Brief for the Respondents in Opposition — Indianapolis v. Wheeler

sel Soe é CELIA 07 2 AEDES LAR TIMED

PLATA is MARNE ASAI

INDEX

Page

Opinions below pear : iat bhi dak tareanip alot 1

Jurisdiction —__-_-- : Re aL te eae) ot nny 2

Guestion presented_............. ails scmecsia a est acess 2

Statute involved_-_~---- Fe ae ae oe mete a stacah 2

Statement_-—_--- a ae SPOR EE = SH 2

Argument__- eed a eames 7 ci newloerenaiae 8

Conclusion cca ey es he dec casas ES sos ib on tp Deeps eg RT 16

CITATIONS

Cases:

Aronberg v. Federal spol Commission, 182 F. (2d) 165_- 1

Carey v. Donohue, 240 U. 8. 430 a ac is pact tarda eee 11

Commerce Trust Co. v. W ase 77 F. (2d) 478. eee sree 10

Consolidated Indiana Coal Co. v. National Bituminous Coal

Commission, 108 F. (2d) 124------- : Me ae 2

For v. Standard Oil Ges, me: SS, St-.... eceacts wetness 11

Gray Vv. Powell, 314 U. Sheen SAS 10, 11, 12, 18, 14, 15

Helvering v. Gowran, 302 U. 238. aia Reem heme 15

Higgins v. Smith, 808 U.S. a“ st ak caine ieee tan ar 10

Interlake Iron Corp. y. National Labor Relations Board,

131 F. (2d) 129 Sl Bs, este eR ieee os Shale pple 15

International Parts Corporation vy. Federal Trade Commis-

sion, No. 7998, decided February 17, 1943_-------------- 15

Keller v. Federal Trade Commission, 182 F. (2d) 59_------ 15

Keystone Mining Co. v. ye vie aie 6 | rrr: |

Lapina v. Williams, 232 U. S. T8_----- SORE Oe 5 is

Mississippi Valley Barge bot Co. v. ‘United States, 292

e.. 3 Bees sae Sy ae SPA hare ee EE ee 14

National Labor Relations Booré Vv. Acme Boone Co., 130

F. (2d) 477, certiorari denied, No. 681, March 8, 1943_-_- 15

National Labor Relations Board y. Aintree Corp., 132 F.

(2d) 469, certiorari denied, No. 702, March 15, 1943_--_- 15

National Labor Relations Board y. Bear Brand Hosiery

O0;, 2d Me) fhe ee cee eee onaee meena wanmeain 15

National Labor Relations Board v. Martin Bros. Bor Co.,

130 F. (2d) 202, certiorari denied, No. 304, October 12,

RR aes aman pete = tay oe set Ned 15

Pennsylvania Railroad Co. vy. International Coal Co., 230

U. S. 184_- Ee ee ee a RE ee ee ee 11

518233—43-——1 mM

Taha

tN a So alas ee ele

II

Cases—Continued. Page

Quaker Oats Co. v. Federal Security Administrator, 129 F.

(2d) 76, reversed, No. 424, decided March 1, 1943_.------ 15

Rochester Telephone Corp. v. United States, 307 U. S. 125_- 15

Securities & Exchange Commission v. Chenery Corp., No.

254, decided February 1, 1943 ne 15

Shields v. Utah Idaho C. R. Co., 305 U. S. 177------------- 14

Superior Coal Co. v. Department of Finance, 377 Ill. 282,

SG N. cae) Pe... a = 9, 10, 12

Taylor v. Standard Gas Co., 306 U. 8. 307 10

United Biscuit Co. v. National Labor Relations Board, 128

OG Wa ee eee 15

United States v. Delaware & Hudson Co., 213 U. 8S. 366_--- abt

Statutes:

Bituminous Coal Act of 1937, c. 127, 50 Stat. 72,15 U. S. C.,

sec. 828 et seq 2

See OTE C0) ccnp teencnseens 2, 8,11

Sec, 4-A__- tins acti halen cant 2

Bituminous Coal Conservation Act of 1935, 49 Stat. 991_--- 11

Miscellaneous :

81 Cong. Rec. 3136 li

Fletcher, Cyclopedia on Corporations, § 43 an 9

H. Rept. No. 578, 75th Cong., 1st Sess ll

Inthe Supreme Court of the Bnited States

Ocroser TERM, 1942

No. 798

Crry oF INDIANAPOLIS, A MUNICIPAL CORPORATION,

PETITIONER

Vv.

Dan H. WuHeeter, Actinc Director, Brruminovus

Coat Division, Unrrep States DEPARTMENT OF

THE INTERIOR, AND BitTuMiINous CoaL PRopUCERS

Boarp For District No. 8, RESPONDENTS

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES CIRCUIT COURT OF APPEALS FOR THE SEVENTH

CIRCUIT

BRIEF FOR RESPONDENT DAN H. WHEELER

IN OPPOSITION

OPINIONS BELOW

The report of the examiner and the memoran-

dum opinion of the Acting Director of the Bitu-

minous Coal Division, adopting the examiner’s

report with modifications, are set forth in the

record (R. 291-305, 359-366). The opinion of

the Circuit Court of Appeals (R. 396-399) has

_ not yet been officially reported.

