Petition for Writ of Certiorari — Indianapolis v. Wheeler

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Supreme Court of the United States:

OCTOBER TERM, 1942.

CITY OF INDIANAPOLIS, a Municipal Corporation,

Petitioner and Petitioner Below,

DAN H. WHEELER, Acting Director Bituminous Coal

Division of the Department of the Interior of the

United States and District Board No. 8,

Respondents and Respondents Below.

PETITION FOR Writ OF CERTIORARI TO THE UNITED STATES .

Circuit Court OF APPEALS FOR THE SEVENTH CIRCUIT —

AND ‘

Brier IN SUPPORT THEREOF.

Witu1am H. THOMPSON, .

Perry E. O'NEAL,

Patrick J. SMITH, —

Attorneys for Petitioner,

1350 Consolidated Building,

Indianapolis, Indiana.

Sipney S. MILLER,

Corporation Counsel,

ArcuHiE N. Bossitt,

City Attorney,

City Hall, Indianapolis, Indiana.

Of Counsel.

Mark Gray Co, 228 B. Ohio Bt.”

SuBJECT—INDEX

Page

Petition for Writ of Cottiorett... on nc cinsncticcunscnis 1-11

Summary Statement of Matters Involved___---- 1-4

PRE aks dics lividans ne ecbnccinaldansnAcibinabnibeete 4,9

Stoterment GE Te FMete 2. ow nccckicnensscesanne 5-9

| RRR ek ess URS Pua Oe 9,10

Reasons Relied Upon for Allowance of Writ__--- 10, 11

ROME icutibdddniicksnwesddnedcdianincenad 11

pa Ie CE ETS IN CIN Wine mera MI Ar RS Saks 12-21

Chbaions 06 COsrt Te oa cca pciticncwasmeken 12

PO i sieentiieeieniisiiea telteipnibaticnah ccnp antsad 12

SRNR OF TE TNO oink ci chen 12

PE OE TI cv ciitisinsicarcimtaiicstasbciltadscedsmuadh 13-14

PIE > cscckinsiisidenéntbdcielohae datiaeiniemn ied 14-20

TRAITIR SA. sins insaiseiisecp ceo chacl tidechitg nacnsinainidaiigeacatanenataada 22, 23

PEED winctidnwicitutiicnaidoammenieka tenes 23, 24

TABLE OF CASES

Page

Champer v. City of Greencastle, 138 Ind. 339, 341-_-__ 3

Chicago, etc., Co. v. Minneapolis, etc., Co., 247 U. S.

SBD, GE Te, TAR. TE, BE i eniicncsenmenans 11,17

City of South Bend v. Chicago, etc., Co., 179 Ind. 455,

OO iii asi sree tn wtscli aces sdedelasicth setae emia ing andian 3

East Chicago Co. v. City of East Chicago, 171 Ind. 654,

OD 2s cine ccc cebiaiepdetieoenemacacennpueamapsebebicle dean 3

Gray v. Powell, 314 U.S. 402, 86 L. Ed. 301_-4, 9, 10,13, 14,15

Hyre, Admr., v. Brown, 102 W. Va. 505, 135 S. E. 656,

DB, Ti. Bh TI, Saison cctttiew snes samsonite 3

Securities & Exchange Commission v. Chenery Corp.,

87 Adv. Opinions L. Ed. 411, and cases cited_---- 20

Todd v. Citizens Gas Co., 46 F. (2d.) 855__-----_---- 2

STATUTES

Page

Burns’ Ind. Statutes Ann. 1933, Sec. 48-7103__--_-_-- 2,21

Burns’ Ind. Statutes Ann. 1933, Sec. 48-7101______--- 16

Burns’ Ind. Statutes Ann. 1933, Sec. 60-219_________- 10, 20

Sec. 4 II (1) Bituminous Coal Act of 1937_------ 2, 9, 13, 16

Sec. 240 (a) Judicial Code (43 Stat. 938; 28 U. S.C.

RE DEED nittasieannndecccnckntnshnndennel 4, 14, 16

€

Soe eh ERC OATRLCRS oe ea Ee TLE Serene

Si Se rain eeas

REA EE AE PRET PIERS

RAPA cP RR .

IN THE

Supreme Court of the United States

OCTOBER TERM, 1942.

