Brief for the Petitioners — Burford v. Sun Oil Co.

Supreme Court of the United States

OCTOBER TERM, 1942

No. 495

G. E. BURFORD, ET AL.,

Petitioners

Vv.

Sun O1L CoMPANY, ET AL.,

Respondents

BRIEF FOR PETITIONERS

v GERALD C. MANN

Attorney General of Texas

Ep Roy SIMMONS

JAMES D. SMULLEN

Assistant Attorneys Genera]

Attorneys for Petitioners,

Railroad Commission of

Texas and its Members

F. L. KUYKENDALL

4 James P. HART

Austin, Texas

Attorneys for Petitioners,

G. E. Burford, Et Al.

FIRM FOURDATION—AUeTIN

a > PP Ge wp ew

——s

Subject Inde.:—Continued

Page

4, Even if the duty rested upon the District

Court to exercise its independent juagment

in determining the reasonableness of the

Railroad Commission’s order under the state

‘law, the District Court heard sufficient evi-

dence to justify its holding that the order is

Railroad Commission v. Rowan & Nichols Oil

_ valid ‘under the state law 26

Conclusion 33

TABLE OF CASES

City of Stuart v. Green, 91 F. (2d) 603 12

Henderson v. Carbondale Coal & Coke Co.,

140 U.S. 25 |. 15

Humbie Oil & Refining Co. v. Potter, 143

§. W. (2) 136 33

Humble Oil & Refining Co. v. Railroad Com-

‘mission, 94 S. W. (2d) 1197 a

McNeny v. Railroad Commission, 96 S. W.

(2d) 96 32

Magnolia Petrcleum Co. v. New Process Pr»-

duction Co., 129 Tex. 617, 104 S. W.

(2d) 1106. | 30, 32

Company, 310 U.S. 573 7 17, 18, 19, 26

TABLE OF CASES- Continued

Page

Railroad Commission v. Rowan & Nichols Oil

Company, 311 U.$.570 7, 17, 18, 19, 26

Kailroad Commission v. Shell Oil Ca.,

161 S. W. (2:¢) 1022 8, 22, 23

Railroad Coinmission v. Wencker, 161

S. W. (24) 800 | 32

Re yy Oj! & Gas Co. v. Railroad Commission,

aoe t. (2d) 334 Be ee ee ie a

“Cakoil Petroleum Corporation v. Railroad Com-

mission, 86 S. W. (2d) 57 30

Stanolind O03] & Gas Co. v. Edgar,

1078. W. (2d) 631 CD OE EI

Stanolind Oil & Gas Co. v. Railroad Com-

mission, 107 S. W. (2d) 633 _ 30

Thoinsen v. Cayser, 243 U.S. 66. 15

Toledo Seale Co. v. ee Scale Co.,

261 U. & 399 14

Wencker y. Railroad Commission,

149 S, W. (2d) 1009 | 30

Constitution

Fourteenth Amendment, United States

Constitution Ree Seon 3, 4

TABLE OF CASES—Continued

Statutes

Judicial Code, Section 126

Judicial Code, Section 240

28 U.S. Code, Section 223

28 U.S. Code, Section 347

28 U.S. Code, Section 350

| Vernon’s Annotated Civil Statutes,

Art. 6049¢, Sec. 8

Court Rules

Rules, U. S. Circuit Court of Appeals,

Fifth Cireuit, Rule 3

Rules of Civil Procedure, Rule 6(c)

Rules of Civil Procedure, Rule 59(b)

..

““

-

Page

20

13

15

Supreme Court of the United States

OCTOBER TERM, 1942

No. 495

G. E. BURFORD, ET AL.,

Petitioners

V.

SUN OIL COMPANY, ET AL.,

Respondenis

BRIEF FOR PETITIONERS

OPINIONS BELOW

No formal opinion was written by the District

Court. but findings of fact and conclusions of law

were filed (R. 88-92). Three opinions have been

Written by the Circuit Court of Appeals. On Decem-

her 29, 1941, the Circuit Court of Appeals wrote a

unanimous opinior. (R. 409) affirming the judgment

of the District Court, which opinion is reported in

124 F. (2d) 467. The first petition for rehearing

(R. 415) filed by the respondents, Sun Oi} Company,

et al., was overruled without opinion on February

2, 1942 (R. 421). The respondents, Sun Oil Com-

pany. et al., filed a second petition for rehearing on

June 1, 1942, (R. 421) and on July 11, 1942, the

Circuit Court of Appeals wrote an opinion granting

~

the second petition for rehearing, setting aside its

former judgment, and reversing the judgment of the

District Court (R. 429). Judge McCord wrote a spe-

cialeenturring opinion (R. 440). These opinions

are reported in 130 F. (2d) 10, 18. On August 12,

1942, the Circuit Court of Appea!s wrote an opinion

denying the motion of Republic National Bank of

Dallas for leave to file a petition in intervention in

the nature of a petition for rehearing (R. 474).

Judge McCord dissented from this opinion (R. 476).

These opinions are reported in 130 F. (2d) 18, 19.

JURISDICTION

The jurisdiction of the Supreme Court of the Unit-

ed States is invoked under Section 240 of the Judicial

Code. as amended by the Act of February 13, 1925

(U.S. C., Title 28, Sec. 347). The judgment to be re-

viewed waz entered on July 11, 1942 (R. 440), and

these petitioners’ petition for rehearing was denied

on August 13, 1942 (R. 477). The petition for a

writ of certiorari was filed in this Court on October

27, 1942, and was granted on December 14, 1942.