(1)

MEATY TT ATP RR MRT IE FET ee

2

JURISDICTION

The judgment of the Circuit Court of Appeals

(R. 400) was entered on January 29, 1943. The

petition for writ of certiorari was filed on March

8. 1943. The jurisdiction of this Court is invoked

under Section 240 (a) of the Judicial Code, as

amended.

QUESTION PRESENTED

Whether the court below properly affirmed an

order of the Acting Director of the Bituminous

Coal Division dismissing an application filed by

petitioner for exemption from the Bituminous

Coal Code of coal consumed by it which it pur-

chases from Milburn By-Products Coal Conipany,

a West Virginia mining corporation whose capital

stock is wholly owned by petitioner.

STATUTE INVOLVED

The pertinent provisions of the Bituminous

Coal Act of 1937, ce. 127, 50 Stat. 72, 15 U.S. C., see.

828 et seq., are set forth in Appendix A to the

petition.

STATEMENT

On May 7, 1940, petitioner, a municipal corpo-

ration of the State of Indiana, filed an application

with the Bituminous Coal Division, United States

Department of the Interior, pursuant to the pro-

visions of Sections 4 II (1) and 4—A of the Bitu-

minous Coal Act of 1937 (R. 7). The application

j

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3

alleged that the City of Indianapolis, through its

Department of Utilities and under the registered

trade name, Citizens Gas & Coke Utility, is en-

gaged in the manufacture, sale, and distribution

of artificial gas to consumers in Indianapolis. It

purchases, it was alleged, substantial quantities

of bituminous coal from Milburn By-Products

Coal Company, a West Virginia corporation which

owns and operates a mine at Milburn, Fayette

County, West Virginia in District No. 8. Peti-

tioner, the application recited, owns all of the out-

standing capital stock of Milburn. The appli-

cation prayed that petitioner “be granted an ex-

emption respecting the coal which it produces

from its mine and which it consumes’’; it was

admitted that coal produced by Milburn and sold

to other customers is subject to the provisions of

the Act (R. 8, 9).

Bituminous Coal Producers Board for District

No. 8, a respondent herein, was permitted to inter-

vene in the proceedings (R. 28), in opposition to

the application. After due notice to interested

parties (R. 24), a hearing was held June 24, 1940,

before a duly appointed examiner of the Divi-

sion. Petitioner appeared, introduced evidence,

and made a full presentation of its ‘position

(R. 37-245). On September 20, 1941, the exam-

iner submitted his report, in which he recom-

mended denial of the applicetion (R. 291-305).

Milburn filed exceptions to the report (R. 308-

4

317) and requested oral argument thereon (R.

319). The request was granted (R. 319), and oral

argument was held before Howard A. Gray, Di-

rector of the Division (R. 321-340). On Decem-

ber 29, 1941, the issues were reargued before re-

spondent Wheeler, then Acting Director of the

Division (R. 342-359).'| Thereafter, on April 7,

1942, respondent Wheeler, in a memorandum opin-

ion, adopted, with some modification, the findings

of fact and conclusions of law of the examiner,

and entered an order dismissing the application

for exemption (R. 359-366). He concluded that

petitioner had not shown that it is the producer of

the coal it consumes within the meaning of See-

tion 4 II (1) of the Act. The Circuit Court of

Appeals affirmed the order (R. 396-400). The

following facts appear from the administrative

findings and the undisputed evidence adduced at

the hearing:

Petitioner, through its Department of Utilities

and under the trade name of Citizens Gas & Coke

Utility, is engaged in the manufacture, sale, and

distribution of byproduct coke and artificial gas

(R. 292). Petitioner purchases its high volatile

bituminous coal requirements from Milburn By-

Products Coal Company, a West Virginia cor-

poration, which owns and operates the Milburn

* Respondent Dan H. Wheeler succeeded Howard A. Gray

as Director of the Bituminous Coal Division on September

10, 1942. :

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5

Mine in Fayette County, West Virginia (R. 48).

The principal office of Milburn By-Products Coal

Company is located at Milburn, West Virginia

(R. 294). Approximately 70 percent of the total

output of the mine is sold to petitioner, the re-

maining 30 percent being sold through a sales

agent in the general market (R. 294). Sales to

petitioner are made at actual cost, the price vary-

ing with changes in total costs of producing the

coal (R. 295). Petitioner acquires coal at aver-

age prices considerably less than those at which

the balance of Milburn’s output is sold on the

market (R. 294). Because petitioner purchases

the bulk of Milburn’s output and thus guarantees

the mine a high ‘‘running time,’’ Milburn’s costs

of operation are reduced and it accordingly en-

joys a “‘very advantageous”’ position with respect

to the sales it makes in the open market (R. 102).

All of the capital stock of Milburn is owned by

petitioner (R. 293). The seven members of the

Board of Directors of Milburn, who serve it with-

out compensation, also act as directors of peti-

tioner’s Department of Utilities (R. 49, 294).

