Source: https://supreme.justia.com/cases/federal/us/254/300/
Timestamp: 2019-04-26 06:21:01+00:00

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Justia › US Law › US Case Law › US Supreme Court › Volume 254 › Walls v. Midland Carbon Co.
1. As applied to the facts of this case, the statute of Wyoming which prohibits, as wasteful, the burning and consumption of natural gas for its products without fully and actually applying and utilizing its heat for other manufacturing or domestic purposes, and which forbids owners or lessees of gas wells to sell or dispose of such gas for the manufacture of carbon or other resultant products in the making of which its heat is not so utilized for other manufacturing or domestic purposes, and which limits the prohibition to cases where the gas wells or sources of supply are within ten miles of any incorporated town or industrial plant, and penalizes infractions as misdemeanors, is a legitimate exercise of the police power, and is not constitutionally objectionable as taking property without due process or as an unreasonable or arbitrary discrimination. Pp. 254 U. S. 313 et seq.
2. So held where it was objected that enforcement of the statute would destroy a heavy investment in a plant for the manufacture of carbon black, a substance of great utility, the value of which, with that of the gasoline also produced in the process, was claimed to exceed any other value obtainable from a like quantity of gas, and the manufacture of which, it was claimed, would be impracticable if the heat from the gas must be utilized as the statute prescribed. Id.
production of which will tend to the rapid exhaustion of the gas supply, and it is not to be construed a demanding that the heat be utilized further than natural laws and existing instrumentalities allow. P. 254 U. S. 325.
4. Owing to the fact that natural gas has no fixed situs in the earth, but moves from place to place, possession of land is not possession of the gas within it, and the landowner does not gain an absolute property in the gas until he has captures it. P. 254 U. S. 316.
5. From this also it result that a state may interpose it police power to prevent a waste or disproportionate use of the gas by a particular landowner in order to protect the equal right of other owners and to conserve the gas as a resource of the state. Pp. 254 U. S. 316-319, 323. Ohio Oil Co. v. Indiana, 177 U. S. 190.
6. In confining its application to cases where the source of the gas is within ten mile of an incorporated town or industrial plant, the Wyoming statute is within the limits of classification permissible under the equal protection clause of the Fourteenth Amendment. Pp. 254 U. S. 314, 254 U. S. 324. Bacon v. Walker, 204 U. S. 311.
7. The validity of the regulation cannot depend upon the relative values or importance of the industries favorably and unfavorably affected by it, or their relations to the welfare of the state, these being matters for the judgment of the state legislature. P. 254 U. S. 322.
8. The fact that plaintiffs' products -- carbon black and gasoline -- may be sold for more than the gas consumed in making them would bring for fuel purposes is not a ground for denying the state the power to prevent the disproportionate use and rapid depletion of the natural gas supply involved in the process. Id.
The complainants are corporations of Delaware, and have their places of business in that state.
The defendants are officers of Wyoming, being, respectively, its Attorney General, prosecuting officer of Big Horn County, and the Governor of the state.
It is alleged that jurisdiction of the district court depends upon diversity of citizenship and the Constitution of the United States, the Constitution being violated by an act of the legislature of the state. Chapter 125 of the Session Laws of 1919.
The object of the suit is to restrain defendants, and each of them, from enforcing or attempting to enforce the legislation.
"The use, consumption, or burning of natural gas taken or drawn from any natural gas well or wells or borings from which natural gas is produced for the products where such natural gas is burned, consumed, or otherwise wasted without the heat therein contained being fully and actually applied and utilized for other manufacturing purposes or domestic purposes is hereby declared to be a wasteful and extravagant use of natural gas, and shall be unlawful when such gas well or source of supply is located within ten miles of any incorporated town or industrial plant."
natural gas, the product of any well owned, leased, or managed by any person for the purpose of manufacturing or producing carbon or other resultant products from the burning or consumption of such gas, without the heat therein being fully and actually utilized for other manufacturing purposes or domestic purposes. Violations are made misdemeanors.
