Brief for the United States — United States v. Diamond Coal & Coke Co.

Act of March 3, 1861, 26 Stat. 1095................

Cases

he cere mcorrereecosocvccee

Baley +. Glover, 21 Wall, 342. . a

Bates +. Preble, 151 U.S. 149.

Board of Lewce Com're ©. Tensas Delta Land Co, “204

Fed. 736... ...

Boone County ¥. Burlington dee BR. R., 130 U. S. 684.

Canaey ¥. United Strtes, 240 U. 8. 399. —

Exploration Co. ¥. United Strtes, 247 U. S. 435...

Fediz +. Patrick, 145 U. 8. 317. secceneneses

Geltiher +. Ondwell, 145 U.S. 308... . onan

Hammond +. Hopkins, 143 U. 8. 224... .........--.

“ear 1 (1)

Hardt +. Heidweyer, 152 U.S. 547. peoce

Johnston +. Standard Mining Co., 148 U.S. 360... :

Kinder +. Scharf, 231 U. 8. 517. -

Melntire ¢. Pryor, 173 U.S. eGheneeenes

Moore +. Greene, 19 How. @....

Pearsall +. Smith, 140 U.S. 251...............

Prevod +. Grate, 6 Wheat. 481 etinatmeneemees

Raymond +. Schricver, 63 Neb. 719 -

Rosenthal +. Walker, 111 U.S. 185

Treer +. Clewe, 115 U.S. 528...................

United Stotes ¥. Becks. 127 U.S. 338... ;

we Diamond Coal & Coke Oo. 254 Fed.

Send Onan Michigan, 190 U. ‘S$. 379. : wn

United Stetes ¥. Minor, 114 U.S. 253...

Ware v. Gelveston City Co., 146 U.S. 102.

Wollensck +. Rether, 115 U.S. O6.... ——

Wood v. Carpenter, 101 U.S. 135..............

~

es:

_—

[J

Inthe Supreme Gourt of the Wnited States,

Ocrosen Tram, 1919.

Tue Unrrep STaTEs oF AmEnica, APPELLANT,

r No. 338.

Tre Diamonp Coat ann Coxe Company.

APPEAL FROM THE UNITED STATES CIRCUIT COURT oF

APPEALS POR THE EIGHTH CIRCUIT

e——

BRIEF FOR THE UNITED STATES.

STATEMENT.

The appeal in this case (R. 32) is from a judgment

of the Circuit Court of Appeals for the Eighth Cir-

cuit which affirmed a judgment of the United States

District Court for the District of Wyoming dismissing,

upon defendant's motion, a bill brought by the United

States to secure the cancellation of eighteen patents

issued under the coal land laws to various individuals.

The theory and basis of the Government's bill

(R. 1 to 12) were that these patents had been obtained

by fraud, the result of a conspiracy between the

whenc'vy it was agreed that each of the latter would

make an entry for a specified tract of the lands

involved, ostensibly for his own use and benefit but

in reality for the use and benefit of the Diamond Coal

and Coke Company, in whose interest and at whose

instigation such entrymen were acting at all times

qa)

ee

2

in the proceedings before the Land Department

The ultimate purpose of the conspiracy was to vest

in the defendant company the title to lands it was

not lawfully entitled to take under the coal land laws

because of the limitation of the acreage for which

entry could be made or patent secured by an indi-

vidual or corporation.

The patents involved had been issued from twelve

to twenty-one years when the bill of complaint was

filed in this case. In view of the provision of Section

8 of the Act of March 8, 1891 (26 Stat. 1095, 1099),

barring suits by the Government to cancel patents

after the expiration of six years from their issuance,

and in order to take the case out of that statute, the

bill averred the fact that it was a part of the con-

spiracy that the fraud practiced upon the Land

Department should be and was kept concealed, and

that the plaintiff was without knowledge and in

ignorance of the fraud until November, 1916, when

a report of the special agent of the General Land

Office was filed in that office, since when, at all times

the plaintiff has been diligently prosecuting the work

of ascertaining the facts and in preparing and insti-

tuting appropriate judicial proceedings to enforce its

rights.

The defendant filed a motion to dismiss (R. 14),

and thus challenged the sufficiency of the bill upon

three grounds, which, summarized, are:

1. That the bill did not state a cause of action and

did not set forth facts entitling the plaintiff to relief

against the defendant.

3

2. That the statute of limitations barred the suit,

and the bill failed to state facts excusing the failure

to bring the suit within six years from the issuance of

the patents; and

3. Laches.

The District Court, as appears from its memo-

randum of opinion (R. 22), sustained this motion

upon the second and third grounds. The plaintiff

elected to stand upon its bill, and took an appeal to

the Circuit Court of Appeals which affirmed the judg-

ment of the District Court. Opinion of District

Court, R. 22 to 24; Circuit Court of Appeals, R. 26 to

31; 254 Fed. 266.

ASSIGNMENT OF ERRORS.

The assignment of errors (R. 33) is as follows:

That said United States Circuit Court of Appeals

for the Eighth Circuit erred in affirming the decree

heretofore entered in said case by the United States

District Court of Wyoming, to wit:

1. That said court erred in affirming the action of

said District Court for the District of Wyoming in

sustaining the motion of the appellee, The Diamond

Coal and Coke Company, to dismiss the bill of com-

plaint herein.

