the 1960 Helium Act Amend-
ments or in the legislative history of these enactments that
could be read to create a federal cause of action for the
recovery of the reasonable value of the helium. . ..”/d. at
128 n.2. The issue there was federal jurisdiction, but the
language of the Court’s per curiam opinion forecast the
opinions of this term and last expressing the Court’s un-
willingness to infer private causes of action from congres-
sional expressions of public policy addressed to executive
or independent administrative agencies.

Though Texaco itself was out of federal court for lack
of a case arising under federal law, this Court’s Texaco
ruling has not affected the course of decisions in this case
or, so far as we can tell, the Grounds cases, which remain
in the Tenth Circuit and its district courts under other

relieving a producer of the obligation of a freely negotiated contract in
which helium was assigned no separate value merely because the price
of the commodity that was the principal subject of the contract is ad-
justed on the authority of the Natural Gas Act. “If a seller failed to nego-
tiate separately for an unregulated commodity that he believed to be
valueless, the fact that the price of the regulated commodity may later
be changed should not entitle the seller to rewrite the contract with
respect to the unregulated commodity.” United States v. Ashland Oil,
Inc., No.77-530, Pet. for Cert. pp. 18-21 & n.2&. The broader ground
of decision would be available to the Court were certiorari to be
granted here, although we emphasize the narrower point that, on any
view, the Ashland-Phillips contracts have not been frustrated by FPC
rate regulation.

18

heads of federal jurisdiction. The en banc opinion in this
case is murky, but it appears that the court believed that
federal law applied either because of the very existence of
the federal helium contracts, the presence of the United
States as a party or its possession of the helium sold to it
by Phillips and the other conservation contractors. (Pp.
36a-40a, infra.) This Court’s admonition in Texaco that all
that Grounds logically meant was the removal of the
defense of payment, clearing the way for a quantum me-
ruit recovery under state law, 415 U.S. at 129, has not
been heeded. And, regardless of that, it is the very removal
of the defense of payment that brings about the intrusion
into matters of state concern analogous to the intrusions
that this Court has sought to avoid by its retrenchment of
judicial freedom to infer from federal enactments private
causes of action superseding state causes of action. For the
state law here is that a freely negotiated, unfrustrated con-
tract governs the rights of the contractors and leaves no
room for any quantum meruit recovery. (Pp. 11-12, supra.)

-s Thus the question is essentially the same as the question
whether private rights of enforcement or recovery are
created by federal statutes that do not in terms provide for
such rights. The resolution of that question, as this Court
has said, “is basically a matter of statutory construction.
. . . [What must ultimately be determined is whether
Congress intended to create the private remedy asserted . .
..” Transamerica Mortgage Advisors, Inc. v. Lewis, 100
S. Ct. 242, 245 (1979). This Court has already determined
that the Natural Gas Act was not intended to provide a
federal cause of action for parties such as Ashland, see
Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667
(1950); cf. Montana-Dakota Utilities Co. v. Northwestern
Public Service Co., 341 U.S. 246 (1951) (Federal Power
Act), and indeed has noted its reluctance to imply causes
of action under statutes, such as the Natural Gas Act, that

19

“create duties on the part of persons for the benefit of the
public at large.” Cannon v. University of Chicago, 441
U.S. 677, 692 n.13 (1979).

How, then, does the court of appeals’ analysis of Sec-
tion 11 stand against the considerations that this Court has
described as relevant in the recent opinions emphasizing
the limited availability of implied private remedies under
federal statutes? See Transamerica Mortgage Advisors,
Inc. v. Lewis, supra, at 244 n.3, 246-47; Touche Ross &
Co. v. Redington, 99 S. Ct. 2479, 2485-89 (1979); Cannon
v. University of Chicago, supra, at 688-717 ; Cort v. Ash,
422 U.S. 66, 78 (1975). Because the issue is one of sta-
tutory construction, the language of the statute is the star-
ting point. Section 11 says nothing specifically about
opening up existing contracts that cover both helium and
combustible gas. More than that, it does not indicate any
intent to benefit a class of which Ashland is a member. See
Transamerica Mortgage Advisors, Inc. v. Lewis, supra, at
246; Cannon v. University of Chicago, supra, at 689-92.
In the context of the Helium Act Amendments of 1960,
Section 11 is designed to ensure that private parties owning
the gas stream may be rewarded for extracting and saving
helium rather than wasting it. Ashland as a producer of
helium entrained with natural gas that it had already com-
mitted and sold is not a member of that class.

The language of the statute, according to this Court, is
ordinarily determinative of the question whether Congress
meant to create a private right for the benefit of some
specific class of persons. But if regard is had to other con-
siderations that have been thought relevant, see Cort v.
Ash, supra, at 78, there remains no basis for in-
ferring from Section 11 an intent to enlarge Ashland’s
private rights. (1) Neither the legislative history of Section
11 nor any other evidence of the congressional purpose

20

Suggests such an intent. (2) Enlargement of Ashland’s
private rights does not further the underlying purpose of
either the Helium Act or the Natural Gas Act. (3) The sub-
ject matter, private contracts, is traditionally one of state
concern except insofar as the federal regulatory agency
may properly be moved to intervene, as it has not been
here.

Vv

The way the court below has handled the important
helium title and compensation litigation must be puzzling
to a student of judicial administration. The consolidated
Grounds cases initially were decided by a panel of the
court. When the Grounds cases returned to the court after
the trial on remand, they were heard en banc, along with
this separate case, in which the total monetary stakes were
far smaller than in Grounds. This case was decided by the
en banc court. Grounds was not. After the remand trial in
this case, which resulted in a very much smaller judgment
for Ashland than the judgment that had earlier been re-
viewed en banc, a panel heard the appeals and affirmed
the judgment below with only a ministerial change relating
to prejudgment interest. (Pp. 93a-94a, infra.) Grounds still
remains pending undecided before the court en banc, and
the issues there include substantial, basic issues concerning
the valuation of helium. The district court in Grounds used
a different valuation method from that of the district court
in this case; it has been neither approved nor disapproved.

Whatever judicial strategy or judicial faiiure may be
reflected in the fact that Grounds has not been decided by
the en banc court more than three years after it was ar-
gued, there is now a final judgment in this case. If pru-
dential considerations relating to the lack of finality
entered into the Court’s earlier denials of certiorari in
Grounds and this case, see Brotherhood of Locomotive

21

Firemen v. Bangor & Aroostook R.R., 389 U.S. 327
(1967) (per curiam), they are no longer present. The judg-
ment here is final and squarely presents the important
question we have described. There is no doubt of the
Court's power to hear and decide the question now despite
the carlicr denials of certiorari. Hamilton-Brown Shoe Co.
v. Wolf Bros. & Co., 240 U.S. 251, 257-58 (1916).
Morcover, the rights of Ashland, Phillips and the United
States are concluded by the judgment regardless of any
further rulings of the court of appeals or this Court in
Grounds. There is no reason to withhold exercise of this
Court’s review power.