The grounds of contention against the act are set forth in very voluminous pleadings, supplemented by a number of affidavits. But only a brief summary of them is necessary to present the question involved, which is, stated broadly, that the act transcends the police power of the state, its purpose and effect being not to regulate and conserve natural gas, but to prohibit its use and make a discrimination between owners having equal rights, and thereby violates Article I, § 10, of the Constitution, and the Fourteenth Amendment thereof.
Prior to the enactment of the statute, the Midland Company had erected a factory for the manufacture of carbon black, which factory is located about 1 1/2 miles from the Town of Cowley, Big Horn County, at an expenditure of $375,000. It is equipped for the manufacture of such carbon black, and can be used for no other purpose, and there is produced from it approximately 13,000 pounds of that article daily, which is sufficient for the manufacture of 117,000 pounds of printing ink. From the gas consumed to make the carbon black, there is first extracted approximately 1,600 gallons per day of high-gravity gasoline.
The uses of carbon black are enumerated, and it is alleged that no form of it possessing the same properties and the wide variety of uses can be commercially manufactured from any material or substance other than natural gas.
factory is so conducted as to permit no waste, that the best known processes and appliances are employed, and that the operation of the gasoline absorption plant and the recovery of gasoline from the gas supplied by the wells would be impossible if the carbon plant should cease to be operated, for the reason that the gas cannot be sold to other users in that locality in sufficient quantities to render the extraction of gasoline therefrom commercially profitable.
The Occidental Oil & Gas Company owns the land upon which are located the gas wells constituting the principal source of supply to the plant and carbon factory of the Midland Company. It, the Occidental Oil & Gas Company, also constructed, owns, and operates the pipeline by which the gas is conveyed to the factory, and delivers it to the factory, receiving from the Eastern Fuel Company, which owns and operates the gasoline extraction plant, a royalty of one-half of the gasoline extracted therefrom. The Oil Company also owns mineral leases covering 1,200 acres of proved gas territory within 10 miles of Cowley. Its business is an integral and inseparable part of that of the Midland Carbon Company, and all of its investments have been made in view of the carbon business.
In the construction of its pipeline, it expended $65,000, and in the purchase of lands upon which the wells are located, a sum exceeding $30,000. Other gas lands are alleged to have been purchased and leased prior to the enactment of the law.
that the penalties imposed by the act are harsh, unreasonable, and confiscatory, and that a dispute of its legality would impose a penalty of $1,000 for each separate daily violation of it. Other injuries are alleged.
As already said, affidavits made by representatives of various trades and industries, displaying the qualities of carbon black and its uses, are attached to the bill. Other affidavits express the detriment, in the opinion of the affiants, of any restriction or regulation of the production of it, and others, from asserted experts, exhibit the source of the gas and the process of manufacture from it of carbon black, and that, in its manufacture, heat is necessarily evolved, but that, as soon as any attempt is made to transform the heat into any other form of energy, such as light or mechanical power, an enormous, but inevitable, loss of heat results.
An injunction is prayed, interlocutory and permanent, restraining defendants from enforcing the act.
Upon the bill (it is verified), exhibits, and affidavits, it was ordered that the application for interlocutory injunction be heard by three judges, and that, in the meanwhile, a temporary restraining order be granted upon filing a bond in the sum of $1,000.
The answer, in its admissions, denials, and independent averments, asserts waste of the gas by complainants' gas factory and processes, the depletion of the wells and their product, from which it is estimated that, within three years, all of the wells will have been utterly and completely depleted, and the depletion will relate not only to the wells furnishing gas for the manufacture of carbon black, but will likewise relate to the entire region and vicinity.
And it is alleged that, by preventing the use of the gas for the manufacture of carbon black, the Towns of Lovell and Cowley and all industrial plants therein will be afforded a supply of gas for all domestic and industrial purposes for a period of 30 years.
The vice attributed to the act by complainants is denied, and a benefit and virtue asserted for it.
It is prayed that the bill be dismissed, and the restraining order be dissolved. The answer is verified.
A motion to dissolve the temporary restraining order was made, which was supported by affidavits, and opposed by others.