BON ae eos

City or INDIANAPOLIS, a Municipal Corporation,

Petitioner and Petitioner Below,

Dan H. WHEELER, Acting Director Bituminous Coal Division

of the Department of the Interior of the United States

and District Board No. 8,

Respondents and Respondents Below.

PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES

CircuIT Court OF APPEALS FOR THE SEVENTH CIRCUIT

AND

BRIEF IN SUPPORT THEREOF.

TO THE HONORABLE, THE SUPREME COURT OF

THE UNITED STATES:

The City of Indianapolis, a municipal corporation, shows

to the Court:

SUMMARY STATEMENT OF MATTERS INVOLVED.

1. On May 7, 1940, petitioner filed an application with

the Bituminous Coal Division of the Department of the

Interior to have its status as a producer-consumer deter-

mined (R. 7-21) under Section 4 II (1) of the Bituminous |

Coal Act (Title 15, Sec. 833 (1) U.S.C.A.) and to procurea

determination that it was exempt from the provisions of the

Act, in respect of the coal mined by the Milburn By-Prod-

ucts Coal Company (consumed by petitioner) which oper-

ates a mine at Milburn, West Virginia (R. 8, 14, 18). The

coal so produced by Milburn then constituted approximate- __

ly 70% of its output (R. 48 and 59). :

SR oe Se Sa My ht a ee

(a) No exemption was sought by applicant in

respect of coal mined and sold to others.

2. The City of Indianapolis is the successor trustee of

a Public Charitable Trust, which owns and operatesa by-

product coke plant in Indianapolis (R. 11 and 12) and 70% e 1

of the coal produced by Milburn is consumed by the City

in the production of gas and coke, which Congress has

never undertaken to regulate.

3. Fora statement of the powers and duties of the City

of Indianapolis, as such successor trustee, see:

Todd v. Citizens Gas Co., 46 F. (2d) 855.

4. The City of Indianapolis has express statutory au-

thority to acquire and operate the coal mining property in

question through the medium of stock ownership (R. p. 49;

Burns’ Indiana Statutes Annotated 1933, Sec. 48-7103) and

Milburn is operated so as to meet the exact costs of produc-

tion so far as they can be ascertained. (R. p. 111.)

5. The City of Indianapolis under both the law of In-

diana and West Virginia has no authority or right to op-

erate a coal mine in West Virginia as a municipal subdivi-

sion ie

OE ARONA LOT TOPE BAT

Champer v. City of Greencastle, 138 Ind. 339,

341;

East Chicago Co. v. City of East Chicago, 171

Ind. 654, 658;

City of South Bend v. Chicago, etc., Co., 179 Ind.

Be 455, 457; |

2 Hyre, Admr., v. Brown, 102 W. Va. 505, 135 S.

E. 656, 49 A.L.R., 1230, 1238.

(a) The City of Indianapolis was not, therefore,

operating the coal mine in West Virginia as a mat-

ter of choice through the medium of Milburn, but

as a matter of necessity.

6. The trial examiner and the acting Administrator of

the Bituminous Coal Division held:

(a) That Milburn was not a mere “shell,” but is

a subsidiary to the City of Indianapolis and supplies

coal to such city in its capacity as operator of its

by-product coal plant;

(b) That the request for exemption should be

denied;

erated, “carries with it consequences that could be

avoided under some other form” (R. 301, 362).

(d) That the corporate identity of Milburn

would not be disregarded (R. 363) and that because

the operation of Milburn was under the supervision

of its General Manager, the City of Indianapolis

could not “claim to be a producer within the mean-

ing of Section 17(c) when it possess none of the

appliances of production, owning neither the mines

nor the equipment necessary for mining.” (R. 363.)

7. The Circuit Court of Appeals affirmed the decision

of the Acting Director holding, as we submit, under a

wholly mistaken interpretation of the decision of this Court

in Gray v. Powell, 314 U. S. 402, 86 L. Ed. 301, that it was

“without authority to overrule the determination made by

the Administrator * * * (and) without authority to make

a decision contrary to that of the administrator * * *” (R.

399.)

(a) The Circuit Court of Appeals thus failed

to follow the test laid down by this Court that the

courts will examine an administrative order to deter-

mine whether there had been “an application of the

statute in a just and reasoned manner” and a “sen-

sible exercise of judgment.” It merely refused to

examine the order at all. (R. p. 396.)