CONCLUSION
The writ should be granted.
Respectfully submitted,

WILLIAM H. ALLEN
EUGENE D. GULLAND
SARAH E. BURNS
Covington & Burling
888 Sixteenth Street, N.W.
Washington, D.C. 20006

KENNETH HEADY

C.J. ROBERTS

DON L. JEMISON
Phillips Petroleum Company
Bartlesville, Oklahoma 74004

Attorneys for Petitioner

February 1980

la
APPENDIX A

ASHLAND OIL, INC., Plaintiff
Vv.

PHILLIPS PETROLEUM COMPANY,
Defendant.

and
UNITED STATES OF AMERICA, /ntervenor.

No. 67-C-238.

United States District Court,
N.D. Oklahoma.

Aug. 13, 1973.
As Corrected Aug. 31, 1973.

Gerald Sawatzky and Stanley G. Andeel, Wichita,
Kan., Jay W. Elston, of Fulbright, Crooker & Jaworski,
Houston, Tex., and John M. Imel, of Martin, Logan,
Moyers, Martin & Conway, Tulsa, Okl., for plaintiff.

Richard B. McDermott, of Boesche, McDermott &
Eskridge, Tulsa, Okl., and Don L. Jemison, Phillips
Petroleum Co., Bartlesville, Okl., for defendant.

Floyd L. France and Dennis A. Dutterer, Dept. of
Justice, Washington, D.C., and Nathan G. Graham, U.S.
Atty., Tulsa, Okl., for intervenor.

Opinion
BOHANON, District Judge.

This action was initially instituted in the United States
District Court for the Southern District of Texas, and was
later, by proper proceedings transferred to this Court for
trial and disposition. Ashland Oil and Refining Company

sg 2a

(hereinafter referred to as Ashland) originally claimed the
right to recover moneys from Phillips Petroleum Com-
pany (hereinafter referred to as Phillips) representing an
alleged deficiency in payments for sale of natural gas
under the jurisdiction of the Federal Power Commission.
Ashland also asserted claims against Phillips to be paid for
helium contained in the jurisdictional mass of natural gas,
and which was extracted from the natural gas stream by
Phillips under contract with the United States of America
through the Department of Interior, Bureau of Mines.

The Court has diversity jurisdiction and federal ques-
tion jurisdiction, 28 U.S.C.A. §§ 1331(a) and 1332.

Ashland abandoned its claim against Phillips for defi-
ciency payments for sale of natural gas under the jurisdic-
tion of the Federal Power Commission by reason of pro-
ceedings before the Federal Power Commission, and an
appeal from its order (Ashland Oil and Refining Company
v. FPC, 421 F.2d 17, 6th C.A.). Consequently, the only
claim remaining for trial and determination by this Court
is Ashland’s claim for recovery of the reasonable value of
helium contained in the natural gas stream delivered by
Ashland to Phillips.

Plaintiff Ashland acquired all of the interests of United
Producing Company which had entered into a contract
with Phillips Petroleum Company on November 8, 1945
(amended Oct. 1, 1950 & June 27, 1956) providing for the
sale of natural gas from 15 wells located in Sherman
County, Texas. These same parties entered into another
gas purchase agreement on April 15, 1953, (amended June
27, 1956) providing for the sale of natural gas from three
wells in Hansford County, Texas. These agreements were
properly filed with the Federal Power Commission as pro-
vided by law and rate schedules were fixed for the sale of

3a

said gas. These filings were required under the Natural
Gas Act (15 U.S.C. § 717 et seq.) because Ashland’s
deliveries to Phillips constituted sales of natural gas for
resale in interstate commerce. Ashland succeeded to all the
rights and interest of United Producing Company. All of
the wells above referred to are subject to the contract be-
tween Ashland, as successor to United Producing Com-
pany, and Phillips Petroleum Company, and Phillips
Petroleum Company extracted helium which was contain-
ed in the natural gas stream as delivered by Ashland to
Phillips.

Ashland’s contention is that the title to the helium in the
contained natural gas did not pass to Phillips under the gas
purchase contracts and if and when Phillips elected to ex-
tract the helium from the natural gas stream, plaintiff
Ashland was entitled to payment therefor from Phillips
for the reasonable value of such helium less certain costs
of extraction, and other deductions hereafter referred to.

The defendant contends that when it purchased the gas
stream from Ashland, it purchased all of the elements
thereof including the helium, and inasmuch as Phillips
paid Ashland the Federal Power Commission rate for the
gas delivered to Phillips, Phillips became the owner of the
entire stream, including the helium, and therefore, is not
liable in any sum to Ashland for the helium extracted. Fur-
ther, Phillips presents the defense of Statute of Limita-
tions claiming that if liable, they are liable only for the
helium extracted from the natural gas for two years prior
to the filing of this action and thereafter; further Phillips
claims that by reason of payment to Ashland for the
natural gas, plaintiff is barred by the defenses of accounts
stated, accord and satisfaction, and to require payment
now would be a violation of the Fifth Amendment to the
Constitution of the United States.

ee eee

4a

The United States of America by Order of the Court
was realigned as a party defendant.

Findings

1. Helium is an unusual element; it is a gas which is inert
and noncombustible and is the second lightest element
known. Helium is so inert that it will not chemically react
or combine with other elements and thus remains as
helium forever. It is tasteless, colorless, odorless and in-
visible. For a more complete description of helium, its
unusual characteristics, its uses, and where found, etc., see
Northern Natural Gas Co. v. Grounds, 441 F.2d 704 (10
C.A.) and in the Opinion of District Judge Wesley E.
Brown, 292 F.Supp. 619 (D.C.Kan.).

2. The United States of America, through the Depart-
ment of Interior and the Bureau of Mines of the Depart-
ment, recognizing the need for the conservation of this
rare material and its scarcity, and its need for defense
purposes and other important uses, Congress enacted the
Helium Act Amendments of 1960 (50 U.S.C. § 167 et seq.)
authorizing the United States to enter into a program of
conservation of helium for future use; under this program,
private companies negotiated contracts with the United
States of America through the Department of Interior,
Bureau of Mines, to construct plants for the extraction of
helium from natural gas streams, then being produced
from the Hugoton-Panhandle area; otherwise, this
valuable material would be lost at the burner tip of the
ultimate user of the gas and discharged into the air as
residue.

