Wallis v. Pan American Petroleum Corporation

PETITIONER:Wallis
RESPONDENT:Pan American Petroleum Corporation
LOCATION:United States Department of Justice

DOCKET NO.: 341
DECIDED BY: Warren Court (1965-1967)
LOWER COURT: United States Court of Appeals for the Fifth Circuit

CITATION: 384 US 63 (1966)
ARGUED: Feb 23, 1966 / Feb 24, 1966
DECIDED: Apr 25, 1966

Facts of the case

Question

  • Oral Argument – February 24, 1966
  • Audio Transcription for Oral Argument – February 24, 1966 in Wallis v. Pan American Petroleum Corporation

    Audio Transcription for Oral Argument – February 23, 1966 in Wallis v. Pan American Petroleum Corporation

    Earl Warren:

    Number 341, Floyd A. Wallis, Petitioner, versus Pan American Petroleum Corporation, et al.

    Mr. Henican.

    C. Ellis Henican:

    Mr. Chief Justice and may it please the Court.

    These two cases consolidated below are before this Court on a writ of certiorari granted to review a decision of the Fifth Circuit Court of Appeal.

    The Court of Appeals decision was by a divided court, a two-to-one decision which reversed the decision of the then District Judge J. Skelly Wright.

    The basic question presented by this review is this, “What law shall control local or overriding federal law as to all issues in these suits including the appropriate remedy where the suits involved only a dispute between private individuals and the U.S. is not a party.

    Suits over the ownership of a federal oil and gas lease acknowledge by all parties to have validly issued by the United States to petitioner Wallis.”

    The suits are based upon two separate written contracts with Wallis executed long prior to his application for the federal lease in question.

    However, these suits were filed after the United States had issued the lease to Wallis.

    While the question was not raised in the trial court, that court considered the question of which law should control and then concluded that local law should be applied to these private contracts.

    Accordingly, local law was applied particularly the statute of frauds, and the parole evidence rule since both plaintiffs were trying to enlarge upon their written agreements by the use of parole or extrinsic evidence.

    Judge Wright ruled that this could not be done and he further held that the written agreements did not encompass the lease that is in question whereupon he rejected the demands of both respondents.

    In reversing Judge Wright, the majority of the Court of Appeal held that federal law should have been applied and it remanded the case for further trial on all issues in accordance with federal law.

    It did this since it concluded that the United States had an interest under the Mineral Leasing Act of 1920.

    And that uniformity in a decision of these matters is required.

    And that while there is no expressed applicable provision of the Mineral Leasing Act, nevertheless, this is a case where federal courts should fill the antithesis of the Act and fashion applicable federal law.

    In addition to this basic question, the further specific question is immediately presented and that is that since Section 32 of the Act of 1920 grants to the Secretary of Interior administrative and regulatory powers and the further authority to do any and all things necessary to carry out and accomplish the purposes of the Act, how then is any interstitial authority vested in the courts in view of this all inclusive grant of authority to the Secretary of the Interior.

    Now, after this case was decided in the Fifth Circuit and writs were granted to Wallis, this Court decided the Yazell case which in our opinion is decisive of this case.

    In the Yazell case, Your Honors noted that there were no decisions by this Court in which federal law had been fashioned to override state law with respect to issues arising from a negotiated contract particularly the issue of competency vel non to contract.

    Here, in the Wallis cases, the question is whether or not there are competent contracts.

    Having reached this conclusion, Your Honors specifically examined the question of whether or not there was some federal interest which might require you to give to the United States the advantage that it would have had if the Texas law of coverture have not been applied.

    Strangely enough, we find that Your Honors discovered the existence of at least one federal interest in the Yazell case but nevertheless, Your Honors refused to allow the United States to protect its federal interest at all costs when the right which the United States sought to assert was “not provided by statute or specific agency regulation.”

    Your Honors, therefore, stated that you would not in the absence of specific congressional action override the Texas law of coverture merely to protect a federal interest that was admittedly present and Your Honors concluded by saying that the state interests that were involved in Yazell should be overwritten by the federal courts only where clear and substantial interest of the national government which cannot be served consistently with respect to such state interests will suffer major damage if the state law is applied.