2. That said court erred in affirming the action of

the District Court for the District of Wyoming in

making and entering a decree against the appellant

and in favor of the appellee, dismissing the bill of

complaint herein.

+

ARGUMENT.

s

THE BILL PLEADS SUFFICIENT FACTS TO AVOID THE BAR

OF THE STATUTE OF LIMITATIONS.

The averments of the bill of complaint on the

point of lack of knowledge of the fraud, when notice

was first received, of what it consisted, and dilizence

in acting upon it, are (R. 8):

That all of said entries and purchases were

made by the procurement of said defendant,

acting through said conzpirators, acting in a

secret and hidden manner with the purpose of

preventing the plaintiff and its officers of the

Land Department from knowing or learning

of the agreements and understanding existing

between said defendant and said entrymen, and

with an understanding between said entrymen

and all of the parties to said transactions that the

true facts relating to said transactions should

be concealed from theknowiedge of the officers

of the United States whose duty it was to

decide whether such entries and purchases

should be accepted and approved and patents

issued thereunder, and that at all. times

herein mentioned and at all times thereafter

said conspirators and said entrymen unlaw-

fully, fraudulently and wickedly concealed

from the plaintiff and from the officers of the

plaintiff having authority in the premises the

true facts and circumstances under which

said entries and purchases were made.

That said representations, affidavits and

statements aforesaid constituted the only

5

evidence or means of information available to

any of the officers of the United States having

or exercising any authority in the matter of

deciding whether said entries or purchases

should be accepted, approved and patents

issued thereunder.

Said office:s of the said United States Land

Office at Evanston, Wyoming, and the Gen-

eral Land Office at Washington, and the

Interior Department charged with such mat-

ters, as aforesaid, were deceived and misled

by said affidavits, entries and purchases as

aforesaid, and by said fraudulent devices and

appearances, and believed and yelied upon

said affidavits, entries and purchases, and

believed that said entiymen were in posses-

sion of said lands as-aforesaid and had de-

veloped coal mines thereon as aforesaid, and

that said entries were made for the use and

benefit of said entrymen respectively, and

not directly or indirectly for the use or benefit

of any other person or persons whomsoever,

and were at ail times in ignorance of said

conspiracy, and of the aforesaid purpose and

fraudulent character of said entries, and

because of such belief, reliance and ignorance,

and not otherwise, caused the said entries to

be allowed, * * *

Ds * * % *

(R. 10, 11):

That at all times said conspirators and said

entrymen and said defendant fraudulently,

unlawfully and dishonestiy concealed from

the aforesaid officers of the United States

having authority in the premises the afore-

aan

6

said fraudulent practices and the true circum-

stances under which said entries and pur-

chases were made, as aforesaid, all of which

has at all times been well known to and taken

advantage of by said defendant; that said

several frauds, fraudulent devices and mis-

representations aforesaid were known only

to said conspirators and said defendant, and

were perpetrated secretly and were of such a

nature as to conceal themselves,

That neither the plaintiff nor any officer

of the United States having authority in the

premises ever had any knowledge or informa-

tion concerning the frauds perpetrated upon

plaintiff, as aforesaid, except that on or about

the month of November, 1916, there was filed

in the General Land Office of the United

States at Washington, D. C., a report upon

said entries by one John A. Smith, Special

Agent of the Department of the Interior .

that immediately thereupon and at all times

thereafter the Department of the Interior of

the United States and the Department of

Justice of the United States have been

engaged in the continuous and diligent prose-

cution of the work of investigating and ascer-

taining the true facts in the premises and in

preparing and instituting appropriate judicial

. proceedings to enforce the rights and remedies

of the plaintiff in the premises.

The point upon which the case was decided by

both the District Court and the Circuit Court of

Appeals was, as stated by the latter (R. 29; 254

Fed. 269) :

7

Has the plaintiff averred in its bill of com-

plaint facts which show that it exercived

rensonable care and diligence to discover

the fraud, that it had no means of knowledge

thereof, no notice suflicient to put it on its

guard and eall for inquiry, and has it alleged

the time when the fraud was dikcovered, the

circumstances of its discovery, what the div

covery was, and why it was not made before

sO that the court may clearly see that the

discovery could not have been made before

by the exercise of ordinary diligence?

In determining this question both courts below

rested their decivion mainly on the case of | ood vy.

Carpenter, 101 U.S. 135, where this court used the

following language (pp. 140, 141):

In this class of caves the plaintiff iv held

to stringent rules of pleading and evidence,

“and especially must there be distinct aver-

ments 28 to the time when the fraud, mistake,

concealment, or misrepresentation wes dis-

covered, and what the discovery is, so that

the court may clearly see whether, by ordinary

diligence, the discovery might not have been

before made.” Stearns vy. Page, 7 Yew.

819, 829.

# * % * *

A general allegation of ignorance at one

time and of knowledge at another are of no

efiect. If the plaintiff made any particular

discovery, it should be stated when it was

made, what it was, how it was made, and

why it was not made sooner. Carr v. Hilton,

1 Curt. C. C. 220.

* » * a *

145237—19-—-2

8

A party seeking to avoid the bar of the

statute on account of fraud must aver and

show that he used due diligence to detect it,

and if he had the means of discovery in his

power, he will be held to have known it.