3. Prior to 1961, the United States Government, with
minor exceptions for a short time, was the sole extractor
and source of commercial helium. It controlled and fixed
the price of all wholesale sales of helium.

Sa

4. Pursuant to the authority granted by Congress, the
United States entered into five long-term helium purchase
contracts with four companies, one of which was Phillips
Petroleum Company, which contracted on November 13,
1961, with the United States to sell a helium gas mixture
from two plants it proposed to build, the Sherman Helium
Plant and the Dumas Helium Plant. These plants were
constructed so as to extract for delivery and sale to the
government a helium gas mixture (crude helium) which
was to consist of at least 50% helium under the contract
requirements, the remainder being essentially nitrogen.
Under this contract, the United States agreed to pay a base
price of $10.30 per m.c.f. (thousand cubic feet) of contain-
ed helium in the crude product, which price was subject to
escalation in accordance with the contract. The base price
was also subject to escalation in the event Phillips was re-
quired to pay third parties “for the acquisition of
helium.”' Specifically, under the contract between the

'“In addition to all other amounts payable under this contract
Buyer shall pay to Seller all amounts, except as hereinafter provided,
that Seller shall pay subsequent to the date of this contract, directly or
through an affiliated company, to parties other than itself or an af-
filiated company for the acquisition of helium in the natural gas, as
defined herein, or for any interest in such helium. Any such payment
to qualify for inclusion hereunder shall be made only with the consent
of Buyer; and for the purposes of this paragraph 7.4 Buyer shall be
deemed to have consented to any and all such payments in satisfaction
or settlement of any claims to helium in the natural gas, as defined
herein, or to any interest in such helium that have been judicially
determined in favor of any claimants by any Federal court or the
highest appellate court of any state. Further, Buyer shall be deemed to
have consented to any and all such payments under circumstances
similar to any such judicially determined claim if such payments are
made generally in accordance with the findings, principles, and con-
clusions of any such judicial determination. The amounts that Buyer
shall be required to pay, to Seller in accordance with this paragraph
shall not include an amount to be calculated applicable to each such
acquisition equal to twenty-nine (29) per cent of the weighted average
of part two of the unit price or unit prices in effect during the time

6a

United States and Phillips, producers of commingled
helium such as Ashland and the mineral or royalty owners,
being third parties, and if they were entitled to
recovery from Phillips the reasonable value of the helium
produced from the commingled gas Phillips was required
to pay under paragraph 7.4 of the contract, part 2 of the
unit price only approximately $3.00 per m.c.f. and the
United States under the contract was required to reim-
burse or indemnify Phillips for any excess of $3.00 per
m.c.f. which Phillips was required to pay. This was an im-
portant part of the contract because it indemnified Phillips
against required payments to third persons of the amount
in excess of $3.00 per m.c.f. and thus gave the United
States the right to purchase this helium for a lesser sum
than, no doubt, otherwise would have been required.

5. The United States took delivery of the helium gas
mixture from Phillips and transported it through its own
pipeline to storage in government-owned storage facilities
at Cliffside Field near Amarillo, Texas. From there it can
be withdrawn as needed, and purified to grade A helium
(99.995% pure helium) in government-owned plants at ap-
proximately $2.00 per m.c.f. helium.

6. Under the contracts the government agreed to take all
of the helium produced up to certain amounts, and the
government sold grade A helium at wholesale F.O.B. its
helium plants for $35.00 per m.c.f. and has done so since
the fall of 1961. All federal departments and agencies were
required to purchase their helium needs from the United
States at this price. The Bureau of Mines has the statutory
authority and responsibility to fix the price at whatever
level is necessary to pay for costs associated with the

covered by such acquisition multiplied by the volume in MCF of
helium in the natural gas, as defined herein, covered by such acquisi-
tion.”

Ta

helium conservation program, including any additional
payments which may be required to be paid by the United
States as a result of this case.

7. Beginning in 1961, several private helium plants have
been built to sell pure helium in the private commercial
market. Although the government price for its helium has
remained at $35.00 per m.c.f., the prices for which helium
has sold on the private market from 1963 through 1972
have ranged from $35.00 to approximately $20.00 per
m.c.f. Such prices are wholesale prices and the only
market prices for sale of helium in the United States dur-
ing the period in question.

8. The Court finds the fair and reasonable value of
grade A helium during the periods here involved was
$20.00 per m.c.f.

9. Recognizing the benefit to United States and the im-
portance of paragraph 7.4 of the United States-Phillips
helium contract, the Associate Solicitor of the Division of
Mineral Resources of the Department of the Interior, and
who approved the contract provision, correctly described
it as an escalation in price:

“This provision in effect provides for escala-
tion in price when the cost of the raw material in-
creases.” (Pls. Ex. 39, p. 3)

10. By reason of the above escalation provision in the
contract, the United States was able to obtain a base rice
substantially lower than would otherwise have been possi-
ble.

11. There was no known wellhead price fixed for the
helium gas in the gas stream, and it was and is impractical
and uneconomical to attempt to extract the helium gas at
the wellhead. This can only be done economically through
large plants with large volumes of gas to process.

8a

12. The gas stream delivered by Ashland to Phillips con-
tained all of the natural gas liquids, such as butane, pro-
pane and pentanes plus, which Phillips extracts and did ex-
tract from the feed gas and markets these gases in liquid
form. Because these rich liquids are in concentrated form
(about 10% of the volume of the total feed gas stream),
Phillips has been able to extract and market substantial ad-
ditional quantities of such liquids, above and beyond what
its existing gasoline plants would be able to extract at a
substantial savings in cost. These additional liquids are in
substance a byproduct of the helium plant operation.

13. Experts who testified in the trial of this case estimate
that the Texas Panhandle, Southwestern Kansas and
Western Oklahoma constitute 99% of the free world’s
known commercial reserves of helium. This area is known
as the Hugoton Field, and Ashland wells which deliver gas
to Phillips are in this field.

14. To arrive at the reasonable wellhead value of
Ashland’s helium delivered to Phillips, there should be
deducted from the value those costs incurred by Phillips in
extracting and delivering the helium and also the cost of
purification. In determining these costs, the total costs of
the helium plant itself should be credited and reduced by a
fair allocation of a portion of such costs to the incremen-
tal, or additional liquids, which the helium plant
generates. This can equitably be done by calculating a fair
share of the incremental benefits accruing to Phillips in its
natural gas liquids operation as a direct result of the
helium plant operation. Failure to assign a portion of
helium plant costs to the incremental liquids operation
would inequitably burden the helium plant with substan-
tial costs which are incurred and which result in the pro-
duction of the incremental liquids.

