Kinney-Coastal Oil Company v. Kieffer/Opinion of the Court

The findings of fact by the District Court before described have such support in the evidence that they should be accepted by us. Two were accepted by the Circuit Court of Appeals, as shown in the quotation before made from its opinion, and the others were not considered. Those not considered are equally well supported.

The chief question presented is whether the act of 1914 prescribes an exclusive remedy at law applicable to the situation disclosed and thus prevents the plaintiffs from suing in equity, as held by the Circuit Court of Appeals.

The acts of 1914 and 1920 are to be read together-each as the complement of the other. So read they disclose an intention to divide oil and gas lands into two estates for the purposes of disposal-one including the underlying oil and gas deposits and the other the surface-and to make the latter servient to the former, which naturally would be suggested by their physical relation and relative values. The act of 1914, in providing for the disposal of the surface, directs that there be a reservation of the oil and gas deposits, 'together with the right to prospect for, mine, and remove the same,' meaning, of course, the right to use so much of the surface as may be necessary for such operations. And the act of 1920, in providing for the leasing of the oil and gas deposits, provides (section 29) for a reservation of the surface 'in so far as said surface is not necessary for the use of the lessee in extracting and removing the deposits.' In effect therefore a servitude is laid on the surface estate for the benefit of the mineral estate to the end, as the acts otherwise show, that the United States may realize, through the separate leasing, a proper return from the extraction and removal of the minerals.

The lease held by the plaintiffs and the homestead patent issued to Kieffer were drafted in keeping with the acts thus understood. In both the required reservations are plainly expressed. Under the lease the plaintiffs have the right to extract and remove the oil and gas as also the appurtenant right to use the surface so far as may be necessary. In the homestead patent these rights are distinctly excepted and reserved from the estate thereby granted. Their exercise involves no taking of anything granted by the patent. Nor is the one who under the patent owns the surface, with those rights reserved, entitled to compensation for the minerals taken or the use made of the surface. The only compensation which he rightfully may demand is, as the act of 1914 says, for 'damages caused' by the mining operations. The sentence next preceding that in which these words occur makes it fairly plain that they refer to damages to 'crops and improvements,' and the title to the act, coupled with the reference to 'crops' shows that 'agricultural' improvements are the kind intended. Certainly it is not intended to include improvements placed on the land, after the mining operations are under way, for purposes plainly incompatible with the right to proceed with those operations until the oil and gas are exhausted. It well may be that, if the operations are negligently conducted and damage is done thereby to the surface estate, there will be liability therefor. But such liability will ensue, not from admissible mining operations and use of the surface, but from the inadmissible negligence causing the damage.

By this suit the plaintiffs are not seeking to acquire a right to use the surface, but to protect from wrongful obstruction and impairment the right which they already have. Nor are they seeking to enforce their right to enter and begin mining operations. More than a year before the suit was begun they entered, took in mining equipment and supplies, erected houses for their workmen, began drilling for oil and gas, and at large cost completed a producing well-all with the knowledge and acquiescence of Kieffer, then the sole surface claimant. After their operations were thus under way, Kieffer platted as a townsite the 40 acres where they were operating, and began actively to sell and contract to sell the lots as platted, and the purchasers began to erect buildings thereon for residential and business purposes. Kieffer was also contemplating taking like action as to the other 40 acres. It was then that the suit was begun. It is directed chiefly against the sale and use of the surface for townsite purposes, and is based on the theory-sustained by the findings made on the proofs submitted at the trial-that practically the whole 80 acres is within the producing structure of the oil field, that use of practically the entire surface is necessary for conducting reasonably efficient operations under the lease, and that the sale and occupancy of the surface for townsite purposes will seriously interfere with the plaintiffs' right to use the same in their mining operations and will obstruct and impede the further prosecution of those operations and thereby subject the plaintiffs to continuing and irreparable injury.

With this understanding of the situation and of the chief object of the suit, we think it plain that the plaintiffs were entitled to the interposition and aid of a court of equity to prevent the threatened occupancy and use of the surface for purposes incompatible with their right to continue the mining operations under the lease and to make any necessary use of the surface. Certainly they were without the plain, adequate, and complete remedy at law which, under section 267 of the Judicial Code (28 USCA § 384), precludes resort to a suit in equity.

The Circuit Court of Appeals based its decision on the part of the act of 1914 which-after directing that the patent for the surface estate shall contain a reservation of the underlying oil and gas deposits, with the right to prospect for, mine and remove the same-provides that lessees of the United States may enter, occupy so much of the surface as may be required, and mine and remove the minerals, 'upon payment of damages caused thereby to the owner of the land, or upon giving a good and sufficient bond or undertaking therefor in an action instituted in any competent court to ascertain and fix said damages.'

The plaintiffs take the position that the bond given by the lessee and approved by the Secretary of the Interior when the lease was issued satisfied that provision. In this the plain words of the provision are neglected. They call for a bond to be given in a judicial proceeding wherein the damages may be ascertained and fixed. The Circuit Court of Appeals so regarded them.

But we are unable to agree with that court's ruling that the provision requires that the bond be given and the damages assessed only in an action at law. The words of the provision are 'an action instituted in any competent court,' and we think the matter is one which the District Court was and is competent to deal with in this suit.

It is a general rule that a court of equity, in a suit of which it has and takes cognizance, may administer complete relief between the parties, even though this involves the determination of legal rights which otherwise would not be within the range of its authority. Camp v. Boyd, 229 U.S. 530, 552, 33 S.C.t. 785 (57 L. Ed. 1317); McGowan v. Parish, 237 U.S. 285, 296, 35 S.C.t. 543 (59 L. Ed. 955); United States v. Union Pacific Ry. Co., 160 U.S. 1, 50, et seq., 16 S.C.t. 190 (40 L. Ed. 319). And under that rule a court of equity in awarding relief to one party may impose conditions protecting and giving effect to correlative rights of the other. Walden v. Bodley, 14 Pet. 156, 164 (10 L. Ed. 398); Lynch v. Burt (C. C. A.) 132, F. 417, 432; Burnes v. Burnes (C. C. A.) 137 F. 781, 791.

So, while the provision on which the decision of the Circuit Court of Appeals rests cannot be held to be an obstacle to the maintenance of this suit in a court of equity, we think it shows a need for modifying the decree of the District Court by providing therein for an ascertainment in this suit of any damages which the plaintiffs' entry and operations under the lease may have caused to the agricultural improvements or crops of the owner of the surface estate, and also by conditioning the relief awarded the plaintiffs upon their giving a good and sufficient bond or undertaking to pay such damages within a limited time after the same are ascertained.

The evidence appears not to have been taken with a view to an ascertainment of the damages; but there is testimony tending to show that the owner of the surface is asserting a claim for damages done at the time the plaintiffs entered or soon thereafter. It of course is admissible to fix the damages by agreement. But if this be not done there will be need for a hearing on that question.

We conclude that the decree of the Circuit Court of Appeals should be reversed, and that the cause should be remanded to the District Court, with directions to modify its decree in accordance with what is said in this opinion.

Decree of Circuit Court of Appeals reversed.

Decree of District Court modified.