Petition for Writ of Certiorari — Phillips Pipe Line Co. v. United States

j } OF ks - — Court, UL §

: FEB

SUPREME COURT OF THE UNITED STATES 4

CHARLES Fi

OCTOBER TERM, 1941

No. 923

THE PHILLIPS PIPE LINE COMPANY, a Corporation,

Petitioner,

vs.

THE UNITED STATES.

rs

PETITION FOR WRIT OF’ CERTIORARI TO THE

COURT OF CLAIMS AND BRIEF IN SUPPORT

THEREOF.

Howarp C. Westwoop,

H. D. Emery,

Raysurn L. Foster,

J. Harry Covrneton, III,

Dwicut Tay or,

Counsel for Petitioner.

1 REIS a NE

WELT TA, RR LOE RT RL

INDEX.

Suspgsect Inpex.

Page

Potition for writ of certiorari ..:. 2... «202 eee 1

Ce SN Fs 3 ats isc hn eee 1

TS oo SoS i Scan ae eee 1

I OR ka, aes kgs 2

Statement of matter involved ................ 3

| er ern rea 6

Reasons for granting the petition............. 9

Brief in cuppert of meth... ...: |... ec ie es: 12

I Geary of argeet. |: 2. 2. cess 12

St, Te SOE 2 oie es eae eee 12

III. The economic consequences of the decision

below aill for VOVIOW 5.2.5 xeseaks ys 18

IV. The decision below violates an indispensa-

ble principle of statutory interpretation. . 19

V. Further errors in the lower court’s deci-

sion call for correction................. 21

A. The lower court misapplied and

misinterpreted legislative history. 21

B. The lower -court’s findings are not

supported by the evidence....... 25

C. The lower court ignored an essential

eee SOK EK UN Oe ROT eR 25

VI. Conclusion ......... IPR ES NL 26

Appendix—Pertinent provisions of statutes, Legis-

lative History of Section 731, Revenue

Act of 1932, and Departmental Regu-

ee Pe ae RT ebay Ga 27

American Society for Testing Mater-

ials—definition of ‘‘crude petroleum’’

contained in Society’s Year Books

basins te THORS fie eee: 30

TaBLe or Cases CITED.

Biddle v. Commissioner, 302 U. S. 573............. 2

Burke v. Southern Pacific R. Co., 234 U. S. 669... 10, 17, 20

Coleman v. United States, 37 Fed. Supp. 273 ....... 24

—9674

ii INDEX

Page

DeGanay v. Lederer, 250 U.S. 376................. 10, 20

Deputy v. duPont, 308 U.S. 488................... 10, 20

General Petroleum Corp. v. United States, 24 Fed.

Se a eas og Acie Sag aaah fen apes 24

Hale v. State Board of Assessment and Review, 302

MRT oo nee ee eh 10, 20

Helvering v. Kehoe, 309 U.S. 277................. 26

Helvering v. New York Trust Co., 292 U. 8.455... 2

Miller v. Standard Nut Margarine Co., 284 U. S.

ooo, GERI GE EST ELS NTE En ae ae nee 23

Morgan v. Commissioner, 309 U.S.78 ............. 26

Old Colony R. Co. v. Commissioner, 284 U. 8. 552. 10, 20

Paramount Publix Corp. v. American Tri- Ergon

INE TR 26

Robertson v. Salomon, 130 U. S. 412.............. 20

Standard Oil Co. of C alifornia v. United States, 39

i. 2. “i eyecare eee ae eeeen 9

Tait v. Western Md. Ry. Co., 289 U. S.620.......... 10

Two Hundred Chests of Tea, _ 3 << ioe 20

Universal Battery Co. v. United States, 281 U. S.

Daa attest Pero ee en eS 25

United States v. Cowden Manufacturing Co., 312 U.S.

ee cunts Gree gees a 26

United States v. Esnault-Pelterie, 303 U. S.26...... 25

United States v. Shreveport Grain & Elevator Co.,

So eo eae ere 21

Van Camp & Son v. American Can Co., 278 U. S. 245. 21

Statutes Crrep.

Act of February 13, 1925, See. 3(b), 43 Stat. 939, 28

U.S. C. A., See. 288(a), as amended by the Act of

May 22, 1939, 53 Stat. 752, 28 U. S. C. A., See.

