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    STATE OF OKL. v. STATE OF TEXAS, 265 U.S. 505 (1924)

    U.S. Supreme Court

    STATE OF OKL. v. STATE OF TEXAS, 265 U.S. 505 (1924)

    265 U.S. 505

    STATE OF OKLAHOMA
    v.
    STATE OF TEXAS (UNITED STATES, Intervener).
    No. 15.

    Decided June 9, 1924.

    [265 U.S. 505, 506]   Mr. W. A. Ledbetter, of Oklahoma City, Okl. (Messrs. H. L. Stuart and R. R. Bell, both of Oklahoma City, Okl., and Wm. O. Beall and Edward H. Chandler, both of Tulsa, Okl., on the brief), for Sinclair Oil & Gas Co., and others.

    Mr. A. H. Carrigan, of Wichita Falls, Tex. (Messrs. J. W. Bailey, of Dallas, Tex., Leslie Humphrey, A. H. Britain, and W. N. Bonner, all of Wichita Falls, Tex., and W. C. Witcher, Jr., of Grand View, Tex., on the brief), for certain owners of patented lands.

    Mr. R. H. Ward, of Houston, Tex., for Kirby Petroleum Co.

    Mr. W. W. Dyar, Sp. Asst. to Atty. Gen. (Messrs. Attorney General Stone and

    [265 U.S. 505, 507]   Solicitor General James M. Beck, of Washington, D. C., on the brief), for the United States.

    Mr. E. P. Hill, of Ardmore, Okl., for the State of Oklahoma.

    Messrs.

    E. E. Blake, of Oklahoma City, Okl., and R. L. Cole, of Houston, Tex., for Grand Oil & Developing Co.

    Mr. Leslie Humphrey, of Wichita Falls, Tex., for C. T. Taylor.

    Mr. W. A. Keeling, Atty. Gen., for the State of Texas.

    Mr. Justice VAN DEVANTER delivered the opinion of the Court.

    By the order of May 5 last ( 265 U.S. 76 , 44 Sup. Ct. 457, 68 L. Ed . --) certain questions suggested in the twelfth report of the receiver in this case were propounded to the parties in interest. Many responses were received, a hearing on them was had, and the court is now prepared to announce its ruling.

    The first question is: To what extent and in what manner shall the general expenses of the receivership be [265 U.S. 505, 508]   spread over the several impounded funds in the receiver's custody?

    Two areas are within the receivership, one designated as the south half of the river bed and the other as the flood plain. The latter consists of a stretch of low ground between the river bed and the Texas bluffs, and is divided into several relatively small tracts. The impounded funds consist, in the main, of proceeds from oil and gas taken, during the receivership, from wells in the two areas. Accurate accounts have been kept showing the production, proceeds, and special expenses pertaining to each well. But as yet there has been no allocation or apportionment of the general expenses.

    At the inception of the receivership both areas were in controversy. Texas and her grantees were claiming title to both; the United States was doing the same, and Oklahoma was claiming title to the river-bed area. These proprietary controversies were largely incidental to a pronounced controversy respecting the true boundary between the two states. Texas was insisting that the boundary was along the middle of the river; Oklahoma and the United States that it was along the foot of the Texas bluffs. All of the controversies were real and were earnestly pressed on the court's attention. In the progress of the case the court has considered and decided all of them. As a result it now is settled that the interstate boundary is not along the middle of the river, nor along the foot of the Texas bluffs, but on and along the south bank of the river, that the flood- plain area belongs to Texas or her grantees, that the river-bed area belongs to the United States, and that Oklahoma has no proprietary interest in either area.

    Most of the river-bed wells were drilled and brought in by the receiver; all wells in that area have been operated by him, and he now holds the net proceeds derived from them. Most of the flood-plain wells were drilled [265 U.S. 505, 509]   and brought in before the receivership by claimants asserting grants from the state of Texas or leasehold rights under such grants. Under a provision in the original receivership order (paragraph 4, 252 U.S. 374 , 40 Sup. Ct. 353), and a provision in a succeeding order ( paragraph 2, 253 U.S. 466 , 40 Sup. Ct. 580, 1017), most of the flood-plain wells have been operated by such claimants and their assigns under arrangements whereby the receiver was to direct and supervise the operation, was to receive and hold three-sixteenths of the gross proceeds, and could take over the operation if the arrangement was not respected. The receiver now holds the accumulated three-sixteenths of such proceeds. A few exceptional flood-plain wells-we mean wells south of the interstate boundary as now established-have been operated throughout by the receiver, and he now holds the full net proceeds derived from them.

