Court Opinion

ID: 9463309
Source: CourtListenerOpinion
Date Created: 2023-08-04 23:02:43.087947+00
Date Added: 2024-06-11T17:38:01.397698
License: Public Domain

MORELL E. SHARP, District Judge
(concurring in part and dissenting in part):
I concur with the majority’s affirmance of the second and third claims and with its conclusion that Section 4 of the A & S Agreement is inapplicable to the first claim, but I disagree with its conclusion that the lands in question may be included in the Reserve under Section 15(b) of the Unit Plan Contract.
The question is one of contract interpretation. Section 15(b) of the U.P.C. provides that
“It is contemplated that it may hereafter be desirable to include under the terms of this contract other lands located outside of the present limits of the Reserve but which lie on the same geologic structure underlying the present limits of the Reserve. . . .”
This is interpreted by the majority as if it read:
“It is contemplated that Navy may hereafter include . . . .”
I can find nothing in the contract language, or in the language and legislative history of *639the enabling statute, 10 U.S.C.A. § 7426, which justifies rewriting the contract to this extent.
The apparent rationale for the majority’s interpretation is the parties’ conflict of interests: Standard’s interest is to produce oil when it is to Standard’s economic advantage to do so, while Navy’s interest is to conserve oil in the ground. The existence of such divergent interests hardly provides an appropriate basis for ignoring the language agreed on by the parties. Phrases such as “Navy and Standard shall, . “the ownership interests of Navy and Standard, respectively, . . . “either Navy or Standard may at any time . . “if either Navy or Standard desires at any time . . . “Standard shall be permitted to receive . . . “if, at any time, Navy shall elect . . . “Navy (subject to applicable law) and Standard shall each have . . .”, are used throughout the contract to express the respective rights, duties and responsibilities of the parties. It is inconceivable to me that the parties intended the language used in Section 15(b) to establish a kind of unilateral contractual “condemnation’’ in favor of Navy and against Standard, particularly in a contract which, as Navy states in its brief to this Court, was “the product of hard bargaining by Navy and Standard.”
The result the Court reaches is ironic. As noted in the agreed facts recited in the majority opinion, the parties agreed in October 1965 that there was a pressure decline in the wells in the Reserve, indicating a possible migration from the Reserve. The Engineering Committee was unable to determine the boundary or size of the pool allegedly receiving the migrating oil. In fact, to this day there has not been a determination that the lands in question lie on the same geologic structure (i. e., oil pool) underlying the present limits of the field, even though such a determination is a prerequisite to the invoking of the Section 15(b) procedure. Nevertheless, because of the uncertainty in 1965, Standard stated its willingness at that time to place its adjacent lands under unit plan control pursuant to Section 15(b), with the terms and conditions to be negotiated. Navy rejected this offer, however, asserting that Navy was not empowered to negotiate under Section 15(b) and that, in any event, the land should be included under the A & S Agreement.
The reluctance of the Secretary of the Navy to proceed under Section 15(b) is understandable in light of the applicable statutes. 10 U.S.C.A. §§ 7425 and 7426 require Congressional and Presidential approval prior to acquisition of lands outside of the Reserve, which are not included in a cooperative or unit plan but receive substantial drainage from the Reserve.1 Furthermore, assuming the necessary statutory approvals are obtained and requirements met, Section 15(b) requires that new terms and conditions be negotiated by the parties. On the other hand, no additional statutory approvals are necessary to include outside lands qualifying under the terms of the A & S Agreement, and the terms and conditions of inclusion would be covered by adjusting the percentage formula previously agreed upon in the A & S Agreement.
*640While this controversy continued by means of correspondence between the parties, the West End Injection Agreement procedure solved any oil migration concern and thus rendered the issue moot. As noted in the agreed statement of facts, pressure was restored sometime between 1966 and 1968, and any migration of oil eliminated or minimized. Thereafter, Standard declined to agree to the inclusion of its lands and suit followed.2
In my opinion, the court’s decision disregards the entire contractual and statutory scheme established to protect this Reserve. In holding that the Navy may, and did, unilaterally determine desirability, the court is also holding that the Navy may unilaterally determine whether the desired land lies on the same geologic structure underlying the present limits of the Reserve, may unilaterally determine that there is substantial drainage from the Reserve, and may unilaterally determine the extent of the land to be concluded. Such a “contractual condemnation” not only eliminates a large part of the contract detailing precise engineering procedures for reaching these determinations, it also ignores the requirements of the statute. 10 U.S.C.A. § 7425 provides that in the event the Secretary of the Navy is unable to satisfactorily conclude a contractual relationship with respect to lands outside the Reserve:
“. . . he [the Secretary of the Navy] may acquire, with approval of the President, such privately owned lands and leases—
(1) by purchase . . . outside those reserves on the same geologic structure; and
(2) by condemnation ... if there is substantial drainage, outside that reserve on the same geologic structure.”