    Now, notwithstanding the existence of a federal interest in Yazell, Your Honors did not find that by following the Texas law, there would result major damage to a clear and substantial federal interest.

    Consequently, this Court refused to override the Texas law, even though in that case, the United States Government was directly involved.

    The respondents in this case have not demonstrated where the application of state law will affect a clear and substantial federal interest nor have they shown that such clear and substantial federal interest will suffer major damage by applying local law.

    Not only did the respondents have failed to demonstrate these vital things, but we submit that the Circuit Court likewise failed to do so.

    The Circuit Court apparently used the generalities of the paramountcy of the federal interest doctrine which Your Honors said in Yazell do not lead inevitably to the application of federal law and you said this even where the United States was a party.

    Now, we say to you that there is not only an absence of the clear and substantial federal interest in these cases, but that there is actually no federal interest in these cases.

    The Court will recall that the Solicitor General was invited to express the views of United States with respect to the matters under review.

    C. Ellis Henican:

    The Honorable Solicitor General has filed a memorandum.

    In no uncertain terms, the Solicitor General has represented to Your Honors that the United States has no interest to be protected in these cases for in his concluding remarks in his memorandum, the Solicitor General states, and I quote, “Here, however, Louisiana law is being applied to determine not rights against the Secretary but only rights as between private parties.

    In these circumstances,” says the Solicitor General, “no federal interest appears to be impaired by deferring to state law.”

    Byron R. White:

    Excuse me.

    C. Ellis Henican:

    Yes sir.

    Byron R. White:

    United States in the last page of this memorandum says that, “it is our view that under this regulation, an assignee may not conceal the existence of an oral agreement respecting an interest on the assignment on the ground that such an agreement is enforceable by virtue of Louisiana’s rule, evidence rule.

    Now, if Wallis wants to get a lease from the United States, and he applies for it and conceals the fact that he has made an oral assignment of it, the United States says, he may not do this.

    It says that an assignee may not conceal the existence of the oral agreement.

    Now, that to me is not a — it doesn’t mean that United States has no interest in this matter at all.

    C. Ellis Henican:

    Well the Solicitor General doesn’t consider that the United States has an interest even on that ground.

    But on that —

    Byron R. White:

    But he just signed this, what I wrote — what I read, and it seems to me that is an assertion of an interest to the United States in an oral agreement.

    C. Ellis Henican:

    But Your Honor, that is —

    Byron R. White:

    Whether it’s enforceable or not?

    C. Ellis Henican:

    There’s no oral agreement.

    This is the point that has to be decided under the state law under all of the authorities that we cited.

    There were two written agreements.

    The Court has held that those two written agreements did not encompass the lease in question, that neither one did.

    As a matter of fact, Judge Wright went even beyond that and I would like to call —

    Byron R. White:

    Well yes but that wasn’t —

    C. Ellis Henican:

    Sir?

    Byron R. White:

    Wasn’t this — didn’t Judge Wright say that this oral agreement would (Inaudible) because it was in violation of Louisiana’s parole evidence rule?

    C. Ellis Henican:

    No sir.

    He said two things.

    What he said was first, that the statute of frauds and the parole evidence rule of Louisiana applied to these contracts which had to do with the transferring of a lease that covered land within the State of Louisiana.

    Byron R. White:

    And therefore what?

    C. Ellis Henican:

    But — and therefore, the contracts did not cover the lease.

    But he went beyond that because he permitted a full rest trial in which all oral and all extrinsic evidence was permitted to be heard by the Court and was heard by the Court and if you will look at page 57 of the red reply brief, I would like to read what Judge Wright said with respect to that very point.

    He said, “With scant excuse, the Court permitted parole evidence to show the true intent of the contracting parties on the date the agreements were executed but not surprisingly, the documents and testimony produced only confirmed the indication of the written instruments that on January 3 and March 3, 1955, those were the two contractual dates of it.

