PAN AM. CORP. v. SUPERIOR COURT

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Argument of Byron M. Gray

Chief Justice Earl Warren: Number 80, Pan American Petroleum Corporation, Petitioner, versus Superior Court of the State of Delaware in and for New Castle County et al., and Number 81, Texaco, Incorporated, Petitioner, versus Superior Court of the State of Delaware in and for New Castle County.

Mr. Gray.

Mr. Byron M. Gray: Mr. Chief Justice, may it please the Court.

There are two petitions consolidated here.

I will make the direct argument for Pan American, and Mr. Paul Schlicher will make the direct argument for Texaco, and I will make the rebuttal for both petitioners.

These appeals involve the rate paid on sales of natural gas made subject to the jurisdiction of the Federal Power Commission under the Natural Gas Act.

The actions originated in a state court.

Now, the Natural Gas Act, as Your Honors know is a complete regulatory act and particularly, is applied to these actions.

Section 4 of the Act provides for a complete rate filing with the Federal Power Commission.

It provides that all rates and charges must beyond the file of that Commission.

Section 19 provides a very complete review, procedure and everything, and the review jurisdiction is placed in the various United States Courts of Appeals.

Section 22 provides for the enforcement of the rights and duties and obligations created by that Act.

So, the question here is whether or not a state court has jurisdictions of an action involving natural gas rates required by the Act to be on file with the Commission.

The facts of the -- these actions have to go back beyond January 1, 1954 because the contracts that are involved were entered before that date and for -- for less than eleven-cents per thousand cubic feet.

But on January 1, 1954, the so-called Kansas eleven-cent minimum rate order was entered by the Kansas Corporation Commission.

It became effective on that date and required that eleven-cents, in order to meet the conservation requirements of the Kansas statute to prevent waste of gas, that eleven-cents would be the minimum rate that could be charged.

Now, the Cities Service, the respondent here, advised these petitioners that it would comply with the Kansas order and pay the eleven-cents, but it was doing so under the compulsion of the order and would expect its -- its money refunded back to the contract rates in the event the Kansas order were ultimately declared to be invalid.

And for five or six months that was the status.

And then on the sixth day and the seventh day of June 1954, this Court decided Phillips versus Wisconsin, wherein for the first time, the industry and these parties came aware of the fact that producers of gas that the wellhead independent producers were natural gas companies within the meaning of the Act.

And therefore, of course, it required to file their rates and take all of the other actions that the Act requires of natural gas companies.

The Federal Power Commission responded to the Wisconsin case by implementing Section 4 of the Act setting forth the requirements for filing and required that the parties file the rate, in effect, on June 7, 1954 as their initial rate filing under Section 4 (c).

Now, Section 4 (c) of the Act requires that schedules showing all rates and charges be filed and will file with the Federal Power Commission that I stated.

Responding the order of 74 -- 174 and in conformities to that order and the requirement of that order that the rate, in effect, on June 7, 1954 be filed as initial rate of filing under Section 4 (c).

These petitioners filed what the Commission's order required them to file, the contract, any documents supplementary of the contract and one of this is the Kansas eleven-cent order.

And the Order 174 also required that they file a billing statement showing the billing as it was being made on June 7, 1954.

These parties filed the billing showing the eleven-cent rate.

Thereafter, now, I should say that no objection was made to this rate tender, although the cities, people were served at that time with copies of the tender as made and were perfectly aware of the fact that it was eleven-cent tender and in fact will paying the eleven-cent.

Since then, and as I will point out, subsequently, continued to pay it after the Commission had accepted it.

After these filing, the Federal Power Commission admits and its record show that it considered the rate tender of these petitioners.

I should say that Pan American did not file this refund letter, but they considered the rate filing.

This document file construed it to be a rate filing of eleven-cents, set forth in their records that they voted to accept it, and the records show, on page 639 of this record, the schedule as they set out, and it says at the top summary of independent producer rate filing and these contracts over it decide price June 7, 1954 eleven-cents, eleven-cents.

Thereafter, immediately following that, the Commission notified the -- then the Standard Oil & Gas Company, now the Pan American, "This is to advise you that the rate filings listed at the bottom of this letter have been accepted for filing."

Now, there you have a complete compliance with the Act itself, the filing of the tender of the rate, its acceptance, and you had no actions at all by cities, no actions under Section 19 of the Act to seek any review of what the Commission had done, instead of that, they continued to pay the eleven-cents and did so for more than three years.

Justice John M. Harlan: Was that filing followed by Section 4 (c)?

Mr. Byron M. Gray: No, it was not.

It was -- it was the first filing.

Section 4 (c) requires an original and initial filing.

And as I shall point out later, it must essentially also require what the Commission here did, a consideration of the rate filing and its acceptance in filing with the Commission.

And I shall discuss that later.

Justice John M. Harlan: Only in respect of it being acted upon.

Mr. Byron M. Gray: In respect of it becoming effective, I believe.

Justice Charles E. Whittaker: Did that filing or those filings, on their face, show that they were conditional or subject to modification to the extent of the possibilities that would occur in the event of a declaration of invalidity of the Kansas order?

Mr. Byron M. Gray: The Pan American filing, and that's what I'm talking about now, did not.

It might be argued that the Texaco filing did because, ultimately, Texaco filed a refund letter, and Mr. Schlicher will discuss that phase of it, Your Honor.

Justice Charles E. Whittaker: Well, didn't Pan Am also file a copy of the letter?

Mr. Byron M. Gray: No.

Justice Charles E. Whittaker: It did not?

Mr. Byron M. Gray: It did not.

And there was no objection on the part of Cites at -- whatsoever with the filing that Pan American made, although they were served with copies of it, of notice.

And furthermore, Your Honor, as I point out whatever was the compulsion of the eleven-cent payment during the few months prior to the filing, it may have been under the compulsion of the Kansas eleven-cent order for those four or five months.

But subsequently, it was under the compulsion of the fact was the rate on file, in the files of the Federal Power Commission, and that month begin the compulsion thereafter.

And they continued to pay eleven-cents for three years and more, as I shall point out.

But my point at this point is this, when the Commission accepted and placed eleven-cents in its files as the filed rate, that withhold jurisdiction of the Federal Power Commission and the Natural Gas Act attached to that rate.

And all of the requirements of the Act (Inaudible) and every right and liability, it really wasn't developed by the Act from the moment of Federal Power Commission took that eleven-cents and said, “This is the rate in effect on June 7, 1954.”

And if anyone wanted to do anything about it, the Act provided the remedy in Section 19 of judicial review not in the state court, not even in the Federal District Court but in a Circuit Court of Appeals, and they took no such action, and that's my point there.

Well --

Justice John M. Harlan: (Inaudible)

Mr. Byron M. Gray: Yes.

Justice John M. Harlan: (Inaudible)

Mr. Byron M. Gray: They could've done what they did in the Magnolia case.

They could've objected to the file.

They -- they could have said, “You -- you should include this refund letter.”

They -- they could have said, “We are contesting the validity of the Kansas eleven-cent order, and we don't leave it or to be accepted as a part of this rate tender are considered as evidentiary of what is the rate,” but they took no action.

They were in default.

Justice John M. Harlan: (Inaudible)

Mr. Byron M. Gray: Nothing -- nothing in --

Justice John M. Harlan: (Inaudible)

Mr. Byron M. Gray: -- nothing in the filing of Pan American to show any condition whatsoever, nothing.

Justice Charles E. Whittaker: (Inaudible)

Mr. Byron M. Gray: Yes.

Justice Charles E. Whittaker: (Inaudible)

Mr. Byron M. Gray: The -- the statement showed eleven-cent payment.

That's what the statement is showing.

Justice Charles E. Whittaker: (Inaudible)

Mr. Byron M. Gray: The contract offer seven-cent rate.

The Kansas order which was treated as supplemental of the contract ought from eleven-cent rate.

The billing statement showed eleven-cents being paid on that date, the order of the Federal Power Commission Order Number 174 required that there'd be file as the initial rate filing, the rate, in effect, on June 7, 1954, and this was tendered as needing the requirements of that order.

And my point is that if there's any meaning to Section 19, then was the time for anyone who was claiming that the Kansas order should not be considered as evidentiary of the rate been in effect.

That was the time for them to raise their voice.

Now, you have those cases arise.

And I don't want to get too far into this, but here's -- if you will remember quite recently in 1960, you have before you the case of Texas Gas Transmission Company versus Shell.

And I think you have to go back to the Circuit Court, but that was a Section 19 (b) case, and it involves this very order, 174 that required initial filing.

But there -- there was an escalation or what you call a "favored-nation" clause, and the question was whether it's been triggered or not.

And that Shell or the producer had offered for filing a rate higher than the contract seemed to call for because it was contended that the escalation clause had been triggered by some other contract, and I'm sure you remember that case, by some of the contract.

Well, the Commission didn't just accept what they offered.

They exercised their jurisdiction to determine whether or not to accept what was offered, and they didn't accept it because it didn't appear on the face of things, how the rate got to be twelve point something cents instead of nine point something cents.

Justice Charles E. Whittaker: (Inaudible)

Mr. Byron M. Gray: Yes.

And it was bridged.

It was bridged by the tender, of what or anything, anyone then knew was a perfectly valid Kansas eleven-cent order.

Now, I'm coming to the invalidation of that order some three years later.

But as far as the Commission goes, at that time, if it had jurisdiction to accept any rate whatsoever, eleven-cents or any other rate, if it had jurisdiction, it exercises it.

And anyone who didn't like what it did was certainly called upon the Act then or Section 19 doesn't mean anything.

Now, that's my point there.

It may -- I've been wrong, but it was honestly wrong if it was wrong and, of course, mistakes in law, as you heard here in criminal law even sometimes work hardships.

But if it one mistake on anybody part, it was an honest mistake, but the record and the history of the Magnolia case shows that Cities knew very well what to do because there, it did the very thing and it might have done here, contested the rate tender when it was made.

But it didn't do it here, and I say that the eleven-cent acceptance filing became final.

But in all events, on January 20, 1958, this Court held, in effect, that the Natural Gas Act so far preempted the field of rates as it applies to producers that the wellhead producing gas for resale and the interstate commerce as to preempt the State and take away any power that the State might have had and declare the Kansas eleven-cent order in that.

Now, Cities will claim that it's been held to be invalid to have an issue.

Well, I don't want to get in to that argument, but I don't think it makes any real difference.

But at all the events, it was declared invalid.

Now, for three years, these parties had been paying eleven-cents not by a virtue of the Kansas order.

They've been paying by virtue of the fact that it was the rate on -- filed under the 4 (c) of the Act.

Justice Charles E. Whittaker: (Inaudible)

Mr. Byron M. Gray: Yes, yes, that's true.

Justice Charles E. Whittaker: (Inaudible)

Mr. Byron M. Gray: I think you have to consider this.