Buckner & Stanton v. Calcote, 28 Miss. 432,

434. See also Nudd v. Hamblin, 8 Allen

(Mass.), 130.

Under this rule the Circuit Court of Appeals held

the complaint insufficient because it contained —

no averments of any impediments to an

earlier prosecution of the plaintiff's claim other

than the immaterial fact that it was ignorant

of its claim in 1903 and aware of it in 1916,

* * * no allegation of any means used by

the coal company after the completion of the

fraud in 1903 to keep the plaintiff in ignorance

of it, * * * nothing to show why the fraud

could not have been discovered and the suit

brought as well at any time after 1903 and

prior to 1915 as after the latterdate, * * *

no material averment in it of how and when the

plaintiff first came to a knowledge of the

matters alleged in the bill. The averment on

that subject fails to state any pertinent or

material fact except that the plaintiff and all

its officers having authority in the premises

were ignorant of the fraud until and except

that in November, 1916, a special agent of

the Interior Department filed a report on the

entries, * * * nostatement of the facts this

report revealed, of who discovered them, when

they were discovered or how or why the

special agent made the report, or of any other

9

material facts tending to show that the know]l-

edce of the fraud could not have been discov-

ered as well in 1904 as in 1916. RK. 31; 254

Fed. 271.

(a) The rule laid down in Wood v. Carpenter is not

applicable to the instant case; a clear distinction ex-

ists between it and those cases in which the rule

of ‘ood v. Carpenter has been applied, and this

distinction has been recognized by the decisions of

this court.

Let us examine the cases cited by the Circuit Court

of Appeals upon which it based its ruling as to the

insufficiency of the bill of complaint, and also other

cases decided in this court in which !lood v. Car-

penter is cited as authority.

It will be found that in each of them there was

some notice, some circumstance, some proceeding,

some instrument of record which made the plaintifi

char2ealle with knowled-e or which should have put

him on inquiry, and in view cf which, failure to act

was held to be fatal.

In Badger v. Badger, 2 Wall. 87, the bill attacked

as fraudulent an account rendered by the adminis-

trator of an estate, by virtue of which authority

was secured for the sale of real estate to pay the

balance due for expenditures made; the land had

peen sold beneath its value and bought in for the

defendant, one of the administrators; but before

the sale the defendant had silenced objections of

some of the heirs by purchasing their shares and

10

had fraudulently procured the signature of the

mother and in this way had secured the court's

conagnt to the sale. This court found that for

more than twenty-five years the widow and heirs

had acquiesced in the sale; the transaction was

public and well known to the heirs and their guardian ;

no concealment was possible, and none was at-

tempted.

Wood v. Carpenter, 101 U. 8. 135, was a suit at

law, wherein this court construed a statute of the

State of Indiana and followed the adjudication of

the courts of that State.

It appeared that Wood, the plaintiff, had secured

judgments against Carpenter in 1860. The latter,

to defraud Wood, conspired with several others to

encumber and dispose of his property; he confessed

several judgments for large sums and then made an

assignment of all his property to his brother and

others, who held it in secret trust for him. Thus

Weod was prevented from levying executions. In

1862 Wood, in order to compel Carpenter to pay

his judgments, had him arrested in Massachusetts

upon final process, ut he took the insolvent debtor’s

oath, swearing falsely that he had in good faith

assigned al] his property for the benefit of his credit-

ors. Thereafter, Carpenter induced Wood to assign

his judgments for fifty per cent of their value. With-

in twelve months before suit most of the property

of Carpenter was reconveyed to him. Although

plaintiff had no actual knowledge of the ownership

of the property by defendant, nor of the trust,

1]

nor of the falsity of the representations until 1872,

when suit was brought, he did have constructive

notice thereof.

The court said (pp. 139, 140):

It will be observed also that there is no

averment that during the long period over

which the transactions referred to extended,

the plaintiff ever made or caused to be made

the slightest inquiry in relation to either of

them. The judgments confessed were of

record, and he knew it. It could not have

been difficult to ascertain, if the facts were so,

that they were shams. The conveyances to

Alvin and Keller were also on record in the

proper offices. If they were in trust for the

defendant, as alleged, proper diligence could

not have failed to find a clew in every case

that would have led to evidence not to be

resisted. With the strongest motives to action,

the plaintiff was supine. If underlying frauds

existed, as he alleges, he did nothing to unearth

them. It was his duty to make the effort.

It should be borne in mind that when the

judgments were assigned to Keller the country

was in the throes of the civil war. Lee had

not surrendered. Gold and silver, in the

currency of the time, were at a high premium.

All real property was largely depreciated.

The future was uncertain. A transaction

which then seemed wise and fortunate, a year

later might be deemed greatly otherwise. It

is hard to avoid the conviction that the plain-

tiff’s conduct marks the difference between

forethought in one condition of things and

afterthought in another.

Wollensak v. Reiher, 115 U. &. 96, was a suit to

restrain alleged infringement of reissued letters patent

It appears that the original

patent did not sufficiently cover the complainant's

invention, hence the reissuance was sought. Defend-

It was held, that inasmuch

as an inspection of the patent would have disclosed

that it did not fully cover the invention, complainant

was thus put on notice, should have acted immedi-

ately to secure the reissue, and his delay was such as

to make him guilty of laches.