All questions here presented were urged on the Circuit

Court of Appeals.

This writ is prosecuted to review the decision of the

Circuit Court of Appeals.

Il.

JURISDICTION.

The jurisdiction of this court is invoked under Section

240 (a) of the Judicial Code, as amended by the Act of

February 13, 1925 C. 228 (43 Stat. 938; 28 U.S.C. Sec. 347).

This petition for certiorari was filed before the expiration

of three months fromm January 29, 1943, the date of the de-

cision of the Circuit Court of Appeals. (R. p 399.)

Te,

ORE SAE DRS

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Ill.

STATEMENT OF THE FACTS.

In 1912 Milburn Coal Company, a West Virginia corpo-

ration, was formed for the purpose, among others, of con-

ducting coal mining operations in the Eagle and Powelton

seams, at Milburn, Fayette County, West Virginia. (R. 48.)

In October, 1913, when mining operations were com-

menced, Milburn Coal Company entered into a contract

with Citizens Gas Company, a quasi-public Indiana corpo-

ration, by the terms of which the mine was to furnish to the

Gas Company all of the coal required by the latter in the

operation of its artificial gas plant. (R. 164-193.)

Early in 1917 Citizens Gas Company commenced active

negotiations for the purchase of Milburn Mining Company.

At a meeting of the Board of Directors of Citizens Gas Com-

pany held on November 22, 1917, a resolution was adopted

which proposed that the secretary be instructed to con-

tinue his investigation of the Milburn Coal proposition and

consult with counsel regarding the modification of the ex-

isting contract so as to make the contract obligations a lien

on the property in order to safeguard this company’s in-

terest in event of the sale of the mine by the present own-

ers if this company does not purchase the same. (R. 242-245.)

At the December 15, 1917, meeting of the Board of Di-

rectors, counsel was instructed to draw the necessary papers

for the consummation of the purchase of Milburn Coal

Company. The matter of the purchase was submitted to

the Board of Trustees. At a meeting held on December 10,

1917, the recommendation of the Board of Directors was

unanimously approved.

Because of problems of financing the purchase of Mil-

burn Coal Company it was decided to form Milburn By-

Products Coal Company. This was done on January 27,

1918. (R. 162, Exhibit 1.) By using available cash and the

money from the sale of bonds, Milburn By-Products Coal

Company purchased Milburn Coal Company.

The outstanding capital stock of Milburn By-Products

Coal Company become the property of the City at the time

of the transfer by Citizens Gas, viz: September 9, 1935.

(R. 70.)

With an artificial gas plant and a distribution system

upon which, the gas users of Indianapolis as beneficiaries

of the public charitable trust depended, the maintenance

of a coal supply was of vital importance to the city. (R. 14,

47, 48.)

The chemical contents of the coal mined at Milburn,

West Virginia, is such that it ranks as the highest grade of

coking coal. (R. 122.) There are a few other fields of bitu-

minous coal that are of the quality of that at Milburn. Most,

if not all, other fields of this quality coal are now owned

by others and the coal mined therefrom is not available

to Citizens Gas & Coke Utility. It is not for sale. The coal

available on the market is of such quality that it will not

give the the same high yield of by-product coke of the qual-

ity now produced.

Without coal from the Milburn field Citizens Gas & Coke

Utility would be unable to furnish gas to the gas users of

Indianapolis at the same price as now furnished. Thus, to

be deprived of the use of Milburn coal would result in a

hardship, not alone on the Utility, but upon ali of the gas

users in Indianapolis. (R. 122.)

SFI AI ES MLE BL LI LRN ETL TI RIS EEN ERENT CI RU Es AO PET ARE

The City was not desirous of maintaining the corporate

entity of Milburn By-Products Coal Company but would

have preferred the outright ownership of the physical

properties. (R. 52.) Counsel for the Utility District of the

City requested an opinion from Brown, Jackson and Knight,

attorneys of Charleston, West Virginia, as to whether or

not the City of Indianapolis could own and operate mining

properties in West Virginia, a foreign state. (R. 52.)

Under date of April 15, 1936, an opinion was received

which advised the City of Indianapolis that doubt existed

“whether the public policy of West Virginia would permit

the operation of a coal mining property in the State by a

foreign municipal corporation.” (R. 221-224, Exhibit 13.)

