Henderson Co. v. Thompson

• Decision Date: 30 March 1936
• Docket Number: 581.,No. 535,535
• Citation: 14 F. Supp. 328
• Parties: HENDERSON CO. v. THOMPSON et al. PORTLAND GASOLINE CO. v. SAME.
• Court: U.S. District Court — Western District of Texas

14 F. Supp. 328

HENDERSON CO. v. THOMPSON et al.

PORTLAND GASOLINE CO. v. SAME.

Nos. 535, 581.

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

March 30, 1936.

L. M. Fischer, of Amarillo, Tex., and F. W. Fischer, of Tyler, Tex., for Henderson Co.

Alto Cervin and Allen & Allen, all of Dallas, Tex., and Black & Graves, of Austin, Tex., for Portland Gasoline Co.

Wm. McCraw, Atty. Gen., of Texas, and Wm. Madden Hill, Asst. Atty. Gen. (C. C. Small, of Amarillo, Tex., of counsel), for respondents.

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

McMILLAN, District Judge.

These two cases are now before the court for final hearing on the merits. While there are slight variations in the facts with regard to the two complainants, the general principles underlying the cases are the same, and the two cases while not consolidated were tried together and may be disposed of in the one opinion.

The Henderson case has been before this court before on application for preliminary injunction. Henderson Company v. E. O. Thompson et al., 12 F.Supp. 519. The Portland case has not heretofore been before the court on application for preliminary injunction, but the complainant, while continuing to press for temporary relief, has agreed, in open court, with respondents that the case will be considered as also finally submitted on its merits. The Henderson Company is a Maine corporation and the Portland Company is a Delaware corporation and the court has jurisdiction in both cases, both because of diversity of citizenship and federal question coupled with the requisite amount in controversy. Jurisdiction in equity is also apparent on the face of the records.

Complainants assail House Bill 266, chapter 120, passed by the 44th Legislature, Regular Session, 1935 (Vernon's Ann.Civ. St. art. 6008), and certain orders of the Railroad Commission purporting to have been made by virtue thereof. Their grievance against the statute lies in the restrictions which it places upon the use of sweet gas. Their attack against the orders of the commission is incidental inasmuch as those orders simply purport to carry out the mandate of the statute and classify certain of complainants' wells as sweet and sour. While the bills of complaint also attack the orders of the commission with regard to the proration features thereof, that phase of the matter has been expressly abandoned by the Henderson Company in so far as this case is concerned by statements made in its briefs, and impliedly by the Portland Company by its failure to press that contention, either in its evidence or its briefs.

Accordingly, the matter at issue narrows down to whether the action of the Legislature in restricting the uses to which sweet gas may be put and in defining what constitutes sweet gas is unconstitutional as applied to complainants. The statute in so far as it is called in question here will, for convenience, be footnoted in this opinion.¹

Complainants either by contract or ownership have been taking gas from a great number of wells in the Panhandle field in Texas, and after stripping same for its gasoline content and using a part of the remainder for plant and lease purposes, delivering the residue by virtue of contract to certain carbon black plants, where that gas is burned for the purpose of making carbon black without further use being made thereof. After the passage of the statute attacked, the Railroad Commission conducted a series of tests and classified complainants' wells as sweet or sour. A great majority of the Henderson Company's wells have been classified as sweet and the allowable from its sour wells is insufficient to cover its requirements. Thirteen of the Portland Company's wells produce casinghead gas which may be used for carbon black manufacture, but the production from those wells, coupled with its allowable from its sour gas wells, is insufficient to meet its requirements. The rub with regard to both complainants lies in the inhibition in the statute against the use of sweet gas for the manufacture of carbon black. If complainants were allowed to use the gas from their sweet wells to fulfill their contracts with the carbon black companies, they would be without complaint so far as the present case is concerned. Accordingly, as indicated, the matter finally narrows down to the question whether the Legislature was within the law in defining what constitutes sweet and sour gas and forbidding the use of the sweet gas for the making of carbon black.

