SNEED v. PHILLIPS PETROLEUM CO. et al. BRITAIN v. SHAMROCK OIL & GAS CO. et al. HENRY SCHAFER, Inc., v. HAGY et al.
Nos. 7548-7550
Circuit Court of Appeals, Fifth Circuit
March 28, 1935
785
H. L. Adkins and Chas. H. Keffer, both of Amarillo, Tex., for appellant.
Don Emery and R. K. Batten, both of Amarillo, Tex., and W. P. Z. German and Alvin F. Molony, both of Tulsa, Okl., for appellees.
No. 7549:
S. A. L. Morgan and D. H. Culton, both of Amarillo, Tex., for appellant.
Joseph B. Dooley and C. C. Small, both of Amarillo, Tex., and Maurice Cheek and Burney Braly, both of Fort Worth, Tex., for appellees.
No. 7550:
William Jarrell Smith, of Pampa, Tex., for appellant.
Joseph B. Dooley and C. C. Small, both of Amarillo, Tex., and Maurice Cheek, of Fort Worth, Tex., for appellees.
Before SIBLEY, HUTCHESON, and WALKER, Circuit Judges.
HUTCHESON, Circuit Judge.
These are appeals from orders dismissing, for want of equity, bills seeking injunctive relief. Each of the bills in these cases, though brought by a different plaintiff in relation to different properties, and charging different defendants, advances the same ideas, makes the same charges, asks the same relief. The general idea advanced is that adjoining owners and operators of gas lands in a common pool, that is, one subject to common drainage, have an equity against each other to restrain the taking of gas from the pool for wasteful uses. The particular idea advanced in each bill is that by the Texas Conservation Laws the taking of gas to strip it for gasoline is a wasteful use, and that the plaintiff in each case has a right to restrain the defendants in each from doing so. The charges are that, though required by the act and by the Conservation Laws of Texas to close their wells until their gas may be used for light and fuel, defendants, in reliance upon invalid amendments to those laws, and upon permits of the Railroad Commission, the statutory conservation agent, issued under their purported authority, have opened their wells and are using their gas to strip gasoline from it, and blow the residue into the air, a process which avails of about 3 per cent. of the heat units and wastes the balance. The bills charge that this wasteful use is causing plaintiffs irreparable injury, in that the gas in the pool is being used up faster than it would be if used for light
After alleging, as to Sneed, that he owns the oil, gas, and other minerals subject to a gas lease, under 300 acres of land, from which it is alleged one of the defendants is taking gas for stripping, and also is the owner of 7,500 acres of land lying to the west, north, and south of this tract, all subject to leases; as to Britain, that he owns an undivided interest in minerals, subject to a gas lease, in approximately 6,000 acres of land; as to Schafer, Inc., that it owns gas and minerals under about 8,000 acres of land, and that all of these lands are located within the Panhandle Gas Reservoir, a huge body of land embracing approximately 1,350,000 square miles, with a width of 10 to 15 miles, and a length of more than 125 miles, the bills launch into a vivid description of conditions and activities there. Concerning themselves not only with the particular actions of the defendants, and the effect of those actions on plaintiffs, but with the entire situation in the huge Panhandle field, its effect on and relation to the state‘s general policies of conservation, the bills present a graphic picture of alleged wasteful uses under purported legislative and Commission authority. The picture is so graphic as to general conditions and as to the general interests involved as almost to dwarf and make insignificant the private interests of plaintiffs, and the particular activities of defendants against which they ask relief. They allege that all of the lands in this reservoir are capable of producing gas, and that large portions of them are known to be productive of oil.1 The bills allege that plaintiffs’ lands are so situated on the structure that they are underlaid with formations capable of producing not only sweet gas in large quantities, but also great quantities of oil. That conditions in the industry have heretofore prevented the development of these lands, but in due course they will be developed and plaintiffs will realize large returns from the oil and gas under them, if they are developed in an orderly and lawful way. It is alleged that the reservoir originally contained 13,000,000,000,000 cubic feet of natural gas, and about 1,000,000,000 barrels of oil. That of the oil less than 200,000,000 barrels have been produced down to the present date and that if the present rate of withdrawals of natural gas goes on, 400,000,000 barrels of oil which could otherwise be recovered, will be lost to the owners. Of the gas originally contained in the field approximately 4,000,000,000,000 cubic feet, or one third of it, has already been produced, the greater part of it from localities wastefully developed for oil, producing numerous low pressure areas. That originally the reservoir pressure was about 430 pounds per square inch, but as the result of withdrawals the equilibrium of the pressure has been disturbed, and a gradual but steady migration from higher to lower areas has