    No one contemplated issuance of a lease to Wallis except in pursuance of the then pending acquired lands applications.

    C. Ellis Henican:

    That was all they talked about and quite naturally, that is all they put into their agreements.

    Doubtless, McKenna and Pan American were both anxious to share any lease Wallis might obtain over their lands.

    At the time, however, they saw only one means of achieving that end.

    Had they anticipated the ultimate issuance of a public domain lease, perhaps, they would have purchased an interest in that contingency too but that is a futile speculation.

    Obviously, they cannot be said to have intended to buy a share in a future they did not even advert to.

    The conclusion must be that the written agreements faithfully recall what was in the minds of the parties.

    So Judge Wright did examine all of the oral and extrinsic evidence as you will see from the — a quotation from his opinion which I have just read to the Court.

    Byron R. White:

    And you would — if he had confined himself to disregarding this oral testimony based only on the Louisiana parole evidence rule, if he had, would you think the United States would have interest on that?

    C. Ellis Henican:

    No sir, because it couldn’t affect the United States in any way.

    Byron R. White:

    The Solicitor General was on this information needed by the Secretary to enable him to enforce the provisions of the Mineral Leasing Act cannot be withheld from the strength of the state rule evidence.

    It seems to me, there’s still a big difference in saying United States has no interest at all.

    C. Ellis Henican:

    Well, the Solicitor General didn’t think that the United States had an interest.

    When the parties finished their litigation before the state court, then the Solicitor General believed that they have the information that there has been an assignment or he will have the information that has not been — that there has been no assignment.

    And that’s the very purpose of this litigation as to determine whether or not there has been an assignment.

    Wallis —

    William J. Brennan, Jr.:

    I thought the Solicitor General meant that there was no interest on the part of United States in developing a federal law independent of state law.

    C. Ellis Henican:

    He did say that there was definitely no interest that the United States had in this litigation and he said it many times in his opinion.

    William J. Brennan, Jr.:

    Well that may be somewhat different because the state law may differ.

    You may get differing — you may get 50 different rules applicable to these mineral leases.

    I thought that what he meant was that instead of fashioning a separate federal rule, we find a federal law governing these mineral leases in the state law that that should be uniformed.

    C. Ellis Henican:

    No sir.

    That is not what he said on the contrary.

    This has been not what the uniform interpretation has been of the Solicitor General.

    The solicitor — the Land Department and the Secretary have consistently taken the position that with respect to whether or not a federal lease has been transferred after the lease has been issued out of the government that the Land Office and the Secretary have no interest on the manner.

    William J. Brennan, Jr.:

    It might be good in Louisiana and not in —

    C. Ellis Henican:

    Yes, sir there’s no question about that.

    And it might be good anywhere but he has no interest in it because sooner or later the parties have to come back to the Secretary and whether — and if the matter has been transferred contrary to the provisions of the Secretary and of the Land Department, it is at that point that the federal interest arises.

    But in order to determine whether or not the parties have properly traffic in federal leases, the matter is consistently recognized as a state matter and this has been the party.

    This is not the federal law.

    This is the Secretary has taken a completely hands-off attitude about these matters and have — has always relegated the parties to the state law and to the state forum and there are — this is — this has been the uniform interpretation that the Secretary has given to that statute and to this particular subject for over 40 years.

    C. Ellis Henican:

    And there are no decisions in the Department to the contract.

    Byron R. White:

    Well if the state courts had found that there have — that there was an oral agreement, I suppose that the Secretary could cancel the lease because it wasn’t disposed.

    He could cancel under Bosch because of some violation of the — isn’t that right?

    C. Ellis Henican:

    I would think so.

    I would certainly —

    William J. Brennan, Jr.:

    But nevertheless whether or not there is an oral agreement enforceable or otherwise is to be determined by state law at your point.

    C. Ellis Henican:

    And I think the decisions are uniformed on that subject Your Honor.

    The Solicitor General has further represented as the views of the United States of certain additional points which we consider to be pertinent to the issue under consideration.