IS ee ee eee ee eet eae fe 1,2

Natural Gas Act, 52 Stat. 821, 15 U.S. C., See. 717. _. 19

Revenue Act of 1918, Sec. 500(e) (40 Stat. 1057,

MR CG eee eis te 27

Revenue Act of 1932, Sec. 601(c) (4), 47 Stat. 260. 15

Revenue Act of 1932, Sec. 617.................... 24

Revenue Act of 1932, See. 731(a), 47 Stat. 169, 275 _. 2

ae ' ‘ Be RSS Gt AS ADR REST RSL PRT TRL ESS IRE 5 SED SPS

INDEX iii

Page

Revenue Act of 1934, Sec. 604(a) and 605(a), 48 Stat.

ME Ss hf as heresy Sand phe yaar a eo eatin 15

Revenue Act of 1934, Sec. 605(a) ................. 15

Revenue Act of 1941, Sec. 502 (Internal Revenue

SBR ety waeeirn depen ig tenet on Sree rl 2, 29

Treasury REGULATIONS.

S. T. 564, Internal Revenue Cumulative Bulletin XI-2,

MN Inte 2 5 oe bah Reo ts pe wee aes 2

Treasury Regulation 49 (revised 1921), Art. 91, as

promulgated under Revenue Act of 1918... . raz 27

Treasury Regulation 49 (1934)................... 15

ConGRESSIONAL Reports.

75 Cong. Rec. 7226 ........... Ree eee

Te EE SE is os Sk eee ae OS ee ee sass 19, 22

H. Rep. No. 495, 76th Cong., Ist Sess., p.2............-. 25

H. Rep. No. 1492, 72nd Cong., Ist Sess., iy SESS 23

Hearings before House Committee on Ways and

Means on Revenue Revision 1938, 75th Cong., 34

i. Ee Se rier etna ire 19

Sen. Rep. No. 665, 72d Cong., Ist Sess., p. 47........ 23, 29

MIscELLANEOUS.

Funk and Wagnall’s New Standard Dictionary, defi-

nition of ‘‘crude petroleum’’ ..................-. 14

Funk and Wagnall’s New Standard Dictionary, defi-

nition of ‘‘petroleum”’........... 17

Lott and Hopkins, Natural Gas (Govt. Printing Office,

1941), pp. 1029-1031 (taken from Bureau of Mines

Mineral Year Book Review of 1940)............. 19

sigs s Petroleum Dictionary (1st Ed., 1930), at

ty; RR ital Ap ara eating Loree, saree Wate ay rari ce mer af

Webster’ s New International Dictionary (2d Ed., un-

abridged), definition of ‘‘petroleum’”’...... 17

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1941

No. 923

THE PHILLIPS PIPE LINE COMPANY, a Corporation,

Petitioner,

vs.

THE UNITED STATES.

PETITION FOR WRIT OF CERTIORARI TO THE

COURT OF CLAIMS.

The Phillips Pipe Line Company prays that a Writ of

Certiorari issue to review the decision of the Court of

Claims entered in this ease on October 6, 1941. Time for

filing this Petition was duly extended by this Court to and

including February 5, 1942 (R. 867).

Opinion Below.

The opinion below is reported in 40 F. Supp. 981.

Jurisdiction.

The judgment and order of the Court of Claims were

entered on October 6, 1941. The jurisdiction of this Court

is invoked under section 3(b) of the Act of February 13,

ly

2

1925, 43 Stat. 939, 28 U.S. C. A. § 288(a), as amended by the

Act of May 22, 1939, 53 Stat. 752, 28 U.S. C. A. § 288(b).

Statute Involved.

The pertinent provisions of the Revenue Act of 1932, 47

Stat. 169, 275, are as follows:

See. 731. Tax on Transportation of Oil by Pipe

Line.—

(a) There is hereby imposed upon all transportation

of crude petroleum and liquid products thereof by pipe

line * * * a tax equivalent to 4 per centum of the

amount paid on or after the fifteenth day after the date

of the enactment of this Act for such transportation,

to be paid by the person furnishing such transportation.

As first adopted this statute was to apply only for a limited

period. After successive extensions it was made permanent

by sec. 502 of the Revenue Act of 1941 and now appears as

section 3460 of the Internal Revenue Code.