In accordance with the opinion of West Virginia coun-

sel, the corporate entity of Milburn By-Products Coal Com-

pany has since been maintained. It has been maintained,

solely because of the inability, for legal reasons, of the City

to own and operate the physical property of Milburn in a

foreign state. (R. 52.)

The legal fiction of the corporate entity of Milburn is

maintained for the sole and only purpose of enabling the

City to assure its Department of Utilities of an adequate

coal supply of the kind and character of coal necessary to

a successful operation of Citizens Gas & Coke Utility in

accordance with the terms of the trusteeship. Mr. A. A.

Gallagher, who is the general manager of Milburn, is lim-

ited in his authority to the bare operation of the property,

and has no power to make any improvements without the

consent of the Board of Directors of Milburn. (R. 53.)

The Board of Directors of Milburn is the Board of Di-

rectors of the Department of Utilities of the City of Indi-

anapolis. Mr. Henry L. Dithmer is president of both boards;

Mr. Brodehurst Elsey is vice-president of both boards; Mr. ‘

Isaac Woodward is treasurer of both boards; Mr. Roy Sahm

is secretary of both boards, Mr. Thomas L. Kemp is gen-

eral manager of Citizens Gas & Coke Utility and assistant

to the president of Milburn. It is to him that Mr. Galla-

gher must report, and from him that Mr. Gallagher takes

direction. Mr. Victor Seiter is assistant secretary of the

Utilities District and assistant secretary of Milburn; Mr. I

V. V. Smith is assistant treasurer of the Utility, and holds c

the same office with Milburn. (R. 44, 49, 50, 51.) i

> ~~

No member of the board of directors of Milburn receives

a salary as such director but is paid a statutory allowance

as a member of the Board of Directors for Utilities of the

City of Indianapolis. (R. 51, 45.) Neither Thomas L. Kemp,

Victor C. Seiter, nor V. V. Smith receives any salary from

Milburn in exchange for the services given Milburn by

them. The compensation which each receives from the

Department of Utilities is considered to be remuneration

for the additional services each renders Milburn. (R. 51,

149.)

= CO ee KS

While the principal place of business of Milburn is main- Pp

tained at Milburn, West Virginia, a branch office of the

company is established and maintained in the Majestic

Building in the City of Indianapolis, which is the building

which houses the executive offices of the Citizens Gas &

Coke Utility. The by-laws of Milburn provide that the an-

nual meeting of the stockholders shall be held at the branch

office of the company at Indianapolis, Indiana. (R. 235, Ex-

hibit 24.)

While Milburn maintains a bookkeeper at the mine,

annual detailed audits of the Milburn books are made by

the auditor of the Utilities District. (R. 149.) Furthermore,

POE Hye IME ,

Nab BAS Et

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Milburn is subject to audit by the Indiana State Board of

Accounts. (R. 47.)

The salaries of the clerks and other office employees

of Milburn are subject to the approval of Thomas L. Kemp,

assistant to the president of Milburn and general manager

of Citizens Gas & Coke Utility. (R. 55.)

Milburn makes daily and monthly reports to the De-

partment of Utilities of the City of Indianapolis, which in-

cludes the tonnage mined and shipped, and various other

items. (R. 49.)

Mr. Kemp, general manager of Citizens Gas & Coke

Utility, testified as to the undisputed fact that the business

policies and the actual charge, supervision and direction

of Milburn’s affairs are in the Board of Directors of the De-

partment of Utilities of the City of Indianapolis. (R. 53, 54.)

IV.

THE QUESTIONS PRESENTED.

Upon the record and opinion of the Circuit Court of Ap-

peals, three important federal questions are presented:

First. Whether on the undisputed facts and law, the

City of Indianapolis is a producer-consumer within Sec-

tion 4 II (1) of the Bituminous Coal Act of 1937.

Second. Whether the Circuit Court of Appeals for the

Seventh Circuit misconstrued and misapplied the decision

of this Court in Gray v. Powell, 314 U. S. 402, 86 L. Ed. 301,

by refusing to examine the decision of the Acting Director

of the Bituminous Coal Division to determine whether he

had applied the statute in a just and reasoned manner and

had made a sensible exercise of judgment.