It may have been so conditioned, and Mr. Schlicher will discuss this more than I will, but it may have been so conditioned.

But, the -- the record shows clearly what the Commission's action was.

It considered the rate to be eleven-cents, and that's the rate, the records of the Commission show that it accepted and filed.

So I can't think that -- that that letter being filed or not being filed made any overwhelming difference.

It might have influenced the Commission to accept the matter down for hearing on its motion, and I've heard the parties argue about it but it didn't -- so far as I know, do that, although I hate to discuss Mr. Schlicher's particular facts.

But that's -- that would be my view of it, that the important thing is they exercise their jurisdiction to file a rate, and they filed eleven-cent rate, they did it in both cases, and I think that ends the matter in my certain appeal under Section 19.

But in any event, after the Kansas order was declared invalid, Cities brought these actions in the trial court in Delaware State Court, and they brought them upon these refund -- so called -- what they called refund letters or involuntary payment letters that you might choose to call them, the common-law action.

In their first petition, they didn't say anything at all about the gas being sold for resale in interstate commerce which is a rather considerable jurisdictional fact that they're ommiting.

Well, after some parrying around and filing various motions one thing and another, the fact began to emerge that -- that this gas was sold for resale in interstate commerce.

But for whatever reason, Cities then amended their complaint and it seems to me this just demolishes their argument that they will properly, in the State Court general jurisdiction with the common-law action, because I almost have to raise this amendment that they put in because its jurisdictional and supplies the jurisdictional fact.

They said in their amendment, “Plaintiff owns and operates an interstate gas pipeline system.

During all times, material, herein, plaintiff has been and is now engaged generally in the business of purchasing natural gas for transportation and sale in interstate commerce for resale,” that's almost the words of the statute, "for ultimate public consumption for domestic, commercial, industrial or any other use and furtherance, whereof, the contract referred to in paragraph 3 about what's entered into."

Well, promptly after that, of course, there was a motion on the part of defendants for summary judgment on the jurisdictional question.

I -- I don't want to go now too much into the ruling of the trial court because it doesn't make too much difference here, but it reasoned in -- in effect that it could wiped out the Kansas eleven-cent order automatically and retroactively and -- and reach back and do for the Federal Power Commission what the Federal Power Commission didn't do for itself, and then come out with the rate that it thought the Federal Power Commission could come out, and it ultimately reached a rather odd conclusion that there was no inconsistency in exercising state court jurisdiction as a -- of a common-law claim as long as the rate involved would be the same whether it was a filed rate or the rate under the contract.

Now, that makes appeal this Court, but it just doesn't appeal to me.

But that was in about the reasoning.

The -- strangely enough, after it was apparent, the trial court was going right ahead and entered judgments in these matters.

Of course, the party didn't want these large judgments entered against them one way or another.

And they proceeded these petitioners to the Supreme Court of Delaware to get a writ of prohibition to prevent the trial court proceeding to exercise the jurisdiction in these cases.

The Supreme Court of Delaware, well, I didn't use the same words as the trial court got to the same end and in very much the same way.

They said and I'm -- I'll quote very little from it, but it will give you the general rationale of how the Supreme Court looked at it.

They said both parties agreed that as to the period after July 16, 1954, the only legal rate is the filed rate, not even a court can authorize commerce, and they come out other terms reporting the Montana-Dakota case of this Court.

The question then becomes, what rate was legally filed.

Then they say, “However, since the Kansas order was void, the only lawful filed rate is the contract rate unaffected by the Kansas order.”

So, no, that was the -- that was the trial court, that was the trial court that said that.

The Supreme Court of Delaware held as long as the exercise of jurisdiction by the trial court would not be inconsistent with the filed rate with the Natural Gas Act but it was alright for them to go ahead and exercise jurisdiction.

And they, in effect, held that the action of the FPC, in accepting the eleven-cent tender was a nullity.

They said, “Defendants duly filed the documents required,” that was required by -- by 174, the order of the Federal Power Commission.

These documents included copies of the contract with Cities, copies of the Kansas price order and statement showing that the price to Cities on June 7, 1954 was eleven-cents at this specified pressure.

The Commission duly convened and voted to accept them for filing, now this is Supreme Court of Delaware.

Then they say, “Being void, the unilateral filing of the order is part of the rates schedule was a nullity.”

They held that "informed at least" they said and that's the words of the Supreme Court of Delaware.

Informed at least the action is based upon the refund contracts.

Now, despite of the fact that they have said that the Commission met and voted and accepted for filing a eleven-cent rate despite of the fact that they recite all of these matters that are jurisdictional to the Federal Power Commission.

They hold that the Natural Gas Act did not prevent the state court from exercising jurisdiction in this action on this refund contract (Inaudible)

Now, without to be nothing more or less than a collateral tax upon the action of the Commission and upon that eleven-cent rate, it either must be an attempt to gain a review as you would do under Section 19 of the Act or it must be treated as an action to enforce to file rate which would be a Section 22 action or perhaps both.

Perhaps, they try to do in the state court what they would have to have gone to the Circuit Court of Appeals and review actions to do and then having established what the file rate is, if -- when pay it they go into a Federal District Court because Section 22 of the Act says that exclusive jurisdiction of actions to enforce any right, to enforce any right created by the Act or liability shall be in the federal district courts.

Now, the subject matter of these actions whether it's in the state court or whether it's in the federal court or wherever it is, the subject matter and obviously, the price to be paid for this gas that was sold subject to jurisdiction under the Federal Power Commission.

That's got to be the subject matter.

And they're simply cannot be concurrent causes of action, one, based on the contract and one, based on the filed rate.

Now, in the Montana-Dakota case involving the power electric -- power statute that are identical to these statutes, this Court said that the rate at its own file in the Federal Power Commission is the rate that's almost pay -- it -- is the only rate, anyone can pay, and that is true whether it has been fixed or merely accepted for filing by the Federal Power Commission, and that must be the controlling law if there is to be any sense at all to our regulatory statutes.

What -- through the Delaware court and what the -- through -- both Delaware courts on and it's in fact, I think, throwing off certain of our trial -- federal courts have decisions in such cases as the Mobile case.

Now, Mobile went up under the review statutes, and that's something you all overlooked, as all of these cases that the Cities cite went up under Section 19 as review statutes.

And in Mobile, this Court said that the Act left the parties free to contract as to their rates, but it didn't say and make them effective outside the scope of the Federal Power.

Now, I didn't say that, and I can tell you why it seems to me they couldn't have said that.

What this Court have said that the intent of Congress was to take away, preempt Kansas State's rights to deal with these rates and turn them over to private parties entirely without any standards to make them effective contract, for them effective suing court on them entirely outside the scope of the Federal Power.

That raises constitutional questions, I don't want to discuss here, and I'm not going to discuss, because you can see them as clearly as I can.

But, that is what you would have to say to hold with Cities, is that these parties can enter into a -- contracts, make it effective without filing, sue on it in the state court, wholly outside of the Act.

Justice Charles E. Whittaker: Mr. Gray.

Mr. Byron M. Gray: Yes?

Justice Charles E. Whittaker: (Inaudible) assume that it's true that primary jurisdiction was in the Federal Power Commission.

Mr. Byron M. Gray: Yes.

Justice Charles E. Whittaker: Yet, if there are no facts or discretions to be exercised and the question emerging is but one of law, then under Mr. Justice Brandies' opinion in the Great Northern case could not accord to general and common-law jurisdiction even this Court adjudicated?

Mr. Byron M. Gray: If the -- in the -- in the Great Northern case, they are adjudicating what was the filed rate under statutory actions to enforce the filed rate, and my answer would be if they were doing that and it came around.

But the -- the state court can't adjudicate what is the filed rate because Section 22 says exclusive jurisdiction there.

Exclusive is in the federal district courts.

But my answer is that if it were an action to determine or enforce the filed rate and there was no administrative finding require, then the answer would be yes, but that action would have to be in a Federal District Court.

It simply cannot be a loose jurisdiction wondering overall of the state courts of general jurisdiction in this land to upset what the Federal Power Commission has done.

And it wasn't the intent of Congress.

And I don't want to impose on Mr. Schlicher's time.

Justice Felix Frankfurter: The Great Northern case came up on the federal court?

Mr. Byron M. Gray: I think that came up in the state court, but --

Justice Felix Frankfurter: Well, then your -- then your answer -- that's what I thought, so I haven't looked it up.

Mr. Byron M. Gray: But the interstate commerce --

Justice Felix Frankfurter: (Voice Overlap) it must be in any event of federal court that isn't true, isn't it?

Mr. Byron M. Gray: Well, you have different statutes.

As you will recall, Your Honor, the Interstate Commerce Act particularly reserves state court jurisdiction.

Whereas, the Federal Power Act, they particularly and exclusively get to the federal courts.

Justice Felix Frankfurter: (Inaudible)

Mr. Byron M. Gray: What?

Justice Felix Frankfurter: Is there a -- is there a state jurisdiction (Voice Overlap)

Mr. Byron M. Gray: To -- to enforce tariff -- to enforce tariff rates.

Justice John M. Harlan: (Inaudible)

Mr. Byron M. Gray: Yes.

Chief Justice Earl Warren: Mr. Schlicher.

Argument of Paul F. Schlicher

Mr. Paul F. Schlicher: May it please the Court.

I first intended to argue the point that the theory -- the jurisdictional theory of the Delaware State Courts that they had concurrent jurisdiction with the federal courts actually usurps the exclusive jurisdiction, the exclusive power of the Federal Courts of Appeals under Section 19 (b) of the Natural Gas Act to review orders of the Federal Power Commission, modify those rate orders and set them aside.

Justice Potter Stewart: Mr. Schlicher, just --

Mr. Paul F. Schlicher: Yes, sir.

Justice Potter Stewart: -- at the outset, you don't need to answer this question now, just sometime later or in rebuttal, but this case basically is -- put in the simplest terms, is one of jurisdiction, the jurisdiction of the --

Mr. Paul F. Schlicher: Correct.

Justice Potter Stewart: -- courts of Delaware --

Mr. Paul F. Schlicher: Yes, sir.

Justice Potter Stewart: -- to entertain this lawsuit.

You're claiming that the state courts have no such jurisdictions.

Is it your position that the -- that therefore the respondents are -- have no remedy anywhere or do you suggest that somewhere in the federal court or in the -- or in the Federal Power Commission in this case with this alleged claim that they have if they have a remedy somewhere?

Mr. Paul F. Schlicher: It is the position of Texaco that they had a remedy --

Justice Potter Stewart: Had.

Mr. Paul F. Schlicher: -- that they had slept on their rights, and you can't help this people anywhere.

Justice Potter Stewart: Nowhere because they -- as you began you said the -- this is the matter of all of which the state courts have no jurisdiction but -- but, of course, the federal courts do, but this -- now, the federal courts don't, because of what, of limitations or (Voice Overlap) --

Mr. Paul F. Schlicher: In effect --

Justice Potter Stewart: -- took time in any event.