15. After allowing for the following deductions, the
Court finds that the reasonable value of the helium

9a

delivered by Ashland to Phillips is shown in the following
table. The deductions referred to include:

(a) All helium plant costs, including a 10% rate of
return to Phillips on its stockholder equity;

(b) The incremental liquids benefit which should
be applied to reduce costs of the helium plant;

(c) $2.00 per m.c.f. for purification.

16. The Court finds and is of the opinion that the
following table shows the reasonable cost of extracting the
helium, the reasonable value of helium on a yearly basis
from the Ashland gas delivered to Phillips and further
shows the volume of helium per m.c.f. extracted by
Phillips for the ten-year period in question and the total
value thereof; likewise it shows the interest computed at
6% per annum for the total recovery of helium delivered
by Ashland and recovered by Phillips and the total
amount of money judgment plaintiff is entitled to recover:

Reasonable Value Calculations

A B Cc D E
Minimum Reasonable
Value for Value of
Crude He- Helium De-
lium $20.00 livered by
Liquid Bene- Grade A He- Ashland to
Helium Plant fit Credit Net Helium lium Value Phillips
Costs (Pit's (Pit'’s Ex. Cost (Col- less $2.00 (Columns
Ex. 61 & 62, 61 & 62, ums [a] i mef Purifi- [d] less
line 10) line 12) less [b)) cation Cost (c)
SHERMAN HELIUM PLANT
1963 $4.82 $1.01 $3.81 $18.00 $14.19
1964 3.53 10 3.43 18.00 14.57
1965 4.06 .27 3.79 18.00 14.21
1966 4.09 45 3.64 18.00 14.36
1967 4.94 1.06 3.88 18.00 14.12
1968 4.22 1.16 3.06 18.00 14.94
1969 4.50 82 3.68 18.00 14.32
1970 5.16 2.20 2.96 18.00 15.04
1971 5.31 4.29 1.02 18.00 16.98
1972 5.52 3.97 1.55 18.00 16.45
DUMAS HELIUM PLANT
1966 5.93 .00 5.93 18.00 12.07
1967 6.46 78 5.68 18.00 12.32
1968 5.91 1.01 4.90 18.00 13.10
1969 6.55 31 6.24 18.00 11.76
1970 5.89 1.04 4.85 18.00 13.15

1971 6.39 1.58 4.81 18.00 13.19

10a

Reasonable Value Calculations — Continued

F G H | J
Vol. of Total Rea-
Ashland sonable Value
Helium Ex- of Ashland
tracted by Helium Ex- Periods
Phillips tracted by (Yrs.) at Total
(Pit’s Ex. Phillips interest Interest Recovery
14 & 15, Awarded to to July 1, at 6% By
Sch. 3) Ashland 1973 per year Ashland
SHERMAN HELIUM PLANT
m.c.f.
1963 7,791 $110,554.29 9% $63,015.95 $173,570.24
1964 8,076 117,667.32 82 60,010.33 177,677.65
1965 8,997 127,847.37 7% 57,531.32 185,378.69
1966 7,521 108,001.56 6% 42,120.61 150,122.17
1967 5,757 81,288.84 5% 26,825.32 108,114.16
1968 6,742 100,725.48 42 27,195.88 127,921.36
1969 6,033 86,392.56 3% 18,142.44 104,535.00
1970 5,460 82,118.40 2’2 12,317.76 94,436.16
1971 5,944 100,929.12 1% 9,083.62 110,012.74
1972 6,082 100,048.90 -» Va 3,001.47 103,050.37
DUMAS HELIUM PLANT
1966 431 5,238.38 62 2,042.97 7,281.35
1967 950 11,704.00 5% 3,862.32 15,566.32
1968 949 12,431.90 42 3,356.61 15,788.51
1969 890 10,466.40 3% 2,197.94 12,664.34
1970 681 8,955.15 2 1,343.27 10,298.42
1971 444 5,856.36 1% 527.07 6,383.43
TOTAL $1,402,800.91

17. The Court finds that the attorneys for plaintiff have
expended many hours prosecuting this lawsuit against the
defendant and are entitled to be paid the total attorneys
fees as set out below:

Jay W. Elston firm 1059 hours at $50.00 $ 52,950.00
Houston, Texas 1059 hours at $35.00 37,065.00
Gerald Sawatzky firm 550 hours at $50.00 27,500.00
Wichita, Kansas 275 hours at $35.00 9,625.00
John M. Imel firm 201.4 hours at $50.00 10,070.00
Tulsa, Oklahoma TOTAL $137,210.00

The Court finds that the plaintiff Ashland should have
judgment against the defendant Phillips for attorneys fees
in the total amount of $137,210.00 for the services as
above specified.

18. The Court finds that Ashland has prosecuted this
lawsuit for the total helium contained in the gas stream
from its respective gas wells delivered by Ashland to

lla

Phillips; that in prosecuting this lawsuit the plaintiff
Ashland has incurred and paid the following expenses
which are not chargeable to the defendant Phillips, but
were reasonable and necessary and should be paid on the
basis of one-half by Ashland and one-half by the land-
owners, mineral owners, otherwise royalty owners.

WITNESS:

Leo Garwin
326 Oklahoma Mortgage Bidg.
Oklahoma City, Oklahoma

Professional Services 1969: $ 2,810.40
1973: __7,260.95 $10,071.35
Troupe, Kehoe, Whiteaker
& Kent

Certified Public Accountants
2900 Power & Light Bidg.
Kansas City, Missouri

Professional Services $24,600.00

Travel Expenses 1,353.73

Duplicating 425.00 $26,378.73
Tulsa Reporting Service
526 Mayo Building
Tulsa, Oklahoma

Depositions: May, 1973 $ 277.15

Transcript: June, 1973 4,686.00 $ 4,963.15
Interrogs, Inc.

2439 Bank of the Southwest Bidg.
Houston, Texas 77002

Depositions: April, 1973 $ 552.00 $ 552.00

Fulston, Siefkin, Powers &
Eberhardt

Suite 600

4th National Bank Bidg.

