Appendix — Northern Natural Gas Co. v. Mobil Oil Corp.

INDEX TO APPENDICES

Page

A—Opinion of the United States Court of Appeals for

the Tenth Circuit, Dated March 2, 1971 (441

EE Neste ten kenees eeaVebanewiaanntetn 2a

B—Opinion of the United States District Court for the

District of Kansas, Dated September 7, 1968

iad cnn odes ha senene wanes 39a

C—Opinion and Order of United States District Court

for Kansas Determining Method and Manner

for Fixing and Taxing Costs, filed June 17,

SE Seed nese eUeAGs Wks e Ree Reb ON Kane RE b0Kn 171a

D—Opinion of the United States Court of Appeals in

bane, Affirming Jurisdiction of the District

Court and Affirming Orders Denying Motions

for Dissolution of Injunctions, Dated February

11, 1964 (327 F.2d 1003) ..................... 178a

E—Opinion of United States District Court for Kansas

Overruling Motions to Dismiss for Lack of Juris-

diction and Denying Motiors for Dissolution of

Injunctions, Dated September 13, 1963 ........ 18Ca

F—Judgment of the Court of Appeals for the Tenth

Circuit entered March 2, 1971 ................ 199a

G—Order of United States Court of Appeals for the

Tenth Circuit Enlarging the Time for Filing a

Petition for Rehearing Until April 15, 1971,

entered March 9, 1971 .............cceeeeeees 202a

H—Order of United States Court of Appeals for the

Tenth Circuit Denying Petitions for Rehearing,

NE BE GEES 6666 cbdéncdcicvccvccceees 204a

ii Index to Appendices Continued

- Page

I—Order of United States Court of Appeals for the

Tenth Circuit Denying Motion Containing Sug-

gestions for Rehearing in banc, Dated May 20,

EE SANK E Rass heed eredseuavknomandan 206a

J—Order of United States Court of Appeals for the

Tenth Circuit Denying Motion by Respondent

Landowners For Leave to File Petition for Ke-

hearing Out of Time, Dated June 9, 1971 ...... 208a

K-—Constitutional and Statutory Provisions Involved. .211a

1. Fifth Amendment to the Constitution of the

RP re RS Pe 21la

2.§§1 (b) and 4 (c) of the Natural Gas Act,

52 Stat. 821, 15 U.S.C. §§ 717 (b) and 717c. .211la

3. Helium Act Amendments of 1960, 74 Stat.

418, 50 U.S.C. §§ 167-167n ............... 212a

4, Federal Interpleader Statute, 62 Stat. 331,

3 8) eer rrr 223a

5. Rule 54 of Federal Rules of Civil Proce-

DE ciavtiduresbendieeesntiawecanwennes 22Aa

6. Costs in Federal Court Actions, 62 Stat.

S56, 3B UBC. 8 IBGD . ww. cece cccccccnces 225a

7. Costs, United States as Party, 62 Stat. 973,

28 U.S.C. § 2412 (1948) ................. 225a

L—Respondent Landowners Named ................ 226a.

la

IN THE

Supreme Court of the Rnited States

OctToBER TERM, 1971

No.

NorTHERN NatTuRrAL Gas CoMPANY, ET AL., Petitioners,

v.

Most. Ort CoRPORATION, ET AL., Respondents

and

RALPH GROUNDS, ET AL., Respondents.

APPENDIX TO

PETITION FOR WRIT OF CERTIORARI TO TEE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

2a

APPENDIX A

Opinion of the United States Court of Appeals

for the Tenth Circuit,

Dated March 2, 1971 (441 F.2d 704}

UNITED STA.ES COURT OF APPEALS

TENTH CIRCUIT .

307-69, 308-69, 309-69, 310-69,

311-69, 312-69, 313-69, 314-69,

315-69, 316-69, 317-69, 318-69,

319-69, 320-69, 321-69, 322-69,

361-69, 362-69, 363-69, 364-69,

365-69, 366-69, 367-69, 368-69,

369-69, 370-69, 371-69, 372-69,

373-69, 374-69, 375-69, 376-69,

377-69, 378-69, 379-69, 380-69,

381-69, 382-69, 383-69, 384-69,

385-69, 386-69, 387-69, 388-69,

389-69, 390-69, 391-59, 392-69,

393-69, 394-69, 395-69, 396-69,

397-69, 398-69, 399-69, 400-69,

401-69, 402-69, 486-69, 487-69,

488-69, 489-69, 490-69, 491-69,

4992-69, 193-69, 494-69, 495-69,

496-69, 497-69, 498-69, 499-69,

500-69, 501-59, 502-69, 503-69,

504-69, 505-69, 506-69, 507-69,

508-69, 509-69, 510-69, 511-69,

512-69, 513-69, 514-69, 515-69.

JanvuaBzy TERM, 1971

3a

(Consolidated Helium Cases)

NorTHEEN Naturat Gas Company, et al. (Helex Group),

Appellees and Cross-Appellants,

Vv.

Ratpu Grounps, Henry Hircs, et al. (Landowners), —

Appellants and Cross-Appellees,

and

Socony Most Or. Co., Inc. (Mos On. Corporation

substituted) et al. (Lessee-Producers),

Appellants and Cross-A ppellees.

Appeals from the United States District Court

for the District of Kansas

The above caption was adopted in a court-approved stipu-

lation. These 88 appeals are from a judgment entered in

eight consolidated civil actions, all filed in, or transferred to,

the United States District Court for the District of Kansas.

In one aspect or ancther, each is a class action. For con-

venience, the parties are divided into four groups, (1) the

landowners, (2) the lessee-producers, (3) the Helex group,

and (4) the United States.

Wayne Coulson and Dale M. Stuckey argued the cause

for the landowners. With them on the brief were Bernard

E. Nordling, Leland E. Nordling, Gene Stipe, Richard L.

Gossett, Leo Winters, and W. A. McWilliams, attorneys

for lendowners; Donald I. Mitchell, attorney for Federal

Land Bank; and of counsel were Kramer, Nordling & Nord-

lirg, Fleeson, Gooing, Coulson & Kitch, and Stipe, Gossett

& Stipe. :

Richard Jones, James B. Diggs, Gerald Sawatzky, and

George C. Spradling argued the cause for the lessee-pro-

4a

ducers, With them on the brief were Arloe W. Mayne,

G. Fred Charles, J. M. O’Loughlin, and Stanley G. Andeel,

attorneys for Ashland Oil & Refining Company; William

C. Charlton and Stanley G. Andeel, attorneys for Cabot

Corporation; Cecil C. Cammack, Alfred O. Holl, Roy Z

Johnson, R. O. Mason, and Stanford J. Smith, attorneys

for Cities Service Oil Company; Stanley G. Andeel, attor-

ney for Dorchester Gas Producing Company; Wm. F. Piel-

sticker, attorney for Gulf Oil Corporation; William R.

Horkey, Leon C. Gavras, and Stanley G. Andeel, attorneys

for Helmerich & Payne, Inc.; Charles B. Wallace, Donald

G. Canuteson, and William H. Tabb, attorneys for Mobil

Oil Corporation; P. O. Hickman and R. H. Lendt, attor-

neys for Pan American Petroleum Corporation; H. A.

Berry, W. M. Sutton, W. E. Notestine and George B. Col-

lins, attorneys for Diamond Shamrock Corporation; Mur-

ray Christian and R. T. Robberson, attorneys for The

Superior Oil Company ; Eugene G. Bell, attorney for Mapco

Production Company; Philip R. Wimbish, Elmer W.

Adams, and Stanley G. Andeei, attorneys for Texaco, Inc.;

and of counsel were Foulston, Siefkin, Powers & Eberhardt,

attorneys for Ashland Oil & Refining Company, Cabot Cor-

poration, Dorchester Gas Producing Company, Helmerich

& Payne, Inc., and Texaco, Inc., Hershberger, Patterson,

Jones & Thompson, attorneys for Mapco Production Com-

pany, Mobil Oil Corporation, and The Superior Oil Com-

pany, Hoiliman, Mason & Maddux, attorneys for Cities

Service Oil Company, Lilleston, Spradling, Gott, Stallwitz

& Hope, attorneys for Pan American Petroleum Corpora-

tion, and Underwood, Wilson, Sutton, Heare & Berry, at-

torneys for The Diamond-Shamrock Corporation.

Emmet A. Blaes, Richard B. McDermott, William S.

Richardson, and Mark H. Adams II argued the cause for

the Helex group. With them on the brief were Jack W.

Wertz, George E. Peabody, and Mark H. Adams of Adams,

Jones, Robinson and Manka, attorneys for Cities Service

Gas Company; Mark H. Adams of Adams, Jones, Robinson

5a

and Manka, attorneys for Cities Service Cryogenics, Inc.

and Cities Service Helex, Inc.; Wm. J. Zeman, Lloyd G.

Minter, Kenneth Heady, and Boesche, McDermott and Esk-

ridge, attorneys for Phi'lips Petroleum Company; Jochems,

Sargent and Blaes, Wendell J. Doggett, and William L.

Robertson, attorneys for National Helium Corporation and

Panhandle Eastern Pipe Line Company; F. Vinson Roach,

Patrick J. McCarthy, and Mark H. Adams of Adams, Jones,

Robinson and Manka, attorneys for Northern Natural Gas

Company, Northern Helex Company, and Northern Gas

Producte Company.

Floyd L. France argued the cause for the United States.

With him on the brief were Shiro Kashiwa, Assistant At-

torne, General, Bernard V. Borst, Assistant United States

Attorney, and 8. Billingsley Hill, Attorney, Department of

Justice.

Before Brerrenstein, Seta and McWunuiams, Circvit

Judges.

Brerrenstes, Circuit Judge.

Helium, a rare element found as a component of natural

gas, has become in the last 20 years increasingly important

to national defense, science and industry. Through scien-

tific and technica] advances this inert and noncombustible

gas, which was formerly wasted at the burner tips of gas

appliances, now has great value. Congress recognized the

need for helium by the Helium Act Amendments of 1960,

Pub. L. 86-777, 74 Stat. 918, 50 U.S.C. § 167 et seq., which

provide for a helium conservation program, with private

participation, under the control of the Bureau of Mines,

an agency of the Department of the Interior.

The natural gas fields of the Hugoton area in Western

Kaasas end the Oklahoma and Texas panhandles contain

6a

99% of the nation’s recoverable supply of helium. The

landowners gave the leases under which the helium-bearing

gas is obtained from the earth. The lessee-producers

drilled the wells, produced the gas, and sold it to interstate

pipelines which are under the jurisdiction of the Federal

Power Commission. Affiliates and subsidiaries of the pipe-

lines, the Helex group, separate helium from other gaseous

components and sell the mixture to the United States. The

Bureau of Mines stores the helium mixture and refines it

to 99.99% pure helium for sale to government agencies and

private industry. The basic issue is whether the land-

owners and the lessee-producers can receive benefit from

the value of the helium. The trial court rejected all claims

of the landowners and lessee-producers to the helium and

gave judgment for the Helex group and the United States.

See Northern Natural Gas Company v. Grounds, D.Kan.,

292 F.Supp. 619. We reverse. In our opinion the Helex

companies must account to the lessee-producers for the

reasonable value of the helium contained in the processed

gas and the lessee-producers must pay royalty on such

value to the landowners.

Six of the eight actions which were consolidated for trial

are in the nature of interpleader. The fund in each suit is

the money paid and to be paid by the United States to the

interpleading plaintiffs for the helium-gas mixture pro-

duced and sold by them. Four of the cases were brought by

Cities Service Gas Company, a pipeline. One was brought

by Northern Natural Gas Company, a pipeline, and its sub-

sidiary Northern Helex Company. In each of these five

eases the defendants are named landowners and named

lessee-producers in each instance as representatives of a

class. The sixth interpleader was brought by National

Helium Corporation which is owned in equal shares by

Panhandle Eastern Pipe Line Company and National

Panhandle Eastern and named landowners as representa-

tives of a class. Pursuant to a third-party complaint by

7a

Panhandle Eastern, named lessee-producers were brought

in as representatives of a class. Motions to dismiss the

interpleaders on jurisdictional grounds were denied by the

trial court and we affirmed. Grounds v. Northern Natural

Gas Company, 10 Cir., 327 F.2d 1003.

The remaining two actions were brought by named land-

owners, as representatives of their class, against the United

States. One is under the Tederal Tort Claims Act, see

28 U.S.C. §§ 1346(b), 1402, and 2674, on the theory of con-

version, and the other under the Tucker Act, see 28 U.S.C.

§ 1346(a)(2), on the theory of reverse condemnation.

All eight actions were maintained in the district court as

class actions under Rule 23, F.R.Civ.P. One class is the

landowners and the other is the lessee-producers. The dis-

trict court held that the actions were properly maintainable

as class actions. See 292 F.Supp. 619, 633-637. On these

appeals no question is raised as to the propriety of the dis-

trict court treatment of the cases as class actions.

After consolidation, there were extensive discovery pro-

ceedings, a definitive pre-trial order, and a 43-day trial

limited to the question of liability. The trial court made

full and detailed findings of fact which are found at 292

F.Supp. 619. For the sake of brevity in this opinion, we

repeat only those facts which we deem necessary for under-

standing of the case and disposition of the issues. It is

enough to say that we find no material dispute as to the

determinative facts. The controversy is ever the conclu-

sions to be drawn from those facts and the application of

the law thereto.

Helium is a colorless, odorless, and tasteless gas which,

in the present state of scientific knowledge, will not react

chemically or physically with any other element, except

under iabvratory conditions. The generally accepted theory

is that helium is formed by radioactive disintegration with-

in the earth and migrates to the same reservoir traps as do

other gases. Through eons of time it has commingled with,

8a

and become diffused with, natural gas hydrocarbons which

were formed from organic materials of ages past. Helium

is noncombustible. It is the second lightest element found

on earth, next to hydrogen which is highly combustible.

Helium does not liquefy at standard atmospheric pressure

until it reaches —452.1 degrees Fahrenheit, almost absolute

zero and lower than any other gas.

Helium was first discoverea in the spectrum of suniight

in 1868. Sometime in the 1890’s helium was found on the

earth. In 1905, helium was discovered in gas from a well at

Dexter, Kansas. Helium remained a laboratory curiosity

until 1918 when the United States began commercial ex-

traction of helium from gas produced in the Petrolia Field

of Texas for use in military balloons and blimps during

World War I."

Before 1960, with minor exceptions, the production and

marketing of helium was accomplished by the Bureau of

Mines pursuant to the Helium Act of 1925, 43 Stat. 1110.

Until the advent of World War II, the uses of helium out-

side of the laboratory were in lighter-than-air craft and,

when mixed with oxygen, in medicine and deep-sea diving.

During this period, the United States by purchase and con-

demnation obtained various rights urfder which it produced

helium at government plants. The 1937 amendments, 50

Stat. 885, to the Helium Act of 1925, directed the Secretary

of the Interior to purchase if possible all private helium

plants. Under this authority the United States acquired

two plants of the Girdler Corporation, the only private

helium extraction operation in the country at that time.

During World War II the government constructed four

plants to meet the greatly increased military need for he-

lium. After the war all of the plants except one were shut

1For the history of helium and the programs of the United

States for its conservation see Clifford W. Seibel’s book ‘‘ Helium—

Child of the Sun’’ 1968, University of Kansas Press.

9a

down. In the 1950’s the demand for helium rose spectacu-

larly. This came from a combination of new uses, including

atomic weapons, nuclear energy plants, military and civil-

ian rocketry, exploration of outer space, the field of cryo-

genics, welding of newly used metals, breathing mixtures

for medical patients, divers and astronauts, and other uses

connected with both science and industry. Because of the

limited supply and the wasting of the known reserves, the

government set up a Helium Policy Working Group under

the chairmanship of Under Secretary of the Interior Chil-

son. The group recommended a program which envisaged

participation by private industry. The 1960 amendments

to the Helium Act were the result of these activities.

The record shows that, although helium is contained in

either measurable or detectable quantities in gas found in

a majority of natural gas fields in the United States, 99%

of the nation’s helium resources are in the natural gas re-

serves of the Hugoton area. 292 F.Supp. at 654. This area

is approximately 210 miles from north to south, and 160

miles from east to west. It covers approximately 33,000

square miles and over 21 million acres. Underlying the

area are about 15% of the known natural gas reserves of

the United States. According to some of the testimony, it

is the largest single, pressure-connected gas reservoir in

the world. The helium content averages between .4% and

5% in volume. The economically recoverable helium is

estimated at 119 billion cubic feet from estimated resources

of a total of 36.4 trillion cubic feet of gas.

The components of natural gas produced in the Hugoton

area are about 85% hydrocarbons ranging from methane,

the compound lightest in molecular weight but lowest in

Btu (British Thermal Unit, a measure of heat) yield per

unit of volume, through ethane and propane up to various

heavier hydrocarbons. The remaining 15% is composed of

non-hydrocarbon constituents including nitrogen, oxygen,

argon, helium, hydrogen sulfide, hydrogen, and carbon di-

oxide. The composition of gas from separate wells is noi

10a

constant. For example, methane runs from a low of 45.9%

to a high of 82.6%, nitrogen from 6.5% to 44.3%, and he-

lium from .22% to .97%.

The production of natural gas from underground reser-

voirs is accomplished by reservoir pressure, specifically the

difference between the greater reservoir and lesser well-

head pressure causes the gas to flow through the well bore.

The output of gas is produced in its entirety with all of its

constitutents randomly commingled. The separation of

helium at the wellhead is not economically feasible.

