Petition — Phillips Petroleum Co. v. Adams
Supreme Court brief1975
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IN THE Ba csnecialalt
Supreme Court of the United States
OcToBER TERM, 1975
vg i . A <= o>
N. %5-412
PHILLIPS PETROLEUM CoMPpaNy, Petitioner,
v.
J. H. Abas, et al., Riverview Gas COMPRESSION
CoMPANy, et a/., and First National BANK OF BORGER,
Respondents.
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
CLARK M. CLIFFORD
CarRsSON M. GLass
Ropert A. ALTMAN
CLIFFORD, WARNKE, GLASS,
McILwain & FINNEY
815 Connecticut Ave.
Washington, D.C. 20006
Lioyp G. MINTER
C. J. Roperrs
Phillips Petroleum Company
Bartlesville, Oklahoma 74004
JACK RITCHIE
T. L. Cuppace I]
Phillips Petroleum Company
Amarillo, Texas 79105
Press or Byron S. ADAMS PrinTING, INC., WasHINcTo', D. C.
INDEX
Page
ee oa rcp uke t ots decd bu dddhetoas 1
EY otitis bneabkedeee en wehakaneded 2
QUESTIONS PRESENTED 2.0.0 ccscccccccccccces ‘ehaeman 2
SraTuTEs AND REGULATIONS INVOLVED .............0055 3
SMART GP TH GAG én ioccccccccsccdecccocccessce 3
REASONS FOR GRANTING THE WRIT .............0ee00: 7
I. The Decisions of the Fifth Cireuit Are in Con-
flict with the Applicable Texas Statutes and
ee ee i dete deawebees i)
II. The Decisions in the Instant Cases Are in Con-
flict with a Prior Decision of the Fifth Cireuit .. 16
CON onc dda cccsencvccecicvs ee esbeseeussesnes 19
APPENDIX:
Texas Revised Civil Statutes Annotated articles
ES I EE Gb Shon 6ccuccsnacdveseesic la
Rules of Decision Act, 28 U.S.C. § 1652 .............. la
Natural Gas Act, 15 U.S.C. §§ 717-717w ............ 2a
18 C.F.R. § 154.102. Suspended changes in rate sched-
ules; motions to make effective at end of period of
I ove nn oxansonavecnedeceres 24a
Hugoton-Anadarko Rate Cases, 44 F.P.C. 761 (1970),
Ordering Paragraphs (D), (G) and (H) .......... 26a
Phillips Petroleum Company v. J. H. Adams, et al., in
the United States District Court for the Northern
District of Texas.
Judgment and Memorandum Opinion .......... 28a
ii Index Continued
Page
Text of stipulations and admissions of the parties,
numbers 1-32, incorporated by reference into
the District Court’s Memorandum Opinion as
Findings of Fact .........ccceeeccescceseees 37a
Phillips Petroleum Company v. J. H. Adams, et al., in
= United States Court of Appeals for the Fifth
ircuit.
Judgement ....ccccccccsccvccccccesencccccsecs 45a
Opinion ....cccccccccsccccccvccvcsevecccvcccces 46a
Petition for Rehearing ...........csceccccscess 73a
Denial of Petition for Rehearing .............++- 85a
First National Bank of Borger, et al., v. Phillips Petro-
leum Company, in the United States District Court
for the Northern District of Texas.
Judgment and Memorandum Opinion .......... 86a
Text of stipulations and admissions of the parties,
numbers 1-17, incorporated by reference into
the District Court’s Memorandum Opinion as
Findings of Fact ........cccccsccvscccccvecs 9la
First National Bank of Borger, et al., v. Phillips Petro-
leum Company, in the United States Court of Ap-
peals for the Fifth Circuit.
Judgment ....cccscccccccccccccccccccecesccces 97a
Opimion .....ccrcccccccccceccevccesscccesceees 98a
Petition, for Rehearing ...........-eeee eee eeees 102a
Denial of Petition for Rehearing .............. 105a
Phillips Petroleum Company v. Riverview Gas Com-
pression Company, et al., in the United States Dis-
trict Court for the Northern District of Texas.
