Petition for a Writ of Certiorari — Scott v. Union Producing Co. (No. 340)

—

In THE

Supreme Court of the United States

Octosper Term — 1959

J. Virew Scott, eT aL aND Paut J. Roaers, ef Au,

Appellants,

v.

Union Propucine Company, ET AL,

Appellees.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

FIFTH CIRCUIT

AUG 24

JAMES & BROWNING,

Joun C. WHITE

838-842 Transportation Bldg.

Washington 6, D. C.

Joun H. Dittmar

Milam Building

San Antonio, Texas

Austin C. Witson

M. W. Parse, Jr.

Bank of the Southwest Bldg.

Houston 2, Texas

Of Counsel:

FuLpricut, Crooker, Freeman, Bates

& JAWORSKI

8th Floor Bank of the Southwest Bldg.

Houston 2, Texas

Morrison, Ditrmar, DAHLGREN & Kaine

Milam Building

San Antonio, Texas

SORG PRINTING COMPANY OF TEXAS, HOUSTON, TEXAS

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INDEX

Opinions Below

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CITATIONS

Cases

Archer County, et al, v. Webb, et all, ........ | A

ST TE, Tie a. i isietinrennnsiioninstcstescesnseeierticennnenennen

Burford v. Sun Oil Co., 319 U.S. 315............ccccccccssssscsscscossessesece

City of Chicago v. Fieldcrest Dairies, Inc., 316 U.S. 168........

Cowling v. Deep Vein Coal Co., 183 F. 2d 652...........cessesseeees

Erie Railroad v. Tompkins, 304 U.S. 64............ccssessssssereeseeeees

Huddleston v. Dwyer, 322 U.S. 232............ccccssscssccssrscsscsssseosscee

LeBlane v. Haynesville Mercantile Co., Inc., 88 So. 2d 377....

Louisiana Power & Light Company v. Thibodeaux, 3 L. Ed.

SST ssusesibcidisddeancnectibedaihainlesetedechbciueaeainhiatenitaiaisitesmsnnicelenmiints

Manufacturers Casualty Insurance Company v. Coker, 219

ic ID Me eiiesicbieareientssiiaeptntechatbinsnbinsiniininsatiadiaiesansiiiniainibineninaiaaiotionion

Railroad Commission of Texas v. Pullman Co., 312 U.S. 496..

Sellers v. Breidenbach, 300 S.W. 2d 178...........ccccccscsssesssesseesees

Southland Royalty Co. v. Humble Oil & Refining Co., 249

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28 AY EEA RETOLD TE REOLDI TELIA

In THE

Supreme Court of the United States

Octosper Term — 1959

BN aleiadiaiaicsins

J. Virem Scort, et au anp Paut J. Rocers, eT Au,

Appellants,

v.

Union Propuctne Company, ET AL,

Appellees.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

FIFTH CIRCUIT

Benjamin Clayton, R. S. Nixon, Nueces Royalty Com-

pany, a partnership, Paul J. Rogers, J. Virgil Scott and

Erwin W. Smith pray that a writ of certiorari issue to re-

view the judgment of the United States Court of Appeals

for the Fifth Circuit entered in the above-entitled cause

on May 21, 1959.

OPINIONS BELOW

The memorandum opinion of the District Court may be

found at page 214 of the record, and the opinion of the

Court of Appeals is included herein as Appendix A, infra.

A petition for rehearing was denied by the Court of

Appeals without opinion.

aay

2

JURISDICTION

The judgment of the Court of Appeals was entered on

May 21, 1959. A petition for rehearing was denied on July

20, 1959. Jurisdiction of this Court is invoked under 28

U.S.C., See. 1254(1).

QUESTIONS PRESENTED

1, Whether the Court of Appeals committed reversible

error in affirming a judgment by the District Court grant-

ing a summary judgment to respondents, and in holding

that as a matter of local law of the State of Texas, term

mineral interests owned by petitioners and expiring by

the terms thereof on October 25, 1955 in the absence of

production of minerals, terminated and reverted to re-

spondents on that date notwithstanding compliance with

a lease provision covering all mineral interests here in-

volved defining production to include the payment of shut-

in royalties on a shut-in gas well.

