Henderson Co v. Thompson, 397

• Decision Date: 01 March 1937
• Docket Number: No. 397,397
• Parties: HENDERSON CO. v. THOMPSON et al
• Court: U.S. Supreme Court

300 U.S. 258

57 S.Ct. 447

81 L.Ed. 632

HENDERSON CO.

v THOMPSON et al.

No. 397.

Argued Feb. 2, 3, 1937.

Decided March 1, 1937.

On Appeal from the District Court of the United States for the Western District of Texas.

Mr. L. M. Fischer, of Amarillo, Tex., for appellant.

Messrs. William Madden Hill, of Dallas, Tex., and William McCraw, of Austin, Tex., for appellees.

[Argument of Counsel from page 259 intentionally omitted] Mr. Justice BRANDEIS delivered the opinion of the Court.

The question for decision is whether the prohibition by Texas of the use of sweet natural gas for the manufacture of carbon black in the Panhandle field is valid.

The suit is brought in the federal court for western Texas by the Henderson Company, a Maine corporation. It challenges the validity of the following provisions of chapter 120 of the Acts of the Legislature of Texas, 1935, Forth-Fourth Regular Session (Vernon's Ann.Civ.St.Tex. art. 6008), commonly known as House Bill 266: subdivisions (g) and (h) of section 2, which define sweet and sour gas;¹ subdivision (j) of section 3, which prohibits the use of sweet gas for the manufacture of carbon black;² and subdivision (1) of section 7, which defines the purposes for which sweet gas may be used.³ See Thompson v. Consolidated Gas Utilities Corporation, 300 U.S. 55, 57 S.Ct. 364, 81 L.Ed. 510, decided by this Court February 1, 1937. The suit challenges, also, the validity of orders entered by the Railroad Commission pursuant to the statute.

The Henderson Company owns and operates in the Panhandle gas field a casinghead gasoline plant which is connected with 21 gas wells; holds oil and gas leases under which some of these wells are operated; and is under contract to take gas from the other wells. Prior to the statute, it received at its plant the gas from all these wells; extracted therefrom the gasoline content; and had contraced to supply the residue gas to the Combined Carbon Company. The orders challenged classified fourteen of the wells as sweet gas wells and prohibited both taking the gas therefrom for the purpose of processing the same for its gasoline content and delivery of the residue for the manufacture of carbon black. The seven remaining wells, classified as sour, cannot furnish the quantity of gas required by the company in its gasoline plant and to perform its contract with the Cabon Company. A supply from other sour gas wells is not available; and for the gas from the fourteen wells classified as sweet there is no other use.

The bill charges that the statute and the orders entered thereunder violate the Federal Constitution—the due process and equal protection clauses of the Fourteenth Amendment and the Contract Clause (article 1, § 10, cl. 1); also provisions of the Constitution of Texas. The members of the Commission and the Attorney General of Texas are made de- fendants. The relief sought is to enjoin enforcement of the statute temporarily and permanently.

The jurisdiction, federal and equitable, was not questioned. Answers were filed. An application for a restraining order was denied. That for a preliminary injunction, promptly heard before three judges, was also denied (D.C.) 12 F.Supp. 519. And on final hearing upon an extensive record a decree was entered denying the permanent injunction and dismissing the bill (D.C.) 14 F.Supp. 328. Findings of fact and conclusions of law were filed in compliance with Equity Rule 70 1/2 (28 U.S.C.A. following section 723). The case is here on appeal.

The findings contain, as in Thompson v. Consolidated Gas Utilities Corporation, a description of the character and the development of the Panhandle gas field. In the western field the sweet gas zone lies to the south, occupying about two-thirds of it; the sour gas zone lies to the north and occupies about one-third. Plants which strip the gas of its gasoline content and carbon black plants which use the residue are apparently accessible to both zones. For those purposes either sweet or sour gas can be used. For the sweet gas of the Panhandle field there is also a large demand for fuel and light. For the sour gas in its natural state there is practically no use other than in the stripping and the carbon black plants. There are 29 carbon black plants in the Panhandle field. These produce more than 70 per cent. of all carbon black manufactured in the United States; and they consume, on the average, about 550,000,000 cubic feet per day. Intolerable waste had resulted by use of sweet gas under permits issued by the Railroad Commission under chapter 100, Acts 1933, Forty-Third Legislature, Regular Session, which allowed the use of sweet gas for inferior purposes where there was no fuel and light market. It was primarily to prevent such waste that the Legislature prohibited by House Bill 266 the use of sweet gas in the manufacture of carbon black.

The court found, among other things:

'There is enough sour gas in reserve in the Panhandle field to fulfill the world's requirements of carbon black for many years to come. There is also a tremendous supply of casinghead gas in the Panhandle field. There is now available for use in the manufacture of carbon black sufficient allotments under the orders of the Railroad Commission of sour and casinghead gas to supply all the demands and needs of such plants with an excess of 100,000,000 cubic feet of casinghead gas over and above the demand of the carbon black plants.

'* * * A producer of sweet gas, if he is able to market the same for light and fuel purposes, receives about three or four cents per 1000 cubic feet in the field. When such gas is delivered at the burner tips it sells for various greater amounts. The producers of gas who sell to the companies who strip it and burn it for carbon black receive less than a cent per 1000 cubic feet.'

The company contends that our decision in Walls v. Midland Carbon Co., 254 U.S. 300, 41 S.Ct. 118, 65 L.Ed. 276, which upheld certain action of Wyoming in prohibiting as wasteful the use of natural gas for the production of carbon black, is inapplicable to the issues here presented. The company concedes that Texas may, for the purpose of preventing waste, regulate both the production and the use of natural gas. It does not deny that when one natural resource is fitted for two uses and another resource only for one, the Legislature has the power to marshal these resources by classifying them, and designating the uses to which each may be put. Nor does it deny that the classification and the limitation of the use of sweet gas may 'when considering all of the gas fields in Texas as a whole, bear a reasonable relation to the purposes sought to be accomplished.' But it insists that as applied to the Panhandle field the classification and prohibition are void, because, there, they bear no reasonable relation to the object sought to be attained, and are arbitrarily discriminatory.

First. The contention that in the Panhandle field the prohibition of the use of sweet gas in the manufacture of carbon black is arbitrary and unreasonable rests primarily upon the fact that the sour and the sweet gas wells are in the same reservoir. The argument is that pressures in the sour gas area are lower than those in the sweet gas area; that, since there is no free market for sweet gas for fuel and light, it will, if not used in carbon black manufacture, and if withdrawals of sour gas are permitted to the extent of the requirements of the carbon black industry, migrate into lower pressure areas and become a part of the sour gas supply; that, therefore, the supply of sweet gas will not be conserved; and that the effect of the prohibition of its use in the manufacture of carbon black will be merely to deprive the company, through the migration, of the gas to which it is entitled. But the lower court found that the length of time required for such migration is not definitely known and that the demand for sweet gas for fuel and light is increasing. The needs of conservation are to be determined by the Legislature. See Walls v. Midland Carbon Co., 254 U.S. 300, 324, 41 S.Ct. 118, 124, 65 L.Ed. 276. The loss of sweet gas by migration may be relatively negligible. The court concluded that there is 'an abundance of factual support for the legislative prohibition against the burning of sweet gas for carbon black.' No facts have been found, or...