    The first is that there is a fundamental difference between a mineral lease on acquired lands and one on public domain lands and that where an application is filed for a lease under the Mineral Leasing Act for acquired lands, it is impossible for the Secretary to issue a lease on public domain lands which are covered by the Mineral Leasing Act of 1920.

    He also pointed out that neither of the parties in litigation claims that their rights against Wallis is founded upon any federal statute regulation order and the validity of the lease as issued by the United States to Wallis is not an issue.

    And the Solicitor General says that this then distinguishes this case from Irvine versus Marshall which was relied upon so heavily by McKenna and Pan Am and the Fifth Circuit.

    The Solicitor General says that the rights of the litigants in these cases may properly be left to determination under principles of state law unless the application of such principles would undermine some federal interest or policy.

    And in the opinion of the Solicitor General, this federal interest or policy would necessarily be one drawn from the Mineral Leasing Act itself.

    The Solicitor General does not recognize any substantial danger of such a conflict in these cases.

    While the Mineral Leasing Act is comprehensive and vests the Secretary with control and supervision and gives him comprehensive rule making authority to implement the statutory provision, nevertheless, the Solicitor General finds nothing in this scheme inconsistent with allowing state law to govern the rights of the parties in this private litigation and this is founded upon the fact according to the Solicitor General that there is no danger of undermining the secretary’s regulatory authority under the Act because if Wallis prevails, the status quo insofar as the Secretary is concerned is unaffected.

    On the other hand, if McKenna and/or Pan Am should prevail, they will obtain no rights in the lease.

    Wallis will obtain no rights in the lease unless the assignment is approved by the Secretary.

    What I meant to say was that Pan Am and McKenna will obtain no rights in the lease unless the assignment is recognized by the Secretary.

    In emphasizing the views expressed by the Solicitor General, he has pointed out what he calls the critical distinction which is that the application of state law to private agreements does not intrude upon the rights and duties of the United States but once that private dispute is resolved, then the federal interest comes into play.

    Now, we have suggested to the Court that even without Yazell, and even without the views of the Solicitor General, nevertheless, it is our belief that the Court would find ample justification for reversal in this case for several important reasons.

    First, Your Honors will find that even without the guidance of the Solicitor General, the Secretary has, as I stated before for over 40 years, recognized a lessee of a mineral lease as the owner of a property right.

    The decisions of the Land Office and there are quite a number of them have consistently held that an oil and gas lease conveys an interest in the land and that such is transferable under the law of the state where the land is located.

    It is therefore been also consistently held that when legal title to a lease passes the property like all other property that passes is subject to the laws of the state where the property is located.

    If these holdings by the Secretary are proper, and we submit that they are, then what this Court said in Wilcox versus Jackson is applicable.

    The Court said, but that whenever according to those laws, meaning the United States laws the title shall have passed, then that property like all other property in that state is subject to the state legislation.

    Consequently, Your Honors will find that the Land Department has regularly and without exception decline to resolve disputes between private parties once the federal lease is granted and has invariably referred the parties to the Court.

    But what is even more significant is that where there is no dispute, and the Land Department has been required to consider the law applicable to private transfers of federal leases, it has uniformly looked to and applied local law.

    We would like to call the attention further to the fact that these interpretations have been a coming out of the Land Office and from the Secretary for 40 years, and that Congress has met a dozen times since that time and it has not elected a change of the law.

    I notice that my time is running, so I’m going to abbreviate some of my argument.

    Our second point, for thinking that Your Honors would reverse in this case notwithstanding Yazell and the Solicitor General is that the Fifth Circuit Court failed to give due consideration to Section 32 of the Mineral Leasing Act which specifically reserves to the states all of their rights insofar as a mineral lease is concerned.

    C. Ellis Henican:

    It says that nothing shall be construed or held to affect the rights of the state or other local authority to exercise any rights that they may have.

    The State of Louisiana has a right to a rule of property.

    It has a right to a statute of frauds and to a parole evidence rule.

