Henderson v. Terrell

• Decision Date: 23 July 1938
• Docket Number: No. 621.,621.
• Citation: 24 F. Supp. 147
• Parties: HENDERSON et al. v. TERRELL et al.
• Court: U.S. District Court — Western District of Texas

24 F. Supp. 147

HENDERSON et al. v.TERRELL et al.

No. 621.

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

July 23, 1938.

Fischer & Fischer, of Amarillo, Tex., for complainants.

William McCraw, Atty. Gen., and William C. Davis and Wm. Madden Hill, Asst. Attys.Gen. (E. H. Foster, of Amarillo, Tex., of counsel), for respondents.

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

HUTCHESON, Circuit Judge.

Plaintiffs are the successors in interest of Henderson Company,¹ a corporation, and F. C. Henderson, Inc.²As such successors they own and operate a gasoline manufacturing plant in the town of Sanford, Texas, in the West Panhandle field.Plaintiffs in addition are the owners and holders of a number of casinghead gasoline contracts, under the terms of which they have agreed to purchase gas from the various wells located upon the leases covered by such contracts and to process such gas so purchased in its gasoline manufacturing plant.In connection with such processing they have a contract with the Combined Carbon Company, under which they are obliged to furnish that company its gas requirements for the purpose of manufacturing carbon black.Defendants are the members of the Railroad Commission and the Attorney General of Texas.

The suit was for an injunction interlocutory and permanent against defendants, to restrain them from restricting plaintiffs' production of sour gas from the seventeen wells they own or operate in the West Panhandle field below the amount which plaintiffs have contracted to deliver, and for which they have a market.Plaintiffs' bill attacks the statute as authorizing the Commission to take, and the orders as taking, plaintiffs' property without due process of law, and therefore in violation of the Fourteenth Amendment to the Federal Constitution, U.S.C.A.Const. Amend. 14, in that the statute authorizes and the Commission provides, for a restriction of plaintiffs' production, though plaintiffs are producing without waste, in order to compel plaintiffs to share the market for their gas with owners and operators of other wells having no market.There was a further claim that if the statute was valid, the orders were invalid, because in entering them the Commission did not follow, but disregarded the statute.

The defense as to the statute was, that enacted in the due exercise of the police powers as a waste measure, it limited and restricted the use of sour gas for carbon black an inferior use, and at the same time made provision to protect each of the properties affected by the restriction, from cognizable and preventable drainage by any others.The defenses as to the orders were that, entered in accordance with and to carry out the mandate of the statute to restrict production, and to protect against drainage, they reasonably did so.

Though plaintiffs and defendants are both citizens of Texas, plaintiffs bring their suit as though in addition to being one arising under the Constitution and laws of the United States it is also one under the Texas statutes authorizing a review of the Commission's orders by suits filed against the Commission in the State District Court of Travis County.Authorized as plaintiffs would be, if the requisite diversity existed, to bring their suit under the statute in the Federal District Court of Travis County, McMillan v. Railroad Comm. of Texas, D.C., 51 F.2d 400;Reagan v. Farmers' Loan & Trust Co., 154 U. S. 362, 14 S.Ct. 1047, 38 L.Ed. 1014, we think it plain that, residents of Texas as they and defendants are, plaintiffs cannot maintain their suit as a statutory suit against the Commission in this court.Their bill, however, does sufficiently make out a case arising under the Constitution and laws of Texas of which this court has jurisdiction, one requiring three judges.A case for three judges being thus made on the plaintiffs' pleadings, the statutory court was assembled, and it appearing that the effect of the orders was to reduce plaintiffs' takings from their wells substantially as claimed, that the case could be promptly and with little delay heard and disposed of on final hearing, an interlocutory injunction was issued, and the cause was set for an early final hearing.This hearing has been had, and the cause is before us on full proofs for disposition on the merits.

In addition to the Commission's orders and findings which went fully into the nature, the condition, and the history of the Panhandle gas field as a whole, and of it as divided, under statutory authority, into the East and West fields, there was a detailed showing made by oral testimony, maps, graphs, and physical representations as to the Sanford area, the area particularly involved in plaintiffs' suit.