The Unit Plan Contract with Standard Oil Company was before both houses of Congress in 1944 at the time the Act was amended to its present form, and it should be interpreted' within the context of the legislative history of those amendments.3
Prior to the amendments, the Act only authorized purchase or condemnation of privately owned lands within the boundaries of the Reserve. The amendments, however, enlarged the authority to provide that:
“In the case of the authority to condemn, the bill extends it to include privately owned lands or leases outside reserve No. 1 but on the same geologic structure provided that drainage exists.” H.R.Rep.No.1529, 78th Cong., 2d Sess. 15 (1944).
Congress was concerned with the possible abuse of condemnation power by Navy. Originally, the House bill authorized condemnation outside the Reserve but on the same geologic structure, provided that drainage existed. The Senate was concerned with this grant of power and amended the ‘bill- to provide that “substantial drainage” must exist prior to condemnation.
“It will be noted that he is authorized to acquire private lands on all oil reserves *641or outside thereof but on the same geologic structure, by purchase—
‘and (b) within Naval Petroleum Reserve No. 1 by condemnation, and (c) outside Naval Petroleum Reserve No. 1 but on the same geologic structure, provided that substantial drainage exists, by condemnation.’
“This provision was somewhat controverted because of a fear that the Department might seek to condemn holdings of privately owned companies outside the naval reserve, so the Naval Affairs Committee of the Senate — and afterward the House accepted the amendment — provided that ‘substantial’ drainage must exist.” 90 Cong.Rec. 5774 (1944) (Remarks of Sen. Walsh of Massachusetts).
As Senator Walsh also stated:
“They must in the condemnation proceedings prove that the oil is being drained in order to have the court condemn the property—
‘and not merely to those which are on the same geologic structure.' ” Id. at 5778 (Reading from Navy Dept. Memorandum).
And also:
“Mr. MOORE. As I understand — and I want to see if I am correct — the Government cannot condemn the property of private oil companies or private individuals until there is an allegation of drainage and the allegation is afforded an opportunity to be heard before the committees of Congress. Am I correct about that?
“Mr. WALSH of Massachusetts. The Senator is absolutely correct.” Id. at 5777.
In addition to requiring substantial drainage, Congress was careful to limit the power of condemnation solely to protect the present reserve. As noted in the report of the Senate Committee on Naval Affairs accompanying the amending bill:
“In the opinion of the committee, the bill provides sufficient safeguards against the unwise use of the Navy’s authority to condemn such lands. It has been, and will undoubtedly continue to be, the policy of the Government not to condemn or acquire privately owned oil lands for the purpose of establishing additional reserves for the Navy, unless such acquisition is necessary to protect the oil in the lands that the Navy now controls.” Sen. Rep.No.948, 78th Cong., 2d Sess. 7 (1944).
And, as made clear by Congressman Vinson of the House Committee on Naval Affairs in his remarks to the full House:
“Further, before any condemnation proceedings can be instituted the Secretary must consult with the Naval Affairs Committee of the Congress. This will insure that the Secretary will have adequate powers to deal with the draining of Government oil by private operators and at the same time will prevent an extension of the reserve beyond the limits required for protection of what we now have.” 90 Cong.Rec. 5194 (1944).
And, again, by Congressman Vinson:
“Mr. Chairman, I know of no case in which the power of condemnation has been granted to the executive branch of the Government, in which so many safeguards have been created to insure that the power would not be irresponsibly used.
“Let me say that we seek no additions to the Elk Hills reserve; all we seek is the protection of that which we have. I repeat that the experts of the Navy Department have advised the committee that the power is needed to protect what we have.” Id. at 5196.
In testifying. before the Senate Naval Affairs Committee, Congressman Vinson made it clear that the limitation on the power of the Navy to condemn applied to Standard’s lands as well as to others.
“Before we can condemn the Standard’s lands, you, a member of this committee, and the others must be notified.” Hearings on S. 1773 before the Senate Naval Affairs Committee, 78th Cong., 2d Sess. at 23 (1944).
The facts in this case demonstrate the illogic of the majority’s conclusion. It is *642undisputed that since at least 1965 third parties have been (and presumably still are) producing from the Asphalto pool. If the real purpose of including Standard’s lands is to protect the Reserve from “substantial drainage,” Navy will have to add these third-party lands to the Reserve by negotiating with the owners for inclusion in the Unit Plan Contract, or by purchase or condemnation — satisfying the requirements of the statute.4 Under this Court’s decision, however, Navy will acquire Standard’s lands without condemnation or purchase compensation and without satisfying any of the requirements of the statute.
The irony of this situation is that the Navy can no more meet these statutory requirements today than it could in 1965 or 1966, particularly in view of the admittedly successful West End injection program. And this, of course, leads to an additional concern. The Court’s decision leaves unanswered the question of whether it is a declaration that the “contractual condemnation” took place in 1965 or 1966 or whether it is to take place upon remand. Either way, Navy will be acquiring control of Standard’s lands and enlarging the Reserve in a manner contrary to the contract and the will of Congress.
For these reasons, I dissent.