Complainants attack the statute on substantially three grounds, one of which divides itself into two propositions. First, they assert that the statute bears no reasonable relationship to the prevention of waste and accordingly is not a conservation of the natural resources of the state and constitutes an unreasonable interference with and confiscation of their property. Second, they assert that the statute unlawfully discriminates between the owners of sweet and sour gas, and as a further proposition in this connection, they say that the definition of sour gas contained in subdivision (g) of section 2 (Vernon's Ann. Civ.St.Tex. art. 6008, § 2 (g) is without basis or foundation in fact and accordingly void. Third, they assert that the operation of the statute impairs the obligation of their contracts with the carbon black companies in violation of the Constitution of the state of Texas (article 1, § 16).

The case has been thoroughly developed by ex parte affidavits introduced by agreement of the parties, by oral testimony, and by numerous maps, exhibits, and much documentary evidence. It has been thoroughly argued and fully and carefully briefed by both sides. The evidence has taken a wide range and it is impracticable to do more than summarize it and refer to it briefly in the course of this opinion.

The carbon black industry has been nomadic, journeying from field to field ever in quest of cheap gas. For over sixty years it has existed in this country moving generally westward, first in Pennsylvania, then in West Virginia, then Louisiana, then Kentucky, and latterly coming into Texas, Oklahoma, Utah, Montana, and Wyoming. As the various states tightened their regulations by statutes and orders, the industry moved on until now it is largely centered in the Panhandle field of Texas and from that giant reservoir approximately 80 per cent. of the carbon black manufactured today is being derived.

There have been few improvements made in the method of manufacturing since 1892, the one commonly employed, and employed by complainants, being the channel process. It is unnecessary to describe this process here as it is fully described by the Supreme Court in Walls v. Midland Carbon Co., 254 U.S. 300, 41 S.Ct. 118, 122, 65 L. Ed. 276. Either sweet or sour or casinghead gas may be used in its production, and from the burning of 1,000 cubic feet of gas approximately one and one-half pounds of carbon black is made. The gas is entirely used in the manufacture of carbon black and there is no residue that can be devoted to any other useful purpose.

Carbon black is worth about 4 cents a pound. From the gas before its ultimate burning, there is stripped a fraction of a gallon of gasoline, which is worth from 2 to 3 cents. A producer of sweet gas who is able to market same for statutory purposes receives about 3 or 4 cents a thousand in the field. When delivered at the burner tips, it sells for various greatly increased amounts. The producers of gas who sell to the companies that strip it and then burn it for carbon black receive less than a cent per thousand cubic feet.

Sweet gas is available without treatment for fuel and light, but sour gas cannot be so used without being scrubbed or processed, as the hydrogen sulphide content makes it corrosive, thereby injuring the pipe lines, equipment, burners, and other mechanical appliances through which it has to pass. In addition thereto, its odor and detrimental effect on the health of persons adjacent to it when burning renders it undesirable to use for fuel or light.

There is evidence in the record to indicate that probably as much as 30 pounds of carbon can be recovered from 1,000 cubic feet of gas by other processes than those used by complainants. The evidence would also indicate that this carbon so recovered is not what is commonly known as carbon black inasmuch as it is coarser in its texture and not available for many of the uses to which carbon black is put. There is some indication that restriction upon the use of gas may cause advancement in the industry which will recover a greater yield of carbon black, but up to the present time there is no indication that any better methods have been developed than the channel process.

Carbon black has a wide range in its usefulness, it being used in the manufacture of printer's ink, automobile tires, rubber products, paint, varnish, typewriter ribbons, colored paper, lacquers, stove polish, shoe polish, book binders' board, crayons, golf balls, tarpaulins, insulating material, phonograph records, cement, tile, and artificial stone. So far as is known, it can only be manufactured from natural gas.

There are twenty-nine carbon black plants operating in the Panhandle field with an average consumption of approximately 550,000,000 cubic feet per day. This amount is only slightly less than the average daily amount taken by all the pipe lines for fuel and light purposes. When the carbon black industry first came into the Panhandle field, it practically used only casinghead gas, but afterwards by virtue of amended statutes and orders it commenced to use, in addition thereto, both sweet and sour gas. The Panhandle field is the largest gas field known in the world today. It has a length of about 125 miles and varies in width from 10 to 40 miles. While the field is apparently a common reservoir, there is a line of demarkation which fairly separates the sour gas area from the sweet gas area. Along...