Memorandum Opinion .........0.+eeeeeee eens 106a
Text of stipulations and admissions of the parties,
numbers 1-45, incorporated by reference into
the District Court’s Memorandum Opinion as
Findings of Fact ........ccceccesecccccceees 113a
-_
ee
Index Continued iii
Page
Phillips Petroleum Company v. Riverview Gas Com-
pression Company, et al., in the United States Court
of Appeals for the Fifth Circuit.
SE - tte cae dndedshddedhendesevecesteess 130a
EEL GN GR Gabdues ReebsdcesedeeN cde idcecscest 131la
POUGem Ter MOMOATIME oon ccc cccccccscssccccces 133a
Denial of Petition for Rehearing .............. 136a
TABLE OF AUTHORITIES
CASES:
Allied Building Credits, Inc. v. Grogan Builders Sup-
ply Co., 365 S.W. 2d 692 (Tex. Civ. App., Houston,
| SU TE BID i vn poss citecssieesedeess 14, 15
City of Texarkana, Texas v. Arkansas Louisiana Gas
Company, 118 F.2d 289 (5th Cir. 1941), vacated
per stipulation, 315 U.S. 780 (1942) ............ 17,18
- Commissioner of Internal Revenue v. Estate of Bosch,
i 19
Devers v. Mobil Chemical Corp., 488 F.2d 258 (5th Cir.
_ 1973), cert. denied, 417 U.S. 947 (1974) ......... 16
Dickinson v. Petroleum Conversion Corp., 338 U.S. 507
EE. Soa eeuaadheeeda pa GCHCAEEEDEASSEANOSe 0% 0 19
Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938) ... 7
~~. L. Foley, Inc., 115 Tex. 222, 280 S.W. 499
GW Marine, Inc. v. Morris, 471 S.W. 2d 644 (Tex. 7
Civ. App., Beaumont, 1971, writ ref’d n.r.e.) .... 11
Gulf Pipe Line Co. v. Nearen, et al., 138 S.W. 2d 1065
Pe OR ME ED ok de cone ncncnccesces 15, 16
John Hancock Ins. Co. v. Bartels, 308 U.S. 180 (1930) 19
Kirkpatrick v. Great American Ins. Co., 299 S.W. 943
a ee 10
People of the State of California, et al. v. Federal
Power Commission, 466 F.2d 974 (9th Cir. 1972) 5
Routon v. Phillips, 246 S.W. 2d 223 (Tex. Civ. App.
Fort Worth, 1952, writ ref’d n.r.e.) ............ ' 12
Settegast v. Timmins, 6 S.W. 2d 425 (Tex Civ. A
Beaumont, 1928, writ ref’d homie ee
iv Index Continued
Page
Texas Highway Commission v. El Paso Bldg. & Const.
Trades Council, 149 Tex. 457, 234 S.W. 2d 857
(1980) ..ccccccccedctccbecesgesseumeneeenuees 13
Thomas v. Western Car Co., 149 U.S. 95 (1893) ...... 14
Treon v. Richter, 265 S.W. 2d 125 (Tex. Civ. App., San
Antonio, 1954, writ ref’d m.r.e.) .........ee eens
Watkins v. Junker, 90 Tex. 584, 40 S.W.11 (1897) ..10,12
Watson Co. v. Shaw, 47 S.W. 2d 474 (Tex. Civ. App.,
Dallas, 1932), rev’d on other grounds, sub nom.
American Surety Co. v. Shaw, 69 S.W. 2d 47 (Tex.
