Trapp v. Shell Oil Co.

ON MOTION FOR REHEARING.

Mr. Justice Slatton

delivered the opinion of the Court.

One of the complaints urged against the majority opinion is that our holding violates Section 1 of Article XI of the Texas Constitution, which requires a separation of powers between the three departments of government. In the case of Trimmier v. Carlton, 116 Texas 572 , 296 S. W. 1070 , similar attacks were made on the statutes there involved. The court held that the constitutional provision invoked did not prohibit the delegation to an administrative body of the power to find facts where the legisture cannot itself practically and efficiently exercise such power. The reason for the holding was grounded upon the law of necessity in that the Constitution itself does not require the impractical or the impossible.

The legislature has delegated to the Railroad Commission

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the power not only to enforce its statutory mandates for the conservation of oil and gas, but also the power to make rules and orders necessary to carry into effective operation the legislative powers.

Rule 37 was promulgated to effectuate the purpose of conservation of oil and gas. It is within the power of the legislature to delegate to the Railroad Commission the duty of determining facts necessary to show the necessity of promulgating the rule and to find and determine facts necessary to grant exceptions thereto. The power to find facts is essential in promulgating Rule 37, both as to the proper spacing of wells generally and the drilling of specific wells as exceptions to the general rule.

When a rule or order has been promulgated in virtue of a statute the vital isjsue is whether under the rule or order the legal rights of the parties in interest are protected. The term “legal rights” embraces both public and private rights. Article 6036a provides for hearing after notice before a rule or order may be adopted by the Railroad Commission (except in limited emergencies)..

Article 6049c, Section 7, further provides for hearing so as to protect the rights of the parties and the public as well.

Rule 37 by its own terms provides “for an exception to- be granted only after hearing to be had on an application duly verified and filed, and then after ten days’ notice has been given to adjacent lessees and after public hearing at which all parties at interest may appear and be heard, and upon a finding that an exception to such rule is necessary either to prevent waste or to protect property belonging to the applicant from confiscation.”

Section 8 of Article 6049c provides that a suit to test the validity of an order of the Railroad Commission must be brought “against the Railroad Commission, or the members thereof.” No other defendant is required by the statute. The statutes thereby evidence the vital interest of the state in the rules and orders of the Railroad Commission which are passed in connection with the conservation of oil and gas.

It has been authoritatively decided that the Railroad Commission is the only necessary party in a proceeding brought in virtue of Section 8 of Article 6049c, which has for its purpose the setting aside of an order of the Railroad Commission to

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grant an exception to Rule 37. Magnolia Petroleum Company v. Edgar, 62 S. W. (2d) 359 , writ refused.

It has been decided in the case of L. P. & B. Oil Corporation v. Gulf Oil Corporation, 115 S. W. (2d) 1034 , writ refused, that a temporary injunction issued against a permittee to prevent the drilling of an oil well under a Rule 37 permit was void because notice had not been given to the Railroad Commission. These decisions show beyond doubt that such a proceeding is not an ordinary civil suit as was decided by this court in the Alpha Oil case, which was cited and approved in the Gulf-Atlantic case, mentioned in the majority opinion. The rule announced in the case of Spear v. Humble Oil & Refining Company, 139 S. W. (2d) 212 , further demonstrates the fact that such a suit is not an ordinary civil suit in that it was there held to be unnecessary for an adjacent lessee to show injury to its private property before it could maintain such a1 suit. In the Alpha Oil case, supra, it was definitely and clearly held that such a suit was not an ordinary civil suit, and the rule was reiterated with equal clearness in the Gulf-Atlantic case, supra. This Court had in effect decided the question prior to those cases in the case of Railroad Commission v. Magnolia Petroleum Company, 130 Texas 484 , 109 S. W. (2d) 967 (which case is generally known as the Century case). The legislative acts delegating to the Railroad Commission the .duty of conserving oil and gas evidence a clear public policy to require the Railroad Commission to decide the matters committed to it and provide ample protection under - the proceedings provided by the statute for those parties in interest who desire to contest the validity of the rule or order of the regulatory body, thus recognizing the vital interest which the public has in every rule or order passed by the Commission. If these considerations are kept in mind, it will not be difficult to see that in the performance of the legislative mandate the' Railroad Commission .in promulgating its rules and orders has provided sufficient safeguards, viz., notice and a public hearing, to protect the private rights as well as the rights of the public. Moreover, under Section 8 of Article 6049c providing for an appeal to the district court of Travis County, it cannot be successfully contended that familiar constitutional safeguards have been violated.

A rule or order of the Railroad Commission made in virtue of a statute which duly authorized it should be considered under the same principles as if it were the act of the legislature, for in such case the Railroad Commission is an agency of the legislature. The difference is that it must first be decided whether

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the power to make the rule was properly delegated by the legislature. In 11 American Jurisprudence, p. 794, Sec., 131, it is stated:

“The same rule that applies to statutes passed by the legislature is equally applicable to regulations set forth by an administrative body. It is settled that to all administrative regulations purporting to be made under authority legally delegated there attaches a presumption of the existence of facts justifying the specific exercise. The presumption of the existence of facts sufficient to. justify an exertion of the police power is strengthened where a regulation is adopted after notice and public hearing.”

