Senator George Parkhouse Opin. No. WW-29

The Senate of The State ofTexas Austin, Texas Re: Constitutionality of Committee Su.bstitute Dear Senator Parkhouse: for Senate Bill, LOI.

Wi.th reference to your letter ofFebruary 6, 1957, requesting an opini.on on the constitu,tionality ofthe above captioned bi.lll,we tende,r the lollowing opinion:

SUMMARY OF COMMITTEE SUBSTITUTE FOR S. B. NO. 101

Section 1declares the policy, intention and purposes ofthe Legislature. The policy ofthe Legislature is declared to be to save, protect and preserve the soi, ofthi,s State for posterity. Itis stated that **in** many areas of “.heState there is atotal lack of surface water:> but that inmany of such areas there is an ample supply of underground water whi,ch might be used towater such 1an.dand grow
cover crops that would prevent wind as well. as water erosion due $0excessi,ve rainfall, thereby permj.tting soil conservation practices. Itis fti,rther stated that where there exists ample subsurface reservoirs ofwater, the cost ofpumpin.g such water is prohibitive, but there are great reservoirs ofnaturai gas prodwed and sold at prices such as would permit the pumping ofwater for irrigati~oxn,and would ai,dinthe prevention of soi.1erosi,on, andwould promote the general wel~fare. Because oftheir importance, Sections 2and 3are quoted in farl,l., as hollows:

“Sec. 2. From and after the effective date ofthis act-. every person owning or operating any gas weI.1,**from** which natural gas is produced, sold or used off the premises onwhich such gas we!l is located in order to aid inthe prevention of soil erosion and the protecti,on ofthe soil, shall make available, from the production of such gas well, to the person or perSons engaged in agricul,tural acti,vjties u,ponsuch premises, if requested to do so, gas from the production of said well, upto an,amount equal to the royalty i,nterest of the owner ofthe land onwhich said well is located, as reflected by the terms ofthe oil and gas lease of such person owning or operating said gas well, for the operation by such person or pesson,sSenator George Parkhouse, Page 2 (WW-29)

engaged in agricultural activities of pumps necessary for the pumping of said water, as may be necessary and propar for the irrigation of such portion of said premises as may be devoted to the growth ofagricultural products or to pasture or orchard use, to the endthat the soil uponwhich said agricultural produc~ts are grown shall be preserved and protected from erosion due to any cause:.”

““Sec. 3, The prices, terms and conditions uponwhich, natural gas sha1.lbe made available under thi.s act shall be determined by negotiation between the parties. Inthe event oftheir inability to agree as to any or all of such prices, terms and conditions, either party to the negotiation may apply to the Railroad Commission of Texas to fix same. Inreaching its determination, the Railroad Commission shall consider the necessity ofthe applicant for the gas for the purposes specified herein, the value of such gas and its components, the efficient operation ofthe gas wells ofthe producer ofthe gas, the obligations assumed by such producer inthe sale or other disposition of such gas, and all other factors relevant to the effectuation of the policy and purposes ofthis act with **justice** to all concerned.”

Sec. 4 provides that under this act, the procedure before the Railroad Commission shall be that applicable to such proceedings by general law and orders promulgated by the Commission and provides that appea1.s may be taken from its decisions inthe same manner.

Sec. 5,relates to parties to such proceedings.

Sec. 6provides that this act shall not create an obligation onthe part ofthe operator ofagas well to furnish gas for use offthe premises from which it is produced or to assume any public utility duties to the public at large.

Sec. 7provides that in case ofacontroversy before the Commission, the owner or operator ofthe gas well or wells involved shall make available to the persons entitled thereto natural gas as prescri.bed inSet, 2on such temporary terms and conditions as the Commission shall prescribe by order or general rule subject to adjustment retroactively.

Sec. Elprovides for penalties against an owner or operator who fails to comply with any duty imposed by the act.Senator George Parkhouse, Page 3 (WW-29)

Sec. 9declares all laws or parts of laws in conflict with the act repealed to the extent of such conflict.

Sec. 10 is a standard saving or severability clause.

Sec. 11 delcares an emergency and suspends the constitutional reading rule, and provides that the act shall take effect from and after its passage.

We have examined the proposed legislation with particular reference to amajority decision ofthe Supreme Court ofOklahoma1 holding a similar bill violative ofArticle 2, Section 24, ofthe Oklahoma Constitution in that the act constituted ataking of property without due process oflaw. Phillips Petroleum Company v. Corporation Commission ofOklahoma, et al., Cause No. 37250, November 20, 1956, (as yet reported only in an advance sheet, Volume 27, The Journal, pa 1920).

An opposite result was reached when the validity ofthe same bill
was questioned before athree-judge Federal District Court. Phillips Petroleum Company v. Ray C. Jones, et al., December 12, 1955, No. 6794, Civil. Docket, District Court for United States Western District ofOklahoma, (not yet reported).

