Patrick A. McKenna v. Floyd A. Wallis and Pan American Petroleum Corporation, Pan American Petroleum Corporation v. Floyd A. Wallis

344 F.2d 432

• Court: Court of Appeals for the Fifth Circuit
• Decided: April 20, 1965
• Docket: 19631_1
• Status: Published

Opinions

RIVES, Circuit Judge.

These actions, involving common questions of law and fact, were consolidated in the district court and decided pursuant to an opinion reported at 200 F.Supp. 468. They involve rights asserted separately by Patrick A. McKenna and Pan American Petroleum Corporation in an oil and gas lease from the United States to Floyd A. Wallis covering 826.87 acres of exceedingly rich “mud lumps” at the mouth of the Mississippi River in Plaquemines Parish, Louisiana.

The lease was issued to Wallis on December 19, 1958, effective January 1, 1959. The lease was of public domain land, that is land in which title vested in the United States because of its sovereignty pursuant to the Mineral Leasing Act of 1920, now appearing as Title 30 U.S.C.A. § 181 et seq., as distinguished from acquired land, that is land which was once privately owned and then acquired by the United States, the leasing of which is pursuant to the Mineral Leasing Act for Acquired Lands of August 7, 1947, now appearing as Title 30 U.S. C.A. § 351 et seq.

The claims both of McKenna and of Pan American were based upon events occurring prior to the issuance of the lease to Wallis. McKenna claimed that Wallis and he wTere joint venturers in acquiring the lease, and that he was entitled to an undivided one-third interest in the lease. Pan American claimed that Wallis had entered into an agreement granting Pan American the option to acquire the lease thereafter issued to Wallis. The district court decided that neither McKenna nor Pan American acquired any interest in the lease upon what the court referred to as a very narrow issue, saying:

“The issue is very narrow under the Louisiana rule that all ‘contracts applying to and affecting’ ‘oil, gas, and other mineral leases’ must be reduced to writing. LSA-C.C. Arts. 2275, 2440, 2462, via LSA-R.S. 9:1105. Having failed to obtain new written agreements, each of the plaintiffs is compelled to rely on a single instrument. McKenna’s claim is imprisoned in the letter agreement of December 27, 1954-January 3, 1955; Pan American’s claim is confined to the language of the March 3, 1955 option. Except as it throws light on their original intent, the conduct of the parties after those dates is irrelevant. Any new understandings reached in 1956, 1957, 1958 or 1959 are unenforceable in the absence of a writing. Nor does it matter whether Wallis obtained his lease by breaching his trust, as alleged. If the claimants acquired an interest in the lease, it is under the written instruments, not by virtue of any subsequent estoppel.”

McKenna v. Wallis, E.D.La.1961, 200 F.Supp. 468, 471, 472.

We think that the district court committed fundamental error in applying Louisiana statutes and law to determine rights in a lease on public domain land which were and are subject only to the sovereignty of the United States. The principle as to which law, state or federal, applies was stated long ago in Wilcox v. Jackson ex dem. McConnel, 1839, 38 U.S. (13 Peters) 498, 516, 10 L.Ed. 264:

“We hold the true principle to be this, that whenever the question in any court, state or federal, is, whether a title to land which had once been the property of the United States has passed, that question must be resolved by the laws of the United States; but that whenever, according to those laws, the title shall have passed, then that property, like all other property in the state, is subject to the state legislation; so far as that legislation is consistent with the admission that the title passed and vested according to the laws of the United States.”

Subsequent decisions have made it clear that “title” as used in that principle includes not only the legal title, but also the equitable title, indeed, the entire bundle of rights going to make up ownership. Whether the lease from the United States to Wallis was in part for the benefit of McKenna or of Pan American or of both are questions to be determined by federal law.

Irvine v. Marshall, et al., 1858, 61 U.S. (20 How.) 558, 15 L.Ed. 994, requires the application of federal law until both legal and equitable titles have passed from the United States. The United States was not a party to that litigation, but the Court recognized in clear and unmistakable terms that the United States owed a duty, to be performed both through its General Land Office and through its federal courts, to see that the equitable title as well as the legal title to public lands was vested in the proper person who proved his right under the federal law. The opinion emphasized the doctrine of resulting trusts which may have application to the facts of this case:

