Court Opinion

ID: 3542658
Source: CourtListenerOpinion
Date Created: 2016-07-05 22:54:11.310038+00
Date Added: 2024-06-11T14:06:18.021193
License: Public Domain

This action is a friendly suit to test the right of the state board of land commissioners to enter into a consolidated lease and operating agreement affecting state school lands. The plaintiff, Mr. E.G. Toomey, represents himself as a taxpayer of the state and, therefore, as an interested party bringing this action in the interest of the state, the plaintiff alleges the facts of the leasing of certain school lands to individuals, which leases are made to the Glacier Production Company, a foreign corporation, for the purpose of developing the purported gas field.
There are several vital constitutional objections to this contract. Section 20, Article XV of our state Constitution provides:
"No incorporation, stock company, person or association of persons, in the state of Montana, shall directly, or indirectly, combine or form what is known as a trust, or make any contract with any person, or persons, corporation, or stock company, foreign or domestic, through their stockholders, trustees, or in any manner whatever, for the purpose of fixing the price, or regulating the production of any article of commerce, or of the product of the soil, for consumption by the people. The legislative assembly shall pass laws for the enforcement thereof by adequate penalties to the extent, if necessary for that purpose of the forfeiture of their property and franchises, or in case of foreign corporations, prohibiting them from carrying on business in the state."
There can be no question but that this is an attempt to "regulate" the production of an article of commerce and of a product of the soil for consumption by the people. An attempt to interpret this simple language would be a waste of *Page 566 
time. (Great Northern Utilities Co. v. Public Ser. Com.,88 Mont. 180, 206, 293 P. 294.) All the attorneys having this case under consideration designate this contract as an attempt at "orderly production" of natural gas. It may be admitted the Constitution did not contemplate gas production when this section was written, but as written it prohibits an attempt at orderly production, and it is not within the province of this court to rewrite the Constitution to fit the changed conditions. If a change in the Constitution is necessary or desirable a practical procedure therefor is provided in that instrument.
I find the history of this consolidated lease and operating agreement as entered into to be as follows: The matter of the leasing of these particular state lands, and the interest therein of the Montana Power Company has been before the board of land commissioners on several occasions and the argument has been carried over for quite some period of time. In conferences pertaining to the consolidated lease contract, the Glacier Production Company has been represented by John E. Corrette, Jr., of Butte, Montana, who is attorney for the Montana Power Company, and who so represents himself at these conferences; that at the final conference, wherein the board agreed to give the contract, the attorneys for the Glacier Production Company stated they would bring a test case before the supreme court, testing the right of the state land board to enter into such a contract, and simultaneously therewith exhibited copies of the proposed complaint and briefs on the subject illustrating that they were already prepared for this test suit, which I repeat demonstrates that the action is a friendly action. The decision of the land board was not unanimous; however, upon the representations of the Glacier Production Company and after going into investigation of the right of the Glacier Production Company to do business in the state of Montana, the majority of the land board executed the agreement which is before the court for construction upon the understanding that the matter would be left to the judgment of this court.
The articles of incorporation of the Glacier Production Company authorizes this company to do practically everything that *Page 567 
is possible under the articles of incorporation authorized in any state; that is, it gives them a great deal more authority than do the Constitution and statutes of the state of Montana give to a domestic corporation, and therefore, much more authority than would be permitted had the Glacier Production Company incorporated under the laws of our state. The articles of incorporation of this company include the following significant clauses: "To do any and all things herein set forth to the same extent as natural persons might or could do * * *" "But nothing herein contained is to be construed as giving this corporation the power of constructing, maintaining, and operating public utilities within the State of New Jersey."
Therefore, the state of New Jersey strictly prohibits this corporation, incorporated under the laws of its own state, from doing business with the citizens of that state. Such proceeding on the part of the state of New Jersey gives us the right to infer that New Jersey will not trust the Glacier Production Company with its right to operate public utilities, to do business with its own citizens, but will give it the power to go into other states, such as will permit the said corporation to enter, and operate therein. The incorporators of the Glacier Production Company are all citizens of the state of New York and its directors are the identical persons who are the directors of the Montana Power Company. The official statement asserts that all stock is owned in Montana. Then why incorporate in New Jersey?