The pertinent provisions of the Bureau of Internal Reve-

nue ruling issued under sec. 731(a) of the Revenue Act of

1932 are:

Transportation of natural or casinghead gasoline by

pipe line is taxable. Natural or casinghead gasoline is

a liquid product of crude petroleum, within the mean-

ing of section 731 of the Revenue Act of 1932, and the

transportation thereof by pipe line is subject to the

tax imposed by that section of thelaw. * * * (S.T.

564, Internal Revenue Cumulative Bulletin XI-2, page

531)

It is to be noted that this Bureau ruling does not have the

effect of a Treasury decision and is of no weight in in-

terpreting the Act.

1 Biddle v. Commissioner, 302 U. S. 573, 582 (1938); Helvering v. New

York Trust Co., 292 U. S. 455, 468 (1934).

3

Statement of Matter Involved.

The question in this case is whether the Court of Claims

erred in holding that natural gasoline and butane, each

manufactured from natural gas, are crude petroleum or

liquid products thereof within the meaning of section 731 (a)

of the Revenue Act of 1932 quoted above.

Petitioner is a corporation engaged in the business of

transporting, by pipe line, ordinary refinery gasoline, natu-

ral gasoline, and butane in liquid form, according to tariffs

filed with the Interstate Commerce Commission under the

Interstate Commerce Act. Petitioner transported these

products through its pipe line. Court of Claims Finding 2

(R. 24). Petitioner paid taxes on the transportation of

each of these three products.

With respect to the natural gasoline and butane the taxes

were paid under protest, and claims for refund were duly

filed and rejected. Within the proper time, petitioner sued

in the Court of Claims to recover such taxes for the period

June 20, 1932, to March 31, 1936. The taxes amounted to

$235,367.17 with respect to the natural gasoline and $29,-

407.21 with respect to the butane. Finding 3 (R. 25).

The refinery gasoline transported was the ordinary gaso-

line produced from crude petroleum at a refinery.

The natural gasoline, however, was a product very differ-

ent from refinery gasoline.

They differ as to their source, for natural gasoline is

manufactured from natural gas in a natural gasoline plant.

Finding 14? (R. 28-29).

They are physically different, with respect to vapor pres-

sure, distillation curve, gravity and octane number, and

otherwise. Natural gasoline is more volatile and more

difficult to handle, store and ship than is refinery gasoline

(R. 171-173).

2 Natural gasoline is not produced from crude oil, although it may be

theoretically possible to produce a comparable product from erude oil in

the laboratory (R. 422-423, 424-425).

2y

~ eS

+

They differ chemically in that the hydrocarbons found in

refinery gasoline are not all found in natural gasoline, and

those that are found in natural gasoline are in proportions

widely differing from those in refinery gasoline (Pla‘n-

tiff’s Exhibit 16, R. 720A; R. 172, 174-176, 483).

They differ in their uses in that natural gasoline is used

principally as a blending material with refinery gasoline,

as is benzol, a substance made from coal (R. 123-125, 178-

179).

They are priced differently, prices of natural gasoline and

refinery gasoline bearing no relation to each other (Plain-

tiff’s Exhibit 8 **; R. 129-131).

Butane is likewise a product very different from re-

finery gasoline. It, like natural gasoline, is manufactured

from natural gas. Finding 16 (R. 29). It is normally a gas,

being a liquid at atmospheric pressure only at 30° Fahren-

heit or less. Idem. It is not used as a motor fuel, except

in specially designed engines. Its principal use is as a

blending material with refinery gasoline. It also has other

uses.

The natural gas, from which both the natural gasoline and

the butane here involved were manufactured, was all pro-

duced in the Panhandle Field of Texas.? Most of such gas

came from straight gas wells. In addition, a substantial

amount was ‘‘gas cap’’ natural gas and ‘‘solution’’ natural

gas.‘

The petitioner’s position in the Court below, and here, is

this: natural gas is not crude petroleum or a product

thereof ; both natural gasoline and butane are manufactured

*@ This Exhibit has not been printed for the purpose of this Petition.

See stipulation at R. 868.

3 About 95% of this field is produtive of gas only, although both gas

and oil are produced along the northern edge (R. 57-58; see also Plaintiff's

Exhibit 1, R. 629).

* A straight gas well produces natural gas only. “Gas cap gas” comes

from a well producing gas and oil separately. “Solution gas” comes from

the well mingled with oil and is separated thereafter. Findings 9 and 10

(R. 27-28).

