Imperial American Resources Fund, Inc. v. Railroad Commission of Texas, B-6513

• Decision Date: 27 September 1977
• Docket Number: No. B-6513,B-6513
• Citation: 557 S.W.2d 280
• Parties: IMPERIAL AMERICAN RESOURCES FUND, INC., Appellant, v. RAILROAD COMMISSION OF TEXAS et al., Appellees.
• Court: Texas Supreme Court

Page 280

557 S.W.2d 280

IMPERIAL AMERICAN RESOURCES FUND, INC., Appellant, v. RAILROAD COMMISSION OF TEXAS et al., Appellees.

No. B-6513.

Supreme Court of Texas.

Sept. 27, 1977.

Scott & Douglass, Ivan D. Hafley and Frank R. Douglass, Austin, for appellant.

John L. Hill, Atty. Gen., Linward Shivers, Asst. Atty. Gen., Graves, Dougherty, Hearon, Moody & Garwood, Dan Moody, Jr., and Robert C. Grable, Austin, for appellees.

DANIEL, Justice.

This is a direct appeal from a trial court judgment upholding the validity of a Railroad Commission Rule 37 Order and denying plaintiff's request for an injunction against the Commission and the holder of the Rule 37 Exception Permit from proceeding under the order.

The plaintiff, Imperial American Resources Fund, Inc., filed this suit against the Railroad Commission and BTA Oil Producers on October 12, 1976, attacking the validity of an order of the Commission dated September 20, 1976, granting the Rule 37 Exception Permit for BTA to drill a gas well on its 644.16 acre JV-P Riggs lease in the Gomez (Ellenburger) Field in Pecos County. The Gomez Field Rules adopted in 1967 permitted one gas well on each 640 acres and provided that no well is to be drilled nearer than 1980 feet to any property or lease line. Under these Field Rules and the Commission's Statewide Rule 37, exceptions to these distances may be permitted upon the Commission's determination "that such exceptions are necessary either to prevent waste or to prevent the confiscation of property." ¹

BTA Oil Producers applied for an exception so that it might drill in the northeast portion of its lease at a location 1320 feet instead of 1980 feet from its north and east lines. It alleged that such location was necessary to penetrate the area of higher structure and good sand permeability and thus obtain a reasonable opportunity to produce the hydrocarbons under its lease. BTA further alleged that it would otherwise suffer confiscation through net uncompensated drainage by wells on adjacent tracts. Imperial American, owner of a 640 acre lease adjoining the BTA lease on the north, opposed BTA's application for the exception. See map below for relative locations.

Imperial had one of the more prolific gas wells in the field at a location about midway between the east and west lines of its lease and about 3350 feet north of its common boundary with the BTA tract. The accompanying map, adapted from BTA's Exhibit 1, shows the relative location of the BTA lease covering Section 7 of T. & St. L. RR BLK 146 and Imperial's lease on Section 6 of the same survey. The arrow on Section 7 points to the location sought by BTA. The circle nearer the southeast portion of Section 7 indicates the location of a non-commercial gas well completed and subsequently abandoned by Texaco. Near the center of Section 6 is a circle marking the location of Imperial's gas well. There are circles around producing gas wells on other Sections in the depicted area of the field. According to BTA's witness, the higher permeability and areas of better gas wells are shown on this map within the two dashed lines which encompass the indicated part of BLK 203, most of Section 1, practically all of Section 6, the northeast portion of Section 7, the southwest portion of Section 5, most of Section 8 and portions of Sections 9, 10, 15, 22, 21, 20, and all of Sections 13 and 14.

The Commission's order granting BTA's application was based upon eleven findings of fact from which the Commission concluded that the granting of the exception "is necessary to afford applicant a reasonable opportunity to recover the Ellenburger hydrocarbons underlying applicant's lease, or the equivalent in kind, and is necessary to protect applicant's correlative rights and prevent confiscation of applicant's property." As heretofore stated, Imperial filed this suit alleging the order to be void and seeking to enjoin the Commission and BTA from proceeding thereunder. From a trial court judgment denying the relief sought, Imperial brings this direct appeal pursuant to Article 1738a and Rule 499a of the Texas Rules of Civil Procedure. ² We affirm the judgment of the trial court and base our opinion on the following disposition of the issues raised by this appeal.