STATEMENT OF THE CASE

This suit was brought by the Sun Oil Company, a

New Jersey corporation, against G. E. Burford an?

the Railroad Commission of Texas and its mem! vers.

all Texas citizens, and X.Y.Z Oil & Gas Company, an

Oklahoma corporation, to set aside and nullify an

fe

order entered by the Railroad Commission dated

June 2, 1939 (R. 31) permitting Burford to drill four

oil wells upon his 2.33 acre lease in the East Texas Oil

Field and to enjoin the drilling and production of

oil from such wells. In the a:ternative, it was prayed

that production from these wells be enjoined until

the Kailroad Commission should restrict the produc-

tion from such wells to an amount in proportion to

the acreage of said lease (R. 29). Jurisdiction was

alleged by reason of diversity of citizenship and also

because of plaintitf’s claim that the Railroad Com-

mission’s order violated its property rights under the

14th Amendment to the Constitution of the United

States (R. 2}. Magnolia Petroleum Company, a

Texas corporation, was permitted to intervene as 2

plaintiff, alleging that the Railroad Commission’s

order violated its property rights under the 14th

Amendment (R. 34). Both the plaintiff and the in-

tervener attacked the validity of the Railroad Com-

mission’s order under the state law, under the pro-

visions of Article 6049c, sec. 8, Vernon’s Annotated

Texas Civil Statutes*, as well as under the Federal

Constitution.

*This statute reads as follows:

Any interested person affected by the conservation Jaws of this

>iute rolating ¢« erude petroleum oi! or natural gas, and the waste

thereo’, including this Act, or by any rule, regulation or order made

or promulgated by the Commission thereunder, and who may be dis-

satisfied therewith, shall have the right to file a suit in a Court of

competent jurisdiction in Travis County, Texas, an not elsewhere,

agvinst the Commission, or the members thereof, as detendants, to

test the validity of such laws, rules. reguiations or orders. Such suit

shall be advanced for trial and be determined as expeditiously as

possible and no postponement thereof or continuance shall be grant-

ed 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, role, regulation or order; and such laws, rule, regulation

or order so complained of shali be deemed prima facie valid.”

sialic

The grounds of attack under the Fourteenth

Amendment were that the Railroad Commission did

not hear “substantial evidence” justifying the grant-

ing of the permit (R. 15-17, 20), that such evidence

as was heard was not properly considered by the Rail-

road Commission (R. 14-15) and that the permit

order would give Burford an unreasonable ‘advan-

tage in drainage opportunity.” (R. 23, 25).

The same grounds on which the Railroad Commis-

sion’; order was asserted to be invalid under the

Fourteenth Amendment were also urged as grounds

for striking down the order under the state law, and

the following additional grounds of attack under ihe

Texas statutes were also urged: (1) that the Rail-

road Commission had ne authority under the state

law to eonsider the 2.33 acre tract as a separate tract

in determining whether a permit should be granted

to drill wells as exceptions to the spacing rule, be-

cause of the narrow dimensions of the tract (KR. 9):

(2) that a judgment of the state court of Travis

County, in Cause No. 54,769, in that court, nullify-

ing a permit granted October 11, 1934, to drill a we!

upon the same tract of land, which judgment was en-

tered January 31, 1935, had the effect of making the

question of the right to drill any well upon the 2.55

acre strip res judicata (R. 12); (3) that the Rail-

road Commission was without jurisdiction to grant

the Burford permit because of the pendency of an-

other suit in the state court in Travis County. in

Cause No. 53,915, involving the validity of a permi'

dated February 1, 1934, granted to a previous lessee

upon the same tract of land (R. 15).

soicdlsias

The case was fried by the District Judge without

a jury. The evidence included the transcripts of the

testimony taken at the three hearings before the

Railroad Commission-{R. 233-366) and also original

evidence relating to the reasonableness of the Rail-

road Commission's order (R. 366-399), and the pro-

cedure before the Railroad Commission (R. 213-

250).

The evidence showed that the permittee, G. E. Bur-

ford, was the owner of an oil and gas lease on a nar-

row strip of land containing 2.33 acres in the East

Texas oil field. Prior to 1939, no wells had been

drilled cn Burford’s lease (R. 381, 391). Sun Oil

Company owns a 50 acre lease immediately west of

Burford’s tract, en which it has drilled seven wells,

and Magnolia Petroleum Company owns a 50 acre

lease immediately east of Burford’s tract, on which

it has drilled six wells (R. 104, 150, 399). The wells

drilied by Sun Oil Company and Magnolia Petroleum

Company, prior to the Railroad Cornmission’s hear-

ing in 1938, had already produced about 5,000 bar-

rels of oil per acre, or about 250,000 barrels from

each lease (R. 347). Because of the location of these

leases in the extreme eastern portion of the East

Texas oil field, all of this oil has been replaced by

oil migrating from other leases (R. 347). These wells

on the Sun and Magnolia leases have drained and are

still draining oil from Burford’s lease (R. 243-245)

as well as from other surrounding tracts. Without

the wells granted by the Railroad Commission, Bur-

ford would have no opportunity to recover the oil un-

der this tract og its equivalent. Of the four wells

eae ae

drilled by Burford on his lease, one was a dry |w!<

and another was a pumper (R. 391).

With regard to the plea of res judicata, the evi-

dence showed substantial changes in the situation in

this particular area (R. 376, 395), as well as notori-

ous changes in reservoir conditions during the inter-

vening years (R. 375). With regard to the pendency

of a suit testing the validity of another permit, is-

sued in 1934, in the state court, the record showed

that this early order had been issued without notice

and had been abandoned by the permittee long be-

fore Burford made his application (R. 237, 292).

The evidence regarding the procedure before the

Railroad Commission (R. 213-230) showed that the

Railroad Commission gave due consideration to the

evidence taken before its examiner, and the attack

on the Railroad Commission’s order for lack of pro-

cedural due process has been in fact abandoned hy

the respondents, since it was never raised in the

Circuit Court of Appeals or in respondents’ cross-

petition for a writ of certiorari.

At the conclusion of the evidence, the District

Court entered judgment for the defendants, after an-

nouncing his opinion “that the issues of law and fact

are with the defendants” (R. 87). The District

Court also entered findings of fact and conciusions

of law in which, after finding the facts in favor of

the defendants, he concluded (1) “that the challenged

order of the Railroad Commission of Texas does not

violate any of the rights of the plaintiff or the in-

tervener under the 14th Amendment to the Constit-

ra Se

tion of the United States” (R. 99), and (2) “that

the various matters of state law raised present no

federal question and furthermore present no matters

of such merit as to warrant the issuance of an injunc-

tion” (R. 91).