Sp Se

5

from natural gas; therefore natural gasoline and butane are

not crude petroleum or liquid products thereof. The

Bureau of Internal Revenue has never regarded natural

gas as crude petroleum or a product thereof, and has never

taxed its transportation by pipe line under the statute here

involved; this is admitted by the respondent (R. 616-617).

However, in the Court of Claims the respondent urged,

alternatively, two hypotheses:

1. Contrary to the Bureau’s position heretofore,

natural gas is ‘‘crude petroleum’’; or

2. Natural gasoline was at one time—albeit millions

of years ago—crude petroleum, and was picked up by

the natural gas and held in suspension.

On either hypothesis, respondent argued, natural gasoline

is a liquid product of crude petroleum.

The findings of the Court of Claims did not adopt the

latter of the respondent’s hypotheses. Indeed, as the testi-

mony of the respondent’s own witnesses showed, that hypo-

thesis is sheer speculation.

The Court of Claims did, however, adopt the former hypo-

thesis. Despite the fact that it found that, as used in the

trade generally, in the standard industry lexicon, in stat-

utes, and in government publications, the term ‘‘crude

petroleum’’ is synonymous with crude oil (Findings 18 and

19, R. 29, 30), it found that as used by scientists the term

includes both crude oil and natural gas. Finding 22 (R.

32). Based on this alleged scientific definition of the term,

the Court found that natural gas is a part of crude petro-

‘leum (Finding 22, R. 32), and that consequently natural

gasoline is a liquid product of crude petroleum. In the

Court’s opinion there is also reference to legislative history

of the Act in question. The Court apparently felt that this

history disclosed an intention to tax the transportation of

‘‘oasoline’’, and concluded that ‘‘gasoline’’ must include

natural gasoline,

6

The Court advances no theory as to how any of this line

of reasoning could apply to butane. Indeed, the Court

ignores butane in its opinion, virtually overlooks butane

in its primary findings, and makes no ultimate findings

whatsoever with respect to butane.

The evidence was very complete. It consisted of testi-

mony from witnesses representing nearly every aspect of

the industry and of a wide variety of exhibits. It showed,

among other things, the usage of the term ‘‘crude pe-

troleum’’ in the trade and in trade journals, scientific

works, government reports, administrative regulations,

statutes, and dictionaries. This mass of evidence points

without question to an understanding of the term ‘‘crude

petroleum’’, both popular and scientific, which excludes

from its scope natural gas and its products, natural gaso-

line and butane.

The only evidence to the contrary, if any at all, consisted

of testimony by three ‘‘experts’’ called by respondent.

What they did was to construct an academic definition of

‘‘erude petroleum’’ in the following manner. They took

the word ‘‘petroleum”’ and pointed to some technical usage

thereof which, depending on the context in which the term

was used, included both oil and gas. (See, e. g., R. 440-442.)

Then they argued that the term ‘‘crude petroleum’’ should

be as broad as such usage of the term ‘‘petroleum’’.

Questions Presented.

Petitioner is aware that questions presented in a petition

for writ of certiorari should be set forth briefly. How-

ever, the 1939 amendments to section 3 (b) of the Act of

February 13, 1925, may mean that, where findings of fact

of the Court of Claims are in question, a degree of par-

ticularity somewhat akin to that of a technical assignment

of errors is requisite. Consequently, with some diffidence,

petitioner sets forth the questions presented in rather more

detail than would otherwise appear appropriate.

7

(A) Did the Court of Claims err in adopting as con-

trolling an academic and allegedly scientific definition of

the terms ‘‘crude petroleum’’ and ‘‘liquid products

thereof’’, contrary to the general understanding of the

terms both within and without the industry affected by the

tax?

(B) Did the Court of Claims err in resorting to legis-

lative history when the terms of the statute are clear on

their face, and in interpreting that history to disclose an

intention to tax pipe line transportation of natural gaso-

line?

(C) Did the Court of Claims err (1) in failing to make

findings sufficient to support its judgment and order with

respect to butane, and (2) in entering such judgment and

order contrary to the findings, notably Findings 5 and 16

(R. 26, 29), and contrary to the evidence?

(D) Did the Court of Claims err:

1. In failing to render judgment for the plaintiff

on the facts found.