In Boone County vy. Burlington etc. R. R., 139

U. 8. 684, the decree, involving certain lands, which

was sought to be set aside as fraudulent, had been

of record for more than four years, the period of

limitation under the Nebraska statute. There was

no allegation of ignorance of the facts after the decree

was entered, nor any allegation or proof that the

County Board was under hostile control down to a

period within four years of the filing of the bill.

There was no averment as to the time when the fraud

was discovered. Further, a large portion of the lands

involved had been sold to bona fide purchasers who

bought on the strength of the alleged fraudulent

decree.

Feliz v. Patrick, 145 U. 8. 317, was = case where

® conveyance of scrip had been obtained from an

13

Indian woman and her bushand in 1860. It was

located upon lands which, when euit was brought,

were in the ‘limits of the city of Omaha, Nebraska.

Neither Felix, the Indian woman, who lived until

1865, nor her bushand, who lived until 1882, had

made any efvort to learn whit disporition had been

made of this scrip or upon whet lands it had been

located, although those were matters of public

record. The property had greatly increseed im

value, and suit was not brought until 1558.

In Ware v. Galveston City Co., 146 U. 8. 102, plain-

tiff averred that the first knowledge of alleved fraud

was shortly prior to 1881, but the fact was that in

1843 an agent had been sent to investicate the

transaction, and had obtained information which

imposed the duty to make further inquiry. More

than 35 years elapsed before suit was broucht.

In the case of Johnston v. Standard Mining Co.,

148 U. S. 360, the court found that although plaintiff

had knowledge of facts suilicient to put him on in-

quiry in 1881, no action was taken by him until

1885, when he filed a suit which was dismissed

after about a year. A second suit was instituted

and dismissed, and then the suit under consideration

was brought in 1887. The property was mining

property, the value of which had great'y enhanced

in the meantime.

Pearsall v. Smith, 149 U. S. 231, was a suit in

equity in the nature of a creditor's bill by the assignee

in bankruptcy to set aside as in fraud of creditors

several transfers of property to the defendant made

4

in 1874. The bill was filed in 1886. The court

found that eleven years before the bringing of this

suit all facts constituting fraud had been discovered

by one of the creditors under whom the plaintiff

claimed and that such creditor, appearing by the same

attorney as the one who represented the assignee

in bankruptcy in the pending suit, had filed a suit

in 1875 against the aame defendants to set aside the

same conveyances on the same grounds.

The case of Bates v. Preble, 151 U. 8. 149, was an

action at law to recover the value of certain securities

alleged to have been converted by the defendant, and

the Massachusetts statute of limitations was invoked.

The decisions of the courts of that State on the

statute of limitations were followed, the case being

decided on the authority of those cases. \\ ood

v. Carpenter was not relied upon as a basis of the

decision; it was merely cited without comment.

The bill in the case of Hardt v. Heidweyer, 152

U. 5. 547, sought to set aside as void certain pref-

erences of a bankrupt firm, particularly some

judgment notes upon which judgment had been

confessed. The court found that there was no

want of knowledge on the part of the plaintiffs

of certain of the transactions, and as to certain

alleged concealed wrongs held that there was avail-

able information which should have put them on

inquiry or have caused an examination into the

transactions.

The case of Kinder v. Scharf, 231 U. 8. 517, is

® more recent decision of this court in which Wood

5

v. Carpenter is cited, and involved the applicetion

of the statute of limitations in the bankruptcy act.

The court found that the plaintiff was chargeable

with knowledge of fraud if there was fraud. It

appeared that during the pendency of the original

bankruptcy proceedings the trustee suspected the

fraud, made some inquiries, but dropped the matter

because he thought it was not worth while. He

“voluntarily abstained from availing himself of

the means put in his hand by the law itse’f for the

ascertainment of a suspected fact” by examining

the bankrupt, and otherwise.

The conclusion which must be arrived at from

the analysis of these cases, and many othe:s in

this court which might be cited, is well expressed

in the decision in Galliher v. Cadwell, 145 U. 5. 368,

where, speaking of the defense of laches, it was

said (p. 372):

16

of delay, it would be an injustice to the

latter to permit him to now assert them.

(Italics ours.)

The flexibility of the doctrine of laches is one

of its important eivments. As was said in Ham-

mond v. Hopkins, 143 U. 8. 224, 250:

Each case must necessarily be governed

by its own circumstances, since, though the

lapse of a few years may be sufficient to

defeat the action in one case, a longer period

may be held requisite in another, dependent

upon the situation of the parties, the extent

of their knowledge or means of information,

great changes in values, the want of probable

grounds for the imputation of intentional Sraud,

the destruction of specific testimony, the absence

of any reasonable impediment or hindrance

to the assertion of the alleged rights, and the

like. Marsh vy. Whitmore, 21 Wall. 178;

Landsdale v. Smith, 106 U. S. 391 ; Norri.

v. Haggin, 136 U.S. 386; Mackall v. Casilear,

137 U. S. 556; Hanner v. Moulton, 138 U. 8.

486. (Italics ours.)