Upon appeal to the United States Circuit Court

of Appeals for the Fifth Circuit that court (Judges

Holmes, MeCord, and Dawkins) on December 29

1941, affirmed the judgment of the District Court.

The unanimous opinion (124 F. (2) 467) held (1)

that the effect of the decisions of this Court in the

two cases entitled Railroad Commission v. Rowan &

Nichols Oil Co., 310 U.S. 573, and 311 U.S. 570, was

to relegate the parties to the state courts for decision

of all questions of state law and, therefore, that these

questions should not be decided by the federal courts

and (2) that the record did not show “conditions

amounting to a denial of Due Process or other viola-

tions of the Federal Constitution” (124 F. (2d) at p.

ATO).

A tirst petition for rehearing was filed by the re-

spondents. Sun Oil Company, et al., on January 19,

1942 (R. 415). This first petition for rehearing was

denied without opinion on February 2, 1942 (R.

421). No request for a stay of mandate was filed

and on February 17, 1942, the mandate was issued

(R. 429). No attempt was made by the appellants,

Sun Oil Company and Magnolia Petroleum Com-

pany, to take the case to the Supreme Court of the

United States by certiorari or otherwise.

Nearly four months after the first petition fer re-

om

hearing was denied and more than three months

after the mandate was issued, Sun Oil Company and

Magrolia Petroleum Company, on June 1, 1942, filed

a second petition for rehearing (R. 421). This sec.

ond petition for rehearing raised no new questions

of law or fact, merely adopting the arguments there-

fore presented in the first petition for rehearing, and

asserting that the court’s decision in this case was

in conflict with its later decision in Selby Oil & Gas

Co. Vv. Railroad Commission, 128 F. (2d) 334, decid-

ed May 13, 1942 (Judges Hutcheson and Foster;

Judge McCord dissenting).

Over the objections of the petitioners that the sec-

ond petition for rehearing was filed too late and was

without merit (R. 423), the Circuit Court of Ap-

peals on July 6, 1942, entered its order recalling its

mandate and permitting the second petition for re-

hearing to be filed (R. 429). Thereafter, on July

11, 1942, the Circuit Court of Appeals set aside its

former judgment, reversed the judgment of the Dis-

trict Court and remanded the case to the District

Court for a new trial (R. 440). While not agreeing

with the conclusion expressed in the majority opin-

ion by Judge Hutcheson in the case of Selby Oil & Gas

Co. Vv. Railroad Commission, 128 F. (2d) 334. the

court (with Judge McCord specially concurring)

nevertheless held that its former judgment should be

set aside, because, since the rendition of said judg-

* ment, the Supreme Court of Texas March 11, 142.

had held in the case of Railroad Commission v. She!!

Ou Co., 161 S. W. (2d) 1022, that under the Texas

statutes, the review of the Railroad Commission's

pan <a

order is strictly de novo and that in reviewing the

reasonableness of the Railroad Commission’s order,

the court should exercise its “independent judg-

ment.”

Disregarding the fact that the District Court had

already passed on all questions of fact and of state

law, upon original evidence, in favor of the validity

of the Railroad Commission’s order, and without dis-

cussing the sufficiency of the evidence to sustain the

District Court’s finding, the Circuit Court remand-

ed the case for a new trial, in order that the District

Court might, in its “independent judgment,” deter-

mine “whether at the time of promulgation there ex-

isted facts that warranted fair and reasonable minds

in arriving at the conclusion that the order was

proper and necessary to prevent the waste of public

resources or confiscation of private property” (130

I’. (2d) at pp. 17, 18).

A first petition for rehearing was filed by peti-

tioners and was denied by the court without opinion

on August 13, 1942 (R. 477). A motion for leave

to file a petition in intervention in the nature of a pe-

tition for rehearing was presented by Republic Na-

tional Bank of Dallas, which had loaned $30,000.00

upon an oil payment in reliance upon the first judg-

ment of the court (R. 447). This motion was denied

on August 12, 1942 (R. 477). The opinion of the

court (R. 474) was written by Judge Holmes (130

F. (2d) atp.18). Judge McCord dissented upon the

ground that “the Appellants’ Second Petition for Re-

hearing came too late and should not have been

granted” (R. 476, 130 F. (2d) at p. 19).

SPECIFICATION OF ERRORS TO BE URGED

The Circuit Court of Appeals erred:

1. Imholding that it had jurisdiction to grant the

respondents’ second petition for rehearing and to set

aside the judgment entered December 29, 1941, when

said second petition for rehearing was filed more

than three months after the first petition for rehear-

ing was denied, more than three months after the

mandate had been issued, and more than three weeks

after the expiration of the period fixed by statute for

applying to the Supreme Court of the United States

for a writ of certiorari.

2. In holding that it should grant the respen-

dents’ second petition for rehearing when the re-

spondents had not shown any diligence in attemi:-

ing to secure a review of the judgment entered De-

cember 29, 1941, in that they failed to exercise their

right to petition the Supreme Court of the United

States for a writ of certiorari to review said jud-

ment.

3. In holding that the United States District

Court must determine the validity under the Texas

law of an order of the Railroad Commission of Tex-

as granting a permit to drill four oil wells by the ex-

ercise of the court’s “independent judgment” on the

question of whether the facts warranted the conclu-

sion that the administrative order was proper 2n!

necessary to prevent the waste of public resources or

the confiscation of private property.

=

4. In reversing the judgn.ent of the District

Court and in remanding the case for a new trial,

since the District Court, upon original and sufficient

evidence, decided all issues of fact and of state law in

favor of the validity of the Railroad Commission’s

order.

ARGUMENT

Sunmary of Argument

1. The Cirevit Court of Appeals did not have jur-

isdic’'ion to entertain and to grant the respondents’

second petition fer renearing, since the second peti-

tien for rehearing was filed more than three months

after the first petition for rehearing had been denied.

2. If the Circuit Court of Appeals had juris*lic-

tion to entertain the second petition for rehearing

filed by the respondents, it abused its discretion in

granting said petition since said petition raised no

new onestion cf fact or law and the respondents kad

nct shown the proper diligence in that they had failed

‘o apply for a writ of certiorari to this Court within

the statutory period.