2. In finding that natural gasoline is a liquid product

of crude petroleum. See Finding 26 (R. 33).

a. Such finding is not supported by, and is in con-

flict with, the primary findings, notably Findings

0, 6, 18, 14, 15, 18 and 19 (R. 26, 28, 29, 30).

b. Such finding is contrary to the evidence.

3. In finding that scientists, chemists, laboratory

technicians, and research engineers define the term

‘‘crude petroleum’’ as consisting of a combination of

various hydrocarbons in the gaseous, liquid, and solid

phase, and in finding that they consider ‘‘crude pe-

troleum’’ as the total hydrocarbon substance in the

reservoir. See Findings 21 and 22 (R. 31, 32).

3y

pare nana aay

8

4. In finding that ‘‘erude petroleum”’ is a broader

term than ‘‘crude oil’’ and embraces the total hydro-

carbon substance in the reservoir, including natural

gas. See Findings 21, 22 and 24 (R. 31-33).

a. Such finding is not supported by and is con-

trary to the primary findings, notably Findings 18

and 19 (R. 29, 30).

b. Such finding is contrary to the evidence.

5. In finding that natural gasoline may be extracted

from crude oil. See Finding 15 (R. 29).

6. In finding that natural gasoline is obtained

‘*through a simple mechanical process’’. See Finding

25 (R. 33).

a. Such finding is contrary to Finding 14 (R. 28-29).

b. Such finding is contrary to the evidence.

7. In finding that natural gasoline is defined as a

series of hydrocarbons which are the lighter fractions

of crude oil. See Finding 25 (R. 33).

8. In finding that natural gasoline is ‘‘extracted’’ or

‘*separated’’, rather than manufactured, from natural

gas. See Findings 13, 15 and 25 (R. 28, 29, 33).

9. In failing to find that the term ‘‘crude petroleum”’,

as universally used and understood, is synonymous

with ‘‘crude oil’’ and denotes the hydrocarbon liquid

product of an oil well, and excludes natural gas; and

that the term is most generally used to designate

merchantable or pipe line oil.

10. In failing to find that the natural gas, from

which the natural gasoline and butane here involved

were manufactured, was produced in the Panhandle

Field of Texas (cf. Finding 5, R. 26) largely from dry

9

gas wells (cf. Finding 9 (1), R. 27), and none from

stock or storage tank vapors.

11. In failing to find the amount or percentage of

natural gasoline and butane here involved which were

manufactured from gas well gas and gas cap gas,

and in failing to find that at least such gas, and the

natural gasoline and butane manufactured therefrom,

were not crude petroleum or liquid products thereof.

Reasons for Granting the Petition.

1. The decision of the Court of Claims is based on the

premise that the term ‘‘crude petroleum” includes natural

gas. This means that pipe line transportation of natural

gas, as well as its liquid products, falls within the scope

of sec. 731 (a) of the Revenue Act of 1932, despite the

fact that, admittedly, the Act has never before been so

applied. Such judicial lawmaking, whether right or wrong,

should not be allowed to stand without careful appellate

review. For with the tremendous amount of pipe line

transportation of natural gas and its liquid products the

Court’s interpretation of the Act will drastically affect

millions of dollars’ worth of investment and of consumers’

goods and services.

2. While one other pending case (Standard Oil Company

of California v. United States*) raises the ultimate ques-

tion here involved as to natural gasoline, the present is

the more appropriate test case. Indeed, in the Standard

Oil case the court relied heavily on the Commissioner’s

Report herein. Moreover, the present case involves butane,

not involved in the Standard Oil case. Furthermore, this

petitioner and its parent are the world’s largest pipe line

539 F. Supp. 180 (N. D. Calif., 1941). This case is now on appeal to

the Cireuit Court of Appeals for the Ninth Cireuit.

10

shipper and manufacturer of natural gasoline (R. 85).

Were this petition denied, and were the question involved

later to be decided otherwise, the petitioner might find

itself estopped by the judgment herein as to all taxes from

1936 on. Tait v. Western Md. Ry. Co., 289 U. S. 620 (1933).

3. Quite aside from the economic importance of this

case, it should be reviewed because of the principles of

statutory interpretation followed by the Court of Claims.

Basically, the Court has asserted that terms in a tax

statute shall be given a meaning which is contrary to

ordinary usage and which is to be found, if at all, only in

occasional and abstruse scientific usage. Such a doctrine

is contrary to the decisions of this Court® and, if pursued,

both the Government and taxpayers would be faced with

gravest uncertainty with respect to tax liability.