LETTE SES IL IL ELPEALE 15. IRR ERRRRNRVRN Rr a R DORDR st et

Third. Whether the decision of an administrative board

may not even be examined by the courts for the purpose of

determining whether it has correctly followed the applic-

able law.

REASONS RELIED UPON FOR ALLOWANCE OF WRIT.

The Circuit Court of Appeals for the Seventh Circuit e

has decided three Federal questions in conflict with the

decisions of this court:

First. It refused to examine the decision of the Acting

Administrator of the Bituminous Coal Division to determine

whether he had applied the statute in a just and reasoned

manner and had made a sensible exercise of judgment.

Gray v. Powell, 314 U. S. 402, 86 L. Ed. 301.

Second. It held, in substance, that Courts are bound by

any determination of an administrative board, even though

based upon undisputed facts and undisputed legal propo-

sitions and are absolutely without power to examine such

orders. This is in direct opposition to the rulings of this

Court.

Gray v. Powell, 314 U.S. 402, 86 L. Ed. 301;

Securities & Exchange Commission v. Chenery

Corporation, 87 Advance Opinions L. Ed. 411.

Third. It held, in substance, that the City of Indianap-

olis, although it did not voluntarily choose to operate a mine

in West Virginia through the medium of a wholly owned

subsidiary, but was obliged to do so by reason of operation

of law was thereby precluded from exemption as a pro- 4

ducer-consumer.

a aa a a

(a) This was a decision on a question of law,

not a question of fact, and is reviewable by this a

Court. y

OSPREY OG TT LN LOG is ala

(b) Under the circumstances of this case, the

Acting Director of the Bituminous Coal Division

and the Circuit Court of Appeals should have dis-

regarded the corporate fiction of Milburn.

Wormser, The Disregard of the Corporate Fic-

tion, page 10;

Chicago, etc., Co. v. Minneapolis, etc., Co., 247

U. S. 490, 62 L. Ed. 1229, 1237.

WHEREFORE, your petitioner respectfully prays that

a writ of certiorari be issued out of and under the seal of

the Honorable Court directed to the United States Circuit

Court of Appeals for the Seventh Circuit, commanding that

Court to certify and to send to this Court for review and

determination on a day certain to be named therein a full

and complete transcript of the record and all proceedings

in the case numbered and entitled on the docket of said

United States Circuit Court of Appeals, No. 8015 and en-

titled City of Indianapolis, petitioner, versus Dan H. Whee!-

er, Acting Director Bituminous Coal Division of the De-

partment of the Interior and District Board No. 8 and that

the decree of the United States Circuit Court of Appeals

for the Seventh Circuit in said cause be reversed by this

Court, and that petitioner have such other and further re-

lief in the premises as this Court may seem just.

WiLi1aM H. Tuompson,

Perry E. O’NEAL,

Patrick J. SMITH,

Attorneys for Petitioner.

Srpney S. Miter,

Corporation Counsel,

ARCHIE N. Bossirr,

City Attorney,

Of Counsel.

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1942.

City or INDIANAPOLIS, a Municipal Corporation,

Petitioner and Petitioner Below,

Vv.

Dan H. WHEELER, Acting Director Bituminous Coal Division

of the Department of the Interior of the United States

and District Board No. 8,

Respondents and Respondents Below.

THE OPINION OF THE COURT BELOW.

The opinion of the Circuit Court of Appeals for the

Seventh Circuit is found in the record, pages 396 to 399.

II.

JURISDICTION.

A statement particularly disclosing the basis upon which

it is contended that this Court has jurisdiction is set out in

the Petition for a Writ of Certiorari at pages 4 and 9.

Il.

STATEMENT OF THE CASE.

A full statement of the case having been given in the Pe-

tition for a Writ of Certiorari, in the interest of brevity is

not here repeated.

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IV.

ASSIGNMENTS OF ERROR.

The Circuit Court of Appeals for the Seventh Circuit

erred in each of the following particulars:

First. In holding that it was without power or

authority to overrule the determination of the Act-

ing Administrator of the Bituminous Coal Division

that the City of Indianapolis was not a producer-

consumer within the meaning of Section 4, II (1) of

the Bituminous Coal Act.

Second. In refusing to examine the ruling and

determination of the Acting Administrator to deter-

mine whether he had applied the Bituminous Coal

Act in a just and reasoned manner and had made a

sensible exercise of judgment.