2. Where a case involving the precise issue on which

the courts below based their decisions is now pending be-

fore the Supreme Court of Texas, and where that court

has never passed upon the precise issue, should the judg-

ment of the Court of Appeals be vacated and the cause

remanded to await the state court’s declaration of the local

law on the controlling issue.

STATEMENT

This is an interpleader suit brought by the mineral les-

see, Union Producing Company, a Delaware corporation,

against those persons asserting mineral and royalty inter-

ests in a tract of land located in the Rio Grande Valley

in Texas. The only controversy is between the petitioners

and the respondents, all of whom are citizens of the State

of Texas, the question being whether the interests of the

term mineral owners (petitioners) have terminated and

reverted to respondents.

Petitioners claim under deeds (R. 26, 29) executed in

1935 conveying fractional interests in the minerals for a

stated term of years and so long thereafter as oil, gas or

other minerals are produced from the property. Such deeds

further provide that it will not be necessary for the grantees

to join in the execution of any lease, and as found by the

District Court, (R. 222) all parties construed the deeds

as reserving to the grantors, under whom respondents

claim, the exclusive right to lease all of the minerals. In

1949, respondents executed an oil and gas lease (Supp.

R. 1) purporting to lease all of the minerals, including peti-

tioners’ interests therein, which lease included what is com-

monly termed a shut-in gas well clause (Supp. R. 10). This

clause provides that where gas is discovered but not mar-

keted, the lessee may pay a stated sum, and upon such pay-

ment, it will be considered that gas is being produced from

the premises. A well was drilled; gas was discovered; the

gas was not marketed pending the laying of gathering lines

prior to the date specified for the termination of peti-

tioners’ interests (R. 18) and shut-in gas royalties were

paid to petitioners and tendered to respondents within the

period provided for in the lease (R. 125, 129, 183). Gas and

condensate have been produced and marketed continuously

since early April, 1956 (R. 19).

Under these facts the District Court granted a summary

judgment to respondents relying upon the dictum in a case

decided by an intermediate appellate court of this state

which is readily distinguishable, and holding that the peti-

1 Sellers v. Breidenbach, 300 S.W. 2d 178 (Tex. Civ. App. 1957).

While the case did involve a shut-in gas well, the lease did not

have a shut-in royalty clause, and there consequently was no

provision in the lease defining production to include such pay-

ments (R. 135).

WA RSet parenre em EP, MNT eh asker TI A ae RS Car Prt

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4

tioners’ interests had terminated on the ground that the

lease provision defining production to include the payment

of shut-in royalties did not inure to petitioners’ benefit.

The Court of Appeals affirmed summarily without even dis-

cussing two closely analogous cases decided by the Supreme

Court of Texas? which held that lease provisions defining

production to include production from pooled units consti-

tute a modification of the term interests, and that conse-

quently, such lease definitions do inure to the benefit of the ,

term interest owners. |

REASONS FOR GRANTING THE WRIT

1. The oil and gas industry is, of course, a most im-

portant segment of the economy of this state. Conveyances

of fractional interests in minerals for stated terms and so

long thereafter as minerals are produced are becoming in-

creasingly prevalent, and are, in turn, a significant part of

our oil and gas industry. Petitioners respectfully submit

that the decision of the Court of Appeals is in conflict with

the local law as declared by the highest court of the state

in the Spradley and Southland decisions, supra, in closely

analogous cases. While distinguishable from the instant

case since the set of circumstances defined by the leases as

production differ from those herein involved, the rationale

of those decisions — that the lease definitions inure to the

benefit of term interest owners — is clear. Purely as a mat- '

ter of forecasting the decision of the Supreme Court of

Texas on the precise issue here involved, petitioners sub-

mit that the Court of Appeals erred. However, no forecast

by the federal courts on this important issue of local law

is necessary since the precise issue on which both the Dis-

2 Spradley v. Finley, 302 S.W. 2d 409 (Tex. Sup. 1957) ; South-

land Royalty Co. v. Humble Oil & Refining Co., 249 S.W. 2d

914 (Tex. Sup. 1952).

