Petition for A Writ of Certiorari — Ohio Oil Co. v. United States

Supreme Court of the United States

Ocroser Term, 1947.

No. 51 to)

THE OHIO OIL COMPANY, a Corporation,

Petitioner,

vs.

UNITED STATES OF AMERICA.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES CIRCUIT COURT OF APPEALS

FOR THE TENTH CIRCUIT.

v W. Hume Everert,

Harotp H. Hearty,

P. O. Box 120,

Casper, Wyoming,

Attorneys for Petitioner.

Jf Counsel:

\ A. M. GEE,

Hau W. Srewarrt,

Carvin A. Brown,

Findlay, Ohio.

THE GUNTHORP. WARREN PRINTING COMPANY, 210 WEST JACKSO™, CHICAGO

INDEX.

Summary Statement of Matter Involved..............

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Specifications of Error to Be Urged.................

Reasons for Granting Petition......................

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Statutes Crrep.

Section 17 of the Oil Lands Leasing Act of February

25, 1920, as amended by Act of August 21, 1935......

Section 2 of the Act of August 21, 1935

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IN THE

Supreme Court of the United States

Ocrosrer Term, 1947.

ENS ae é

THE OHIO OIL COMPANY, a Corporation,

Petitioner,

vs.

UNITED STATES OF AMERICA.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES CIRCUIT COURT OF APPEALS

FOR THE TENTH CIRCUIT.

To the Honorable the Chief Justice and Associate Justices

of the Supreme Court of the United States:

Petitioner, The Ohio Oil Company, prays for a Writ of

Certiorari requiring that this cause be certified to this

Court for determination.*

*The opinions delivered in the courts below appear: Circuit

Court of Appeals, 10th Cireuit (R. 387): 163 Fed. 2d 633;

District Court of the United States, District »f Wyoming, (R. 24) :

65 Fed. Supp. 991.

SUMMARY STATEMENT OF THE MATTER

INVOLVED.

On August 25, 1920, the Secretary of the Interior, acting

pursuant to authority granted by the Oil Lands Leasing Act

of Feb. 25, 1920, 41 Stat. 437, issued a lease, under Section

19 thereof, to petitioner’s assignors, embracing lands in

the Lance Creek Field, Wyoming (R. 301). So far as is

material here, the lease provided for a royalty on all oil

produced of 124%. On November 10, 1937, with the ap-

proval of the Secretary of the Interior, a unit agreement

was entered into by petitioner and other operators of oil

and gas leases in the Lance Creek Field (R. 256). Said

agreement unitized the operations of the parties signatory

thereto and provided, pursuant to the Act of August 21,

1935 (Appendix, p. 11), as to each of the Government leases

covered thereby, including petitioner’s lease, that same

‘‘shall continue in force beyond the 20 years specified in

the lease, and until the termination of said agreement;

oh Gc aee

This case involves royalties due the Government under

said lease for the period from July 1, 1939 to April 1, 1941,

(R. 26) the Government contending that petitioner must

account for royalty oil produced during said period on the

basis of an assumed value of $1.02 per barrel, as fixed and

determined by the Secretary of the Interior (R. 38), rather

than on the basis of 77¢ per barrel, actually received for

said oil by petitioner, which was the only and highest price

obtainable for such oil in the Lance Creek Field and which

was the price for which petitioner was bound to sell 95%

of its oil under written contracts dating back to August 5,

1936 (R. 36).

_—_

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With the exception of a period of one year during which

royalty oil was received in kind, the Government at all

times prior to May, 1939, accepted without objection, as

payment in full for its royalty under said lease, the amounts

paid to it by petitioner each month, based upon the prices

received by petitioner for the royalty oil (R. 38). In May,

1939, the Secretary of the Interior, proceeding ex parte,

fixed and established, effective July 1, 1939, for the purpose

of computing royalties due the Government on crude oil

produced from Federal land in the Lance Creek Field, a

minimum field price, for such oil of $1.14 per barrel (R. 227).