Wichita, Kansas

1968 1972 1973
Travel $157.12 $3,028.25
Long Distance $6.99 239.34
Court Reporting
Depositions 2,385.30
Postage 96 19.21
Duplicating 434.40
TOTAL $157.12 $6.97 $6,106.50 $ 6,270.59
Martin, Logan, Moyers,
Martin & Conway
National Bank of Tulsa Bidg.
Tulsa, Oklahoma
Expenses: (7-1-69 thru 12-31-72)
Duplicating $ 3.90
Long
Distance 56.81

Travel 14.40 $ 75.11

12a

WITNESS: — Continued

Ashiand Oil, Inc.
Employee Travel Expense

_1972 1973
Ray Althouse $169.50
J. C. Coogan 160.23
B. J. White 101.02
D. W. Cox $179.03 _ 405.66
$179.03 $836.41 $1,015.44
Fulbright, Crooker &
Jaworski
Bank of the Southwest Bidg.
Houston, Texas
_ 1966 =: 1967 1968 1969 1970 1971 1972 1973
Long Distance 85.79 283.96 56.38 275.71 13.20 61.59 141.86 195.52
Duplicating 70.76 294.20 550.45 1,105.01 21.00 18.80 214.32 160.30
Filing Fees 25.00 15.00
Travel 303.72 114.24 1,341.17 126.00 120.50 1,327.77 1,283.63
Printing 1,879.01 89.82
Freight 11.30
Secretarial 80.88 15.92
Total 156.55 906.88 721.07 4,708.08 250.02 200.09 1,699.87 1,639.45
Total Expenses $10,282.01
Less Amounts Incurred in Connection
with FPC Proceedings 1,922.89 $ 8,359.12
TOTAL OF ALL EXPENSES INCURRED $57,685.49

The Court finds that the Plaintiff expended $57,685.49
in the prosecution of this lawsuit which is not assessable or
taxable as costs against the defendant, Phillips, and that
these costs should be divided equally between plaintiff and
landowners, mineral owners (hereinafter referred to as
royalty owners), and from the distribution made by
plaintiff, Ashland, to royalty owners first should be
deducted one-half of the cost above stated as paying the
cost assessable to royalty owners.

19. The Court finds from a review of the pleadings, the
Complaint. Amended Complaint, Stipulation of Facts,
the exhibits and testimony that Ashland has brought, pro-
secuted and maintained this action on its own behalf and
on the behalf of the royalty owners for the delivery of
helium in the entire gas stream on a per wellhead basis
from the inception of the production of helium to June 30,
1972. The Court takes judicial knowledge of the oil and
gas leases executed by royalty owners in favor of the lessee

13a

and the assignee of the lessee, and that at the time of enter-
ing into each of the respective oil and gas leases, no
thought of helium rights was considered by either lessee or
lessor; that no consideration passed from one to the cther
for any helium rights; that the helium as contained in the
gas was an undealt with commodity except that the lessee
had the exclusive right to enter upon the lessor’s property
and drill and produce gas from said premises; that the ex-
clusive right to drill and produce gas is a perpetual right
vested in the lessee so long as oil and gas is produced in
paying quantities from the premises by Ashland or its
assigns.

The Court finds that the helium hereinabove referred to
is and was the sole property of the royalty owners subject
to the exclusive right of Ashland to drill and produce gas
which contained helium and that their rights are equal and
that the proceeds to be derived from the sale of helium
should be equally divided between Ashland and the royal-
ty owners and therefore the judgment herein rendered in
favor of the plaintiff, Ashland, and against the defendant,
Phillips, should be divided equally between Ashland and
the royalty owners and on the basis of the payments
heretofore made by Ashland to the royalty owners for gas
produced and sold to Phillips and transported in interstate
commerce under the regulations of the Federal Power
Commission; and that Ashland shall first deduct from the
royalty owners’ portion of the judgment one-half of the
costs of prosecuting this action. The equal division be-
tween lessor and lessee of the proceeds from the helium is
required in equity; otherwise the windfall would give 7/8
to Ashland and 1/8 to the royalty owners, which would be
unconscionable and an unjust enrichment to Ashland.

14a

Conclusions of Law

This litigation is based primarily on the 1960 Aci of
Congress known as the Helium Act Amendments of 1960
(50 U.S.C. § 167 et seq.) where the United States was
authorized and directed to enter into a program of conser-
vation of helium for future use.

[1] The evidence is convincing to’ this Court that the
United States, through the defendant, Phillips, and by
reason of the Helium Act, confiscated the helium of the
plaintiff and royalty owners rather than acquiring it by
condemnation; nevertheless, the taking was in the nature
of condemnation, and the reasonable value of the helium
plus interest is proper; that the United States was obligated
to pay the reasonable value of said helium in excess of
~ $3.00 per m.c.f. which Phillips was required to pay for the
helium all as provided by their contract.

The Court concludes that the law contained in Northern
Natural Gas Co. v. Grounds, supra governs this case in the
matter of reasonable value of helium and the obligation of
the defendant to pay that value, and no other authorities
need be cited.

Further the United States Court of Appeals for the
Tenth Circuit laid down certain guidelines for trial courts
in Texaco Inc. v. Phillips Petroleum Company, 481 F.2d
70 (opinion filed July 13, 1973). Here the Court said:

“We have here another controversy over
helium. The basic background is outlined in our
decision in the Consolidated Helium cases. See
Northern Natural Gas Company v. Grounds,
* * * We there held that lessee-producers of na-
tural gas could recover the reasonable value of
contained helium out of interpleader funds
created by the government’s purchases of helium

15a

from helium extraction companies and parent
pipeline companies.
* * * * * *

In Consolidated Helium we considered the
claims of the pipelines and helium separation
companies that they were entitled under their gas
purchase contracts to receive the entire gas
stream at the Federal Power Commission service
rate and said that ‘private contract law and the
principles applicable thereto are not controlling.’

(Emphasis Added)

* * * * * *

No good purpose would be served by repeating
our analysis of the Natural Gas Act and the 1960
Helium Act amendments. We held that, * * *

‘* * * the reconciliation of the Natural Gas
Act and of the 1960 amendments to the
Helium Act to attain a symmetrical whole re-
quires the conclusion that the FPC service
rates do not apply to deny recovery for the
contained helium which is processed in the
separation plants.’

* * « * * .

We thought that we made plain that we did not
allow recovery on the application of any prin-
ciples of equity, see 441 F.2d at 719-720, but on
the ground that satisfactory utility regulation
does not permit a utility rate to be used to obtain
a commodity which is not within the contempla-
tion of that rate.

