Cook's Estate, Trustees v. Sheppard

• Decision Date: 11 September 1934
• Docket Number: No. 479.,479.
• Citation: 8 F. Supp. 21
• Parties: COOK'S ESTATE, TRUSTEES, v. SHEPPARD, State Comptroller, et al.
• Court: U.S. District Court — Western District of Texas

8 F. Supp. 21

COOK'S ESTATE, TRUSTEES, v. SHEPPARD, State Comptroller, et al.

No. 479.

District Court, W. D. Texas, Austin Division.

September 11, 1934.

William R. Watkins, of Fort Worth, Tex., for plaintiffs.

James V. Allred, Atty. Gen., and Willis E. Gresham, Asst. Atty. Gen., for defendants.

Before HUTCHESON, Circuit Judge, and WEST and McMILLAN, District Judges.

McMILLAN, District Judge.

In this case plaintiffs attack H. B. No. 154 passed by the Forty-Third Legislature of the state of Texas in 1933 at its Regular Session, c. 162, p. 409 (as amended). This act substantially purports to levy an occupation tax on the production of oil in Texas; the amount of the tax being arrived at by assessing a certain amount against each barrel produced. In so far as the act is pertinent to this case, it is here copied in a footnote.¹

Plaintiffs assail this statute as being in violation of the Federal and state Constitutions. A preliminary injunction having been applied for, a three-judge court has been organized as required by law (Jud. Code § 266 28 USCA § 380). Upon a hearing before this court on the application for the preliminary injunction, the matter was submitted upon the pleadings, a stipulation, a number of ex parte affidavits, oral argument, and written briefs.

At the outset, plaintiffs are confronted by a motion to dismiss the case, on the ground that the amount in controversy is below the jurisdiction of the court. Inasmuch as that contention, if well founded, is determinative of the entire matter in so far as this court is concerned, the question of the court's original jurisdiction must be first inquired into and determined.

In view of the conclusion the court has arrived at, it will be unnecessary to set out the pleadings at length or to detail in extenso the various constitutional grounds upon which the plaintiffs attack the statute. The plaintiffs are the trustees of the estate of Mrs. M. M. Cook, deceased. According to their pleadings, Mrs. Cook, in the year 1925, she being then a widow, executed and delivered to certain parties oil and gas leases covering various lands owned by her in Shackelford county. In these leases the lessees made the customary agreement to deliver to the credit of lessor, free of cost in the pipe line to which their wells might be connected, an equal one-eighth part of all oil produced and saved from the leased premises. Plaintiffs allege that they, as trustees, own at this time one-half of said one-eighth royalty interest.

They further allege that, since the execution of these leases, there have been produced and saved from said lands many millions of barrels of oil, and at the time of the filing of this suit there was being produced and saved approximately 2,000 barrels of oil per day, that there is in excess of 3,000,000 barrels of recoverable oil under the leased premises, and that the reasonable value of two per cent. of their interest in the oil royalty reserved is in excess of $3,500.

It is further alleged that the oil produced on these premises is purchased by the Humble Oil & Refining Company, and that that company has been deducting from plaintiffs' one-sixteenth part the 2 per cent. occupation tax levied by the statute attacked, and has, since the date of said tax, been paying said 2 per cent. to the state, along with the tax due by it, the Humble Oil & Refining Company.

Evidence tending to support these pleadings, in so far as they constitute allegations of fact, was introduced on the trial by way of stipulation and affidavits. The evidence further indicated that, commencing in the month of September, 1933, the Humble Oil & Refining Company deducted and paid to the state treasurer the 2 per cent. purported to be due from plaintiffs under the amended act of 1933. There is no showing as to the exact amounts paid during the months of September, October, November, and December, though the evidence and pleadings generally indicate that it did not materially vary from those payments later made. With regard to the succeeding four months, the stipulation is as follows:

"On behalf of the plaintiffs in this case, the Humble Oil & Refining Company, the purchaser of plaintiffs royalty oil, protested the payment and deduction of two (2%) percent from the amounts due plaintiffs for the sale of their oil to said Company on the form hereinabove set forth, the dates of said protests and the amounts paid being as follows:

                January 25th, 1934 ........... $52.30
                February 24th, 1934 ..........  76.21
                March 25th, 1934 .............  71.71
                April 25th, 1934 .............  83.80"
                

Accordingly, it is apparent, both from the pleadings and the evidence, that the monthly payments made out of plaintiffs' oil or the proceeds thereof approximate something between $70 and $80.

