State Corporation Commission of Kansas v. Wall

• Decision Date: 29 June 1940
• Docket Number: No. 2069.,2069.
• Citation: 113 F.2d 877
• Parties: STATE CORPORATION COMMISSION OF KANSAS et al. v. WALL et al.
• Court: U.S. Court of Appeals — Tenth Circuit

113 F.2d 877 (1940)

STATE CORPORATION COMMISSION OF KANSAS et al. v. WALL et al.

No. 2069.

Circuit Court of Appeals, Tenth Circuit.

June 29, 1940.

Harold Medill and John F. Jones, both of Topeka, Kan., for appellants.

W. C. Franklin, of Tulsa, Okl., and Morris H. Cundiff, of Wichita, Kan., for appellees.

Before PHILLIPS and BRATTON, Circuit Judges, and MURRAH, District Judge.

PHILLIPS, Circuit Judge.

A proceeding under § 74 of the Bankruptcy Act, 11 U.S.C.A. § 202, was pending in the District Court of the United States for the District of Kansas, No. 4634 in Bankruptcy.

On June 7, 1939, Jesse D. Wall filed a petition in the proceeding, averring therein that on July 22, 1938, he was appointed receiver of the property and estate of the debtors in the bankruptcy proceeding; that the principal asset of the debtors' estate is an oil and gas lease on eighty acres of land in Rice County, Kansas, known as the Campbell Lease; that at the time he took possession of the lease, there was one producing oil well located on the west forty acres thereof which had a potential production of 252 barrels of oil per day; that after his appointment, the well was deepened and the potential production thereof was increased to 906 barrels of oil per day; that there was neither a market demand nor marketing facilities for such oil; that income from the sale of oil amounted to $750 per month; that the debtors' liabilities aggregated $75,000; that in October, 1938, the debtors and the receiver procured the nomination of Cushing Refining & Gasoline Company of Cushing, Oklahoma,¹ to take 2,000 barrels of oil per day from such well and from offset wells in the area known as the Campbell Pool.

That after a hearing, the State Corporation Commission of Kansas,² in December, 1938, found that no waste would be committed by the production and sale of oil from such wells under the nomination of Cushing and entered its order accordingly.

That Cushing has operated for more than seventeen years, at Cushing, Oklahoma, a refinery with a capacity of 4,000 barrels of oil per day; that Cushing was not, prior to such nomination, and is not now purchasing any other oil produced in the state of Kansas.

That prior to January, 1939, the Campbell well was connected with the pipe line of the Skelly Oil Company,³ and Skelly was taking all oil which the receiver was then allowed to produce; that in order for the receiver to procure pipe-line delivery to Cushing, it was necessary to sever the connection with the Skelly pipe line and to lay a pipe line for a distance of approximately one mile to the Kaw pipe line; that under such nomination and allowable, the receiver sold to Cushing, from the well on the west forty acres, 10,241 barrels of oil in January, 9,572 barrels in February, 7,920 barrels in March, and 8,042 barrels in April, 1939, receiving therefor $28,665.70; that the production during such months was less than fifty per cent of the potential capacity of the well and that such production and sales were made without waste.

That after the nomination of Cushing, and the order of the Commission, and as a result thereof, on February 15, 1939, an arrangement for extension of time to the debtors in which to pay their debts was duly approved in the proceedings; that if the receiver is allowed to produce oil from such well under such nomination and allowable, the creditors of the debtors will be paid in full and the debtors financially rehabilitated.

That after such nomination and allowable, and as a result thereof, the receiver was able to negotiate a contract for the drilling of a well on the east forty acres for the sum of $30,000, to be paid from oil produced and sold from such well; that the well on the east forty acres was completed on March 15, 1939, with a potential production of 356 barrels of oil per day; that thereupon, Cushing included such well in its nomination.

That the Legislature of Kansas, at its 1939 session, enacted a statute relating to the production of crude oil, defining and prohibiting waste thereof, and conferring powers upon the Commission relating thereto. See ch. 227, Kan.Sess.Laws, 1939, p. 456.⁴

That subsequent to the enactment of such law, the receiver was allowed to run 4,254 barrels of oil from the well on the west forty acres during the month of May, 1939; that pursuant to notice, the Commission convened in May, 1939, to fix the allowables on wells in Kansas for the months of June, July, and August, 1939; that at such hearing, the nomination of Cushing was presented; that on June 1, 1939, the Commission reduced the allowable for the Campbell well on the west forty acres from 4,254 to 2,267 barrels per month, and charged it with an alleged overproduction for the month of April, leaving no allowable production for June, and reduced the allowable for the well on the east forty acres from 2,760 to 1,781 barrels per month.

That other wells in the Campbell Pool were owned by companies who were large producers and purchasers of oil or by other oil producers who had pipe-line connections and a ready market; that the order of June 1, 1939, was contrary to provisions of ch. 227, supra, and, if in accordance therewith, was violative of the Constitution of the State of Kansas and the Constitution of the United States; that if said order is permitted to stand, it will be unprofitable for Cushing to continue to take the small amount of oil which the receiver will be permitted to run thereunder and the market for the oil from the wells on such lease will be lost.

That the receiver desires to petition the Commission for a rehearing and should such rehearing be denied, to bring an action in a state court of Kansas, pursuant to the provisions of § 5 of ch. 227, supra, for a review of such order; that such proceeding will consume a substantial period of time and unless the Commission is temporarily enjoined and restrained from enforcing such order as against the wells on such lease, the receiver will lose his market with Cushing and will suffer irreparable loss and damage.

In his petition, the receiver prayed for an order authorizing and directing him to seek a rehearing before the Commission and, if necessary, a review of the order of June 1, 1939, in the proper state court and enjoining the Commission from interfering with the production and sale of 4,038 barrels of oil per month from the well on the west forty acres and 3,174 barrels of oil per month from the well on the east forty acres during the months of June, July, and August, 1939.

On June 7, 1939, the court entered an ex parte order in which it directed the receiver to take the necessary proceedings for a rehearing and review of the order of June 1, 1939, and enjoined the Commission, pending such proceedings and until the further order of the court, from interfering with the production and sale of oil by the receiver in the amount of 4,038 barrels per month...