Writ of Certiorari Denied November 18, 1946. See 67 S.Ct. 205.
HOLMES, Circuit Judge.
This action was brought by appellants to cancel a lease to explore for oil, gas, and other minerals. A counterclaim was filed by appellee (defendant and leaseholder) to declare and confirm its rights under the lease. The decisive question presented on this appeal is whether the lease, which was obtained by appellee while it was unlawfully doing business in Mississippi as a foreign corporation, was ratified by the innocent party, or adopted by mutual consent, after the guilty party to the contract had become legally qualified to do business in the state.
The lease was executed on June 1, 1939. It was in standard form, and was to run for a primary term of ten years from date, conditioned upon the payments of annual
The court below found that the lease was executed while the appellee, a foreign corporation, was engaged in business in Mississippi without having qualified to do so as required by the state statute.
Appellants argue that under local law
On the threshold of this appeal is the decisive issue as to whether these royalty grantees were indispensable parties. According to the record, they acquired from the Calcotes an interest, not only in the royalties reserved by them as lessors in the lease to the appellee, but also in any other lease that might be executed by them covering the land in question. They are, therefore, interested in the prayer for the cancellation of the lease, since cancellation would destroy their royalties existing in praesenti, and the Calcotes might not see fit to make another mineral lease or to develop and operate the aforesaid lands for minerals. On the other hand, while improbable, it may be to the advantage of the royalty grantees to have the lease confirmed. This is not a question of law but of fact, and there is no evidence in the record to give the answer to it, because the royalty grantees have not been made parties to this action. The fact that their interests may not have been prejudicially affected by the final judgment below, which was rendered after a trial on the merits, is not controlling, because the question of indispensable parties, and particularly of diversity jurisdiction, does not depend upon the result of the suit. The true test is the situation that existed before and not after entry of the final judgment.
In diversity cases, the question of indispensable parties is inherent in the issue of federal jurisdiction, the determination of which should never await a decision on the merits if the complaint states a cause of action. Jurisdictional questions come first in the orderly disposition of a case. A precarious jurisdiction that limits the scope of judicial decision on the merits cannot be entertained. The same limitation would restrict review on appeal, even on certiorari, and no one could tell whether the court had jurisdiction until it had determined the merits of the controversy. The cases cited by appellee in its supplemental brief, to the effect that the judgment rendered would not interfere with any rights of the royalty owners, may be distinguished from the instant case because they have reference to rights that would continue to exist irrespective of the outcome of the suit.
It is argued that appellee has not raised the question, and that appellants may not now object, having brought the suit without joining indispensable parties as plaintiffs or defendants; but it was within the power of the court below to raise the issue of its own motion, since federal jurisdiction depended wholly upon diversity of citizenship and it was impossible to determine whether such diversity existed unless all indispensable parties were before the
Subject to the provisions of rule 23 and subdivision (b) of rule 19, subdivision (a) of rule 19 provides that "persons having a joint interest" shall be made parties and be joined on the same side as plaintiffs or defendants. If a person who should join as a plaintiff refuses to do so, he may be made a defendant or, in proper cases, an involuntary plaintiff.
By separate royalty deeds the Calcotes sold, granted, and conveyed unto one Stechol an undivided 1/16 interest, unto Smith an undivided ½ interest, and unto Wherritt an undivided 3/16 interest, in and to all the royalty, gas royalty, and royalty in casinghead gas, gasoline, and royalty in other minerals in and under, and that may be produced and mined from, the following described lands (describing them), together with the right of ingress and egress at all times for the purpose of mining, drilling, and exploring said lands for oil, gas, and other minerals, and removing the same therefrom. These grants ran for 20 years and as long thereafter as oil, gas, or other minerals, were produced in paying quantities. Each grant provided:
"Said land, or portions thereof, being now under oil and gas lease executed in favor of The Texas Pacific Coal and Oil Company it is understood and agreed that this sale is made subject to the terms of said lease, but covers and includes one-half [one-sixteenth, or three sixteenths, respectively,] of all the oil royalty, and gas royalty, and casinghead gas and gasoline royalty and royalty from other minerals or products, due and to be paid under the terms of said lease."
Under these deeds the grantees acquired the right to participate in the royalties under the present lease and under all future leases. Their right is restricted to a portion of the minerals produced, with no right to join in future leases or to receive any part of the bonus or delay-rentals. Their interest is a perpetual nonparticipating fractional royalty in the oil, gas, or other minerals, that may be produced from said lands.