"In conclusion, assuming that the present consumption of gas from this sand is 15,000,000 cubic feet per day (as I have been reliably informed), and that the decrease in pressure for the last year has been 150 pounds, and knowing that the present pressure is approximately 200 pounds, it is a simple problem in mathematics to ascertain the future life of the field. In other words, at the present rate of decrease in pressure, the field will be exhausted in 16 months, and there will be no pressure to force the gas out of the sand. On the same basis of reasoning, there are approximately 1,200,000,000 cubic feet left in the sand, and the present consumption is 5,500,000,000 cubic feet per year."
The court sustained the application for temporary injunction.
whether it, the legislation, is a legal conservation of the natural resources of the state or an arbitrary interference with private rights. Contentions of this kind have been before this Court in other cases, and their discussions and decisions have materiality here. We mean not discussions or decisions on the police power in the abstract or generality, but discussions and decisions involving conditions and principles pertinent to the present case.
"wasteful and extravagant use of the gas when it is burned or consumed without the heat therein contained being fully and actually applied and utilized for either manufacturing or domestic purposes."
But, not even that unlimitedly, but only when the "gas well or source of supply is located within 10 miles of any incorporated town or industrial plant." Such is the prohibition upon the user or consumer. There is a prohibition upon the owner or lessee of wells within the designated distance from a town or industrial plant to sell or dispose of the gas, except under the specified conditions, "for the purpose of manufacturing carbon or other resultant products."
There are two elements, therefore, to be considered: (1) the distance of the wells from an incorporated town or industrial plant; (2) the element of heat utilization for manufacturing or domestic purposes. These elements are the determining ones in the accusations against the law. The first is the basis of the discrimination charged against it; the second is the basis of the charge that the law deprives the companies of their property by the ruin of their business and capital investments, and impairs the obligations of preexisting contracts.
charge of sheep to herd the same, or permit them to be herded on the land or possessory claims of other persons, or to herd the same or permit them to graze within two miles of the dwelling house of the owner or owners of said possessory claim."
The statute was sustained as a lawful exercise of the police power of the state against the assertion of the right of one citizen to use the public domain as much as another citizen, and that to impose damages upon him for the exercise of the right deprived him of his property without due process of law, and besides arbitrarily discriminated between sheep grazing and the grazing of other kinds of stock. We there said in substance that, the power of regulation existing, the imposition of some limit to a right, when its exercise would impinge upon the equal right of another, was the exercise of legislative power, and that the circumstances which induced it could not be pronounced illegal "on surmise or on the barren letter of the statute." And we said further that, where equal rights existed, the state has an interest in their accommodation. Pertinent cases were cited, and the exclusion from grazing within two miles of the possessory claim of another was decided to be legal, that "the selection of some limit is a legislative power," and that it was "only against the abuse of the power, if at all, that the courts could interpose." The mere distance expressed nothing.
The case, and those it cites, are authority for the position that a state may consider the relation of rights and accommodate their coexistence, and, in the interest of the community, limit one that others may be enjoyed. Of this, Ohio Oil Co. v. Indiana, 177 U. S. 190, is especially illustrative and pertinent, and conducts naturally to the consideration of the second proposition -- that is, to the element of heat utilization.
possession or control of any natural gas or oil well to permit the flow of gas or oil from any such well to escape into the open air for a longer period than two days after the gas or oil had been struck. From the standpoint of the law, to do so was a waste of gas. A right against the statute was set up, based upon the asserted or implied postulate that the owner of the land owned all beneath the surface and all that could be brought to the surface within the lines of the land. The postulate was rejected upon the ground of the nature of the gas, the capability of its flow from place to place, the common right to domestic and industrial use of it, and the power of the state to regulate and conserve such right.
"oil and gas, like other minerals, are situated beneath the surface of the earth; but, except for this point of similarity, in many other respects, they greatly differ. They have no fixed situs under a particular portion of the earth's surface within the area where they obtain. They have the power, as it were, of self-transmission."
"can be manifested for the purpose of protecting all the collective owners, by securing a just distribution to arise from the enjoyment by them of their privilege to reduce to possession, and to reach the like end by preventing waste."