And in the same case, the line of demarcation in

applying this doctrine was set forth as follows

(p. 274): ;

In all case ere actual fraud is not made

out, but tk imputation rests upon conjec-

ture, where the seal of death has closed the

lips of those whose character is involved, and

lapse of time has impaired the recollection of

transactions and obscured their details, the

welfare of society demands the ricid enforce-

ment of the rule of diligence. The hourglass

17

must supply the ravages of the scythe, and

those who have slept upon their rights must

be remitted to the repose from which they

should not have been 2zoused.

The courts below overlooked!these important dis-

tinctions and applied the doctrine of laches without

consideration of the want of notice to the plaintiff

of the fraud perpetrated by the defendant. It is

urged that occupation of the land by the defendant

constituted notice, but as we shall presently show,

that fact alone imparted no notice or even suspicion

of fraud.

The case at bar is clearly not governed by the

decision in Wood v. Carpenter. It is entirely different

in its essential aspects. This court has never applied

the rule of that and kindred cases to a case where

gross fraud was clearly made out and where the delay

in bringing suit was due to concealment.

This disposition of the court is well indicated by

the following excerpt from the opinion in Feliz v.

Patrick, supra, where, although relief was denied

because of apparent laches in the face of circum-

stances which should have been acted upon, and if

acted upon would have disclosed the true situation,

it was said (p. 334): ‘

If there had bee.. a ___.iberate attempt on

his part by knavish practices to beguile or

wheedle her out of these lands, we should have

been strongly inclined to afford the plaintiffs

relief at any time during the life of either of

the parties; but, as the case stands at present,

justice requires only what the law, in the

18

absence of the statutory limitation would

demand—the repayment of the value of the

scrip with legal interest thereon.

Were anything further needed to demonstrate this

Proposition, it is supplied by the decision in McIntire

v. Pryor, 173 U. 8. 38. In that case a bill was

brought to set aside and avoid, upon the ground of

fraud, a certain foreclosure of real estate in the Dis-

trict of Columbia. The fraud was well established,

but the sale under the foreclosure was made in 188]

and the bill was not filed until 1890. Plaintiff’s

theory, however, was that the sale was made in her

interest and there was nothing definite to apprise

her to the contrary until the fall of 1886 when build-

ing operations upon the tract were begun. Upon

the question of laches this court referred to the fact

that the position of the property and the parties had

not materially changed, nor the property greatly

increased in value, and that no rights of bona fide

purchasers had intervened. The opinion then pro-

ceeds (p. 54):

We have no desire to qualify in any way

the long line of cases in this court, too numer-

ous even for citation, in which we have he!

that where the fraud is constructive, or is

proved by inconclusive testimony, or by evi-

dence falling short of conviction, and the

property has greatly increased in value, great

diligence will be required in the assertion of

the plaintiff’s rights. But these were all

cases either of bills to establish a trust, to open

settled accounts, bills not involving fraud, or

19

where the fraud was not clearly proven, or

where, with knowledge of the facts, the fraud

had been deliberately acquiesced in, bills to

impeach judicial proceedings, or where the

property had passed into the hands of persons

innocent of the fraud, or with no actual notice

that a fraud had been committed.

Granting all that may be fairly claimed of

these cases, there is another class having a

different bearing, in which it has been held

that in case of actual fraud a delay, even

greater than that permitted by the statute of

limitations, is not fatal to the plaintiff’s claim.

A review of a number of cases follows the above

quotation and after distinguishing them, this state-

ment is made (p. 59):

We do not wish to be understood as holding

that the plaintiff, even in the case of actual

fraud, may wait an indefinite time, or always

so long as the statute of limitations would per-

mit him to bring an action at law before

asserting his rights; but where the fraud is

clearly proven, the court will look with much

more indulgence upon any disability under

which the plaintiff may labor as excusing his

delay.

(b) The sufficiency of the bill is fully sustained by

the decision in Rosenthal v. Walker, 111 U.S. 185,

and other decisions of this court.

The suit in that case was brought to recover from

Rosenthal certain money paid and property sold to

him by one Carney in fraud, as was alleged, of the

20

bankrupt act. It appeared that Carney was in-

solvent and in contemplation thereof, as Rosenthal

had cause to believe, and with intent to defeat the

operation of the bankrupt law, as Rosenthal well

knew, paid the latter $30,000, and sold and transferred

certain goods under an agreement between them

that Carney should have an equal interest in the

goods with Rosenthal. Regarding the concealment

of the fraud and its discovery, the petition made this

statement (p. 187):

The plaintiff states that both the said:

Carney and the defendant kept concealed

from him, the said plainti{?, the fact of the

said payment and transfer of the said aggre-

gate sum of $30,000, hereinbefore mentioned,

and of all the component parts thereof; and

also kept concealed from him the fact of the

sale, transfer, and conveyance of the said

goods and merchandise hereinafter set forth,

and that he, the said plaintiff, did not obtain

knowledge and information of the said mat-

ters, or either of them, until the 29th day of

November, 1879, and ‘hen for the first time

the said matters were disclosed to him and

brought to his k owledge.