The first gas well in the Hugoton area was completed in

Texas in 1918 and was followed by Kansas and Oklahoma

wells in 1922. Development of the fields in terms of com-

pleted wells was slow until the late 1920’s and early 1930’s

when the extensior of pipelines into the area made it ac-

cessible to commercial markets. The productive geograph-

ical limits expanded gradually and were finally defined in

the 1940’s. The record shows that prior to 1954 there were

8,504 wells drilled in the area and an additional 1,538 wells

in the period 1954-1959.

The gas is produced under leases given by the owners of

the appropriate mineral rights. The trial court said that

65% of the leases were taken by lease brokers rather than

by representatives of the producing industry. There are

thousands of leases and a great vere ty of lease forms.

The leases were either assigned to taken by, the com-

panies within the lessee-producer group for development,

production, and marketing. The lessee-producers sell the

gas to pipeline companies which transport it interstate

for resale. The gas is commonly delivered at the well-

head but occasionally at a gathering point and the volume

is measured when delivered. The price is stated in terms

of cents per Mcf, thousand cubic feet, and is commonly

subject to quality adjustments depending on Btu content.

Ordinarily, the sales by the lessee-producers are under

long-term executory contracts containing price escalation,

arbitration, or renegotiation clauses.

lla

The question of title to helium arose during the contract

negotiations between the Helex companies and the Bureau

of Mines.2, The Helex companies agreed to warrant title

and to indemnify the United States for all ownership

claims of third parties. The ultimate cost each seller

might have to bear because of title failure is limited by

various contract provisions which were thus summarized

by the trial court, 292 F. Supp. at 658:

‘“‘The ultimate cost each seller [Felex company]

might have to bear as a result of failure of title is

limited, however, by provisions that the seller be re-

imbursed by the United States for all payments made

in satisfaction or settlement of ownership claims to

helium, to the extent that such payments exceed ap-

proximately $3.00 per Mcf of helium.’’

With this background we turn to the contentions of the —

parties. Other pertinent facts will be developed in the

discussion of specific issues.

2A March 5, 1962, memo by the U. © General Accounting

Office regarding negotiation of helium contracts contains this

statement: ‘‘Mr. Wheeler [Assistant Director, Helium, Bureau of

Mines] advised that in cost negotiations, the contractors were

allowed, as part of the unit price, a helium payment of about

$2.00 a thousand cubic feet (MCF) of helium delivered because

the natural gas companies believed that they could not warrant

clear and unrestricted title to the helium. The companies con-

tended that the gas rights owned permitted them to sell natural

gas and not helium. Therefore, in order to provide for possible

future payments to lessees, the companies insisted upon a helium

payment of $2.00 a MCF for helium delivered. Although there

has not been any known court cases on this subject, Mr. Wheeler

stated that, in essence, this payment provides for a contingency

in the event that (1) the companies are sued by lessees, (2) the

court renders a decision that the companies do not have clear

title to the helium contained in natural gas and (3) the com-

panies are liable to pay third parties for the helium extracted

from natural gas. (Over the life of the four negotiated contracts,

this helium payment will amount to an estimated $125 million.) ’’

12a

1. LanpOwneErs’ CLaIMs.

The landowners contend that the leases cover only cor1-

bustible oil and gas. The trial court held that the grant

of gas in each lease ‘‘extends to the entire gas stream

which emerges at the wellhead absent an express reserva-

tion of any constituent products, and that helium passes

thereunder unless expressly reserved.’’

There are estimated to be approximately 30,000 persons

who receive income from the production of helium-bearing

natural gas by virtue of ownership of land, mineral inter-

est, royalty, or other interests. Thousands of leases exe-

cuted on more than 150 printed forms cover the Hugoton

gas. Over 75% of the leases were executed after 1940.

Leases held by named lessee-producers have at least 50

different granting clauses. Six of these clauses are found

in leases covering over 90% of the acreage. These were

summarized thus by the trial court, 292 F. Supp. at 660:

Kansas AND OKLAHOMA LEASES

Percentage

of Acreage

‘‘oil and gas, casirzhead gas and casinghead

ne” 69.688

‘‘oil, gas, casinghead gas, casinghead gasoline

and all other gases and their respective

constituent vapors’”’ 10.132

‘Soil and gas”’ 7.144

‘‘oil, distillate, gas, casinghead gas, casing-

head gasoline and all other gases and

their respective constituent vapors’”’ 3.311

90.275

Texas Leases

‘Soil and gas’’ 39.860

‘‘oil, gas and all other minerals’’ 25.517

‘‘oil and gas, casinghead gas and casinghead

ins”? 14.545

‘‘oil, gas, and all other minerals’’ 14.168

94.090

13a

Leases covering 99.99% of the acreage contain the

words ‘‘oil’’ and ‘‘gas.’’? Of the many different granting

clauses the landowners regard only five as conveying

helium as part of the gas. In these instances the language

specificaliy covers all gaseous substances without regard

to their similarity or dissimilarity to ‘gas’? as used in

the phrase ‘‘oil and gas.’? The most commonly used lease

form grants ‘‘oil and gas, casinghead gas and casinghead

gasoline.’

*The pertinent provisions of this form are:

“*1. That lessor, for and in consideration of the sum of

One and No/100 - - Dollars ($1.00), in hand paid, and of the

covenants and agreements hereinafter contained to be per-

formed by the lessee, has this day granted and leased and

hereby grants, leases and lets unto the lessee for the pur-

pose of mining and operating for and producing oil and gas,

casinghead gas and casinghead gasoline, laying pipe lines,

building tanks, storing oil, building power stations, telephone

lines and other structures thereon to produce, save, take care

of and manufacture all of such substances, and for housing

and boarding employees, the following described tract of land

“*2. This lease shall remain in force for a term ending Octo-

ber 23, 1951, and as long thereafter as oil, gas, casinghead

gas, casinghead gasoline, or any of them is produced.

“*4. Lessee shall pay lessor monthly as royalty: (a) on gas

marketed from each well, one-eigth (4%) of the proceeds if

sold at the well, or, if marketed by lessee off the leased prem-

ises, then one-eighth (14) of the market value thereof at the

well; (b) on gas use? by lessee for the extraction of casing-

head gasoline, one-eighth (4%) of the value of the natural

gasoline content as determined by the Natural Gasoline Asso-

ciation of America revised contract, adopted April 4, 1939;

e°o ©, Lessor shall have the privilege at his own risk and

expense of using gas from any gas well on said land for stoves

and inside lights in the principal dwelling located on the

leased premises by making his own connections thereto.

e ® e e e

| The lessee shall have the right to use free of cost, gas,

oil and water found on said land for its operations thereon,

except water from wells of the lessor. ® * *??

14a

By statute in each of the three states a conveyance of

real estate passes the entire estate of the grantor unless an

intent to pass a lesser estate expressly appears or is neces-

sarily implied. K.S.A. § 58-2202, 16 O.S.A. § 29; Vernon’s

Ann. Rev. Civ. Stat of the State of Texas, art. 1291. In

Kansas and Oklahoma an oil and gas lease is a license,

incorporeal hereditament, or profit a prendre. See

Summers, The Law of Oil and Gas §§ 161, 164 (1954) and

the cases there cited. In Texas an oil and gas lease con-

veys a fee simple determinable and is a ‘‘present con-

veyance of * * * the entire title to the designated minerals

existing in the land.’’ Andrews v. Brown, Tex. Civ. App.,

283 S.W. 288, 291. For our purposes we see no difference

in result whether the leases are considered as licenses or

conveyances.

Our first problem is with the word gas. The trial court

said that ‘‘ ‘gas’ or ‘gases’ are used interchangeably to

describe any naturally-formed aeriform substances indige-

nous to the underlying reservoir, which aeriform sub-

stances include helium. * * *’’ See 292 F. Supp. at 686.

The learned dissertations of the parties on the derivation

and use of the word gas during the last several hundred

years is interesting but not conclusive. Gas is a generic

term which is defined in Webster’s Third New Inter-

national Dictionary (G. & C. Merriam Co., 196i) as

‘‘1, A fluid (as air) that has neither independent

shape nor volume but tends to expand indefinitely; a

substance at a temperature above its critical tem-

perature and therefore not liquefiable by pressure

alone. * @ #99

As we see the problem, gas has two meanings, one in

the physicist’s sense conforming to the Webster definition

and the other in tle vernacular sense with the meaning

dependent on the use of the word. The landowners point

out that in the leases the word cil and the word gas are

used in conjunction. They contend that the terms ‘‘oil’’

15a

and ‘‘gas’’ taken together are used interchangeably with

the term ‘‘petroleum.’’ Accordingly, they say, gas must

refer to a gaseous hydrocarbon. This is a non sequitur.

It is an attempt either to rewrite the leases or to convert

a claimed vernacular use into a subjective intent. Nothing

in the record shows that ‘‘oil and gas’’ or ‘‘petroleum’’

come from the earth as a pure hydrocarbon. The record

does show that Hugoton gas contains noncombustible com-

ponents. We doubt whether it is possible to produce either

oil or gas without at the same time preennag some im-

purities.

The landowners’ attempt to bolster their position by

reliance on ejusdem generis is not persuasive. Ejusdem

generis is a tool to be used in search for the correct mean-

ing of words. Ordinarily it limits general terms which

follow specific ones to matters similar to those specified.

Gooch v. United States, 297 U.S. 124, 128. The land-

owners say that the word oil is specific and limits the

meaning of gas. We believe that the word oil and the

word gas have equal status. Navajo Tribe of Indians v.

United States, Ct. Cl. 364 F. 2d 320, 325, 327, to which

reference will be made later, rejected the application of

ejusdem generis in the construction of a lease of ‘‘all the

oil and gas deposits.’’ We agree.

The landowners say that the word gas is ambiguous.

The argument seems to run like this. Gas has a physicist’s

meaning to describe a state of matter and a popular, or

industry meaning, to cover a mixture of gaseous hydro-

carbons. This brings us to the field of semantics. We

agree that the meaning of a statement often requires a

kncwledge of its connotation and that the objective mean-

ing of a word cannot be considered, ordinarily, separate

and apart from the context of its actual subjective use.

The argument goes that the landowners subjectively in-

tended to grant combustible oi) and gas and nothing else.

All this does is to lead us to the question of intent which

we shall discuss later. In our opinion there is no ambigu-

l6a

ity which calls into play the rule that oil and gas leases,

when ambiguous, are construed against the lessees and in

favor of the lessors. See e.g. Beatty v. Baxter, 208 Okl.

686, 258 P. 2d 626.

Few decisions have any bearing on the specific issue.

In Gilmore v. Superior Oil Co., 192 Kan. 388, 388 P. 24

602, the court was concerned with the deduction of com-

lessee desires complete coverage ‘‘of oil, gas, liquid hydro-

carbons, or even helium gas * * * the lessee has the oppor-

tunity to protect itself by the manner in which it draws

the lease.”’ Ibid at 605. Relying on Curtis Publishing

Co. v. Cassel, 10 Cir., 302 F. 2d 132, 135, and like cases,

the landowners say that this is a clear and unequivocal

statement that an oil and gas lease not mentioning helium

does not cover it and, so far as Kansas is concerned, is

binding on federal courts. We are not convinced. Gilmore

was concerned with duty to market, not with lease cover-

age. The statement is not considered dictum but is ‘‘com-

ment merely obiter,’’ see Hawks v. Hamill, 288 U.S. 52,

59, and is neither conclusive nor particularly persuasive.

The landowners *mphasize the Oklahoma casinghead gas

eases. Casinghead gas is nothing more than gas from an

oil well. Mussellem v. Magnolia Petroleum Co., 107 OkL

183, 231 Pac. 526, 530. The evidence shows that casing-

head gas is composed of the lighter members of the

paraffin series, largely methane with some ethane and

propane. Casinghead gasoline is composed of heavier

elements of the same series.

Hammett Oil Co. v. Gypsy Oil Co., 95 Okl. 235, 218 P.

501, held that a contract for royalty on oil did not entitle

the holder to royalty on gasoline manufactured from cas-

inghead gas. Hammett and the cases which followed it

are summarized in Broswood Oil Co. v. Sand Springs

Home, 178 Okl. 550, 62 P. 2d 1004, 1006, which states the

17*.

effect of the Oklahoma rule to be that, absent a contrary

intent of the parties, a reservation of royalty on oil and

on gas ‘‘means oil in its ordinary acceptation and gas

from a gas well as the same is ordinarily understood. * * °”’

The rule established in Hammett and its progeny has been

subject to considerable criticism. Ibid. There appears to

be some uncertainty in the Oklahoma cases concerned

with the problem of whether casinghead gas is within a

lease which covers both oil and gas.

For whatever the Oklahoma casinghead gas decisions

may be worth and regardless of whether they are sound

law, we believe that they are not applicable here. When

the lease, or other agreement, provides for royalty on oil

from an oil well and on gas from a gas well and casinghead

gas is produced from an oil well, the recovery of royalty

depends on whether gas emerging from aa oil well is com-

monly understood to be oil. In the Hugvton area, helium

emerges as a component of the gas produced from a gas

well. It necessarily comes from the wellhead and into

the transmission line with all the gases which make up the

entire stream. Casinghead gas from an oil well is only

incidental to the production of oil and may be separated

at the wellhead.

The situation in Texas is different. Lone Star Gas Co.

vy. Stine, Tex. Com. App., 41 S.W. 2d 48, was con-

cerned with a deed covering ‘‘all natural gas.’’ The ques-

tion was whether natural gasoline was covered by the

grant. The court held that it was and said that natural

gas meant all the constituent elements composing the gas

and that the grantee had the right to sell the gas in the

form in which it emerged from the earth or to split it into

its constituent elements and sell them. Taking literally,

this language is broad enough to embrace helium in a

grant of gas. The reasoning of the court, however, will

not apply to helium. The court coinpared oil, gas, casing-

head gas, and coal, and drew the premise that but for

their distinction in natural form, these substances possess

18a

somewhat similar chemical properties and are readily con-

‘ vertible into gaseous hydrocarbons by artificial means.

Helium is not a hydrocarbon and is not convertible into

one.

The decision closest to our problem is Navajo Tribe of

Indians v. United States, Ct. Cl, 364 F. 2d 320, 324-327.

The Tribe claimed that a 1923 lease ‘‘of all the oil and gas

deposits”’ referred to gaseous hydrocarbons and not to

helium. In the 1940’s helium-bearing gas was produced

and the Tribe was paid royalties. The Court of Claims

found the Oklahoma casinghead gas cases unpersuasive and

followed Lone Star. It said that although the parties may

have been thinking of fuel-type gases, it was more realis-

tie to presume that “‘the grant included not only hydro-

carbons but the other gaseous elements as well.’’ Our

principal difficulty with Navajo is that it treats the prob-

lem of whether the word gas includes helium as one of

law. This may have been proper when dealing with tribal

lands without regard to any state law impediment. We

believe that this question is one of fact and of the conclu-

sions which are to be drawn from the facts.

The only other helium case is Hoff v. Girdler Corp., 104

Colo. 56, 88 P. 2d 100. We fail to see the relevance of that

decision. The issue was whether the lessee had abandoned

the lease. The question whether a grant of gas included

helium was not raised.

In Hans v. Great Bend Brick & Tile Co., 172 Kan. 478,

241 P. 2d 475, 478, the court said that a conveyance of all .

the ‘‘oil, gas and other minerals’’ did not include clay.

Oklahoma has held that a reservation of “‘oil, petroleum,

gas, coal, asphalt and all the other minerals of every kind

and character’? was not a reservation of underground

water. See Mack Oil Co. v. Laurence, Okl, 389 P. 2d 955,

961. A similar result was reached in Texas by Fleming

Foundation v. Texaco, Inc., Tex. Civ. App., 337 S.W. 2d

846, 852, which held that subsurface water was not within

a grant of oil, gas and other minerals.

19a

We believe that it is a fair interpretation of the cases

just cited to say that in the three states intent is a ques-

tion of fact. A plethora of evidence was received on the

point. The landowners rely on the meaning of gas in both

common and industrial usage. They presented a lericog-

rapher who made a study of dictionaries, encyclopedias,

area newspapers and selected magazine articles and stated

his opinion that the word gas did not connote helium to

the average landowner of the Hugoton area. Their oppon-

ents counter with an account of the helium development in

the period from 1917 to World War II and emphasize that

in federal oil and gas leases made after 1920 the United

States expressly reserved helium. A recitation of all of

the evidence would serve no good purpose. The trial

court found that gas did not connote helium to the average

landowner, that no landowner specifically contemplated

helium in granting rights to produce gas, and that other

evidence establishes ‘‘that he had no intention whatever

respecting it.’”? 292 F. Supp. at 664. Such findings are

supported by substantial evidence and we must accept

them. .

The landowners say further that the value of natural

gas lies in its use as fuel, that helium is valueless as a

part of a fuel stream, and that the average landowner could

not have intended to convey helium for fuel purposes. The

Helex companies, although conceding that the principal use

of natural gas has been for fuel, point out that it has other

uses of economic value such as a feed stock fer petro-

chemical operations, the manufacture of carbon black, and

as a pressuring agent in oil production. Six witnesses who

had either taken leases or supervised such activities testi-

fied that to their knowledge no land man or lease negotia-

tor had ever discussed the gas to be leased in terms of its

constituents. The only lease making specific provision for

helium was executed after the start of this litigation. The

trial court said that this phase of the argument ‘‘is but an

attempt to convert an uninformed popular notion respect-

20a

ing the commercial uses of natural gas into an intention

by the lessor to convey only those discrete constituents of

the gas stream, the uses of which conformed to that no-

tion.’’ 292 F. Supp. at 665.

The trial court concluded its treatment of this part of

the case by saying that, in view of the circumstances of

lease execution, the definition and usage of terms within

the industry, and the intentions of the parties as disclosed

by their actions, the leases extend to the entire gas stream

absent an express reservation, and helium passes there-

under unless expressly reserved. 292 F. Supp. at 669.