Petitioner and other operators in the Lance Creek Field

protested this action and in February, 1941 (R. 293) such

minimum field price (effective as of July 1, 1939) was fixed

at $1.02 per barrel by the Secretary under his ruling (R. ,

994) that he ‘‘has authority to fix, for purposes of Govern-

ment royalty computation, a reasonable minimum valuation

for crude oil produced from Federal lands * * *’’ and that

“under the terms of the mineral leasing act, the regula-

tions thereunder and the terms and provisions of the leases

here involved, the authority to fix a reasonable minimum

price for Government royalty oil exists and has been validly

exercised in this case.’? (Emphasis ours unless otherwise

indicated.) Such price so fixed was still 25¢ per barrel

higher than the price of 77¢ per barrel, for which petitioner

had in good faith contracted to sell its oil and which the

undisputed evidence in this case shows was the highest price

received in a fair and open market, not only for the oil

produced from this lease but for all oil produced from the

Lance Creek Field (R. 39-40). The period in controversy

ended April 1, 1941, at which time the Government elected

to receive its royalty oil in kind (R. 37).

Petitioner refused to pay the difference between 77¢ and

$1.02 per barrel of Government royalty oil produced from

4

its lease during the period from July 1, 1939, to and includ.

ing March 31, 1941, which amounted to $9,186.96 (R. 38-39),

until threat was made in April, 1942, by the Department of

the Interior that unless such payment was forthcoming suit

would be instituted to recover such amount and to cancel

petitioner’s lease (R. 329). Said sum of $9,186.96 was paid

by petitioner to the Government under protest and was

accepted by the Government upon its express agreement

that said money would be deposited in a special trust fund

and ‘‘held in that account pending a final judicial deter-

mination as to the authority of the Secretary of the Interior

to require the payment of the money as royalty due under

the lease,’’ and that ‘‘should it be finally determined judi-

cially that such authority is not vested in the Secretary the

money held in the trust fund account, or so much thereof

as you may be entitled to receive, will be repaid to your

company’’ (R. 299, 300, 381 and 384).

Petitioner thereupon brought the present suit under the

Tucker Act, 24 Stat. 505, 28 U.S. C. A. See. 41 (20), in the

District Court of the United States for the District of Wyo-

ming to recover from the United States such sum of

$9,186.96 so paid (R. 1).

A trial was had to the court which resulted in findings of

fact and conclusions of law favorable to petitioner’s posi-

tion (R. 35) and judgment was rendered by the trial court

in favor of petitioner and against the Government for the

above sum (R. 42).

The Government appealed the case to the United States

Circuit Court of Appeals for the Tenth Circuit wherein such

judgment was reversed.

The Cireuit Court of Appeéals, in so doing, held, inter

alia, that:

1. ‘The original Mineral Leasing Act of 1920, which

authorized the granting of mineral leases on the public

=

_

5

domain, also blueprinted their terms and conditions.’’

(R. 393.)

2. ‘** * * neither the original Act, nor the lease con-

tract executed in pursuance thereof, purport to author-

ize the Secretary to fix and determine the minimum

value of the royalty oil. On the contrary, the legisla-

tive history of the Act indicates a deliberate purpose

to withhold such power from the Secretary. See Con-

gressional Record Vol. 58, p. 4733-4735, 66th Congress,

9d Session.’’ (R. 394.)

3. ‘** * * in all of his transactions with the lessee,

the Secretary acted for and on behalf of the Govern-

ment in a proprietary capacity, and that his contractual

powers were measured by the basic enabling Act and

amendments thereto.’’ (R. 396.)

4. ‘*We have no doubt of the power of the Secre-

tary, acting in the public interest, to require as a con-

dition to his approval of the unitization and extension

agreement, that all development and operation there-

under should be subject to operating regulations which

were in effect when the agreement was made, * * *.’’

(R. 397.)

5. By entering into the Lance Creek Unit Agree-

ment (R. 256) petitioner agreed to be bound by Section

3(e) of the Oil and Gas Operating Regulations, promul-

gated and approved by the Secretary of the Interior,

effective December 1, 1936, which reads in part as

follows :

‘‘The value of production, for the purpose of

computing royalty, in the discretion of the Secre-

tary * * * may be calculated on the highest price

per barrel, paid or offered * * * at the time of pro-

duction in a fair and open market for the major

portion of like quality oil * * * produced and sold

from the field where the leased lands are situated;

but under no conditions shall the value of any of

said substances for the purpose of computing roy-

alty be deemed to be less than the gross proceeds

accruing to the lessee from the sale therof or less

than such reasonable minimum price as shall be

determined by said Secretary.’’ (R. 396.)

and that said Regulation 3(e) was valid and subsisting

and by its terms authorized the Secretary to determine

the reasonable minimum value of the royalty oil. (R.

397.)