The court stated the first question to be: ‘‘ Whether

the averments of the petition excuse the failure to

bring the suit within two years after the cause of

action accrued.” It was held that the judgment of

the Circuit Court that these averments excused the

failure to bring the suit within two years after the

cause of action accrued was sustained by the opinion

21

and decree of this court in the case of Bailey v. Glover,

21 Wall. 342, and the court said, p. 190:

That case was a bill in equity filed by the

complainant as assignee in bankruptcy of

Glover, one of the defendants, to set aside a con-

veyance made by him of his property to defraud

his creditors. The suit was brought more than

two years after the appointment of the

assignee. To excuse the de'ay and take the

case out of the operation of the statue, the

following averment was made: the bankrupt

and the other defendants, to whom he had

conveyed his property, “kept secret their

fraudulent acts and endeavored to conceal

them both from the knowledge of the assignee

and his one creditor, whereby both were pre-

vented from obtaining any sufficient knowledge

or information thereof until within the last

two years, and that even up to the present

time they had not been able to obtain full and

particular information as to the fraudulent dis-

position made by the bankrupt of a large part

of his property.” The court held that “as

the bill contained a distinct allegation that the

defendants kept secret and concealed from the

parties interested the fraud which was sought

to be redressed,” the case was not subject to

the bar of the statute. The court added: “‘To

hold that by concealing a fraud, or by com-

mitting a fraud in a manner that it concealed

itself until such time as the party committing

the fraud could plead the statute of limitations

to protect it, is to make the law which was

designed to prevent fraud the means by which

it is made successful and secure.” The court

22

also declared that the exception to the bar of

the statute was applicable to suits at law as

well as in equity.

The court distinguished Rosenthal v. Walker from

Wood v. Carpenter, in the following language (pp. 190,

191):

The plaintiff in error relies on the case of

Wood v. Carpenter, 101 U. 8. 185, and Na-

tional Bank v. \Carpenter, 1d. 567. The first

was an action at law, the second a suit in

equity. The court in both cases was called on

to construe a statute of limitations of the

State of Indiana, and it followed the adjudi-

cations of the Supreme Court of that State

upon the same statute. Neither case refers

to the opinion of the court in Bailey v. Glover,

or can be held to overrule or modify it. The

case of Bailey v. Glover has been often cited

by this court, but has never been doubted or

qualified. Wood v. Bailey, 21 Wall. 640;

Wiswall v. Campbell, 93 U. 8. 347; Gifford v.

Helms, 98 U.S. 248; Upton v. McLaughlin,

105 U. 8. 640.

The case of Traer v. Clews, 115 U. 8. 528, is a case

in which no more specific allegations than in the

instant case were sustained as sufficient. Clews

brought the suit to recover the value of fifty shares

of stock and the dividends declared thereon, which

he had owned. He had been adjudicated a bank-

rupt, and this stock, with the dividends which had

been declared thereon, had passed to his trustee,

Tappan. Shortly afterwards, the company in which

the stock was held went into dissolution and Traer

23

and others were appointed trustees. Traer knew

that dividends had been declared on this stock, but

this was unknown to Clews and his trustee. Traer,

through the intervention of an agent, purchased of

Tappan fifty shares of the stock. Later, Tappan

assuming that the sale of the stock was void for

fraud sold all claims and demands thereon to Clews.

The allegations in that case as to concealment and

when the fraud was made known were (p. 536):

That as to the matters and things herein

set forth as a cause of action against the said

Alla D. Traer, the said fraudulent transactions

with which she was connected and her part

therein were studiously concealed from the

plaintiff and his assignor, and he had no means

of discovering the same, nor had his assignor

any means of discovering the same until the

same were disclosed upon the examination of

John W. Traer, as witness n this action, on

the 24th day of September, 1°79; that the

plaintiff and his assignor did not know of the

said fraud and the fraudulent acts of the

defendant, Alla D. Traer, until the same were

made known on the said examination.

In its opinion, the court cited with approval the

case of Rosenthal vy. Walker, supra, and said (p. 538) :

So in the case of Rosenthal vy. Walker, 111

U. 8. 185, the plaintiff averred that “both the

said Carney and the defendant kept concealed

from him, the said plaintiff, the fact of the

said payment and transfer of the aggregate

sum of $30,000, * * * and the fact of

the sale, transfer and conveyance of the said

24

goods, * * * and that he, the said plain-

tiff, did not obtain knowledge and information

of said matter until the 29th day of November,

1879, and then, for the first time, the said

matters were disclosed to hirn, and brought to

his knowledge.” p. 187. These averments

were held sufficient on exception to the peti-

tion to take the case out of the bar prescribed

by Sec. 5057 of the Revised Statutes. The

case of Bailey v. Glover, has never been over-

ruled, doubted, or modified by this court. On

the contrary, in Rosenthal vy. Walker, it was

reaffirmed, and was distinguished from the

case of Wood v. Carpenter, 101 U. 8. 135, relied

on by the appellants. The authorities cited

are in point and fully support our conclusion

that, upon the pleadings and evidence the suit

of the plaintiff was not barred by the limita-

tion prescribed by Sec. 5057 of the Revised

Statutes.

The doctrine of Bailey v. Glover was recently

reaffirmed by this court in Exploration Co. v. United

States, 247 U. S. 435, and declared to be the true

rule of federal jurisprudence in the application of

statutes of limitation.