5

trict Court and the Court of Appeals based their decisions

is now pending in the Supreme Court of Texas. In the case

of Archer County, et al, v. Webb, et al, the State District

Court of Crockett County, Texas, entered summary judg-

ment in favor of term royalty owners whose interests were

to expire in the absence of production, holding that such in-

terests were extended by virtue of a lease provision defining

production to include the payment of royalties on a shut-

in gas well. The Court of Appeals for the Eighth Judicial

District sitting at El Paso, Texas, reversed on the basis

of the opinion of the Court of Appeals in the instant case,

and a motion for rehearing was denied on July 15, 1959.

The opinion of the Court of Civil Appeals is reported in

snintieas S.W. 2d ......... Due to basie factual similarities, the

decision by the Supreme Court of Texas should doubtlessly

be controlling of this case. As shown by the certificate of

the Clerk of the Supreme Court of Texas (Appendix B,

infra., page ....) a writ of error has been applied for, and

action by that court on the application is expected momen-

tarily.

Unless this petition for a writ of certiorari is granted,

petitioners’ interests will be irretrievably lost even though

the Supreme Court of Texas, whose decisions control in

cases of this kind, Erie Railroad v. Tompkins, 304 U.S. 64,

82 L. Ed. 1188, 58 S. Ct. 817 (1937), declares the rule in

Texas, as it is in Louisiana,’ to be that term interests are

extended by the payment of shut-in royalties pursuant to

the lease provision. It is evident that in that event, a serious

injustice will have been done to petitioners, and their inter-

ests will have terminated solely because of the fortuitous

* LeBlane v. Haynesville Mercantile Co., Inc., 88 So. 24 377, (La.

Sup. 195....).

—_—

6

combination of the incorporation of Union Producing Com-

pany in Delaware, the Texas citizenship of the claimants

to the mineral interests, and the election of Union Produc-

ing Company, which actually has no interest in the outcome

of the litigation, to file this suit in the federal court rather

than in the state court. Petitioners respectfully submit that

no such contrariety should be encouraged by a premature

decision of the federal courts when an opportunity to insure

unanimity is presented by a case pending in the highest

court of the state.

Since the Court’s decision in Vandenbark v. Owens-Illinois

Glass Co., 311 U.S. 538, 85 L. Ed. 327, 61 S. Ct. 347 (1941),

it is settled that in cases governed by local law, decisions

of the highest court of the state announced subsequent to

the judgment of the District Court but prior to the entry

of a final judgment in the federal courts, must be followed.

This Court has vacated judgments of courts of appeal and

remanded cases to those courts for reconsideration in the

light of subsequent state decisions. Huddleston v. Dwyer,

322 U.S. 232, 88 L. Ed 1246 ...... ts Ee (1943). Numerous

other decisions have announced the desirability of staying

actions in the federal courts pending decisions by the state

courts where local law is decisive. City of Chicago v. Field-

crest Dairies, Inc., 316 U.S. 168, 86 L. Ed. 1355, 62 S. Ct. 786

(1941) ; Railroad Commission of Texas v. Pullman Co., 312

U.S. 496, 85 L. Ed. 971, 61 S. Ct. 643 (1940); Burford v. Sun

Oil Co., 319 U.S. 315, 87 L. Ed. 1424, 63 S. Ct. 265 (1942);

Manufacturers Casualty Insurance Company v. Coker, 219

F. 2d 631 (4th Cir. 1955); Cowling v. Deep Vein Coal Co.,

183 F’. 2d 652 (7th Cir. 1950). This is particularly true where

a suit is already pending in the state court. Arkansas v.

Texas, 346 U.S. 368, 98 L. Ed. 80, 74 S. Ct. 109 (1953).

a FEELIN SRS PORE ORT AM AA wee F

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7

As was observed by the Court in the recent case of Louisi-

ana Power & Light Company v. Thibodeauz, 3 L. Ed. 1058

(1959) :

“We have increasingly recognized the wisdom of

staying actions in the federal courts pending deter-

mination by a state court of decisive issues of state

BBWS 2s”

The Court has also stated in Thompson v. Magnolia

Petroleum Co., 309 U.S. 478, 84 L. Ed. 876, 60 S. Ct. 628

(1939) :

“ ... Unless the matter is referred to the state courts,

upon subsequent decision by the Supreme Court of

Illinois, it may appear that rights in local property of

parties to this proceeding have — by the accident of

federal jurisdiction — been determined contrary to the

law of the state which in such matters is supreme.”

