Exxon Corporation v. Eagerton

PETITIONER: Exxon Corporation
RESPONDENT: Ralph P. Eagerton Jr.
LOCATION: Mobile, Alabama

DOCKET NO.: 81-1020
DECIDED BY: Burger Court (1981-1986)
LOWER COURT: Supreme Court of Alabama

CITATION: 462 US 176 (1983)
ARGUED: Feb 22, 1983
DECIDED: Jun 08, 1983

C. B. Arendall, Jr. - on behalf of the Appellants
John J. Breckenridge - on behalf of the Appellees
Rae M. Crowe - on behalf of the Appellants

Facts of the case

Since 1945, Alabama had imposed a severance tax on oil and gas operations. Exxon Corporation (Exxon), along with other gas and oil producers in Alabama, had contractual agreements regarding the tax with the owners of the land on which operations occurred and with oil and gas purchasers. The owners were paid a royalty on all gas and oil produced, but were contractually assessed a portion of the severance tax, and the purchasers were required to reimburse the producers for any severance tax paid by them. In 1979, the Alabama Legislature passed a statute altering the severance tax. The statute increased the severance tax, exempted royalty landowners from the increase, and prohibited gas and oil operators from passing the tax increase on to oil and gas purchasers.

Exxon and other oil and gas producers sued Ralph Eagerton, the Commissioner of Revenue in Alabama and argued that the National Gas Policy Act, which allowed natural gas producers to take steps to recoup state severance tax, preempted the prohibitions on passing along the costs to purchasers. Furthermore, the oil and gas producers argued that the exemption and the prohibition violated the oil and gas producers’ Constitutional rights under the Contract Clause and the Equal Protection Clause of the Fourteenth Amendment. The Circuit Court of Montgomery County ruled the new severance tax provisions unconstitutionally violated the Equal Protection Clause of the 14th amendment and the Contract Clause. The state appealed to the Supreme Court of Alabama, which reversed the lower court’s decision, holding any constraints imposed by the new tax were generally applicable and therefore valid.



(1) Does the National Gas Policy Act of 1978, preempt state regulation of oil and gas operations?

(2) Does the royalty owner exemption violate oil and gas operators’ rights under the Contract Clause of the U.S. Constitution?

(3) Does the pass-through prohibition violate oil and gas operators’ rights under the Contract Clause of the U.S. Constitution?

(4)Do the pass-through prohibition and royalty-owner exemption violate oil and gas producers’ rights under the Equal Protection Clause of the U.S. Constitution?


Media for Exxon Corporation v. Eagerton

Audio Transcription for Oral Argument - February 22, 1983 in Exxon Corporation v. Eagerton

Warren E. Burger:

We will hear arguments first this morning in Exxon Corporation against Eagerton and the consolidated case.

Mr. Crowe, I think you may proceed whenever you are ready.

Rae M. Crowe:

Mr. Chief Justice, and may it please the Court:

This piece of legislation, passed in Alabama in 1979, involves several constitutional questions which have been raised by producers or servers of natural gas and crude oil within the state.

It was introduced in 1979 by Representative Hines of Escambia County, one of the state's largest producing counties insofar as oil and gas production is concerned.

It initially was introduced to increase the tax two percent state-wide.

Representative Hines, according to the record, had failed to pass this legislation in three previous occasions.

William H. Rehnquist:

Is he able to pass legislation all by himself or does the legislature pass it?

Rae M. Crowe:

He can pass legislature under local courtesy if it affects only his county, he being the only representative from the county, from that district, in the State of Alabama.

William H. Rehnquist:

But, is it actually... Is the bill actually enacted, at least in form, by the whole legislature?

Rae M. Crowe:


When he encountered the difficulty with the Speaker of the House, by his own testimony, in the Governor's office, in the House Ways and Means Committee, he submitted a very important amendment, we submit, as a matter of legislative history.

This tax was four percent.

It was increased to two percent.

At the foot of the taxing paragraph, he entered a so-called depth proviso which provided, in effect, that provided, however, that the increase shall be limited to well producing in a smackover formation at the depth of 15/15.8.

His county was, according to the record, the only county in the state, then and now, producing hydrocarbons in this geological interval at this depth.

He represented to the committees and on the floor that his amendment had made the bill local, applied to his own county.

He was quoted in the newspapers as having said this.

And, the bill passed with no nays essentially.

Accordingly, the bill received local courtesy.

The Chairman of the Ways and Means Committee so testified.

The legislative journal entries show that the bill was carried on the journal as an uncontested local bill along with--

Warren E. Burger:

Excuse me, Counsel, I am a little uncertain why... If the enactment passed the legislature, what difference does it make how it got there?

Rae M. Crowe:

--It makes a difference in this respect: Our clients are non-Escambia County producers which were not expected to have been taxed under the legislation.

Once the bill had been passed, the Commissioner of Revenue, the Appellee here, construed it legally to be a state-wide measure.

Refund suits were filed by the producers, the non-Escambia County producers; uncontested legislative history in the form of journal entries, physical notes, limiting the revenues only to Escambia County.

There was no contrary legislative history.

The Circuit Court of Montgomery County reads that the act, under the legislative history, was clearly and without any question a local act applying only to one county out of 67.

William H. Rehnquist:

What federal claim do you make out of all these facts?

I mean, doesn't the Supreme Court of Alabama have the final say as to whether or not--