Mr. Paul F. Schlicher: Well, the Natural Gas --

Justice Potter Stewart: (Voice Overlap) --

Mr. Paul F. Schlicher: -- the Natural Gas Act itself creates two different kinds of court actions with respect to natural gas rates.

The first one is Section 19.

If a rate is established, as Mrs. -- Mr. Gray has explained, and if once accepted and filed by the Commission under your Montana-Dakota decision, I don't think there's any question but what it then becomes the federal rate, the filed rate, the effective filed rate.

Now, if the Commission made an error, if their action was not void, then, of course, that rate becomes final unless it is properly challenged and the only way it can be challenged is the -- the course through Section 19 (a) where you petition the Commission for review, and if that's denied on to Section 19 (b) and in the Tacoma opinion of this Court, City of Tacoma against taxpayers of Tacoma, the -- were Section 313 (b) of the Federal Power Act which is in all material, respects and wording, the -- identical with Section 19 (b).

There, this Court made plain that the only way that you could review orders or the only Court that had the power to review orders of the Federal Power Commission was the Courts of Appeals.

Justice Felix Frankfurter: Is there a controversy between you and the respondents that if this were a proceeding for the review of an order by the Federal Power Commission, the state court would have no jurisdiction, put that general proposition, is there -- is there conflict?

The answer to that is no.

Mr. Paul F. Schlicher: Yes, that the state courts have no jurisdiction of any rate matter.

Once a rate has been --

Justice Felix Frankfurter: Do --

Mr. Paul F. Schlicher: -- filed and accepted.

Justice Felix Frankfurter: Do the respondents say, this is an action to review an order of the state of the Federal Power Commission, and they have a right to bring such a reviewing order in the state court, do they claim that?

Mr. Paul F. Schlicher: The respondents are the Delaware court or the Delaware courts which already had -- it has that power.

Justice Felix Frankfurter: (Voice Overlap) yes, but here, the respondent, I don't make my question clear, do they concede your general proposition that this is a proceeding to review an order of the Federal Power Commission?

Mr. Paul F. Schlicher: No, they don't.

Cities is not.

Justice Felix Frankfurter: (Voice Overlap) but what's the use of arguing the abstract question?

Mr. Paul F. Schlicher: Because the Delaware courts, the decision which we are contesting actually did that, Your Honor.

Justice Felix Frankfurter: I understand that -- that's what you have to argue that this is such a reviewing order not that if it is --

Mr. Paul F. Schlicher: No.

Justice Felix Frankfurter: -- of course the state court is ousted.

Mr. Paul F. Schlicher: No sir, that is not my point.

My point is this, that in order to retain jurisdiction, the Delaware courts themselves had to set aside or modify an order of the Power Commission -- of the Federal Power Commission, and that is why they usurp the powers of the -- of the Federal Courts of Appeal.

Justice Felix Frankfurter: But that's what -- that's what you have to prove, the other side contest that.

And the court didn't go on that ground.

Mr. Paul F. Schlicher: Alright, sir.

Justice Felix Frankfurter: They didn't -- didn't involve that.

Mr. Paul F. Schlicher: Well, we certainly know this.

We certainly know that the Delaware --

Justice Felix Frankfurter: I'm not challenging that you may prove that in -- necessarily, what is involved is a review of the Federal Power Commission, but they -- that abstraction question that they came to do, doesn't require it at all, does it?

Mr. Paul F. Schlicher: To me, it doesn't.

Justice Felix Frankfurter: Well, it doesn't to anybody.

They did it to the Court of -- the Supreme Court of Delaware.

They said it wasn't such a thing.

Mr. Paul F. Schlicher: Well, when the -- when the Supreme Court of Delaware, their basic mistake was when they went on the form of the action and when they said that the form of action determines whether or not the state court or the federal district courts will have jurisdiction to enforce a rate order under Section 22 of the Natural Gas Act, that was wrong.

The whole interpretation of the Act and the only orderly interpretation of the Act would be that if any action, no matter what its form, whether it's a common-law or otherwise, if it has the purpose or it has the effect of enforcing a duty or liability created under Natural Gas Act, then automatically, the Act takes over.

Justice Felix Frankfurter: I'm merely inviting, you've established on the fact in this case, that (Inaudible) I'm inviting you to establish the fact that, in fact, this does what you just said it does.

Mr. Paul F. Schlicher: Well, I -- I think that it's more a question of law to this -- to this extent that once a -- a rate becomes a filed rate, an effective filed rate, then it, certainly, immediately, creates certain liabilities and duties or the Act does.

Justice William O. Douglas: I sought that the refund suit was covered a period prior to the effective date of the rate.

Mr. Paul F. Schlicher: Part of it does, Your Honor, but we are now practically arguing all the time since June 7th, 1954 when the Commission assume jurisdiction over the producers' rights.

Justice Felix Frankfurter: Well, they couldn't (Voice Overlap) --

Justice William O. Douglas: But the rate became effective -- sometime the filed rate became effective in 1957, wasn't it?

Mr. Paul F. Schlicher: It became effective in 19 -- no, as of June 7th, 1954.

Justice William O. Douglas: Filed in 1957 with a retroactive (Inaudible)?

Mr. Paul F. Schlicher: Oh, no, no.

I think you're referring to Cities' so called refund letter which --

Justice William O. Douglas: Well, does --

Mr. Paul F. Schlicher: -- is an entirely different point.

I was trying to finish answering this.

I should -- I like to go ahead with this first, if I may.

Justice Felix Frankfurter: I'm -- partly -- partly I have in mind what Justice Douglas has been asking.

Mr. Paul F. Schlicher: Well, I hope to get to that conditional rate.

I think -- I think I can explain that probably more quickly and should do it first.

The Commission -- when Texaco filed the so-called refund letter which is nothing more than a unilateral statement by Cities that it intended to pays this Kansas minimum price order of eleven-cents involuntarily.

The Commission accepted this letter for filing as a part of Texaco's rate schedule.

The letter order of acceptance of the Commission is shown at page 155 of the record, and that letter orders says that "Any provisions contained in this document which provide for automatic adjustments and charges may not operate to change the rates being charge June 7th, 1954," which was certainly the eleven-cent rate, no one denies that, "until a change in rate has been filed pursuant to Section 4 (d)," and that is exactly what the Mobile case says cannot be done.

Now, no such notice has ever been filed to effect that change with respect to this particular letter.

Moreover, the Commission added that the acceptance of the Cities' letter as Supplement Number 4 of Texaco's rate schedule would not, and I quote, “be deemed as recognition of any claimed contractual right or obligation associated therewith.

Thus, the Commission specifically denied the very contractual right which Cities now claims established the automatic change in rate.

To get back to the Section 22 question --

Justice William O. Douglas: Was that -- there was no such letter in the Pan American (Voice Overlap) --

Mr. Paul F. Schlicher: There was a letter, they were never requested to file it, and they never filed it.

The Commission asked us to file it.

After we filed it, then they wrote this letter saying they interpret it to have no automatic effect.

Justice William O. Douglas: There was no such letter in the Pan American case?

Mr. Paul F. Schlicher: There was a letter written to Pan American the same date, January 21, 1954 that --

Justice William O. Douglas: Is that in the record?

Mr. Paul F. Schlicher: -- was never filed.

Justice William O. Douglas: Is not that -- by the Commission?

Mr. Paul F. Schlicher: It was never filed with the Commission or accepted by it.

Justice William O. Douglas: I'm talking about the letter from the Federal Power Commission to Pan American, was there similar to the letter to you in Texaco on August 29th, 1957, was there such a letter?

Mr. Paul F. Schlicher: I don't know, Your Honor, I don't know those facts in Pan American.

So that when the filed rate became the federal rate, it created this duty on the part of Texaco to charge only the filed rate, no more, no less.

It also became a liability or Texaco became liable if it did undercharge or it did overcharge to immediately either make the -- collect the under charge or refund the over charge.

Now -- so there were liabilities and duties created by the filing of the rate, and that is why we say that if it has the effect, if any action, whether it be a count based on common-law theories or no matter what it is, if it has its purpose or its effect of enforcing any of these liabilities or duties, then automatically, Section 22 takes over and the jurisdiction is in the federal courts.

This has to be, this has to be for this reason, that if there are no common-law, there are no excuses, no common-law defenses to the filed rate, it could well be that a suit brought in a Federal District Court which must file the rate to be what the Commission actually accepted and filed could be in a different letter.

Then the same suit brought in a state court, where a -- common-law defenses are available and whereas these Delaware courts did found that the rate should have been the contract rate.

They didn't even look at what the Commission did.

They ignored the action of the Commission, and it's the action of the Commission that makes the filed rate, and that's the whole point.

Justice Felix Frankfurter: Well, what the court -- what the (Inaudible) court said in effect?

It is argued by you and your associate that form can make no differences.

Mr. Paul F. Schlicher: Correct.

Justice Felix Frankfurter: Form can make all of the difference in the world with reference to federal jurisdiction, as in Gully case proved once and for all.

If you can pray -- if you can pray the complaint whereby you do not reveal that a federal defense whereby you do not rest on a federal claim, but the federal claim comes in by a way of defense, then the Gully case prove, you can state a cause of action.

I'm not saying this is the Gully case, but you have to take care of the Gully case.

It doesn't do to make this generality a form, never makes a difference in federal jurisdiction.

It makes a great deal of difference of great deal of the time.

Mr. Paul F. Schlicher: If that applies, then you're going to have two different courts, one, state court and a federal court by -- in different great levels.

It -- it cannot be avoided.

Justice Felix Frankfurter: No, it -- it would be avoided because if the defense comes in and the state court rules against the proper defense, then you come here from the state court.

The question here is whether -- may be initiated not where finally maybe determined.

Mr. Paul F. Schlicher: In these very suits, Cities has brought an action in the Federal District Court on the same sales.

Oh, my time is up, sir.

Chief Justice Earl Warren: Mr. Wheeler.

Argument of Charles V. Wheeler

Mr. Charles V. Wheeler: Mr. Chief Justice, may it please the Court.

The petitioners here have spent a large part of their argument as they have in their oral argument in their briefs in discussing matters which go to the judgment which should be rendered in the trial court when these cases are tried on their merits.

Now, those matters will not aid in determining whether or not the Superior Court of New Castle County has jurisdiction to try these cases.

When petitioners argue the merits of their filed rate defenses, they are confusing the jurisdictional question with the wholly unrelated matter as to what the judgment should be.

This Court may discuss this confusion in Montana-Dakota, which I cite because it had been cited by the petitioners.

There, this Court explained that if the plaintiffs complaint states the cause of action which invokes the jurisdiction of the trial court, then the mere statement of that claim invokes that jurisdiction to determine whether the claim is meritorious or not.