“With respect to resulting trusts, and the jurisdiction and duty of the courts of the United States to enforce them, the opinion of this court has been emphatically declared; and so declared in a case of peculiar force and appositeness, because it related to the acts of an agent in the entry and survey of lands, and is in its principal features essentially the same with the cause now under consideration. We allude to the case of Massie v. Watts, reported in the 6th vol. of Cranch, p. 143 [148, 3 L.Ed. 181]. This was a suit in equity in the Circuit Court of the United States for the district of Kentucky, to compel the conveyance of land from an agent to his principal, upon the ground that the agent had withdrawn an entry on lands made in the name of his principal, had caused an entry and survey to be made in his own name, and had thereby obtained a legal title to this land. In decreeing the relief sought by the complainant, this court, expounding the law by the Chief Justice (pp. 169, 170 [of 6 Cranch, 3 L.Ed. 181]), said: Tf Massie (i. e., the agent) really believed that the entry of O’Neal (his principal), as made, could not be surveyed, it was his duty to amend it, or to place it elsewhere. But if in this he was mistaken, it would be dangerous in the extreme — it would be a cover for fraud which could seldom be removed, if a locator alleging difficulties respecting a location might withdraw it, and take the land for himself. But Massie, the agent of O’Neal, has entered the land for himself, and obtained a patent in his own name. According to the clearest and best-established principles of equity, the agent who so acts becomes a trustee for his principal. He cannot hold the land under an entry for himself, otherwise than as a trustee for his principal.’ This exposition of the equity powers of the courts of the United States as applicable to resulting trusts — a power inseparable from the cognizance over frauds, one great province of equity jurisprudence — is conclusive.

“With respect to the power of the Federal Government to assert, through the instrumentality of its appropriate organs, and administration of its constitutional rights and duties, and with regard to such an assertion as exemplified in the management and disposition of the public lands, and the titles thereto, the interpretation of this court has been settled too conclusively to admit of controversy.” 20 How. at 565, 566, 61 U.S. at 565, 566, 15 L.Ed. 994.

The principles of law announced in repeated opinions of the Supreme Court seem to us clearly to lead to the conclusion that as to the original patent, lease or other grant from the United States, federal law controls in determining title in its broadest sense, including strictly legal title, trust rights and any and all equitable or beneficial interests. Gibson v. Chouteau, 1871, 80 U.S. (13 Wall.) 92, 101, 102, 20 L.Ed. 534; Sparks v. Pierce, 1885, 115 U.S. 408, 413, 6 S.Ct. 102, 29 L.Ed. 428; Van Brocklin v. State of Tennessee, 1886, 117 U.S. 151, 168, 6 S.Ct. 670, 29 L.Ed. 845; Widdicombe v. Childers, 1888, 124 U.S. 400, 405, 8 S.Ct. 517, 31 L.Ed. 427;¹ Felix v. Patrick, 1892, 145 U.S. 317, 328, 12 S.Ct. 862, 36 L.Ed. 719; United States v. Colorado Anthracite Co., 1912, 225 U.S. 219, 223, 32 S.Ct. 617, 56 L.Ed. 1063; Buehser v. Buchser, 1913, 231 U.S. 157, 161, 34 S.Ct. 46, 58 L.Ed. 166; Ruddy v. Rossi, 1918, 248 U.S. 104, 106, 107, 39 S.Ct. 46, 63 L.Ed. 148; see also other cases cited in 73 C.J.S. Public Lands § 209, and 42 Am.Jur., Public Lands, § 37.

Indeed the same principle was recognized by the Supreme Court of Louisiana in the early ease of Kittridge v. Breaud, La., 1843, 4 Rob. 79, 39 Am.Dec. 512, as follows:

“And the principle is well recognized in our jurisprudence, as well as in that of the courts of the United States, that where an equitable right, which originated before the date of the patent, whether by the first entry or otherwise, is asserted, it may be examined into: Brush v. Ware, 15 Pet. 93 [10 L.Ed. 672]; Bouldin v. Massie, 7 Wheat. [122] 149 [5 L.Ed. 414].”

The Mineral Leasing Act itself makes clear that, as a part of the public policy of the United States directed at opposing the monopoly of federally-owned mineral deposits, the Bureau of Land Management must examine into the qualifications of the real lessee and of any as-signee of a mineral lease or of a part interest. See sections 181 and 184 of 30 U.S.C.A. Those provisions leave no room for operation of any State law.

The same result must be reached if we follow through on the logical views expressed by the Director of the Bureau of Land Management of the United States Department of Interior in his decision sustaining Wallis’ application to lease as public domain land the acreage here involved:

“What Law Then is to Control?

“It is said in United States v. Louisiana, supra [1949, 339 U.S. 669, 699, 70 S.Ct. 914, 94 L.Ed. 1216], and United States v. California, supra [1946, 332 U.S. 19, 67 S.Ct. 1658, 91 L.Ed. 1889], that the resources in and under subaqueous soil of the sea are an incident to the paramount rights and power of the United States over the marginal sea; therefore, that power must be paramount to any other power in disposing of those resources. Since it was held that the United States had the paramount power over and Louisiana did not have title to the marginal sea, then Louisiana must not have had a basis for legislative jurisdiction to dispose of the subaqueous soil or resources even though the United States may not have acted or entered the field. If Louisiana did not have the necessary contacts to establish a sufficient basis for legislative jurisdiction, how could any State real property law apply? The legislation and judicial decrees of a State can only apply to persons and things over which the State ha's jurisdiction. Gibson v. Chouteau, 13 Wall. 92, 99 [20 L.Ed. 534] (U.S. 1871).