    The parties in interest differ about the apportionment to be made of the general expenses. The Texas claimants, both owners and lessees, take the position that, as they have prevailed in the controversy over the flood plain, the funds derived from that area should be exempted from the apportionment. On the other hand, the United States insists that the apportionment should extend to all the funds, flood-plain as well as river- bed, and be on a pro rata basis. There is also a difference among the Texas claimants, in that the owners insist that, if the apportionment be made to cover the flood-plain funds, these expenses should be charged against the moneys going to the lessees, while the latter ask that the charge be against the moneys going to the owners.

    Obviously we are not here concerned with a situation where the outcome of the matter in litigation should be given controlling significance. The controversy over the flood plain was real, as much so as that over the river-bed area; and there was ample reason for including both areas in the receivership. Its purpose was to conserve the [265 U.S. 505, 510]   oil and gas values in those areas for the benefit of whoever might prove to be entitled to them; and that purpose has been accomplished. That the Texas claimants have prevailed as to the flood plain is no reason for exempting it from the general expenses. A like reason would require that the river bed be also exempted, for as to it the United States prevailed. The usual rule in such receiverships is to charge the general expenses ratably against all the impounded funds, unless there be special circumstances making it inequitable to do so. Here there are no circumstances calling for an exemption of the flood-plain funds; but there are circumstances making it equitable to charge against them a smaller proportion of the general expenses than is charged against the river-bed funds. Taking the full period of the receivership, the work and responsibility of the receiver's force has been perceptibly less in respect of the flood-plain wells than in respect of those in the river bed. Fairly estimated, we think the difference has been about one to two on each dollar impounded. But this difference in favor of the flood-plain wells applies only to such as have been operated by private claimants. The exceptional ones operated by the receiver are in this particular on substantially the same footing as the river-bed wells.

    We conclude that the general expenses should be spread over all the funds in such way that the charge against each dollar impounded from river- bed wells, or from flood-plain wells operated by the receiver-in all of which the impounding has covered the full proceeds, less special expenses- shall be double what is charged against each dollar impounded from flood- plain wells operated by private claimants where the impounding has covered only three-sixteenths of the proceeds.

    As to the Texas owners and lessees, we perceive no ground for making one rather than the other bear the [265 U.S. 505, 511]   charge for general expenses. The interests of both have been conserved, and the charge to be made against the total moneys going to both in any instance should be deducted ratably from what goes to each separately.

    The second question is: How shall the expense or loss incident to work done by the receiver on river-bed wells which proved unremunerative be distributed or cared for?

    The river-bed area is a single tract belonging to the United States. Others have no present interest in it. The United States concedes that the expense or loss indicated may be charged against funds derived from remunerative wells in that area. We think the concession is right and that effect should be given to it.

    The third question is whether the order of June 1, 1921 ( 256 U.S. 607 , 41 Sup. Ct. 539, 1118), authorizing the receiver, where any river-bed well was drilled and brought into production prior to the receivership, to reimburse the operator for the actual cost of that work out of the proceeds from such sell, shall be enlarged so as to permit the receiver, where the same operator had drilled another river-bed well which proved unremunerative, to reimburse him for the cost of the latter out of the proceeds of the remunerative well. The United States objects to the change suggested, and we think it should not be made. All drilling for oil in the river-bed area was without right and without encouragement from the United States, the owner of the soil. Apart from the trespass involved, the operator assumed the risk of the venture; and if the well proved unremunerative it was his loss. On no equitable principle can he ask to be reimbursed. The order referred to is confined to wells which were utilized by the receiver and enriched the estate in his custody. Even in that form the order is one of marked liberality, considering the entire absence of any right to drill in the river-bed area. The situation requires, we think, that each well be regarded in this matter as a distinct venture. [265 U.S. 505, 512]   The fourth question is: Should the order just mentioned be changed so as to cover river-bed well No. 139, known as the Burk-Senator well?

    This well was expressly excepted from the order because there was a bitter controversy as to who drilled it and brought it into production. The well had been drilled and was producing oil when the receiver took possession. It is the only one of that class where the operator has not been reimbursed. We think the excepting clause should be eliminated from the order to the end that the receiver may effect an equitable adjustment of the matter, if the contesting operators are so disposed.

    Two phases of another matter connected with that well should be disposed of at this time. Under a contract with one of the contesting operators Tom Testerman participated in drilling the well. Some equipment belonging to him and used in that work came into the possession of the receiver and afterwards was sold by the receiver. Testerman asks that the receiver be authorized to pay over to him the money received for the property. That authority should be given. Testerman also asserts that the Bass Petroleum Company, another of the contesting operators, forcibly took possession of the well and converted a part of his equipment to its use, and he asks that he be reimbursed for that wrong out of impounded funds derived from flood-plain wells claimed by that company. This request cannot be entertained. The right to redress for such a wrong, committed prior to the receivership, is not a matter which can be considered or determined in this suit.

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