This writ is limited to the questions raised on the application of Texas to the United States court for the Northern District of that State in a proceeding under section 77B of the Bankruptcy Act, as amended for permission to institute proceedings in a state court for the confiscation of oil held by the trustee but claimed by the State as 'unlawful oil' because produced or transported in violation of state conservation measures.
Texas statutes and orders of its Railroad Commission purport to prorate production of crude oil, to prohibit purchase, transportation, or handling of that produced in whole or in part in excess of the amount allowed, to impose fines and penalties for violations, and to make oil produced or transported in violation of statute or order subject to confiscation in an action brought by the State for that purpose. The statute declares that if at the trial it shall be found that the oil is unlawful, the court shall render judgment forfeiting the same to the State and authorizing an order directed to sheriff or constable commanding him 'to seize and sell' the condemned oil. Costs of suit and expenses of the sale are to be paid out of money received from the oil, and the balance becomes part of the general revenue fund of the State.
There is before us no question as to validity of the State's measures to regulate production, or as to when, if ever, the oil in controversy became forfeit. The sole issue is whether the bankruptcy court should have permitted the State to bring suit in a state court to have the oil adjudged confiscate.
These are the facts.
Texas sued the Trinity Refining Company in the district court, 126th judicial district, Travis county, to recover fines and penalties for violation of the conservation laws. The court appointed Clopton and Hyder receivers of defendant's property pending the trial of the case. They took possession of property claimed by the defendant, including a large quantity of oil which the State insists had already become its property because unlawfully produced or transported. Later, the State sued the company in the district court, 98th judicial district of the same county, to recover delinquent taxes. That suit having been transferred to the district in which the first was pending, the court there appointed as receivers in the second case the same persons it had appointed in the first one.
Within four months after commencement of the first suit, the company filed its petition in the United States District Court, submitting a plan of reorganization. The court found the petition to have been presented in good faith, approved it as properly filed, appointed Donoghue trustee of the debtor, directed him to take possession of its property, ordered that all persons having property of the debtor deliver it to him, and issued in usual form a restraining order preventing interference with his possession or control. The trustee took from the receivers property claimed by the debtor including the oil in question, approximately 77,000 barrels. Texas applied to the bankruptcy court for permission to bring suit in a state court to obtain judgment of confiscation against that oil. The court withheld consent and directed the trustee to retain the oil. The Circuit Court of Appeals sustained that ruling, 88 F.2d 48, 51, and, to review its judgment upon that issue, we brought the case here. 301 U.S. 674, 57 S.Ct. 795, 81 L.Ed. 1336.