Thus, the single question here in this appeal from an order denying a writ of provision is whether or not the state court has jurisdiction.

This, I think, requires a careful examination of the cases as they pin below because it is our feet that this is the critical test.

The fatal weakness of petitioners' position is their refusal to deal with the cases as they are.

These cases were not brought to enforce a filed rate.

They were not brought to resolve a dispute as to what the filed rate was.

They were not brought to collateral or to attack a filed rate.

These cases were brought to enforce common-law rights, and liabilities which came into being when this Court held at the Kansas minimum price order was void.

I think it will be helpful for me to explain in detail what the complaints alleged because they relate all of the facts upon which we rely.

The complaints filed against each of the petitioners is substantially identical, restated in narrative form, they tell they relate these facts.

Cities Service Gas Company is a natural gas company engaged in this business as an interstate gas pipeline company, the petitioners or producers of natural gas.

In 1949 and in 1950, Cities entered in long term contracts for the purchase of gas produced in the Kansas Hugoton Field from these petitioners.

Those contracts fixed prices for the purchase of the gas had approximately eight cents per Mcf.

After those contracts had been being performed for four and five years, respectively, the Kansas Corporation Commission on December 2nd, 1953 entered its minimum price order purporting to fix a minimum price of eleven-cents per Mcf for all gas produced in the Kansas Hugoton Field.

Upon the entry of that order, Cities commenced an action to review it challenging it as being invalid.

After that action had been commenced but before Cities made its first payment in compliance with the order, Cities wrote a letter to each of the petitioners, the January 21 letter to which Mr. Gray referred.

In that letter, Cities explained that it had commenced an action for the judicial review of the validity of that order, and that while that litigation was pending, it would pay the eleven-cent price in compliance with the order.

But that those payments were to be made by Cities and to be accepted by the producers as the involuntary compliance with the order.

And the January 21 letter conclude, “In the event the order is finally judicially modified or declared to be invalid in whole or in part, Cities Service Gas Company will expect you to refund to it the amount of any over payments.”

Immediately upon receipt of that letter, the petitioner Pan American answered in which it restated the terms of the letter generally as we had stated it and concluded saying, “We will therefore accept the payments on this basis.”

Thereafter, for 47 months, Cities made payments monthly for all gas purchase from each of the petitioners by monthly check.

And on each of those checks, there was subscribed an endorsement in which it was said these payments are made subject to the terms and the conditions of the January 21, 1954 letter.

I think that is significant especially in view of Mr. Gray's suggestion that the payments were pursuant to a Federal Power Commission filed rate schedule.

In other words, those payments by those checks with that endorsement on them used continuously from the first payment after January 1954 until this Court's decision on January 20, 1958 holding that the Kansas price order was void.

Justice Felix Frankfurter: During what period of the -- of the 47-48 months, whatever it was, was there a federal power rate enforced?

Mr. Charles V. Wheeler: Commencing first on -- as of June 7, 1954.

Justice Felix Frankfurter: And when did the -- when did your claim begin to arise?

Mr. Charles V. Wheeler: On January 1, 1954.

Justice Felix Frankfurter: So that they were coterminous?

I -- I missed the date.

Mr. Charles V. Wheeler: Our -- my claim begins on January 1, 1954.

Justice Felix Frankfurter: (Voice Overlap) --

Mr. Charles V. Wheeler: In other words, we have a six months period in which is there no claim -- no one can claim that there is any claim with that.

Justice Felix Frankfurter: After -- after June, after there was a federal rate.

It could --

Unknown Speaker: (Inaudible)

Mr. Charles V. Wheeler: No, sir.

The -- the controversy involves all the period from January 1, 1954.

Unknown Speaker: (Inaudible)

Mr. Charles V. Wheeler: Yes.

Unknown Speaker: (Inaudible)

Mr. Charles V. Wheeler: Yes.

Of course -- excuse me.

Unknown Speaker: Is that here?

Mr. Charles V. Wheeler: Yes.

This -- there is a single case pending against each petitioner.

It makes a claim for refund for payments made during the whole period, January 1, 1954 through the date of the decision of this Court in holding the order void.

Justice Charles E. Whittaker: Well, very briefly, what defense is asserted as to do six months period?

Mr. Charles V. Wheeler: Oh, there were no -- the defense is that -- are specifically to that six months period.

They -- collectively, the defendants plead some 19 separate misstated offenses, and they go to the whole claim, and they include all sorts of common-law defenses, the statute of limitations, common-law defense of acquiescence and estoppel, voluntary payments.

They claim that the contract for refund is not supported for -- by a lack of consideration, those sort of common-law defenses.

There are great many of them.

Justice Felix Frankfurter: Mr. Wheeler, may I ask you this.

How could the federal rates was enforced, could any arrangement be made for an alteration in the up or down of the rates?

Mr. Charles V. Wheeler: After the effective date of June 7, 1954.

Justice Felix Frankfurter: Yes.

Mr. Charles V. Wheeler: Of course, there's a procedure under the natural scope.

Justice Felix Frankfurter: Well, I mean, private -- I -- yes, I understand, apart from the procedure provided by the Act.

Mr. Charles V. Wheeler: I think not.

Justice Felix Frankfurter: Not.

Therefore, any suit, but you have to (Inaudible) that any suit for a different rate in the filed rate subject to all the (Inaudible) taken under the Federal Power Act, no matter -- what -- in what guide, in what (Inaudible) of -- of legal pleading, you may come into court?

Would a court -- any court had to take judicial notice if what you are suing for is something that would undermine its governing rate?

Mr. Charles V. Wheeler: I think not, Your Honor.

I think, perhaps, if the filed rate was inconsistent with the common-law claims that you made, that it would be a good defense, but I --

Justice Felix Frankfurter: If you -- if you acquired, if you plead without making a disclosure as to what the rates are, would the court be charged with the duty of finding out what the rate is?

Because they'll throw you out of court on the face of the pleading and not waiting for the -- and not bring it under the Gully case?

Mr. Charles V. Wheeler: I think not, Your Honor.

Justice Felix Frankfurter: On the Gully case, couldn't the Court have found out what the law was if you are going to find the -- the complaints there?

Mr. Charles V. Wheeler: Yes, I think so.

Justice Felix Frankfurter: Do you rest under Gully case doctrine and that kind of a thing or (Inaudible)?

Mr. Charles V. Wheeler: I think that -- I think that determines the -- that doctrine determines the jurisdiction of the state court, and I think further, of course, that our claims are meritorious.

Justice Felix Frankfurter: Well, that's a different question.

Mr. Charles V. Wheeler: Which I concede to be a different question.

Justice Felix Frankfurter: Alright, I don't mean to interrupt you but you do -- it is -- if you -- if you prevail, and to get whether the -- does the Delaware case cited from Gully doctrine?

Mr. Charles V. Wheeler: I beg your pardon?

Justice Felix Frankfurter: Does the Delaware decision cite in Gully case?

Mr. Charles V. Wheeler: I believe that it does, yes, sir, Your Honor.

Justice Felix Frankfurter: Well, but that is -- that is what the fighting is about here, isn't it, whether the Gully case doctrine applies or not?

In other words, whether if you do not disclose on the face of your complaint that you are speaking of deposit from the filed rate, you establish the jurisdiction of the state court and all the rest is subject to the merits and the litigation on the merits have you mention -- appeal here, the state court disregard federal law?

Mr. Charles V. Wheeler: I think that's correct.

I believe that I was in the point of describing the facts which are those alleged in our complaint.

Justice Potter Stewart: And you are the point of saying that this was a 47-month period --

Mr. Charles V. Wheeler: Yes, sir.

Justice Potter Stewart: -- for which you are suing beginning January 1st, 1954 and ending, when?

I didn't understand that.

Mr. Charles V. Wheeler: On January 20, 1958.

In other words, on the date of this Court's decision, we seek making payments under the Kansas minimum price order.

Justice Potter Stewart: I see.

And then -- and then what did you pay thereafter?

Mr. Charles V. Wheeler: After that, we paid the contract price which is approximately eight cents.

Justice Potter Stewart: You didn't pay eleven-cents, is that it?

Mr. Charles V. Wheeler: No, sir.

Justice Potter Stewart: I see.

Justice William J. Brennan: There's been no change then in rate?

Mr. Charles V. Wheeler: None whatsoever.

Justice Charles E. Whittaker: (Inaudible)

Mr. Charles V. Wheeler: I don't think it would be fair to say that they had accepted it in full.

They have certainly accepted the money.

I think they preserve the right to continue to claim that they get the eleven-cents under the Kansas minimum price.

This brings us -- of course, having explained how the payments were made to the decision of this Court rendered on January 20, 1958 in which this Court held that the Kansas order was void.

And also brings us past to the point that we, thereupon, seize making payments at the eleven-cent price and made a demand upon each petitioner for a refund of the difference between the amounts of money which we had paid them under the void order and the amounts which we're dealing under the contract price.

Upon their refusal to make those demanded refunds, we commenced these actions in the Delaware State Court, making allegations which related in more formal terms exacts the exact statement of facts, as I have made.

The concluding paragraph in each complaint set forth Cities three alternative common-law theories of recovery.

We claim that there was a contract to refund made by the January 21, 1954 letter and the acceptance of payments made subject to.

And then, of course, in the case of Pan American, who had answered our letter, we included the claim that that answer we will, therefore, agree to accept payments on this basis made a written contract to refund.

The second theory of our recovery was the theory -- the common-law doctrine of restitution for -- of moneys which had been paid under a judgment or an order which is later reversed.

And the third was the common-law doctrine of unadjusted ratio.

Now, those are the complaints as they were alleged.

The petitioners' answers, as I previously suggested, included some 19 separately stated defenses.

Justice Felix Frankfurter: Would you forgive me for interrupting --

Mr. Charles V. Wheeler: Yes.

Justice Felix Frankfurter: -- again?

Where in the complaint did you refer me to the (Inaudible)

Where in the complaint is there any reference as what the valid -- of valid rate was or wasn't?

Mr. Charles V. Wheeler: Oh, there was no allegation with respect to that.

Justice Felix Frankfurter: Any allegation that bore on that?

Mr. Charles V. Wheeler: None whatsoever.

Justice Felix Frankfurter: Thank you.

Mr. Charles V. Wheeler: The --

Justice Charles E. Whittaker: (Inaudible)

Mr. Charles V. Wheeler: That's exactly correct, Your Honor.

Of course, we had a great deal of help.

The Fifth Circuit had recently decided Natural Gas Pipeline Company of America versus Harrington which involved refund to payments under the Oklahoma order, and we had a pretty good guide as to the cause of action which could be sustained.

We follow that as precisely as it could.

As has been suggested, the Natural Gas Act got into this case wholly by way of defense.

Texaco pleaded it and their fifth separate defense.

There, they alleged that they had an eleven-cent filed rate because of the effect of the Kansas minimum price order and of their filing of a copy of it.