The Glacier Production Company openly and deliberately violates every requirement of section 10, Article XV, which reads: "No corporation shall issue stocks or bonds, except for labor done, services performed, or money and property actually received; and all fictitious increase of stock or indebtedness shall be void. The stock of corporations shall not be increased except in pursuance of general law, nor without the consent of the persons holding a majority of the stock first obtained at a meeting held after at least thirty days notice given in pursuance of law." *Page 568 
The state, by approving this contract, and probably many more like contracts in the future, with foreign corporations, thereby lends its approval to these discriminatory contracts to the great disadvantage of the domestic corporations and the loyal citizens of the state. We thereby approve a deliberate violation of our Constitution and thereby invite proposed corporations to incorporate in other states, thereby losing many fees that would be collectible from these corporations if the incorporation were under the laws of this state where the business is to be done.
Litigations involving contracts with foreign corporations are triable in federal courts at the option of such foreign corporations. The regulatory provisions of our Constitution and Code are not enforceable, as for instance our eight hour laws and many other laws of like character. The federal courts are completely out of sympathy with such laws and many of such laws could not be made applicable to the procedure in federal courts.
Great injury will result from the disability of the state to enforce this contract in its own courts and it is, therefore, a contract violative of the provisions of section 11, Article XV of the state Constitution, which reads as follows: "No foreign corporation shall do any business in this state without having one or more known places of business, and an authorized agent or agents in the same, upon whom process may be served. And no company or corporation formed under the laws of any other country, state or territory, shall have, or be allowed to exercise, or enjoy within this state any greater rights or privileges than those possessed or enjoyed by corporations of the same or similar character created under the laws of the state."
The recognized effect of this contract shall be to compel the state and the other co-owners in the unit to have their legal rights adjudicated by federal courts instead of state courts. It will also violate the provisions of section 18 of the same Article of the Montana Constitution, which reads as follows: "* * * All corporations shall have the right to sue, and shall be subject to be sued in all courts in like cases as natural persons, subject to such regulations and conditions as may be *Page 569 
prescribed by law." This reference to courts undoubtedly has reference to state courts and this contract will thereby further violate the practical effect of that provision and allow this foreign corporation to enjoy privileges that corporations organized under the law of this state cannot enjoy, namely, the right of defending its title in federal instead of state courts. Then the contract giving the foreign corporation such extra privileges should further be held contrary to the provisions of section 9 of the same Article, which reads: "* * * And the police powers of the state shall never be abridged, or so construed, as to permit corporations to conduct their business in such manner as to infringe the equal rights of individuals, or the generalwell being of the state."
This privilege of foreign corporations is certainly contrary to the general well-being of the state. Foreign corporations are held by federal courts to have the privilege of having their rights determined in federal courts. The Tenth Amendment to the United States Constitution provides: "The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively or to the people."
There is no law or constitutional provision granting this privilege, just a holding of the federal courts. The federal courts have held that the rights of corporations incorporated in different states (even though it may do no business in the state of its incorporation) may, upon the application of any such foreign corporation, on the false theory of diverse citizenship, be tried in the federal courts. This state cannot circumscribe the authority of federal courts when once these courts have lawfully assumed jurisdiction, but we can deny that jurisdiction by denying them the right to make such contracts as this in this state, since a contract of this nature gives to the foreign corporations greater rights and privileges than are granted domestic corporations it is void in its entirety. This privilege is contrary to the "equal rights of individuals, or general wellbeing of the state." *Page 570 
Many of us know from experience and observation that this state cannot practically protect its rights in the federal courts, and especially the poor man cannot protect his rights against these big corporations in federal courts. The costs of a suit, first in the federal district court, then in San Francisco circuit court, and finally in the Supreme Court at Washington, D.C., are enough to intimidate all but millionaires from attempting to litigate in federal courts with these big corporations. The delay incident to such litigation in federal courts is enough to discourage any ordinary business man in even attempting to litigate his rights in such courts. These corporations annually retain the ablest lawyers. Delay and expense are encouraged. Corporations have perpetual rights. Citizens die.
