MR. JUSTICE BLACK delivered the opinion of the Court.
In this proceeding brought in a federal district court, the Sun Oil Co. attacked the validity of an order of the
Although a federal equity court does have jurisdiction of a particular proceeding, it may, in its sound discretion, whether its jurisdiction is invoked on the ground of diversity
The order under consideration is part of the general regulatory system devised for the conservation of oil and gas in Texas, an aspect of "as thorny a problem as has challenged the ingenuity and wisdom of legislatures." Railroad Commission v. Rowan & Nichols Oil Co., 310 U.S. 573, 579. The East Texas field, in which the Burford tract is located, is one of the largest in the United States. It is approximately forty miles long and between five and nine miles wide, and over 26,000 wells have been drilled in it.
For these and many other reasons based on geologic realities, each oil and gas field must be regulated as a unit for conservation purposes. Compare Railroad Commission v. Rowan & Nichols Co., 311 U.S. 570, 574. The federal government, for the present at least, has chosen to leave the principal regulatory responsibility with the States, but does supplement state control.
Texas' interests in this matter are more than that very large one of conserving gas and oil, two of our most important natural resources. It must also weigh the impact of the industry on the whole economy of the State and must consider its revenue, much of which is drawn from taxes on the industry and from mineral lands preserved for the benefit of its educational and eleemosynary institutions.
The Commission, in cooperation with other oil producing States, has accepted state oil production quotas and has undertaken to translate the amount to be produced for the State as a whole into a specific amount for each field and for each well.
Since 1919 the Commission has attempted to solve this problem by its Rule 37. The rule provides for certain minimum spacing between wells, but also allows exceptions where necessary "to prevent waste or to prevent the confiscation of property." The prevention of confiscation is based on the premises that, insofar as these privileges are compatible with the prevention of waste and the achievement of conservation, each surface owner should be permitted to withdraw the oil under his surface area, and that no one else can fairly be permitted to drain his oil away. Hence the Commission may protect his interest either by adjusting his amount of production upward, or by permitting him to drill additional wells. "By this method each person will be entitled to recover a quantity of oil and gas substantially equivalent in amount to the recoverable oil and gas under his land."
Additional wells may be required to prevent waste as has been noticed, where geologic circumstances require immediate drilling: "The term `waste,' as used in oil and gas Rule 37, undoubtedly means the ultimate loss of oil. If a substantial amount of oil will be saved by the drilling of a well that otherwise would ultimately be lost, the permit to drill such well may be justified under one of the exceptions provided in Rule 37 to prevent waste." Gulf Land
The delusive simplicity with which these principles of exception to Rule 37 can be stated should not obscure the actual non-legal complexities involved in their application.
With full knowledge of the importance of the decisions of the Railroad Commission both to the State and to the oil operators, the Texas legislature has established a system of thorough judicial review by its own state courts. The Commission orders may be appealed to a state district court in Travis County, and are reviewed by a branch of the Court of Civil Appeals and by the State Supreme Court.
In describing the relation of the Texas court to the Commission, no useful purpose will be served by attempting to label the court's position as legislative, Prentis v. Atlantic Coast Line, 211 U.S. 210; Keller v. Potomac Electric Co., 261 U.S. 428, or judicial, Bacon v. Rutland R. Co., 232 U.S. 134
To prevent the confusion of multiple review of the same general issues, the legislature provided for concentration of all direct review of the Commission's orders in the state district courts of Travis County. The Texas courts have authoritatively declared the purpose of this restriction: "If an order of the commission, lawful on its face, can be collaterally attacked in the various courts and counties of the state on grounds such as those urged in the instant case, interminable confusion would result." Texas Steel Co. v. Fort Worth & D.C. Ry. Co., 120 Tex. 597, 604, 40 S.W.2d 78.
