319 U.S. 315 (1943), 495, Burford v. Sun Oil Co.

Docket Nº:No. 495
Citation:319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424
Party Name:Burford v. Sun Oil Co.
Case Date:May 24, 1943
Court:United States Supreme Court
 
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Page 315

319 U.S. 315 (1943)

63 S.Ct. 1098, 87 L.Ed. 1424

Burford

v.

Sun Oil Co.

No. 495

United States Supreme Court

May 24, 1943

Argued February 8, 9, 1943

Reargued April 14, 15, 1943

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE FIFTH CIRCUIT

1. Jurisdiction by appeal from a state administrative body cannot be conferred on the federal District Court by a state statute. P. 317.

2. A federal court having jurisdiction, whether by diversity of citizenship or by federal question, of a suit to enjoin enforcement of an

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administrative order of a state commission, may, in its sound discretion, refuse such relief if to grant it would be prejudicial to the public interest. P. 317.

3. It is in the public interest that federal courts of equity should exercise their discretionary power with proper regard for the independence of state governments in carrying out their policies. P. 318.

4. In the exercise of a sound discretion, this suit to enjoin the execution of the order of the State Railroad Commission of Texas permitting the drilling of wells in the East Texas Oil Field separated by distances less than the minimum prescribed for the field in general should have been dismissed. Pp. 318-322.

Certiorari, 317 U.S. 621, to review a judgment reversing a judgment of the District Court which dismissed the complaint of the Sun Oil Company in a suit against the Railroad Commission of Texas, et al., to enjoin the execution of an order of the Commission permitting the drilling and operation of certain oil wells in the East Texas Oil Field, and also dismissing the complaint of the Magnolia Petroleum Company, Intervener. The judgment of the District had at first been affirmed, 124 F.2d 467.

BLACK, J., lead opinion

MR. JUSTICE BLACK delivered the opinion of the Court.

In this proceeding brought in a federal district court, the Sun Oil Co. attacked the validity of an order of the

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Texas Railroad Commission granting the petitioner Burford a permit to drill four wells on a small plot of land in the East Texas oil [63 S.Ct. 1099] field.1 Jurisdiction of the federal court was invoked because of the diversity of citizenship of the parties, and because of the Companies' contention that the order denied them due process of law. There is some argument that the action is an "appeal" from the State Commission to the federal court, since an appeal to a State court can be taken under relevant Texas statutes;2 but, of course, the Texas Legislature may not make a federal district court, a court of original jurisdiction, into an appellate tribunal or otherwise expand its jurisdiction,3 and the Circuit Court of Appeals, in its decision, correctly viewed this as a simple proceeding in equity to enjoin the enforcement of the Commission's order.

Although a federal equity court does have jurisdiction of a particular proceeding, it may, in its sound discretion, whether its jurisdiction is invoked on the ground of diversity

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of citizenship or otherwise, "refuse to enforce or protect legal rights, the exercise of which may be prejudicial to the public interest,"4 for it

is in the public interest that federal courts of equity should exercise their discretionary power with proper regard for the rightful independence of state governments in carrying out their domestic policy.5

While many other questions are argued, we find it necessary to decide only one: assuming that the federal district court had jurisdiction, should it, as a matter of sound equitable discretion, have declined to exercise that jurisdiction here?

The order under consideration is part of the general regulatory system devised for the conservation of oil and gas in Texas, an aspect of "as thorny a problem as has challenged the ingenuity and wisdom of legislatures." Railroad Commission v. Rowan & Nichols Oil Co., 310 U.S. 573, 579. The East Texas field, in which the Burford tract is located, is one of the largest in the United States. It is approximately forty miles long and between five and nine miles wide, and over 26,000 wells have been drilled in it.6 Oil exists in the pores and crevices of rocks [63 S.Ct. 1100] and sand, and moves through these channels. A large area of this sort is called a pool or reservoir, and the East

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Texas field is a giant pool. The chief forces causing oil to move are gas and water, and it is essential that the pressures be maintained at a level which will force the oil through wells to the surface. As the gas pressure is dissipated, it becomes necessary to put the well "on the pump" at great expense,7 and the sooner the gas from a field is exhausted, the more oil is irretrievably lost. Since the oil moves through the entire field, one operator can not only draw the oil from under his own surface area, but can also, if he is advantageously located, drain oil from the most distant parts of the reservoir. The practice of attempting to drain oil from under the surface holdings of others leads to offset wells and other wasteful practices, and this problem is increased by the fact that the surface rights are split up into many small tracts.8 There are approximately nine hundred operators in the East Texas field alone.