    And we suggest that although this Court has never considered that part of Section 32, the Court has in the Mid-Northern-Walker case considered the rather all inclusive taxing authority.

    And Your Honors held in that case as you will find that a state does have a right to tax a mineral lessee of a federal lease and you recognized a rather sweeping authority in the state to a sole tax.

    We have cited a number of cases to show that Congress has unlimited authority to dispose U.S.lands and that it has delegated this authority to the Land Department.

    This then means in our judgment that the courts do not have a duty to see that the equitable title as well as the legal title to the lands must be properly vested.

    We did not cite in our brief but we do want to call the Court’s attention to the case of SEC versus Chenery Corporation in which Your Honors recognized the citation being 332 U.S. 194 that the — an agency can either have a rule or it can take up these matters on an ad hoc basis.

    In this case, the agency does not have a rule.

    But it does take these matters up on an ad hoc basis and the uniform rulings which I have mentioned have been done by the Secretary and the Department on a strictly ad hoc basis.

    We have pointed to the jurisprudence interpreting the public land laws generally which clearly delineate the extent of the jurisdiction of federal courts in both actions at law and in equity and hold that in order for one to impose an equitable trust upon a legal title issued by the government, he must first predicate his claim upon dealings with the Land Department and then show that under the federal law, the Land Department should have awarded legal title to him instead to the other.

    In these cases, it is impossible for either Pan Am or McKenna to come under those requirements because they specifically rely upon the fact that the Land Department issued this lease to Wallis.

    They do not claim that they had a right to get this lease originally from the Land Department.

    We see this as a rule of property, a rule of property that has existed for over 40 years, and we feel that this rule of property should be confirmed and not be reversed.

    The Fifth Circuit found a federal interest because of the assignment and the option.

    We believe that the Fifth Circuit completely overlooked Section 30 (a) of the statute believing that Section 30 of the statute had to do with assignments and options.

    Section — as a matter of fact, Section 30 (a) does not even require the reporting of options to the Secretary.

    And so we believe that they had definitely not properly evaluated the provisions of the statute.

    We say that what has been said by the Solicitor in his memorandum that the Court obviously did not recognize the critical distinction.

    And finally, we refer the Court to what was said in the Radio Station W.O.W. versus Johnson, where you said that where there is a possible conflict, there must be the observance of fair accommodation between federal and state authority if a reasonable opportunity has afforded the protection of the federal interest.

    We believe that it’s clear from what the Solicitor General said on the cases that this matter can be decided under the state law and there will be this reasonable opportunity afforded for the federal protection.

    Earl Warren:

    Mr. Brunini.

    E. L. Brunini:

    Mr. Chief Justice, and Justices.

    I speak for the respondent McKenna and I’ll use 15 minutes and Mr. Lloyd Cobb of New Orleans will speak for the respondent Pan American in the remaining part of the time.

    Obviously, in 15 minutes, it’s impossible to cover a case with so many rampant cases as this one.

    I can only leave with you certain thoughts that I do think are controlling in this matter and which were before the Fifth Circuit.

    The Fifth Circuit is going to be faced with a great volume of litigation going out of the drilling of oil and gas wells and the issuance of leases on the outer continental shelf and this is — this situation here can be oversimplified as a private dog fight as it has been referred.

    Actually, Congress has by its acts in the Submerged Lands Acts definitely showed to this Court that there is a federal interest.

    Not only has it done that, but it has gone further and has set up original jurisdiction in the United States District Courts for the purpose of determining anything in a way of a claim or a fight as to the exploration, production, development, transportation of oil and gas from the submerged lands including the rights to the property.

    So Your Honors I’m not going to be able to avoid this full question of will the Fifth Circuit be able to avoid this full question by saying this is a private dog fight and we are not going to establish federal laws for the purpose of this particular individual.

    E. L. Brunini:

    The point is that whether you say so or not, the courts will have to meet that.

    The courts will have to fashion it because the volume of litigation is now moving into the District Court.

    Abe Fortas:

    Does this come up under the Submerged Lands Act?