Rule 37 was adopted after notice and hearing by the Railroad Commission and all exceptions are granted after verified application and notice and a hearing is had thereon. The rule stated in the text was in effect applied to a case like the present in the Magnolia Petroleum case, supra, known as the Century case, 130 Texas 484 , 109 S. W. (2d) 967 , 971, wherein the court said, in speaking of Rule 37:

“By its language the rule is cast into two distinct parts. The first deals with a spacing pattern for the entire field and for wells generally; the second, with specific wells, to be drilled as exceptions to the general rule. These two parts compose the entire rule, the one as much as the other, and must be construed together. We interpret their legal effect to be this: An applicant for a permit to drill a well, not included within the general terms of the first part of the rule, has the burden of showing a legal right thereto; having secured from the Railroad Commission an order granting a permit to drill, such order, when issued, is presumptively valid. It is made so by statute, and,

being am, official act, would be presumptively valid without a■ statute.”

(Italics ours).

This Court, in testing the constitutionality of a statute, has variably stated the rule as follows:

Ashford v. Goodwin, 103 Texas 491 , 131 S. W. 535 : “This court must sustain it unless its invalidity be apparent beyond a reasonable doubt.”

State v. Hogg, 123 Texas 568 , 70 S. W. (2d) 699 ; on rehearing 123 Texas 578 , 72 S. W. (2d) 593 : “* * * the rule is that every possible presumption is in favor of the constitutionality of a statute, and such presumption obtains until the contrary in shown beyond a reasonable doubt.”

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It is stated in the case of Brown v. City of Galveston, 97 Texas, 1 , 75 S. W. 488 , local citation 492:

“If there be doubt as to the validity of the law, it is due to the coordinate branch of the government that its action should be upheld and its decision accepted by the judicial department.

When these familiar principles of law, so many times declared, are applied to rules and orders within the scope of authority delegated to the Railroad Commission it is readily apparent that there is no departure from the usual concepts of law, but is only indulging the presumption of validity to official acts of those legally charged with the enforcement of conservation of oil and gas in this state.

The duties of the Railroad Commission in passing on an application for a permit to drill a well as an exception provided in Rule 37 are much like the duties enjoined by law upon a board of equalization. Such duties are quasi judicial, but like those considered in the Carlton case, supra, not subject to constitutional inhibitions. The rule with respect to an order of a board of equalization is that the same is valid unless it is shown that either the board was without jurisdiction or the board acted unlawfully to the prejudice of the complainant. City of El Paso v. Howze, 248 S. W. 99 , writ refused; Zachary v. City of Uvalde (Com. App.) 42 S. W. (2d) 417 ; Victory et al v. State, 138 Texas 285 , 158 S. W. (2d) 760 .

The same rule is applicable to the acts of a commissioners court, even though supervisory appeal has been extended to the district court in such cases by the Constitution. In the case of Williams v. Castleman, 112 Texas 193 , 247 S. W. 263 , speaking wiith reference to an order issued by the commissioners court, this Court said:

“The judgment and discretion of the commissioners’ court in the instatit case having been exercised in good faith and without fraud, not arbitrarily, nor in gross abuse of discretion, there is nothing in the record which would warrant an annulment of the order, either upon collateral or direct attack.”

The court further says:

“No principle of law is better settled than that acts of discretion and findings of fact on the part of public officers to which such power is confided, including commissioners’ courts, will not be reviewed on appeal. 22 Ruling Case Law, pp. 490,

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491; Word v. Schow, 29 Texas Civ. App. 120, 68 S. W. 192 ; State v. Goodwin, 69 Texas 57 , 5 S. W. 678 ; Ewing v. State, 81 Texas 172 , 16 S. W. 872 ; Foster v. Hare, 26 Texas Civ. App. 177, 62 S. W. 541 ; State v. Larkin, 41 Texas Civ. App. 253, 90 S. W. 912, 916 ; Scarbrough v. Eubank, 93 Texas 106 , 53 S. W. 573 ."

Thus it will be seen that the application of the substantial evidence rule as it has been applied in the cases cited is not a departure from the rule which has been applied in many cases during the entire history of this state.