The actual operation of the mine is left to the

general manager of Milburn, Andrew A. Galla-

gher, and a mine superintendent serving under his

direction (R. 140). Gallagher, who is not con-

nected with petitioner’s Department of Utilities

and who is not an employee of petitioner, enjoys

virtual independence with respect to such matters

6

as the means and methods of extracting coal, pur-

chasing materials and supplies, hiring and firing

of employees, operating a supplies store and

theatre, and renting company houses to employees

(R. 301). He compiles reports of daily opera-

tions at the mine, and each month submits sum-

mary reports to the Board of Directors (R. 295-

296). He serves under the general supervision

of Thomas Kemp, who is assistant to the presi-

dent of Milburn and general manager of petition-

er’s Citizens Gas & Coke Utility (R. 42, 52-53).

Gallagher has no authority to make any capital

investment without first submitting the matter to

Kemp, and through him to the board of directors

of Milburn (R. 79). Kemp confines his super-

vision to ‘‘general policy,’ such as the amount of

tonnage which the mine is to produce (R. 79), and °

the amount and price of coal to be sold to peti-

tioner and to others in the market (R. 97).

Kemp, who visits the mine only at irregular inter-

vals (R. 79), has never been employed by a coal-

producing company to supervise mining opera-

tions, his experience having been in the gas indus-

try (R. 133).

As a producer of bituminous coal, Milburn is a

member of the Bituminous Coal Code (R. 93).

Petitioner is not and has not been a member of

the Code (R. 294), nor has it ever been admitted

to do business in West Virginia (R. 265). Not-

withstanding the identity of the directors of Mil-

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burn and the Citizens Gas & Coke Utility, the

corporate affairs of Milburn are handled sepa-

rately at meetings of the directors (R. 72). Mil-

burn has separate books of account which are kept

at its mine in West Virginia by a bookkeeper

whose salary it pays (R. 155-156). Milburn also

maintains its own bank account in West Virginia,

and checks thereon are drawn by its general man-

ager, Gallagher (R. 51). The assistant secretary

of Milburn serves as comptroller of the Citizens

Gas & Coke Utility; he supervises the auditing of

the Utility, which in turn audits the books of

Milburn and directs its general accounting pro-

cedures (R. 148-149).

Milburn executes contracts in its own name,

meets its pay roll, and pays federal, state, and

local taxes and insurance premiums out of its own

funds (R. 84-85). It files federal income-tax re-

turns in its own name and is treated as an entity

distinet from petitioner by the Commissioner of

Internal Revenue (R. 33-36). All claims arising

from accidents or injuries at the mines are han-

dled and paid by Milburn (R. 94). Milburn owns

leases covering the acreage from which it pro-

duces coal and pay royalties on the leaseholds

from its own treasury (R. 81). As appears from

its balance sheet, which is kept in its own name,

it has more than $800,000 in assets, including

general mine buildings and equipment and inven-

tories of mine supplies (R. 257). In addition to

518233—43—_2

8

income which it receives from the sale of coal to

petitioner and other purchasers, Milburn derives

income from dwellings near the mine rented to

employees, a store, theatre, and other investments

which it has made in its own name (R. 83-84).

Petitioner appropriates no funds for the oper-

ation of Milburn; funds for the purchase of

equipment and for other capital expenditures by

Milburn come from its own treasury (R. 81).

Milburn owes petitioner $50,000 on account of

past loans; this debt is payable with interest (R.

157). Dividends declared by Milburn are paid

to petitioner as owner of its stock (R. 56). The

contract under which petitioner purchases coal

from Milburn provides for the recovery of dam-

ages in the event that the coal supplied does not

meet the required quality or cleanliness (R. 90).

Milburn pays a ‘“‘management fee’’ to petitioner

which includes compensation for petitioner’s au-

diting of Milburn’s accounts. This fee is pres-

ently fixed at a sum equal to seven percent of the

sales price of all coal sold by Milburn to cus-

tomers other than petitioner (R. 232).

ARGUMENT

1. The primary question in this case is whether

the City of Indianapolis and the Milburn Com-

pany are a single entity, within the meaning of

the exemption in Section 4 II (1) of the Bitumi-

nous Coal Act for coal ‘‘consumed by the pro-

ducer.”’ Here the City consumed coal which

PE Srey irre

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9

Milburn produced. Milburn is managed and

operated as a separate corporation and sells only

70 percent of its output to the City. The control

over Milburn exercised by the City is no different

in extent than that normally exerted by a sole

stockholder over the affairs of a corporation.

The fact that the City is the sole stockholder and

that its officers comprise the board of directors and

officers of the Coal Company does not make this

case so exceptional as to warrant disregard of the

separate corporate existence of Milburn.’

Principles repeatedly approved by this and

other courts, as well as the legislative history of

the Coal Act itself, support the Director’s finding

that on such facts the City was not the producer

* Fletcher, Cyclopedia on Corporations, § 43. In Superior

Coal Co. v. Department of Finance, 377 Til. 282, 289, 36 N. E.

(2d) 354, the Supreme Court of Illinois, on facts very similar

to these, declared: “As a general rule a corporation and its

stockholders are deemed separate entities, * * *, Qwner-

ship of capital stock in one corporation by another does not,

itself, create an identity of corporate interest between the

two companies, nor render the stockholding company the

owner of the property of the other, nor create the relation

of principal and agent, representative, or alter ego between

the two. (United States v. Delaware, Lackawanna and West-

ern Railroad Co. 238 U. S. 516; Pullman’s Palace Car Co. v.