been going on, with the result of pulling down the reservoir pressure and reducing the volume of gas content in the formation. In many places, by reason of such withdrawals, the pressure is below 200 pounds. Of the total volume of gas withdrawn, more than three-fourths of it has been produced in a ruthlessly wasteful manner and only a small portion produced for light and fuel. An enormous quantity of it has been produced and permitted to escape into the air from the mouths of wells. A substantial portion of it has been produced to strip it of its natural gas content and burn the residue into carbon black. The remainder, aggregating more than half of the total gas produced, has been wasted into the air after being stripped of its small natural gasoline content, less than 3 per cent. of the heat producing value of the gas. At the present time more than 1,600,000,000 cubic feet of gas is being produced daily, less than 400,000,000 of this for light and heat. Of the remainder four to over five hundred million is burned into carbon black after its small gasoline content has been extracted, more than one half, that is, 600,000,000 cubic feet is being stripped of its natural gasoline content and wasted into the air. “At the present rate of withdrawals the tremendous losses of natural gas and oil that will result from the wasteful dissipation of the natural gas contained in the reservoir will reach
Of the particular defendants it is alleged that defendant Phillips owns a lease on a 300-acre tract of plaintiff Sneed‘s land, and through two wells on it is producing gas in large quantities. Skelly owns a lease on land immediately east of plaintiff Sneed‘s lands, and is producing gas from wells on it. Several of these wells are located very close to his land. This gas, approximately 20,000,000 cubic feet daily, is transported to a natural gasoline plant where its gasoline content, .29 gallon per thousand cubic feet, is taken out and the balance wasted. That, though he has been receiving royalty on this gas, these royalties are insignificant, besides, the gas withdrawals are endangering his oil recovery, and he is not willing for such wasteful uses to continue. Defendant Shamrock owns a lease on 80 acres, on which a well drilled at a point 770 yards from Britain‘s land, is producing 7,000,000 cubic feet of gas daily. Defendant Continental is the owner of a lease on 160 acres, on which it has drilled a well 440 yards from plaintiff Britain‘s land. This well is producing about 5,000,000 cubic feet. Schafer owns approximately 9,000 acres, which land has been partially though not fully, developed. Defendant Hagy and others have four gas wells, three each on 80 acres, and one on 160 acres. They are located near Schafer‘s land and so located that enormous quantities of gas have been drawn from plaintiff‘s lands to their wells.
Anticipating defendants’ claim of authorization, plaintiffs allege that the defendants base their claim of right to use this gas on a proviso, added to
Plaintiffs deny the right of defendants to strip gas under the first proviso: (a) Because while purporting to be a general law, it is a local and special law, operating only in the Panhandle, and in violation of the state Constitution forbidding the passage of any local or special law regulating labor, trade, mining, and manufacture. (b) The proviso discriminates against the owners of natural gas in that reservoir by permitting wasteful uses there, while not permitting them elsewhere, and therefore is in violation of the
In Britain‘s Case, there was a motion to dismiss for want of indispensable parties, the lessors of defendants and the cotenant of plaintiff. There was a motion, too, to dismiss the entire bill for want of equity on these grounds:
(1) Plaintiff‘s bill does not show that he is in any way hampered or restrained by the statute and the Commission permits under which defendants are operating, for all that appears plaintiff can do with his gas just what defendants are doing. (2) Plaintiff‘s attack upon the statute is a collateral attack upon the legislative policy of the state, and that upon the permits a collateral attack upon the findings and orders of the Commission. (3) Plaintiff‘s bill seeks a futile and useless thing, but one greatly prejudicial to defendants, in that it seeks to prevent defendants from producing 5,000,000 cubic feet of gas a day from a common pool, from which, on plaintiffs’ allegations, more than 1,600,000,000 cubic feet are being daily produced and the most of it wasted, including 1,000,000,000 daily for uses other than for light and fuel, for stripping gasoline, and manufacturing carbon black. To restrain defendants from this small production will not substantially aid plaintiffs, but will deprive defendants, who are without markets for light and fuel, of the use and value of their property, by restraining them from doing what, under express statutory authority, is being generally done by property owners in the field. The defendants in Schafer‘s Case and in Sneed‘s made substantially the same motions, with this additional point in Sneed‘s Case, that he was estopped to complain because his bill shows that he has accepted from the defendants whom he sues, royalties for the uses complained of.
