# Tenneco Oil Co. v. El Paso Natural Gas Co.

> Supreme Court of Oklahoma · October 10, 1984 · 687 P.2d 1049

URL: https://www.frixlaw.com/law-library/cases/9615567

## Case

- **Full name:** TENNECO OIL COMPANY, a Corporation, Appellee, v. EL PASO NATURAL GAS COMPANY, a Corporation, Appellant
- **Court:** Supreme Court of Oklahoma
- **Decided:** October 10, 1984
- **Citations:** 687 P.2d 1049
- **Precedential status:** Published
- **Opinion:** Dissent by Opala
- **Judges:** Alma, Barnes, Doolin, Har-Grave, Hodges, Kauger, Lavender, Opala, Simms, Wilson
- **Cited by:** 54 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9615567

## How later opinions describe it (automated extraction)

- finding that the trial court has jurisdiction over a case between interested parties to a forced-pooling order who contracted between themselves concerning the interests created by the forced-pooling order and where no public issue within the jurisdiction of the OCC was change…

## Opinion text

OPALA, Justice,
joined by BARNES, Chief Justice, and HODGES, Justice, dissenting:
The opinion holds that the district court may settle disputed claims to participation rights conferred by, and acquirable through compliance with, the terms of a forced-pooling order of the Corporation Commission [Commission or Agency]. Because I deem these controversies to lie within the exclusive jurisdiction of the Commission, I recede from today’s pronouncement.
I
THE DISPUTE
The dispute arises from a pooling order conferring on Tenneco [appellee] provisional operator status conditioned on commencement of operations within ninety days. If Tenneco failed to do so within this period, El Paso [appellant] would become the unit operator. Tenneco would, in such event, have fifteen days to elect to participate in the drilling of the proposed well or to accept, in lieu of it, a royalty interest with cash bonus. The pooling order did not specify how the election was to be communicated to El Paso and this ambiguity gave rise to the present controversy. Tenneco sued in the district court to quiet its asserted title to a contested working interest and contended that it did communicate to El Paso its intention to participate in the well. El Paso argued that Tenneco failed timely to elect. Another dispute in the case concerned a joint operating agreement which Tenneco contended was binding on the parties. According to Tenneco’s position, this agreement allowed it to participate in the costs and proceeds of the well quite apart from a valid election. The trial court ruled in Tenneco’s favor, finding both a properly communicated election and a valid operating agreement.
II
A SHARED EXERCISE OF JURISDICTION
It has been suggested that this case is suitable for an exercise of shared cognizance by both court and agency. Some commentators have urged that we seize upon the opportunity and adopt here the doctrine of primary jurisdiction. 1 That doctrine is said to offer Oklahoma a solution to the problem of dichotomous court/agency jurisdiction which is much to be preferred over the current search for some elusive bright line of demarcation separating judi- *1057 eial from administrative competence. 2 The primary jurisdiction doctrine calls for judicial deference to administrative primacy over issues that lie within the special expertise or cognizance of an agency. When raised in a court action, these issues must be referred for agency resolution before the court may proceed to grant the judicial relief sought. There are several variations of this doctrine and scholars do not agree which of these is to be regarded as the orthodox version. 3
Institutional interplay of courts with agencies doubtless would be an improvement over the rigidity of maintaining two separately-structured jurisdictional corridors. But it would not dispense with having to draw a line of demarcation between district court “issues” and those lying within the exclusive cognizance of the Commission. That boundary is presently plagued by lack of an articulately defined location. 4 Because I find no “court issues” in this ease but only matters exclusively within agency jurisdiction, there appears to be no basis for giving consideration to applying here the flexibility of institutional interplay provided by the doctrine of primary jurisdiction.
