1. The government has no equity to maintain a suit to set aside
a fraudulently procured land patent, after the expiration of the
statutory period of limitation, upon the ground that the fraud was
concealed (
Exploration Co. v. United States, 247 U.
S. 435) if it has been guilty of laches in discovering
the fraud. P.
255 U. S.
333.
2. In a suit by the government to annul coal land patents
outstanding
Page 255 U. S. 324
14 to 20 years, where the bill alleged that the entries were
made by hirelings for the exclusive benefit of a coal company,
operating nearby, which had taken possession of the land applied
for and paid all expenses of the entries, but that the land office
officials believed and relied upon the false statements of the
entrymen that they were in possession and acting only for
themselves, and where the bill further alleged that the entrymen
deeded to the company soon after entering the land, and that the
company afterwards extracted from it large quantities of coal, but
that the proceedings concerning the entries were, and were intended
to be, such that the fraud was concealed and that no knowledge or
notice of it came to the United States until it was in part
revealed by a report of a special agent made shortly before the
institution of the suit,
held that the allegations excused
the delay in bringing the suit, and that it was error to dismiss
the bill by resorting to mere inferences and conjecture of notice,
as by assuming that the deeds were promptly recorded (the bill not
stating when), and by assuming that the company's possession was
such as to give notice to the government. P.
255 U. S.
334.
254 F. 266 reversed.
This was an appeal from a judgment of the circuit court of
appeals which affirmed a judgment of the District Court for the
District of Wyoming dismissing, on defendant's motion, a bill
brought by the United States to set aside numerous patents for coal
land on the ground of fraud and for an accounting for coal
extracted.
Page 255 U. S. 329
MR. CHIEF JUSTICE WHITE delivered the opinion of the Court.
This suit, begun by the United States against the Diamond Coal
& Coke Company in October, 1917, had a threefold object: (1) to
cancel 18 patents granted to that number of persons at dates
ranging from 14 to 21 years prior to the commencement of the suit
and covering 2,283 acres of coal land situated in the Evanston Land
District, State of Wyoming; (2) to cancel deeds of conveyance to
the corporation made by the entrymen who
Page 255 U. S. 330
had purchased from the United States the land which the patents
embraced; (3) to recover the value of coal which it was alleged had
been taken by mining operations of the corporation from the land in
question during the period stated.
It suffices from the view we take of the matters requiring
consideration to briefly resume the averments of the bill. It was
alleged that, in the year 1894, the defendant corporation had
formed a conspiracy to defraud the United States of the land
covered by the patents by procuring the purchase of said land from
the United States by persons acting ostensibly for themselves, but
really as the representatives of the corporation and for its sole
account and benefit. In furtherance of the conspiracy thus formed,
it was alleged that 18 persons described as entrymen at the
suggestion and in the pay of the corporation, made application at
the proper land office of the United States to purchase in their
own names the land covered by the patents, the land so applied for
having been designated by the corporation and the entries being
exclusively intended for its benefit. It was charged that these
entrymen falsely swore, for the purposes of their applications to
purchase, that the applications were made for their own benefit
when in fact they were solely made for the benefit of the
corporation; that the entrymen additionally falsely swore that they
were in possession of the land, had developed coal mines on it, and
were engaged in working the same when in truth the lands had never
been in the possession of the applicants, who had expended no money
and had done no work thereon, since the lands were, prior to and at
the time of the applications, in the possession of the corporation
through its officers or some persons or agents acting for it and
for its benefit.
It was further alleged that, shortly after the entries were
made, in furtherance of the fraudulent purpose and
Page 255 U. S. 331
upon the false allegations and affidavits above stated and
before patent issued, the entrymen conveyed the land applied for by
warranty deed to the corporation, although there was no allegation
concerning the registry or nonregistry of the deeds of conveyance
thus made. The bill in addition charged that, for the purpose of
securing the right which was contemplated for the benefit of the
corporation, further false affidavits as to the exclusive interest
of the entrymen were made, and that all the money paid by way of
price for the land or for expenses or otherwise was furnished by
the corporation for its own account. It was alleged that the
corporation, for many years before the transactions thus stated,
had engaged in the mining, production, and sale of coal in the
state and district in which the land covered by the entries was
situated; that its operations had been principally carried on in
the vicinity of such lands, and that the lands involved in the suit
had been mined for coal, and large quantities of coal had been and
were still being removed therefrom to the irreparable injury of the
United States, the value of the coal thus removed being the subject
matter of the claim in that respect to which we have at the outset
referred.
There were general averments that the previously alleged acts
concerning the making of the entries, which were alike in all, were
done not only for the purpose of defrauding the United States and
enriching the corporation, but in order to conceal the wrong which
was being accomplished, and that the acts of concealment were of
such a character as to deceive the officers of the United States
and to lead them to believe that the entries were what they
purported to be -- that is, purchases by the entrymen -- and to
exclude therefore not only the knowledge that they were for the
account of the corporation, but also to exclude all basis for
affording any reasonable ground to put the United States upon
inquiry as to the
Page 255 U. S. 332
real situation. Additionally, it was averred that so completely
did the fraud which was committed and its concealment accomplish
the purposes thus intended that the officers of the United States
had no knowledge whatever of the fraudulent title acquired by the
corporation, and no reason to believe in its existence until a
short time before the bringing of the suit, when, by report of a
special agent of the Land Office, knowledge of the true situation
was in part conveyed, leading up to a further investigation by the
Department of Justice, consequent upon which the suit was
commenced.