The very "confusion" which the Texas legislature and Supreme Court feared might result from review by many state courts of the Railroad Commission's orders has resulted from the exercise of federal equity jurisdiction. As a practical matter, the federal courts can make small contribution to the well organized system of regulation and review which the Texas statutes provide. Texas courts can give fully as great relief, including temporary restraining orders, as the federal courts. Delay, misunderstanding of local law, and needless federal conflict with the state policy, are the inevitable product of this double system of review. The most striking example of misunderstanding has come where the federal court has flatly disagreed with the position later taken by a state court as to state law. See MacMillan v. Railroad Commission,
The conflict between federal courts and Texas has lessened appreciably in recent years primarily as a result of the decisions in the Rowan & Nichols case. 310 U.S. 573;
The whole cycle of federal-state conflict cannot be permitted to begin again by acceptance of this view. Insofar as we have discretion to do so, we should leave these problems of Texas law to the state court where each may be handled as "one more item in a continuous series of adjustments." Rowan & Nichols, supra, 310 U.S. at 584.
These questions of regulation of the industry by the state administrative agency, whether involving gas or oil prorationing programs or Rule 37 cases, so clearly involves basic problems of Texas policy that equitable discretion should be exercised to give the Texas courts the first opportunity to consider them. "Few public interests have a higher claim upon the discretion of a federal chancellor than the avoidance of needless friction with state policies, . . . These cases reflect a doctrine of abstention appropriate to our federal system whereby the federal courts, `exercising a wise discretion,' restrain their authority because of `scrupulous regard for the rightful independence of the state governments' and for the smooth working of the federal judiciary . . . This use of equitable powers is a contribution of the courts in furthering the harmonious relation between state and federal authority without the need of rigorous congressional restriction of
The State provides a unified method for the formation of policy and determination of cases by the Commission
The decision of the Circuit Court of appeals is reversed and the judgment of the District Court dismissing the complaint is affirmed for the reasons here stated.
MR. JUSTICE DOUGLAS, concurring:
I agree with the opinion of the Court and join in it. But there are observations in the dissenting opinion which impel me to add a few words. If the issues in this case were framed as the dissenting opinion frames them, I would agree that we should reach the merits and not direct a dismissal of the complaint. But the opinion of the Court as I read it does not hold or even fairly imply that "the enforcement of state rights created by state legislation and affecting state policies is limited to the state courts." Any such holding would result in a drastic inroad on diversity jurisdiction — a limitation which I agree might be desirable but which Congress, not this Court, should make. The holding in these cases, however, goes to no such length.
This decision is but an application of the principle expressed in Pennsylvania v. Williams, 294 U.S. 176, 185, that "federal courts of equity should exercise their discretionary power with proper regard for the rightful independence
The Texas statute which governs suits to set aside these orders of the Railroad Commission has been construed by the Texas courts to give to the supervising courts a large measure of control over the administrative process. That control is much greater, for example, than the control exercised by federal Circuit Courts of Appeals over the orders of such agencies as the National Labor Relations Board. The opinion of the Court calls the Railroad Commission and the Texas courts "working partners." But as its review of Texas decisions shows, the courts may at times be the senior and dominant member of that partnership if they perform the functions which Texas law places on them. The courts do not sit merely to enforce rights based on orders of the state administrative agency. They sit in judgment on that agency. That, to me, is the crux of the matter. If the federal courts undertook to sit in review, so to speak, of this state administrative agency, they would in effect actively participate in the fashioning of the state's domestic policy. That interference would be a continuing one, as the opinion of the Court points out. Moreover, divided authority would result. Divided authority breeds friction — friction potentially more serious
MR. JUSTICE MURPHY joins in this opinion.
MR. JUSTICE FRANKFURTER, dissenting:
To deny a suitor access to a federal district court under the circumstances of this case is to disregard a duty enjoined by Congress and made manifest by the whole history of the jurisdiction of the United States courts based upon diversity of citizenship between parties. For I am assuming that law declared by this Court, in contradistinction to law declared by Congress, is something other than the manipulation of words to formulate a predetermined result. Judicial law to me implies at least some continuity of intellectual criteria and procedures in dealing with recurring problems.