Ill
THE COMMISSION’S EXCLUSIVE JURISDICTION OVER ELECTION-RELATED ISSUES
The first issue before the district court was whether Tenneco did timely communicate to El Paso its intention to participate in the well. Because the pooling order was silent as to the manner of communicating an election, resolution of that issue called for the district court (a) to supply the missing terms in the pooling order and (b) to determine Tenneco’s compliance with the *1058 terms (those expressly shown and those supplied) of the Commission order and its policies. The district court is explicitly prohibited by statute from entertaining suits for declaration of rights acquired under an order of the Corporation Commission. 5 Our fundamental law, Art. 9 § 20, Okl. Const., denies with equal clarity to all courts, except the Supreme Court, the power to review Commission orders. 6 Lastly, Commission orders made pursuant to the oil-and-gas conservation statutes may be reviewed only in the Supreme Court. 7 Cognizance to interpret and construe pooling orders is withdrawn from the district courts. Most recent jurisprudence from this court limits district court power over Commission orders to ascertaining whether the order is facially void. 8 Extant decisions that prohibit varying forms of collateral attack on Commission orders are in accord with this statutory and constitutional demarcation of jurisdiction. 9
The conclusion to be drawn from case law is that when a pooling order is facially void for want of notice, a district court may declare it ineffective, 10 but if the working interest owner, deprived of participation option by want of notice, seeks an opportunity to elect, the Commission constitutes the sole tribunal with power to grant relief. 11 Because El Paso sought to invali *1059 date Tenneco’s election not on the basis of facial invalidity but because of Tenneco’s alleged noncompliance with the terms of the Commission’s pooling order, subject-matter cognizance of the dispute resided solely in the Commission.
When the Legislature placed the pooling order under the charge of the Commission, it did so with the directive that it should be made after notice and hearing and “upon such terms as are just and reasonable” to insure each pooled owner his “just and fair share of the oil and gas”. 12 Under this delegation, the Commission fashions pooling orders and prescribes their special terms. These include the so-called “election to participate” which operates to bar participation on one’s failure timely to elect under the provisions of an order. 13
In short, the so-called election is the progeny of the statutorily-created pooling order and a regulatory device of the Commission. It is hence clear the first issue in this case was outside the district court’s jurisdiction.
The second issue presented to the district court was couched in terms of a private contractual dispute. The district court held the contract “superseded and modified” the terms of the pooling order.
Implicit in the resolution of the second issue below — that the critical pooling order provisions stood “modified and superseded” by the Tenneco/El Paso operating agreement — is the trial court’s clearly erroneous assumption that an election right may be altered by less than all of its holders acting without approval of the Commission. An option to convert one’s interest is made available in the exercise of the state’s nondelegable police power as an instrument of governmental policy. It may be viewed neither as a “private playhouse” nor as a product of contract law.
Because the state cannot surrender or share its police power with any private party, that power cannot be bargained away to anyone, either directly or obliquely. 14 Just as Commission approval is required to change an operator, so is Commission imprimatur necessary to modify the pooling order’s provision for conversion of mineral interests to participation rights. 15 In sum, the question whether an option holder did timely and effectively exercise his right of election under a pooling *1060 order is to be gauged not by the familiar offer-and-acceptance test of the contract law but rather by the holder’s compliance with the terms provided in the source by which the right was conferred. That source — the pooling order — is plainly beyond the district court’s reach either for construction or clarification. 16 Private parties are not legally free to take greater liberties with a Commission order than may the district court.
If a claim is rooted in an option afforded by the pooling order, it stems from the Commission’s exercise of its regulatory power. It cannot be transformed into a private contract interest by the magic of a subsequent operating agreement. An election right 17 cannot be conferred by private contract. It must have its genesis in the Commission order. Although by contract the parties may vary a pooling order’s election provision, 18 they must do so on due notice to all other interested parties and upon a hearing before, and approval of, the Corporation Commission. A contrary rule would enable the operator to discriminate in favor of or against some bearers of the Commission-conferred election rights.
The district court may not — under the guise of its private-law authority to enforce contracts — alter the legal effect of core provisions in a Commission order. Just as the election dispute tendered by the first issue lies within the Commission’s exclusive cognizance, so the Commission-imposed result of an election or non-election under the pooling order may not be negated, modified or abridged by the district court’s unwarranted assumption of adjudicative authority over a disguised private contract issue. 19
Commission orders may not be circumvented by resort to collateral agreements posing as “private contracts”. Such agreements do not embody purely private arrangements but are mere extensions of the statutorily created and regulated interest.
In short, the Commission is the proper tribunal to resolve election-related contests. Deference to the Commission’s special zone of authority will not create any diminution of judicial power. The judiciary will continue to assert its cognizance over those issues that are properly within the sphere of its history-shaped functions. 20
The Commission’s exclusive jurisdictional authority includes enforcement, interpretation and clarification of its orders. 21 Such authority prohibits district courts from enjoining, reversing or interfering with administrative actions of the Commission. 22
Oklahoma is long overdue for a bright and consistent boundary line separating district court cognizance from that of the *1061 Commission over disputed claims in the aftermath of a pooling order. Election-related controversies must belong on the same side of the line as those which tender for adjudication rights to drill additional wells in the drilling and spacing unit or to determine additional development costs under a pooling order. 23 We do not further public interest when the line drawn places beyond the Commission’s reach those post-pooling-order claims which are vital to the enforcement scheme of its regulatory power.