The District Judge thought defendants’ point as to parties well taken, but because he thought that the fundamental want of equity on the face of plaintiffs’ bills was plain, and that new parties would not mend it, he considered and sustained the motion to dismiss on the merits. In doing so he filed an opinion in which he held in substance: “With reference to the 300,000 acre proviso, (a) that such proviso is neither a local nor a special law under the Texas Constitution. (b) That the statute as amended is not discriminatory; the classification in it is reasonable. (c) As amended, it is not vague and indefinite, with reference to the meaning of the term ‘Reasonable market value for light and fuel available to the owner,’ and the term ‘utilized for other purposes, including the manufacture of natural gasoline.’ (d)
A majority of this court are of the opinion that the District Court, before proceeding to consider the merits of the case, either in law or in fact, should have required the making of these parties and given opportunity therefor. The majority are of the opinion that the questions at issue above pointed out are of such difficulty and intricacy and some of them of such doubtfulness that they should be decided only after hearing every party interested, and with them all present in court so as to be bound by the decision, whatever it may be. They therefore hold that the case should be reversed, with directions to make the parties, no obstacle thereto appearing.
Reversed and remanded for other and not inconsistent proceedings.
HUTCHESON, Circuit Judge (dissenting).
I cannot agree with my associates that the absence of indispensable parties requires the reversal of this decree. Such an objection does not go to the court‘s jurisdiction as a federal court to hear a cause. Elmendorf v. Taylor, 10 Wheat. 152, 6 L. Ed. 289;1 Hazeltine Corp. v. White (C. C. A.) 68 F. (2d) 715; Dyer v. Stauffer (C. C. A.) 19 F. (2d) 922; General Inv. Co. v. N. Y. Central R. Co., 271 U. S. 228, 46 S. Ct. 496, 70 L. Ed. 920; Rose v. Saunders (C. C. A.) 69 F. (2d) 339; Edenborn v. Wigton (C. C. A.) 74 F. (2d) 374. It goes to the equity of its proceeding in it. It operates to prevent affirmative action which will adversely affect the rights of absent parties. Com. of Pennsylvania v. West Virginia, 262 U. S. 553, 43 S. Ct. 658, 67 L. Ed. 1117, 32 A. L. R. 300; authorities main supra. It never operates as a technical rule to prevent action which is not to the prejudice of such parties. When, as here, it appears on the face of the record that the making of additional parties will not mend the fundamental defects of a bill, that, should new parties be made, the jurisdiction invoked will not be exerted against them, a court will not make the empty gesture of requiring new parties to be made. It will, by an opinion on the merits, bring the litigation to an end.
My associates think the questions presented for decision are so difficult and doubtful that they ought not to be decided except in a case to which all concerned are parties. I do not think so. It seems to me perfectly plain that the propositions the District Judge advanced in support of the opinion he gave are sound, and well supported by authority. Because I agree in the main with what he said, this opinion will not be greatly extended.
I think that plaintiffs’ arguments, powerful and searching as they are, proceed to incorrect conclusions, because based upon a series of incorrect assumptions. The first is that, apart from legislative provisions, the use defendants are making of their land, by taking the gas from it, is a wasteful one and may be enjoined. This assumption is, I think, contrary to the settled law of Texas regarding the taking of oil and gas. That law is, an owner of oil or gas lands may take oil or gas from them, at least for any beneficial use, and the use here is certainly a beneficial one, in any quantity without being subject to judicial restraint at the suit of other land owners. Texoma Natural Gas Co. v. Terrell (D. C.) 2 F. Supp. 168, 170; Ehlinger v. Clark, 117 Tex. 547, 8 S.W. (2d) 666, 667; Hunt v. State (Tex. Civ. App.) 48 S.W. (2d) 466; Champlin Ref. Co. v. Corp. Comm., 286 U. S. 210, 52 S. Ct. 559, 76 L. Ed. 1062, 86 A. L. R. 403; Henderson, Inc., v. Railroad Comm. (D. C.) 56 F. (2d) 218, unless he takes it by methods which negligently or wantonly damage or destroy adjoining lands or structures. Comanche Duke Oil Co. v. Texas P. Coal & Oil Co. (Tex. Com. App.) 298 S. W. 554, 556.