6. ‘** * * the oil in question was sold * * * fora

uniform price of 77¢ per barrel under * * * contract

***?? and ‘** * * that the producers were obligated to

and did sell and deliver approximately sixteen million

barrels of oil thereunder, * * *.’’ (R. 399) and “We

have no doubt of the bona fides of the contract, * * *.”

(R. 400.)

7. ‘*From the record before us, we are convinced

that the Secretary’s determination of reasonable mini-

mum value of the royalty oil is not unlawful, inequita-

ble, arbitrary and unreasonable, * * *.’’ (R. 401.)

It is petitioner’s contention that the Circuit Court of

Appeals has decided important questions of federal law

which have not been, but should be, settled by this Honor-

able Court. (Supreme Court Rule 38. 5. (b).)

JURISDICTION.

The jurisdiction of this Court is invoked under Section

240 (a) of the Judicial Code, as amended by the Act of

February 13, 1925, c. 229, 43 Stat. 938, 28 U. S. C. A. See.

347 (a). The judgment of the Circuit Court of Appeals

was entered September 10, 1947, (R. 401); an order was

entered September 18, 1947, extending time for filing peti-

tion for rehearing to and including October 15, 1947, (R.

401) ; Petition for Rehearing was filed October 15, 1947, (R.

422), and was denied October 22, 1947, (R. 423).

—

QUESTIONS PRESENTED.

1. Whether the Secretary of the Interior may, by regu-

lation, create in himself the power to fix and determine the

reasonable minimum value of royalty oil under a lease is-

sued pursuant to the Oil Lands Leasing Act of Feb. 25,

1920, as amended, (41 Stat. 437), where said Act not only

does not purport to grant any such power but the legisla-

tive history thereof indicates a deliberate purpose to with-

hold such power from the Secretary.

2. Whether the Secretary of the Interior may arrogate

unto himself the power to fix and determine the reasonable

minimum value of royalty oil, by requiring Government

lessees to adopt a departmental regulation to that effect as

a part of a unit agreement, which to become effective under

the Oil Lands Leasing Act, as amended, must have his ap-

proval (see p. 11, Appendix) ; and, if so, whether properly

construed, the Lance Creek Unit Agreement (R. 256) incor-

porated therein Section 3(e) of the Oil and Gas Operating

Regulations in effect on December 1, 1936.

3. Whether, if such power to fix and determine the rea-

sonable minimum value of Government royalty oil be con-

ceded, the Secretary of the Interior may validly fix the

value of such oil at $1.02 per barrel regardless of the fact

that the undisputed evidence shows that 77¢ per barrel was

all that was received for it and all other oil from the Lance

Creek Field in bona fide sales in a fair and open market,

and require petitioner to account to the Government on the

basis of such higher figure.

SPECIFICATIONS OF ERROR TO BE URGED.

1. The Court below erred in failing to hold invalid that

portion of Section 3 (e) of the Oil and Gas Operating Regu-

lations in effect December 1, 1936, which purports to grant

to the Secretary of the Interior the power to fix and deter-

mine the reasonable minimum value of Government royalty

oil.

2. The Court below -» © in holding that the Secretary

of the Interior could ve .y acquire the power to fix and

determine the reasonable minimum value of Government

royalty oil, by requiring as a condition to his approval of

the Lance Creek Unit Agreement that provision therefor be

included in such agreement (R. 397).

3. The Court below erred in holding that by the terms

of the Lance Creek Unit Agreement there was incorporated

therein, by reference, Section 3 (e) of the Oil and Gas

Operating Regulations (R. 397).

4. The Court below erred in failing to hold that the

minimum value of $1.02 per barrel, as fixed and established

by the Secretary of the Interior, was arbitrary and unrea-

sonable as a matter of law and that the sum of $9,186.96 was

illegally exacted from petitioner.

REASONS FOR GRANTING PETITION.

We have here a situation where there is not only no Fed-

eral Statute expressly authorizing the Secretary of the

Interior to fix and determine the reasonable minimum value

of Government royalty oil, but the legislative history of the

_

Oi] Lands Leasing Act indicates a deliberate purpose to

withhold such power from the Secretary (Congressional

Record Vol. 58, pp. 4733-4735, 66th Congress, 2d Session).

Yet the Seeretary proceeds in this case to fix and deter-

mine such value basing his right to do so on a regulation he

himself promulgated, In carrying out this asserted power,

he disregarded the actual conditions facing operators in the

Lance Creek Field and required petitioner to account to the

Government for the value of its royalty oil on the basis of

$1.02 per barrel when such oil in a fair and open market

was worth no more than 77¢ per barrel.