And Pan American as its third separate defense, claim that the Cities' recovery was barred because they had a filed rate of eleven-cents on -- because they had filed a copy of the minimum price order.

I think that it would be well to mention the amendment because as I understand that is the single claim which the petitioners make here that that changed it all the effect of our common-law causes of action.

Of course, it is perfect obviously from an examination of the amendment in which we allege that this was interstate gas.

We were simply coming within the terms of this Court's judgment holding that the Kansas minimum price order was void as to such things.

There is the suggestion in the briefs, it has not been mentioned or laid back in some way Cities' answer briefs in response to petitioners' briefs in support of motions for summary judgment in some way changed our common-law causes of action.

I think a brief examination of those briefs and the setting in which they were filed will dispel any feeling with respect to that.

You understand that the petitioners' filed motions for summary judgment which were not directed at the jurisdictional issue at all, but simply claim that there filed rates were good defenses.

We responded, they then filed a brief in support of those motions for summary judgment relying upon the doctrine of Montana-Dakota that there could be deviation for -- from the filed rate, and that therefore, the filed rate was going to be a meritorious defense.

We responded, of course, by recognizing this Court's decision in Montana-Dakota but pointing out that our common-law causes of action, which we had asserted, were perfectly consistent with and perfectly compatible with the petitioners' filed rate.

Now, this, I think, fully describes the cases as they now end in the Delaware Superior Court and to which the petitioners would have this Court apply the provisions of Section 22 of the Natural Gas Act.

Justice Potter Stewart: Mr. Wheeler, on the basis of what you told us as to the statement of the case, do you think it will still be -- that -- that the -- that the petitioners will still be completely free in the Delaware courts to raise the defense of the filed rate on the merits?

Mr. Charles V. Wheeler: Oh, yes.

Justice Potter Stewart: And that the Delaware court, do you think the Delaware court is prejudged or judged that issue one way or the other?

Mr. Charles V. Wheeler: Only -- I don't think it prejudged it, except to the extent that they -- that the Delaware trial court has overruled there motion for summary judgment.

Justice Felix Frankfurter: Well --

Mr. Charles V. Wheeler: Did that answer your question?

Justice Potter Stewart: Well, but didn't it go -- in doing so didn't at least one of the courts say that they could just disregard the filed rate?

Mr. Charles V. Wheeler: Oh, no, I don't -- I do not understand that completely.

Justice Potter Stewart: Oh, there were nullity or whatever they're (Voice Overlap) --

Mr. Charles V. Wheeler: No, I think what the Delaware court did hold has had the Tenth Circuit and the Third Circuit was that the Kansas minimum price order, because this Court had held it was void that that order was a nullity whether it was filed in the files of the Federal Power Commission or -- or not.

I think that -- that is the holding.

Justice Felix Frankfurter: But Mr. Wheeler, should the -- should the Delaware court or any Delaware court, should the Delaware Supreme Court finally say you can't raise that question?

That in itself should be a basis for coming to this.

If -- If the Delaware court excluded the petitioners from defending, by standing on the federal rates, that in -- that denial or that exclusion itself is a denial of a federal right.

Mr. Charles V. Wheeler: Oh, yes.

Justice Felix Frankfurter: I think the answer to -- that's the conclusive answer to Justice Stewart's question.

Justice Potter Stewart: That might -- yes.

That might give you a ground for asking us to grant certiorari.

But my only question is, how did they pass on that already?

Mr. Charles V. Wheeler: Well --

Justice Potter Stewart: How could they said it's not a good defense?

Mr. Charles V. Wheeler: Oh, I -- the Delaware trial court has overruled the petitioners' motion for summary judgment.

And in doing so, they have held that the Kansas minimum price order, in their view, is a nullity whether filed or not.

Now, of course, the order overruling the motion for new -- for summary judgment is not an appealable order, either under the Delaware practice or in the federal courts.

And so that ruling -- there has never been an order of any court which decided that in a posture from which there could be taken an appeal.

That --

Justice William J. Brennan: And that issue was not before the Supreme Court on the writ -- application for (Voice Overlap) --

Mr. Charles V. Wheeler: Not -- no, sir, it was not.

Justice Felix Frankfurter: And therefore isn't here.

Mr. Charles V. Wheeler: That's correct.

Justice Felix Frankfurter: And therefore isn't here.

Mr. Charles V. Wheeler: That's right.

It's not here.

Justice Potter Stewart: It's only a matter of jurisdiction before the (Inaudible)

Mr. Charles V. Wheeler: That's correct, yes.

Justice Potter Stewart: By reason of the fact that a writ of prohibition, and that's all there could be there?

Mr. Charles V. Wheeler: That's right.

That's right.

I would not like to leave this evening without making particular the point that in my argument tomorrow, I will show that petitioners do not have a good defense of this case when it is tried on its merits.

And that petitioners filed rates are the contract rates, wholly unaffected and unmodified by the (Voice Overlap)

Justice Potter Stewart: But why -- why do we have to do that?

Justice Felix Frankfurter: Why do you do that?

Mr. Charles V. Wheeler: Well, I don't think -- the only reason it's significant at all is because they make the argument

Justice Felix Frankfurter: So far as you (Inaudible) you must answer every argument that could be irrelevant.

Mr. Charles V. Wheeler: Well, of course, I -- has state the hazard to (Inaudible) I was wrong in it being irrelevant.[Laughter]

Justice Potter Stewart: Well, the fact is you began by saying there are two separate problems and of course, there are ones in jurisdiction and the -- of the state court, the other is in the merits but they are not, as you suggested, as they often or not completely separated.

They are somewhat in meshed, aren't they, here, in these cases?

Mr. Charles V. Wheeler: I don't -- I don't think they are meshed except as -- as the petitioners' seek to enmeshed them by -- by our view of jurisdictional questions with the others.

I think they are clearly set forth.

Justice Potter Stewart: That they can be --

Mr. Charles V. Wheeler: Yes.

Justice Potter Stewart: -- is that it?

Mr. Charles V. Wheeler: I don't think it makes any difference that -- whether -- whether -- I don't think I have to show that I am going to win in the Delaware Superior Court for the Delaware Superior Court to have jurisdiction over my case.

Justice Felix Frankfurter: More so that you can win here (Inaudible)

Mr. Charles V. Wheeler: That's correct, sir.

I take it that it's recess time, Your Honor.

Chief Justice Earl Warren: Yes, it's -- it's 4:30 now.

Print this transcript Transcript: 

Argument of Mr.chief Justice Warren

Mr.chief Justice Warren: -- Corporation, Petitioner, versus Superior Court of the State of Delaware in and for New Castle County, and Number 81, Texaco, Incorporated, versus Superior Court of the State of Delaware in and for the New Castle County.

Mr. Wheeler, you may continue your argument.

Argument of Mr.charles V.wheeler

Mr.charles V.wheeler: Mr. Chief Justice, may it please the Court.

I'm concerned that at the close of yesterday's argument, I've left the impression that we conceive that there was filed an eleven-cent rate or that the Commission accepted an eleven-cent rate.

We do not conceive either of those and that would be the second point of my argument.

That argument will involve three considerations.

What could be done under the law?

We will show that the Natural Gas Act and Order 174, which was promulgated pursuant to the Natural Gas Act, did not permit the filing of the rate in effect, but required the filing of the contract and the supplements are -- I mean that's there, too.

It requires a consideration of what the petitioners did do.

And we will examine their tender great schedule filings and show that those filings show on their face that they reflected the price situation exactly as it was, that is the contract price amended by the Kansas minimum-price order, of course, if, but only if, that order was valid.

Argument of Mr.justice Brennan

Mr.justice Brennan: Now, excuse me.

Do you say that compliance with 174 required the filing of the contract?

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: Yes.

Rebuttal of Mr.justice Brennan

Mr.justice Brennan: If by the terms of 174 so provides that?

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: It is in terms of 174.

The pertinent provisions are printed in the appendix to Pan American's brief, at page 66 and 67, 154.92.

Argument of Mr.justice Whittaker

Mr.justice Whittaker: Was it (Inaudible)

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: No, a copy of the letter was not filed in Pan American's instance.

Their letter of transmittal made it clear that their sole claim to the price was the eleven-cent ordered price and of course that meant that it depended upon its validity.

154.92, which appears on page 66, says that a rate schedule shall be filed.

Rebuttal of Mr.justice Brennan

Mr.justice Brennan: Page 66 of what?

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: I beg your pardon.

Pan American's main brief -- brief for petitioner Pan American.

It's in the appendix.

And the definition of the rate schedule is contained on the next page, under Section 154.93, which -- at page 67.

The third consideration, of course, will be what the Commission did and what -- in light of what the Commission could do.

And in discussing the Commission's acts, we will make it perfectly clear that the Commission accepted the price situation as it was, that is, the contract price modified by the Kansas minimum-price order, if the order was valid.

But returning to what seems to us to be the critical issue in this case, which is whether or not the Superior Court of New Castle County has jurisdiction.

That turns, in our view, upon the interpretation of Section 22 of the Natural Gas Act.

Section 22 confers upon the federal courts exclusive jurisdiction in that limited class of cases, which, in the language of the statute, are, “Brought to enforce any liability or duty created by or to enjoin any violation of this chapter or any rule, regulation or order thereunder.”

Of course, the jurisdictional provision must be within the limits of federal court jurisdiction prescribed by Article 3 Section 2 of the Constitution, which defines the limits of federal court jurisdiction to cases arising under the Constitution and the laws of the United States and so forth.

In both the House Committee Report and the Senate Committee Report on the Natural Gas Act, the Committees described the intent and purpose of Section 22 in identical language using the traditional cases arising under language of the Constitution.

The language reads, “This Section imposes appropriate jurisdiction upon the courts of the United States over cases arising under the Act.”

This language is not only contained in the Constitution, but it is contained in the older jurisdictional statutes with which we're familiar, particularly 12 or 28 U.S.C., which deals with federal question jurisdiction and 28 U.S.C.1338, which deals with exclusive federal court jurisdiction in patent and copyright cases.

This language has been repeatedly construed by this Court, the lower federal courts and the state courts.

I don't believe that it's an overstatement to say that at least since the decision of this Court in Gully, all courts have, without exception, construed this language to mean that the single test of the trial court's jurisdiction is a statement of the plaintiff's claim in his complaint, unaided by any defenses which maybe raised by the defendant or even by any allegation which the plaintiff makes in anticipation of some defense, which the defendant may plead.

No matter how carefully it's disguised, the petitioners' position here with respect to jurisdiction must be to urge this Court to depart from this traditional test and adopt a new test, reconstruing the cases arising under language of the Constitution.

For they urge to adopt the rule under which the trial court's jurisdiction is determined from an examination of the subject matter of the action, irrespective of whether the filed rate comes into the case as a part of the plaintiff's claim or is merely injected into it as a matter of good faith.