I would reverse the trial court’s judgment with directions to dismiss the action for want of subject-matter jurisdiction.
. Primary jurisdiction comes into play whenever enforcement of the claim requires resolution of issues which under a regulatory scheme have been placed within the special competence of an administrative agency. Thus, in order for primary jurisdiction to be invoked the claim must involve issues that fall within the scope of the regulatory scheme. District courts have original jurisdiction of all controversies unless the jurisdiction has been assigned to some other body by statute. See Barnes, Interpretation of Corporation Commission orders: The Dichotomous Court/Agency Jurisdiction, VIII Okla.City L.Rev. 311, 327-330; Chatfield, Subject Matter Jurisdiction of the Oklahoma Corporation Commission: Tenneco Oil Co. v. El Paso Natural Gas Co., 19 Tulsa L.J. 465 , 474-479 [1984].
. Barnes, supra note 1 at 330; Chatfield, supra note 1 at 482.
. Chatfield, supra note 1 at 474-475.
. Extant case law is not easily reconcilable nor does it provide guidance in charting a path that divides judicial and agency jurisdiction compatible with constitutional and statutory purpose. These decisions, far from creating a bright line of demarcation, clearly point out the confusion with respect to the court/agency dichotomy. The zones of authority saved to the special jurisdiction of the Commission and those which are within the general powers of the district court have become increasingly blurred as the Legislature and the administrative agencies create new patterns of regulation that were unknown at common law. In Central States Power & Light Corp. v. Thompson, 177 Okl. 310 , 58 P.2d 868, 870 [1936], the Commission was held not to have jurisdiction over a controversy involving rates charged to natural gas customers, even though the Commission had itself established the rates. The decision was based on a public interest/private rights dichotomy. Southern Union Production Co. v. Corporation Commission, Okl., 465 P.2d 454, 457-458 [1970], held that the Commission could not construe or interpret its own prior pooling order. (For a thoughtful analysis and discussion of this case, see Hart, Interpreting Corporation Commission Orders — Should the Commission be a Spectator or a Player? 48 Okl.BJ. 1343 [1977]). But in Southern Oklahoma Royalty Owners Ass'n v. Stanolind Oil & Gas Co., Okl., 266 P.2d 633, 637 [1954] the court held that some terms could be modified on changed conditions. And in Cabot Carbon Co. v. Phillips Petroleum Co., Okl., 287 P.2d 675, 679 [1955], the court recognized Commission power to clarify its previous orders without threatening jurisdiction of the courts. Amarex, Inc. v. Baker, Okl., 655 P.2d 1040, 1043 [1983], later distinguished Cabot Carbon and Southern Union by stating that the Commission’s order in Southern Union constituted the Commission’s opinion as to legal effect of rights on drilling and subsequent plugging of a test well; since the order was not expressly or impliedly authorized by Constitution or statute, it was beyond the Commission’s authority. (See Chatfield, supra note 1 at 485, for a criticism of this analysis.) Amarex held that express statutory intent need not limit administrative jurisdiction, but powers could be "implied as reasonably and necessarily incident to those expressly granted”. Okl., 655 P.2d 1040, 1045 [1983], Continental Tel. Co. v. Hunter, Okl., 590 P.2d 667, 668 [1979], indicated only that the constitution and statutes limit the Commission’s legislative, judicial and executive powers. In his special concurring opinion thereto, Opala, J., at 669-670, noted that Oklahoma’s constitution gives the Commission "exclusive original jurisdiction over rate making ... to preserve inviolate the commission’s constitutional responsibility to protect the rate-paying public as a whole.” Dictum in Crest Resources & Exploration Corp. v. Corporation Comm'n, Okl., 617 P.2d 215, 218 [1980], further indicated that the Commission has jurisdiction to adjudicate liability arising from disputed cost overruns under a pooling order.