4. Finally, the decision below falls into such error, in

that it is so directly contrary to the evidence, in that it

fails to make findings of fact with respect to butane neces-

sary to support its judgment, and in that it misapplies legis-

lative history, that it should be reviewed in the interest of

the orderly administration of justice. The Court of Claims

is of exceeding importance to the Government and to its

citizens and is growing more so. Only through review by

this Court can it be held to the standards of care and de-

liberation, and to the proper legal principles, which should

characterize its decisions perhaps above all other courts

of first resort.

® De Ganay v. Lederer, 250 U. S. 376, 381 (1919); Old Colony R. Co. v.

Commissioner, 284 U. S. 552, 560 (1932); Hale v. State Board of Assess-

ment and Review, 302 U. 8. 95, 101 (1937); Deputy v. du Pont, 308 U. S.

488, 498 (1940); cf. Burke v. Southern Pacific R. Co., 234 U. S. 669,

678-679 (1914).

11

Wuenrerors it is respectfully submitted that this petition

should be granted.

Howarp C.: Westwoop,

H. D. Emery,

Raysurn L. Foster,

J. Harry Covineton, III,

Dwicut TayLor,

Attorneys for Petitioner.

12

BRIEF IN SUPPORT OF PETITION FOR WRIT OF

CERTIORARI.

3 a

Summary of Argument.

A. The decision of the lower Court was necessarily based

on the finding that natural gas is a part of “crude petro-

leum.’’ Since the transportation of ‘crude petroleum”? is

taxable under the provision of the Act of 1932 here involved,

the effect of the decision is that the transportation tax ap-

plies to the whole natural gas industry. This is in the

face of a denial on the floor of Congress that any such thing

was intended and is contrary to the stand of the Bureau

of Internal Revenue ever since the statute was adopted. A

decision with such far-reaching economic consequences

should be reviewed.

B. The lower Court has embarked upon a process of

statutory interpretation which mocks the principle that

words mean what they are ordinarily understood to mean.

C. Errors of the lower Court in misapplying and mis-

interpreting legislative history, in making findings con-

trary to the evidence, and in failing to make essential find-

ings are such that review is called for.

IL.

The Evidence.

Without regard to the question whether the lower Court’s

findings are supported by the evidence, the decision below

| was in error, as indicated in the Petition, in that it is not

supported by the findings made. For the Court’s findings

concerning the ordinary understanding of the terms used in

} the statute are inconsistent with its ultimate finding that

13

natural gasoline is a product of crude petroleum. Findings

18 and 19 (R. 29, 30).

Therefore the Petition should be granted on the ground

that the decision is inconsistent with the findings.’

The gravity of the error committed is made even clearer

by an examination of the evidence. For that evidence

utterly contradicts the finding with respect to a ‘‘scientific’’

understanding of the terms used in the statute, and the

Court’s conclusion with respect to the meaning of those

terms.

Consequently, the Petition also seeks review of the suf-

ficiency of the evidence to support the findings.

The record is bulky. However, most of it is directed

to substantially the same point and a review of the evi-

dence is much simpler than might at first appear.’ This

will be demonstrated by briefly supplementing the statement

of facts in the Petition.

The lower Court found that the term ‘‘crude petroleum”’

includes all gaseous, liquid, and solid hydrocarbons, in-

cluding natural gas. Finding 22 (R. 32). While respond-

ent’s three witnesses, whose testimony will be referred to in

a moment, argued that the term should be used to signify

natural gas, the record otherwise discloses not a single

instance where the term has been used in that sense.

On the contrary, the record is literally burdened with

evidence that the term ‘‘crude petroleum’’ is a term in

frequent use and that it is everywhere used and understood,

scientifically and popularly, to mean crude oil, and not

to include natural gas. This evidence includes the testi-

7 See also Part V C of this brief, infra, p. 25.

8 The record is bulky largely because of the practice contemplated by

the applicable statute and rules of the Court of Claims. Were the record

in narrative form it would be a fraction of its present size. Further-

more, many of the exhibits are doubtless properly subject to judicial notice,

but were introduced in evidence for convenience.