There seems to be confusion in the briefs" as to the meaning and effect of the substantial evidence rule. As it has been applied in the case before us, the parties exercised the right of cross examination of witnesses. There was no restraint on any preferred impeaching testimony. There is no information of any perjured testimony in the record before us. The trial court was not required to close its eyes to fraud or sham. The substantial evidence rule does not mean that the parties are limited to the evidence taken by and before the Railroad Commission. The parties may, as the parties have here, introduce any relevant legal testimony in the district court of Travis County. The trial court does not have to consider incredible, perjured or unreasonable testimony because such evidence is not substantial. We shall not undertake to formulate a comprehensive definition of the rule, but it is believed that this Court made a fair statement of the rule in the Trem Carr case, (ante p. 330-333) to which we have referred in our original opinion. Railroad Commission v. Shell Oil Company, 139 Texas 66 , 161 S. W. (2d) 1022 . Speaking of the substantial evidence rule it is said:

“In such a case the issue is not whether or not the agency came to the proper fact conclusion on the basis of conflicting evidence, but whether or not it acted arbitrarily and without regard to the facts. Hence it is generally recognized that where the order of the agency under attack involves the exercise of the sound judgment and discretion of the agency in a matter committed to it by the legislature, the court will sustain the order if the action of the agency in reaching such conclusion is reasonably supported by substantial evidence.

This does not mean that a mere scintilla of evidence will suffice, nor does it mean that the court is bound to select the testimony on one side with absolute blindness to that introduced by the other.

After all, the court is to render justice in the case. The record is to be considered as a whole, and it is for the court to deter

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mine what constitutes substantial evidence.

The court is not to substitute its discretion for that committed to the agency by the legislature, but is to• sustain the agency if it is reasonably supported by substantial evidence before the court. If the evidence as a whole is such that reasonable mjnds could not have reached the conclusion that the agency must have reached in order to justify its action, then the order must be set aside.”

(Italics ours.)

The authority to regulate the natural resources of oil and gas is in virtue of Section 59a of Article XVI of the Constitution. The problem of conservation of these resources has been recognized by this Court to be “complex,” “intricate,” and “exacting.” Corzelius v. Harrell, 143 Texas 609 , 186 S. W. (2d) 961 , and authorities there cited. It is not the function of this Court to pass upon the wisdom of delegating authority to administrative agencies. That a legislative function. It has been previously stated by this Court that “the Railroad Commission must be fair and render justice to the parties.” When the Commission fails in its duty, we should have no hesitancy in declaring its order or rule invalid bút, under the decisions of this Court and on the evidence which we summarized according to the views of the respective parties in this case, it clearly appears that the action of the Railroad Commission in granting the permit in review is reasonably supported by substantial evidence. In such case the trial court should not substitute its judgment for that of the Commission.

It is contended by respondents that since this case was tried under the law as pronounced in the Trem Carr case, supra, we should not reverse and render, but should reverse and remand, in order that the protestants might have another trial under the law as we have declared it to be on this appeal. We pointed out in the original majority opinion that when this case was first tried under'the Gulf-Atlantic case, the trial court decided it in favor and upheld the permit which was granted to him, but when the case was reversed by the intermediate court, the trial court, in the second trial, decided in favor of the protestants and invalidated the permit. Since the issue to be- determined by the trial court is a question of law, and the case appears to have been well developed by both the permittee and the protestants, we can see no benefit to be gained by either of the parties to this suit in remanding the case for another trial.

Respondent further contends that the rule announced in the

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Trem Carr case governing the trial of Rule 37 cases should now be followed by the Supreme Court of Texas. The contention is based on the following facts: that the Trem Carr case was handed down in 1943, and at subsequent sessions of the legislature bills were introduced which had for their purpose the effect of changing the rules governing the nature of the trial of Rule 37 cases which had been declared in the Trem Carr case; that since the legislature refused to pass those proposals, such action amounts to legislative approval of said opinion.

It is also claimed that the Marrs case was approved by the legislature in substantially the same manner. An historical review of the decisions of this Court on the specific questions now before this Court reveals that the Century case was decided on November 3, 1937, Gulf-Atlantic was handed down on July 26, 1939. It was observed in the original opinion in this case that the Court in the Trem Carr case quoted from the Gulf-Atlantic opinion with approval. It was also pointed out in our original opinion in this case that this Court in the Marrs case stated that it was not intended in the Marrs case to either question or overrule either of the cases of Gulf-Atlantic and Trem Carr.

It may be appropriate to here observe that this Court handed down the opinion in the case of Railroad Commission v. Mackhank Petroleum Co., 144 Texas 393 , 190 S. W. (2d) 802 , on November 14, 1945, without a dissent subsequent to all of the hereinbefore mentioned cases.

Thus it is readily seen that the failure of the legislature to pass the two proposals cannot be given the force claimed for if by the respondents. If nonaction of the legislature be given weight, the balance of the scales is toward the other cases rather than the Trem Carr and Marrs cases.

Since the Century and Gulf-Atlantic cases were decided so many years ago and many property rights have no doubt been acquired under them, we should not at this late day change them, even though doubt as to their correctness may exist in the minds of some lawyers and judges.

We have carefully considered all motions for rehearing which have been filed by the respondents, as well as all of the briefs which have been filed by counsel appearing as amici curiae.

The motions for rehearing will be in all things overruled.

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Opinion on motion for rehearing delivered November 27,1946.

Second motion for rehearing overruled December 31, 1946.