Third. In construing the decision of this Court in

Gray v. Powell, 314 U. S. 402, 86 L. Ed. 301, as pre-

venting any examination under any circumstances

of the order of an Administrative Board, even on an

established and undisputed question of law.

Fourth. In holding, in substance, that where, as

here, the City of Indianapolis was compelled as a

matter of law, not as a matter of choice, to operate

a coal mine in West Virginia through a wholly owned

subsidiary, pursuant to legislative authority, that the

corporate fiction would not be disregarded and that

an exemption as producer-consumer would be de-

nied.

Fifth. In upholding and sustaining an arbitrary

and unwarranted exercise of administrative power,

based on an unlawful disregard of undisputed facts

and principles of law and involving the application

of the Bituminous Coal Act in an unjust and unrea-

sonable manner.

ARGUMENT.

Complete jurisdiction in the Supreme Court of the Unit-

ed States is shown by the record, since this is a civil case in

the United States Circuit Court of Appeals for the Seventh

Circuit. The petition was a party (R. P. 1); Judicial Code

Section 240(a),, amended Feb. 13, 1925. (C. 229, 43 Stat.

938, 28 U.S. C. A. 347.)

The Circuit Court of Appeals has completely disregarded

the ruling of this Court in Gray v. Powell, 314 U. S. 402, 86

L. Ed. 301, in which it was held that the action of an admin-

istrative officer would not be re-examined by the courts

even on undisputed testimony if the administrative officer

had made an application of the statute in a just and reasoned

manner and had exercised a sensible judgment.

In this case, the Circuit Court of Appeals refused to ex- :

amine the administrative order at all. This clearly appears ; |

from the concluding paragraph of the opinion (R. P. 399)

which reads as follows: a

“Obligated as we are to follow the pronounce- :

ment of the Supreme Court, we must hold that we

are without authority to overrule the determination —

PR DIE ROAR E LL OSE TSP

tar,

made by the administrator. Without authority to

make a decision contrary to that of the Administra-

tor, no purpose could be served in relating the undis-

puted facts upon which petitioner relies for relief.

The order sought to be reviewed is, therefore, ap-

proved.” (Our emphasis. )

At another place in its opinion the Circuit Court of Ap-

peals said:

“* * * * It is argued, however, that the language

‘and an application of the statute in a just and rea-

soned manner’ gives us the authority to decide dif-

ferently from the determination made by the Ad-

ministrator. With this argument we do not agree.

In this connection, it is pertinent to observe that the

so-called evidentiary facts in the case before the Su-

preme Court, as in the instant case, were not in dis-

pute. The sole issue there, as here, was the ultimate

conclusion of the Administrator that the applicant

was not the producer of the coal.”

(Our emphasis.) (R. P. 398.)

The above quoted statements show, we submit, a com-

plete misunderstanding of the decision of this court in Gray

v. Powell, 314 U. S. 402, 86 L. Ed. 301, and, if it states the

applicable law, would require the affirmance of all admin-

istrative orders, although made in violation not only of the

undisputed facts but of the admitted law. Such an interpre-

tation would permit any administrative board to exercise

arbitrary and unreasoned power, to disregard the scope and

purpose of the Act by which it was created, to apply the act

in an unreasonable manner and to exercise a judgment

which was not sensible and yet its order could not even be

scrutinized by a court.

Surely, the doctrines of administrative law have not yet

carried us thus far. We submit that a decision of such far

reaching scope should be reviewed by this court.

The statute creating the Department of Utilities of the ;

City of Indianapolis provides in Sections 41-7101 Burns’ In- tity

diana Statutes Annotated 1933, et seq, that the Board of as

Directors for Utilities shall have power to preserve the cor- pre:

porate organization of any company engaged in the mining hae

of coal, the stock of which may be owned by any utility —

whose property and assets may be taken over by any such _~ :

rest

“through the control thus given of any company, the

Board of Directors for Utilities shall be authorized to

do all things necessary to cause any such coal min- _

ing company or other company efficiently to carry on reg:

its operations and to conduct its business in the same

manner as if its stock were owned by private indi-

viduals.”

(See Appendix B where the pertinent subsection

is set out in full.)