. The terms of 12 O.S. 1981 § 1657 provide: "This act [Uniform Declaratory Judgments Act] shall not be applicable to orders, judgments, or decrees made by the State Industrial Court, the Corporation Commission , or any other administrative agency, board or commission of the State of Oklahoma.” [emphasis added],
. The adjudicative power of the district court seems to overlap — at least facially — with that which stands assigned to the Commission. Stipe v. Theus, Okl., 603 P.2d 347, 350 [1979]. In Art. 7 § 7, Okl. Const., the root source of that power is present. That section is often partially quoted to infer that there are no constitutional limits to the power of the district court since the district court has "... unlimited original jurisdiction of all justiciable matters ..." This familiar phrase must be read together with the less-often used part of that section which qualifies its effect with the language "... except as otherwise provided in this Article, and such powers of review of administrative action as may be provided by statute ..." [emphasis added]. Art. 7 § 7, Okl. Const. Any court — other than this court (Art. 9 § 20, Okl. Const.) — is statutorily denied the power to review Commission orders made pursuant to the oil-and-gas conservation statutes. 52 O.S. 1981 § 111; Woods v. Sledge, Okl., 632 P.2d 393, 394 [1981]. This takes Commission pooling orders out of the constitutional rubric of "justiciable matters” and places them in the second category of the district court cognizance — that of "review of administrative action". The latter is relegated by our fundamental law to allocation by legislative discretion. Courts are constitutionally prohibited from interfering with the Commission’s exercise of its adjudicative functions. Art. 9 § 20, Okl. Const.
The Commission is explicitly invested with jurisdiction of cost-overrun disputes over the ultimate liability attachable to the interest-holders. 52 O.S. 1981 § 87.1(e); Stipe v. Theus, supra. Stipe v. Theus demonstrates that money judgments based on a final adjudication of the Commission are matters of private law and fall back into the "justiciable issues” within the jurisdiction of the district court. Accord: Shell Oil Company v. Keen, Okl., 355 P.2d 997, 1000 [1960] which sanctions a private action for an accounting that is based upon a final order of the Commission. See also Olansen v. Texaco, Inc., Okl., 587 P.2d 976 [1978].
. 52 O.S. 1981 § 111; Woods Petroleum Corp. v. Sledge, supra note 6.
. Gulfstream Petroleum Corp. v. Layden, Okl., 632 P.2d 376 [1981] and Chancellor v. Tenneco Oil Co., Okl., 653 P.2d 204, 207 [1982]; see also McDaniel v. Moyer, Okl., 662 P.2d 309, 312-313 [1983],
. Whether an application to the Commission for a second or supplemental order, based on a prior order, may present issues that remain open for litigation, is a question dealt with in the following cases: (1) absent a vitiating infirmity, an order pooling interests is res judicata (Crest Resources and Exploration Corporation v. Corporation Commission, supra note 4 at 218); (2) some terms may be modified upon changed conditions (Southern Oklahoma Royalty Owners Ass’n v. Stanolind Oil and Gas Co., supra note 4 at 637) or clarified under 52 O.S. 1981 § 112 (Cabot Carbon Co. v. Phillips Petroleum Co., supra note 4 at 679).
. Gulfstream Petroleum Corp. v. Layden, supra note 8; Chancellor v. Tenneco Oil Co., supra note 8.
. In Cravens v. Corporation Commission, Okl., 613 P.2d 442, 444 [1980], a Commission order establishing a drilling and spacing unit was reversed for want of a constitutionally sufficient *1059 notice to owners of mineral interest whose whereabouts and identity were ascertainable.
. 52 O.S. 1981 § 87.1.
. Extant case law clearly upholds the Commission’s cognizance of election-related disputes arising after the pooling order’s promulgation. In Gose v. Corporation Commission, Okl., 460 P.2d 118, 121 [1969], the Commission undertook to hear an application by a working interest owner who sought relief from his failure to elect on the grounds that he had been given no advance notice of the compulsory pooling proceeding. We upheld the Commission power to proceed with a hearing on the application. Buttram Energies, Inc. v. Corporation Commission, Okl., 629 P.2d 1252, 1254 [1981], involved a mineral owner’s unsuccessful attempt before the Commission to secure a second pooling order (and opportunity to participate in the unit well) on the theory that the first one was ineffective as to him because the operator had failed timely to tender him the fixed per-acre bonus payment in lieu of participation. This court restated the rule that on a proper application and showing, the Commission has the authority to "amend, modify or supplement” the election provisions of its pooling order.