Doubtless all will admit that the Calcotes have only an undivided one-fourth of one-eighth royalty in the minerals so long as the present lease is in force and effect. It is a fractional mineral interest in the whole tract distinct from their contingent reversionary interest.
The counterclaim, whether federal jurisdiction of it be ancillary or independent, must fail for the same reasons. It would be hard to find a better illustration of indispensable parties than is afforded by the instant case. It is not the reversionary interest in the land, but the leasehold, that is the subject matter of this suit. It is the estate held by virtue of the lease that is sought to be destroyed by cancellation of the lease, and the grantees' interest in that estate is three times as great as appellants'. The leasehold estate is a determinable fee distinct from the reversionary interest in the land, and the right to receive royalty payments is a distinguishable legal interest,
By separate royalty deeds, as we have seen, the Calcotes sold and conveyed unto their said several grantees not only an undivided interest in the royalty carved out of the present lease but also in a royalty to be carved out of all future mineral leases as well as out of any mineral production by the owners. Whatever estate in the minerals was acquired by virtue of the present lease vested in praesenti.
This case is to be distinguished from one where the plaintiff has wholly failed to state a cause of action. If, as a matter of law, a cause of action is not stated on the face of the complaint, an inquiry as to the absence of indispensable parties is unnecessary or, to use the words of the Supreme Court, wholly gratuitous. In Bourdieu v. Pacific Oil Co., 299 U.S. 65, 57 S.Ct. 51, 81 L.Ed. 42, where the bill entirely failed to state any cause of action and the rights of absent parties were in no way threatened, the court held that it would be a waste of time to consider the question of indispensable parties, and dismissed the bill on the merits; but the court specifically stated that such inquiry would have been entirely proper under a good bill. This decision merely applied the maxim that the law does not require any one to do vain or useless things.
HUTCHESON, Circuit Judge (dissenting).
The principles governing the determination of whether parties are indispensable or merely necessary are apparently simple and constant. In applying them, however, in individual cases, the decisions have made, and are making, it increasingly difficult for courts to say categorically and with the voice of authority who are and who are not indispensable parties.
It is undeniable that the statements in Shields v. Barrow, 17 How. 130, 15 L.Ed. 158, which are so often quoted with assurance as authority for opinions which answer the same questions on the same state of facts in wholly different ways, are rather dogmatic in nature. But it is equally undeniable that "there is no prescribed formula for determining in every case whether a person or corporation is an indispensable party or not," Niles-Bement-Pond Co. v. Iron Moulders Union, 254 U.S. 77, 41 S.Ct. 39, 65 L.Ed. 145. The truth of the matter is that the classification of parties as necessary or indispensable depends entirely upon the particular facts of each case and that the same facts should produce the same holding. Further, though some of the decisions exhibit more than a little confusion about it, it is undeniable that the error in non-joinder of parties, either necessary or indispensable, is not jurisdictional.
On Petition for Rehearing.
HOLMES, Circuit Judge.
The question of indispensable parties is primarily a matter of equity jurisprudence,
In the absence of parties and without their having an opportunity to be heard, a court is without jurisdiction to make an adjudication concerning them;
In the instant case the situation is entirely different. There was no reason for a court of equity to strain to find a way to adjudicate the merits of a controversy in the absence of interested parties beyond its jurisdiction, because here, for aught that appears, the presence of the royalty grantees was readily obtainable. Aside from these considerations, every indispensable party must be brought into court, actually or constructively, or the suit will be dismissed if a substantial claim is stated in the complaint.
In the Bourdieu case the rights of the United States were in no way threatened; it had no interest requiring protection in a proceeding that at the threshold was seen to be without substance; and the court held that it was not an indispensable party to the particular suit, without expressing an opinion as to what its status would be "upon a good bill." If we apply to the case before us the test thus laid down, we find that the rights of the royalty grantees were directly threatened in the suit to cancel the lease, and that they were directly affected in the judgment confirming it. The validity of the lease was the paramount issue on the hearing below, both as to the original bill and as to the counterclaim. The confirmation of its validity in the judgment under review directly affected vested rights of the royalty grantees without giving them an opportunity to be heard.
Except where the court had jurisdiction without regard to diversity of citizenship, we have been cited to no decision of the Supreme Court or of this court, and we have found none, where an inquiry as to the presence of indispensable parties was dispensed with on the ground that no cause of action was stated in the complaint. In Sneed v. Phillips Petroleum Co., 5 Cir., 76 F.2d 785, where jurisdiction rested solely on the ground of diversity of citizenship, this court expressly refused to proceed until certain persons whose presence it held to be indispensable were made parties. Notwithstanding the contention there that no cause of action was stated, this court held that a substantial claim was presented in the complaint, and remanded the cause with directions to bring in the absent parties.