ere ithe Peo

ore

14

mony of many witnesses thoroughly experienced in the oil

and gas industry,’ dealers, operators, technicians, scien-

tists, state officials administering oil and gas conservation

and tax laws, editors of trade journals and oil editors

of leading newspapers. Included also in this evidence

is the definition of ‘‘crude petroleum’’ by the American

Society for Testing Materials, the ‘‘standard accepted au-

thority of the industry’’;’® the usage of commercial opera-

tors and dealers; use in publications of the Bureau of

Mines,” Oil Conservation Board, Trade Commission, Geo-

logical Survey, and other government agencies; trade

publications ;* the Petroleum Code under the N. I. R. A.;%

the laws and regulations of oil and gas producing states ;'°

and Acts of Congress as far back as 1897.7

® There were twenty-eight of these witnesses from Arkansas, California,

Kansas, Louisiana, New Mexico, Oklahoma, Texas, including the Governor

of Oklahoma and an ex-Governor of Texas.

10 Referred to in Finding 19, second paragraph (R. 30). The definition

appears in the Appendix hereto at page 30, infra. The American Society

for Testing Materials was formed in 1902, following similar activities dating

back to 1882. It is composed of representatives from many industries and,

under its constitution, its several committees, which deal with the definition

and specifications of specific materials, are composed equally of producers,

consumers, and the public. Representatives of the United States Govern-

ment usually represent the public. Bulletins issued by the Director of

Procurement of the United States Government usually follow the testing

methods developed by the Society (R. 168, 169, 170-171). As pointed out in

Finding 19, the Society is recognized as the controlling authority in the oil

and gas industry. The definition of crude petroleum referred to in

Finding 19 is taken from the Society’s Year Book for 1928, which of

course was in wide circulation throughout the United States prior to the

adoption of the Revenue Act of 1932. See also Funk and Wagnall’s New

SranparD Dictionary, definition of “crude petroleum”.

11 Finding 18 (R. 29-30).

12 Finding 19 (R. 30).

13 Plaintiff’s Exhibit 15, at R. 664-665, 670-674.

14 Plaintiff’s Exhibit 15, at R. 674-675.

15 R, 294; Plaintiff’s Exhibit 53, R. 727.

16 Finding 19 (R. 30).

17 Finding 19 (R. 30).

Pee

=

Se

ie i

15

In fact, another section of the very Revenue Act here

involved levies a tax on imports of ‘‘crude petroleum %¢

per gallon’’,’* thus showing that crude petroleum is the

liquid oil.

Likewise the Revenue Act of 1934 taxes production

and refining of ‘‘crude petroleum’’ in terms of barrels,

again denoting the liquid oil; and, making doubly clear

that ‘‘crude petroleum”’ does not include gas or its product,

natural gasoline, the same provision of the 1934 Act con-

tains a separate provision for ‘‘gasoline produced from

natural gas’’.2° Furthermore, the regulations of the Bu-

reau of Internal Revenue under these provisions of the

1934 Act deal with ‘‘erude petroleum’’ as meaning mer-

chantable crude oil,”! wholly inconsistent with the view that

‘‘erude petroleum”’ includes natural gas.

Finally, the Bureau construed the very section of the law,

the very words, here involved as not ineluding natural

gas (R. 616-617).

Here is how the lower Court sought to escape all this

evidence :

Respondent produced three witnesses, all from California,

two consulting engineers and a professor. They said, in

18 Sec. 601 (c) (4); 47 Stat. 260.

19 See. 604 (a) and 605 (a); 48 Stat. 766, 767. The former section also

speaks of “erude petroleum produced from any well capable of producing

more than five barrels per day’—obviously crude oil.

20 See. 605 (a) of the 1934 Act reads:

“There is hereby imposed (1) on crude petroleum refined or pro-

cessed in the United States, a tax of one-tenth of one cent per barrel

of forty-two gallons, * * * and (2) om gasoline produced or

recovered in the United States from natural gas a tax of one-tenth of

one cent per barrel of forty-two gallons, * * *.”

21 Treas. Reas. 49 (1934). The whole regulation is worth reading, for

it is replete with usage meaning merchantable crude oil. For example, it

is provided in Article 12 that the tax falls on the “crude petroleum * * *

after proper allowance has been made for deduction for basic sediment

* * © In other words, the tax should be based on the quantity of crude

petroleum which has reached the stage where it is gauged for royalty pur-

poses or which is accepted for pipeline transportation.”