The main questions for our determination are (a)whether the bill is violative ofArticle 1, Section 17, ofthe Constitution of Texas, rel.ating to property taken for public use; (b)whether the bill violates Article 1, Section 16, ofthe Constitution of Texas, protecting the obligations ofcontracts; and (c) whether the bill. violates substantive due process afforded byArticle 1, Section 19, ofthe Constitution of Texas and the 14thAmendment to the Federal Constitution.

The Constitution of Texas authorizes the conservation of our natural resources, Article XVI, Section 59~2,Vernon’s Annotated Constitution. That the State has the constitutional authority to enact reasonable regulatory legislation for the conservation of our natural **resources** when not otherwise incontravention of constitutional principles, is settled law. 31a Tex. Jur., Oil and Gas, Set, 354. The constitutional provision construed inthe Oklahoma case, w, provided a detailed method for ascertaining compensation for property taken for a public **usee2** This provision differs from the provisions ofArticle 1,

1. Two Justices dissenting. 2. See Appendix.Senator George Parkhouse, Page 4 (WW-29)

Section 17, ofthe Texas Constitution. Inour opinion, the **duty** to make gas available to irrigators, as created by the Act, constitutes a “taking” within the meaning ofArticle 1, Section 17, ofthe Constitution of Texas.

We must presume that the Railroad Commission, in enforcing the provisions ofthis Act, will do so with the provi.sions ofArticle 1, Section 17, ofthe Texas Constitution inmind. We see no reason why the Commission could not adopt **rules** and regulations that would fully satisfy this constitutional requirement. However, since the Act itself does not set upmachinery for determining the question ofwhether an applicant is entitled to the benefits provided by the Act, itwill be incumbent upon the Railroad Commission to first determine that a particular applicant will apply the use ofthe gas to the purpose of soil conservation. Otherwise, an order ofthe Commission making gas available under the Act would be questionable onthe ground that the taking was not for apublic purpose. While a particular order ofthe Commission might be held violative ofArticle 1, Section 17, by an appellate court, because that order might be declared unreasonable, arbitrary, or capricious, 3this possibility does not make the bill unconstitutional on its face.

The above quoted language in Section 2ofthe bill presents an entirely different **question.** While it is **true** that the Act’s basic objective, soil conservation, lies within the pale ofthe state’s police power and authority, the provisions of Section 2limiting the amount of gas available to the owner ofthe **surface** of land from which the gas is produced to an amount not more than that owner’s royalty interest creates afatal discrimination as between those surface owners owning royalty interests and those who do not.

Under the provisions ofthe Fourteenth Amendment ofthe Federal Constitution andArti,cle 1, Section 19, ofthe Constitution ofTexas, the Legislature cannot pass legislation which makes an improper discrimination by conferring the privileges on a class arbitrarily selected from alarge number of pers,ons standing inthe same relationship to the pri.vileges and purposes of an act, without a reasonable distinction of substantial difference, 16a C.J.S., Constitutional Law, Section 489. Inorder to be valid, **a statutory**  classificati.on

3. For example, see Marrs v, Railroad Commission, 142 Tex. 293, 177 S.W.2d 941, where the court held aproration order ofthe commission violative of Article 1, Section 17, ofthe Constitution of Texas and stated that the order constituted a ““taking” within the meaning ofthat provision,- -

Senator George Parkhouse, Page 5 (WW-29)

must reasonably promote some proper object ofpublic welfare or interest, must rest on real and eubstantial differencea, having anatural, reasonable, and substantial relation **to the**  **subject** ofthe legislation, **and** must affect alike all persons or things within a particular class, or similarly situated. Hawaii Brewing Corp. v.-Bowles, Em. App. 148 F.2d 846, Fort Worth and D-C, Ry. ‘Co. v. Welch, Civ. App. 183 S.W.2d 730, 735, error ref”d. Inour opinion, the discrimination between surface owners owning royalty and such owners who do not own royalty has no reasonable basis inthe declared purpose ofthe legislation.

As to the constitutional question ofthe impairment ofthe obligations of contract, it is well settled that the obligations of contracts must yield to a proper exercise ofthe police power, and vested rights cannot inhibit the proper exercise ofthe police power. Treigle v. Acme Homestead Assn., 297 U.S. 189, 197 (1936). 16 C.J.S. Constitutional Law, Section 175. Where the ‘takingW is for apublic purpose and ‘“dueprocess ” is served by amethod for fixing value, the impairment of contracts becomes immaterial. The true owner ofthe gas atthe time oftaking may be paid for its value whether he owns by contract of purchase or by holding a mineral title to land.

SUMMARY

It is our opinion that committee substitute for Senate Bill No. 101 is unconstitutional onthe ground that the limitation on gas made available under the bill~to persons having royalty interests in connection with the surface devoted to agricultural activities, as provided by Section 2ofthe bill, constitutes an unreasonable classification between persons similarly situated. We are ofthe opinion, however, that the bill is not otherwise unconstitutional.
Very truly yours,

WILL WILSON **Attornev** General

HB:tiw

APPROVED:

OPINION COMMITTEE H. Grady Chandler, Chairman Houghton Brownlee, Jr, Assistant