Sun Oil Co. v. Burford

• Decision Date: 12 August 1942
• Docket Number: No. 9962.,9962.
• Citation: 130 F.2d 10
• Parties: SUN OIL CO. et al. v. BURFORD et al.
• Court: U.S. Court of Appeals — Fifth Circuit

130 F.2d 10 (1942)

SUN OIL CO. et al. v. BURFORD et al.

No. 9962.

Circuit Court of Appeals, Fifth Circuit.

July 11, 1942.

Rehearing Denied August 12, 1942.

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J. B. Robertson and J. A. Rauhut, both of Austin, Tex., and T. L. Foster and Martin A. Row, both of Dallas, Tex., for appellants.

James P. Hart, Ed. Roy Simmons, and F. L. Kuykendall, all of Austin, Tex., for appellees.

Before HOLMES and McCORD, Circuit Judges, and DAWKINS, District Judge.

HOLMES, Circuit Judge.

Our rules do not contemplate a second petition for rehearing,¹ but this one was allowed to be filed because of an alleged conflict within the circuit of decisions rendered by this court at this term.² Although the mandate in this case has been sent down, there is no reason why it may not be recalled by the court during the same term to prevent injustice.³

In opposition to our recalling the mandate and considering a second petition for rehearing, the appellees have cited four decisions of the Supreme Court, some of which contain language indicating that we do not have the power to do so.⁴ A careful examination of these cases reveals that in none of them was the effort to have the mandate recalled, or a second petition for rehearing considered, brought up at the same term of the court. This is a vital distinction, because it is the general rule that courts have full control over their orders and judgments during the term at which they were rendered, with certain exceptions, none of which are applicable here. Henderson v. Carbondale Coal & Coke Co., 140 U.S. 25, 40, 11 S.Ct. 691, 35 L.Ed. 332. Therefore, to avoid injustice to any one from a conflict in our decisions, we have ordered the mandate recalled, and shall proceed to a consideration of the second petition for a rehearing on its merits.

The decision in this case was rendered on December 29, 1941. The case of Selby Oil and Gas Company v. Railroad Commission of Texas, supra, was decided by this court on May 13, 1942. In the meantime, the Supreme Court of Texas held that the courts of that state might exercise an independent judgment upon the validity of oil-proration orders of the Railroad Commission of Texas. In these circumstances, in order to make sure than even handed justice will be done in both cases, we have determined to grant a rehearing in this one, and to remand it for retrial in the court that is to retry the Selby case. In so doing, we deem it necessary to restate the governing law of the case, as follows:

When a federal court has jurisdiction of a controversy on the ground of diversity of citizenship, it has the power to decide all issues arising therein under the laws of any state in accordance with the statutes and decisions of that state; the same rule obtains where federal jurisdiction attaches solely by reason of a federal question.

In Railroad Commission of Texas et al. v. Rowan & Nichols Oil Co., 310 U.S. 573, 60 S.Ct. 1021, 84 L.Ed. 1368; Id., 311 U.S. 570, 61 S.Ct. 343, 85 L.Ed. 358; Id., 311 U.S. 614, 61 S.Ct. 66, 85 L.Ed. 390 (followed by this court in our opinion reported in 124 F.2d 467), the Supreme Court did not either abrogate or engraft an exception upon the well-settled doctrine that when a federal court once properly takes equitable jurisdiction of a controversy on any ground it may decide all questions of law and fact necessary for a complete disposition of the case. In denying the motion for a rehearing (311 U.S. 614, 61 S.Ct. 66, 85 L.Ed. 390), the Supreme Court withdrew its first statement announcing a contrary doctrine except where jurisdiction rests upon diversity of citizenship.

The Rowan & Nichols decisions, supra, are determinative of the federal rule in equity now applicable in suits for injunctive relief against orders of the Texas Railroad Commission so far as attack thereon is based on the "vague contours of the due-process clause" of the Fourteenth Amendment. What was done in those cases, as was pointed out in the dissenting opinions therein,⁵ was radically to change the application of equitable principles in suits to enjoin administrative regulations under the conservation laws of a state.