Applicability of the Administrative Procedure Act

Imperial's first point of error is based upon an allegation that the order prejudices the substantial rights of Imperial and is based upon unlawful procedure in that the findings of fact are not sufficient under the relatively new Administrative Procedure and Texas Register Act, which became effective on January 1, 1976. ³ This is the first direct appeal from a Railroad Commission order of this nature which has been filed with this Court since the effective date of the Act.

Consideration of Imperial's first point requires an examination of the general effect of the APA on Railroad Commission proceedings. All parties agree that the Act is applicable to the Railroad Commission and to judicial review of its orders. With a few stated exceptions, the Act applies generally to administrative agencies of the State. The Railroad Commission is not excepted. Appeal from its orders are still initiated as provided in Section 8 of Article 6049c, as follows:

"Any interested person affected by the conservation laws of this State relating to crude petroleum oil or natural gas, and the waste thereof, including this Act, or by any rule, regulation or order made or promulgated by the Commission thereunder, and who may be dissatisfied therewith, shall have the right to file a suit in a court of competent jurisdiction in Travis County, Texas, and not elsewhere, against the Commission, or the members thereof, as defendants, to test the validity of said laws, rules, regulations or orders. Such suit shall be advanced for trial and be determined as expeditiously as possible and no postponement thereof or continuance shall be granted except for reasons deemed imperative by the Court. In all such trials, the burden of proof shall be upon the party complaining of such laws, rules, regulation or order; and such laws, rules, regulation or order so complained of shall be deemed prima facie valid."

Relevant portions of the Administrative Procedure Act (Article 6252-13a) are as follows:

"Sec. 16. . . .

"(b) A final decision must include findings of fact and conclusions of law, separately stated. Findings of fact, if set forth in statutory language, must be accompanied by a concise and explicit statement of the underlying facts supporting the findings. . . .

"Sec. 19. . . .

"(d) If the manner of review authorized by law for the decision complained of is other than by trial de novo:

"(1) after service of the petition on the agency, and within the time permitted for filing an answer (or such additional time as may be allowed by the court), the agency shall transmit to a reviewing court the original or a certified copy of the entire record of the proceeding under review. . . .

"(2) any party may apply to the court for leave to present additional evidence and the court, if it is satisfied that the additional evidence is material and that there were good reasons for the failure to present it in the proceeding before the agency, may order that the additional evidence be taken before the agency on conditions determined by the court. The agency may modify its findings and decision by reason of the additional evidence and shall file such evidence and any modifications, new findings, or decisions with the reviewing court;

"(3) the review is conducted by the court sitting without a jury and is confined to the record, except that the court may receive evidence of procedural irregularities alleged to have occurred before the agency but which are not reflected in the record.

"(e) The scope of judicial review of agency decisions is as provided by the law under which review is sought. Where the law authorizes appeal by trial de novo, the courts shall try the case in the manner applicable to other civil suits in this state and as though there had been no intervening agency action or decision. Where the law authorizes review under the substantial evidence rule, or where the law does not define the scope of judicial review, the court may not substitute its judgment for that of the agency as to the weight of the evidence on questions committed to agency discretion but may affirm the decision of the agency in whole or in part and shall reverse or remand the case for further proceedings if substantial rights of the appellant have been prejudiced because the administrative findings, inferences, conclusions, or decisions are:

"(1) in violation of constitutional or statutory provisions;

"(2) in excess of the statutory authority of the agency;

"(3) made upon unlawful procedure;

"(4) affected by other error of law;

"(5) not reasonably supported by substantial evidence in view of the reliable and probative evidence in the record as a whole ; or

"(6) arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion." (Emphasis supplied.)

It is apparent from the Act and from Section 8 of Article 6049c that orders of the Commission are still deemed to be prima facie valid and subject to review under the substantial evidence rule. The principal changes are that the Commission must include in its decision findings of fact and conclusions of law ⁴ and judicial review is based on the record made before the administrative agency, except as to procedural irregularities mentioned in Sec. 19(d)3, supra.

Prior to the effective date of the Administrative Procedure Act (January 1, 1976), judicial review of a Railroad Commission conservation order was by trial in the district court upon a new record of evidence developed in the court without regard to the evidence heard by the Commission. The Commission's order was tested by the substantiality of the evidence adduced in the district court trial. The...