Here, then, is a legislative provision expressly authoriz-

ing the operation of the Milburn By-Products Coal Com-

pany by the city as a wholly owned subsidiary and recog-

nizing that such operation through the medium of stock

ownership is a municipal function. In the opinion of the

Circuit Court of Appeals this statute is not even referred to

or considered, although its apparent bearing on the deter-

mination of the case was presented to the Court. Min

The City of Indianapolis having no power to do busi-

ness in West Virginia, was compelled to maintain the fic-

tion of the corporate entity of Milburn By-Products Coal

Company to assure a coal supply for the continued proper

discharge of its trust duties. Under such circumstances the

corporate entity of Milburn will be disregarded and the City 7

held a producer-consumer of coal within the meaning of E

Section 4 II (1) of the Bituminous Coal Act of 1937.

a ”

The City does not voluntarily maintain the corporate en-

tity of Milburn. It is not here a question of a free choice of

a method of doing business. In fact, the City would have

preferred to dispense with the operation of Milburn and to

have produced the coal directly itself (R. 52).

Under such circumstances the corporate fiction of Mil-

burn should be disregarded to accomplish a just and proper

result.

Professor Wormser, in his outstanding treatise “The Dis-

regard of The Corporate Fiction,” said at page 10:

“Tt is a certain rule,’ said Lord Mansfield when

Chief Justice of England, ‘that a fiction of law shall

never be contradicted so as to defeat the end for

which it was invented, but for every other purpose

it may be contradicted.’ Fictions are invented and

instituted for the advancement and promotion of

justice, and will be applied for no other purpose.

No sound reason can be perceived why the principles

applicable to fictions in general should not apply to

the fiction that a corporation is a person in the eye of

the law. A person in fact it is not; a person in law it

is, except in cases where the fiction is urged for per-

verted and fraudulent purposes.” (Our emphasis.)

In Chicago, Milwaukee & St. Paul Railway Company v.

Minneapolis Civic & Commerce Assoc., 247 U. S. 490, 62 L.

Ed. 1229, 1237, it was said:

“Much emphasis is laid upon statements made in

various decisions of this court that ownership, alone,

of capital stock in one corporation by another, does

not create an identity of corporate interest between

the two companies, or render the stockholding com-

pany the owner of the property of the other, or cre-

ate the relation of principal and agent or representa-

tive between the two. * * * *

While the statements of the law thus relied upon

MIM 100 ARSE, ONE ARP REO a ne a

are satisfactory in the connection in which they were

used, they have been plainly and repeatedly held not

applicable where stock ownership has been resorted

to, not for the purpose of participating in the affairs

of a corporation in the normal and usual manner, but

for the purpose, as in this case, of controlling a sub-

sidiary company so that it may be used as a mere

agency or instrumentality of the owning company

or companies. * * * *

OO — e

In such a case the courts will not permit them-

selves to be blinded or deceived by mere forms of

law, but, regardless of fictions, will deal with the

substance of the transaction involved as if the cor-

porate agency did not exist and as the justice of the

case may require.”

Where a wholly owned and controlled coal mining sub-

sidiary, not voluntarily maintained, does not function as an

ordinary corporation but in reality as a mere department

of the municipality owning it, furnishing coal to enable the

latter to perform its duties as a trustee of a public trust, the

subsidiary is the mere agent of the municipal corporation

and the latter is a producer-consumer of the coal which it

consumes.

In reality Milburn By-Products Coal Company is the

City of Indianapolis. Mr. A. A. Gallagher, who is the gen-

eral manager of Milburn, is limited in his authority to the

bare operation of the property, and has no power to make

any improvements without the consent of the Board of Di-

a a a. eS eo

rectors of Milburn. (R. 53.) The Board of Directors of Mil-

burn is the Board of Directors of the Department of Utilities =

of the City of Indianapolis. Mr. Henry L. Dithmer is presi-

dent of both boards; Mr. Brodehurst Elsey is Vice-President

of both boards; Mr. Isaac Woodard is treasurer of both |

boards; Mr. Roy Sahm is secretary of both boards; Mr. Tho-

mas L. Kemp is general manager of Citizens Gas & Coke

SPS ISAM MELA TP MIELN MAINE LNAI SARI Ae a BT TRSEOD RN Ze — 4

Utility and assistant to the president of Milburn. It is to

him that Mr. Gallagher must report, and from him that Mr.