I believe it to be wholly accurate to say that throughout our history it has never been questioned that a right created by state law and enforceable in the state courts can also be enforced in the federal courts where the parties to the controversy are citizens of different states. The reasons which led Congress to grant such jurisdiction to the federal courts are familiar. It was believed that, consciously or otherwise, the courts of a state may favor their own citizens. Bias against outsiders may become embedded in a judgment of a state court and yet not be sufficiently apparent to be made the basis of a federal claim. To avoid possible discriminations of this sort, so the theory goes, a citizen of a state other than that in which he is suing or being sued ought to be able to go into a wholly impartial tribunal, namely, the federal court sitting in that state. Thus, the basic premise of federal jurisdiction based upon diversity of the parties' citizenship is that the federal courts should afford remedies which are coextensive
That is the theory of diversity jurisdiction. Whether it is a sound theory, whether diversity jurisdiction is necessary or desirable in order to avoid possible unfairness by state courts, state judges and juries, against outsiders, whether the federal courts ought to be relieved of the burden of diversity litigation, — these are matters which are not my concern as a judge. They are the concern of those whose business it is to legislate, not mine. I speak as one who has long favored the entire abolition of diversity jurisdiction. See 13 Cornell L.Q. 499, 520 et seq. But I must decide this case as a judge and not as a legislative reformer.
Aside from the Johnson Act of May 14, 1934, 48 Stat. 775,
The only limitations upon the exercise of diversity jurisdiction — apart from that which Congress made in the Johnson Act — are, broadly speaking, those illustrated by Railroad Comm'n v. Rowan & Nichols Oil Co., 310 U.S. 573, as amended in 311 U.S. 614-15; Railroad Comm'n v. Pullman Co., 312 U.S. 496; and Chicago v. Fieldcrest Dairies, 316 U.S. 168. In Rowan & Nichols the claim based upon state law was derived from a statute requiring proration on a "reasonable basis," and it was not clear from the decisions of the state courts whether such courts might exercise an independent judgment as to what was "reasonable." 311 U.S. at 615. And in Pullman it was also "far from clear" whether state law, as authoritatively defined by the local courts, might not displace the federal questions raised by the bill. 312 U.S. at 499. Where the controlling state law is so undefined that a federal court attempting to apply such law would be groping utterly in the dark — where "no matter how seasoned the judgment of the district court may be, it cannot escape being a forecast rather than a determination," Railroad Comm'n v. Pullman Co., 312 U.S. at 499 — a court of equity may "avoid the waste of a tentative decision," id., at 500. The Pullman and Fieldcrest Dairies cases are merely illustrative of one phase of the basic constitutional doctrine that substantial constitutional issues should be adjudicated only when no alternatives are open. A definitive ruling by the state courts upon the questions of construction of the state statutes might have terminated the controversies in those cases and thus eliminated serious constitutional questions. Under such circumstances it was an affirmation and not a denial of federal jurisdiction in each of those cases for the district court to hold the bill
If, in a case of this sort, the state right sought to be enforced in the federal courts depended upon a "forecast rather than a determination" of state law, if the federal court was practically impotent to enforce state law because of its inability to fathom the complexities, legal or factual, of local law, the rule of Rowan & Nichols would be applicable. In such a situation the line of demarcation between what belongs to the state administrative body and what to its courts should not be drawn by the federal courts. If it could be shown that the circumstances of this case warranted the application of such a doctrine of abstention, I would gladly join in the decision of the Court. But such a showing has not been attempted, nor, I believe, could it be made.
Let us examine briefly the nature of the rights sought here to be enforced in the federal courts. In 1919 the Texas Railroad Commission issued its Rule 37 imposing general spacing limitations upon the drilling of oil wells, "provided that the Commission in order to prevent waste or to prevent the confiscation of property" would grant exceptions from the general restrictions. The order of the Railroad Commission in this case granted a permit to drill a well in exception to Rule 37. Section 8 of Article 6049c of Vernon's Texas Civil Statutes, 1925, provides that any "interested person affected by . . . any rule, regulation or order made or promulgated by the Commission thereunder, and who may be dissatisfied therewith, shall have the right to file a suit in a court of competent jurisdiction in Travis County, Texas, and not elsewhere, against the Commission, or the members thereof, as defendants, to test the validity of said laws, rules, regulations or orders."