The single excuse which is offered by petitioners for this radical departure is a claim that it would aid the uniform construction of their filed rate schedules.

They rely upon cases which deal with the Labor Management Relations Act and the National Labor Relations Act.

These labor relations cases, it seemed to us, make it perfectly clear that neither the Congress nor this Court has ever regarded exclusive federal court jurisdiction as an aid or a device to promote uniformity, in Garner versus Teamsters, Chauffeurs and Helpers, which we discussed at page 34 of our brief.

This Court pointed out that when the objective is uniformity of decision, the very same considerations which would oust state courts of jurisdiction, oust federal court jurisdiction.

And again, a year later in Amalgamated Clothing Workers of America versus Richman Brothers, another labor relations case, which we discussed at page 34 of our brief, this Court reviewed the history of our dual system of state and federal court jurisdiction.

And there, it was pointed out that the courts -- that the state courts have always been regarded as perfectly adequate tribunals for the resolution of federal questions which are injected in the cases as a matter of defense.

Even in those instances in which the conflict is between regulatory agency jurisdiction on the one hand and court jurisdiction on the other, either state or federal, this Court pointed out that uniformity of decision is provided for by the review in this Court.

That's the doctrine announced in Great Northern Railway Company versus Merchants Elevator Company, which we discussed at page 35 of our brief.

Argument of Mr.justice Frankfurter

Mr.justice Frankfurter: Mr. Wheeler, you are not suggesting or are you, that Congress that -- there wasn't any constitutional limitation upon the withdrawal by the Congress of cases that raise the federal questions by way of defense?

In other words, that Congress by appropriate language that you say is not found here though events imply.

Congress could say that if an issue is -- is raised by the defendant in answer to a complaint, which brings into issue of federal statute or a federal right, such a controversy is -- is not be entertainable on the state court, that must itself, be initiated in the federal courts.

You don't think there's any constitutional difficulty here?

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: Well, I think it would require a reconstruction of language of cases arising under, which is used --

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: But there's another occasion --

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: -- in the Constitution.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: -- go unconstitutional (Voice Overlap) --

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: No, it did not.

They construed the same language.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: Yes.

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: I think it is possible of course that the constitutional language could be construed differently from the statutory language.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: Well, if -- if there is an issue in a controversy, if an issue is created by pleading involving a federal question, Congress could say that such litigations cannot be entertained by a state court, couldn't it?

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: If -- my view is, if that came within the limits of the Constitution as a case arising under.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: (Voice Overlap) --

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: Yes, sir, that's correct.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: In other words, the Gully -- the Gully case brings the issue whether in that case involving a National Banking Act, whether that was the question that arose under an act of Congress and it's found that it didn't arise for the reason it has exposed.

Although, the defense that was tendered if it prevailed upon the merits, the defendant had prevailed what involved a federal claim, wouldn't it?

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: That's correct.

Yes.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: So, the issue where he is whether under the statute, this case arose in the light of the Gully doctrine.

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: I -- I think that is substantially it.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: That's narrow -- not -- not narrow, but that's the defined principle.

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: I think that's correct.

Yes, sir.

In the final analysis, it seems to us that petitioners' argument is not so much that the state court has no jurisdiction as it is that plaintiff's common-law claims which have been asserted in the state court are without merits on account of the intervention of the Natural Gas Act in the filed rate schedule.

I mentioned yesterday that our cases were patterned after the decisions of the Fifth Circuit Court in Natural Gas Pipeline Company of America versus Harrington and the District Court's opinion which preceded it.

That case was on all force with the case at bar, it involved the Oklahoma order, which this Court held to be invalid in 1956 and therefore, preceded our cases by some two years.

I call the Court's attention particularly to the opinion of the Fifth Circuit, for there, it seems to us that they deal with the precise contention which is made here by the petitioners and that is that these common-law rights did not survive the Natural Gas Act, the Phillips' decision and Order 174.

And there, the Fifth Circuit, relying upon this Court's decision in Mobil, held squarely that the presence of regulation of producers' process by the Natural Gas Act did not defeat the pipeline company's common-law rights and common-law causes of action.

It seems to us that the doctrines laid down in Mobil and in Memphis in which this Court held about the Natural Gas Act, did not abrogate contract rights, stands squarely for the proposition that these claims are meritorious, if they can be established upon their facts.

I also call the Court's attention to the Sunray Mid-Continent case, Sunray Mid-Continent Oil Company versus FPC and Texas Gas Transmission Corporation versus Shell Oil Company, both of which are discussed at page 13 of the amicus brief of Colorado Interstate.

I think that those will be helpful in pointing up these -- this Court's view as to the interrelation between common-law and contract rights and rights which arise out of the Natural Gas Act.

I have mentioned these cses particularly because its petitioners' suggestion that Cities' common-law claims are fictitious claims and therefore, they seek to apply the rule of this Court in the Lambert case.

The Court will perhaps recall that in Lambert, a shipper sued a railroad to enjoin the operation of certain shipping rules as I recall 8, 9 and 10 and making the allegation that those rules were the rules of the railroad and conflicted with Rule 12 of the Interstate Commerce Commission.

Now, the fact was that Rules 8, 9 and 10 were not the railroad company's rules at all, but were the rules of the Interstate Commerce Commission.

And this Court held that by simply alleging that those were the railroad company's rules, it could not oust the federal courts of jurisdiction.

The significant point is that the Section 22 of the Natural Gas Act has no application to these cases because these cases were not brought to enforce liabilities created by the Act.

That the State Court of Delaware has jurisdiction over these cases because they were brought to enforce liabilities over which the state court has jurisdiction, contract liabilities arising out of state law and common-law -- and common-law doctrines of restitution and unjust enrichment.

Rebuttal of Mr.justice Brennan

Mr.justice Brennan: Where was that (Inaudible)

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: It's Natural Gas Pipeline Company of America versus Harrington.

It is cited at page -- at pages 33 and 54 of our brief.

Turning now to our second point, we will answer petitioners' claim that their filed rate defense is -- will be a meritorious defense when these cases are tried below, on their merits.

As I pointed out, we do not view this as being an issue before this Court, but we do think that it is appropriate, since this seems to us, to be the whole point of petitioners' argument to discuss the matter and to show that petitioners' filed rate was the contract rate modified by the Kansas minimum-price order if that order was valid.

We rely principally upon the two decisions of the Circuit Courts who have examined rate schedule such as these in which there was filed the basic gas purchase contract and the copy of the Kansas minimum-price order or -- those cases are Cities Service Gas Company versus FPC, to which we referred as Magnolia, since Magnolia Petroleum Corporation was the intervenor and it was its rate schedule, as cited and discussed at page 36 of our brief.

And the Third Circuit's opinion in Natural Gas Pipeline Company of America versus FPC, Dorchester Corporation, intervenor, which we describe as the -- referred to as the Dorchester case.

In each of those cases, the Circuit Courts held that in view of the decisions of this Court, holding that the Oklahoma price order in the Dorchester case was void.

And the Kansas price order in the Magnolia Case was void.

That in view of that decision, these rate schedules fixed the legally effective rate at the contract rate unmodified by the void order.

It simply -- those courts simply held that the void order could not amend or modify a contract.

Let us examine in detail, what could be done under the Natural Gas Act and Order 174.

As we understand the petitioners' position, they conceive that their initial rate filings initiated a rate-making or a rate-changing procedure, under which the Federal Power Commission set aside the contract and contractualobligations which ran between us and made new obligations for us without a hearing, without the parties being present and solely on the basis of an ex parte fact.

In the Mobil case, this Court reviewed it later the powers of the Federal Power Commission as defined in Sections 5 (a) and 4 (e) of the Act.

This Court said that Section 5 (a) prescribed the basic power of the Federal Power Commission with respect to rates.

Giving it the power to conduct hearings and make determination after hearings with respect to a contract which had been filed with it and upon the finding that the rates fixed in the contract were unjust and unreasonable, then to remedy that, by setting aside and -- or modifying those contract rates.

This Court said, “This is neither a rate-making nor a rate-changing procedure.

It is simply the power to review the rates and contracts made in the first instance by natural gas companies and if they are to be -- determined to be unlawful, to remedy them.”

The Commission's Order 174, under which these filings were made, were limited to procedural matters only and were not intended to affect substantive rights after hearings and after two amendments to the order.

The Commission entered its Order 174-B and with it, it filed an opinion in which it expressed this view of what it was doing in Order 174.

It said, and I quote, “Substantive rules, however, do not appear desirable in connection with the filings with which these rules are concerned, and it is the intention of the Commission to relate these rules strictly to procedural matters.”

Order 174 did not permit the filing of the rate in effect on June 7, 1954.

I asked the Court to turn its attention to the provisions of Order 174.

It is found in the brief for the petitioner Pan American Petroleum Corporation.

It's a white-back brief for petitioner Pan American Petroleum Corporation.

Argument of Mr.justice Black

Mr.justice Black: What page?

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: At pages 66 and 67.

154.92, which appears at the top of page 66, 154.92 (a) requires the filing.

It says that "Every independent producer shall file."

And I skip down to the fifth line, “With the Commission rate schedules as defined in Section 154.93 hereof," setting forth the terms and conditions of service and so on.

Of -- that was the filing which was required to be made in turning our attention now to 154.93 which appears on page 67.

The definition is given how the rate schedule for the purpose of Sections 154.92 through 154.101 hereof, “Rate schedule shall mean the basic contract and all supplements and agreements are mandatory thereof, effective and applicable on and after June 7, 1954,” and so forth.

I think it would be helpful to explain that the schedules which were filed were not simply a schedule of rates in the railroad tariff, the sense of the term, but were copies of all of the documents which comprise the basic contract, the amendments and the supplements thereto.

Pan American's entire rate schedule is printed in this record.

It consists of the basic gas purchase contract and 78 supplementary agreements and amendments thereto.

It occupies 274 pages of the printed record.

There was no requirement for the statement of any rate of it than that it did require that there be filed also, but not as a part of the rate schedule, a billing state that is found in the last sentence of 154.92.

Having said what the rate schedule was, the -- they then -- the rule then said that to each rate schedule, there shall be attached the statement showing the actual billing.

Rebuttal of Mr.justice Black

Mr.justice Black: Where is that?

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: That's in the last sentence of 154.92 at page 66 of Pan American's.

92 (a).

Rebuttal of Mr.justice Black

Mr.justice Black: Paragraph (a) of the (Voice Overlap) --

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: Yes, I beg your pardon, sir.

Three Circuit or the Tenth Circuit Court in three different cases, which we cite at page 39 of our brief, has held squarely that this billing statement is not a part of the rate schedule, but is simply a statement as to -- which does not affect the level of the rate at all.

And if the billing and as pointed out in those three cases, the two cases involving -- involving Phillips Petroleum Company in one case following -- involving Kerr-McGee.