Missouri Pacific Railway Co. 115 id. 587; Owl F. umigating

Corp. v. California Cyanide Co. 24 Fed. (2d) 718; Richmond

& Irvine Construction Co. vy. Richmond, Nicholasville, I rving

and Beattyville Railroad Co. 68 Fed. 105.) Nor does the

identity of officers of two corporations establish identity of

the corporations. (Owl Fumigating Corp. v. California

Cyanide Co. supra.)”

10

of the coal it consumed. The courts have fre-

quently held that although a corporation will gen-

erally be treated as a separate legal entity, the

corporate fiction will be disregarded when ‘‘used

as a subterfuge to defeat public convenience, jus-

tify wrong, or perpetrate a fraud.’? Commerce

Trust Co. v. Woodbury, 77 F. (2d) 478, 487 (C.

C. A. 8); Superior Coal Co. v. Department of

Finance, supra. But this does not mean that a

person can establish a corporation in order to ob-

tain the advantages of doing business through a

separate entity, and then have the distinction be-

tween himself and the corporation ignored when

such a course is advantageous to him. Gray v. |

Powell, 314 U. S. 402; Higgins v. Smith, 308 U. S.

473; Taylor v. Standard Gas Co., 306 U. 8. 307;

Superior Coal Co. v. Department of Finance,

supra. In Gray v. Powell this Court said that

“The choice of disregarding a deliberately chosen

arrangement for conducting business affairs does

not lie with the creator of the plan.” (314 U. 8.,

at 414.)

In addition, the history of the Coal Act shows

definitely that Congress did not intend to include

coal produced by an affiliated corporation within

the exemption contained in Section 4 II (1).*

That section was approved by the House in its

present form. During debate in the Senate it was

amended in order to exempt also coal produced

* The Circuit Court of Appeals for the Third Circuit has

so held in Keystone Mining Co. v. Gray, 120 F. (2d) 1.

11

by corporations ‘‘owned by’’ or “‘under common

ownership with a producer, provided such a pro-

ducer does not sell any of his product on the com-

mercial market.”’* This amendment (No. 44) was

rejected in the conference report.’ The rejection

of the proposed amendment indicates that Con-

gress did not intend Section 4 IT (1) to exclude

from the Act coal produced by one corporation for

consumption by an affiliate.’ United States v.

Delaware & Hudson Co., 213 U. S. 366, 414

(1909); Pennsylvania Railroad Co. v. Interna-

tional Coal Co., 230 U. S. 184 (1913); Lapina v.

Williams, 232 U. 8. 78, 89 (1914) ; Carey v. Dono-

hue, 240 U. S. 430 (1916); For v. Standard Oil

Co., 294 U. S. 87, 96 (1935).

Petitioner argues that these principles do not

apply to it because it operated its mine through

*81 Cong. Rec. 3136.

° H. Rept. No. 578, 75th Cong., ist Sess., pp. 1,8. See Gray

v. Powell, 314 U.S. at 410-411.

* It is also significant that the Bituminous Coal Conserva-

tion Act of 1935 (Sec. 19, 49 Stat. 991) defined “captive coal,”

for other purposes, as “all coal produced at a mine for con-

sumption by the producer or by a subsidiary or affiliate

thereof * * *.” (Italics supplied.)

In the 1937 Act the only provision relating to “captive coal”

is Section 4-II (1), which, to use the language of the 1935

Act, applies to “all coal produced at a mine for consumption

by the producer” but omits the phrase “or by a subsidiary

or affiliate thereof.” The inference is clear that the exemp-

tion under Section 4-II (1) was not intended to be as broad

as the definition of captive coal for other purposes in the

1935 Act.

es

a separate corporation not by choice but because

under the laws of Indiana and West Virginia it

could not legally do so otherwise. But this did

not make the City’s choice of a method of business

involuntary ; the City was not compelled to obtain

its coal from the Milburn Mine or from a mine

which it owned or controlled. Indeed, it is diffi-

cult to understand why the City’s inability law-

fully to operate the mine except through a sepa-

rate corporation should be deemed an additional

reason for disregarding the corporate entity.

For these reasons we think that the Director’s

decision that the City was not the producer of the

coal it consumed within the meaning of 4-II (1)

was not only both entirely reasonable and sup-

ported by substantial evidence, but correct as a

matter of law. The Keystone case, decided by

the Third Circuit, and the Superior Coal Co. deci-

sion of the Supreme Court of Illinois, both of

which involved substantially identical facts, are

squarely in accord.’

2. The opinion below, as petitioner states, seems

to construe Gray v. Powell as giving a reviewing

"In Consolidated Indiana Coal Co. y. National Bitumi-

nous Coal Commission, 103 F. (2d) 124, the Seventh Circuit

had taken a contrary view, which not only rejected the

arguments advanced above but determined the question of

exemption without giving any weight to the Commission’s

finding. That decision was subsequently dsapproved on

the merits in both the Keystone and Superior Coal Co. cases

and has been overruled by the Seventh Circuit in the case

at bar.