. One of the more startling conclusions reached by the Court is that acquisition of lands outside the Reserve under the Section 15(b) procedure does not require Congressional and Presidential approval (see footnote 3, majority opinion). But the A & S Agreement itself was executed by the parties to cover a Section 15(b) expansion. Its recitals state, in part, that:
“Pursuant to statute, Navy and Standard recently consulted the Special Subcommittee on Petroleum, Committee on Armed Services, House of Representatives, United States Congress, with regard to the proposed extension of the boundaries of the Reserve. The Subcommittee decided to defer further consulfation thereon until after the parties hereto should have determined definitely, by drilling additional exploratory wells within the Reserve, whether any pool of oil or geologic structure now productive within the present boundaries of the Reserve extends beyond said boundaries and outside of the Reserve.”
The A & S Agreement also stated that it would become effective when approved by the President of the United States, and, in fact, it does bear the signature of President Truman approving its execution. This Court has now declared that these statutory approvals are unnecessary.

. Standard nonetheless proposed by letter dated February 23, 1968 that Navy agree to submit to the Engineering Committee the question of whether there is “appreciable loss of oil in or from the 24Z pool in the Reserve at the present time.” Standard offered:
“If a majority of the engineering committee answers question No. 2 ‘yes’ — or even if the three Navy members of the Committee, including the engineering outside consultants of Navy referred to above, all answer question No. 2 ‘yes’ — we will again offer to include all lands in question under the unit plan contract under Section 15(b) thereof or, if this is still unacceptable to Navy, under some other mutually agreeable mechanism.”
Navy declined the offer.

. The majority opinion finds it significant that the parties added the last two sentences to Section 15(b) before its final execution, and speculates that they were added to clarify the unilateral right of Navy to contractually condemn Standard’s lands outside of the Reserve. But speculation isn’t necessary when language is clear. I read the additional sentences as merely setting forth a means to break a deadlock occurring when the parties have found expansion desirable but are unable to agree on the terms and conditions for including the additional lands.

. Substantial drainage from the Reserve by third-party production outside of the Reserve would obviously concern Standard as well as Navy. In that event, Standard and Navy would find it “desirable” to include these third-party lands, and the Section 15(b) procedure for determining the terms and conditions on which such additional lands would be included, would be utilized.