The application of the Court’s statement in the Thomp-

son case to the instant case is abundantly clear. If the writ

is denied petitioners will have lost their interests although

in the Archer County case, the Supreme Court of Texas

may, and petitioners submit that said court will by virtue

of its earlier analogous decisions, declare erroneous the

forecast of the local law by the Court of Appeals in this

ease. The delicate federal-state relationship is hardly

prompted by such a result which can be easily averted by

the simple expedient of postponing a final judgment in this

case,

CONCLUSION

Petitioners respectfully submit that the only common-

sense approach to the problem dictates that (1) this case be

reversed, (2) the judgment of the Court of Appeals be

vacated, and (3) the Court of Appeals be instructed to defer

onermmrsod

further consideration until the impending decision in the

Archer County case by the Supreme Court of Texas has

been made.

Respectfully submitted,

Joun C. Wuite

838-842 Transportation Bldg.

Washington 6, D. C.

Joun H. Ditrrmar

Milam Building

San Antonio, Texas

Austin C. Witsonx

M. W. Parse, Jr.

Bank of the Southwest Bldg.

Houston 2, Texas

wre STIN Cc. Was

Attorneys for Petitioners

Of Counsel:

Fvusricut, Crooker, Freeman, Bates

& Jaworski

8th Floor Bank of the Southwest Bldg.

Houston 2, Texas

Morrison, Dittmar, DanicrRen & Karne

Milam Building

San Antonio, Texas

we Bete ee ar 2 ee

9

CERTIFICATE OF SERVICE

Copies of the above and foregoing petition for a writ of

certiorari to the United States Court of Appeals for the

Fifth Cireuit have been served upon all counsel for respond-

ents and Mr. W. S. Stovall, by placing copies of same

properly addressed and stamped in the United States mail

on this the 4. day of August, 1959.

Avstix C. Witson

Page.

Bae Stas iy

PEELE LOLS LIU GER MII ve NES 388

FEAL ON OREN oie

me eorge

APPENDIX A

In THE

United States Court of Appeals

For Tee Firtx Circuit

No. 17495

J. Vireit Scott, et au and Paut J. Rocers, er Au.,

Appellants,

Ve

Union Propucine Company, ET AL.,

Appellees.

APPEALS FROM THE Unitep Srates District Court

FOR THE SouTHERN District or Texas.

(May 21, 1959.)

Before HUTCHESON, Chief Judge, and TUTTLE and

BROWN, Circuit Judges.

HUTCHESON, Chief Judge: These are appeals from a

summary judgment entered on motions filed in an inter-

pleader action brought by Union Producing Co., lessee in

an oil and gas lease, to have determined and declared the

owners of mineral interests subject to the lease and the pro-

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portions of royalties and payments thereunder to which,

as such owners, they are entitled. It presents for decision

here the single question whether the district judge erred

in holding, on the authority of Sellers v. Breidenbach, 300

SW (2) 178,! that the fractional mineral interests acquired

by appellants under term mineral deeds had terminated,

and the interests had reverted to the grantors.

Because the undisputed and controlling facts are fully

and correctly set out and the law is as fully and correctly

declared in the thoughtful opinion? of the district judge,

we shall not undertake to present and discuss the theories

and arguments of appellants and appellees in opposition

and in support, but, referring with agreement and approval

to the district judge’s analysis of the law and the facts

and contenting ourselves with adopting his thorough going

opinion as our own, we affirm the judgment upon the con-

siderations and for the reasons stated by him.

We add only a reference to the recent opinion of the

Supreme Court of Texas in Midwest Oil v. Winsauer, ........

, pane (4-15-59), a case dealing with a temporary cessa-

tion of production without fault on the part of the operator

after production had been begun within the term.

There, distinguishing the Sellers and Holchak cases, the

Supreme Court expressly approved the principle upon

which they were decided, that term clauses in mineral deeds

are analogous to and must be given the same effect as

similar term clauses in term mineral leases. Saying:

Rar LT

1 Cf. Freeman v. Magnolia, 141 Texas 274, Morrison v. Swaim,

220 S.W(2) 493; Clark v. Holchak, 152 Tex. 26; and Holchak v.

Clark, 284 SW(2 2 ) 399.