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13

court no authority to decide differently from the

Director, once it finds that a fair hearing has

been held. The Government made no such con-

tention below, nor does it do so now. Its posi-

tion, as expressed in its brief before the Circuit

Court of Appeals, was and is that ‘the decision

of the Supreme Court in Gray v. Powell requires

that the Court affirm the order of the Acting Di-

rector * * * unless it clearly appears that

the Acting Director has failed to apply the

statute reasonably.”’ *

Gray v. Powell states that a court’s reviewing

function under the Coal Act is performed when

* Brief for the respondent in the Circuit Court of Appeals,

p. 13. The other statements in the Government’s brief as

to the scope of review were as follows:

“Under the ruling of the Supreme Court in Gray v. Powell,

314 U. S. 402 (1941), therefore, this Court is not free, upon

consideration of this petition for review, to substitute its

judgment for that of the Director even though there is vir-

tually no dispute as to the evidentiary facts, but, on the con-

trary, it is its duty to affirm the order of the Director.unless

the set of circumstances upon which the Director’s determina-

tion is based is so unrelated to the tasks entrusted by Con-

gress to the Division as in effect to deny a sensible exercise

of judgment” (pp. 21-22).

“* * * this Court should not, in the light of Gray v.

Powell, 314 U. S. 402 (1941), balance the various delicate

factors involved but should uphold the determination of the

agency since it surely is not arbitrary and is supported by

substantial evidence” (p. 33).

“* * * The Division’s findings are conclusive if sup-

ported by substantial evidence” (p. 33).

“Unless the administrative determination is clearly un-

warranted by the statute, arbitrary or not supported by sub-

stantial evidence, it is valid” (p. 34).

an

14

it determines “‘that there has been a fair hearing,

wide oF application of the statute in

a just and reasoned manner’? (314 U. S. 411),

and that (p. 413) ‘‘it is the Court’s duty to leave

the Commission’s judgment’ undisturbed’? unless

the Commission’s decision ‘‘is so unrelated to the

tasks entrusted by Congress to the Commission

as in effect to deny a sensible exercise of judg-

ment.’’ These statements were a reaffirmation

of the settled doctrine, which has been expressed

in various ways, that ‘‘the judicial function is ex-

hausted when there is found to be a rational

basis for the conclusions approved by the admin-

istrative body’’ (Rochester Telephone Corp. v.

United States, 307 U. S. 125, 146; Mississippi

Valley Barge Line Co. v. United States, 292 U.S.

282, 286-287), and that an administrative deter-

mination will only be set aside if unsupported by

substantial evidence or arbitrary and capricious

(Shields v. Utah & Idaho C. R. Co., 305 U. 8.

177).°

For the reasons indicated supra, pages 8-12, the

Director’s decision in the instant case was clearly

‘*just and reasoned,’’ ‘‘sensible,’’ “rational,’’ and

not arbitrary, capricious, or unsupported by sub-

stantial evidence. Indeed, we think affirmance

would have been required irrespective of the scope

of judicial review. Since the affirmance by the

court below of the Director’s decision was correct,

* See brief for the Government in Gray v. Powell, October

Term, 1940, No. 603, pp. 23-24.

ba SR pe a PR eee Oe I ENO ONS . ES a aN a SSRI Ae I SD

A See Se RAPS

15

no further review would seem to be necessary. A

judgment will not be disturbed because the court

‘‘relied upon a wrong ground or gave a wrong rea-

son.”’ Helvering v. Gowran, 302 U. S. 238, 245,

and cases cited; Securities and Exchange Commis-

ston V. Chenery Corp., October Term, 1942, No.

254, decided February 1, 1943, p. 6.

We do not conceive that the Seventh Cireuit

has: been misled generally as to the scope of review

of administrative action by Gray v. Powell. In

many cases decided during the last year, that

court has recognized the doctrine governing judi-

cial review of administrative conduct.” Nor has

it been unduly reluctant to set aside administrative

decisions."

” United Biscuit Co. v. National Labor Relations Board,

128 F. (2d) 771; Quaker Oats Co. y. Federal Security

Administrator, 129 F. (2d) 76, reversed, No. 424, decided

March 1, 1943; National Labor Relations Board vy. Martin

Bros. Bow Co., 180 F. (2d) 202, certiorari denied, No. 304,

October 12, 1940; National Labor Relations Board v. Acme-

Evans Co., 130 F. (2d) 477, certiorari denied, No. 681; March

8, 1943; Interlake Corp. v. National Labor Relations Board,

131 F. (2d) 129; National Labor Relations Board v. Bear

Brand Hosiery Co., 131 F. (2d) 731; Keller y. Federal Trade

Commission 132 F. (2d) 159; Aronberg y. Federal Trade

Commission, 132 F. (2d) 165; National Labor Relations

Board v. Aintree Corp., 132 F. (2d) 469, certiorari denied,

No. 702, March 15, 1943; Jnternational Parts Corporation v.

Federal Trade Commission, No. 7998, decided February 17,

1943.

% See Quaker Oats Company v. Federal Security Admin-

istrator and International Parts Corporation vy. Federal

Trade Commission, supra. See, also, the dissenting opinion

of Judge Major in National Labor Relations Board v. Ain-

tree Corp., 132 F. (2d), at 473.

16

CONCLUSION

The judgment below was correct and is in ac-

cord with the decisions of this and other courts.