The asserted power, which has been sustained by the

judgment of the Cireuit Court of Appeals, to elect to take

the value of Government royalty oil and to be the sole judge

of the value of that oil, is so drastic and of such far reach-

ing consequences to the many individuals, firms and corpo-

rations holding oil and gas leases on Government lands, in-

cluding petitioner, that final word on the subject should

come from this Honorable Court, which to date has not

passed upon the questions herein presented.

It is respectfully submitted that this petition should be

granted.

W. Hume Everert,

Haroup H. Heaty,

P. O. Box 120,

Jasper, Wyoming,

Attorneys for Petitioner.

Of Counsel :

A. M. Ger,

Hau W. Stewart,

Cavin A. Brown,

Findlay, Ohio.

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APPENDIX.

It is petitioner’s contention, supported by the trial court

(R. 32) and by the Circuit Court of Appeals (R. 394), that

neither the original Oil Lands Leasing Act (41 Stat. 437)

nor any amendment thereto, has authorized or empowered

the Secretary of the Interior to fix the minimum value or

price of royalty oil; consequently petitioner deems it un-

necessary and improper to set forth such Act herein in its

entirety. It is to be noted that Section 19 of such Act,

under which petitioner’s lease was issued, has never been

amended.

In connection with consideration of Question No. 2 and

Specification of Error No. 2 above, petitioner is quoting

the pertinent portions of Section 17 of said Act as amended

August 21, 1935, c. 599, Sec. 1; 49 Stat. 676; 30 U. S.C. A.

See. 226.

* ” . . *

‘“‘The Secretary of the Interior, for the purpose of

more properly conserving the oil or gas resources of

any area, field, or pool, may require that leases here-

after issued under any section ef this Act be condi-

tioned upon an agreement by the lessee to operate,

under such reasonable cooperative or unit plan for the

development and operation of any such area, field, or

pool as said Secretary may determine to be practicable

and necessary or advisable, which plan shall adequately

protect the rights of all parties in interest, including

the United States:

‘*Leases issued prior to the effective date of this

amendatory Act shall continue in force and effect in

eecordance with the terms of such leases and the laws

ander which issued: Provipep, That any such lease that

ll

has become the subject of a cooperative or unit plan of

development or operation, or other plan for the con-

servation of the oil and gas of a single area, field, or

pool, which plan has the approval of the Secretary of

the Department or Departments having jurisdiction

over the Government lands included in said plan as

necessary or convenient in the public interest, shall

continue in force beyond said period of twenty years

until the termination of such plan; anv Provipep Fur-

tHER, That said Secretary or Secretaries shall report

all leases so continued to Congress at the beginning of

its next regular session after the date of such continu-

ance.

‘“‘Any cooperative or unit plan of development and

operation, which includes lands owned by the United

States, shall contain a provision whereby authority,

limited as therein provided, is vested in the Secretary

of the depariment or departments having jurisdiction

over such land to alter or modify from time to time in

his discretion the rate of prospecting and development

and the quantity and rate of production under said

plan. The Secretary of the Interior is authorized when-

ever he shall deem such action necessary or in the pub-

lic interest, with the consent of lessee, by order to

suspend or modify the drilling or producing require-

ments of any oil and gas lease not subject to such a co-

operative or unit plan, and no lease shall be deemed to

expire by reason of the suspension of production pur-

suant to any such order.

* sd 2 * .

‘Whenever the average daily production of the oil

wells on an entire leasehold or on any tract or portion

thereof segregated for royalty purposes shall not ex-

ceed ten barrels per well per day, or where the cost of

production of oil or gas is such as to render further

production economically impracticable the Secretary of

the Interior, for the purpose of encouraging the great-

est ultimate recovery of oil and in the interest of con-

servation of natural resources, is authorized to reduce

the royalty on future production when in his judgment

12

the wells cannot be successfully operated upon the

alty fixed in the lease. The provision of this paragrap

shall apply to all oil and gas leases issued under thi

Act, including those within an approved cooperati

or unit plan of development and operation.’’

Such Amendatory Act of August 21, 1935, (c. 599, See. g

49 Stat. 679, 30 U. S. C. A. 223a (b)) also provided:

‘*(b) Nothing contained in this Amendatory

shall be construed to affect the validity of oil and

prospecting permits or leases previously issued unda

the authority of the said Act of February 25, 1920, ag

amended, and in existence at the time this amendator

Act becomes effective, or impair any rights or prigi

leges which have accrued under such permits or leases,”