For these and many other reasons based on geologic realities, each oil and gas field must be regulated as a unit for conservation purposes. Compare Railroad Commission v. Rowan & Nichols Oil Co., 311 U.S. 570, 574. The federal government, for the present, at least, has chosen to leave the principal regulatory responsibility with the states, but does supplement state control.9 While there is no question of the constitutional power of the State to take appropriate action to protect the industry and protect

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the public interest, Ohio Oil Co. v. Indiana, 177 U.S. 190; Champlin Refining Co. v. Corporation Commission, 286 U.S. 210, the State's attempts to control the flow of oil and at the same time protect the interest of the many operators have from time to time been entangled in geological-legal problems of novel nature.

Texas interests in this matter are more than that very large one of conserving gas and oil, two of our most important natural resources. It must also weigh the impact of the industry on the whole economy of the state, and must consider its revenue, much of which is drawn from taxes on the industry and from mineral lands preserved for the benefit of its educational and eleemosynary institutions.10 To prevent "past, present, and imminent evils" in the production of natural gas, a statute was enacted "for the protection of public and private interests against such evils by prohibiting waste and compelling ratable production." The primary task of attempting adjustment of these diverse interests is delegated to the Railroad Commission, which Texas has vested with "broad discretion" in administering the law.11

The Commission, in cooperation with other oil producing states, has accepted State oil production quotas and has undertaken to translate the amount to be produced for [63 S.Ct. 1101] the State as a whole into a specific amount for each field and for each well.12 These judgments are made with due regard

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for the factors of full utilization of the oil supply, market demand, and protection of the individual operators, as well as protection of the public interest. As an essential aspect of the control program, the State also regulates the spacing of wells. The legislature has disavowed a purpose of requiring that "the separately owned properties in any pool [should] be unitized under one management, control or ownership,"13 and the Commission

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must thus work out the difficult spacing problem with due regard for whatever rights Texas recognizes in the separate owners to a share of the common reservoir. At the same time, it must restrain waste, whether by excessive production or by the unwise dissipation of the gas and other geologic factors that cause the oil to flow.

Since 1919, the Commission has attempted to solve this problem by its Rule 37. The rule provides for certain minimum spacing between wells, but also allows exceptions where necessary "to prevent waste or to prevent the confiscation of property." The prevention of confiscation is based on the premises that, insofar as these privileges are compatible with the prevention of waste and the achievement of conservation, each surface owner should be permitted to withdraw the oil under his surface area, and that no one else can fairly be permitted to drain his oil away. Hence, the Commission may protect his interest either by adjusting his amount of production upward or by permitting him to drill additional wells.

By this method, each person will be entitled to recover a quantity of oil and gas substantially equivalent in amount to the recoverable oil and gas under his land.14

Additional wells may be required to prevent waste, as has been noticed, where geologic circumstances require immediate [63 S.Ct. 1102] drilling:

The term "waste", as used in oil and gas Rule 37, undoubtedly means the ultimate loss of oil. If a substantial amount of oil will be saved by the drilling of a well that otherwise would ultimately be lost, the permit to drill such well may be justified under one of the exceptions provided in Rule 37 to prevent waste.

Gulf Land

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Co. v. Atlantic Refining Co., 134 Tex. 59, 70, 131 S.W.2d 73, 80.

The delusive simplicity with which these principles of exception to Rule 37 can be stated should not obscure the actual nonlegal complexities involved in their application.15 While the surface holder may, subject to qualifications noted, be entitled under current Texas law to the oil under his land, there can be no absolute certainty as to how much oil actually is present...

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