The petition for certiorari should be denied.

Respectfully submitted.

CHaRLEs Fany,

Solicitor General.

Rosert L. Stern,

Attorney.

WARNER W. GARDNER,

Solicitor, United States Department,

of the Interior,

ARNOLD Levy,

General Counsel,

JESSE B. MEssirve,

Assistant General Counsel,

Erwin B. ELLMAnNnN,

Attorney,

Bituminous Coal Division,

United States Department of the Interior.

Marcu 1943.

4

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IN THE oe

Supreme Court of the United States

October Term, 1942

No. 798

City or Inpranapouts, A Municipal Corporation,

Petitioner and Petitioner Below,

V.

Dan H. Wueeuer, Acting Director Bituminous Coal Divi-

sion of the Department of the Interior of the United

States and District Board No. 8,

Respondents and Respondents Below

On Petition for a Writ of Certiorari to the United States

Circuit Court of Appeals for the Seventh Circuit

BRIEF FOR THE RESPONDENT, BITUMINOUS COAL

PRODUCERS BOARD FOR DISTRICT NO. 8 (DIS-

TRICT BOARD NO. 8), IN OPPOSITION

Burr Tracy ANsELL,

Rocer Ross,

Attorneys for Respondent,

Bituminous Coal Producers Board

For District No. 8

ANSELL, ANSELL & MarsHa.u,

Of Counsel,

712 Tower Building,

Washington, D. C.

March 22, 1943

Press OF Byron 8S. ADAMS, WASHINGTON, D. C.

SUBJECT-INDEX.

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TABLE OF CASES

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Helvering v. Gowran, 302 U.S. 238.................. 8

Securities & Exchange Commission v. Chenery Corp.,

— U.S. —, 87 L. ed. 411 (Advanced Opinions)... .

IN THE

Supreme Court of the Anited States

Ocrosper TERM, 1942

No. 798

Crry or Inpianapouis, A Municipal Corporation,

Petitioner and Petitioner Below,

Vv.

Dan H. Wuee er, Acting Director Bituminous Coal Divi-

sion of the Department of the Interior of the United

States and District Board No. 8,

Respondents and Respondents Below

On Petition for a Writ of Certiorari to the United States

Circuit Court of Appeals for the Seventh Circuit

BRIEF FOR THE RESPONDENT, BITUMINOUS COAL

PRODUCERS BOARD FOR DISTRICT NO. 8 (DIS-

TRICT BOARD NO. 8), IN OPPOSITION -

OPINION

The opinion of the Cireuit Court of Appeals (R. 396-399)

is reported in 132 F (2d) 879 (Advance Sheets).

JURISDICTION

The opinion of the Circuit Court of Appeals was filed

January 29, 1943 (R. 396). On February 4, 1943, the Court

entered an order staying the issuance of the certified copy

of the decree for ninety days from the date of the Court’s

Bes |

decision (R. 403). The petition for a writ of certiorari was

filed March 8, 1943. The jurisdiction of this Court is in-

voked under Section 240 (a) of the Judicial Code as

amended by the Act of February 13, 1925.

2

QUESTION PRESENTED

Whether the Circuit Court of Appeals was correct in its

decision affirming an order of the Bituminous Coal Divi-

sion of the Department of the Interior dismissing peti-

tioner’s application for exemption from the provisions of

Section 4 of the Bituminous Coal Act of 1937.

STATUTE INVOLVED

The statute involved, Section 4, II (1) and Section 4-A

of the Bituminous Coal Act of 1937, is set out in full in

Appendix A to the petition, Pages 22-23.

STATEMENT

This proceeding was instituted by an application of the

petitioner, City of Indianapolis, filed with the Bituminous

Coal Division pursuant to the provisions of section 4-A of

the Bituminous Coal Act of 1937 (15 U.S.C. A., See. 834,

50 Stat. 83). The application alleged that the coal produced

by Milburn By-Products Coal Company ( Milburn) for Citi-

zens Gas & Coke Utility (the Utility) operate by the City

of Indianapolis was exempt from the provisions of section

4 of the Act by virtue of the provisions of section 4, IT (1)

thereof (15 U. S. C. A., See. 833 (1) in that such coal was

produced by Milburn, a wholly owned and controlled sub-

sidiary of petitioner.

The respondent, Bituminous Coal Producers Board for

District No. 8 (District Board), is the district board of

code members of District 8 organized pursuant to the provi-

sions of subsection (a) of part I of section 4 of the Bitumi-

nous Coal Act of 1937 (15 U.S. ©. A., See. 832). The Mil-

burn mine is located in District 8. Prior to the hearing of

the matter before a trial examiner, the District Board filed

3

a petition for leave to intervene, which was granted (R. 26,

28).

Upon the recommendation of the trial examiner (R. 291)

the Acting Director (now the Director) of the Bituminous

Coal Division found that petitioner is not the producer of

the coal produced by Milburn and, accordingly, dismissed

the application for exemption (R. 359).

Thereafter, petitioner filed in the Circuit Court of Ap-

peals for the Seventh Circuit a petition to review and set

aside the order of the Acting Director (R. 369). On Janu-

ary 29, 1943, afier argument in which the District Board

participated, the Circuit Court of Appeals filed its opinion

affirming the order under review.