The landowners contend that this conclusion is inconsistent

witk the finding that the average landowner had no intent

with regard to helium.

We believe that the issue is whether general or specific

intent controls. The claimed general intent is lease cover-

age of all components of the gas produced by the wells.

The specific intent is said to be lease coverage only of

combustible gas. General intent includes helium and spe-

cific intent excludes it.

Nothing in the leases shows an intent to convey only

combustible gas. If that is what the lessors meant, they

should have said so. The evidence of the landowners is

that they knew nothing of helium. If that is true, they

could not have had any intent with regard to it. Reliance

on specific intent is not compatible with denial of any

intent. We believe that the search should be for general

intent rather than for a supposed, but unexpressed, spe-

cific intent. General intent should be discovered not by

defining and redefining the terms used but by considering

the purposes of the grant in terms of enjoyment of the

rights created. See Comment:._New Values Under Old

Oil and Gas Leases: Helium Who Owns It? 62 Mich.

L. Rev. 1158, 1169.

The landowners desired to profit by the prodnetion of

gas from their lands. To atiain this end they gave exclu-

21a

sive leases permitting exploration, development, produc-

tion and marketing. The lessees drilled the wells and

found gas. The gas came from the ground with all of its

components and was measured at the wellhead. The gas

was produced as a whole without separation of any of the

components. Wellhead separation of helium was imprac-

tical. “i

In Utilities Production Corporation v. Carter Oil Co.,

10 Cir., 72 F. 2d 655, 659, a case concerning ‘the right of

an oil lessee to use residue gas for repressurization, we

said that the argument that lease parties contemplated the

use of gas ‘‘for such methods of operation and develop-

ment as were known to the industry the day the leases were

signed * * *’’ was specious, and that a ‘‘foresighted intent

cannot be imputed to the parties, for they knew that im-

provements would come about during the terms of the

leases, and must have contemplated the use of such im-

proved methods.’’ We believe that those principles apply

here. It is true that we are dealing with a new use of a

component of the gas rather than an improved method

of production but we are aware of no reason why the

result should be different.

In the final analysis, the effort of the landowners is to

write into the leases an exception or reservation which is

not found in the exceuted instruments. They seek to except

from the leases the helium which they cannot produce

themselves. The only way to obtain value for the helium is

to produce it, together with all other components of the

gas, and run the gas through a separator. We will not

import into the grants of oil and gas a subjective intent to

convey only those components of the gas which comport to

a subjective notion of the commercial end uses at the time

of lease execution.

In our opinion general intent is closer to original intent

than is specific intent which blossoms when a component

previously regarded as an impurity becomes valuable. The

discovery of the use and value of a component does not

22a

expand the grant but the expansion of that discovery into

tangible value makes more certain the specific object of

the general grant. We conclude that, absent specific reser-

vations, the grant of gas by the leases covered all com-

ponents of the gas, including helium.

In the interpleader actions the landowners have asserted

alternative in personam cross-claims against the producers

based on abandonment and an alleged breach of the cove-

nant to market. The lessee-producers say that the court

does not have jurisdiction of such claims, that abandon-

ment is not present because neither intentional nor volun-

tary relinquishment of the leases has been shown, and

that no breach of the covenant has occurred because after

the market developed in 1962 they diligently pursued their

rights to payment for the helium content. Interpleader

jurisdiction is limited to the fund in controversy. Here

the fund is the money paid and to be paid to the inter-

pleading plaintiffs for the helium-gas mixture produced

and sold by them. The cross-claims have no relation to

that fund. Hence, jurisdiction is not established. See

State Farm Fire & Casualty Co. v. Tashire, 386 U.S. 523,

533-537, and Knoll v. Socony Mobil Oil Co., 10 Cir., 369

F. 2d 425, 429, cert. denied 386 U.S. 977.

The Tort Claims case, based on conversion, and the

Tucker Act case, based on reverse condemnation, are each

dependent on the theory that the landowners have not

parted with title to the helium. Our holding that the

leases grant the helium removes the essential basis for

each case and requires affirmance of the district court’s

dismissal of each.

2. Lzessez-Propucers’ CLaIms.

The lessee-producers have drilled the wells, produced the

gas, and sold it to interstate pipelines whose Helex sub-

sidiaries separate helium from many other components

and deliver the resulting mixture to the Bureau of Mines

for further refinement. The named lessee-producers rep-

23a

resent a class of well over 500 oil and gas operators. The

lessee-producers say that they are entitled to recover out

of the interpleaded funds the reasonable value of the com-

mingled helium. They concede that they must pay royalty

to the landowners on any amounts so received. The trial

court held that the Helex companies have no liability to

the lessee-producers.

The parties stipulated that helium-bearing natural gas

delivered to the Helex companies is gas purchased and

transmitted ior resale in interstate commerce, that all gas

purchase contracts between the lessee-producers and the

pipelines are filed with the Federal Power Commission

(FPC) as rate schedules under the Natural Gas Act, and

that all payments made by the pipelines to the lessee-

producers are at rates established, or permitted to be

paid, by FPC.

The Natural Gas Act of 1938, 52 Stat. 821-833, 15 U.S.C.

§§ 717-717w, placed the pipelines under FPC jurisdiction.

In 1954 by its decision in Phillips Petroleum Co. v. Wis-

consin, 347 U.S. 672, the Supreme Court held that inde-

pendent producers‘ are natural gas companies within the

meaning of the Natural Gas Act and subject to FPC jur-

isdiction. The lessee-producers are independent producers.

The Natural Gas Act provides that all rates and charges

of natural gas companies ‘‘shall be just and reasonable.”’

See 15 U.S.C. §717c(a). After the Phillips decision, FPC

required te gate producers to file their contracts with

the pipelines and the contract price was accepted subject

to FPC review.

FPC regulation of the pipelines has been on a conven-

tional, cost-of-service, public utility basis which was found

*FPC regulations, 18 CFR §154.91(a) (1969), define inde-

pendent producer as ‘‘any person as defined in the Natural Gas

Act who is engaged in the production or gathering of natural

gas and who sells natural gas in interstate commerce for resale,

but who is not engaged in the transportation of natural gas

(other than gathering) by pipeline in interstate commerce.’’

24a

undesirable in application to the independent producers.

In its CATCO decision, Atlantic Refining Co. v. Public

Service Commission of New York, 360 U.S. 378, the Su-

preme Court directed the FPC, in protection of the public

interest, to hold the line on rate increases. Responsive

thereto, the FPC established in-line rates on an area basis.

These rates are specified in FPC Statement of General

Policy No. 61-1, issued September 28, 1960. See 18 CFR

§ 2.56 and amendments thereto. The effect thereof is that

FPC will not certificate initial rates, and will suspend in-

creased rates, which exceed the prescribed levels. The

service rates fixed for Hugoton were 1i¢ per Mcf. FPC

area rate making was upheld by the Supreme Court in

Permian Basin Area Rate Cases, 390 U.S. 747. The record

shows that in Area Rate Proceeding, et al. (Huzoton-

Anadarko Area), Docket No. AR 64-1, the presiding ex-

aminer’s decision, which we are told at argument has been

approved by the FPC so far as pertinent here, fixed the

service rates for wellhead deliveries in the Hugoton area

at 12.1¢ in the Texas panhandle, 11.9¢ in the Oklahoma

panhandle, and 11.3¢ in Kansas. The Helex group and

the United States say in effect that these service rates

fix the prices which the lessee-producers can receive from

the pipelines for Hugoton gas, including its helium content.

The 1960 Helium Act Amendments authorized the Sec-

retary of the Interior to make long-term contracts, not

exceeding twenty-five years, for the acquisition, processing,

transportation, and conservation of helium. The Bureau

of Mines negotiated with pipelines controlling large vol-

umes of helium-bearing gas. In 1961, contracts were made

with Northern, Cities Service, and National, all of which

are interpleader plaintiffs. Another contract later that

year was made with Phillips Petroleum Company which is

not an interpleader plaintiff but which was joined by the

government as a third-party defendant in the landowners’

Tort Claims and Tucker Act suits. Phillips was also

brought in as a lessee-producer in two interpleaders but

disclaimed any interest in the fund. See 292 F. Supp. 629,

NT Terre n enn ee ee ee er

25a

631-632. The Cities Service, Northern, and National ex-

traction plants are all in Kansas. The Philiips plants are

in Texas.

The contracts call for the construction of plants requir-

ing capital investments of millions of dollars. The sepa-

ration of helium from natural gas is accomplished by an

expensive and complicated process whereby the gas is put

under high pressure and is cooled to extreme temperatures.

The other constituents of the gas liquefy and separate, leav-

ing the helium and smaller quantities of other constituents

as the remaining gas. The crude helium-gas mixture is

defined in the contracts as ‘‘the gaseous product resulting

from the helium extraction process . . . [and] comprised of

helium predominately together with other constituents of

the natural gas.’’ In actual operations the delivered gas

mixture is about 70% helium and 30% nitrogen. The gas

mixture is transmitted by a government pipeline to the

Cliffside, Texas, underground storage reservoir. When

needed it is withdrawn and refined prior to sale to about

99.99% purity.

The contract prices apply only to volumes of contained

helium. The initial prices, all subject to escalation, are

$11.24 per Mef for Northern Helex, $11.74 for Cities Serv-

ice Helex, $11.78 for National Helium, and $10.30 for Phil-

lips Petroleum. Under each contract the United States is

obligated to purchase the total helium production for 22

years limited to stated annual dollar maximum amounts

which are $9,500,000 in the Northern Helex contract,

$9,100,000 in the Cities Service contract, $15,200,000 in the

National Helium contract, and $13,700,000 in the Phillips

contract. The refined helium is sold to both federal and

non-federal users at $35 per Mcf, a price set by the Secre-

tary of the Interior pursuant to the 1960 amendments,

| The trial below was restricted to the issue of liability

and no determination was made of the value of the helium-

bearing gas. The court did point out that 1. the 1958 con-

tract between the government and Colorado Interstate Gas

.

—_

26a

Company for the Keyes plant ‘the contract requires that

the United States pay the company $2.00 for the right to

process sufficient gas to yield one thousand cubic feet of

helium.’’ 292 F.Supp. at 652. The evidence shows that in

arriving at the unit prices in the Helex contracts the gov-

ernment negotiated ‘‘on the basis of costs comparable to

those it would incur in a government-owned plant * * * .”’

Ibid at 657. Included in the cost build-up was a payment

of $2 per Mcf for helium ‘‘contained in natural gas deliv-

ered at the extraction plant for processing.’’ Ibid. We

express no opinion as to what such value actually is. For

the purpose of this opinion, it is enough to say that recog-

nition of helium value ir the volumes of gas processed in

the plants results in a price substantially higher than the

FPC service rate.

The typical contract between a lessee-producer and a

pipeline contains a recital clause, a definition of gas, a

dedication of described acreage, reservations if any, a staie-

ment of quantities, pricing provisions in terms of Mef ordi-

narily with escalation, arbitration, or negotiation provi-

sions, quality standards based on Btu content and impuri-

ties, statement of duration of contract, methods of measure-

ment, billing and payment rrocedures, and warranties of

title. The t:ial court’s analysis of these contracts need not

be repeated here. See 292 F.Supp. at 669-672.

The lessee-producers say that gas and natural gas as used

in the contracts mean gaseous hydrocarbons and hence do

not include helium. They rely on definitions found in Pan-

handle Eastern Pipe Line Co. v. Federal Power Commis-

sion, 8 Cir., 359 F.2d 675, 680-684, and Deep South Cil Com-

pany of Texas v. Federal Power Commission, 5 Cir., 247

F.2d 882, 888, and on various governmental publications

and bull: ’'ns. The trial court, after.referring to conflicting

testimony of industry uses, found that no such usage ex-

_ isted and commented that no gas naturally occurring in the

Hugoton area consists solely of hydrocarbons. See 292

F.Supp. at 672-673. We are bound by this finding because

27a

it is supported by substantial evidence and is not clearly

erroneous. \

Relying on the quality clauses calling for Btu adjust-

ments, the lessee-producers argue that the pipelines pur-.

chased not natural gas but energy and that the energy is

derived solely from hydrocarbons. The effect of these ad-

justments is emphasized in the separate brief of Pan Amer-

ican Petroleum Corporation which has a contract with

Cities Service covering approximately 600,000 acres and

725 wells. Certain of the gas is unmerchantable unless.

mixed with other gas. Pan American says in substance

that it is penalized by the price reduction and then Cities .

Service uses helium, one of the components causing the re-

duction, to make a profit.

In Permian Basin Area Rate Cases, 390 U.S. 747, 809-813,

the Court approved quality adjustments dependent on Btu

content. In our opinion provisions for such adjustments

do not corvert the contracts into sales of energy. The con-

tracts provide for the sale and purchase of gas on a volu-

metric basis. The district court was correct in holding that

‘‘the plain ianguage of contracts providing for the pur-

chase of gas’’ controls. See 292 F.Supp. at 676.

This brings us to what we consider to be the decisive

point. Helium, a commodity not regulated in price, is pro-

duced as a component of natural gas which is price-regu-

lated. The problem is whether the FPC service rate for

natural gas includes the contained helium.

There can be no doubt of the power and duty of FPC to

regulate the price of natural gas transmitted interstate for

resale. The objective of such regulation is the protection

of the consumer. The FPC has no interest in the compo-

nents of the gas other than the effect which they may have

on its quality as a fuel. The Bureau of Mines is concerned

with prevention of helium waste which occurs when the gas

consumers vent it into the atmosphere with fuel combus-

tion residue.

Section 15 of the 1960 Helium Act Amendments, 50 U.S.C.

§ 167m, declares the purposes of the statute to be the en-

couragement of inaividual enterprise in the development

of helium and the assurance of a sustained supply of helium

for governmental activities. The Secretary of Interior is

authorized to make long-term contracts for the acquisition,

processing, and conservation of helium. He has the emi-

nent-domain power to acquire the helium in helium-bearing

natural gas. A new basis is provided for establishing the

price of helium. The owners of helium extraction plants

lium from the natural gas with which it is commingled.”’

It also provides that in the determination of rates of a natu-

ral gas company there shall be excluded (1) all income from

helium, (2) all direct costs in the extraction, processing,

F

f

f

if

E

ie

ri

|

i

j

4

:

it

é

if

it

transportation, and storage of helium, and (3) the portion

of joint costs allocated to helium ‘‘on a volumetric basis.’’

" Senate Report No. 1814, 2 U.S. Cong. & Adm. News ’60,

pp. 3595, 3599, succinctly states the purpose of this section.

**Section 11 covers the jurisdiction of the Federal

Power Commission in this area. The section makes it

clear that the Federal Power Commission retains its

no jurisdiction over helium iteelf.’’

Other legislative history confirms this purpose.*

The only decided case concerning § 11 is Panhandle East-

ern Pipe Line Co. v. Federal Power Commission, 8 Cir.,

359 F.2d 675. Panhandle applied to FPC for a certificate

to use its pipeline system to transport gas to the National

helium plant. The court said that plant shrinkage of the

gas stream consisted of fuel gas, helium, liquefied hydro-

carbons, and purge. FPC ordered Panhandle to amend its

application to cover hydrocarbons which were liquefied and

sold as well as the fuel gas. Panhandle sought court review

and urged that the FPC order violated § 11. The court

held that it did not and sustained the order on the basis

that it applied only to the transportation of hydrocarbons,

not helium. The court reviewed the legislative history of

§ 11 and concluded that FPC had no jurisdiction over the

heliam either while commingled or after extraction and

that such exemption does not prevent FPC from

jurisdiction over helium-bearing gas. Ibid at 679.

The trial court in the case at bar concluded that § 11 does

not alter the scope of the gas purchase contracts and

““ * * * does not require that persons contracting

for the sale of gas contract separately for the sale of

the helium constituent. It merely permits them to do

so, and when they have not, the contract must stand as

it is written.’’ 292 F.Supp. at 680.

On the record presented, the de:ial to the lessee-producers

of any recourse under the non-applicability clause of § 11

is startling. The evidence is convincing that 99% of the

nation’s recoverable helium supply is in the Hugoton area,

that this area was about 95% developed before the 1960

amendments, and that, with insignificant exceptions, the

controlling contracts had been executed long before 1960.

The effect of the trial court's decision is to deny application

of § 11 to the facts presented. We find nothing in the legis-

lative history, and our attention is directed to nothing there-

in, which shows a congressional intent to deprive the lessee-

producers of all benefit from the enhanced helium value, to

deny the landowners royalty on the increased value of the

gas produced from their lands, or to permit the pipelines to

retain all profit from the helium value by obtaining the

commingled helium at the FPC service rate.

The issue must be determined in the context in which it

is presented. ‘‘The purpuse of the Natural Gas Act was to

underwrite just and reasonable rates to the consumers of

natural gas.’ CATCO, Atlantic Refining Co. v. Public

Service Commission of N.Y., 360 U.S. at 388, 79 S. Ct. at

1253. The Helium Act Amendments are designed to as-

sure a sustained suppy of helium for governmental and m-

dustrial needs. The Natural Gas Act and the Helium

Act Amendments must, if possible, be reconciled to produce

a “‘symmetrical whole.”’ Panhandle Eastern Pipe Line

Company v. Federal Power Commission, 8 Cir., 359 F.2d

675, 679.

Some incidental matters must be mentioned. Section 2(3)

of the 1960 amendments, 50 U.S.C. § 167(3), defines ‘‘he-

ium bearing natural gas” and “*belium-gn mixture’ to

mean respectively, ‘‘natural gas and gas mixtures contain-

ing three-tenths of 1 per centum or more of helium by vol-

ume.’’ We find no pertinency in this because § 11, which

3la

relates to the applicability of the Natural Gas Act, uses

neither phrase.