To the contention that oil could not be taken at a profit by one who made no use of the gas, it was replied that such fact "went not to the power to make regulations, but to their wisdom." And this can be said of the contention, in the case at bar, that one element is more valuable than another; that carbon black is more valuable than the gas from which it is extracted.
Wyoming statute -- that is, the power of regulation dependent upon the natures of oil and gas, and that the absolute dominion of the surface of the land is not an unlimited dominion over them.
"for the purpose of extracting, collecting, compressing, liquefying, or vending such gas as a commodity otherwise than in conjunction with the mineral water and the other mineral ingredients with which it was associated."
The company alleged that the gas could be lifted to the surface only by means of pumps or other artificial appliances, and that many other landowners in Saratoga Springs had like wells which were operated in a like way with a like purpose. The utility of the gas was alleged, and a property right asserted, which the statute, it was further alleged, deprived of in violation of the Constitution of the United States.
A demurrer was sustained to the bill; therefore its averments were admitted. The basis of the contention of the offense of the statute against the Constitution of the United States explicitly was that the company, being the owner of the land owned, had power and authority over all beneath the land's surface that it could reduce to possession. This was the same postulate, it will be observed, that was asserted in Oil Co. v. Indiana. It was rejected upon the authority of that case. We, however, said: "Were the question an open one, we should still solve it in the same way."
"for the products, where such natural gas is burned without the heat therein contained being fully and actually applied and utilized for other manufacturing purposes or domestic purposes."
The declaration of illegality, however, only applies when the "gas or source of supply is located within ten miles of any incorporated town or industrial plant." Section 2 explicitly mentions carbon black as within the illegality of the law, and as this case concerns its production, we may accept its production as a test of the companies' case.
of defendants that the companies are utilizing and withdrawing from the earth gas at the rate of approximately 10,000,000 cubic feet per day, and that the same can never be replaced or restored.
"If the true test of the waste of gas or any other fuel is whether or not the heat therein contained is fully utilized, it would follow that practically every industrial use of fuel must be characterized as wasteful."
There is also testimony, from those familiar with the geological formations and the production of natural gas in Wyoming, that there are very extensive deposits underlying ten counties, and that their development has scarcely more than commenced, and that their potential capacity far exceeds the capacity of the wells now drilled. Further, that the aggregate capacity of the existing wells exceeds 650,000,000 cubic feet per day, and that this production could be largely augmented if the demands for natural gas in the state warranted.
"if the present consumption of gas continues for another year, there will not be sufficient gas in this field in the particular sand in question to supply even the domestic uses of the Town of Lovell."
And it is affirmed that the plant of the Midland Gas Company consists of about 90 separate buildings constructed of sheet iron and steel, in such a way that they can be moved more readily than almost any other character of construction, and were evidently designed with the idea of portability in mind, and at the present rate of consumption of the gas they will have to be moved, in any event, within a year. Corroborating figures of the supply and consumption are given, and it is said that, if the wells now driven be allowed to flow at their full capacity, they will be entirely exhausted in 90 days. The proof of this is said to be that the use of 15,000,000 cubic feet per day of gas produced within the last 18 months has caused a loss of 57% of the available gas in the producing sand. In contrast, it is estimated that, if the gas consumed at the carbon plant was conserved, the supply available for domestic and industrial use in the towns of Lovell and Cowley would last for a period of ten years.
black. The process to make the latter is said to be simple, and is similar to holding a cold plate over an old-fashioned gas jet. In fact, it is said, the process used by the Midland Carbon Company is merely an incomplete combustion of gases in an insufficient amount of air, the flames from the different jets practically touching cast iron channel plates, which are suspended over the flames and are moved backward and forward at a very slow rate of speed. The carbon is scraped off the plates into hoppers and carried to the packing houses by conveyors. All of this is mechanical.
It is testified (by an engineer of the Bureau of Mines in the Interior Department, who had made a study of the making of carbon black) that the efficiency of the carbon black industry is very low; that the largest yield of which affiant had any knowledge did not exceed 1 1/2 pounds per 1,000 cubic feet of natural gas, though it is a well known and chemically ascertained fact that 1,000 cubic feet of natural gas contains approximately from 33 to 45 pounds of carbon.