The United States Constitution (Eleventh Amendment) provides: "The judicial power of the United States shall not be construed to extend to any suit in law or equity commenced or prosecuted against one of the United States by citizens of another state, or by citizens or subjects of any foreign state." The incorporation in the foreign state may and usually is for the sole purpose of establishing the foreign citizenship. It is a fraud upon the state in order to acquire a foreign citizenship and thereby it gives the right to try its cases in the federal courts.
But the federal courts further permit a camouflage that allows suits to be brought against the officers of the state in lieu of the state itself. This evasion is so plain that every citizen can see. The state boards are the state itself and such construction is the only possible one. It is excused by the plea of "precedent," an excuse that often permits much injustice. We all know as a practical common illustration that as soon as the State Railroad Commission makes an order fixing the rates of power and light in any city in the state, the Montana Power Company, as a foreign corporation, immediately brings suit in the federal courts to set aside such rate of the commission. (See MontanaPower Co. v. Public Ser. Com., 12 F. Supp. 946, decided November 20, 1935.)
Judge Black in his recent famous dissenting decision in the Indianapolis water right case in the United States Supreme *Page 571 
Court points out this injustice so vividly that every citizen interested in fair play should read it carefully. In the majority opinion, the city of Indianapolis, after six years of litigation in federal courts, was compelled by that majority decision to go back and start almost at the beginning to get a hearing on fair rates for city water. The finding six years ago of the State Public Utilities Commission of Indiana was used merely as a football by the federal courts. The right of the state of Indiana to manage its own affairs was ignored. Jurisdiction is claimed by federal courts in such cases upon the ground of the Fourteenth Amendment to the United States Constitution, in which the pertinent part reads as follows: "* * * nor shall any state deprive any person of life, liberty, or property, without due process of law, nor deny to any person within its jurisdiction the equal protection of the laws." The federal courts hold that under this provision "persons" and "citizens" include corporations and they may thereunder claim protection in federal courts as a diversity of citizenship but there is certainly no United States constitutional provision which even suggests such interpretation of these words. (Connecticut Gen. Life Ins. Co.
v. Johnson, 303 U.S. 77, but also see the dissenting opinion of Justice Black, above adverted to, one of the most important expositions of law that can be found anywhere in the books.)
The option of a foreign corporation under the Eleventh Amendment to the United States Constitution, as a citizen of New Jersey to resort to the federal courts in a case involving Montana state lands, is an option not available to domestic corporations or Montana citizens, as it amounts to a privilege prohibited by our section 11, Article XV: "No foreign corporation shall do any business in this state without having one or more known places of business, and an authorized agent or agents in the same, upon whom process may be served. And no company or corporation formed under the laws of any other country, state or territory, shall have, or be allowed to exercise, or enjoy within this state any greater rights or privileges than those *Page 572 
possessed or enjoyed by corporations of the same or similar character created under the laws of the state."
The word "privilege" as used therein has a well-defined meaning and needs no citations here. The attempted purchase then, by this foreign corporation, of natural gas in place would give it authority as a property owner in Montana subject to the protection of federal courts under federal court rulings and thereby it would have greater privileges than a domestic corporation, that is, the privilege of trial in federal courts, as heretofore stated, which would be beyond the power of a domestic corporation in this state. Such being the case, the state could not be authorized to enter into such a contract as it thereby would be giving this foreign corporation the privilege of carrying into the federal courts any litigation involved as a suit between the citizens of different states, a right which is not open to domestic corporations.