* * * o* * *

We reject defendant’s assertion that Con-
solidated Helium was an interim decision. The
Supreme Court denied certiorari, 404 U.S. 951,

l6a

92 S.Ct. 268, 30 L.Ed.2d 267, 404 U.S. 1063, 92
S.Ct. 732, 30 L.Ed.2d 751, and 404 U.S. 1065, 92
S.Ct. 732, 30 L.Ed.2d 754. The decision is final
and is the law of this circuit. We say nothing on
plaintiff's claim that Consolidated Helium is res
judicata on the issues presented here. We are
concerned with jurisdiction, not with the merits.

* *” * * * *

In Consolidated Helium we pointed out that
there are over 30,000 persons receiving income
from helium bearing natural gas produced by
over 500 lessee-producers under thousands of

leases.
OF oF a + o os

The problems relating to the recovery of the
value of the helium content of natural gas travel-
ing in interstate commerce have arisen because
of, and under, federal statutes. Plaintiff asserts
rights under those statutes and is entitled to sue
in federal court. We believe the federal courts
have jurisdiction under 28 U.S.C. § 1331(a).”

[2] The Court concludes as a matter of law that the
plaintiffs are entitled to a legal rate of interest because of
the taking. See St. Paul Mercury Indemnity Co. v. United
States, 201 F.2d 57 (C.A. 10); T. & M. Transp. Co. v.
S.W. Shattuck Chemical Co., 158 F.2d 909 (C.A. 10);
Louisiana & Arkansas Railway Co. v. Export Drum Co.,
359 F.2d 311 (C.A. 5); Jacobs v. United States, 290 U.S.
13, 54 S.Ct. 26, 78 L.Ed. 142 (1933).

The Court in Northern Natural Gas Company et al. v.
Grounds et al., 441 F.2d 704 (10 Cir.), cert. denied, 404
U.S. 1063-1065, 92 S.Ct. 732, 30 L.Ed.2d 751, issued a
post-opinion order, pertaining to costs and the mandate,
recognizing the significance of the interest question.
Paragraph 15 of the Order dated March 16, 1972, states:

werent

17a

“The right of the lessee-producers to interest,
and the amount thereof, on any sums which the
District Court may adjudge to be due and owing
to them shall be determined by the District
Court, subject to review by this Court.”

[3] The Court concludes as a matter of law that the
plaintiff's attorneys are entitled to be paid by the defen-
dants a reasonable attorneys’ fee. See United States Fideli-
ty & Guar. Co. v. Hendry Corporation, 391 F.2d 13 (C.A.
5); Boyd Callan, Inc. v. United States, 328 F.2d 505 (C.A.
5).

In T.F. Scholes, Inc. v. United States, 295 F.2d 366 at
370 (C.A. 10) the Court said:

“The fixing of reasonable attorneys fees rested
in. the sound judicial discretion of the court... .”

In Texas Gas Corporation v. Hankamer, 326 S.W.2d
944 (Tex.Civ.App.) it was held that gas and distillate
delivered by appellees and processed in a plant was
“material furnished”, and an award of attorneys’ fees was
upheld.

The Court concludes as a matter of law that the plaintiff
is entitled to judgment as follows:

(a) That plaintiff, Ashland, should have judgment
against defendant, Phillips, for helium extracted for the
ten-year period from 1963 to December 31, 1972, together
with yearly interest thereon at the rate of 6% per annum
ending June 30, 1973, in the total amount of
$1,402,800.91.

(b) That plaintiff should have judgment for attorneys’
fees, otherwise professional services rendered by plaintiff's
attorneys in the prosecution of this action in the amount
of $137,210.00.

18a

[4] (c) That the royalty owners should be paid one-half
of the proceeds derived from the sale of helium less one-
half of the expenses of $57,685.49 incurred and paid by
Ashland in the prosecution of this action and not
chargeable to the defendant Phillips.

(d) That the prayer of the Intervenor United States of
America is denied.

An appropriate judgment will be entered as herein pro-
vided.

Judgment

Based upon the Memorandum Opinion, Findings of
Fact and Conclusions of Law filed herein this day, the
Court enters the following judgment:

1. It is ordered, adjudged and decreed by the Court that
plaintiff Ashland Oil, Inc., shall have judgment against
defendant Phillips Petroleum Company in the amount of
$1,402,800.91 together with accruing interest as provided
by law from date of judgment, until paid, for helium sold
and delivered during the ten-year period ending December
31, 1972.

2. It is further ordered, adjudged and decreed by the
Court that plaintiff Ashland Oil, Inc. shall have judgment
against the defendant Phillips Petroleum Company in the
amount of $137,210.00 together with accruing interest as
provided by law from the date of this Judgment until the
Judgment is paid as reasonable attorneys’ fees in the pro-
secution of this action.

3. It is further ordered, adjudged and decreed by the
Court that Ashland Oil, Inc., on receipt of the payment of
the helium together with interest thereon, as provided in

19a

item (1) above, shall deduct therefrom its expenses of pro-
secution in the amount of $57,685.49 and pay to its royalty
owners On the basis of payments heretofore made to its
royalty owners for gas sold and delivered and transported
in interstate commerce one-half of said helium receipts
together with its one-half of the accrued and accruing in-
terest.

4. It is further ordered, adjudged and decreed by the
Court that the defendant Phillips Petroleum Company
pay the usual and ordinary costs of this litigation as pro-
vided by the Federal Rules of Civil Procedure.

5. It is further ordered, adjudged and decreed by the
Court that the prayer of the Intervenor, United States of
America, be, and the same is hereby denied. The defen-
dant Phillips Petroleum Company has made no clai:n for
relief as against the United States of America.

20a

APPENDIX B

United States Court of Appeals
Tenth Circuit

Nos. 73-1797, 73-1798, 73-1799

ASHLAND OIL, INC., Appellee, Cross-Appellant,

Ve

PHILLIPS PETROLEUM COMPANY, Appellant,

v.
UNITED STATES OF AMERICA, /ntervenor-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 &

2la

Conway, Tulsa, Oklahoma, of Counsel, with him on the
Brief) for Appellee-Ashland Oil, Inc.

Floyd L. France, Attorney, Department of Justice,
Washington, D.C. (Peter R. Taft, Assistant Attorney
General, Nathan G. Graham, United States Attorney,
Hubert A. Marlow, Assistant United States Attorney, E.
Edward Johnson, United States Attorney, Jon K. Sargent,
Assistant United States Attorney, Edmund B. Clark, Den-
nis A. Dutterer, George R. Hyde, and Jacques B. Gelin,
Attorneys, Department of Justice, with him on the Brief),
for Intervenor-Appellant, United States of America.