Looking only at the statute, one could find at least two possible sources of ambiguity and confusion. By what
It is true that Texas law governing review of Commission orders under Rule 37 has not always been clear and certain, and that there may be parts of the statute and some of the Railroad Commission's Rules, with which we are not now concerned, which, like other legal materials, are not as clear as they might be. But, in a series of recent decisions, the Supreme Court of Texas has not only given precision to the concepts of "waste" and "confiscation of property" employed in Rule 37, it has also defined with clarity the scope of judicial review of Commission action. In Gulf Land Co. v. Atlantic Refining Co., 134 Tex. 59, 70-71, 131 S.W.2d 73, the Court held that "the term `confiscation' evidently has reference to depriving the owner or lessee of a fair chance to recover the oil and gas in or under his land, or their equivalents in kind. It is evident that the word refers principally to drainage. Under one of the exceptions in Rule 37, well permits may be granted to prevent `confiscation.' It is the law that every owner or lessee of land is entitled to a fair chance to recover the oil and gas in or under his land, or their equivalents in kind. Any denial of such fair chance would be `confiscation' within the meaning of Rule 37." And in Railroad Commission v. Shell Oil Co., 139 Tex. 66, 80, 161 S.W.2d 1022, decided by the Supreme Court of Texas on March 11, 1942, the scope of judicial review contemplated by Texas law was authoritatively defined: "In Texas, in all trials contesting the validity of an order,
In other words, as the Circuit Court of Appeals has said in this case, "We now know the legal requisites of orders and regulations of the Railroad Commission under the conservation laws of Texas. . . . Whether the Commission heard evidence or not is immaterial; it is not required to take testimony or make findings of fact before promulgating its orders. Such procedure is foreign to the law of Texas, although customary under federal statutes. If the facts in existence when the order was made, as later shown by evidence before the court, were such that reasonable minds could not have reached the conclusion arrived at by the Commission, or if the agency exceeded its power, then the order should be set aside by any court of competent jurisdiction." 130 F.2d 10, 14-15.
Clearly, therefore, the scope of judicial review in a Rule 37 case, as declared by the Supreme Court of Texas, is precisely as well defined, for example, as the scope of judicial review by the federal courts of orders of the Interstate Commerce Commission or the National Labor Relations Board. That the scope of review may be different does not make the standards of review any less definite or less susceptible of application by a court. I think there can be no doubt that under the Constitution and laws of Texas, as construed by the decisions of the state courts, such courts exercise a judicial power in these cases precisely similar to that wielded by the federal courts under Article III. Can it be said, therefore, that in considering the
We come, then, to the question whether Texas has manifested any desire to confine such review to the state courts sitting in Travis County. A little history will go a long way in answering this question. On April 3, 1891, the Texas legislature enacted a statute creating the Texas Railroad Commission. Section 6 provided that suits to set aside Commission orders could be brought "in a court of competent jurisdiction in Travis County, Texas." And, naturally enough, the question soon arose whether this provision prevented review in the federal court sitting in Travis County. Almost fifty years ago there came before this Court a memorable litigation in which the meaning and purpose of the provision were thoroughly canvassed. In Reagan v. Farmers' Loan & Trust Co., 154 U.S. 362, 391-92, decided May 26, 1894, this Court unanimously held that "it may be laid down as a general proposition that, whenever a citizen of a State can go into the courts of a State to defend his property against the illegal acts of its officers, a citizen of another State may invoke the jurisdiction of the Federal courts to maintain a like defence. A State cannot tie up a citizen of another State, having property rights within its territory invaded by unauthorized acts of its own officers, to suits for redress in its own courts. . .. We need not, however, rest on the general powers of a Federal court in this respect, for in the act before us express authority is given for a suit against the commission . . . The language of this provision [§ 6 of the
For almost fifty years the holding in the Reagan case has not been questioned. On the contrary, it has always been taken for granted that the District Court for the Western District of Texas is "a court of competent jurisdiction in Travis County" and a suitable forum in which to challenge the validity of orders of the Texas Railroad Commission. One need only look at the tables of cases in both the lower federal courts and in this Court to obtain a sense of the solidity of this exercise of jurisdiction. Section 8 of Article 6049c, the Texas legislation immediately before us, was originally enacted in 1932. The Texas legislature might expressly have sought to restrict judicial proceedings with respect to Commission orders to the state courts of Travis County. This it has done in other situations. See e.g., Art. 911e, § 10 of Vernon's Revised Civil Statutes, 1925 (appeal by applicant for transportation agent's license from denial of application by Railroad Commission); Art. 3286 (suits by heirs or claimants to escheated lands); Art. 5032 (appeals from revocation or suspension of authority with respect to reciprocal insurance); Art. 8307, § 7 (suits to recover penalties from employers failing to report injuries under workmen's compensation law). In these statutory provisions jurisdiction is specifically limited to the "District Court in Travis County, Texas," the state court. But in Article 6049c the Texas legislature used the phrase "in a court of competent jurisdiction in Travis County," precisely the same as that which had been construed by this Court in the Reagan case. How, then,
And so, the case really reduces itself to this: in the actual application of the standards governing judicial review of Commission orders allowing exceptions under Rule 37 — standards which today have been authoritatively and precisely defined — a different result may be obtained if suit is brought in the federal rather than the state courts. And why? Because federal judges are less competent and less fair than state judges in applying the rules that are binding upon both? If this were true here, it would be equally true as applied to almost all types of litigation brought into federal courts to enforce state-created rights. The explanation may perhaps lie in the realm of what has sometimes been called "psychological jurisprudence." In the assessment of evidence and the other elements which enter into a judicial judgment, a federal judge may make judgments different from those which a state judge may make. Federal judges are perhaps to be regarded as men apart — judges who cannot be trusted to judge fairly and impartially. But if this be our premise, why should it not follow that the federal courts are, because of their putative bias, to be denied the right to hear insurance cases, or cases involving controversies between debtors and creditors, landlords and tenants, employers and employees, and all the other complicated controversies arising out of the local law of the forty-eight states?