So much has already been judicially written³ as to the history, physical, political and legal, and as to the general conditions in the Panhandle field, that we need not re-write upon them here.It will be sufficient to refer to those decisions where these matters are fully and in detail set out.⁴

As to the Sanford area, where plaintiffs' wells are located, there was full proof as to the potentials of plaintiffs' and other wells, as to the amount of gas which had been drawn from the wells owned or under the control of plaintiffs in the past, as to the past and present gas pressure in these and other areas in the field, and as to the general physical conditions under which gas had been and is being produced from that area, including particularly plaintiffs' wells.

This testimony as to physical conditions was without substantial conflict, except as to the condition as to water, of some of plaintiffs' wells.It showed that in the particular area of plaintiffs' production, and particularly, as to wells owned by, and with which plaintiffs had connections, tremendous amounts of gas had been drawn out.Indeed, the takings from those wells had been far in excess of the amount of gas which had originally underlain the structure there, but notwithstanding this, there had been such rapid and heavy migration into the low pressure area, caused by the heavy production of plaintiffs' and others in that area, that there was still nearly as much gas under plaintiffs' lands as had originally been there.

The proof thus demonstrated beyond peradventure, that in restricting plaintiffs' production in the future, the orders did not operate injuriously as to them, as the orders entered in the Consolidated Case,⁵ had operated in subjecting the plaintiffs' properties there to a continuance of the drainage they had already undergone.

The evidence further showed that during the period of unrestricted drainage from these wells, the pressure had dropped from the original or virgin pressure throughout the field, of 440 pounds, to a low in some wells, of 210 pounds.It showed too, that in the period of restricted production, beginning in 1935, and particularly since 1937, the pressure at and around plaintiffs' wells though tremendous amounts of gas were still being drained out, had risen to some extent.It was thus shown not only that these lands had been heavily draining other lands, but that upon a restricted production their reserves had risen and would continue to rise; and that from the restricted production proposed, plaintiffs would not suffer damage, but would experience a building up of their reserves.

The only real dispute in the case, outside of that arising on the pressure or absence of water in some of plaintiffs' wells, was in the matter of opinion evidence, as to whether the proration formula the Commission had used bore a reasonable relation to the statutory purpose they were endeavoring to execute.As to this matter of opinion there was the sharpest conflict.Plaintiffs' witnesses gave it as their opinion that the Commission's proration formula, 2/3 allocation of production to the acreage containing the well, by the observed pressure at the well; and 1/3 of the allocation to the potential of the well, by taking the acreage factor at 640 acres in the West, instead of at 160 acres, as in the East Panhandle field, and in giving 2/3 of the allocation to acreage to times pressure, and only 1/3 to the potential of the well, was neither fair nor just, nor in accord with the statute.They declared that it operated unjustly as to plaintiffs, with many wells of high potential and small acreage, to deprive them of their property, and was directly contrary to the statutory provision⁶ under the authority of which the proration was made.

Defendants' witnesses were all of the opinion, and the Commission found, that the formula adopted most nearly complied with and carried out the general mandate of the statute, to justly and fairly allocate and apportion the allowable, and that the proration be so made as to prevent cognizable and preventable drainage of one tract by another.It was here that the real issues between plaintiffs and defendants as to the validity of the statutes and orders, were joined.Plaintiffs throughout insisted that the purpose and effect of the orders was to discriminate against plaintiffs, by severely reducing their allowable, so as to compel plaintiffs to buy from others having no market.Defendants throughout insisted that plaintiffs' real complaint was, that having enjoyed for years a preferential position against other owners in the field under which they drained huge quantities of gas from land other than their own for use in their business, while keeping their own reserves substantially intact, were struggling to perpetuate for the future this situation of cognizable and preventable drainage; the very situation which the statute required the Commission to remedy.Plaintiffs counter that here is the reason and the crux of the whole matter.That the orders as entered do not have the purpose or the effect of preventing cognizable and preventable drainage in the future; they have a punitive and reparative purpose: The purpose and effect of punishing pl...