9

J.

The Circuit Court of Appeals erred in holding

that the District Court should determit.c the validity

of the Railroad Commission's order under the state

law by the exercise of its “independent judgmcat” as

to the reasonableness of such order, prior to the de-

termination of the validity of such order in the state

court.

4. The evidence heard by the District Court was

—— e

¥

sufficient to sustain its findin,:s and conclusions that

the order attacked was valid under the state law.

1.

The Civcuit'Court of Appeal: was without juris-

dicti.n to entertain or grant the vespondents’ secon !

petition for rehearing, because siid second petition

for rehearing was filed after the time had expired

for applying fora writ of certiorart from the original

judgment extered by the Circuit Court of Appeals.

The Circuit Court of Appeals’ first judgment was

entered December 29, 1941 (R, 413) ; wwe appellants’

first petition for rehearing. was denied “ebruary 2.

1942 (R. 421); no motion for a stay wey filed and

the mandate was issued February 17, 1942 (R. 429).

Nothing further was done by appellants un.cil their

second petition for rehearing was filed June }. 1942

(R. 421). This second petition for rehearing s* vy

no new questions of law or fact, but merely inc r-

porated by reference (R. 422) the contentions mao

in the first petition for rehearing.

There is no provision contained in the rules

the Cireuit Court of Appeais for a second petition

for rehéaring. Previously that court had stated that

its rules did not contemplate the filing or considera-

tion of second petitions for rehearing, particularly

where such petitions presented no new questions not

previously raised. See City of Stuart v. Green, 91 F.

(2d) 603, 606, where Judge Holmes said:

“Our rules do not contemplate the filing

consideration of second applications for rehear-

ing. The petition now filed presents nothing that

CZ

—

had not been previously considered. Such prac-

tice is not to be encouraged. Williams v. Cenger,

131 U. S. 390, 9 S. Ct. 793, 33 L. Ed. 201.”

After the first petition for rehearing was denied

on february 2, 1942, the respondents had three

months within which they could seek a review by this

_ Court of the judgment of the Circuit Court of Ap-

peals by a petition for a writ of certiorari. 28 U. S.

Code, sec. 350. This time expired on May 2, 1942.

rrom February 2, 1942, to June 1, 1942, the re-

spondents had taken no action of any character what-

ever to stay or to review the judgment entered De-

cember 29, 1941. It is submitted that upon the ex-

piration of the time fixed by statute for review by

this Court, the Circuit Court of Appeals’ judgment

became final and the Circuit Court of Appeals had

no power thereafter to permit the filing of a second

petition for rehearing.

The holding of the Circuit Court of Appeals that

it retained jurisdiction to entertain and grant the

respondents’ second petition for rehearing is based

on the purely technical conception of the term of

court. The statute (Judicial Code, section 126; 28

U.S. C., section 223) and the rules of the Circuit

Court of Appeals do not fix the leng.h of the terms of

csut, but merely provide that a session of the court

sha. he held annuaiiy at the places named, including

one session at the City of Fort Worth, Texas, begin-

ning on the first Monday in November. (Rule 3,

United States Circuit Court of Appeals for the Fifth

Circuit.) The Circuit Court of Appeals ap-

parentiv construes the statute end its. rule

to mean that each term Insts fer one year.

The Cireuit Court of Appeals holds that it

recains jurisdiction to entertain a petition for ro-

hearing filed at any time during the term at which

the judgment is rendered, regardless of the fact that

the time for applying for a writ of certorari to this

court has expired. Since the terms of court apparent-

lv last for one year each, it may be as much as eleven

months or longer after a judgment is rendered and

a first petition for rehearing is overruled, before

the term expires and the judgment can be considered

final.

The evident intention of Congress in enacting Sec-

tion 350 of Title 28, United States Code, limiting the

time within which a petition for certiorari may be

filed for review of a judgment of the Circuit Court

ef Appeals to three months after the judgment was

entered, was to fix a pericd of time within which the

judgments of such courts might be considered fina!.

It is contrary to every consideration of policy in

favor of reasonably prompt termination of litiga-

tion to permit a party to wait until this period has

expiyed and then to reopen the case by filing a second

petition for rehearing in the Circuit Court of Ap-

peals. The Supreme Court has no jurisdiction to re-

view a decree of the Circuit Court of Appeals who:

the petition for certiorari is net filed until after t)

statutory period has expired. Toledo Scale Co. V.

Computing Seale Co., 261 U.S. 399. The period for

filing a petition for rehearing in the Circuit Cou:*

of Appeals should certain! be no longer than th

vn ee

period allowed by statute for applying for review

by this Court.

This question has not been settled by any de-

‘cision of this Court. The only cases cited by the

Cireuit Court of Appeals to sustain its holding do

not relate to the question of the jurisdiction of that

court to entertain a petition for rehearing which

is filed after the time for review in this Court has

expired. In Henderson v. Carbondale Coal & Coke

Co., 140 U. S. 25, the petition for rehearing was

promptly filed; in such case, it is conceded that a

court may grant a rehearing and set aside its judg-

ment entered during the same term of court. In

Thomsen Vv. Cayser, 243 U. S. 66, the opinion does

not <isclose when the petition for rehearing was

filed, and no point was raised or discussed about

the time when it was filed.

In this connection, we respectfully direct the

court’s attention to the analogy of the limitation

»aced on motions for new trial in the District

Courts under the Rules of Civil Procedure. Under

Rule 6(c) the time poe an act or taking any

proceeding is not limited“by the expiration of the

term of court. Under Ruie$9(b) the time in which

a motion for new trial can he served cannct extend

bevond “the expiration of the time for appeal.” Tt

is submitted that the same principles apply to this

case. The term of court has no logical connection

with the time for filing a petition for rehearing,

and in any event the court entering a judgment

_ should not permit the filing of a petition for rehear-

ing after the time for applying for review in the

appellate court ‘as expired.

2.

If the Circuit Court of Appeals had jurisdiction

to permit the filing of the respondents’ second je-

tition for rehearing, it abused its discretion in

granting said second petition for rehearing because

said petition presented no equitable grounds for a

rehearing and no new questions of law or fact.