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substance, that the word ‘‘petroleum’’ includes the solid,

liquid and gas hydrocarbons, and that the word ‘‘crude”

simply denotes any form or the unrefined form (R. 398-399,

480-481, 551). They then concluded that ‘‘crude petro-

leum’’ includes not only crude oil but also natural gas and

hydrocarbon solids. For this they could cite no authority

or examples where the term ‘‘crude petroleum’’ was so

used (R. 413-414, 470-472).

The principal one of these witnesses (Oliver) said that

he had not seen or heard the term ‘‘crude petroleum’’ used

very much and that he was simply giving ‘‘a personal opin-

ion’’ (R. 408, 430; see also R. 413-414). His testimony was

in terms of what the phrase means ‘‘to me’’ (R. 398-399,

413-414, 431). He admitted that as ordinarily used crude

petroleum means crude oil (R. 431-432); he said that the

nomenclature he was using was a scientific nomenclature

occurring in books of chemistry (R. 512-513).

The second witness (Cannon) said he had never heard the

term ‘‘crude petroleum’? used in the industry, or if so only

rarely (R. 480-481). He, also, testified in terms of its mean-

ing ‘‘to me’’ (R. 453).

The third witness (Professor Carlson) also said that he

had not heard the term ‘‘crude petroleum” used to any great

extent (R. 555), and then said that the word ‘“petroleum”’

is generally used to mean ‘‘erude oil’’ but that he doesn’t

regard that usage as ‘‘exact’’ (R. 560; see also R. 567,

568) .??

Thus the respondent’s evidence that the term ‘‘crude

petroleum’’ includes natural gas consists of an academic

definition personal to these three witnesses.

22 However, Professor Carlson’s own classroom notes— the authenticity

of which he was not frank enough to admit (R. 583), but which were fully

identified otherwise (R. 617, et seq.)—disclose consistent and repeated use

of the terms “petroleum” and “crude petroleum” as synonymous with “oil”

or “crude oil”, and not as including gas. The term “crude petroleum” is

used in no other sense in his notes (R. 619-621).

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17

It is true that, although the term ‘‘crude petroleum’”’ is

always used to denote the hydrocarbon liquid (oil), there

are some cases where the single word ‘‘petroleum”’ is used

in a broader sense to include oil and gas. But such usage de-

pends on the context—for ordinarily the term ‘‘petroleum”’

is used to mean only the liquid (oil).* As a matter of fact,

the respondent’s own evidence is that the term ‘‘petroleum’”’

is used in both the two senses, depending on the context (R.

614-615). Illustrative is Professor Uren’s book from which

a definition of ‘‘petroleum,’’ not ‘‘erude petroleum,’’ is

quoted by the lower Court in support of its main finding

(Finding 22, R. 32); yet the same book uses both the term

‘‘netroleum’’ and the term ‘‘erude petroleum’’ in other

passages as synonymous with crude oil (R. 574-578). In-

deed, that book never uses the term ‘‘erude petroleum’? in

any other sense. And a definition of ‘‘petroleum’’ heavily

relied upon by respondent in its brief in the lower Court

is that in Porter’s Perroteum Dictionary (1st ed., 1930),

at p. 168 which says:

‘‘In its widest sense the term ‘petroleum’ embraces

the whole of the hydrocarbons—gaseous, liquid and

solid, occurring innature. The word ‘petroleum’ in gen-

eral use signifies an oil, inflammable, liquid mixture of

numerous hydrocarbons * * * Also known as Rock

Oil, Mineral Oil, Natural Oil, Coal Oil, Earth Oil, Seneca

Oil.’’ (Italics ours.)

From an occasional abstract usage of the word ‘‘pe-

troleum’”’ to include gas, on the basis of which respond-

ent’s witnesses argued that an ‘‘exact’’ usage of ‘‘crude

23 As this Court said in Burke v. Southern Pacific R. Co., 234 U. S. 669,

676 (1914), “Petroleum has long been popularly regarded as a mineral oil.

As its derivation indicates, the word means ‘rock oil’, an oily substance so

named because found naturally oozing from crevices in rocks.” See also

Webster’s New iNTERNATIONAL Dictionary (2d ed., unabridged), defini-

tion of “petroleur”; Funk and Wagnall’s New Sranparp Dictionary,

definition of “petroieum”.