It is the essence of diversity jurisdiction that federal judges and juries should pass on asserted claims because the result might be different if they were decided by a state court. There may be excellent reasons why Congress should abolish diversity jurisdiction. But, with all deference, it is not a defensible ground for having this Court by indirection abrogate diversity jurisdiction when, as a matter of fact, Congress has persistently refused to restrict
Of course, the usual considerations governing the exercise of equity jurisdiction are equally applicable to suits in the federal courts where jurisdiction depends upon the diversity of the parties' citizenship. The chancellor certainly must balance the equities before granting relief; he should stay his hand where another court seized of the controversy can do justice to the claims of the parties; he may refuse equitable relief where the asserted right is doubtful because of the substantive law which he must find as declared by the state. But it is too late in the day to suggest that the chancellor may act on whimsical or purely personal considerations or on private notions of policy regarding the particular suit. It is not for us to say that litigation affecting state laws and state policies ought to be tried only in the state courts. Congress has chosen to confer diversity jurisdiction upon the federal courts. It is not for us to reject that which Congress has made the law of the land simply because of our independent conviction that such legislation is unwise.
This is not just an isolated case. To order the dismissal of this litigation, on this record and in the present state of Texas law, is not merely to decide that the federal court in Travis County, Texas, should no longer entertain suits brought under the Texas conservation laws. We are holding, in effect, that the enforcement of state rights created by state legislation and affecting state policies is limited
Perhaps no judicial action calls for a more cautious exercise of discretion than the appointment of a receiver by a court of equity, especially where the enterprise to be administered relates to important public interests. Such a situation was presented to this Court in Pennsylvania v. Williams, 294 U.S. 176, in which — solely on the score of diversity of citizenship — a federal court was asked to assume the management of a Pennsylvania building and loan association. The problem before this Court was not whether the controversy should be adjudicated by a federal rather than a state court, but whether, as a matter of sound judicial administration, a court of equity should take hold of the affairs of the association by putting a judicial officer in charge when in fact the state had established an administrative system whereby "the duty of supervising its own building and loan associations and of liquidating them by an adequate procedure when insolvent," 294 U.S. at 184, was entrusted to a permanent, experienced state agency. The question was not at all whether a federal court should abdicate its authority in favor of a state court where the rules of law which would govern a suit in a state court would be precisely the same as those which a federal court would be bound to apply. The Williams case, in other words, is but an application of the traditional doctrine that a court of equity should stay its hand from the improvident appointment of a receiver.