If the -- the billing statement does not affect the rate at all, the rate is made by the basic gas purchase contract and the amendments and supplements thereto.

I think it is significant that Order 174 did not require that the Federal Power Commission give the purchaser any notice of this fact.

It did not contemplate that there be conducted in hearing on the filings, did not contemplate that there be -- that the Commission make any findings or draw any conclusions.

And I think from the examination of the Commission's acts and it will be perfectly apparent that the Commission gave no notice that they did not docket these filings for hearing, that they conducted no hearing, that they made no findings and that they drew no conclusions.

Argument of Mr.justice Harlan

Mr.justice Harlan: Were you actually given notice?

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: We did receive a copy of each one.

Rebuttal of Mr.justice Harlan

Mr.justice Harlan: That's from your -- from the sellers?

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: Yes, from the sellers, that's correct.

It's our view that the absence of these minimum essentials of due process is prove positive that the Commission did not and could not have affected -- could have affected substantive rights of the parties, but they were bound to preserve the status quo as it was on the critical date, June 7, 1954.

Rebuttal of Mr.justice Whittaker

Mr.justice Whittaker: Once the rate is approved to contracts by the Commission, then is not that the sole and only lawful rate from that time?

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: I think that's correct.

Yes, sir.

Rebuttal of Mr.justice Whittaker

Mr.justice Whittaker: Now, then, may there be a side agreement continuing private character between this producer and the pipeline for something more?

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: Which picks the rate?

Rebuttal of Mr.chief Justice Warren

Mr.chief Justice Warren: Yes.

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: No, sir.

No, sir.

Rebuttal of Mr.justice Whittaker

Mr.justice Whittaker: Well, then, did your contract, when approved by the Commission, become the whole law of the subject of rates?

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: I do not think so.

No, sir.

I think that it fixed the rate, but I do not think that it had anything to do with the common-law.

I did no -- I do not think that it abrogated the common-law rights upon which we rely.

May I give this example, for -- suppose we -- our check which we had given to Pan American for one of these gas payments had been dishonored, I think they could've sued us to collect on the check.

Rebuttal of Mr.justice Whittaker

Mr.justice Whittaker: I understood you to say that's why I was in this Fifth Circuit case that they had expressively held that the private rights continued on the contract, notwithstanding the filing of it with the Commission, did I misunderstood you?

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: I believe, effects what I said, I overstated it.

I --

Rebuttal of Mr.justice Whittaker

Mr.justice Whittaker: I probably misunderstood you.

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: In Natural Gas Pipe versus Harrington, the defense was made that on account of -- the intervention of the Phillips case and the regulation of independent producers because the plaintiff did not rely upon the filed rate and because, in fact, Harrington had not made a file, there could be no recovery of any kind, and the Circuit Court relying upon this Court's decision in Mobil said that Phillips and Order 174 fixed the rate at the contract rate and that it was not significant, either that they did or did not have a filing.

It seems to me that that is a decision which touches very closely upon the contention that the Natural Gas Act occupies the whole field.

Rebuttal of Mr.justice Harlan

Mr.justice Harlan: From the -- from the period of the filing in 1954 to the Panoma case decision, you were paying at eleven-cent rate, were you not?

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: The same as we had the product.

Rebuttal of Mr.justice Harlan

Mr.justice Harlan: As you'd --

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: That's correct.

Rebuttal of Mr.justice Harlan

Mr.justice Harlan: -- and subject to the same reservations?

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: Yes, each check board docketed --

Rebuttal of Mr.justice Harlan

Mr.justice Harlan: Now --

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: -- exactly the same legend.

Rebuttal of Mr.justice Harlan

Mr.justice Harlan: Now, following the Panoma case, will the Commission have had any power or jurisdiction to require the reimbursement to you of the overpayments, the difference between eleven cents and the 8.4 cents or whatever it was?

Could you have brought a suit in the Commission or a proceeding before the Commission, assuming that Pan American had not been willing to reimburse, could you have brought a proceeding in the Commission to require that reimbursement?

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: I am doubtful that we could.

I do not think that there is any --

Rebuttal of Mr.justice Harlan

Mr.justice Harlan: I never understood this Commission had any past reparation power at all.

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: I don't -- I don't conceive they do have.

Rebuttal of Mr.justice Harlan

Mr.justice Harlan: They can fix a rate only for the future.

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: That is correct.

Yes, sir.

Rebuttal of Mr.justice Whittaker

Mr.justice Whittaker: Now, as -- may I ask you this.

Assume for the sake of argument that primary jurisdiction would require action initially before the Commission?

Yet, if, as you argue here, no question of fact is involved, no discretion is to be exercised by the Commission, would it be more than a useless act to send the case there when the question is one of law or not?

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: Oh, I think that it would be.

And I understand -- and I understand that that's the principle in Great Northern, that when it involves pure questions of law as this does that there would be no occasion for the Commission to pass upon.

Rebuttal of Mr.justice Whittaker

Mr.justice Whittaker: Now, could a state court as well as federal court have power to decide that issue?

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: That's my view of the matter, under the announcement that particularly those in the labor relation cases to which I have referred and of course, the traditional cases which hold that a state court is a perfectly adequate tribunal to pass on these federal questions that it turns upon whether it's the plaintiff who bases his claim on it or it's the defendant relying upon.

The second consideration is what is the filed rate?

What rates the petitioners' file, and I think in examination of their letter or particularly a Pan American's letter of transmittal, will disclose clearly that they said to the Commission, “Our filed rate is the contract rate.”

However, there is now in existence the Kansas minimum price-order.

It has been a -- a state regulation of price has been held to be valid and of course, if this is valid, then the price is amended by that minimum-price order.

Rebuttal of Mr.justice Harlan

Mr.justice Harlan: Can you pinpoint that in the record?

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: The letter of transmittal appears at page 593 of the record.

If I may move on, I think also that an examination of these tabulation in which the eleven-cent price, which was called to your attention by Mr.Gray yesterday, is footnoted "Kansas minimum-price order" and this tabulation is at page 638, shows clearly that at all times everyone recognized that the sole claim to the eleven-cent price was the Kansas minimum-price order and therefore was wholly dependent upon its validity.

If what we are looking for is something definitive which the Commission did, which indicated its view, seems to me, that the only definitive thing which they ever did was to cover the matter in Cities' rate settlement order.

Immediately after the decision or the promulgation of the Kansas order in May 1954, Cities sought an increase in its own rates, before the Federal Power Commission relying largely upon the increase cost to it of purchase gas, occasioned by the minimum price order.

In that order, in settling that case, the Commission granted as to increased rates based upon with the increased cost, occasioned by the Kansas price order.

But they made the requirement that if the Kansas order was determined to be invalid and if Cities received refunds on account of litigation such as this, then those refund should be passed back to our customers in the proportions in which they had borne the increased cost.

Sure, if, when petitioners filed these rates cases, their rates became fixed at the eleven-cent price, there would've been no occasion for the Commission to have made a provision for refunds, when and if the price order was held to be invalid and we received those refunds.

Rebuttal of Mr.justice Black

Mr.justice Black: Can I ask you just one question --

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: Yes.

Rebuttal of Mr.justice Black

Mr.justice Black: -- of your time.

Suppose you win here and in the state court, the rate is seven cents, who gets the money?

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: Our customers get the money to the extent that they have borne them.

In other words, all of the money which they have paid on account of increased cost is returned to them.

Now, you understand of course --

Rebuttal of Mr.justice Black

Mr.justice Black: Where is that provided?

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: I beg your pardon?

Rebuttal of Mr.justice Black

Mr.justice Black: Where is that?

Rebuttal of Mr.charles V.wheeler

Mr.charles V.wheeler: That is in the order in Docket G2410.

It's in the record.

I beg your pardon.

556 in the record, at 556 to 586.

The citations are on page 57 of our brief.

Thank you.

Rebuttal of Mr.chief Justice Warren

Mr.chief Justice Warren: Mr.Gray, you may --

Argument of Mr.byron M.gray

Mr.byron M.gray: May the Court --

Rebuttal of Mr.chief Justice Warren

Mr.chief Justice Warren: -- proceed.

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: -- please.

The first question which I would like to address myself is the Gully case.

And I want to demonstrate that the Gully case simply has no application here.

Under the rules of the Delaware courts, they follow very much the same procedure.

The fact as I check it is exactly the same procedure as the federal -- several rules prove several practices.

And after Cities had filed their complaint, after they had filed their complaint, they then and before anyone had answered, filed a motion for summary judgment and attached thereto affidavits and certain certified copies of various documents including the entire rate filing made before the Federal Power Commission and that was before anyone had answered.

And then they moved, as I say, for a summary judgment on the basis of the rate filings made by Pan American before the Federal Power Commission.

A -- they demand and they attached thereto, a true and correct copy, a certified copy of all these documents I'm telling you about including the letter of the Federal Power Commission accepting the rate of Pan American.

And now, they say it wasn't an eleven-cent rate, although they paid it for three years.

So, that is on page 278 of this record, is their motion of the plaintiff.

Rebuttal of Mr.justice Harlan

Mr.justice Harlan: But they continued to pay under protest, doesn't it?

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: For summary judgment, I say their protest ran to the payment of the eleven cents by virtue of the Kansas order.

But after that rate was filed and accepted and was the rate on file with the Federal Power Commission, they were paying it by virtue of the fact, it was the filed rate.

But I attract your attention to the fact that they first brought on to this record, the entire rate filing including the letter of acceptance by the Federal Power Commission.

They did it in a motion for a summary judgment.

Rebuttal of Mr.chief Justice Warren

Mr.chief Justice Warren: And then you continued to accept those checks with that notation on them?

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: Yes, the notation was there.

That --

Rebuttal of Mr.chief Justice Warren

Mr.chief Justice Warren: Yes.

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: -- is correct.

Rebuttal of Mr.chief Justice Warren

Mr.chief Justice Warren: You didn't object to it?

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: No.

No, that -- that's correct.

If common-law doctrine were to apply, that would certainly have a bearing.

But I -- I want to show you that these -- that Cities are the persons who first brought the federal question in and first shown that -- that this action is an action that is, in effect, an action based upon a law of the United States because a rate properly on file with a federal agency has the effect of law.

Now, what argument did they make?

In their brief in support of their motion and this -- this -- for their motion for summary judgment, based on these documents under the heading and this, I'm reading from 767 of the record, “(g) The law permits no deviation from the defendants' filed rate of 8.4 cents per Mcf.”

And Now I'm reading from their brief in the trial court before there was any answer.

They say “We have shown that defendants' filed rate schedule fixes the price for this gas at the contract rate, 8.4 cents.

Defendant cannot claim any other price.”

This is their brief before any answer.

“The rate fixed by defendant's rate schedule is binding upon plaintiff and defendant and upon this Court with the force and effect of federal statute.”