It was moved to dismiss on four grounds: (1) that the bill
stated no cause of action; (2) that it was barred by the limitation
of the Act of March 3, 1891, c. 559, 26 Stat. 1093, as the six-year
period fixed by that act had elapsed; (3) because the facts as to
fraud and concealment alleged in the bill were not of such a
character as to suspend the operation of the statute, and (4)
because those facts were of such a nature as necessarily to impute
the knowledge of the fraud complained of, or if not, to make it
clear that the failure to seek relief within the statutory time was
the result of inexcusable laches. The court, not questioning that
in an adequate case the fraud and the concealment thereof would
suspend the operation of the statute until the discovery of the
fraud (
Exploration Co. v. United States, 247 U.
S. 435,
247 U. S.
445), based its conclusion upon the qualifications and
limitations inhering in that rule, as stated in the
Exploration case and as previously expounded in
Bailey v.
Glover, 21 Wall. 342. Concluding that the averments
of the bill were insufficient to establish that the failure to
discover within the statutory time was not solely attributable to
laches, and finding the bar of the statute under these
circumstances absolute, the court applied the statute and dismissed
the bill. The United States having elected not to avail of leave to
amend within a period of 90 days allowed by
Page 255 U. S. 333
the court of its own motion, but to stand on its bill, a final
decree was entered dismissing the bill, and the case was taken to
the court below.
That court, while considering the subject in the light of the
burden cast upon the United States resulting from the fact that the
time fixed by the statute had run before the suit was brought, and
the technical sufficiency of the bill viewed merely from that
aspect, proceeded to consider the averments of the bill
comprehensively. As a result, it concluded (a) that the allegations
of the bill did not meet the requirements as to the exertion of due
diligence to discover the fraud which they charged had been
committed, and (2) that the bar of the statute was applicable,
because the allegations of the bill stated the existence of facts
and circumstances from which knowledge of the fraud was necessarily
to be imputed, or from which such inferences were plainly deducible
as would have led to discovery if diligence had been exerted -- in
other words, that there was either knowledge of the fraud within
the statutory period or such laches resulting from failure to make
inquiry as to take the case out of the equitable principle by which
the positive bar of the statute could be avoided.
Before testing the accuracy of the deductions from the averred
facts upon which these conclusions are necessarily based, we
dispose of a legal contention of the United States that, in any
event, the propositions were wrongfully applied because, under the
statute, laches in discovering the fraud could not be imputed to
the United States. As the statute in express terms deals with the
rights of the United States and bars them by the limitation which
it prescribes, and as that bar would be effective unless the
equitable principle arising from the fraud and its discovery be
applied, it must follow, since the doctrine of laches is an
inherent ingredient of the equitable principle in question, that
the proposition is wholly without
Page 255 U. S. 334
merit because, on the one hand, it seeks to avoid the bar of the
statute by invoking the equitable principle suspending its
operation, and, on the other, rejects the fundamental principle
upon which the equitable doctrine invoked can alone rest.
Coming, then, to consider the allegations of the bill for the
purpose of testing the conclusions based upon them by the court
below, as just stated, we are of opinion that such conclusions
cannot be sustained without drawing unauthorized inferences from
the facts alleged, and thus deciding the case by indulging in mere
conjecture. Without going into detail, we briefly advert to the
inferences from two subjects dealt with by the court below which
illustrate the necessity for the conclusion just stated. In the
first place, let it be conceded
arguendo that the
conveyances from the entrymen to the corporation as alleged,
following almost immediately the initiation of the right to
purchase and preceding the patents, the uniformity of the method
employed, and the surrounding circumstances, would all, if known,
have constituted badges of fraud of such a character as to produce
the result which the court below based upon them. But the result
thus stated depends upon the existence of knowledge of such facts
or of knowledge of other facts from which they were reasonably
deducible -- a situation which does not here exist, as the
averments of the bill as to concealment exclude that conclusion.
True it is that, in dealing with the question of the technical
sufficiency of the pleading, the court below directed attention to
the fact that it contained no allegation that the conveyances made
by the entrymen had not been seasonably recorded; but that in no
way justifies the inference that they had been recorded, and
therefore gave notice of the fraud, even if it be conceded, for the
sake of the argument, that such recording was adequate to give such
notice -- a question which we do not now decide.
Page 255 U. S. 335
So also let it be conceded, as held by the court below, that the
allegations of the bill as to the possession of the land by the
corporation at the time of the purchase by the entrymen and
subsequent to their conveyances, of the propinquity of the land to
the field of operations of the corporation, of its exploitation by
the corporation for the purpose of taking coal therefrom, all in
and of themselves, if open and public so as to be known,
constituted such indications of fraud as to give notice to the
United States, or at least to put it upon inquiry. But again, that
concession is here irrelevant, since the averments of concealment
and other allegations in the bill are susceptible of the
construction that the possession of the corporation was
clandestine, and that its operations as to the property were of the
same character because not conducted in its own name, but by
persons interposed with the very object of concealment.
Viewing the case in the light of these considerations, as well
as of others to the same effect to which we do not stop to refer,
we are of opinion that error was committed in disposing of the bill
upon the motion to dismiss, and that the ends of justice require
that it should be only finally disposed of after hearing and proof,
thus excluding the danger of wrong to result from a final
determination of the cause upon mere inferences without proof.
It follows that the decree of the court below must be and it is
reversed, and the case remanded to the district court with
directions to set aside its decree of dismissal and to overrule the
motion to dismiss, and for further proceedings in conformity with
this opinion.
Reversed and remanded.