The respondents’ second petition for rehearing

did not set up any fact or urge any questions of

law which had not theretofore been thoroughly pre-

sented. In their second petition for rehearing, re-

spondents moved the court “to reconsider their pe-

tition for rehearing heretofore filed on January

19, 1942, each ground of which is here adopted.

(R. 422). The occasion for filing the second peti-

tion for rehearing was that it was alleged that in

a different case, entitled Selby Oil & Gas Co. v. Ra’/-

road Commission, the Circuit Court of Appeals on

May 13, 1942, had handed down a decision which

was inconsistent with the first decision in the »ir-

ent case. (R. 422).

It will be noted that there were no allegations of

fraud, mistake, or any other equitable ground for

obtaining a rehearing of the cause. Nor was ther

any allegation of newly discovered facts or evidenc.

The only ground for asking that the second petition

ae

for rehearing be granted was that the court had

decided the same questions of law, heretofore decid-

ed in this ease, in a different way in a subsequent

case.

The questions presented and decided by the Cir-

~ cuit Court of Appeals in its first judgment and

opinion which were alleged by the respondents to

have been differently decided in the Selby Case were

questions that had to do with the interpretation of

the opinions of this Court in the Rowan & Nichols

Cases, 310 U.S. 573 and 311 U.S. 570. It was con-

tended by the respondents in their second petition

for rehearing that whereas the Circuit Court of

Appeals in the first decision of this case had held

that all questions of state law were to be releguted

to the state courts for decision, in the Selby Case

the same court had held that questions of state law

should be decided by the federal courts in cases

involving diversity of citizenship. In other words,

Judge Dawkins in the first opinion in this case held

that the Rowan & Nichols cases meant that ques-

tions of state law should not be adjudicated by the

federal courts, whereas Judge Hutcheson in the

Selby case construed the same decisions of this

court to mean that questions of state law should

be decided in cases involving a diversity of citizen-

ship.

By the exercise of proper diligence, the respon-

dents could have obtained a review of the first judg-

ment of the Cireuit Court of Appeals in this case on

this particular question by making a timely apuli-

sells

cation for a writ of certiorari, on the ground that

the Circuit Court of Appeals had misconstrued ‘he

effect of the opinions in the Rowan & Nichols cases.

They neglected to do so. They had a plain remody

available but they failed to take advantage of it.

The granting of a petition for rehearing, and pur

ticularly a second petition for rehearing, should he

contingent upon the exercise of the utmost dili-

gence by the party asking for such rehearing and

where, as in this case, such diligence is entirety ab-

sent, the Circuit Court of Appeals abused its dis-

cretion in granting the relief prayed for, even as-

suming that it had jurisdiction to entertain ‘he

second petition for rehearing.

3.

The Cirenit Court of Appeals erred in holding

that the District Court should exercise an indeper-

dent judgment on the reasonableness of the Railroad

Com?ssion’s order under the Texas statutes.

The question here presented is the extent te

the federal courts will inquire into the reasonable-

ness of the order of a state administrative body in

determining the validity of such order under the

state law. The question turns upon the proper in-

terpretation of opinions of this Court in the Rowan

& Nichols Cases, 310 U. S. 573 and 311 U. S. 570.

The District Judge who tried this case is the same

District Judge who tried the first Rowan & Nichols

a we

Case, 310 U.S. 573, and was a member of the three-

judge court which tried the second Rowan & Nich-

ols Case, 311 U. S. 570. The record in this case

shows that the District Judge conscientiously fol-

lowed this Court’s opinions in the Rowan & Nichols

Cuses. After holding that the Railroad Commis-

sion’s order “does not violate any of the rights of

the plaintiff or the intervener under the 14th Amend-

ment to the Constitution of the United States” (R.

90), the District Judge then held that “‘the various

matters of state law raised present ro federal ques-

tion and further present no matters of such merit

as to warrant the issuance of an injunction” (R.

41). The District Judge construed the Rowan &

Nichols Cases to hold that in applying the state law

in “oil regulation cases,” relief by injunction in the

federal courts should not be granted “unless some

condition is uncovered more extreme than those on

which the courts have heretofore felt warranted in

acting’ (R. 91). Since such conditions were not

foun! to exist in this case, the District Court denied

relief,

The Circuit Court of Appeals in its first opinion

approved the holding of the District Court that the

evidence did not show any violation of the respon-

dents’ rights under the 14th Amendment (124 F.

(2d) at p. 470). Although the District Court had

exnressly held that the various matters of state law

presented were without merit (PR. 91). the Circuit

Court of Appeals misconstrued the District Court’s

action and held in effect that the District Court had

refused to pass on the issues of state Jaw (124 F,

—20.—

(2d) at p. 468). The Circuit Court of Appeals

then approved the District Court’s judgment in the

following language (124 F. (2d) at p. 469):

“In the absence of a clear showing of confisca-

‘ion or lack of Due Process, such bodies should

be left, at least by the Federal Courts, to ¢ 2!

with the situation, unless and until the court of

last resort of the State has decided that an ‘in/e-

vendent Judgment’ as to reasonableness should

be e cercised | Vy the courts.

The Cireuit Court of Appeals thus construed the

opinions of this Court in the Rowan & Nichols Cases

to mean that the extent to which a federal court

would inquire into the reasonableness of an admini:-

trative order of a state board, in determining its

validity under the state law, depends upon the con-

struction by the state court of the state statute pro-

viding for the review of the administrative board's

order.

Thereafter, on May 15, 1942, the same Circ”

Court of Appeals (but with Judges Hutcheson, fos-

ter, and MeCord composing the court) in another oil

regulation case reached an entirely different conclu-

sion as to the extent to which the federal court should

pass on the reasonableness of an order of the Rui:

road Commission. Selby Oil & Gas Co. v. Railrvad

Commission, 128 F. (2d) 334. In an opinion by

Judge Hutcheson, from which Judge McCord dis-

sented, it was held (1) that in cases of diversity of

citizenship, the state review statute (Article 604%.