Before Lewis, Chief Judge, BREITENSTEIN, SETH,
McWILLIAMS, BARRETT AND DOYLE, Circuit Judges, sitting
en banc.

SETH, Circuit Judge.

Doy Le, Circuit Judge, dissents. Dissenting opinion at-
tached.

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 Nor-
thern District of Oklahoma. The complaint asserts
jurisdiction based on diversity, and this ground was
established. 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

22a

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 ex-
tract 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
entered into contracts with those in possession of the
‘ natural gas stream to purchase helium after it was ex-
tracted from the stream. The record shows that this deci-
sion to contract apparently was brought about by the in-
ability 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 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.

We are here concerned with the Government contract
with defendant Phillips whereby the helium was physically
acquired by the Government, but the ownership and com-

23a

pensation 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 selier covering the purchase of helium, a
specific amount was provided as compensation to defen-
dant. The record shows that this figure was arrived at by
comparison of the estimated cost to the Government 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 escala-
tion 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 accordance with the find-
ings, 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, with the United States
providing an indemnification 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 con-

24a

templated and was provided for in the contract. It was ap-
parent 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 com-
pensated for the helium under the leases, the gas purchase
contracts, or the Natural Gas Act. These postponed legal
problems were in large part decided in the Consolidated
Helium Cases (Northern Natural Gas Co. v. Grounds, 411
F.2d 704 (10th Cir.) ), opinion by Judge Breitenstein. The
basic legal relationships among the landowners, pro-
ducers, and gas purchasers were there established, as was
the relationship of the Natural Gas Act and the Helium
Act. The controlling rules were set in the Grounds opin-
ion, en banc consideration was denied, and the Supreme
Court denied certiorari. We decline to reconsider
Grounds. Further, in Grounds we held that “... the
lessee-producers are entitled to the reasonable 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 con-
sidered in this opinion.

When the matter of compensation is in issue we are 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 con-
sidered 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 arrange-
ment are all still important, but the relationship of the
contracting parties to those who now have been determin-
ed to own interests in the helium, and, of course, the value
of the helium are the center of focus.

25a

The position of the United States as a party herein is
somewhat unusual. It filed a motion to intervene as a par-
ty 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 delivered to the United States “large quantities of a
helium-gas mixture” for which it had been paid “substan-
tial 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 exists
between the United States and Ashland as to whether
payments between Phillips and Ashland for the gas as pro-
duced was payment for the helium content.” The Govern-
ment also asserts that it “. . . has a real and substantial in-
terest in this litigation because of a provision in its con-
tract 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

26a

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 in-
tervenor. The United States participated in the trial, cross-
examined witnesses, put on a witness of its own, objected
to the plaintiffs findings, and submitted proposed find-
ings. The judgment entered ran against Phillips only. The
United States has fully participated in this appeal.

As indicated above, this action was brought by Ashland
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 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 disposi-
tion of these points.

It must be accepted that the “value” sought to be deter-
mined in this suit is basically a factual matter determined
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

27a

was no free competitive market for this helium at the
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 com-
petitive 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 witnesses for the defen-
dant 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 concerned, 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.

In the market price evidence of the defendant, con-
siderable detail is presented as to purchases at the several

28a

Government helium plants. These include the plants at Ex-
ell, Otis, Cunningham, and Navajo. The helium purchases
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 transaction. 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 interest of the
seller was to make the residue gas marketable by raising
the BTU. The seller also assumed liability for possible ad-
ditional payments to third parties.

The Otis plant was also used to upgrade the gas for fuel
purposes by separating out the noncombustible portions
of the stream.

Phillips also introduced evidence as to several contracts
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 casinghead gas contracts,
because there was no evidence that the casinghead gas con-
tained helium nor was ever processed for helium. As to the
other Phillips contracts, there was no showing that the gas
had a helium content at all (with insignificant exceptions),

EE ON Se

29a

nor that there was ever a remote possibility of extradition,
again with insignificant exceptions. Contractual provi-
sions in such a context, even where helium was mentioned,
are a meaningless gesture of the parties, and cannot be
considered as evidence of comparable sales.

The Gas Sales Agreement between Colorado Interstate
and Alamo Chemical Company (a Phillips affiliate or sub-
sidiary) was put in evidence. This provided for the process-
ing 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 ex-
tracted 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 payment 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 bet-
ween 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 comparable 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 “com-
parable sales.” Evidence of “other sales” falls far short of
establishing a market without comparability being clearly
established.

In addition to the evidence relating to particular con-
tract provisions, and some sales, there was expert

7
ia

30a

testimony. 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 conserva-
tion program, 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 objec-
tive facts.

We thus must agree that the trial court was correct in
seeking an alternative method to “market price” for
establishing 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
desirable method but perfectly valid. Under this method a
point was selected where there can be determined an
established price and the cost of processing or beneficia-
tion were deducted to move back to the place where the
value must be established.

The work-back valuation is well recognized in the pro-
duction and early processing of natural gas. It is common-
ly used, according to this record, in placing a value on feed
stock for gasoline plants and related processing. There is

3la

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 elements can be
established. This work-back method was used by the
Government and the Court of Claims in making payment
to the Navajos for gas supplied to the Navajo Helium
Plant. See Navajo Tribe v. United States, 364 F.2d 320,
176 Ct. Cls. 502. The Government has used it on other occa-
sions such as for Kerr-McGee royalty payment in Arizona,
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.OkI.); 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 resources cases. See
United States v. Wyoming, 331 U.S. 440; 67 S.Ct. 1319,
19 L. Ed. 1590; 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 (Sth Cir.), which is a common use in the industry.

Phillips argues that its right to acquire the helium com-
ponent 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 opi-
nion private contract law and the principles applicable
thereto are not controlling.” Apparently the Government
has yet to pay Phillips for much of it also.

32a

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
elements, that mistakes were made, and that “trifling
recOgnnion” 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 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 element 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
“treatment” 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
use of the deduction was proper and appellants have not
shown that it was not supported by substantial evidence.