. Extant case law is clear that the state's police power is inalienable. In Public Service Co. of Okl. v. Caddo Electric Coop., Okl., 479 P.2d 572, 575 [1971], it is stated that "a reasonable exercise of the police power of the state cannot be contracted away by contracting parties”. In National Bank of Tuba Bldg. v. Goldsmith, 204 Okl. 45 , 226 P.2d 916, 921 [1951] — in the context of our workers’ compensation law — it was noted that the "police power b an attribute of sovereignty or in effect b sovereignty, and the State and its police power cannot be separated", [emphasis added]. There we also stated that it is “fundamental that the Legblature of a state may not part with any of its right to exercbe the police power", [emphasis added]. In short, police power b both nondelegable and inalienable. See also: Chicago R.I. & P. Ry. Co. v. Taylor, 79 Okl. 142 , 192 P. 349, 354 [1920]; Arneson v. Shary, 32 S.W.2d 907, 910 [Tex.Civ.App.1930]; Schmitt v. F.W. Cook Brewing Co., 187 Ind. 623 , 120 N.E. 19, 21 [1918]; Stone v. State of Mbsb-sippi, 101 U.S. [11 Otto] 814, 25 L.Ed. 1079, 1080 [1879]; Banker v. Jefferson County Water Control & I. Dbt., 277 S.W.2d 120, 122 [Tex.Cr.App. 1955]; American Federation of Labor v. Watson, 60 F.Supp. 1010, 1016 [S.D.Fla.1945].
. Crest Resources and Exploration Corporation v. Corporation Commbsion, supra note 4.
. See 12 O.S. 1981 § 1657, quoted at footnote 5, supra; McDaniel v. Moyer, supra note 8 at 312.
. Definition of the election to participate may be found in Nesbitt, A Primer on Forced Pooling of Oil and Gas Interests in Oklahoma, 50 OBJ 648, 652-653 [1979].
. While parties whose interests are pooled may enter into private agreements governing their relationship, they may not transfer the operator’s public-law-delegated status without Commission approval. Crest Resources and Exploration Corporation v. Corporation Commission, supra note 4.
. Otherwise, operators would be given an open-ended range of options in their dealings with interest owners. This freedom of choice ■would not be consistent with the Corporation Commission’s responsibility to control the activities of the operators whose duties are nondele-gable. Crest Resources and Exploration Corporation v. Corporation Commission, supra note 4.
. Adjudication of claims involving purely private ownership interests is reserved to the courts. Burmah Oil & Gas Co. v. Corporation Commission, Okl., 541 P.2d 834, 835, 836 [1975]. District courts may examine Commission orders only to decide the Commission’s jurisdiction to issue such orders. Gulfstream Petroleum Corp. v. Layden, supra note 8 at 378.
. The Declaratory Judgments Act grants the Commission exclusive authority to interpret and construe its own orders. See 12 O.S. 1981 § 1657, quoted in footnote 5, supra. See also Chatfield, supra note 1 at 481, 482 and Constantin v. Martin, 216 F.2d 312, 317 [10th Cir.1954].
. Art. 9 § 20, Okl. Const.; see 52 O.S. 1981 § 111; Woods Petroleum Corp. v. Sledge, supra note 6 at 396; Gulfstream Petroleum Corp. v. Layden, supra note 8.
. In Woods Petroleum Corp. v. Sledge, supra note 6, the Commission authorized the operator to drill three additional wells on a drilling and spacing unit and allowed the mineral interest owners the opportunity to elect. The operator sought, in the district court, to quiet its title to drill the wells in question and, in effect, determine that mineral interest owners' failure to elect to participate in the first well barred their right to participate in the drilling of the additional wells. This court held the quiet title suit constituted an unauthorized collateral attack on the Commission order in that the "Commission has the sole authority to adjust the equities and to protect the correlative rights of interested parties".
In Amarex, Inc. v. Baker, supra note 4, the focus of the dispute was on whether the working interest owners’ election to participate in a well did extend to a second borehole that was drilled when the surface casing broke off in the first borehole. The Commission dismissed — as de-hors its jurisdiction — the operator’s application for a determination that the costs of the second borehole were to be apportioned among the participating interest owners. This court held that within the Commission’s jurisdictional sweep to determine development costs lie all those implied powers that are necessary to review and construe the meaning of the language used by the Commission in its orders. Because the question whether the costs of the second borehole constituted proper well costs had not been explicitly resolved by the Commission, we directed it to hear the operator’s application.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9615567. Public record. Not legal advice.