Section 5(a), 50 U.S.C. § 167c(a), authorizes regulations

for licensing sales and transportation of helium and says

that:

‘‘For the purpose of this section, the term ‘helium’

shall mean helium, after extraction from helium-bear-

ing natural gas or helium-gas mixtures, in a refined or

semirefined state suitable for use.’’

Section 5 has nothing to do with § 11. To read its defini-

tion of helium into § 11 would be to delete the words ‘‘prior

to’’ from § 11 and the words ‘‘For the purpose of this sec-

tion’’ from § 5.

The lessee-producers point out the familiar and common

statement of the FPC in its rate orders that it is ‘‘acting

pursuant to the authority granted by the Natural Gas Act.’’

See e.g. Order No. 264, 29 F.P.C 589. This is a statement

of the statutory justification of the action taken. We find

it of no pertinence in the reconciliation of the two statutes.

Section 11, after stating the nonapplicability of the Natu-

ral Gas Act, excludes from consideration in FPC rate de-

termination all income from sale of helium, all direct costs

pertaining to helium, and a portion of the indirect costs

allocated to helium on a volumetric basis. In our opinion

the purpose of these provisions is to encourage private

participation in the helium program by assurance that rate

of return will not be determined by conventional FPC

standards. The statute furnishes a profit incentive. The

mentioned provisions do not detract from the preceding

clause of § 11 declaring the nonapp) eability of the Natural

Gas Act. We find nothing in the record which indicates

any use of the exclusions which would have effect on the

construction of § 11.

The situation is that a nonregulated commodity (helium)

is necessarily produced in conjunction with a regulated

commodity (natural gas). The Helex companies insist that

the price for the regulated commodity includes the non-

32a

regulated commodity. The lessee-producers emphasize the

rule of rate regulaticn that there can be ao deviation from

the lawful rate for a regulated commodity or service. See

United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350

U.S. 332, and Montana-Dakota Utilities Co. v. Northwest-

ern Public Service Co., 341 U.S. 246. They point to several

decisions which hold that the furnishing of services was an

improper deviation from ICC rates. See United States v.

Wabash R. R. Co., 321 U.S. 403 (spotting freight cars in

plant yard) ; Baltimore & Ohio R. R. Co. v. United States,

305 U.S. 507 (in-transit warehousing at less than cost) ;

and Lowden v. Simonds-Shields-Londale Grain Co., 306

U.S. 516 (installation without charge of grain doors in

freight cars). The lessee-producers equate the nonpay-

ment for the helium content of the gas with the noncollec-

tion of paid costs in the railroad rebate cases.

In answer the Helex companies say that under the Natu-

ral Gas Act the FPC fixes ceiling prices and does not im-

pose a flat rate. Although this is true, the ceiling rate, or

the lower filed rate, is the lawful rate and there may be no

deviation therefrom. See Western Union Telegraph Co. v.

Esteve Brothers & Co., 256 U.S. 566, 571. Section 4(b) of

the Natural Gas Act, 15 U.S.C. § 717e(b), forbids ‘‘any

undue preference or advantage’’ to any person.

The Helex companies deny any prejudice or disadvan-

tage. They say that the lessee-producers contracted to de-

liver the gas stream in its entirety and, absent an express

reservation, the buyer gets the whole stream for such pur-

poses as it may determine. The premise ignores the effect

of the Natural Gas Act. Although the Act does not abro-

gate private rate contracts as such, see United Gas Pipe

Line Co. v. Mobile Gas Service Corp., 350 U.S. 332, 338, it

makes fundamental changes in those contracts. The rate

must be just and reasonable and, if it is not, the FPC

changes it. Provisions for price escalation or price changes

by «rbitration or renegotiation are rendered ineffective hy

regulations permitting summary rejection of increased

rates based thereon. See Federal Power Commission v.

Texaco, Inc., 377 U.S. 33. Contract provisions for period

33a

of duration are overriden by unlimited certificates, see

Sunray Mid-Continent Oil Co. v. Federal Power Commis-

sion, 364 U.S. 137, 156, with the result that the grant of a

certificate carries with it a dedication of the gas for the

life of the field unless FPC approves withdrawal. Although

the contracts are not abrogated, their provisions on price

and term are superseded by FPC regulation.

The basis of the Helex companies’ argument is that there

is a contract sale of commingled helium when it is sold as a

component of the gas stream under FPC service rates. We

are not persuaded. The protection of the Natural Gas Act

is for the consumers, not the Helex eempanies.

In § 11 of the 1960 Helium Act Amendments, Congress

has said that the Natural Gas Act is not applicable to he-

lium operations ‘‘either prior to or subsequent to the sepa-

ration of such helium from the natural gas with which it is

commingled.’’ In our opinion this means what it says and,

if the Natural Gas Act does not apply, a service rate fixed

thereunder does not apply to sales of contained helium.

The Helex companies read into § 11 a distinction between

the sale of helium as a separate commodity and by a sepa-

rate agreement and a sale of helium as a component of the

gas stream. They argue that there may be an additional

payment for helium in the first instance but not in the sec-

ond. A sale of the commingled helium as a component of

the gas stream is a sale of helium ‘‘prior to * * ® the sepa-

ration of such helium from the natural gas with which it

is commingled.’”” Accordingly, the Natural Gas Act, and

the FPC fixed service rates, do not apply.

In oral argument, but not in briefs, the Helex companies

say that if title to the helium passes under the contracts,

interpleader jurisdiction does not lie to permit recovery by

the lessee-producers, and they rely on State Farm Fire &

Casualty Co. v. Tashire, 386 U.S. 523, 535-537, and Knoll

v. Socony Mobil Oil Co., 10 Cir., 369 F.2d 425, 429, cert.

denied 386 U.S. 977. The interpleaded fund is the money

paid and to be paid by the United States to the Helex com-

34a

panies for the helium gas mixture. The lessee-producers

claim a part of that fund on the ground that they have not

been paid for the helium content of the gas. In our opinion

this is a claim to the fund and is within interpleader juris-

diction. The situation is not changed by the fact that the

claim covers only a part of the fund or by the fact that

volume, and hence value, is measured at the delivery point.

The situation is different from that confronting us in con-

nection with the landowners’ claims against the lessee-pro-

ducers on the grounds of failure to market and abandon-

ment. Those claims have no relation to the fund.

The lessee-producers argue that they are entitled to pay-

ment of the reasonable value of the helium undcr equitable

principles of quantum meruit and unjust enrichment aris-

ing out of mistake. They emphasize the enormity of the

mistake by saying that under the three contracts in the

interpleaders a total of $743,600,000 will be paid for crude

helium in a 22-year period and claim that $125,000,000 of

that, as a bare minimum, represents the value of com-

mingled helium before extraction. They contrast this with

tze negative or de minimis value which the parties mistak-

enly assumed it would be.

» The Helex companies insist that the equities favor them.

They say that they built the multi-million dollar extraction

plants and assumed the necessary risks. They charge that

the lessee-producers stood idly by while the risks were

taken, the money invested, and the work done by others.

In support of the principle that equity does not take from

those who earn it and reward those who silently stand aside

and await the success of the enterprise, they cite the re-

freshing authority found in the folk-tale of the Little Red

Hen.”

7 As quoted in the brief of the Helex companies: ‘‘You remem-

ber that I planted the wheat and cut it, I threshed it and carried

it to mill, I made the bread and baked it—and now all of you would

help me eat it! No, indeed.’’ See V. S. Hutchinson, Chimney

Corner Stories (1925) 63, 65, published by Minton Balch and

Company, New York.

ee ee ee

30a

The lessee-producers answer that, if the remarks of the

Little Red Hen are codified as a principle of equity, they

are supported thereby because they obtained leases and

conducted drilling, production, and delivery operations

which placed the commingled helium into the hands of the

Helex companies.

The activities of the Little Red Hen were not those of a

public utility, and neither the product nor the ingredients

thereof were subject to governmental rate regulation.

Therein lies the difference. In our opinion private contract

law and the principles applicable thereto are not con-

trolling. This makes it unnecessary for us to delve into

the many cases and texts bearing on the respective rights

of parties to private contracts.

Common provisions of the gas purchase contracts call

for periodic price escalation, arbitration or renegotiation.

These provisions have been largely nullified by FPC regu-

lations. The situation is illustrated by the plight of

Ashland Oil & Refining Company which sells to Cities

Service gas from over 100 Hugoton wells. The 1948 con-

tract has a special price arbitration provision operative on

5-year periods. In 1961 the rate was raised to 12¢ plus

1.75¢ for gathering. In the 1966 negotiations for a new

price Ashland offered to accept a price applicable to natural

gas under F'PC jurisdiction plus a separate price for non-

jurisdictional helium. Cities Service insisted on a single

price because the contract did not provide for dual price

structure. The matter went to arbitration under an agree-

ment to include helium in the arbitrated price. The

arbitrator fixed a price of 15¢ plus 1.75¢ for gathering.

FPC suspended the rate and after suspension it went into

effect subject to refund with interest. The Hugoton-

Anadarko area rate proceeding fixed a price of 11.3¢ for

non-gathered and 13.2¢ for gathered natural gas. The

result shows the inability of a lessee-producer to use a

price arbitration provision to secure payment for helium

content of natural gas.

36a

The trouble lies in the statutory jurisdiction of the FPC

on the one hand and of the Department of the Interior,

acting through the Bureau of Mines, on the other. The

FPC has jurisdiction over natural gas produced, sold and

transmitted interstate for resale. It has no jurisdiction

over the price of helium. Phillips Petroleum Company

v. Ashland Oil & Refining Company, 40 F.P.C. 390, 391-

392. The Bureau of Mines has jurisdiction over the con-

servation of helium. It has no statutory power to fix the

value of the contained helium delivered to the pipelines

and their affiliates. In 1960 the greatest helium waste was

by FPC protected consumers who vented the helium with

fuel combustion residues. The FPC seeks to obtain the

objectives of the Natural Gas Act through rate control,

one aspect of which is the negation of price increase

clauses. The lessee-producers cannot secure any increased

value from FPC for the helium content of the gas which

they produce and sell.

The lessee-producers fall into the void created by the

two statutes. Neither the FPC nor the Bureau of Mines

has jurisdiction over the helium value of the natural gas.

Although the gas purchase contracts have not been

abrogated, the price provisions thereof have been super-

seded by FPC rate regulation. The regulated lessee-

producers must continue to sell the dedicated gas and have

no statutory or contractual method of obtaining any benefit

for the increased value. Two results are possible. The

first is that the lessee-producers must de ‘ver the gas at

the FPC service rate, based on fuel value, and receive

_ nothing for the helium value. This produces a windfall for

the pipelines and their Helex subsidiaries. The second is

that the lessee-producers are entitled to the reasonable

value of the contained helium. This means that the land-

owners will receive royalties on the value of the helium

produced from their lands and the lessee-producers will

receive value for the helium content of the natural gas which

has been produced by their efforis. We believe that satis-

37a

factory utility regulation requires the second result. Other-

wise, a utility rate may be used to obtain a commodity or

service which is not within the contemplation of that rate.

The allowance of a price, above the FPC service rate,

for the helium content of Hugoton natural gas, does not

adversely effect gas consumers. Their rights to just and

reasonable rates are still protected by the Natural Gas

Act and the FPC and are not increased by either recogni-

tion or payment of helium values.

In our opinion the reconciliation of the Natural Gas Act

and of the 1960 amendments to the Helium Act to attain

a symmetrical whole requires the conclusion that the FPC

service rates do not apply to deny recovery for the con-

tained helium which is processed in the separation plants.

Hence, the lessee-producers recover from the fund the

reasonable value of the helium content of the processed

gas and they in turn must pay ruyalty thereon to the land- *

owners. We believe that this result is a valid reconciliation

of the statutes and a proper determination of the rights of

the parties.

Our conclusior that payment is required relates only to

the helium content of the processed gas. The record shows

that only about 44% of the produced gas goes through

the separation plants. We do not intend that payment to

the lessee-producers or royalties to the landowners should

include anything for the helium content of the nonprocessed

gas. The record does not show any market for the helium

commingled ‘with ‘he nonprocessed gas.

The reliance of the Helex companies on the warranty of

title provisions of the gas purchase contracts does not

impress us. The claim of the lessee-producers is that the

Helex companies have received the gas without paying for

the helium content. In ordinary circumstances restitution

or rescission might be an available remedy. Here, neither

is practical or legally possible, but wien payment is

38a

required and not made, the title fails just as surely as it

does where either restitution or rescission is appropriate.

The Helex companies urge that the helium content can-

not be traced back to the delivery points. The landowners

and lessee-producers disagree. On the state of the record

we reject the position of the Helex companies. The helium

content can be measured at the location of the orifice meters

which determine the volumes. The lessee-producers seem

to have no difficulty in determining volumes as a basis for

royalty payments. Our attention is directed to nothing

which makes the determination of the helium content either

difficult or impossible.

One issue remains. The trial court assessed the costs,

including attorneys’ fees, against the fund. Such costs are

estimated to be between a million and a million and a half

dollars. The Helex companies say that such assessment

of costs violates the principles stated in Hobbs v. McLean,

117 U.S. 567, 582. Our disposition of the case makes Tieces-

sary reconsideration of the cost issue by the trial court.

We express no opinion with regard thereto.

In No. W-3009, the Tort Claims action, and in No. W-3159,

the Tucker Act action, the judgments are severally affirmed.

In the interpleader actioi:3, the judgments are severally

reversed and the cases remanded to the district court for

further consideration in the light of this opinion.

The assessment of costs on these appeals is subject to

future court action. The court notes that the 88 appeals

have been presented and determined on a consolidated

record, Within 14 days from the filing of this opinion, or

such further time as the court may allow, the parties shall

present their itemized and verified bills of costs, if any,

and whatever statements they may care to make ir regard

to the division and assessment of costs.

39a

APPENDIX B

Opinion of the United States District Court for the District of

Kansas, Dated Septomber 7, 1968 (292 F.Supp. 619)

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF KANSAS

Civil Action No. KC-1969 (and Consolidated Civil Actions,

Nos. KC-1945, KC-1946, K:C-1947, KC-1948, K-C-1980,

W-3009, and W-3159)

NorTHERN NaturaL Gas Company, ET AL., Plaintiffs,

v.

Rapa Grounps, Henry Hirtcu, et au., Defendants.

MEMORANDUM

FINDINGS OF FACT AND CONCLUSIONS CF LAW

NATURE oF ACTIONS

These eight consolidated civil actions come before the

Court following a protracted trail for findings of fact and

coi-clusions of law with respect to the issues relating to

liability. Six of the cases are actions in the nature of inter-

pleader. Two of the actions are for conversion and reverse

condemnation.

All of these actions involve the ownership of helium’

1 Helium is a colorless, odorless, and inert gas. It is the second

lightest substance, second only to hydrogen. It can be liquefied only

at —452.1°F., nearly absolute zero. It will not react chemically or

physically with any other elements [LPX 5, p. 10; LPX 19, p.13;

LPX 221, p. 431; LOX 792, Tr. 8 :583-599].

References to testimony are designated by the volume numbers

and pages of the Transcript. References to. exhibits presented on

behalf of the pipeline companies, the Helex companies, and the

United States are designated as ‘‘Helex Ex.’’; the landowner |

exhibits are designated ‘‘LOX’’, and the lessee-producer exhibits

are designated ‘‘LPX’’. Exhibits of individual lessee-producer ex-

hibits are designated by company name, i.e. ‘‘Mobil Ex.—’’, ete.

;

!

|

their parent pipeli

brief, that helium did not pass to

oil and gas, or merely gas, leases by virtue

gas has been ard is being produced from

mean

aaa a a

LF g

Hace alt ta

: a) Et jsataa is boats i nat

HT if “ el iy iH

sy i +

BHR THe 2433 naa i dl He

Hea EA

ETE fe ‘a

‘ ic i

tine HHI Ele 1h Gh

Hd bait Ep

Hd: +f af Hit Hs ee

as

Hu : +:

43a

into the possession by the United States of America

in Grant County, Kansas, at the delivery point de-

scribed in that certain contract between the United

States of America and plaintiff in +. (a Cities

Service Helex, Inc., dated August 22, on

The named defendant lessee-producer is Mobil Oil Cor-

poration (formerly Socony Mobil Oil Company), a corpo-

ration organized under the laws of the State of New York,

with its principal place of business there. Mobil appears

both individually and as representative of a lessee-pro-

ducer class, which

“. .. consists of the persons, firms and corporations

denominated ‘lessee-producers,’ who are the owners of

Sede Ingen premeniahd. Get aie duces aes

in orego — r, have

delivered ae deliver helium contained in gaseous

Cumeen artic heli ay Bg is bole wend will be

. um is being,

no and delivered by plaintiff in interpleader,

Cities Service Helex, Inc., into the possession of the

United States of America at the delivery point de-

scribed in that certain contract between the United

States of America and Cities Service Helex, Inc., dated

August 22, 1961."

Cities purchases gas from Mobil pursuant to at least

four contracts which are filed as rate schedules of Mobil

with the Federal Power Commission.’ Whether gas de-

livered under all of these contracts is processed for helium

does not clearly appear.** Representative lease forms under

* Dkt. 1135, KC-1969. In the documentation of the finding ‘‘Dkt.

——’’ followed by case number refers to the docket sheet prepared

by the Clerk of the Court for each case; however, after consoli-

dation most pleadings were filed in KC-1969, as the Consolidated

file.

* Mobil Exs. 11, 12, 13 and 14, being FPC Schedule No. 3, 89,

261 and 262.

* Tr. 34 :3482-83.

44a

which Mobil produces gas for sale to Cities are in evi-

dence.

KC-1946.