In the light of this settled rule of law, I think it cannot be maintained that a court of equity will interfere at the suit of one owner, to prevent the beneficial, though it may be uneconomical, use by another owner, of gas or oil drawn from his land by proper drilling and production methods.
The second erroneous assumption on which plaintiffs’ arguments proceed is that the statutes of Texas do now, or ever did, restrain the owner absolutely and at all events from using gas drawn from his wells except for light and fuel. I think this assumption proceeds from an incorrect reading and apprehension of
But these are not all of plaintiffs’ erroneous assumptions. A basic error in their attack upon the provisos is the assumption that they were enacted as mere provisos to an existing statute in such manner that the proviso, if invalid, would fall without taking the statute with it. The legislative history of these enactments does not bear out this view.
As it stood when the Henderson Case was decided, it had already been, by an
I am already committed by the Henderson Case, to the proposition that the permit proviso is valid. I agree with the District Judge that the other proviso is too. I think, however, that over and above all these, there are larger reasons for denying the injunctions prayed.
Plaintiffs’ argument is directed, as the argument was in the case of Canadian River Gas Co. v. Terrell (D. C.) 4 F. Supp. 222, in regard to the statute under examination there, to maintaining that the Legislature has undertaken, by the statute in question, to change the rule of property heretofore existing in Texas so as to take from the landowner the absolute right to his gas in place and give him, in lieu thereof, a qualified title, subject to his neighbors’ approval of the use he intends to make of his gas. We did not then think it likely that the Legislature had intended, by a public conservation statute, to put such new rules in force as between private owners. I think the argument no more valid here. I think it clear that unless its provisions clearly show that this is intended a statute ought not to be construed as an attempt to change the rule that an owner may take his oil, and gas, though in doing so he may appropriate oil or gas underlying his neighbor‘s holdings, or may make a beneficial use of his oil or gas which does not coincide with his neighbor‘s economic views. When, as here, the statutes in question expressly authorize the use plaintiffs seek to have enjoined, it is quite clear to me that federal equity jurisdiction ought not to be exerted to establish a new rule of property, by declaring state statutes evidencing state policy to be invalid without a most clear showing of the existence of an undoubted right and a really threatened and irreparable injury which the injunction of the court may prevent. Pape v. St. Lucie Inlet Dist. & Port Authority Drainage Dist. (C. C. A.) 75 F. (2d) 865, and cases cited.
But there is still more against the exertion of federal equity jurisdiction in this case. Even in a direct attack upon a state statute on the ground that it violates a state Constitution, a federal court will not, in advance of a state court decision on the point, grant an injunction against it, unless its unconstitutionality is perfectly plain. Pullman Co. v. Knott, 235 U. S. 23, 35 S. Ct. 2, 59 L. Ed. 105; Kentucky-Tennessee Light & Power Co. v. City of Paris (C. C. A.) 48 F. (2d) 795; Doscher v. Query (D. C.) 21 F. (2d) 521; Utah Power & Light Co. v. Pfost, 286 U. S. 165, 185, 52 S. Ct. 548, 76 L. Ed. 1038. By much the more will it not, in a controversy of this kind, where in a great gas field like this, one owner seeks to enjoin another owner from using his gas for the purpose the Legislature has declared he may use it for, and for which purpose others are using theirs, restrain that use in a collateral attack upon statutes and permits granted by the Commission under the authority of the statutes, on the ground that the statutes and permits authorizing the use
I think the bills are plainly without equity. I respectfully dissent from the reversal.
Notes
“This objection does not affect the jurisdiction, but addresses itself to the policy of the court. Courts of equity require, that all the parties concerned in interest shall be brought before them, that the matter in controversy may be finally settled. This equitable rule, however, is framed by the court itself, and is subject to its discretion. It is not * * * an inflexible rule, a failure to observe which turns the party out of court, because it has no jurisdiction over his cause; but being introduced by the court itself, for the purposes of justice, is susceptible of modification, for the promotion of those purposes.” Elmendorf v. Taylor, 10 Wheat. 152, 166, 6 L. Ed. 289.