It will have been observed in reading the statute that subdivision 4 of section 2 as amended (Vernon's Ann. Civ. St. art. 7057a, § 2 (4) requires the tax levied to be paid monthly on the 25th day of each month on all oil produced during the month next preceding.

It is the contention of the defendants that the amount in controversy here is the tax asserted to be due, and that the tax, as shown both by the pleadings and the evidence, falls far below the amount necessary to confer jurisdiction on a federal court. To avoid this contention, plaintiffs in their brief make the following assertions: "The Court has original jurisdiction to hear and determine the cause, because this suit arises under the Constitution, and the amount or value in controversy exceeds $3,000.00. The plaintiffs' royalty is worth $200,000.00, 2 per cent of it worth at least $3,500.00 and they sue to enjoin the state officials from confiscating 2 per cent of the value of their royalty for a tax for which they are not liable. Another purpose of the suit is to secure a determination that the state has no power to tax their royalty for, or on account of the occupation engaged in by their lessee, of producing oil."

Furthermore, in their amended bill, they make the following allegation: "The 1/16th interest, owned by them, of the total oil produced from said leased premises amounts to approximately 3,750 barrels per month and the monthly amount appropriated and which will continue to be appropriated from the proceeds thereof amounts to about $75.00 per month or $900.00 per year, which, capitalized at 6% per annum, is equivalent to an unlawful appropriation by the defendants of a $15,000 investment, annually, and this will continue during the life of said lease."

Further, they claim that the lien provided for by the statute clouds the title to their royalty interests.

It is our opinion that the defendants' position is well taken and that this court is without original jurisdiction to hear and determine this cause.

It is manifest that the immediate matter at issue between the parties to this case is the question whether the plaintiffs shall or shall not pay the $70 or $80 a month which the defendants assert is due under the statute attacked. The payment of this money involved, monthly in accordance with the law, would dispose of all controversy between the parties, and the lien would be removed and the alleged cloud dissipated without more ado. Accordingly, it is obvious that, if the federal jurisdiction is to obtain in the case, it must be worked out in some other way than a mere consideration of the actual amount of money in dispute between the parties. To avoid this conclusion, the plaintiffs make and urge very earnestly several propositions: First, they assert that their royalty is worth over $200,000, and that the levy of this 2 per cent. tax constitutes a confiscation of at least 2 per cent. of the value thereof; second, they assert that their suit is to secure a determination that the state has no power to tax their royalty; third, that the capitalization of about $75 a month or $900 a year, which defendants exact of them, is equivalent to an unlawful appropriation of about $15,000 annually; and, fourth, that this tax, by the terms of the statute which levies it, constitutes a lien on their royalty interest and clouds the title to their property to an amount in excess of the jurisdictional requirements. All of those contentions we consider to be untenable.

Plaintiffs' argument proceeds upon the theory that the levy of this monthly tax constitutes a permanent appropriation of their royalty interest, which may now be considered as effective to its ultimate end, and that said ultimate result is to unlawfully appropriate 2 per cent. of what they allege the value of their remaining royalty interest to be. This theory has been many times repudiated by the federal courts. Healy v. Ratta, 54 S. Ct. 700, 703, 78 L. Ed. 1248; Washington & G. Railroad Company v. District of Columbia, 146 U. S. 227, 13 S. Ct. 64, 66, 36 L. Ed. 951; Holt v. Indiana Manufacturing Company, 176 U. S. 68, 20 S. Ct. 272, 273, 44 L. Ed. 374; Vicksburg, S. & P. Railway Co. v. Nattin (D. C.) 51 F.(2d) 1061.

It is a matter of simple mathematical calculation to demonstrate that at the rate of $70 or $80 a month it would take between three and four years for the defendants to exact, and plaintiffs to pay, in excess of $3,000. The history of this legislation shows that it is simply one of the many taxing acts passed by the state of Texas for the purpose of raising revenue from the oil industry. There is no assurance that it will remain on the statute books for any specific length of time, nor is there any positive assurance that the facts and circumstances now complained of will continue to make the plaintiffs subject to payment of this monthly tax at the rate now designated. The entire matter is one of speculation and entirely too indefinite to be the foundation of the limited federal jurisdiction. There is no reason to believe that a suit testing the validity of the statute and determining the...