The gist of the law on the subject, as presently understood, is that in promulgating such regulations the State Commission is performing delegated legislative functions, and the federal courts should not substitute their judgment for that of the Commission with respect to what is wise and fair in the economy of the state. At the same time the federal court, if it has jurisdiction, may enjoin the enforcement of a void order in a suit by any one injuriously affected by it. If the order is not arbitrary, but rests upon a reasonable basis in fact, it is not violative of the Fourteenth Amendment; if valid under said amendment, it may be invalid under local law, in which case the federal court should not decline to strike it down; but, if the local law is doubtful, the federal court should stay its hand until the matter has been decided by the state court.⁶

When the Rowan & Nichols cases were decided, the Texas law did not clearly appear from state decisions. Recently, however, in Railroad Commission et al. v. Shell Oil Co., Inc., et al., 161 S.W.2d 1022, decided March 11, 1942, the Supreme Court of Texas has spoken with authority upon the subject. We now know the legal requisites of orders and regulations of the Railroad Commission under the conservation laws of Texas. They are governed by the same principles of construction as are generally applied in construing state statutes. They must contain a guide or standard applicable alike to all individuals similarly situated, so that any one interested may determine his own rights or exemptions thereunder. The administrative agency may not exercise an unbridled discretion to enforce them against some and to refuse to enforce them against others. Even though fair on its face, if an order or regulation is administered with an evil eye and an unequal hand, it is invalid.

The Texas Railroad Commission did not exhaust its authority under the conservation laws by adopting the general provisions of Rule 37. It may change that rule or make exceptions to it, but it may not provide one rule for a specific person or class and a different rule for another person or class, unless there is some reasonable factual basis for making the distinction. A reasonable margin for error of judgment must be allowed the Commission by the courts of Texas. The courts must respect the accepted demarcation between legislative and judicial power,⁷ and may not trespass upon the legislative discretion of the Commission in determining the wisdom or reasonableness of any rule, order, or regulation. Whether the Commission heard evidence or not is immaterial; it is not required to take testimony or make findings of fact before promulgating its orders. Such procedure is foreign to the laws of Texas, although customary under federal statutes. If the facts in existence when the order was made, as later shown by evidence before the court, were such that reasonable minds could not have reached the conclusion arrived at by the Commission, or if the agency exceeded its power, then the order should be set aside by any court of competent jurisdiction. To determine the validity of the order, the question is not whether the agency actually heard evidence, but whether at the time such order was entered by the agency there then existed sufficient facts to justify the same.

Examining further the opinion of the Supreme Court of Texas in the above case, we find that the standard of reasonableness under the Texas law, set up for the Commission in determining the validity of its orders and regulations, is identical with that ordinarily used in determining the validity of state statutes under the due-process clause of the Federal Constitution.⁸ Thus, one of the cases relied upon by the Supreme Court of Texas is a decision interpreting the Fourteenth Amendment, decided by the United States Supreme Court, Yick Wo v. Hopkins, 118 U.S. 356, 6 S.Ct. 1064, 30 L.Ed. 220.

This exemplifies the statement of Mr. Justice Frankfurter in Railroad Commission v. Rowan & Nichols Oil Co., 311 U.S. 614, 61 S.Ct. 66, 85 L.Ed. 390, that the standard of reasonable basis under the Texas statute opened up the same range of inquiry as was asserted under the due-process clause of the Fourteenth Amendment. Hence the crucial words of the opinion, which are not dictum but the very ratio decidendi of the case, that what ought not to be done by the federal courts when the due-process clause is invoked ought not to be attempted by them under the guise of enforcing a state statute.⁹

Mr. Justice Frankfurter was not discussing a question of federal jurisdiction. He was discussing the discretion of a chancellor in a federal equity suit in cases where the court concededly has jurisdiction. The matter of the issuance of the extraordinary writ of injunction is, and historically has always been, one for the exercise of sound discretion.¹⁰ We cannot emphasize too strongly that in none of these oil-proration cases did the Supreme Court refer to the question of federal jurisdiction. In none of them did it hold that the federal court did not have jurisdiction. We go further and say that in none of them did the court hold that federal equitable jurisdiction did not exist. What it did hold was that, although the federal court had jurisdiction and the case was one of an equitable nature, the facts were such that, in the exercise of its equity jurisdiction, the court was bound by equitable principles to deny the petition for the issuance of the extraordinary writ of injunction. Following the above decision, that is what the court below did in this case, at the same time expressly holding that it had jurisdiction.

A federal court does not impugn its jurisdiction when in the exercise thereof it denies a discretionary writ. Especially is this true when...