If the distinction which we have endeavored to

point out does not exist between cases where there

was notice of the fraud, or where the fraud is not

clearly established, and cases in which, like the instant

one, the fraud appears clear, then the decisions of

this court in Rosenthal vy. Walker and Traer v. Clews

are irreconcilable with the rule laid down in Wood

v. Carpenter.

25

Let us consider the averments of the bill in this

case in the light of these last mentioned cases and

under the reason of the rule for specific allegations

in a bill of complaint where a plea of laches is sought

to be avoided, which is stated in Moore v. Greene,

19 How. 69, 72, to be “to enable the defendant to

meet the fraud, and the alleged time of its discovery.”

A reading of the complaint could not leave any

question as to what was the basis of the suit against

this defendant. It is clearly set forth that there

was a conspiracy to defraud, and an agreement as

a part of that conspiracy that the unlawfulness of

the conspiracy should be kept secret; that there

was a consummation of the scheme; that the first

notice thereof had by plaintiff was a report of a special

agent fille? in the General Land Office in November,

1916. Would it have added to the defendant's

certainty in answering the complaint to have alleged

that the report of the special agent set forth the

true facts and circumstances of the acquisition of

these lands? Who could fail to infer from the allega-

tions concerning this report that it supplied infor-

mation of the facts upon which the suit is predicated?

If the further purpose of the rule is to permit the

court to ascertain whether there has been laches on

the part of the plaintiff in filing its suit, the same

observations would be applicabie.

On the point of failure to state why the fraud was

not sooner discovered, what more could have been

pleaded? Assuming for argument that notice to the

Commissioner of the General Land Office was notice

() The United States, the party plaintiff, swing in

vrindiation @ its own rights » Canna be held guilty

@ laches.

The courts below seem to have lost sight of the

as “in reality

a cale of lands * © for cash @ @” K. 80; 254

Fed. 270. But it was on an entirely different plane.

27

enforce a public statute and maintain the

policy underlying it.

Causey v. United States, 240 U. 8. 399,

402.

Nor is this a case where the United States sues for

the benefit of « private party and is itself merely «

formal party. Hence it does not come within the

tule of United States v. Beebe, 127 U. 8. 838, that in

between the real parties without regard to exemp-

tions in favor of the sovereign and designed for its

benefit alone, and will decide such a case according

to general principles governing courts of equity in

like cases between private litigants.

The Government here is proceeding in its own be-

half and for the benefit of no other party. That in

such a care it cannot be held guilty of laches, is well

settled. United States v. Michigan, 190 U. 8. 379,

405

The Cireuit Court of Appeals sought to distinguish

cases announcing that doctrine lyy holding that the

applicable statute of limitations took this case out of

the operation of that rule, but the whole question in

this case as to whether the suit is barred by the

statute of limitations under the construction given

such statutes in Bailey v. Glover, and Exploration

Co. v. United States, supra, depends upon whether the

United States can be held guilty of laches in discov-

@ting its cause of action.

Now the fact that the Government has imposed

upon itself a statute of limitations, does not warrant

an assertion that it is thereby by intendment stripped

of sovereign attributes other than those which the

the time the conspiracy to enter them was formed

the coal company was in possession of the land and it

has been in possession thereof ever since,” * * *.

R. 30; 254 Fed. 270.

This statement should not be accepted without

qualification. It should not be taken as meaning

that at and prior to entry the defendant company

was operating on there lands for the production of

coal. It was in possession only as the possession of

its officers and the others, who were participants in

the conspiracy, could be said to have been the posses-

sion of the company.

On this point the bill of complaint in making

allegations of the falsity and fraudulent character

of the affidavits submitted to the Land Department

in support of the various applications, avers (It. 7):

None of said entrymen were ever in pos-

session of said lands or any mines thereon,

but on the contrary all of said lands and all

mines thereon then were in the possession

of said conspirators, or some of them, acting

for and on behalf of said defendant.

But in any event, it must be remembered that the

patents were issued upon the solemn representations

under oath of each entryman that he was making

the ent y and seeking to acquire the land solely for

his own use and benefit and not in the interest of

any one else, and that he was in possession of the

land. In this situation, the Government had a right

to rely upon the representations. It would be going

far to say that the Government was obliged to doubt

the truthfulness of these sworn statements, simply

30

because some other unknown persons were in pos-

session. As to the occupation by the Company after

final entry had been made and certificate issued,

this would be entirely consistent with a clean trans-

action for, if the entryman had acted in good faith,

he would have hada perfect right to convey the land.

Pressed to its logical conclusion, the theory upon

which the Circuit Court of Appeals apparently acted

would result in this: that the Government, through

its Land Department, ought to investigate every

transaction involving the acquisition of public lands,

either before the lands are patented or afterwards,

to discover whether fraud was being committed in

the acquisition of those lands; that it has no right

to rely upon sworn representations of the validity

of the application made for the lands and the good

faith of the applicant. If such a duty rests upon

the Government the natural inquiry would be, what

would be the sense of requiring any statement or

representation by the applicant?

That the Government is in a different position in

cases such as this than is an individual and that

it is more likely to be imposed upon, is apparent.