33a

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, 93 S. Ct. 801, 35
L.Ed. 2d 16; which in turn cited United States v. Cors, 337
U.S. 325, 69 S.Ct. 1086, 93 L.Ed. 1392. This again con-
cerned payment for something requisitioned by the Gov-
ernment. The issue here is the determination of value of a
commodity which was purchased and sold by the Govern-
ment and by private concerns. It was a stockpiling 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 li-
quids as by-products. The evidence is unclear that an in-
crease in the production of liquids would result from the
helium plant operation over what had been experienced
before and over ordinary extraction plants. Appellants

34a

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 quan-
tities of wet gas were directed to at least one of the plants,
and this could make a difference in the production of li-
quids, 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 bea
consequence of the decision, but there is no reason why
the well-head price should be determined by the contract
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 ques-
tions, 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
established their claims. This has been done, but the price
“paid” for all the interests in the helium has not yet been
determined. The value here sought to be established is in-

35a

dependent 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 pre-
judgment interest, attorney fees, and the matter of limita-
tions. The trial court tried the case as a federal question
case, relying on our opinion in Texaco Inc. v. Phillips
Petroleum Co., 481 F2d. 70 (10th Cir.), which was
thereafter reversed by the Supreme Court in Phillips
Petroleum Co. v. Texaco Inc., 415 U.S. 125 94 S.Ct.
1002, 39 L. Ed. 2d 209. That case was concerned only
with federal question jurisdiction under 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 the elements of a
condemnation or seizure by the United States, but this
analysis of the manner in which helium was acquired was

36a

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 ac-
tion of the Government in entering the case as a plaintiff
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
Phillips the amounts that Phillips “shall pay” to other par-
ties 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 question, 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 ap-
plication 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
before this court is faced with claims made by a multitude
of interest owners from many states relating io production

37a

from Kansas, Oklahoma, and Texas. Each state has
somewhat 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, 63 S.Ct. 573, 87 L. Ed. 838, 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
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 obviously has the basic
responsibility and liability, as it recognizes by its interven-
tion.

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

38a

laws of 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 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, 65 S.Ct. 354, 19 L.Ed. 383, limited by Bank of
America v. Parnell, 352 U.S. 29, 77 S.Ct. 119, 1 L. Ed. 2d
93. The War Bond cases in state and federal courts lead to
the same result. See Jn re Stanley’s Estate, 102 Colo. 422,
80 P.2d 332. The Court in D’Oench, Duhme & Co. v.
FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956, also in-
dicated a considerable area to be excluded from the ap-
plication 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,
66 S.Ct. 582, 90 L.Ed. 743, 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 litigate
or seek a remedy arising from transactions it has entered
into in the ordinary commercial world to carry out its pro-
gram, it has been held that federal law may be applied.
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, 63
S. Ct. 573. See also United States v. Allegheny County,
322 U.S. 174, 64 S.Ct. 908, 88 L.Ed. 1209. 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, 67 S.Ct. 1604, 91 L.Ed. 2067, the
Court stated that the interests of the Government and its
legal relationships may be so determined. The impact of

39a

the application of state law upon the governmental in-
terests is a factor of great weight. See United States v. Mit-
chell, 403 U.S. 190, 91 S.Ct. 1763, 29 L.Ed. 2d 406.

The Court in United States v. Little Lake Misere Land
Co., 412 U.S. 580, 93 S.Ct. 2389, 37 L.Ed.2d 187, con-
sidered the application of a Louisiana statute to the reser-
vation 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 relationship to a federal program, no rule
may be applied which would not be wholly in ac-
cord with that purpose.’” [The quotation includ-
ed 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 legisla-
tion; 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

40a

looking at the substance, the Government has the respon-
sibility 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.

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
determination 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 divi-
sion 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 pro-
viding 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 produc-
tion, 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 ap-
plicable to periods of limitation have come into play. See
deHaas v. Empire Petroleum Co., 435 F.2d 1223 (10th

4la

Cir.). We must conclude that this action has not been bar-
red. American Pipe & Construction Co. v. Utah, 414 U.S.
538, 94 S.Ct. 756, 38 L.Ed. 2d 713.

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, 61 S.Ct. 995,
85 L.Ed. 1361; St. Paul Mercury 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, 94S.Ct.
2157, 40 L.Ed. 2d 703, a Miller Act case. The opinion in-
cludes 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 or-
dinarily 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 dif-
ferent result as to attorney fees than expressed in F. D.
Rich Co. See also Alyeska Pipeline Co. v. Wilderness
Society, 421 U.S. 240, 95 S.Ct. 1612, 44 L.Ed. 2d 141.

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

ee

on Ot nema

42a

value of the helium, as above indicated. The judgment is
also set aside as to the valuation determination with direc-
tion to hear further the matters or elements of the work-
back method, referred to above, wherein there was insuffi-
cient evidence in the record.

Thus some elements have been considered in this opi-
nion and ruled on.

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
determining 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
consideration to, and receive such evidence as may be ad-
missible 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
foreclosed herein, that bear on the deter‘aination of value
by the work-back method.

date 00 Pn, i Nd 6 el

We affirm the decision of the trial court that the action
is not barred by any statute of limitation and that prejudg- |
ment interest may be allowed. We reversed those portions
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 deter-
mined 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.

43a

Doy Le, 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 the follow-
ing: the work-back approach is not the preferred way to
determine market value of a commodity; the starting point
for determining value is wrong; and the result of its ap-
plication here is an excessively high price to the govern-
ment.

Both the government and Phillips Petroleum favor the
comparable sales plus expert testimony method; this is the
view that I Prefer.

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 opi-
nion that it was within the contemplation of the contract-
ing parties that there would be a large amount paid to in-
terest 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, in-
cluding Phillips, who had possession of the natural gas
stream. By so doing the government avoided the necessity
for identifying and dealing with ali 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

44a

United States for amounts paid subsequent to the date of
the contract for the acquisition of helium in the natural 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 deter-
mined or they must have been made in accordance with
guidelines established in judicial proceedings. 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 govern-
ment 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 state-
ment in the majority opinion that it was contemplated by
Phillips and the United States that there would ultimately
be substantial compensation paid to the interest owners.
Memoranda written by the Associate Solicitor of the Divi-
sion 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 government in-
demnification 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 position, a $2.00 per
mcf amount for the commingled helium had been used
because that amount reflected the government’s experience
in obtaining a supply of helium-bearing gas. It had never
paid more than $3.00 per mcf.

45a

The $3.00 per mcf indemnification level was not an ar-
bitrary figure. It represented a ceiling above actual
payments on previous occasions. It was an estimation of
the probable maximum price that might be paid.
Therefore, it is not an established fact that here would be
payments 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.

Whether the Evidence of Comparable Sales Was,
As the Majority Maintains, So Lacking in Pro-
bative Value As to Require That It Be Disregarded

The reasons which the majority opinion gives for rejec-
ting evidence of co

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385006_1687%3A1. Public record. Not legal advice.