The maxim that the law never requires the doing of an idle thing cannot be invoked in diversity cases to avoid an inquiry as to the indispensability of parties where a substantial claim is made in the complaint. The original bill in this case sought cancellation of the same lease that the counterclaim sought to confirm.
In the majority opinion we pointed out that these royalty grantees had separate and distinct vested mineral interests, which would necessarily be prejudicially affected by confirmation as well as by cancellation of the lease. To say that it is useless to inquire into the question of indispensable parties in diversity cases, where a substantial claim is stated in the complaint, is almost the same as saying that it is a waste of time for the court to look into its own jurisdiction. In Mallow v. Hinde, 12 Wheat. 193, 198, 6 L.Ed. 599, the court indicated that it
"We do not put this case upon the ground of jurisdiction, but upon a much broader ground, which must equally apply to all courts of equity, whatever may be their structure as to jurisdiction. We put it on the ground that no court can adjudicate directly upon a person's rights, without the party being either actually or constructively before the court."
Since neither of the judges who concurred in the decision in this case is of the opinion that the petition for rehearing should be granted, the petition is denied.
HUTCHESON, Circuit Judge, dissents.
In Shields v. Barrow, supra, the court said, 17 How. at page 140, 15 L.Ed. 158: "A bill to rescind a contract affords an example of this kind. For, if only a part of those interested in the contract are before the court, a decree of rescission must either destroy the rights of those who are absent, or leave the contract in full force as respects them; while it is set aside, and the contracting parties restored to their former condition, as to the others. We do not say that no case can arise in which this may be done; but it must be a case in which the rights of those before the court are completely separable from the rights of those absent, otherwise the latter are indispensable parties."
Barney v. City of Baltimore, 6 Wall. 280, 18 L.Ed. 825, where part owners or tenants in common of real estate were held to be indispensable parties to a partition suit. To the same effect, see Torrence v. Shedd, 144 U.S. 527, 12 S.Ct. 726, 36 L.Ed. 528.
In Roos v. Texas Co., 2 Cir., 23 F.2d 171, certiorari denied, 277 U.S. 587, 48 S.Ct. 434, 72 L.Ed. 1001, the court said, at page 172: "Rescission of a contract, or declaration of its invalidity, as to some of the parties, but not as to others, is not generally permitted." Citing among others, the following from the Fifth Circuit: Vincent Oil Co. v. Gulf Refining Co., 195 F. 434.
The plaintiff alleged that the lessee was doing an illegal act, committing a tort, which was causing him irreparable damage. It did not appear(
The principle of the maxim, sic utere tuo ut alienum non laedas, applies to the public, and to public rights, as well as to individuals and to individual rights; and it applies in such manner as that when any such right is violated, whereby damage is sustained, a right of action accrues.(
Where the lessee is committing the nuisance or other tort, he is liable to be sued, and a court of equity will interfere by injunction to prevent a continuance of such acts. A lessee who drills or operates gas wells on leased premises in violation of the conservation laws of a state, thereby wrongfully causing injury to his neighbor's property, is not only liable in damages for the injury done but may be enjoined from a continuation of such wrongful conduct.
This analysis of the Sneed case deals only with the holding of the court that the lessor of the defendant and the cotenant of the plaintiff were indispensable parties to a suit to restrain the lessee from an alleged violation of the general law of Texas, which was causing continuous damage to the plaintiff.
Authorities collated in Sneed v. Phillips Pet. Co., 5 Cir., 76 F.2d at page 789, are cited to sustain the contention that the failure to join indispensable parties is not jurisdictional. Turning to said page 789, we find that these authorities are collated in the dissenting opinion, and that one of them is Elmendorf v. Taylor, 10 Wheat. 152, 6 L.Ed. 289, wherein a tenant in common was permitted to sue in equity to obtain a conveyance of land without making his cotenants parties to the suit. In the discussion of the point, the court did not use the words necessary or indispensable parties; but, since the presence of the absent cotenants was dispensed with, it follows that they were held to be not indispensable parties. Another decision cited 76 F.2d at page 789 was General Investment Co. v. N. Y. Central Railroad Co., 271 U.S. 228, 46 S.Ct. 496, 70 L.Ed. 920. In this case jurisdiction did not depend solely upon diversity of citizenship. On the contrary, the court expressly held that the suit was essentially one arising under the laws of the United States. The only other decision among the authorities collated on this point, 76 F.2d at page 789, was Commonwealth of Pennsylvania v. West Virginia, 262 U.S. 553, 43 S.Ct. 658, 67 L.Ed. 1117, 32 A.L.R. 300. This was a suit by sovereign states to enjoin the state of West Virginia from enforcing an act of its legislature. Of such a controversy the Supreme Court had exclusive original jurisdiction, and the decision is not applicable to a question relating to the diversity jurisdiction of the federal district courts.