Therefore, unless all functions of courts heretofore deemed to be judicial in nature even though they involve appropriately defined review of actions taken by administrative agencies are now to be deemed administrative in nature, the circumstance that a right asserted before a court arises from a controversy that originated before an administrative agency cannot alter either the nature of the power being exercised by the court or its capacity to entertain jurisdiction. One might choose, for example, to describe this Court as the "working partner" of the Securities and Exchange Commission, the Comptroller of the Currency, the Commissioner of Internal Revenue, and the score of other administrative bodies the validity of whose actions frequently comes here for review. But such a characterization of our role in reviewing administrative orders does not make this exercise of our power any the
The opinion of the Court cuts deep into our judicial fabric. The duty of the judiciary is to exercise the jurisdiction which Congress has conferred. What the Court is doing today I might wholeheartedly approve if it were done by Congress. But I cannot justify translation of the circumstance of my membership on this Court into an opportunity of writing my private view of legislative policy into law and thereby effacing a far greater area of diversity jurisdiction than Senator Norris, as chairman of the Senate Judiciary Committee, was ever able to persuade Congress itself to do.
MR. JUSTICE ROBERTS and MR. JUSTICE REED join in this dissent.
The CHIEF JUSTICE expresses no views as to the desirability, as a matter of legislative policy, of retaining the diversity jurisdiction. In all other respects he concurs in the opinion of MR. JUSTICE FRANKFURTER.
The Commission has described its own regulatory program as follows:
"The Railroad Commission of Texas carries out its functions of production control or proration by an elaborate system of orders, schedules, and reports. In order to keep the production of oil for the State during any period within the limits of a predetermined figure, the Commission sets by order the maximum allowable production for the State. This total allowable is then distributed among the various fields, and the allowable for each field in turn is allocated among the component properties so that the Commission, under this process, fixes the daily allowable for each well during the effective period of each allowable order. After these calculations have been made, a schedule of these allowables is prepared, printed, and mailed to each operator so that he may know how much oil may be produced from each of his leases during the month." 1939 Annual Report of the Oil and Gas Division, Texas Railroad Commission, p. 9.
The well spacing program and the proration program can not be considered separately; "the two are a part of a single integrated system and must be considered together." Davis, note 12, supra, at 55. For a discussion of the interrelation of spacing and proration, see Ely, supra, note 12, at 1229. Because of the economic consequences of granting exceptions under Rule 37, the Commission must be given fair latitude to exercise "sound judgment and discretion." Gulf Land Co. v. Atlantic Refining Co., 134 Tex. 59, 79, 131 S.W.2d 73. And because of the difficulties of decision, the Commission must be allowed a "reasonable margin for error." Railroad Commission v. Shell Oil Co., 139 Tex. 66, 75, 161 S.W.2d 1022.
In summarizing litigation prior to 1934, the federal court said: "In not a single one of these cases did we find the statute unreasonable or invalid. In not a single one did we find the orders invalid because, though complying with the statute, they violated the Constitution. In each of the cases in which injunctions issued we made it clear it was because we thought the orders had been entered in the teeth of statutes forbidding the commission's doing what it attempted to do." Amazon Petroleum Corp. v. Railroad Commission, 5 F.Supp. 633, 635.
For a survey of litigious history of the East Texas field, see Hardwicke and Davis, note 12, supra.
Governor Allred in his message of Jan. 16, 1935, recommended to the legislature that it revise the conservation laws generally. He said, "Much of the trouble of the oil industry and the official life charged with its regulation has been due to misunderstandings, misinformation, and ill-considered criticism by those either unfamiliar or unconcerned with the magnitude or proper solution of its problems or the practical difficulties confronting our public officials in this new and unexplored field of regulation. In the past, not a little of our difficulties has been due to the fact that laws dealing with the production of oil and gas, as well as the rules and regulations of the conservation commission passed thereunder, have been enacted under high pressure at a time when, figuratively speaking, the `House was on fire.'" Texas Sen. Journal, Reg. Sess. 1935, 84, 89.
(1) Burford's 2.33 acres were voluntarily subdivided from a larger portion and therefore the State Commission under the state law has no authority to permit an exception to prevent confiscation.
(2) "As a matter of state law, under the undisputed evidence, the judgment . . . is res adjudicata."
(3) The pendency of a related cause in the state courts, "under the law of the State . . . deprived the Railroad Commission pendente lite of jurisdiction."
(4) "The granting of four locations [was] without authority in the state law" and was arbitrary.
To determine the validity of these assertions, presenting obviously difficult problems of state law, we are asked by the company to analyze at least fifty Texas decisions. If the federal court misinterprets only one of these decisions, we shall have provoked a needless conflict with the Texas courts.
Since the order under review in this case did not in any way affect rates chargeable by any public utility, the Johnson Act is inapplicable.