Gallagher takes directions. Mr. Victor Seiter is assistant

secretary of the Utilities District and assistant secretary of

Milburn; Mr. V. V. Smith is assistant treasurer of the Util-

ity, and holds the same office with Milburn. (R. 49, 51.)

No member of the board of directors of Milburn receives

a salary as such director but is paid a statutory allowance

as a member of the Board of Directors for Utilities of the

City of Indianapolis. Neither Thomas L. Kemp, Victor C.

Seiter, nor V. V. Smith receives any salary from Milburn

in exchange for the services given Milburn by them. The

compensation which each receives from the Department of

Utilities is considered to be remuneration for the additional

services each renders Milburn. (R. 51, 52.)

While the principal place of business of Milburn is main-

tained at Milburn, West Virginia, a branch office of the

company is established and maintained in the Majestic

Building in the City of Indianapolis, which is the building

which houses the executive offices of the Citizens Gas &

Coke Utility. (R. 55.) The by-laws of Milburn provide that

the annual meeting of the stockholders shall be held at the

branch office of the company at Indianapolis, Indiana. (R.

235, Exhibit 24.)

While Milburn maintains a bookeeper at the mine, an-

nual detailed audits of the Milburn books are made by the

auditor of the Utilities District. (R. 149.) Furthermore,

Milburn is subject to audit by the Indiana State Board of

Accounts (R. 47) which was created by Chapter 55 of the

Acts of the Indiana General Assembly of 1909, as amended

by Chapter 72 of the Acts of 1915. (Burns’ Indiana Statutes

camnerssteee ~~ ‘

A Pe ANN AE MD CENA AINE ile Fin IA CAM TREO PO nena

Annotated, 1933, Sec. 60-219.) Section 17 of this Act pro-

vides among the definitions, that:

_“The term ‘public service industries’, as used in

this Act shall be construed to extend to, include and

mean any and all public service industries owned

either directly by the municipality * * * or the cap-

ital stock of which the municipality may be the own-

er of in part, or the bonds of which may be owned or

guaranteed by the municipality.”

In Securities & Exchange Commission v. Chenery Cor-

poration, 87 Advance Opinions L. Ed. 411, decided February

1, 1943, this Court had the following to say in speaking of

limitations upon orders of administrative boards:

“If the action rests upon an administrative deter-

mination—an exercise of judgment in an area which

Congress has entrusted to the agency—of course it

must not be set aside because the reviewing court

might have made a different determination were it

empowered to do so. But if the action is based upon

a determination of law as to which the reviewing au-

thority of the courts does come into play, an order

may not stand if the agency has misconceived the

law.” (Our emphasis. )

Here, the acting administrator undertook to and did de-

cide a legal question, viz: whether the corporate fiction of

Milburn would be disregarded and reached his conclusion

that the City of Indianapolis was not a producer-consumer

because it was operating through the medium of Milburn.

If you strip his order of the legal conclusion, it follows con-

clusively that the exemption should have been granted.

The coal produced by the City through the medium of

Milburn By-Products Coal Company and consumed by the

City does not fall within the purpose and scove of the Bi-

tuminous Coal Act. The coal is not marketed, is not in com-

BEE, OLE TLE IEE IE PLOIDY TERY ALLEL TEL AEE LIS ORNATE NI LE OAR Y ENE DE TRE ll A

oo es A A4

he AA A PM SECIS TR OAS EIN

Ie POE OLY we

petition with other coal, and Congress has not sought to reg-

ulate the production or sale of either artificial gas or coke.

There is printed as Appendices A and B the pertinent pro-

visions of the Bituminous Coal Act authorizing exemptions

and Section 48-7103 Burns’ Indiana Statutes Annotated

which authorizes the City of Indianapolis to own the capi-

tal stock of Milburn and through such ownership to operate

the business of Milburn.

WILL1aM H. Tuompson,

Perry E. O’NEAL,

Patrick J. SMITH,

Attorneys for Petitioner.

Srpney S. MILter,

Corporation Counsel,

ARCHIE N. Bossirt,

City Attorney,

Of Counsel.

eater betas tere oer eee oer ER REY IR Ree Sea at SR ae tee

SAREE NEEL TL LAOREET SR BR AAI PIPER OPN TS TR ee it MERCOLA Ps

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.