That is the words of Cities in the trial court, in their brief.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: But where are you reading from, Mr.Gray?

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: I am reading from page 767 of the record.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: 767, I beg your pardon.

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: Yes.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: All right.

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: Thank you very much.

Now, they say themselves it has the force and effect of a federal statute.

That's a very --

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: Mr.Gray, is all this in the brief?

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: Yes.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: This is a brief.

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: In the brief that they filed in support of their motion for summary judgment.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: Now, did any of the pleading set this forth?

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: Any of the pleadings?

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: Did -- did -- what you read -- what you have just read -- what you're referring to as contained in the brief put anything like that set any pleading by the complainant -- by plaintiffs below.

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: In their motion for summary judgment, yes.

That is only -- their motion for summary judgment sets all of that out and then --

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: Where is that?(Voice Overlap) --

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: Yes, their motion for summary judgment starts on page 7 -- no, 278 of the record.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: Well --

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: And then it continues --

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: What page?

What page?

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: 278 --

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: 278.

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: -- of the record and one of the bases of their motion is the fact that they attached Exhibit 3, which is a true and correct copy of Pan American Petroleum's file etcetera, etcetera.

Rebuttal of Mr.justice Harlan

Mr.justice Harlan: What do you say to Mr.Wheeler's argument that all this, which followed Panoma was simply to show to the state court that his rights, asserted rights under his contract, Cities rights under his contract was not inconsistent with anything that the Power Commission would be interested in?

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: Well --

Rebuttal of Mr.justice Harlan

Mr.justice Harlan: That his -- that his answer (Voice Overlap)

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: I'm attempting to show that the Gully doctrine does not apply and that's my purpose here.

And it just seems to me -- I can't to follow someone who says they have jurisdiction because it isn't inconsistent for me to have.

It either have jurisdiction and it don't have, in my judgment.

But I -- I have --

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: All depends what the -- what the governing documents are for ascertaining jurisdiction.

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: Yes, I --

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: The --

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: -- quite agree with that.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: governing document is the complaint.

That's one thing.

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: The complaint and as you know the federal rules and the rules in Delaware make this motion for summary judgment as much as the pleadings as their complaint, just as Rule --

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: Prevent them from --

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: -- 15 (b) of -- of our federal rules make it and I say that that's a governing document and they first brought it under this record.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: Maybe a governing document, is it, the governing document?

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: Well, it -- it must surely be a part of it and I think I -- if I can get to it, then I'll show you how it works right in the governing.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: I'm not going to stop you.

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: Thank you.

I don't mind -- I don't mind at all of course, but the trial court now, what did the trial court do?

The trial court said, “Thus, it became apparent.”

How did the trial court treat that document?

It became apparent that a major issue in this case is the determination on what rates was the filed rate and then it came on over and it said as follows, “The question then becomes what rate was legally filed.”

Now, that's the issue the trial court said it was deciding and that's the issue I say they couldn't have decided and then it gets to the Supreme Court and the Supreme Court says, “Being void because a Kansas order was void, they're going back in doing what you'd have to do under Section 19, the review statute.

Being void, the unilateral filing of the order as part of the rate scheduled for the nullities."

And that was what was done in Dorchester and in both of the cases that -- in Mobil, they followed Section 19, but now, I want to move to Gully and here's what the doctrine of Gully is if I understand it correctly.

“A suit to enforce a right which takes its origin in the laws of the United States is not necessarily or for that reason alone, one arising under those laws for a suit does not so arise, unless it really and substantially involves a dispute or controversy respecting the validity, construction or effect of such a law upon the determination of which the result depends.”

And I say now that once a rate becomes the legally filed rate with a federal agency, it becomes a part of the body of the federal law.

And this Court has said that time and again.

For example, in Crancer versus Lowden, 315 U.S., I think, this may not be in our brief.

That -- this Court said, “Until changed, tariffs bind both carriers and shippers with the force of law.”

Now, it seems to me that when the Court says that it must decide what was the filed rate that that's the issue in the trial court and when the Supreme Court supports them in that, it seems to me that certainly, they've met the test of the Gully case, that they are construing and that the determination of the case depends upon the interpretation of federal law.

Argument of Mr.justice Stewart

Mr.justice Stewart: Well, now, Mr.Gray, the Gully case, as I understand it, had to do -- the question there was whether something was properly in the -- permissibly in the state court or whether it should have been exclusively in the Federal District Court.

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: Was the removal --

Rebuttal of Mr.justice Stewart

Mr.justice Stewart: In this case -- in this case, you don't make that claim at all.

You don't say that these people could properly be in the District Court.

You say they can't be in any court at all that they have nowhere where they can assert their right (Voice Overlap) --

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: Oh, no.

No, they have the case, this same case involving the same $10,300,000.

It's filed in the Federal Court at Delaware and as far as jurisdiction goes, if they can get jurisdiction of the persons, it would be a Section 22 case filed as a Section 22 case.

It is there and of course, will have to be tried on the question of what is the filed rate.

But what I do say is this that Section 19 also involved here.

What they're trying to do is to accomplish what they should've accomplished if it could be accomplished under Section 19 and they cite the Magnolia and the Dorchester cases to you.

And in those cases, the filings under 174 were appealed from through Section 19 and they went up to the Circuit Court.

They're asking a state court to do and the state court in fact is doing what a Circuit Court of Appeals would've had to do.

That is under Section 19.

And Magnolia, all those cases went up under Section 19.

But the Harrington case that they cite to you was before the Order Number 174, all the chip, all of the sales made in the Harrington.

All of the price is paid.

That was all before there was any filed rate.

And I think Harrington was wrong in principle, itself.

I think it conflicts with your decision in Panoma and the Kansas case because I think you held there in effect that the Natural Gas Act simply preempted the field and didn't leave any place for anything but federal regulation and the jurisdiction arising out of the Natural Gas Act.

That's the way I -- it seems to me that -- impossible to -- to think otherwise.

Now, there's one thing I -- in their brief --

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: May I -- may I ask you --

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: Yes, sir.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: -- one more thing about the Gully case?

Suppose there's been a motion for summary judgment in the Gully case on the basis of the complaint, the answer and the petition for removal, according to your view -- according to your view, the state court would then have been ousted?

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: Had there been a removal petition?

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: If the answer and a -- a petition for removal had set forth that the ultimate reliance was the National Banking Act which allowed the state to tax national bank shares.

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: Oh, yes.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: You say that according to the rules, a motion for summary judgment sweeps everything that received it into the complaint.

I'm asking you --

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: Oh, no.

No, I -- I wasn't meaning to say that.

If I said it, I -- I didn't mean that.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: Well, but you --

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: I think that 15 (b) of the federal rules has the effect of putting everything in the complaint that is essential to that complaint and it does it automatically, at least that's where I read the rules.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: Well, but a pleader can choose what he puts in his complaint.

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: He can choose what he puts in his complaint.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: And he isn't determined and he doesn't absorb or incorporate by a necessity, what the answer sets forth.

And so, I'm asking you whether if Gully -- in Gully there'd been a motion in arrest of judgment on the basis of the answer which did disclose that the right to tax derived from the federal statute Rule 5209, I believe, would be a result in Gully have been different, according to your views.

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: Well, I think it -- I have to weigh the side of the fact, if my recollection is correct that you have to file your removal petition within 20 days --

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: Well, that's --

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: -- before a certain time.

But --

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: Forget about the --

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: Yes --

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: --removal.

The answer --

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: -- waiving --

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: -- suppose the answer, as it did in this -- in the Gully case, disclosed that what complaint is really after is to -- to avail itself, what the complaint had been -- Gully was after, was to avail itself of the federal act which authorizes a state under defined conditions to levy a tax on national bank shares.

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: As I read the Gully case, I had the feeling that the answer to you would be that you'd have the same result in Gully.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: In other words, that is the Court is, if I may use a -- the phrase from a different area of color blind as to what exists outside of the complaint.

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: Well, I -- I rather read Gully to -- to say it wasn't closely enough related to the federal law and that they couldn't be having cases removed from the state courts that just might touch upon federal law.

That's the way I read Gully.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: Related -- it would be more.

The only basis on which up to time that Congress passed that Act, a state could not tax national bank shares, could it?

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: That's correct.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: And therefore, the right certainty, if any right ever derived from federal authority, it was the right of states to tax national bank shares given to them by the Act whenever it was, in 60 something, rather 60, 70.

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: That was Gully only.

Rebuttal of Mr.justice Whittaker

Mr.justice Whittaker: And I do not understand you to contend or do you contend that the affidavits and the exhibits on file, used in support of the motion for summary judgment, constitute a part of the pleadings, do you?

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: I say that as of that time, it became apparent that their action was not at all an action at common-law to enforce contract, but it became apparent that the right of action sprung from the Natural Gas Act, if they had any.

Rebuttal of Mr.justice Whittaker

Mr.justice Whittaker: Well, does the jurisdiction depend though upon the affirmance of the bill?

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: Not jurisdiction of the subject matter and I say that at anytime, and I think this is a law and we have endless cases on it and some in our brief, that when it appears that the subject matter is not within the jurisdiction of the court however it appears and that -- that court looses jurisdiction and that's what happened.

It's bound to have happened --

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: Would you mind repeating what you just said, when does the court lose jurisdiction?

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: Whenever it appears that the Court has no jurisdiction of the subject matter of the action.

And I say that that appeared when they showed that these movements were movements of -- of gas for resale in interstate commerce and that was the subject matter of their action and when that appeared regardless of how it appeared that court lost jurisdiction of the subject matter.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: Will you make a distinction between a state court losing jurisdiction and a federal court not being able to acquire it?

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: Yes, I have --

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: What was that?

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: Well --

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: Because -- because if there was a federal right, then there was right to removal in Gully.

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: Yes.

It --

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: And the Court denied that right because it said a federal right wasn't revealed by the complaint and it didn't go beyond that.

Although, although on the merits, although on the merits, it became perfectly clear that the right did derive from a federal act.

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: And that was after it had been removed, but I do make that distinction and then I think it is clearly the law and that's on our brief.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: But it's the same -- Mr.Gray, it's the same statutory provision of jurisdiction, namely, a right arising under a federal act of the Constitution.

It can't be a -- arising under the federal act, not arising under the -- under the removal statute but arising under the state jury -- under the exclusive statute.

I don't understand that.

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: Well, as I -- as I would see it, the statute -- the federal statute excludes the State's jurisdiction and I think it has a right to do it.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: It excludes --

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: And whenever it appeared that that was a subject matter, your exclusionary statute, 22 came into effect.

That's my thought.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: Well, not whenever it appears.

Whenever it appears under the conditions under which appearance is legally revealed.

Rebuttal of Mr.byron M.gray

Mr.byron M.gray: Well, I -- I really think whenever it appears.

Rebuttal of Mr.justice Frankfurter

Mr.justice Frankfurter: All right.