The situation governing transactions looking to-

ward the acquisition of public lands is so well pic-

tured in the opinion of this court in the case of

United States v. Minor, 114 U. 8. 233, that we feel

justified in quoting at length from it (pp. 240, 241):

There are reasons why the government in

this class of cases should not be held to the

same diligence in guarding against fraud as a

31

private owner of re: estate. The govern-

ment owns millions and millions of acres of

land, which are by law open to pre-emption,

homestead, and public and private sale. The

right and the title to these lands are to be

obtained from the government only in accord-

ance with fixed rules of law. For the more

convenient management of the sale of these

lands, and the establishment by individuals

of the inchoate rights of pre-emption and home-

stead, and their final perfection in the issuing

of a title, called a patent, there is established

in each land district an office in which are two

officers, and no more, called register and re-

ceiver. These districts often include twenty

thousand square miles or more, in all parts

of which the lands of the government subject

to sale, pre-emption and homestead are found.

These officers do not, they cannot, visit these

lands. They have maps showing the location

of the government lands and their subdivision

into townships, sections and parts of sections,

and, when a person desires to initiate a claim

to any of them, he goes before them and makes

the necessary statements, affidavits, and claims,

of ail which they make memoranda and

copies, which are forwarded to the General

Land Office at Washington.

For the truth of these statements they are

compelled to rely on the oaths of the parties

asserting claims, and such ez parte affidavits

as they may produce.

In nine cases out of ten, perhaps in a much

larger percentage, the proceedings are wholly

ex parte. In the absence of any contesting

—

claimant for a right to purchase or secure the

land, the party applying has it all his own

way. He makes his own statement, sworn to

before those officers, and he produces affi-

davits. If these affidavits meet the require-

ments of the law, the claimant succeeds, and

what is required is so well known that it is

reduced to a formula. It is not possible for

the officers of the government, except in a few

rare instances, to know anything of the truth

or falsehood of these statements. In the cases

where there is no contesting claimant there is

no adversary proceeding whatever. The

United States is passive; it opposes no resist-

ance to the establishment of the claim and

makes no issue on the statement of the

claimant.

The following excerpt from the opinion of the

Circuit Court of Appeals for the Fifth Circuit in

Board of Levee Com’rs v. Tensas Delta Land Co., 204

Fed. 736, 745, is particularly apt in the present case:

This suit does not stand altogether like a

suit between private parties. The plaintiff is

a public corporation, charged with the man-

agement and sale of a vast area of real estate.

It is not presumed that it could exercise, under

the circumstances, the same degree of dili-

gence in guarding against fraud as a private

owner of real estate. United States v. Minor,

114 U. §, 233, 240, 5 Sup. Ct. 836, 29 L. Ed.

110. Unless the plaintiff’s want of diligence is

such as to clearly bar its right of action, the

court should be reluctant to deprive it of

relief on that ground, in view of the fact that

32

33

the suit is by a plaintiff acting in a fiduciary

capacity and suing for the benefit of the public

before the rights of any third party has

attached which it is necessary to imperil by

the suit. A defendant, who has committed a

fraud involving the corruption of persons

occupying a place of trust, should not be per-

mitted to profit by it on account of the negli-

gence of the plaintiff, unless the facts of the

case and the rules of equity inexorably re-

quire it.

A suggestion was made in the opinion of the Court

of Appeals to the effect that in this class of cases,

involving as it does mining ground, there is the duty

imposed of greater diligence because of the specu-

lative character of the property. However apropos

such a suggestion would be in the case of oil or

metalliferous mining properties, it would hardly be

appropriate in a case like this which involves coal

lands, the value of which so far as appears of record

was well known at the time of the entries. ‘The

nature of the deposits of coal, their usual uniformity,

the means of ascertaining their continuity, depth

and area, are such as to take coal mines out of the

class of highly speculative property.

Finally, none of the factors which incline a court

of conscience to refuse relief are present in this case.

Witnesses are available, the right of innocent pur-

chasers is not involved, and the situation of the

parties has not materially changed.

For the purposes of the present consideration of

this case, the appellee is before this court seeking by a

a

| 34

technical plea to escape the consequences of its ad-

mitted fraud, and endeavoring to retain the fruits of

its unlawful acts secured through a conspiracy to

circumvent and defy the law, in which for many years

it has been successful. In this situation we cite as

particularly apropos the words of Mr. Justice Story,

delivering the opinion of this court in Prevost v.

Gratz, 6 Wheaton, 481, 496: \

It is certainly true, that length of time is JN

no bar to a trust, clearly established; and in

a case where fraud is imputed and proved,

length of time ought not, upon principles of

eternal justice, to be admitted to repel relief.

On the contrary, it would seem, that the

length of time, during which the fraud has

been successfully concealed and practised, is

rather an aggravation of the offense, and calls

more loudly upon a court of equity to grant

ample and decisive relief.

CONCLUSION.

It follows that the decision of the Circuit Court of

Appeals should be reversed and the case remanded

to the United States District Court for the District

of Wyoming with instructions to overrule the motion

to dismiss and to enter an order requiring the defend-

ant to answer the bill.

Respectfully submitted.

FraNK K. NEBEKER,

Assistant Attorney General.

H. L. Unperwoop,

Special Assistant to the Attorney General.

NOVEMBER, 1919.

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