2 Union Producing Co. v. Scott, ........ F. Supp. ........ , June, 1958.

a

A-3

“We see no reason why the same general principles

of law governing the construction of oil and gas leases

containing habendum clauses providing the estate con-

veyed shall continue after the expiration of its primary

term so long as oil or gas is produced, should not be

applicable to the construction of a term royalty deed

containing the same or similar provisions. The ‘term

royalty’ in the case at bar is a determinable fee just

as is the lessee’s estate.”

SE Pe ee OED Ce Tee

and citing applicable cases, the Supreme Court held that

in the event of temporary cessation of production without

fault on the part of the operator, plaintiffs’ right to enjoy

the royalty “will continue in any event as long as the opera-

tor in good faith exercises diligence.”

Rejecting the claim that Holchak and Sellers had held

differently, the court stated:

“These cases are not in point. Neither of these cases

dealt with the question of cessation of production either

temporary or permanent. The question in the Holchak F

case, supra, was ‘whether or not there was paying pro-

duction from the land within six months after Dec. 10,

1945, i.e., on June 10, 1946’. The uncontradicted evi-

dence was that on or before June 10, 1946, there was no

production from the well situated on the premises

covered by the royalty deed. The same question was

involved in the Sellers case, supra. The court simply f

held there was no production whatever from the prem-

ises,”

REO EIE ORL IEE ETN LE ERIE TEIN FATE SE att es

In the light of this opinion, of the cases cited in it, and

of those cited by the district judge, we believe there is no

escape from his conclusion that the reliance of the mineral i

deeds claimants upon the shut-in gas well provision in the

oil and gas lease will not do, and that this is so for the

reason stated by him:

a ’ STARE ISR SLADE RT PO EE

A-4

“It is the mineral deed, not the lease, that should

have contained a provision securing to the term mineral

owners the benefit of a shut-in gas well provision.”

The judgment was right. It is AFFIRMED. 4

[Sear]

A true copy

Test:

/s/ Epwarpv W. WapswortH

Edward W. Wadsworth

Clerk, U. S. Court of Appeals, Fifth Circuit

New Orleans, Louisiana

AUG 5 1959

A-5

JUDGMENT

Extract from the Minutes of May 21, 1959.

No. 17495

J. Vine Scort, er au., and Pauu J. Rocers, ev Au.,

v.

Union Propucine Company, ET AL.

This cause came on to be heard on the transcript of the

record from the United States District Court for the South-

ern District of Texas, and was argued by counsel;

Ox ConsiperaTion Wuenreor, It is now here ordered and

adjudged by this Court that the judgment of the said Dis-

trict Court in this cause be, and the same is hereby, affirmed;

It is further ordered and adjudged that the appellants,

J. Virgil Scott, and others and the surety on their Cost

Bond herein, National Surety Corporation, and the appel-

lants Paul J. Rogers, and others and the surety on their

Cost Bond herein, Globe Indemnity Company of New York,

he condemned, in solido, to pay the costs of this cause in

this Court for which execution may be issued out of the

said District Court.

ENR LOPES 7S

APPENDIX B

‘

9 EE ALPERT

In THE

Supreme Court of Texas

No. A-7490

ArcHer County, TExas, ET AL.,

Vv.

C. R. Wess, Et A.

© GILES I LLEL GICLEE DELI ET POR MIE NT IE

From Crockett County, Eicuts District.

I, Geo. H. Temptrn, Clerk of the Supreme Court of Texas, ¢

do hereby certify that application on behalf of Archer :

County, Texas, et al, and application on behalf of C. R.

Webb, et al, for writs of error to the Court of Civil Appeals,

Eighth Supreme Judicial District, were received and filed

as numbered and styled above, on this 17th day of August,

1959.

Ixy Testimony WuereEor witness my hand and the seal of

the Supreme Court of Texas, at the City of Austin, this,

the 17th day of August, 1959.

Geo. H. Tempuiy, Clerk

By /s/ Jewett SEELIGER

Mrs. Jewell Seeliger, Deputy

[Seau]

— OMELET ETE ED BORER AERIN PLO ENE BY NOMA LE RESIN MR DG MD