Sec. 8, Vernon’s Annotated Texas Civil Statutes)

—)

presented a distinct “statutory suit” (128 F. (2d)

at p. 335) in addition to the “constitutional suit,”

(2) that the rule stated by this court in the Rowan

& Nichols Cases applied only to cases not involving

diversity of citizenship (128 F. (2d) at pp. 336-337),

(3) that in cases of diversity of citizenship, the Fed-

cral Courts should follow the state decisions and that,

since the state decisions hold that in the “statutory

suit” the court must exercise its “independent judg-

ment” in determining ‘‘whether the order rests upon

a reasonable basis,” the District Court crred in not

determining this “statutery suit” by the “rules estab-

lished by the Texas court” (128 F. (2d) at p. 337).

Judge McCord dissented wpon the ground that the

decision was in conflict with the Rowan & Nichols

Cese and also the recent decision by the same Circuit

Court of Appeals in the present case (128 F. (2d) at

p. 337).

On June 1, 1942, the appellants, Sun Oi! Company,

etal. filed their second petition for rehearing in this

case, alleging that the decision in the Selby Case was

‘n conflict with the decision theretofore rendered in

the pvesent case (R. 421).

In granting the second petition for rehearing in

this vase, the Circuit Court of Appeals stated that it

Cid sy “to avoid injustice to anyone from a conflict in

cur decisions” (130 F. (2d) at p. 13). However,

Judce Holmes, in the majority opinion, refused to

concur in the conclusion reached by Judge Hutcheson

‘hat there were two suits—a “constitutional suit”

and a “statutory suit”—and held that there was

a

“only one suit” (130 F. (2c) at p. 163. Nevertheless,

the court set aside its former judgment, becau-e it

purported to find in the decision of the Supreme

Court of Texas in Railroad Commission vy. Shel! 07

Co., 161 S.W. (2d) 1022 (rendered March 11, 1/12).

a declaration that in determining the reasonablen--

of the Railroad Commission’s orders, the state courts

must exercise their “independent judgment” (1°)

i, (2d) at p. 16). The Circuit Court of Appeals re-

garded this alleged clarification of the Texas law as

being sufficient ground for setting aside its former

judgment of affirmance and substituting a judgment

reversing the judgment of the District Court and re-

manding the case for a new trial (R. 440).

Judge MeCord specially concurred in a separate

opinion, in which he doubted the right of the Cirevit

Court of Appeals to grant a rehearing “after the

lapse of such great length of time,” but agreed te the

reversal in order that “the two cases ‘the °

Case and this case) can on a new trial be determined

in conformity with the decision of the Supreme Court

of Texas, and the conflict which now exists in our

iwo epinions may be obliterated” (R. 440). No ex-

planation was yiven as to how the District Court

could obliterate the conflicts in the opinions of the

Circuit Court of Appeals in the present case and the

Selby Case, when the Circuit Court of Appeals could

not itself harmonize its own opinions.

In overruling the motion of Republic National

Bank of Dallas to intervene, the majority of the court

again stated that “the supervening decision of the

—23—

Supreme Court of Texas, holding that the state courts

might exercise such independent judgment, made it

necessary for us to hold in our second opinion that the

federal courts might decide such issues arising under

tre laws of the state. This was fer the reascn chat

nvior to that time we deemed the particular point un-

-oithed Lv Texas decisions, and were in doubt as to

the state law on the subject” (130 F. (2d) at p. 19).

Judge McCord dissented from this opinion, his for-

mer doubts having become crystallized into the defi-

nite spinion “that the appellants’ second petition for

rehearing came too late and should not have been

granted” (130 F. (2d) at p. 19).

The result of the three opinions in this case and the

opinion in the Selby Case is <o leave the applicable

law in such confusion that it would be a practical im-

voss bility for the District Judge to know how to try

this case. The opinions of the Circuit Court of Ap-

‘eals conflict with each otker and all of them are in

conflict with the law as laid down by this Court in the

Rowan & Nichols Gases.

The effect of the opinion of the Circuit Court of

Appeals in this case is that the federal courts must

go as far as the state courts would go in exercising

an “'ndependent judgment” in determining whether

the order of the Railroad Commission is reasonable

or net under the state law. Under the Texas decision

relied upon by the Circuit Court of Appeals, Railroad

Commission Vv. Shell Oil Co., 161 S. W. (2d) 1022, it

is held that “the doctrine that the administrative

>.

ee ee

agency should take the testimony and make the find-

ings of fact, and that the findings should be binding

on the court, is foreign to the law of this state.” (16!

S. W. (2) at p. 1028.) The federal rule that the

findings of a board, if supported by evidence are con-

clusive, is repudiated in Texas. (161 S. W. (2d) at

p. 1028.) Evidence must be taken anew in the court.

(161 S. W. (2d) at p. 1029.) “Whether the agency

hear sufficient evidence is not material. In fact, the

evidence heard by the agency is not per se admissible

upon the trial in the District Court.” (161 S. W. (2d)

at p 1030.)

~ It is evident that the process which must be fol-

lowed by the Texas courts under the decision of the

Texas Supreme Court, in determining whether tie

order of the Railread Commission is val’d un’: ©

state law, is very different from the process to be

followed by a federal court in determining whether

the order is valid under the 14th Amendment. Oth»

wise, there would have been no point in the Circu‘t ,

Court of Appeals’ action in reversing the judgment

of the District Court, since the Circuit Court of A)-

peals in its first opinion had already held that the

order was valid under the Federal Constitution (12!

I. (2d) at p. 470.) This part of its opinion has not

been withdrawn by the Circuit Court of Appeals.

(130 F. (2d) at p. 19.) The opinion of the Cireu'*

Court of Appeals must mean, therefore, that it is in-

cumbent upc 1 the federal court to determine the

validity of the Railroad Commission’s order under

the state law by exercising an “independent jiide-

ment” upon the reasonableness of the order, disre-

—_— =

garding any evidence that may have been heard by

the Railroad Commission and any findings which it

may have made upon such evidence, and determining

for itself what constitutes “substantial evidence’’ to

support the Commission’s order.

it is submitted that this conclusion of the Circuit

Court of Appeals is in direct conflict with the de-

cisions by this Court in the Rowan & Nichols cases.