The plaintiffs are identical with those in the preceding

ease. The named individual defendants, Vivian W. Schuett,

R. J. Stuckey, et al., appear both individually and as rep-

resentatives of the class of landowners and owners of

mineral interests as defined in the preceding case. The

named defendant lessee-producer is the Ashland Oil and

Gas Company, a corporation organized and existing under

the laws of the Commonwealth of Kentucky, with its

principal place of business in that state. Ashland appears

both individually and as representative of the same class

of leasehold interest owners as defined in the preceding

ease, KC-1945.

Ashland produces gas from a block of 119 wells located

principally in Grant and Haskell counties, Kansas, and

delivers it through an approximately 150-mile gathering

system to Cities at a point near the helium extraction

plant operated by Cities Service Helex, Inc., in Grant

County, Kansas. Representative forms of these leases

under which gas is produced for this sale are compiled in

Ashland Exhibit 1. These leases were acquired by Ashland

on March 1, 1963, from the United Carbon Company, parent

of United Producing Company, a previous owner thereof.”

The contract under which Ashland delivers gas to Cities

was executed originally on March 12, 1948, by United

Producing Company, which agreed therein to deliver nat-

ural gas to Cities so long as it could be produced from the

subject leaseholds in commercial quantities.** On October

1, 1954, this contract was filed with the Federal Power

Commission as United’s FPC Rate Schedule No. 111, and

™ Mobil Ex. 1; Dkt. 217, KC-1969.

* Ashland Ex. 18-20.

* Ashland Ex. 5.

45a

upon acquisition of the leaseholds by Ashland, and FPC

approval of the transfer, it became Ashland’s FPC Rate

Schedule No. 111. Ashland also succeeded to a second gas

KC-1947.

The plaintiifs are identical with those in each of the

preceding cases. The named defendant individuals, Kath-

erine R. Adams, J. H. MeMorran, et al., appear individual-

ly and as representatives of the class of landowners and

owners of mineral interests as defined in the first case,

KC-1945. The named lessee-producer is Columbian Fuel

Corporation organized under the laws of the State of

Delaware, with its principal place of business in the State

of New York. Columbian appears individually and as

representative of the class of leasehold interest owners

defined in the first case, KC-1945,

Columbian sells natural gas to Cities Service Gas under

two contracts, executed November 18, 1949, and June 16,

1949. These contracts are filed with the Federal Power

Commission, and are included in Columbian’s FPC Rate

Schedule Nos. 7 and 37. Columbian delivers gas to Cities

under a third contract, its FPC Rate Schedule No. 10,

but gas delivered thereunder apparently is not processed

for helium extraction.** Columbian delivers gas to Cities

at the tailgate of Mobil’s Hickok Plant in Grant County,

Kansas.

KC-1948

The plaintiffs are identical with those in each of the

preceding cases. The named defendant individuals, Bloyd

* Tr. 34:3461

** Columbian Exs. 8, 9.

** Columbian Ex. 10.

46a

Burgess, John J. Cecil, et al., appear individually and as

representatives of the class of landowners and owners of

mineral interests as defined in the first case, KC-1945. The

named defendant lessee-producer is the Pan American

Petroleum Corporation, organized under the laws of the

State of Delaware, with its principal place of business in

the State of Oklahoma. Pan American appears individually

and as representative of the class of leasehold interest

holders as defined for the first case, KC-1945.

Pan American sells gas to Cities under a single contract

executed June 23, 1950, by Stanolind Oil and Gas Company,

Pan American’s predecessor, the contract covering gas

produced from approximately 400,000 to 600,000 acres in

Kansas Hugoton Field so long as it can be had in commer-

cial quantities. This contract as amended is included in

Pan American’s FPC Rate Schedule No. 84."" Copies of

representatives lease forms under which this gas is pro-

duced are in evidenc .*

Since execution 01 this contract in 1950, Pan American

has executed approximately 168 “farmout” agreements,

by which it agreed to assign various leases covering areas

dedicated under that contract, these agreements providing

specifically that any production therefrom is subject to the

Pan American—Cities contract. Under the standard farm-

out agreement, the farmout operator drills at his own

expense, and upon completion of a commercial well, he

becomes owner of the working interest and usually oper-

ates the well or arranges for its operation, the assignor

retaining a royalty. These operators are independent pro-

ducers who were required to obtain certificates of public

convenience and necessity covering their sales to the Cities

Service Gas Company. None of these operators was made

a party to this action. By court order they fall within the

“een

** Pan American Ex. 4.

* Pan American Ex. 1.

47a

class of owners of leasehold interests represented by Pan

American as a lessee-producer.”

KC-1969.

Plaintiffs in this interpleader action are Northern Nat-

ural Gas Company (Northern), an interstate pipeline com-

pany,and two wholly-owned subsidiaries, Northern Helex

Company (formerly Helex, Inc.) and Northern Gas Prod.

ucts Company, all corporations organized under the laws

of the State of Delaware, with their principal places of |

business in the State of Nebreska.

The named defendant individuals, Ralph Grounds, Henry

Hitch, and approximately five hundred other named in-

dividuals, appear individually and as representatives of

a class defined by the court as comprising

“. . . the persons, firms and corporations owning a

mineral interest in land from which helium has been,

is being or will be severed from the ground in connec-

tion with or because of production under oil and gas

leases, which helium . . . is being or will be taken into

the possession by the United States of America in

Elisworth County, Kansas at the delivery point de-

scribed in that certain contract between the United

States of America and plaintiff in interpleader North-

ern Helex, Inc., (formerly Helex Company) dated

August 15, 1961.’

Eight named lessee-producer companies are defendants

in this action.

Ashland delivers natural gas to Northern under. two

contracts, executed August 25, 1943, and June 28, 1954,

these are included in Ashland’s FPC Rate Schedule Nos.

116 and 122, respectively.”

*® Page 13, infra.

20 Dkt. 1135, KC-1969.

Ashland Exs. 7, 10.

48a

Cities Service Oil, a Delaware corporation with its prin-

cipal place of business in the State of Oklahoma, delivers

natural gas to Northern under eleven contracts, these

being Cities Service Oil FPC Rate Schedule Nos. 53, 70,

89, 166-171, 190, and 191.”

Gulf Oil Corporation, a Pennsylvania corporation with

its principal place of business there, delivers natural gas

to Northern under a single contract, found in Gulf’s FPC

Rate Schedule No. 117.** Representative forms of leases

under which this gas is produced are in evidence.

Helmerich & Payne, Inc., is an Oklahoma corporation

with its principal place of business in that state. It de-

livers natural gas to Northern under eight contracts, these

being its FPC Rate Schedule Nos. 1, 2, 4-8. Representa-

tive forms of leases under which gas is produced for

delivery thereunder are also in evidence.”

Mapco Production Company, a Delaware corporation

with its principal place of business in Oklahoma, delivers

gas to Northern under one contract, dated September,

1949, and is Mapeo FPC Rate Schedule No. 1, formerly

Hugoton Plains FPC Schedule No. 1. Representative forms

of leases under which gas is produced for delivery under

this contract are in evidence.”

Mobil delivers gas to Northern under nine contracts,

included in its FPC Rate Schedule Nos. 32, 71, 85, 158,

22 Cities Service Oil Ex. 7-16. Representative forms of leases

under which gas is produced for delivery to both Northern and

Panhandle Eastern Pipeline Company, a party to KC-1980, are

assembled in Cities Service Oil Co. Ex. 17.

Gulf Ex. 3.

* Gulf Exs. 1, 2; Dkt. 166, 920, KC-1969.

25 Helmerich & Payne Exs. 3-9.

2¢ Helmerich & Payne Exs. 1, 2; Dkt. 250, 1232, 1235, KC-1969.

27 Mapco Ex. 1; Dkt. 255, KC-1969.

49a

179, 281, 232, 284, and 326.** Representative forms of leases

are in evidence.”

Texaco, a Delaware corporation with its principal place

of business in states other than Kansas and Nebraska,

delivers gas to Northern under fourteen contracts, these

are included in Texaco FPC Rate Schedule Nos. 10, 11, 12,

71, 106-112, 129, 147 and 317. Representative lease forms

under which gas is produced for these sales are in evi-

dence.”

These aamed lessee-producers appear individually and

as representatives of a class defined by the corrt as con-

sisting of:

“... the persons, firms and corporations denominated

‘lessec-producers’ who are the owners of leasehold

interests in the oil and gas leases ... [from which

gas is produced for delivery to Northern Natural Gas

Company] and who deliver, have delivered or will

deliver helium contained in gaseous streams directly

or indirectly to Northern Natural Gas Company, which

helium has been, is being or will be removed and de-

livered by plaintiff in interpleader [Northern Helex,

Inc.], into the possession of the United States of

America at the delivery point described in that certain

contract between the United States and [Northern

Helex, Inc.], (formerly Helex Company), dated Au-

gust 15, 1961.”"

Phillips Petroleum Company, a Delaware corporation

with its principal place of business-in the State of Dela-

ware, was named as an original defendant lessee-producer

of gas. Phillips, however, makes no claim to the inter-

pleaded fund, and urges that having disclaimed any in-

28 Mobil Exs. 2-9.

2° Mobil Exs. 1, 1A.

8° Texaco Exs. 1, 2; Dkt. 199, 1231, KC-1969 (Leases) ; Texaco

Ex. 3-14, 17 and 33.

3

*1 Dkt. 1135, KC-1969.

50a

terest in the subject matter of the action upon which the

court’s jurisdiction depends, it should be dismissed there-

from.

Counsel for landowners and Phillips disagree whether

the landowners assert cross-claims against Phillips in

KC-1969. After examination of the pleadings and pre-trial

order, we find that landowners have asserted two cross-

claims against Phillips; first, a denial that Phillips has any

interest in the fund (which Phillips concedes) and secondly,

on the premse that leases de cover helium, landowners

seek damages from Phillips on the ground that as a lessve-

producer, it has failed to market the helium portion of

natural gas with reasonable diligence.

KC-1980.

The plaintiff in this interpleader action is National

Helium Corporation, organized and existng under the laws

of the State of Delaware, with its principal place of busi-

ness in the State of Kansas.

The Panhandle Eastern Pipe Line Company, a Delaware

corporation with its principal place of business in the

State of Missouri, was made a party defendant by Na-

tional Helium. Panhand:e owns fifty per cent of the stock

’ of National Helium, with National Chemical and Distillers

Company owning the remaining fifty per cent.

No lessee-producer was namec as an original defendant

in this case. Eight named lessee-producers were first intro-

duced into this case by a third-party complaint filed by

defendant Panhandle," wherein Panhandle sought judg-

ment against the named third-party defendants “for all

sums that may be adjudged against Panhandle in favor of

National Helium ... or the landowners with respect to gas

purchased by Panhandle from, and delivered to Panhandle

by such third-party defendants .. .” Prior to that time,

5? Dkt. 54, KC-1980.

5la

landowners had filed counterclaims and crossclaims against

National Helinm and Panhandle respectively, seeking judg-

ment for alleged conversion of helium. National Helium

had never asserted any liability against Panhandle, how-

ever, so as to authorize a third-party complaint under

Rule 14, F.R. Civ.P., which provides that a “defending

party, as a third-party plaintiff, may cause a summons

and complaint to be served upon a person not a party to

the action who is or may be liable to him for all or part

of the plaintiff’s claim against him.” [Emphasis supplied. ]

The lessee-producers answered without objecting to

improper joinder ander Rule 14. They have tendered pre-

cisely the same issues for decision in KC-1980 as in the

other interpleader cases where they were properly joined,

and they have taken precisely the same positions in each

of the interpleader cases. Had lessee-producers not as-

serted their claims to the fund in KC-1980, notwithstanding

their third-party status, it would have been incumbent Upon

the court to join them as defendants under Rule 19, E.R.

Civ.P. which provides, in pertinent part, that

“A person who is subject to service of process and

whose joinder will not deprive the court of jurisdic-

tion over the subject matter of the action shall be

joined as a party in the action if... (2) he claims an

interest relating to the subject of the action and is so

situated that the disposition of the action in his ab-

sence may... (ii) leave any of the persons already

parties subject to a substantial risk of incurring double,

multiple, or otherwise inconsistent obligations by rea-

son of his claimed interest. If he has not been so

joined, the court shall order that he be made a party.”

It is clear that as a group, their presence was necessary

to a fall and complete adjudication of rights to the inter-

pleaded fund. Failure to join them would have left a critical

gap in the group of claimants necessary to complete de-

termination of the ownership of helium, and the right to

participate in the fund consisting of the proceeds from

52a

its sale. We hold that the lessee-producers named in the

third-perty complaint are properly defendants, individual-

ly and as representatives of the class, and we deem them

to have been joined under Rule 19. The named lessee-

producer defendants are twelve in number.

Ashland delivers gas to Panhandle under eleven con-

tracts, included in Ashland’s FPC Rate Schedule Nos. 108,

109, 120, 121, 125, 135, 141, 142, 145, 148 and 177."

Cabot Corporation, a Delaware corporation with its

principal place of business in Massachusetts, delivers nat-

ural gas to Panliandle under eleven contracts, included

in its FPC Rate Schedule Nos. 28, 35, 47, 69, 71, 41, 62, 75,

89, 33, and 66.**

Columbian delivers gas to Panhandle under seven con-

tracts, these included in Columbian’s FPC Rate Schedule

Nos. 2, 31, 33, 36, 40, 75, and 136."

The Shamrock Oil and Gas Corporation, since the com-

mencement of this litigation, has become, as result of a

merger, the Diamond Shamrock Corporation, and has been

substituted therefor. It is a Delaware corporation, with its

principal place of business in the State of Ohio. It delivers

gas to Panhandle under four contracts, these included in

Shamrock’s FPC Rate Schedule Nos. 4, 24, 30, and 32.~

The Dorchester Gas Producing Company, a Delaware

corporation with its principal place of business in the

State of Texas, delivers gas to Panhandle under three

agreements, two of which are gas exchange agreements,

included in Dorchester’s FPC Rate Schedule Nos. 4, 1

and 2."

8 Ashland Exs. 3, 4, 8, 9, 11-17.

* Cabot Exs. 2-10, 13, 14.

85 Cities Service Oil Exs. 1-6 (sic).

86 Columbian Exs. 1-7 (sic).

®t Dorchester Exs. 4, 5, §.

53a

Gulf delivers gas to Panhandle under eight contraets,

being Gulf’s FPC Rate Schedule Nos. 51, 68, 100, 167, 171,

200, 237, and 293."

Helmerich & Payne, Inc. delivers gas to Panhandle

under two gas purchase contracts, being Helmerich &

Payne’s FPC Rate Schedule Nos. 28 and 29.

Mobil delivers gas to Panhandle under eleven contracts,

being its FPC Rate Schedule Nos. 246, 223, 248, 299, 303,

11, 54, 385, 369, 301, and 245.

Pan American delivers gas to Panhandle under eight

contracts, being its FPC Rate Schedule Nos. 134, 194, 196,

221, 223, 276, 365, and 425.

Texaco, Inc., delivers gas to Panhandle unde: twenty-

two contracts, being its FPC Rate Schedule Nos. 142, 136,

152, 164, 171-173, 224, 230, 242, 244, 256, 289, 303, 304 309,,

315, 318, 344, 352, 353, and 367.*

Superior Oil Company is a Nevada corporation with its

principal place of business in the State of Texas. Superior

delivers gas to Panhandle under three contracts, included

in its FPC Rate Schedule Nos. 110, 1, and 43.

These named lessee-producer defendants appear indi-

vidually and as representatives of a class defined by the

court as comprising

“, .. the persons, firms and corporations denominated

‘lessee-producers,’ who are the owners of leasehold

interests in the oil and gas leases [from which gas is

produced for delivery to Panhandle Eastern Pipe Line

88 Gulf Exs. 15-22.

°° Helmerich & Payne Ex. 10.

*° Mobil Exs. 15-25.

* Pan American Exs. 5-12.

* Texaco Exs. 15, 16, 18-32, 34-38.

** Superior Exs. 2, 3, and 4.

54a

Cempany] and who deliver, have delivered or will

deliver helium contained in gaseous streams directly

or indirectly to Panhandle Eastern Pipe Line Com-

pany, which helium has been, is being or will be

removed and delivered by plaintiff in interpleader

National Helium Corporation into the possession of

the United States of America at the delivery point

described in that certain contract between the United

States and National Helium Corporation dated Ocio-

ber 13, 1961.’

The named defendant individuals, Ralph Grounds, Henry

Hitch, and approximately five hundered other individuals

appear individually and as representatives of a class de-

fined as comprising

“. . . the persons, firms and corporations owning a

mineral interest in land from which helium has been,

or is being, or will be severed from the ground in

connection with or because of production under oil

and gas leases, which helium has been, is being or

will be taken into possession by the United Staies

of America in Seward County, Kansas at the delivery

point described in that certain contract between the

United States of America and plaintiff in interpleader

National Helium Corporation dated October 13, 1961.”**

Phillips was introduced into this case as a third-party

defendant by landowners, alleging underpayment of royal-

ties on gas produced in Moore and Hansford Counties,

Texas.“ This claim has been withdrawn. The remaining

counts of that third-party complaint were never addressed

to Phillips, and it may not be required to respond to those

claims for the first time after trial. Phillips’ request for

findings of fact and conclusions of law demonstrating the

lack of independent jurisdictional grounds for the claim

is therefore moot.

#* Dkt. 1135, KC-1969.

* Thid.

“6 Dkt. 163, KC-1980.

55a

We conclude in KC-1980 that lessee-producers are prop-

er parties both individually and as representatives of a

class; that Phillips must be dismissed on the ground that

no claim is asserted against it.

W-3009.

The original plaintiffs in this case are Oliver S. Brown,

Harry Lightcap, T. A. Dudley, Dan C. Sullivan, Jr., L. F.