Here we may also raise another objection to this proposed contract which attempts to impose upon the state and especially more particularly the citizen land owners, who join in this unit agreement, a disadvantage not argued or briefed. The state law requires all actions involving real estate or the possession thereof to be tried in the county where located; in this case it would be Glacier county as the land is located in that county. But this case would not be commenced or tried in Glacier county in a federal court as there is no federal court that sits in that county. This foreign corporation as a land owner in this case must be accorded a special privilege not accorded to domestic corporations, or to private citizens of the state if it may bring the case in another county which in many cases might be vastly important.
For the sake of argument on the principal question, we now consider the right of the state to enter into this unit agreement. It may not violate any law of our state constitutional provisions pertaining to state school lands, but for the reason of policy and positive constitutional prohibition authorizing this special privilege of trying all its cases in the federal courts upon the ground of divergent citizenship, the unit contract cannot *Page 573 
be authorized to grant the right to own real estate, or natural resources, in the state as it is against the constitutional advantage over domestic corporations and the "well being of the state" for the reasons stated. We cannot afford to force our citizens to take their troubles to Washington for litigation. Indeed, we have not the power.
The state even though it has the power should not by this example encourage its citizens to allow these foreign corporations to come into this state. Foreign corporations in many ways successfully escape state taxation and regulatory provisions required of domestic corporations. The fact that these utility corporations all do organize in foreign states is proof positive that they recognize such advantage over the domestic corporations by such foreign incorporation.
I further object to this consolidated lease and operating agreement for the reason that it opens the door to a gigantic fraud. The previous contract with the state requires rentals for delay in putting down gas wells. This one does not require delay rentals except perhaps an annual rental of $1. There is nothing to prevent the drilling of a well on land adjoining the lands of the consolidated lease and thereby draining off all the gas under this unit while the hands of the state and other unit holders are tied from seeking a market for their gas elsewhere. It is a one-sided contract binding on the state for at least 15 years, but subject to cancellation by the company any time by the payment of the nominal sum of $1. A unit agreement to be of any value under the principle claimed for unit agreements would have to include all the gas-bearing lands in that particular field. This gas-bearing area is now so well defined and mapped that the whole field, it is authoritatively claimed, could be included in one unit. Such a unit is necessary when the migratory character of natural gas is considered in connection with this consolidated lease.
The briefs of counsel indicate that they agree, and I believe that it is beyond question, that the purpose of unit operations is to insure the development of gas deposits in an efficient manner, to conserve natural resources and to protect the correlative *Page 574 
rights of owners in a common source of supply of gas. The consolidated lease and operating agreement which has been approved by a majority of the members of the state board of land commissioners does not assure any of these advantages which would be assured by true unit operation. As a matter of fact, it is only the Glacier Production Company which is benefited by the obligations under individual leases, including payment of delayed drilling penalties, which are here dispensed with. It is because of the fact that the proposed consolidated lease is a lease superseding existing leases that it is contrary to the statute authorizing unit operations and because it is a lease and not a pooling agreement for unit operations it is contrary to the specific provision of section 1882.2 of the Revised Codes of Montana, 1935, which limits the amount of land which may be included within a lease of 640 acres of state-owned lands, for the consolidated lease proposes to include 720 acres, of such state lands. Because the consolidated lease and operating agreement is not an agreement for the pooling of acreage with others for unit operations for the production of gas as but a consolidated lease it is contrary to the provisions of section 11 of the Enabling Act and section 4 of Article XI of the state Constitution. The power of the state and the state board of land commissioners to lease lands granted by Congress is entirely circumscribed by such regulations as the legislature may prescribe. (Leuthold v. Brandjord et al., 100 Mont. 96, 106,47 P.2d 41.) The legislature has never authorized the disposal of any interest exceeding 640 acres in state lands through such an instrument as the consolidated lease and operating agreement under consideration in this case. Federal courts have no right to waste their time on this purely local affair. The state courts are far better prepared to consider the questions.