In those cases, it was plainly stated that the Federal

courts would go no further in testing the validity of

an order of the Railroad Commission under the

State’s statutes than they would in testing its valid-

ity under the Federal Constitution. This Court’s lan-

guace in the first Rowan & Nichols case is as follows

(310 17. S. at p. 584):

“What ought not to be done by the federal

courts when the Due Process Clause is invoked

ought not to be attempted by these courts under

‘he guise of enforcing a state statute. Whether

the respondent may still have a remedy in the

state courts is for the Texas courts to determine,

and it is not foreclosed by the denial, on the

crounds we have indicated, of the extraordinary

relief of an injunction in the federal courts.”

In the second Rowan & Nichols case, this Court,

In passing on the constitutional issue, said (311 U.S.

at p. 446):

“Nor, on the basis of intrinsic skills and equip-

ment, are the federal courts qualified to set their

ndependent judgment on such matters against

i

=— =

that of the chosen state authorities.” (Our em-

' phasis.) ;

This Court further held that the District Court

i in striking down the order on the ground that

‘did not prorate production on a “reasonable basis.”

saying (311 U.S. at p. 577):

; :

“In denying the petition for rehearing in the

eurlier cases we held that whatever rights the

~tate statute may afford are to be pursued in the

~tate courts, 311 U.S: 614." °,

In hoiding, as it has in this ease. that the District

Court must ge beyond the inquiry which is nece pesary

in order to test the validity of the Railroad Com!

-ion’s order under the Due’ Process Clause iad must

follow the rule of the state courts and exercise its

“independent judgment” on a trial de novo to de-

termine the reasonableness of the order under

state statute, the Circuit Court cf Appeals has hei!

contrary to the decisions ef this Court just referre!

ta,

Even it the duty rested upon the District Cov

exercise its independent judgment in determin)

the reasonableness of the Railroad Commission's 0’

der under the state law, the District Court heard

sufficient evidence to justify its holding that the or-

der is valid under the state law.

To sustain their attack ene the validity of the

Railroad Ccommission’s order, the respondents of-

fered and the District Court ‘admitted in evidence

the applications, protests, notices, and orders of the

Railroad Commission pertaining to this particular

nepmit (P. 156-161, 224), the coneral snacing orders

of the Pailroad Commission relating to the East

Texas Field (R. 111-132). nlats. deeds, and stipu-

lations of the parties affecting title to the permit

strip and the adjacent lands (R. 104-110, 212), cop-

* previous ordere of the PRailread Cemmission

granting permits to drill on the permit strip and

court proceedings relating thereto (R. 164-208),

»«transeripts of the evidence heard by the Railroad

Commission at the three hearings upon this permit

(R. 233-384), the original testimony of the Rail-

road Commission examiner who conducted the hear-

ines rerarding the manner of taking the testimony

ond his report to the Railroad Commission (R. 213-

2"), and the original testimony of a petroleum en-

‘neor as to the drainage of oil to and from the ner-

mit trip and adjacent leases. (R. 366-383)

To sustain the order, the respondents offered the

original testimony of two witnesses, A. O. Phillips,

he drilling contractor who testified as to the facts

revavding the four wells drilled under the permit

R. 40- 342), and Gordon Griffin, a petroleum en-

gineer, who testified as to the geological facts in

connection with the East Texas field and this pav-

‘icular area. (R. 393-398)

The testimony of J. D. Copeland, the Railroad

—

Commission examiner (R. 213-230), relstoa to the

contention asserted by the resnon“eincs that the Rail-

road Commission 4i4 +:ct ytve proper consideration

to the evidence introduced at the hearings conducted

by the examiner. (R. 14, 36.) The District Court

found that a fair and proper consideration of the

evidence was given by the Railroad Commission (R.

89-90). This ground for attack upon the order has

been abandoned by the respondents, having never

been raised at any time in the Circuit Court of Ap-

peals or in the cross-petition for certiorari which

was filed in No. 496, October Term, 1942, in this

Court, entitled Sv» Oi Company, et ai. Vo G. ©.

Burford.

The remaining grounds for attack upon the valid-

ity of the Railroad Commission’s order under the

state law were (1) that the 2.33 acre strip was 4

voluntary subdivision from a larger tract, made af-

ter the adoption of the Railroad Commission's s)ac-

ing rule, and under the Texas decisions could 2"

he considered by the Railroad Commission 2s a s+-

arate tract in granting a permit to drill a well as

an exception to the spacing rule to prevent the con-

tiscation of property (R. 20); (2) that a perm:

granted on October 11, 1934, to Burford’s predeces-

sor in title had been cancelled by ‘a court order en-

tered January 11, 1955, and that this court order

made the validity of the present order res judiceta

(R. 12); (3) that at the time of the issuance of the

railroad Commission’s permit order, a suit was then

pending in the state courts attacking the validity of

still another permit, which had been granted Febru-

ai. <

ary 1, 1934, and that because of the pendency of

such suit the Railroad Commission did not have juris-

diction to consider Burford’s application (R. 13);

and (4) that in any event, the Railroad Commission

ebused its discretion in granting a permit for four

wells instead of a lesser number (R. 20-25).

The District Court found that “‘the issues of law

an] fact are with the defendants” (R. 87) and con-

cluded that “the various matters of state law raised

present no federai question and furthermore present

no matter of such merit as to warrant the issuance

of an injunction.” (R. 91.) On the plea of res judi-

cata, the court found that the conditions in the East

Texas oil field and on the leases adjacent to the Bur-

ford tease had so changed since the entry of the court

order in 1935 that the plea should be overruled. (R.