Roderick, Stanley Julian, the E. W. Campbell Estate, Ruth

C. Rice, Executrix, Herbert and Norma Foster, Fred Shore

and Hazel Shore,.Gerald G. Finley, A. W. Klassen, John

Alford, Robert Larrabee, Robert Larrabee as Executor of

the Estate of Lee Larrabee, Deceased, Emil Schnellbacker,

Wylie R. Gore, George H. Anderson, Ora V. Martin and

Lela Z. Martin, and Gene Cyr. The intervening plaintiffs

are Alfred Akers (Akin), Chéster C. Clark, Dorothy M.

Cox, Della M. Drake, John R. Jones, Bertha E. Kells,

C. A. Kells, a/k/a Chester A. Kells, W. L. Lacey, L. G.

Moore, Warden L. Noe, Bernard J. Nordling, Homer Leroy

Parshall, Leone L. Parshall, Lillie Snare (Snarl), June

Stegman as Guardian of Patricia A. Stegman, June Steg-

_ Inan as Guardian of Victor J. Stegman, and Edith Thomp-

son. These parties appear individually and as representa-

tives of a class defined by the court as consisting of:

“. . . the persons, firms and corporations owning

mineral interests in land from which helium has been,

or is being severed from the ground in connection

with or because of production under oil-and gas leases,

which helium has been, or is being taken into the

possession of the defendant United States of America

at points in Seward, Ellsworth or Grant Counties,

Kansas, or Hansford or Moore Counties, Texas, de-

scribed in the four following contracts:

(a) Contract between United States of America and

Helex Company, now Northern Helex Company,

dated August 15, 1961.

(b) Contract between United States of America and

Cities Helex dated August 22, 1961.

56a

(c) Contract between United States of America and

National Helium dated October 13, 1961.

(d) Contract between United States of America and

Phillips dated November 13, 1961.’

The United States is the sole defendant in this case. It

has joined as third party defendants National Helium,

Cities Service Helex, Inc., Northern Helex Company (for-

merly Helex Company) and Phillips, the parties to the

four contracts recited in the foregoing paragraph.

W-31 59.

The named original plaintiffs in this action are Ralph

Grounds and Henry Hitch, Jr. Intervening plaintiffs are

Robert Adams, C. Dale Duer, Hubert R. Elrod, Ruth F.

Fischer, Zuba D. Jefferis, Alonzo C. Robinson, the John

A. Spohn Estate, W. D. Ross and Herb Williams. These

parties appear individually and as representatives of the

class of plaintiff as defined in the preceding case, W-3009.

Again, the United States is the sole defendant, and it has

impleaded as third-party defendants the same four cor-

porations impleaded in the preceding case, W-3009.

Crass Actions

The Court has, in the light of the evidence and recent

decisions, reconsidered its rulings designating certain

named representatives of described classes for the prosecu-

tion and defense of certain claims in each of the consoli-

dated cases.

The basic prerequisities for maintenance of a class action

are stated in Rule 23(a), F.R. Civ.P.:

“(a) Prerequisites to a Class Action. One or more

members of a class may sue or be sued as representa-

tive parties on behalf of all only if (1) the class is so

numerous that joinder of all members is impracticable,

(2) there are questions of law or fact common to the

7 Dkt. 1135, KC-1969.

57a

class, (3) the claims or defenses of the representative

parties are typical of the claims or defenses of the

class, and (4) the representative parties will fairly

and adequately protect the interests of the class.”

In addition, the action must satisfy one or more of four

prerequisites stated in Rule 23(b).

By order filed January 16, 1967,** the Court defined the

classes of landowners and iessee-producers in each inter-

pleader case as set out supra under the heading, “Parties.”

In addition, we defined the class of plaintiff landowners

in W-3009 and W-3159. As to each class, we found that

the class was so numerous that joinder of a!! members

was impracticable, that there were questions of law or

fact common to each class, that the claims and defenses

of the representative parties in each ciass were typical

of the claims and defenses of the class, that the representa-

tive parties would fairly and adequately protect the in-

terests of the class.

We found further as to erch class that the further pre-

requisites of Rule 23(b) (1) (A) and (B) were met, in

that prosecution of separate actions by or against individ-

tal members of the class would create a risk of:

“(A) inconsistent or varying adjudications with

respect to individual members of the class which

would establish incompatible standards of conduct for

the party opposing, the class, [and]

‘*(B) adjudications with respect to individual mem-

bers of the class which wouid as a practical matter

be dispositive of the interests of the other members

not parties to the adjudications or substantially im-

sed or impede their ability to protect their inter-

ests; ...”.

A separate finding was made as to the clacs of lessee-

producers in KC-1980, on the ground that claims by and

against members of that class met the prerequisite of Rule

“8 Dkt. 1135, KC-1969.

58a

23(b) (3), in that “questions of law or fact common to the

members of the class predominate over any questions

affecting only individual members, and a class action is

superior to other available methods for the fair and effi-

cient adjudication of the controversy.”*® We adopt these

findings herein. |

In our view, these actions are eminently suited to class

proceedings. There are estimated to be approximately

30,000 persons who receive income from the productioa of

helium-bearing natural gas from which helium is extracted,

by virtue of ownership of land, mineral interest, and/or

royalty or other interests. Vhese cases have required

lengthy, extensive and costly discovery proceedings, the

expenditure of many hours in legal research, assembly and

preparation of exhibits, numerous pretrial appearances,

in addition to the conduct of a forty-three day trial. [Coun-

sel for landowners state that their expenditures to date

exceec $90,000.] To require thousands of individual land-

owners to present their claims to the fund individually

would encumber these interpleader actions with procedural

and other complexities of perhaps unmanageable propor-

tions. Likewise, in cases W-3009 and W-3159, the class

proceeding permits the economical and expeditious resolu-

tior of many claims in one proceeding. As stated in Eisen

v. Carlisle & Jacquelin, 391 F. 2d 255 (2nd Cir. 1968) :

“Class actions serve an important function in our

judicial system. By establishing a technique whereby

the claims of many individuals can be resolved at the

same time, the class suit both eliminates the possibility

of repetitious litigation and provides smal! claimants

with a method of obtaining redress for claims which

would otherwise be too small to warrant individual

litigation.” 391 F. 2d at 560.

Likewise, the lessee-producers are very numerous. Each

interpleading pipeline it is estimated has several hundred

gas purchase contracts in the area. Joinder of vendors

«9 Dkt. 66, KC-1980.

59a

under all these contracts would be impracticable and

unnecessary.

Cities takes the position that the landowner rcpresenta-

tives cannot adequately represent the entire class of land-

owners, because of alleged conflicting and antagonistic

interests between two subgroups of the class, those whose

recovery depends entirely upon a determination that he-

hum is “gas” within the terms of mineral conveyances,

oil and <as leases, unitization agreements and like docu-

ments, and those whose recovery would be enhanced by a

determination that helium is not “gas” within the terms

of such documents.

Certain lessee-producers argue that the landowner class

cannot sue or be sued as a class unless they are divided

into seven sub-classes as authorized by Rule 23(c) (4).

Of the recited sub-classes, five claim in common that

leases do not cover helium. Within those five sub-classes,

there is no antagonism or conflict of interest between those

wno may claim all or only a proportionate share of helium

or the proceeds from its sale. Lessee-producers envision

two sub-classes as claiming that leases do cover helium,

and claiming in addition that lessee-producer gas purchase

contracts previde no payment for helium contained in

natural gas delivered thereunder. We would point out that

these two sub-classes would also recover if leases were

found not to cover helium. We fail to perceive any antag-

onism vr conflict of interest among the sub-classes with

respect to the issues here involved.

Landowners in pleading and presenting their case have

sought recovery on alternative propositions: One, that

the leases do not covey helium; the other, that they do;

but the landowners have not been paid therefor. The Court

remains convinced that there is no occasion to create seven

sub-classes among landowners to present separately, two

5° See, e.g., Dkt. 1047, KC-1969.

60a

alternative and mutually exclusive theories, which have .

both been most ably investigated, pleaded and tried by

counsel in behalf of the land owner class.

In Cases W-3009 and W-3159, the United States denies

that “all owners >of lands or mineral interests from which

helium-bearing natural gas is produced which is the sub-

ject matter of this action comprise a class which can be

represented by the named plaintiffs (Landowners) in this

action.” The United States does not specify in what

particular respects the representative parties, or their

counsel, fail to represent adequately the absent members

of the class, or in what respect their claims and defenses

are not typical of those absent persons. For the reasons

stated supra in this section, we remain: of the view that

the claims of representative landowners are typical of

those of absent members, that they raise questions of fact

and law common to the class, and that the representative

parties have fully represented and protected the interests

of the entire class.

Lessee-producers have renewed objections to orders of

the court, all entered prior to July 1, 1966, finding that

landowners constituted a “true” class in each of the

interpleader cases.** Rule 23 as amended became effective

July 1, 1966, and was applied to all pending cases in gub-

sequent class rulings. However, the order of January 16,

1967, in which the classes were defined, provided that

“classes prev.ously defined by the court in regard to

claims uf ... Northern Natural Gas Company end North-

ern Helex Company in KC-1969 and claims of third-party

plaintiff Panhandle Eastern Pipe Line Company in KC-1980

are not affected by this order.” The class of landowner

defendants in KC-1980 was previously denominated a

“true” class. This categorization was important under the

51 Pre-Trial Order, W-3009, W-3159, p. 13, | 2 of each case.

5 Dkt. Nos. 535-538, 649, KC-1969.

53 Dkt. 649, KC-1969.

Gla

old rule principally for identifying persons bound by the

judgment, and helping in turn to determine the res judicata

effect of the judgment if questioned in a later action. See

Notes of Advisory Committee on Rule 23. We determine

that the extent of the judgment in this case is to be gov-

erned under Rule 23 as amended. These objections are

thus mooted.

Lessee-producers object to the court’s order that Pan-

handle’s third-party complaint in KC-1980 be maintained

against them both individually and as representatives of a

class of approximately 540 producers who sell natural gas

to Panhandle which is processed for helium extraction.

Maintenance of this complaint against the third-party

defendants as a class was ordered under Rule 23(b) (3),

for which the court made the requisite finding that “ques-

tions of law or fact common to the members of the class

predominate over any questions affecting only individual

members, and a class action is supericr to other available

methods for the fair and efficient adjudication of the

controversy.”™ Accordingly, the court directed notice be

given to absent members of the class.

Rule 23(b) (3) recites four “non-exhaustive factors” to

be considered in authorizing a class proceeding under that

subsection:

“(A) the interest of members of the class in indi-

vidually controlling the prosecution or defence of

separate actions; (B) the extent and nature of any

litigation concerning the controversy already com-

menced by or against members of the class; (C) the

desirability or undesirability of concentrating the liti-

ae of the claims in the particular forum; (D) the

ifficulties likely to be encountered in the management

of a class action.”

At no time prior to trial did it appear that any individual

member of the class l.ad any interest in exercising separ-

** Dkt. 66, KC-1980; See Motion, Dkt. 58, KC-1980.

62a

ate control over the prosecution or defense of any claim,

that any prior litigation existed between Panhandle and

any member of the lessee-producer class respecting the

issues raised in the third-party complaint, that it was not

desirable and in the interest of expedition and economy

of litigation to concertrate litigation of Fanhandle’s ciazims

against all its gas vendors in one particular forum, or

that a class proceeding would occasion any special diffi-

culties. Moreover, it was clear that questions of law and

fact common to niembers of that class predominated over

questions affecting only individual members, and that per-

mitting maintenance of the claims of Panhandle’s gas

vendors to the fund in the interpleader action was superior

to any other available method for the fair and effizient

adjudication of the lessee-producers’ claims to that fund

in KC-1980. After trial, with the benefit of hindsight, the

court remains convinced of the correctness of the order re-

garding the class of lessee-producers in KC-1980, and we

decline to disturb it.

We find that the representation of the interests of both

classes is fully adequate, on at least two grounds. First the

representation by counsel for both the landowner

lessee-producer classes has been of the highest quality.

Their presentation reflected diligent, careful, and incisive

attention to the interests of the class. In addition to the

most careful investigation by deposition, interrogatories

and other discovery of facts, they have explored fully, in

evidence, briefs and arguments, what must surely be every

conceivable theory which the facts could possibly support.

Secondly, the very number of representative pariies is

substantial. There are over 200 named landowner claim-

ants in KC-1945; seven in KC-1946; six in KC-1947; 45 in

KC-1948; over 500 in KC-1969, and over 300 in KC-1980,

in addition to those named in W-3009 and W-3159, some

of whom appear in the interpleader cases, also. Thus, in

toto, over one thousand landowners advanced claims in

63a

their own behalf and that of others similarly situated in ail

these consolidated cases.

Lastly, we turn to the question of notice to the members

of the landowners and lessee-producer classes to whom

the court has not yet directed notice to be given, which in-

cludes all except the lessee-prodnecer class in KC-1980. In

our order filed January 16, 1967, the court found that the

claims of all the classes met the requirements of Rule

23(b) (1)(A) and (B), and that accordingiy notice to ab-

sent members of those classes was not required at that

stage of the case, prior to trial on the issues of liability

alone. This holding was based on the view that notice to

absent members was required only when the class pro-

ceeding was founded upon Rule 23(b‘(3).

Subsection (c)(2) provides as follows:

“In any class action maintained under subdivision

(b)(3), the court shall direct to the members of the

class the best notice practicable under the cireum-

stances, including individual notice to all members

who can be identified through reasonable effort. The

notice shall advise each member that (A) the court will

exclude him from the class if he so — a speci-

fied date; (B) the judgment, whether favorable or not,

will include all members who dc not request exclusion;

and (C) any member who does not request exclusion

may, if he desires, enter an appearance through his

counsel.

Absent requirement of notice in class proceedings under

Rule 23(b) (1) and (2), we regarded notice as mandatory

only for class proceedings under 23(b) (3). The Court of

Appeals for the Second Circuit in May, 1968, addressed

itself to this point, thus:

“We must also note that plaintiff's effort to qualify

the action under 23:b) (1) and 23(b) (2) was induced

by his erroneous theory that notice is not ‘mandatory’

** Dkt. 1135, KC-1969.

64a

under these sections. This theory is based on the

assumption that 23(¢c) (2) won the only ‘manda-

tory’ notice required by the new rule. Since this par-

ticular section refers exclusively to actions brought

under 23(b) (3), other suits cognizable under either

23(b) (1) or 23(b) (2) would only be subject to ‘dis-

cretionary’ notice under 23(d) (2). Moceiibaten, we

hold that notice is required as a matter of due process

in all representative actions, and 23(c) (2) merely

— a —— form of notice in corey “ay (3)

Eisen v. Carlisle & Jacquelin, 391

isen

555 at 555 at 564.565 (2nd Cir. 1968) [Footnotes and dtations

omitted. ]

We think that the essential requisite of due process as

to absent members of the class is not notice, but the ade-

quacy of representation of their interests by named parties.

As stated in Dolgow v. Anderson, 43 F.R.D. 472 (E.D.N.Y.

1968).

“The Supreme Court has indicated that adequacy

a not form of notice, is the crucial

ration. See H v. Lee, 1 US. 32, 42,

61 S. Ct. 115, 118, 85 L. (1940) (‘this Court is

justified in saying that there has been a failure of due

process only im those cases where it cannot be said

that the procedure fairly insures the protec-

tion of interests of absent parties who are to be

bound by it.’” [Em is by the court.) 43 F.R.D.

terest that the extent of the judgment be as broad as con-

stitutionally permissible. We think this interest will be

best served by directing that “the best notice practicable

under the circumstances” be given all members of the

class of landowners and lessee-producers, prior to entry

of judgment, apprising them of the extent of the proposed

judgment and providing any member thereof adequate

time to signify his dissatisfaction with the adequacy of

representation of his interest, and to advance any new

65a

claim to the interpleader fund, or against the United States

which arises out of his status as a member of the described

class and which has not been adjudicated herein.

The present view of the Court, is that the best notice

practicable includes individual notice to all members of

each class, and that this can be accomplished with “reason-

able effort.”

JURISDICTION

The basic jurisdiction of the Court is premised upon 28

U.S.C. Section 1335; 1397 and 2361.

Jurisdiction of the six interpleader cases is founded upon

28 U.S.C. Section 1335, which provides as follows:

“(a) The district courts shall have original juris-

diction of any civil action of interpleader or in the

nature of interpleader filed by any person, firm, or

corporation ... having in... its custody or possession

money or property of the value of $509 or more, ...

or being under any obligation written or unwritten to

the amount of $500 or more, if

(1) Two or more adverse claimants, of diverse

citizenship as defined in Section 1332 of this title, are

claiming or may claim to be entitled to such money

or property, or to any one or more of the benefits

arising by virtue of any note, bond, certificate, —

or other instrument, or arising by virtue of any s

obligation; and if (2) the plaintiff has deposited such

money or property or has paid the amount of or the

loan or other value of such instrument or the amount

due under such obligation into the registry of the

court, there to abide the judgment of the court, or has

given bond payable to the clerk of the court in such

amount and with snch surety as the court or judge

may deem proper, conditioned upon the compliance

by the plaintiff with the future order or judgment of

the court with respect to the subject matter of the

controversy.

(b) Such an action may be entertained although

the titles or claims of the conflicting claimants do not

66a

have a common origin, or are not identical, but are

adverse to and independent of one another.”

In State Farm Fire & Cas. Co. v. Tashire, 386 US. 523,

18 L.Ed. 2d 270, 87 S.Ct. 1199 (1967), the Court estab-

lished the principle that in interpleader actions under

§ 1335, only “minimal diversity” is required, that is, diver-

sity of citizenship between any two adverse claimants. Such

diversity exists in these cases.