The companies replied with affidavits of opposing tendency, and made comparisons of the money value of carbon black with the money value of natural gas; the former being the more valuable. And there is contradiction of the asserted lower pressure of the wells and the tendency to the depletion of the gas, and assertion that other forms of industry can well use coal for fuel.
be sold much higher than can be obtained from the same amount of gas sold for fuel purposes, but it does not follow from that fact that the state may not consider, and direct its legislation by the consideration that (and we take the averment of the companies) 1,000 cubic feet of natural gas is consumed to produce 1 3/4 pounds of carbon black and about two-tenths of a gallon of gasoline. That it may so consider depends upon the question whether its statute is within the principle of the statutes passed on in Oil Co. v. Indiana and Lindsley v. Natural Carbonic Gas Co. By reverting to these cases, it will be immediately observed that the power of regulation over natural gas is possessed by a state, and in the first case (Oil Co. v. Indiana) it was exercised to prohibit the employment of the gas as a means or agency in the production of oil against an asserted right of property in the ownership of the land upon which the oil was produced, and therefore of the oil and gas as incidents of such ownership, and which could be used in such manner and quantity as the landowner might choose.
In the Lindsley case, the power of the state was exerted to prohibit the owner of the surface from pumping, on his own land, water charged with gas. This was but an exertion, it was said, to preserve from depletion the subterranean supply common to him and other owners, and that the statute therefore was not unconstitutional as depriving owners of their property without due process of law. Oil Co. v. Indiana, as we have pointed out, was cited as a precedent, and its principle applied. The case at bar is, we think, within that principle -- in other words, the power is exerted to prohibit an extravagant or wasteful or disproportionate use of the natural gas of the state.
We have seen that the method of production by natural gas is like holding a cold plate over a candle, or, as it is expressed by a witness, it can only be produced "by combustion and the impinging of the flame on the metallic surface."
And there is great disproportion between the gas and the product, and necessarily there was presented to the judgment and policy of the state a comparison of utilities, which involved as well the preservation of the natural resources of the state and the equal participation in them by the people of the state, and the duration of this utility was for the consideration of the state, and we do not think that the state was required by the Constitution of the United States to stand idly by while these resources were disproportionately used, or used in such way that tended to their depletion, having no power of interference.
The cited cases determine otherwise, and that, as the State of Indiana could prevent the exhaustive use of gas in the production of oil, and as the State of New York could prevent the owner of land from using artificial means to obtain the carbonated waters under his land, the State of Wyoming has the same power to prevent the use of natural gas in the production of carbon black, the tendency of which is (it may be the inevitable effect of which is) the exhaustion of the supply of natural gas and the consequent detriment of other uses.
It may be said, however, indeed, is said, that the purpose of the act or its effect is a discrimination between producers of carbon black; those ten miles from a town or industrial plant not being within its provisions. We think the classification is justified by the case of Bacon v. Walker, supra, and indeed by the principles which determine classification.
To the contention that the statute is not one of conservation, because carbon black factories are permitted if ten miles distant from a town or industrial plant, the immediate answer is that it is for the state to determine not only if any conservation be necessary, but the degree of it, and certainly the companies cannot complain if the state has not exerted its full power.
impossibility of complying with the statute -- that is, of utilizing the heat of natural gas to the extent of the words of the statute. We say to the extent of the words of the statute because we think the statute must be construed with reference to the facts of nature and their possibilities, and that all that was intended by the words employed was to require a practical and possible use of the heat, as in other fuels, and by the existing instrumentalities, and if this should be done, it was a legal use of the gas -- was an application and utilization of the heat contained in it. The statute was only intended to prevent the selection of a product whose production tended, and according to some of the affidavits, whose inevitable effect was, to exhaust the supply of gas in a very little while.
The decree granting the interlocutory injunction is reversed, and the case remanded to the district court for further proceedings in conformity to this opinion.

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