In Niles-Bement-Pond Co. v. Iron Moulders Union, 254 U.S. 77, 41 S.Ct. 39, 65 L.Ed. 145, the court held that federal jurisdiction depended upon, and was defeated by, the decision that the subsidiary corporation was an indispensable party to the suit, and should be realigned as a party plaintiff. Therefore, the question of indispensable parties was necessarily held to be jurisdictional in that case. See also note 11, p. 2146, of Moore's Federal Practice, wherein the author says that the principle of the Bourdieu case, indiscriminately applied would be dangerous. In the Bourdieu case, as above noted, federal jurisdiction did not depend solely upon diversity of citizenship.
Briefly to notice the other decisions cited to sustain the theory that the question of indispensable parties is not jurisdictional. Sun Insurance Co. v. Scott, 284 U.S. 177, 52 S.Ct. 72, 76 L.Ed. 229; Home Ins. Co. of New York v. Scott, 6 Cir., 46 F.2d 10: Actions for money judgments by an insured against several fire insurance companies. A mortgagee of an insured was not an indispensable party, because his interest was not necessarily affected, and the court could frame its judgment so as to protect the mortgagee's interest in the policies. If the insurance companies had been suing to cancel the policies, which they were not, we would have had a case more like the one at bar.
In Seeley v. Cornell, 5 Cir., 74 F.2d 353, the court announced the general rule, and held that the absent parties were not indispensable, saying that it was within the power of a court of equity to deprive a party of the benefit of a deed or judgment obtained by fraud without setting it aside. The appellate court differed from the district court in that the latter "thought a decision involved the setting aside of deeds," 74 F.2d at page 356. See opinion of the learned district judge, Seeley v. Cornell, D.C., 6 F.Supp. 241.
In Seeley v. Cornell, 5 Cir., 90 F.2d 562, we find nothing to sustain the theory that the question of indispensable parties is not jurisdictional in diversity cases.
In Spring v. Ohio Oil Co., 5 Cir., 108 F.2d 560, the absent parties were held to be not indispensable, since no relief was sought against them and a decree could be framed to protect them. Seeley v. Hunt, 5 Cir., 109 F.2d 595, is not at all applicable. The point we are considering was not even discussed, it being the third appeal of another case abstracted in this note. On a prior appeal the court had ordered a full and complete accounting.
State of Washington v. United States, 9 Cir., 87 F.2d 421, also cited in the dissenting opinion, was a suit by the United States against certain parties, alleging that they had trespassed upon Sand Island, and would continue to do so unless enjoined. The Court held that the State of Washington was an indispensable party, but said that the absence of such party was not jurisdictional. It was not jurisdictional because there the suit was brought by the United States, and the federal district court had original jurisdiction without regard to the citizenship of the parties. 28 U.S.C.A. § 41, subd. (1). It is only where jurisdiction depends solely upon diversity of citizenship that the absence of indispensable parties absolutely defeats federal jurisdiction. In analyzing federal decisions, we must keep this distinction constantly in mind to avoid being confused by them. This is also true in considering the decisions of state courts on the subject of indispensable parties.
(1) De non apparentibus et non existentibus eadem est ratio. 5 Co. 6. Of things which do not appear, and things which do not exist, the rule in legal proceedings is the same. Wharton's Legal Maxims, p. 73.
(2) Oxley v. Sweetland, 4 Cir., 94 F.2d 33.
(3) Wharton's Legal Maxims, p. 195.
The reason for the application of the rule in this case is that while the district court had potential jurisdiction to cancel or confirm the lease, it did not have complete active jurisdiction to do either in the absence of indispensable parties. Therefore, in raising the question of its own motion, this court was merely looking into its own active jurisdiction to do full and complete justice in the matter before it. We found that both the district court and this court, though possessing complete potential jurisdiction to grant adequate relief, failed to acquire active jurisdiction of the royalty grantees, or of their interest in the res against which this proceeding was directed. As to the absent parties, this proceeding is as truly coram non judice as if potential jurisdiction were lacking.