By the terms of the above statute, jurisdiction is depend-

ent upon deposit of the money or property in court by the

interpleading party, or else the giving of bond “with such

surety as the court or judge may deem proper.” Farmers

Elevator Mutual Insurance Company v. Jewett, 394 F.2d

896 (10th Cir. 1968).

In KC-1945, Cities Service Gas has given bond in the

sum of $16,000, with proper surety,” and Cities Service

Helex gave like bond upon entry into the case." Cities

Service Helium (now Cryogenics), joined as an involun-

tary plaintiff, filed no bond, so far as appears. In KC-1946,

-1947, 1948, Cities Service Gas and Cities Service Helex

each filed the following respective bonds: $15,000; $12,-

000 ;** $32,000.° In KC-1969, Northern Natural Gas and

Northern Helex jointly filed a bond, with surety, of $100,-

000." In KC-1980, National Helium filed bond with surety

of $100,000. Ashland Oil & Refining Company moved

December 15, 1966, to enlarge the bonds in cases KC-1947,

-1969, and -1980, to not less than $75,000,000, $75,000,000,

and $110,000,000, respectively,” these sums based on mo-

* Dkt. 5, KC-1945.

5" Dkt. 48, KC-1945.

5* Dkts. 5, 37, KC-1946.

* Dkts. 5, 39, KC-1947.

* Dkts. 5, 58, KC-1948.

™ Dkt. 5, KC-1969.

*? Dkt. 1095, KC-1969.

67a

vant’s estimates that during a period of six years projected

to elapse from the commencement of helium extraction

operations and sales by the interpleading plaintiffs in

those cases until judgment herein, proceeds by the plain-

tiffs would total approximately $64,000,000, $67,000,000,

and $107,000,000, respectively. After argument, the motion

was withdrawn.” Shortly thereafter, counsel for Cities

Service Gas Company filed an order reciting a statement

and agreemert made in open court that “Cities Service

Gas Company would be responsible for and would pay

and satisfy any final money judgment against Cities

Service Helex, Inc., or Cities Service Cryogenics, Inc., in

this action which is not otherwise paid or satisfied,” the

captioned case being KC-1946 only.”

The Interpleaded Funds.

It has been generally agreed since the commencement of

these cases that the funds involved consisted of the pro-

ceeds from the sale of helium. The interpleading plaintiffs

have been and presently are making sales of helium only

to the United States.

The Court finds that in cases KC-1945 through KC-1948,

the fund consists of all proceeds received and to be re-

ceived by Cities Service Helex, Inc., from the United

States as payment for helium contained in a helium-gas

mixture delivered to the United States pursuant to that

contract between the United States and Cities Service

Helex, Inc., executed August 22, 1961. Stated otherwise,

the subject matter of these four cases consists of the

obligation of Cities Service Helex, Inc., to pay the pro-

ceeds received by it from the sale of helium to the United

States or to any other purchaser, to any person found

to be the owner of such helium, or to be otherwise entitled

to participate in such proceeds.

** Dkt. 1137, KC-1969.

* Dkt. 1139, KC-1969.

68a

The Court further finds that the fund interpleac:* in

KC-1969 consists of all proceeds received or to be received

by Northern Helex, Inc. (formerly Helex, Inc.) as payment

for helium contained in a helium-gas mixture delivered

to the United States under that contract between the United

States and Helex, Inc., dated August 15, 1961. Stated

otherwise, the subject matter of the action consists of the

obligation of Northern Helex, Inc., to pay the proceeds

received by it for the sale of helium to the United States,

or to any other purchaser, to any person found to be the

owner of such helium, or to be otherwise entitled to partici-

pate in such proceeds.

The Court further finds that the fund interpleaded in

KC-1980 consists of all proceeds received and to be received

by National Helium Corporation from the United States

as payment for helium contained in a helium-gas mixture

delivered to the United States under a contract executed

October 18, 1961. Again, stated more broadly, the subject

matter of the action consists of the obligation of National

Helium to pay the proceeds received by it as payment for

helium sold to the United States or to any other purchaser,

to any person found to be the owner of such helium, or to

be otherwise entitled to share in the proceeds of its sale.

The foregoing funds were not those initially interpleaded

by plaintiffs in the Cities cases and in KC-1980. The

landowners moved to dismiss all six interpleader actions

for want of jurisdiction, arguing, inter alia, that the funds

before the Court did not include the amounts received by

the interpleading plaintiffs from the sale of helium to

the United States. The Court overruled this motion, stat-

ing that the “subject matter in controversy as contem-

plated by the interpleader statute is the claim of ownership

under the mineral leases of the helium produced and mar-

keted.’’ This ruling was affirmed in Grounds v. Northern

Natural Gas Co., 327 F.2d 1003 (10th Cir. 1964) (per

curiam).

| OT eRe Tre retort nme a

69a

Subsequent to this ruling, the subject fund was more

precisely defined and enlarged. By order filed January 10,

1967, the fund in the Cities cases (K:C-1945, -1948) was

defined thus:

“Counsel for plaintiffs [the Cities group] states

that the interpleaded fund involved in such four law

suits, is the proceeds from the sale of all ... the

helium which has been or is being extracted by Cities

Service Helex, Inc.”*

In KC-1980, plaintiff National Helium interpleaded at

the outset only its obligation to pay to Panhandle $2.06

per Mcf for helium extracted from the gas stream be-

longing to Panhandle. It did not interplead the monies

received for its sale to the United States. In the com-

mencement of that action, however, National Helium sought

and obtained an injunction against further prosecution

of a declaratory judgment action in an Oklahoma state

court, in which plaintiffs sought a determination that

they were the owners of and entitled to the net value of all

helium sold by National Helium to the United States, thus

putting in issue in that state court case the right to entire

payments for helium received by National Helium for

helium sales to the United States. The discrepancy be-

tween the scope of the two cases was raised at a hearing

April 20, 1964, after the Tenth Circuit ruling supra. Coun-

sel for National Helium then stated that “if the pleading

(in KC-1980) is not as broad as the pleading in the State

Court so that the issues are not the same, that we will

make them the same.” Cornsel stated further at that hear-

ing:

“Your Honor, what I have been trying to say was

that in the National Helium case, at least, we look

upon the liability of National Helium as the value of

the helium, whatever it may be, more or less. I mean

it might be more than eleven doliars. It might be less.

& Dkt. 1114, KC-1969.

70a

We accept the liability of National Helium for the

value of the helium and that ought to clear the air as

far as National Helium goes.”

Although examination of the files discloses no amendment

of the pleadings, we cannot but conclude from the fore-

going that the interpleaded fund in KC-1980 is as we have

determined it to be.

Jurisdiction of Landowners’ Cross-Claims.

The landowners’ claim to the fund rests on one of two

theories; first, that oil and gas leases in which they hold

interests and under which natural gas is produced do not

convey helium as a constituent of the “gas” leased there-

under, and secondly, that the helex companies are unjustly

enriched by monies received by them from the sale of

helium.

In addition to their claims against the fund, however,

landowners have asserted cross-claims against the lessee-

producers, the assertion of which is contingent upon a

finding that landowners have no interest in the inter-

pleaded funds themselves. Landowners urge that if the

leases do cover helium, first that they have not been paid

the proper royalties therefor under the fractional royalty

provisions of the leases, and are entitled to recover royal-

ties based upon the fair and reasonable value of helium

as attained by reason of its severence from the stream,and

subsequent marketing; alternatively, landowners urge that

the lessee-producers have failed to market helium produced

under such leases with reasonable diligence, and seek can-

cellation of the leases as to the helium portion of the gas

stream.

Rule 13(g) F.R. Civ.P. provides thus:

“A pleading may state as a cross-claim any claim

by one party against a co-party arising out of the

¢ Tr. 10:780-781. :

er eo TA we tent WO ee

0 AT eo ae) GAL 0 re ih AG te) Bee ee be

Tia

transaction or occurrence that is the subject matter

either of the original action or of a counterclaim there-

in or relating to any property that is the subject mat-

ter of the original action. Such cross-claim may include

a claim that the party against whom it is asserted is

or may be liable to the cross-claimant for all or part

of a claim asserted in the action against the cross-

claimant.”

Lessee-producers urge that these cross-claims do not re‘ate

to the “property that is the subject matter of the action,”

the proceeds received by the plaintiffs from the sale of

helium, that these claims are not ancillary to the inter-

pleader subject matter, that in fact, they are alternative

claims not agaiast the fund nor the holders thereof, but

against co-claimants founded upon independent contracts,

the leases, recovery upon which claims would leave the

interpleaded funds intact, and would further require, the

granting of in personam judgments against the lessee-

producers, which is beyond the jurisdiction of the «ourt

in statutory interpleader actions.

In Knoll v. Socony Mobil Oil Company, 369 F.2nd 425

(10th Cir. 1966), cert. denied, 386 U.S. 977, 18 L.Ed.2d

138, 87 S.Ct. 1173 (1967), fhe Court stated thus:

“A related jurisdictional issue is whether the trial

court erred in enjoining appellants from asserting any

title in or to the ‘above described property’ in any

manner inconsistent with the terms of its order and

judgment. This was an in personam exercise of juris-

diction. In 2n interpleader action, however, in per-

sonam jurisdiction extends only to the fund deposited

with the court. Since the trial court was limited to

—— of the res, we must hold that the court

— ed jurisdiction to enter this order.” 369 F.2d at

The fund before the Court in that case was the money

held by Mobil and owing to the true owners of certain

property and lease-hold rights therein, from which it had

72a

produced oil. The injunction extended beyond the res,

precluding claimar‘s from asserting any title in the realty

itself.

In Erie Bank v. United States District Court for the

Dist.ict of Colorado, 362 F.2d 539 (10th Cir. 1966), the

Court held that in an. interpleader action in which the

plaintiff asserted no claim to the deposited fund, it lacked

jurisdiction over a counterclaim by a claimant against the

disinterested stakeholder on the ground that the latter

was not an “opposing party” within Rule 13. It would

appear to follow that when the stakeholder was himself

an interested party, a counterclaim would be not only

permissible under Rule 13, but compulsory thereunder,

and the Court would be empowered to enter judgment

on such counterclaim.

As to landowners’ cross-claims, however, for additional

royalties on helium or on the value of natural gas as

allegedly enhanced by the presence of helium, and for

cancellation of leases as to helium for failure to market

same, we must agree with the lessee-;roducers that those

claims do not relate to the subject matter of the action.

It is true that landowners’ claims are founded upon the

identical leases upon which lessee-producers hase, in im-

portant part, their claims to the fund. In interpleader

actions, however, the “subject matter of the action” is not

a set of facts, a transaction or other occurrence which

gives rise to litigation, but a specific identified fund or

property. Claims must not only “relate” to that property,

but be asserted agzinst it, as we view the present law of

this Circuit.

This is a type of case of which the Supreme Court

spoke in State Farm Fire & Cas. Co. v. Tashire, 386 U.S.

523, 18 L.ed.2nd 270, 87 S.Ct. 1199 (1967), “where a stake-

holder, faced with rival claims to the fund itself. acknowl-

edges—or denies—his liability to one or the other of the

73a

claimants. In this situation, the fund itself is the target of

the claimants. It marks the outer limits of the controvery.”

386 U.S. at 534, 18 L.Ed.2d at 277. [Emphasis supplied. ]

[Footnote omitted.] We therefore lack jurisdiction over

the landowners’ cross-claims against their lessee-producers.

Jurisdiction of Pipeline Counterclaims.

The lessee-producers vlaim the fund on the gronnd that

helium, a non-combustible and non-hydrocarbon component

of the gas stream, did not pass to the pipeline companies

under the gas purchase contracts between the parties.

Accordingly, the pipeline companies, Cities Service Gas,

Northern Natural and Panhandle have asserted counter-

claims against the lessee-producers on their warranties

of title in contracts with pipeline companies contingent

upon the recovery by the producers of the funds.

These claims are twofold: First, it is asserted that war-

ranties of title in the parties’ gas purchase contracts ex-

tend to the full gas stream, and that if only the hydro-

earbon portion passed thereunder, the lessee-producers

must respond to the purchasers for breach of warraaty

respecting the balance of the stream. Alternatively, pipe-

line companies seek recovery from each of the lessee-

producers of that percentage of all payments made under

the gas purchase contracts which the volume of non-

combustible constituents including helium bears to the

volume of the total stream.

These counterclaims are founded upon the identical gas

purchase contracts under which the lessee-producers claim

the fund. They arise out of the “transaction ... that is

the subject matter of the opposing party’s claim,” or they

relate to property that is the subject matter of the original

action. We conclude that these counterclaims are permis-

sible under Rule 13, inso‘ar as they affect the rights of the

parties to participate in the fund.

74a

Jurisdiction of Claims Asserted Against the United

States.

An additional jurisdictional problem is raised in the

actions by landowners against the United States. The

United States denies first that the landowners constitute a

class, a question we have heretofore disposed of, and

contends further that the United States is not subject to

suit by a class. In each of these cases, the landowners

assert two separate claims against the government. First,

they assert ownership of the helium being delivered to

the United States by each of the helium extracting com-

panies, and urge that the United States has appropriated

and converted helium so delivered to its own use, and must

respond to plaintiffs for the fair, just and reasonable value

of same. Jurisdiction for this claim under the Tort Claims

Act is asserted under 28 U.S.C. § 1346(b), which confers

upon the district courts exclusive jurisdiction of:

“civil actions on wey against the a bo

money damages, . . . for injury or of pro ,

or personal inqury or death caused by the peatnoant

or wrongful act or omission of any employee of the

Government while ing within the scope of his

office or employment, r circumstances where the

United States, if a private person, would be liable to

the claimant in accordance with the law of the place

where the act or omission occurred.”

Plaintiffs’ second claim commingles theories of third-

party beneficiary rights and reverse condemnation. It is

alleged that the United States has acquired possession of

the helium-gas mixture received from its vendors by the

exercise of its power of eminent domain, and further that

the contracts under which the United States purchases

helium provide for payment therefor to the owners thereof,

and that as such owners, the plaintiffs are third-party

beneficiaries thereof. Jurisdiction for this second claim

* Page 21, supra, (Class Actions).

75a

under the Tncker Act is asserted under 28 U.S.C. § 1346(a)

(2), which confers upon the district courts, concurrent

with the Court of Claims, jurisdiction over the following

“(2) Any other civil action [other than enumerated

tax-related actions] or claim against the United States,

not exceeding $10,000 in amount, fourded either upon

the Constitution, or any Act of Congress, or any

regulation of an executive department, or upon any

express or implied contract with the United States,

or for liquidated or unliquidated damages in cases not

sounding in tort.”

Although landowners alleged that no individual claim may

exceed $10,000, they have stipulated that claims of some

individuals exceed that sum.™

The defendant United States asserts that the United

States is not liable to suit by a class without its consent,

that since neither § 1346(b) or § 1346(a) (2) makes express

provision for suit by a class, no such consent has been

given. The government invokes the principle that statutory

waivers of sovereign immunity are strictly construed, that

waivers are not lightly implied, and that no justification

exists for implying such a waiver in favor of a class of

plaintiffs, most of whom are not identified.

It is further argued that under the Tucker Act, and

its predecessor statutes dating back to 1855, no court has

granted relief in a class action against the government,

and that neither the Tucker Act nor the Tort Claims Act

adopted in 1946 has been amended by Congress to provide

for such proceedings. Defendant further complains of the

burden falling upon the government by the difficulties of

payment of judgments in favor of a large class of plain-

tiffs, many of whom are not now identified. Payment of

* Dkt. 527, KC-1969; See Government's Brief, Dkt. 892, KC-

1969; Dkt. No. 59, W-3009.

* Act of March 3, 1887, ¢. 359, 24 Stat. 505.

76a

persons holding judgments against the United States ren-

dered in the district courts is authorized in 28 U.S.C.

§ 2414, payments to be made on settlements by the General

Accounting Office upon certification by the Attorney Gen-

eral that the judgment is final, that is, that no appeal will

be taken therefrom or that no further review will be sought

of a decision affirming the same. This burden does not

seem substantial. Rule 23 requires that “[t]he judgment in

an action maintained as a class action under subdivision

(b) (1) or (b) (2), [the instant case] whether or not

favorable to the class, shall include and describe those

whom the court finds to be members of the class.”

Notwithstanding that Rule 1, F.R.Civ.P., provides that

“[t]hese rules govern the procedure in the United States

district courts in all suits of a civil nature . . . with the

exceptions stated in Rule 81,” (none of which apply)

[Emphasis supplied.} it is argued that absent an express

consent to suit by a class, no jurisdiction exists, and that

under Rule 82, the rules “shall not be construed to extend

. . . the jurisdiction of the United States district courts.”

In United States v. Sherwood, 312 U.s. 584, 61 S.Ct. 767,

85 L.Ed. 1058 (1941), the Court stated: -

“The jurisdiction thus limited [by the Tneker Act]

is unaffected by the Rules of Civil Procedure which

rescribe the methods by which the jurisdiction of the

ederal courts is to be exercised, but do not enlarge

the jurisdiction.” 312 U.S. at 591, 85 L.Ed. at 1064.

The Court stated further that the Tucker Act “must be

interpreted in the light of its function in giving consent of

the Government to be sued, which consent, since it is a

relinquishment of a sovereign immunity, must be structly

interpreted.” 312 U.S. at 590, 85 L.Ed. at 1063.

The Court again addressed itself to the canon of strict

construction in United States v. Yellow Cab Co., 340 US.

543, 95 L.Ed. 523, 71 S.Ct. 399 (1951), where it stated,

quoting United States v. Aetna Cas. € Surety Co., 338 U.S.