    E. L. Brunini:

    This comes up under the Submerged Lands Act.

    Yes, sir Your Honor.

    This — the Submerged Lands Act —

    Abe Fortas:

    Under the 19 — when is it, 1920?

    E. L. Brunini:

    There were two acts.

    Two acts were passed.

    Both in 1953 and they both there docked to you Your Honor.

    Abe Fortas:

    Well did this come up the old Mineral Leasing Act?

    E. L. Brunini:

    The lease was issued under the old Mineral Leasing Act.

    Yes.

    Abe Fortas:

    And not under the Submerged Lands Act.

    E. L. Brunini:

    Not under the — the provisions of leases for the outer continental shelf, Submerged Lands Act.

    No sir.

    No one knows really as yet where this is.

    This lawsuit involves a mud log.

    They grew out of the marginal sea.

    And the Department of Interior turns this situation completely opposite to what is here contended.

    The Department of Interior lays on your desk a copy of that opinion.

    The Department of Interior says it’s not a question of the federal law overriding the state law.

    It is a question that here, you have exclusive federal legislative jurisdiction and no state real property law can apply to it.

    That is precisely the opposite of the contention that’s being made here by the petitioner.

    Now, we say to Your Honor, if Your Honors will read the Department of Interior’s very elaborate opinion.

    It will show to Your Honors that there never was and there is not now any jurisdiction on the part of the State of Louisiana in this property.

    This property still remains the property of the United States.

    It’s never been conveyed to anybody and interest has been conveyed out of that property.

    So we’ll say to Your Honor, you’re in the same situation perhaps as this law is being developed as you have in the District of Columbia where under the Constitution, United States’ exclusive legislative jurisdiction was taken off the District of Columbia.

    Congress passed an act and said you shall follow the laws of the State of Maryland but as the laws of the State of Maryland developed, they have nothing to do with it.

    E. L. Brunini:

    The District of Columbia has had to evolve its own federal law and it’s doing that today based in some part of the Virginia law and in some part on the Maryland law.

    Potter Stewart:

    But this land is located in Louisiana, isn’t it?

    E. L. Brunini:

    As far as I — as I see it Your Honor, it’s not, so far as the Department of Interior’s opinion.

    It says it’s not.

    Potter Stewart:

    I thought —

    E. L. Brunini:

    Now —

    Potter Stewart:

    — it was a federal land located in Louisiana.

    It’s a lump in the delta of the Mississippi River, isn’t it?

    So-called lump.

    E. L. Brunini:

    Yes.

    Potter Stewart:

    Isn’t it physically located in the State of Louisiana?

    E. L. Brunini:

    It —

    Potter Stewart:

    Regardless of who owns it, isn’t it physically located within the boundaries of the State of Louisiana?

    E. L. Brunini:

    I would answer that question yes but then I would like to Your Honor to tell me out and understand my explanation of it.

    Now, my time is — I don’t know whether I’m permitted to go forward at this point.

    Earl Warren:

    Well you may answer the question —

    E. L. Brunini:

    Let me answer the question then in this fashion —

    Earl Warren:

    Yes.

    E. L. Brunini:

    — that at this point, no one has delineated the coastline of the State of Louisiana, number one.

    Number two, the Submerged Lands Act says that you shall somewhere have the boundaries, lands of the state moved out for a distance not to exceed three miles and then further out than that, the President of the United States is authorized to extend those lands all the way out.

    That was 12 years ago that they authorized it but that’s never been done.

    At this moment, the coastline has never been delineated.

    Now, where you are in this situation, I do not know except this, that the Department of Interior in examining the development of the creation of the State of Louisiana under the Act of Congress shows that it didn’t go there into the State of Louisiana under that Act, nor did it go under the Swamplands Act of 1849 and 1850, nor did it go on in inherent sovereignty of the State of Louisiana, nor did it pass by virtue of the Submerged Lands Act.

    So it’s still just like the Constitution provides as we see it, an area of exclusive federal jurisdiction and no state real property law can apply.

    Earl Warren:

    We’ll recess now.