The undisputed evidence before the trial examiner dis-

closed the following facts:

Milburn By-Products Coal Company, a West Virginia

corporation, operates Milburn mine on Paint Creek in

Fayette county, West Virginia (R. 48, 150). The principal

office of the corporation is at Milburn, West Virginia (R.

68). About 70 per cent of the mine’s production is used by

Citizens Gas & Coke Utility, the balance being sold in the

open market (R. 48). No exe ™ption is claimed on the coal

sold in the open market (R. 48). Citizens Gas & Coke Utility

is the registered trade name for the executive department

of the City of Indianapolis known as the Depaftment of

Utilities (R. 42). The stock of Milburn is held and voted

by the board of directors of the Utility so that, as stock-

holders, the directors of the Utility elect the directors of

Milburn (R. 70, 71). The directors and officers of the Utility

and of Milburn are identical (R. 49). It appears that the

directors are Indianapolis businessmen who serve for a

nominal compensation, devoting only a part of their time

to their duties as directors (R. 44, 45, 72, 73). Thomas L.

Kemp, general manager of the Utility, serves as assistant

to the president of Milburn and exercises general supervi-

sion over the coal-mining operations (R. 42, 50, 51, 55, 79).

Meetings of the board of directors of Milburn are called

by its secretary and held at Indianapolis, no meetings being

4

held in West Virginia (R. 55, 71, 72). Minutes of these

meetings, signed by Milburn’s secretary, are kept at

Indianapolis in the name of Milburn By-Products Coal Com-

pany (R. 55, 72). Such meetings are entirely separate and

distinct from the meetings of the board of directors of the

Utility; they are held after the meetings of the Utility’s

board of directors, separate minutes are kept, and none of

the affairs of Milburn is taken up at the meetings of the

directors of the Utility (R. 72).

The price of the coal taken by the Utility from Milburn

is fixed by contract at the cost of mining (R. 49). This con-

tract provides for the recovery of damages by the Utility

in the event that the coal supplied or delivered is not of the

quality or the cleanliness required (R. 90). To enable the

Utility to determine the cost of coal, daily and monthly

reports are received from Milburn showing the cost of pro-

duction (R. 49). These reports are submitted by A. A. Gal-

lagher, the general manager of the mine (R. 79). Gallagher

is an employee of Milburn and does not appear on the pay-

roll of the Utility (R. 78). Gallagher’s duties are those of

any general manager of a mining property, that is, he has

charge of the general operation of the mine and the pur-

chase of supplies and materials to carry on such operations

(R. 78-79). He has no authority to make any capital invest-

ment without first submitting the matter to Kemp and

through Kemp to the board of directors of Milburn (R. 78,

79). He has authority to hire and fire men, but his decisions

in respect of the employment of the clerical force and fore-

men must be approved by Kemp (R. 86, 135). Kemp gives

no orders as to the mechanics of the operation of the mine,

but concerns himself with ‘‘general policy * * * as to the

amount of tonnage that the mine is to produce’’, this amount

being determined largely by the needs of the Utility (R.

79). Kemp also passes upon the price offered for the coals

of Milburn under contracts for the sale of such coals on the

open market (R. 96, 97). He visits the mine at irregular

intervals: ‘‘I may visit it once every month or two, and I

ha a ies

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5

may get down there only two or three times a year.’’ (R.

79). He has never been employed by a coal-producing com-

pany to supervise mining operations, his experience having

been in the gas industry (R. 132, 133, 42).

There are approximately three hundred and fifty men on

the Milburn payroll. None of these men appears on the pay-

roll of the Utility (R. 86-87).

The comptroller of the Utility is also assistant secretary

of Milburn, although he receives no salary for his services

in the latter capacity (R. 148-149). He supervises the audit-

ing department of the Utility, which in turn audits the

books of Milburn and directs Milburn’s accounting pro-

cedure (R. 149). Separate books of account are kept by Mil-

burn and the Utility, Milburn’s accounting records being

kept at the mine at Milburn, West Virginia. The records

at the mine are in charge of a bookkeeper who is paid by

Milburn (R. 55, 155-156). Milburn maintains its own bank

account in West Virginia, and checks thereon are drawn by

the general manager of Milburn (R. 51). Funds deposited

in this account are derived from the sale of coal to the

Utility and on the open market, from income received by

Milburn from the operation of the mining village, company

store and theatre which it maintains and from certain in-

vestments which Milburn has made in its own name (R. 83,

84, 85). No money whatever is appropriated by the City of

Indianapolis or by the Utility for the operation of Milburn;

all funds for the purchase of any equipment or for other

capital expenditures by Milburn therefore come from Mil-

burn’s treasury (R. 81, 86). Milburn is paid once a month

for the coal taken by the Utility (R. 51).

Milburn owes $50,000 to the Utility on account of past

loans, and this amount is payable with interest (R. 85, 157).

Tn addition, Milburn has a funded debt in its own name and

has its own bonds outstanding (R. 85-86).