This holding involves a vastly important governmental policy not heretofore considered in this court or by the people of the state, and I realize the seeming revolutionary character of the holding, but we are living in an age of progress in all directions. This pioneer trend is a subject comparatively new as is the law *Page 575 
of petroleum products and demands the formation and application of new legal principles. Modern law, in this particular, warrants study by the people as well as by the courts. This holding respecting the right of foreign corporations may revolutionize preconceived notions, but will lead toward justice and eventually will encourage in the people a confidence in the law as declared in actual practice by the courts, a confidence in courts that is now alarmingly lacking in the people. No injustice will arise from this proposed new holding. The rights of the whole people will be better protected. All citizens who favor home rule as distinguished from federal government rule should approve a policy that would make it possible and practical to control our own state natural resources at home rather than from Washington. Henceforth let our motto be: Home rule for natural resources.
In the case of MacGinniss v. Boston  Montana etc. Co.,29 Mont. 428, 75 P. 89, a very important constitutional question respecting foreign corporations was decided in favor of the foreign corporation, but evidently the officers and attorneys of that corporation did not have confidence in the correctness of the principles enunciated in that opinion, as within two years the Amalgamated reorganized as a Montana corporation under the name Anaconda Copper Mining Company, thereby subjecting itself to the laws of Montana.
A decision against this foreign corporation, warranted by many very good sound reasons, part of which I have pointed out herein might effect a very desirable reform of our business procedure in Montana, especially respecting natural resources. I know of no present question of so much importance to the people of Montana.
Perhaps we all can agree after mature consideration upon a more practicable statement of the proper principles along the lines of section 20, but that important change should be made by the people, and not by the courts. We, as judges, are sworn to support and defend the Constitution of the state — not to make over the Constitution as we think it should be. *Page 576 
This is too important a question to be passed upon by this court without argument, if, indeed, there is any room for argument. Nothing is said in the brief or oral argument of any counsel, respecting this question of so great importance. At best we can only follow the plain language of the Constitution.
This lease contemplates the acquirement of vast future rights that will in time amount to a huge monopoly of the gas interests of this state. A monopoly that will control the cost of natural gas to the citizens of the state. The plan is apparent from the fact that the official report filed in the office of the Secretary of State fixes the present value of these gas rights at $1,000,000,000, which indicates the price the Glacier Production Company expects to charge, through the Montana Power Company, the people of the state, though its investment is comparatively small. Or, more probably, these companies, through their monopolistic gas rights, hope to wrest from any company that undertakes to come in from outside the state.
For the foregoing three reasons: First, the Glacier Production Company is a foreign corporation not authorized to purchase or own real estate in Montana or to do business in the state of Montana for the reason that it has not complied with the requirements of the Montana Constitution. Every contract or purchaser of property in the state must first show its capacity. In the case of natural persons the right is uniformly presumed. But in the case of corporations the presumption is exactly contrary. The courts uniformly require that the right of the corporation be made to appear. The mere allegation that a corporation has been formed under the laws of the state of Montana is but the allegation of a conclusion of law, and is ineffectual for any purpose. The statutes specifically require and the courts unanimously hold that unless allegations of conclusions of law are preceded by the allegations of fact they have no effect therein. We have here a breach of this well known rule of pleading respecting the allegation of legal conclusions. That corporations often violate this rule matters none. The rule is founded on very sound reason and long established precedent. In fact, the rule is but the expression of fundamental law. The *Page 577 
necessity of a person or corporation showing a right to own property in the specific jurisdiction is the first consideration in every case. The attempt to replace the fundamental right to own property by a mere legal conclusion does not fulfill the requirement of established law. Much more is this true where the official public records clearly disclose that the vital constitutional requirements for valid incorporation have been openly violated. I cannot believe that my associates, rendering a contrary opinion on this subject, have given the matter appropriate consideration.
Second, the contract is not fair to the state and its citizens inasmuch as it is binding on the state for 15 years at least and subject to cancellation any time by the company; and, third, it infringes the state Constitution (sec. 20, Art. XV), by attempting to regulate the production of an article of commerce.
I, therefore, most emphatically dissent from any decision authorizing the execution of this contract by the state land board.