Of);

The District Court’s judgment is clearly sustain-

«under the state law:

(1) The Railroad Commission was entitled to

ons:der the 2.32. acre strip as a separate tract. At

the ‘ime of the subdivision of the 2.33 acre tract

from the west 50 acres lease to fun Oil Company,

in vee ‘bruary, 1931, the spacing rule in the East Texas

' ‘ field provided for spacing distances of 150 feet

fn om property lines and 300 feet from other produc-

ing oil wells (R. 11). Converted to acreage. the rule

contemplated the drifting of one well-to about 2.07

«cres. The strip is too narrow, (49 feet x 2,131 feet)

‘» allow the drilling of a Weil without a special per-

a

mit, but since the total area exceeds the area con-

templated by the rule, the Railroad Commission may

consider it as a separate tract. Humble Oil & Refin-

ing Co. Vv. Railroad Commission, 94S. W. (2d) 1197

(Texas Civil Appeals, application for writ of error

refused by Texas Supreme Court); Wencker v. Ra’’-

road Commission, 149 S. W. (2d) 1009 (Texas Civil

Appeals. application for writ of error ‘dismissed,

correct judgment,” Texas Supreme Court}.

(2) Where conditions have changed since the

entry of a judgment cancelling a permit order, the

Railroad Commission may grant a new permit and

its findings that conditions have changed are pre-

sumptively valid. Magnolia Petroleum Company V.

New Process Production Company, 129 Tex. 617, 104

S. W. (2d) 1106; Stanolind Oil & Gas Co. v. Edgar.

1078. W. (2d) 631; Stanolind Oil & Gas Co. v. Ra’l-

road Commission, 107 S. W. (2d) 633: Shell Petro-

leum Corporation V. Railroad Commission, 86 S. W.

(20) 67 (Texas Civil Appeals, application for wr-t

of error dismissed). The District Court’s finding

(R. 90) that conditions had so changed as to justify

the Railroad Commission in granting the permit here

under attack is sustained by evidence of the drilling

of additional wells on adjacent tracts (R. 376, 395)

so as to Cause admitted drainage of Burford’s lease

(R. 243, 244) as well as notorious changes in pres-

sure, water encroachment and heavy withdrawals

of oil from the reservoir during the intervening

years (R. 375).

(3) The pendency of a suit attacking another

—

permit, issued on February 1, 1934, to a predecessor

intitle of Burford, did not deprive the Railroad Com-

mission of jurisdiction to consider and grant, Bur-

ford’s application. This early permit was granted

witheut notice and hearing and was attacked on

that cround by the Sun Oil Company in the suit in

uestion (R. 195). Sun Oil Company immediately

cbtained an ex parte restraining order on May 30,

1°°4 against the drilling of any well under this per-

mit (R. 204). This permit was thereupon abandoned

ly the permittee and no attempt was made to assert

|

any rights under this permit. At the hearing ct

the Railroad Commission on Burford’s application

in 1938, it was stated without contradiction that the

February, 1934, permit “has been abandoned long

since’ (R. 237, 292.) After the Burford permit was

granted, the state court finally on November 29,

1939, entered a judgment setting aside the 1934

permit on the sole ground that the 1934 permit was

entered “without notice and hearing as required by

law,” the judgment being without any adjudication

on any other issue, and without prejudice to the

rights of any of the parties “to apply to the Railroad

Commission of Texas for other permits to drill oil

and gas wells at such places on the tract of land above

mentioned as they may desire.” (R. 209, 210.)

(nder the Texas law, since the 1934 permit was

enter“] without notice or hearing, the Railroad

Commission never acquired jurisdiction to grant the

permit, and the court on appeal had no power to ad-

jadicate the merits, but could only set aside the order

‘or Want of jurisdiction on the part of the Railroad

a ee

Commission to grant it. Magnolia Petroleum Co. \.

New Process Production Co., 129 Tex. 617, 104 S. W.

(2d) 1106. In other words, the merits of the right

to drill a well on this strip was not a matter pend-

ing before the court, and therefore the Railroad Com-

mission's jurisdiction, upon proper notice and hear-

ing, 'o pass upon a new application, was not ousted.

Furthermore, the February, 1934 permit had been

abandoned, and such abandonment gave the lease-

owner the right to apply for a new permit, McNeny

vV. Railroad Commission, 96 S. W. (2d) 96, especially

where conditions are shown to have changed. Vaq-

nolia Petroleum Co. v. New Process Production Co..,

supra; Railroad Commission V. Wencker, 161 5. WS.

(2d) 800 (Texas Civil Appeals).

(4) The Railroad Commission did not abuse its

discretion in granting a permit to drill four wells

instead of only one. This, of course, is a matter pe-

culiarly within the discretion of the Railroad Com-

mission. The evidence sustains the Railroad Com-

mission’s action.. This strip was segregated from

the Sun Oi] Company lease in 195i (R. 4), bot?

wells were permitted to be drilled upon the strip un-

til 1959 (R. 39). In the meantime, beginning in 1932

(R. 263), Sun Oil Company had drilled seven we!ls

on its lease, and Magnolia Petroleum Company he’

drilled six wells on its lease (R. 399), which had

produced 100° of the recoverable oil originally un-

der their leases (R. 286), all of which had been re-

placed bv oil drained from other leases (R. 286, 347).

It was conceded that both the Sun and the Magnolia

wells were draining Burford’s lease (R. 243-245)

onlin

The zeologic conditions in this area, which is on the

eastern edge of the East Texas field, are extremely

erratic (R. 397), making it highly uncertain whether

a location will be a producer or not. In fact, of the

four wells drilled under the present permit, one has

turned out to be a dry hole and another has turned

out to be a pumper (R. 391). Under the Texas de-

cisions, the relative density of drilling is not neces-

ary conelusive; the Railroad Commission may

properly consider the iength of time adjacent leases

h... been producing and the amount of oil already

prolaced by them. Humble O11 & Refining Co. v. Pot-

‘ev, 143 8S. W. (2d) 135 (Texas Civil Appeals).

CONCLUSION

For the reasons stated, it is respectfully submitted

that the judgment of the United States Circuit Court

i Appeals shouid he reversed.

GERALD C. MANN

Attorney General of Texas

Ep Roy SIMMONS

JAMES D. SMULLEN

Assistant Attorneys General

p £ et Attorneys for Petitioners,

<a Railroad Commission of

Texas and its Members

F. L. KUYKENDALL

JAMES P. HART

Austin, Texas

Attorneys for Petitioners,

G. E. Burford, Et Al.