The Utility charges Milburn a fee for its services in con-

nection with the rhanagement of Milburn (R. 112). The

services performed for the management fee are the check-

|

6

ing of the records at Milburn by the Utility’s auditors and

the general supervision that is given to Milburn (R. 112-

113, 116). This fee was originally a flat charge of $10,000

a year but is now fixed at a sum equal to 7 per cent of the

sales price on all coal sold by Milburn as surplus coal (R.

113, 114, Applicant’s Exhibit No. 22, R. 232). The manage-

ment fee paid to the Utility is deducted as an operating

expense by Milburn in making its income tax returns (R.

117).

The coal sold by Milburn on the open market, which ap-

proximates 30 per cent of its production, is disposed of

through a sales agent and at a profit (R. 49, 73, 77, 87, 96-

98). The invoicing of such coal and the payment therefor

are handled in the same way as in the case of coal sold to

the Utility (R. 95, 137-138). As a result of such sales on

the open market, Milburn sometimes ends the year with

earnings which are declared as dividends and paid over to

the Utility (R. 49, 92). In respect of the coal sold on the

market, Milburn enjoys a very advantageous competitive

position, since the large tonnage taken by the Utility gives

the mine a good ruimning-time and thereby reduces costs

(R. 102, 104).

The coal-producing lands are held by Milburn in its own

name either in fee or under leaseholds. Royalties upon the

leaseholds are paid by Milburn out of its own treasury (R.

80-81). Milburn executes all other contracts in its own name,

meets the payroll for the miners and other employees, and

pays the federal, state and local taxes and insurance pre-

miums (R. 68, 84-87). All cases involving accidents or in-

juries at the mines are handled by Milburn and any valid

claims resulting therefrom are paid by Milburn out of its

own treasury (R. 93, 94). Milburn is a member of the

Bituminous Coal Code (R. 92). Milburn is represented

generally by the same firm of Indianapolis attorneys which

represents the Utility although upon occasion Milburn has

retained counsel in Charleston, West Virginia, and paid

their fees out of its own treasury (R. 51-52, 94). The Utility

is not a code member, nor has it ever made application to

7

be admitted to do business in West Virginia (R. 70, 92-93).

The coals purchased by the Utility from Milburn, which

are high-volatile coals, constitute about sixty per cent of all

the coal consumed by the Utility. The balance, consisting of

low-volatile coals, is purchased from mines with which the

Utility is not affiliated. From these various coals the Utility

produces gas, which is sold to the citizens of Indianapolis

at cost, and coke, which is sold at a profit (R. 98-102).

Mr. Kemp testified at the hearing that Milburn By-Pro-

ducts Coal Company is maintained as a corporate entity

by the Utility ‘‘Because it is necessary so to do to comply

with the laws of West Virginia.’’ (R. 52.) It appeared that

the City had been advised by West Virginia counsel that

doubt existed ‘‘ whether the public policy of this State would

permit the operation of a coal mining property in the State

by a foreign municipal corporation.’’ (Applicant’s Exhibit

No. 13, R. 221, 222.)

ARGUMENT

The standard by which the findings and conclusions of the

Acting Director must be judged was stated by this Court in

Gray v. Powell, 314 U.S. 402, 413:

The separation of production and consumption is

complete when a buyer obtains supplies from a seller

totally free from buyer connection. Their identity is

undoubted when the consumer extracts coal from its

own land with its own employees. Between the two

extremes are the innumerable variations that bring the

arrangements closer to one pole or the other of the

range between exemption and inclusion. To determine

upon which side of the median line the particular in-

stance falls calls for the expert, experienced judgment

of those familiar with the industry. Unless we can say

that a set of circumstances deemed by the Commission

to bring them within the concept ‘‘producer’’ is so un-

related to the tasks entrusted by Congress to the Com-

mission as in effect to deny a sensible exercise of judg-

ment, it is the Court’s duty to leave the Commission’s

judgment undisturbed.

—

8 |

It is submitted that the facts in this case demonstrate that

the finding and conclusion of the Acting Director not only

constitute ‘‘a sensible exercise of judgment’’ but were the

only finding and conclusion possible. It follows that the

dismissal of the request for exemption was proper and that

the affirmance by the Circuit Court of Appeals was correct.

As the case was correctly decided below, there is involved

no question requiring further review by this Court, that is,

there is no special and important reason, within the mean-

ing of Rule 38, 5 (b) of the Rules of this Court, for the

granting of certiorari. Whether or not the Circuit Court

of Appeals as contended by the petitioner ‘“‘misconstrued

and misapplied the decision of this Court in Gray v. Powell,

314 U.S. 402’’, is immaterial. ‘‘In the review of judicial

proceedings the rule is settled that if the decision w is

correct, it must be affirmed, although the lower court relied

upon a wrong ground or gave a wrong reason.’’ H elvering

v. Gowran, 302 U.S. 238, 245; Securities and Exchange Com-

mission v. Chenery Corporation, — U.S. —, 87 L. ed. 411,

416 (Advance Opinions).

CONCLUSION

It is respectfully submitted that the petition for a writ of

certiorari should be denied.

Respectfully submitted,

Burr Tracy ANsELL,

Rocer Ross,

Attorneys for Respondent,

Bituminous Coal Producers Board

For District No. 8

ANSELL, ANSELL & MarsHatu,

Of Counsel,

712 Tower Building,

Washington, D. C.

March 22, 1943

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