77a

366, 383, 94 L.Ed. 171, 186, 70 S.Ct. 207, 12 A.L.R. 2d 444

(1949) :

“In argument before a number of District Courts

and Courts of Appeals, the Government relied upon

the doctrine that statutes waiving sovereign immunity

must be strictly construed. We think that the congres-

sional attitude in ing the Tort Claims Act is

more accurately ted by Judge Cardozo’s state-

ment in Anderson v. Hayes Construction Co., 243 N.Y.

140, 147, 153: NE 28, 29-30: “The exemption of the

sovereign from suit involved hardship enough where

consent has been withheld. We are not to add to its

rigor by refinement of construction where consent has

been announced.”’” 340 U.S. at 554, 95 L.Ed. at 532.

In Capital Transit Co. v. United States, companion case

to and decided with Yellow Cab, supra, the defendant

sought to implead the United States as a third-party

defendant, as a joint tortfeasor obligated to contribute to

any judgment ultimately won by the plaintiff. The lower

court dismissed the third-party complaint, holding it

barred on the ground that no consent to such suit had been

given. The Court reversed, holding that, having decided

in the companion case that the government could be sued

for contribution in an independent action, such right could

be enforced by way of third-party complaint, and that the

third-party practice provided for by Rule 14 was applicable

to suits against the United States. In United States v.

Muniz, 374 U.S. 150, 166, 10 L.Ed.2d 805, 817, 83 S.Ct. 1850

(1963), the Court reaffirmed its holding in Rayonier, Inc.

v. United States 352 U.S. 315, 1 L.Ed. 2d 354, 77 S.Ct. 374,

that “‘[t]here is no justification . . . to read exemptions

into the Act beyond those provided by Congress. If the

Act is to be altered that is a function for the same body

that adopted it’”. The rule of strict construction is not

one of narrow construction. The prevailing trend of deci-

sion is canvassed in City of Pittsburgh v. United States,

359 F.2d 564 (3d Cir. 1966):

“Although at one time the doctrine of sovereign

immunity had such vitality that a waiver of it was

78a

strictly construed (See United States v. Sherwood,

312 U.S. 584, 590, 61 S.Ct. 767, 85 L.Ed. 1058 (1941) ),

the purpose of the Federal Tort Claims Act to permit

those injured by the negligence of employees of the

United States to recover damages to the same extent

as if the United States were a F awry person ex-

resses so strong a public policy that the statute has

n deemed to be highly remedial and has received a

liberal construction. [Citations omitted.] This over-

riding ngage expressed in the statute, has provided

the guide to the interpretation of the Act, and it has

been applied in some circumstances where its literal

language might have resulted in a restricted meaning

. . « [T]he view has ultimately prevailed that the

United States may be sued by a subrogee of the injured

party, by an indemnitee who has paid the injured

rty’s claim, and that it may be joined originally

with other defendants as a joint tort-feasor, and may

also be impleaded as a third-party defendant to en-

force contribution against it as a joint tort-feasor.”

359 F.2d at 567. [Footnotes omitted. ]

Strictly speaking, the permissibility of a class action

under the Tort Claims Act does not require construction

of the language of the Act, for it is silent on the question.

In substance, the government asks the Court not to con-

strue the Act strictly or narrowly, but to create a judicial

exemption from it. Neither the plaintiff nor defendant have

pointed to any real increased procedural burden upon the

government resulting from the defense of a class action.

Given the remedial purpose of the Tort Claims Act, and

indeed of the Tucker Act, the application of Rule 23 to

actions thereunder against the United States seems parti-

cularly appropriate. As stated in Eisen v. Carlisle € Jac-

quelin, 391 F.2d 555 (2nd Cir. 1968):

“Class actions serve as important function in our

judicial system. By establishing a technique whereby

the claims of many individuals can be resolved at the

same time, the class suit both eliminates the pos-

sibility of repetitious litigation and provides small

79a

claimants with a method of obtaining redress for

claims which would otherwise be too smali to warrant

individual litigation.” 391 F.2d at 560.

Quoting academic commentary on the device, the court in

Dolgow v. Anderson, 43 F.R.D. 472 at 484 (E.D.N.Y. 1968)

noted that the class action is “particularly appropriate

where those who have allegedly been injured ‘are in a poor

position to seek legal redress, either because they do not

know enough or because such redress is disproportionately

expensive.’” The instant cases are excellent examples,

where only an exceptionally circumstanced landowner

could afford the lengthy, extensive and costly preparation

and litigation involved.

Given the silence of either the Tucker Act or the Tort

Claims Act on the propriety of class proceedings, the

absence of any apparent substantial burdens sustained

by the government in defending such actions, the economy

of litigatio.. achieved thereby, and the enhanced access of

small claimants to legal redress against the government,

we hold that jurisdiction does not fail under 28 U.S.C.

§ 1346(a) (2) and (b) because plaintiffs have sued as a

class.

One question remains concerning jurisdiction under the

Tucker Act, which confers jurisdiction over a “civil action

or claim against the United States, not exceeding $10,000

in amount, .. .” If the stated jurisdictional limit for actions

against the United States in the district courts under the

Tucker Act applies to the entire sum sought to be re-

covered from the government in the action, then jurisdic-

tion for plaintiffs’ claim under the Tucker Act lies only

in the Court of Claims. If the jurisdictional monetary limit

applies only to the claim of each individual plaintiff, we .

have jursdiction of all claims not exceeding $10,000. No

authority is cited on this issue, and independent research

discloses none. We hold for the reasons set forth above

80a

that the jurisdictional monetary limit applies to the claim

of each member of the class and we therefore have juris-

diction over the claims not exceeding $10,000 asserted

under the Tucker Act.

As indicated, supra, plaintiffs have commingled two

theories in their claim under the Tucker Act, claiming

standing thereunder first as third-party beneficiaries of

the contracts of the United States with each of the helium

extraction companies, and secondly, as owners of property

acquired by the government by exercise of its powers of

eminent domain without paying just compensation there-

for.

Each of the contracts upon which plaintiffs rely provides

that if the vendor of helium is required to make payments

to other persons for heliura extracted by them and sold to

the United States, or for the acquisition of helium in nat-

ural gas, the United States will reimburse each for such

amounts, with the companies themselves bearing approxi-

mately the first $3.00 per Mcf of the costs of such reim-

bursement. The obligation of the United States runs only

to its contractors, and payments are required to be made

only to such companies in the amount those companies

themselves have paid, less approximately $3.00 per Mef.

Payments by the United States to any one of its contrac-

tors under these reimbursement provisions is triggered,

as it were by first, a determination of the company’s liabil-

ity to persons found to be entitled to such compensation

for the helium, and secondly, by actual payment therefor.

The need for adjudication of Hability may be waived by

the United States, by consenting to such payments. Once

these conditions are met, the obligation of the United

States runs only to its contractors. The entire scheme of

the contracts precludes the direct action against the United

States.

A mere promise to indemnify against damages does not

constitute a contract for the benefit of third persons which

Sla

a party claiming damages may enforce directly against

the indemnitor, “Here the promisor’s liability does not

arise until the promisee has suffered loss or expense. Until

then the promisee has no right of action, and ecnsequently

one claiming damages can assert no derivative right

against the promisor, much less a direct right.” 2 Williston

on Contracts § 403 (3rd ed.) “An incidental beneficiary

acquires by virtue of the promise no right against the

promisor or the promisee.” Restatement of Contracts,

§ 147.

We conclude that plaintiff landowners are but incidental

third-party beneficiaries, and as such lack standing to

maintain their Tucker Act claim on this ground.

The balance of their claim thereunder must be founded

“upon the Constitution, or any Act of Congress, or any

regulation of an executive department .. .” Plaintiffs allege

that the government’s acquisition of helium constitutes an

exercise of its powers of eminent domain. “When the

United States takes property for public use and without

just compensation as required by the Fifth Amendment,

the owner may sue under the Tucker Act.” United States

v. Wald, 330 F.2d 871 at 872 (10th Cir. 1964). An actual

taking must be established. Once found, the suit becomes

in effect a condemnation action in reverse. Landowners

must establish such a taking, as a jurisdictional prerequi-

site to maintenance of tiieir Tucker Act claim, or the same

must be dismissed for want of jurisdiction.

Tse GrocraPHiIcaL AREA

The helium giving rise to the funds in these interpleader

cases and the suits against the United Sattes is contained

in natural gas produced from an area denominated the

Hugoton Gas Area, which lies in parts of three states,

Texas, Kansas, and Oklahoma.” The area covers approx-

6° There is some contention that parts of Colorado comprise the

Hugoton Area or Field. If so, we have no indication of Colorado

gas wells being involved in these proceedings.

82a

imately 210 miles from north to south, 160 miles from east

to west, and covers approximately 33,000 square miles and

over 21 million acres. The area comprises six principal

gas fields. The Kansas Hugoton Field lies in eleven Kansas

counties in the southwestern part of the state: Hamilton,

Kearny, Finney, Gray, Haskell, Grant, Stanton, Morton,

Stevens, Seward and Meade. The Guymon Hugoton Field

lies in Texas, Beaver, and Cimarron counties in Oklahoma.

The Texas Hugoton and East and West Panhandle Fields

lie almost wholly in the northernmost three tiers of

counties, twelve in all, of the Texas Panhandle.”

Fields within this geographical area from which natural

gas is produced but not processed for helium extraction

by interpleading plaintiffs, include, among others, the

Cliffside Field in Texas, the Keyes Field in Oklahoma,

and the Greenwood Field in Kansas.

The ges underlying the geographical area outlined above

contains approximately fifteen per cent of the known

natural gas reserves of the United States. It is, according

to some testimony, the largest single pressure-connected

gas reservoir in the world. It serves approximately fifteen

million domestic and industrial consumers. Most im-

portant for this litigation, these fields were estimated, as

of the mid-1950’s, to contain ninety-nine per cent of the

economically recoverable helium in the United States,

totalling approximately 119 billion cubic feet of helium

from estimated resources of a total of 36.4 trillion cubic

feet of gas.”

Commercial gas production of natural gas from the

Hugoton fields began a half century ago with the comple-

tion of the first well, located in the Texas Panhandle, in

1 TX 791; Helex Ex. 26 (See Maps).

11 LPX 53, p. 1; LPX 56, p. 10.

83a

1918.7 The first gas well in Kansas Hugoton was com-

pleted in 1922, near Liberal, and the discovery well of the

Guymon Hugoton (Oklahoma) was completed in 1922. The

generally-regarded discovery well of the Kansas Hugoton

was completed in 1927.% Development of the fields in

terms of wells completed was relatively slow until the late

1920’s and early 1930’s, when pipelines were first extended

into the area, thus making accessible widespread industrial

and consumer markets. Development accelerated after

World War II, with the further expansion of pipelines

through the area, to transport gas to more widespread

fuel markets. The geographical productive limits of the

fields expanded gradually until in 1941, the Kansas Corpo-

ration Commission first defined the limits of the Kansas

Hugoton Field.” The Guymon Hugoton Field was first

defined by the Oklahoma Corpcration Commission in

1945.7 The Tcxas Panhandle Fields, East and West,

developed earlier, and not until 1945 did the number of

wells in the Hugoton Fields of Texas, Oklahoma and

Kansas equal those in the Panhandle Field.” From the

completion of the first well in 1918 through 1965, more than

15,000 gas wells were drilled in this area.

The development of these fields is reflected in the in-

cidence of leasing activity, which show that over 85 per

cent of the leases outstanding in Kansas were taken since

1940; that over 75 per cent of the Oklahoma leases were

taken after 1940; and that in Texas, where drilling and

leasing activity commenced earlier, 65 per cent of the out-

standing leases canvassed were taken in 1941 and there-

7 Gensch Tr. 2:128.

78 Gensch Tr. 2:130.

™ Helex Ex. 37.

% LOX 791; Gensch Tr. 2:151-152.

76 Gensch Tr. 2 :151-153.

7 Tr. 46 :4484.

[een aa

84a

after."* Wells were drilling in the Hugoton gas area as

follows: :

CuMULATIVE ToTaL WELLS

Panhandle Field Hugoton

Kan. Okla. Texas

1924 29 1 — —

1929 444 8 3 4

1934 856 142 8 4

1939 1435 282 28 3

1944 1763 403 172 16

1949 2338 1848 760 367

1954 3010 3317 1339 &38

1959 3841 3891 1378 932 *

Hewuium anp Natura Gas

The presence of helium in natural gas was first dis-

covered in 1905, by two University of Kansas professors,

Cady and McFarland, who analyzed a sample from a gas

well at Dexter, Kansas, drilled and completed in 1903, and

discovered it to contain 1.84 per cent helium, with minute

quantities of two other inert gases, neon and argon. This

gas had a relatively low British thermal urit (Btu)®

conte.t, under 500 Btu, and was a relatively inefficient fuel

gas.

Helium is contained, in either measurable or detectable

quantities, in gas found in the majority of natural gas

fields in the United States. In 1918, the Bureau of Mines

commenced a program of gas analyses of samples collected

from fields over the nation. The first repert of analyses

collected thereunder was published in 1921; that report

discloses the presence of helium in either trace or measur-

% LOX 794; Tr. 6 :428 et seq.

7 Helex Ex. 6/7.

®° The amount of heat required to raise the temperature of one

pound of water one degree Fahrenheit at 39.2°F.

85a

able quantities, in virtually all of 183 samples collected

from Texas, Oklahoma, and Kansas.*! Since that time,

approximately 5800 gas samples have been analyzed and

reported in Bureau of Mines information bulletins and

circulars, representing 3,008 gas fields in 33 states in this

cocutry from which commercial gas production has been

'. obtained. Over 95 per cent of these samples contained

helium in trace or measurable quantities.** Of an addi-

_tional 947 samples subsequently reported, only two con-

tained no helium. Thus, the presence of helium has been

~ detected or measured in natural underground gas reservoirs

throughout the greater part of the United States.™

The presence of helium in natural gas has not been a

secret to which the Bureau of Mines has been the only

privy party. Reports of gas analyses conducted by it were

furnished the well owners, producers, and other persons

providing samples, and commencing in, 1928, helium was

reported as a separate constituent in those analyses,

although prior to that time it had been reported as part

of the nitrogen content of gas. As indicated above, the

first publication of gas analyses showing the presence of

helium was dated 1921, a professional paper numbered 121,

titled ‘Helium-Bearing Natural Gas,’’ by G. Sherburne

Rogers.* There have been other publications in the United

States.*

The constituents of natural gas found in underground

reservoirs in the Hugoton area include hydrocarbon com-

pounds, ranging from methane, the compouind lightest in

81 TOX 6.

82 Helex Ex. 12.

8 Helex Ex. 282-283.

&% Helex Ex. 14.

85 LPX 6.

86 Helex Ex. 12.

*

86a

molecular weight but lowest in Btu yield, through ethane,

propane, normal butane, iso-butane, normal pentane, iso-

pentane, and various heavier hydrocarbons. Non-hydro-

The composition of gas from separate wells in the

Hugoton area is by no means constant. ae, wee

ranges from a low of 45.9 per cent to a high of 82.6 per

cent; nitrogen from a high of 44.3 per cent to a low

6.5 per cent. Helium ranges from a low of .22 per cent

S7 per cent of the total stream.” No gas exists in the

be perfect, so that a given field, or a single well with a

field, will yield a gas stream of constant and unvarying

tion. Helium itself is diffused within the Hugoton

area; its rate of diffusion within a single reservoir may

vary aimong separate vertical zones, depending upon its

rate of diffusion through horizontal layers of

separating separate gas zones.”

™ Helex Ex. 18.

* Thid.

* Tr. 42-4216 et seq.

E

87a

Although found together within the Hugoton Field, and

in Many gas reservoirs gaseous hydrocarbons and helium

originate through separate processes and they may or may

not derive from the same physical source beds. Hydro-

carbons are generally thought to originate from chemical

breakdown and reorganization of organic animal and

vegetable materials deposited on the floor of pre-historic

oceans overlying the Hugoton area. Helium is thought,

according to the prevailing theory, to be radiogenic, that

is, to have resulted from the decay or degeneration of

Sgep

i

Ht

i

ii

a ¢

The first large-volume use for helium was discovered

during World War I, (1917-1918) when it was found useful

for inflation of lighter-than-air craft, particularly dirigibles.

cy pt atta me rtd ag tng + se mga

Ht

Hi

i iff

tH

fic!

ee

+ igi ¢

+,

t

1

LPX 200, 201; Helex 23, Part 1.

89a

Although World War I concluded before helium produced

in these plants could be used, production continued at Fort

Worth until depletion of the Petrolia Field in 1929.

Faced with approaching depletion of that field, on May 17,

1927, the United States acquired an option for a period

of two years to purchase leasehold rights in the Cliffside

Field in Potter County, Texas, owned by the Amarillo Oil

Company, a producer, pipeline company, and distributor

of natural gas in the Amarillo area. Also on that date,

the company contracted to sell and deliver natural gas to

a helium extraction plant the Bureau intended to construct

at Amarillo.”

The United States thereafter undertook to acquire both

leasehold and retained royalty rights in the Cliffside Field

in order to control production therefrom, to avoid pressure

to increase production from royalty owners, to be free to

shut in production when helium demand decreased in order

to avoid the production of any gas not processed for

helium extraction. Accordingly, in 1929, the United States

exercised its option and began the acquisition of Amarillo’s

leasehold rights in the field,” acquiring the company’s gas

rights in approximately 26,000 acres of the 50,000 acre

field. Leases held by Amarillo were given by W. H. Bush,

the Fnqua Land & Cattle Company, and Lee Bivins. The

United States acquired the Bush lessor interests by a Gas

Grant dated July 19, 1930; the Fuqua Land & Cattle

Company interests by contract of sale dated April 17,

1930 ;*" the Bivins interests by conde

This text is long and has been trimmed here. Open the source document for the complete record.