“There is a strong presumption that any statute is to be construed prima facie territorial in effect. American Banana Co. v. United Fruit Co., 213 U.S. 347, 357 [29 S.Ct. 511, 53 L.Ed. 826] (1908). This lack of jurisdiction is based upon the proposition that a State does not have the power to deny the paramount authority of the United States over the marginal sea, United States v. Louisiana, supra; ‘(c) ali-fornia, like the thirteen original colonies, never acquired ownership in the marginal sea. * * * ’ Id., [339 U.S. p.] 704 [70 S.Ct. p. 916, 94 L.Ed. 1216] ; this power, or rather lack of it, has no relation to the power of a State to use or regulate the marginal sea absent conflicting Federal policy, and the question is open so far as the power of a State to extend or establish its external territorial limits vis a’vis persons other than the United States or those acting on its behalf are concerned. Id., [339 U.S. p.] 705 [70 S.Ct. p. 917, 94 L.Ed. 1216]. Nothing is apposite in Manchester v. Massachusetts, 139 U.S. 240 [11 S.Ct. 559, 35 L.Ed. 159] (1891) (inland waters); The Abby Dodge, 223 U.S. 166 [32 S.Ct. 310, 56 L.Ed. 390] (1912); or Skiriotes v. Florida, 313 U.S. 69, 75 [61 S.Ct. 924, 85 L.Ed. 1193] (1940) (both cases involve power of a State over her citizens), for there is quite obviously a great difference between the exercise of police power, within or without the territorial boundaries of a State and the proprietary rights in land within those same boundaries. Utah Power & Light Co. v. United States, 243 U.S. 389, 404 [37 S.Ct. 387, 61 L.Ed. 791] (1914). The Department has taken the position that the boundary of the State of Louisiana prior to the date of the Submerged Lands Act of May 22, 1953 (67 Stat. 29; 43 U.S.C. §§ 1301-1315) was at the low water mark of the Gulf of Mexico and at that point marked by the separation of the inland waters from the open sea. Solicitor’s Opinion, M-36239 (October 1, 1954). United States v. Louisiana, supra, implies this result. It is my opinion, based upon the above-cited authorities and analysis, that State real property law never applied to any of the subaqueous soil seaward of the inland waters within the former boundary of the State of Louisiana.

“Is State law controlling or applicable in grants and title questions involving public lands of the United States? It is a principle of law that a State cannot by legislative fiat decree a forfeiture of the public lands of the United States and proclaim title in herself. United States v. Oregon, 295 U.S. 1, 29 [55 S.Ct. 610, 79 L.Ed. 1267] (1934). This is based upon the rule that Federal questions cannot be ultimately decided- by State tribunals. Brewer-Elliott Oil & Gas Co., et al. v. United States, et al., 260 U.S. 77, 87 [43 S.Ct. 60, 67 L.Ed. 140] (1922). Thus, the courts of the United States will construe the grants from the United States without reference to the rules of construction adopted by the States for their own grants. Packer v. Bird, 137 U.S. 661 [11 S.Ct. 210, 34 L.Ed. 819] (1891); Shively v. Bowlby, 152 U.S. 1, 44 [14 S.Ct. 548, 38 L.Ed. 331] (1893). United States v. Utah, 283 U.S. 64, 75 [51 S.Ct. 438, 75 L.Ed. 844] (1930), states that ‘(s)tate laws cannot affect titles vested in the United States.’ For example, the question of navigability is a Federal question, United States v. Utah, supra, [283 U.S. p.] 75 [51 S.Ct. p. 440, 75 L.Ed. 844]; consequently, when the United States is disposing of a portion of its public domain, State law can no more affect the original paramount title of the United States which involves construction of one of its grants than could a State court or legislature pronounce a stream navigable with binding effect which the courts of the United States found to be non-navigable. United States v. Oregon, supra, [295 U.S. p.] 29 [55 S.Ct. p. 621, 79 L.Ed. 1267]; Oklahoma v. Texas, 258 U.S. 574, 583, 591 [42 S.Ct. 406, 66 L.Ed. 771] (1922). While the‘public land’ States possess certain jurisdictional police powers over public lands of the United States situated within the State’s boundaries, McKelvey v. United States, 260 U.S. 253, 258 [353, 358, 43 S.Ct. 132, 67 L.Ed. 801] (1922), those States have no basis for jurisdiction to legislate or otherwise affect title paramount to the public lands of the United States, and State real property law could in nowise divest or delimit the rights and expectations of the United States in its public lands as known at common law which is the general law followed by the courts of the United States.”

We would intimate no opinion as to who may ultimately be entitled to prevail in this litigation. In our opinion, the judgment should be vacated and the cause remanded for re-trial upon the evidence already taken and any additional relevant evidence, and for full and complete findings of fact and conclusions of law on all issues under the applicable principles of federal law.

Vacated and remanded.

1 . In that case, Widdicombe had got his patent but was held to be a purchaser in bad faith, the Court saying: “The holder of a legal title in bad faith must always yield to a superior equity. As against the United States his title may be good, but not as against one who had acquired a prior right from the United States in force when his purchase was made under which his patent issued. The patent vested him with the legal title, but it did not determine the equitable relations between him and third persons.” 124 U.S. at 405, 8 S.Ct. at 519, 31 L.Ed. 427.