Comm. App. I9GG) .occccocvecccsccscenseuseuen 11
STATUTES:
Natural Gas Act, 15 U.S.C. §§ 717-717w ............. 3,4
Rules of Decision Act, 28 U.S.C. § 1652 .............. 3,7
Texas Revised Civil Statutes Annotated
art. GOGD-1.G4 ...cccccccccccscéecceuneneneee 3, 10
art..SO0GD-1.68 ...cccccscccencescsnneeneee 3, 10, 11, 13
art. 1987-1, of 806. ..ccccccccsccccccssssesuneeen 12
art. 1907-8, 6.11 ...ccsocsecsssceneuen see 12
28 U.S.0. § 19B4(1) ... ccccccccccecccnsuceneeeeneee 2
REGULATIONS:
r'ederal Power Comm »sion
18 C.F.R. § 164.308 ...coscocstesceusesseneeeen 3, 4
ADMINISTRATIVE DECISIONS:
Hugoton-Anadarko Area Rate Cases, Opinion 586, 44
P.P.C. TGR (1000) .cecsecscesennneee 4, 5, 6, 9, 10, 18
Nationwide Gas Rate Cases, F.P.C. Opinion 699 (1975) 9
Permian Basin Gas Rate Cases, Opinion 662, 34 F.P.C.
150 (1965) ...cccccccccvcesesscenueensaennee » 9
MISCELLANEOUS:
Opinion of the Attorney General of Texas, V-791
(1009) ..cccccccucecssceeneueenennnnE 11, 12, 14
aa
A me Ne Aaa Ae
IN THE
Supreme Court of the United States
OctToBerR TERM, 1975
No.
PuHILLirps PeTroLEUM Company, Petitioner,
v.
J. H. Abas, et al., Riverview Gas COMPRESSION
CoMPANY, et al., and First NATIONAL BANK oF Borcer,
Respondents.
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
Petitioner Phillips Petroleum Company prays that
a writ of certiorari issue to review three opinions and
judgments of the United States Court of Appeals for
the Fifth Circuit entered in these proceedings on May
22, 1975.
OPINIONS BELOW
I. Phillips Petroleum Company v. J. H. Adams,
et al., No. 74-1777. Judgment of the District Court
was accompanied by an unpublished memorandum
opinion dated February 7, 1974, which appears in the
Appendix hereto. (App. 28a). The opinion of the
Court of Appeals for the Fifth Circuit is reported at
513 F.2d 355. (App. 45a).
2
II. Phillips Petroleum Company v. Riverview Gas
Compression Company, et al., No. 74-2009. The opin-
ion of the District Court is reported at 372 F. Supp.
282. (App. 106a). The opinion of the Court of Ap-
peals for the Fifth Circuit is reported at 513 F.2d at
513 F.2d 374. (App. 130a).
Ill. First National Bank of Borger v. Phillips
Petroleum Company, No. 74-2330. The judgment of
the District Court was accompanied by an unpublished
memorandum opinion dated February 27, 1974, which
appears in the Appendix hereto. (App. 86a). The
opinion of the Court of Appeals for the Fifth Circuit is
reported at 513 F.2d 371. (App. 97a).
JURISDICTION
The three judgments of the Court of Appeals for
the Fifth Circuit were made and entered on May 22,
1975. Three separate timely petitions for rehearing
en banc were denied on June 18, 1975 (App. 85a, 105a,
136a), and this petition for certiorari was filed within
90 days of that date. The Court’s jurisdiction is in-
voked under 28 U.S.C. § 1254(1).
QUESTIONS PRESENTED
Whether the Court of Appeals for the Fifth Circuit
in a diversity action may award interest to natural gas
producers pursuant to percentage of proceeds con-
tracts on monies collected by the Petitioner during the
pendency of rate increase proceedings before the Fed-
eral Power Commission when such sums were not due
and payable to the gas producers until the rate increase
was approved and when Texas statutes and state court
decisions prohibit an award of interest for the period
prior to the time money is due and payable.
et
ee ee re. er ee
ee ee ee Pe er eres
t
: |
’
3
STATUTES AND REGULATIONS INVOLVED
The statutory and regulatory provisions involved are
set forth in the Appendix beginning at page la. They
include the following:
1. Texas Revised Civil Statutes Annotated, arts.
5069-1.01 and 5069-1.03.
2. Rules of Decision Act, 28 U.S.C. § 1652.
3. Natural Gas Act, 15 U.S.C. §§ 717-717w.
4. 18 C.F.R. § 154.102.
STATEMENT OF THE CASE
Phillips Petroleum Company (‘Phillips’) is a
major petrochemical company which is engaged,
among other things, in the purchase, transporta-
tion, and sale of natural and casinghead gas. Dur-
ing the time relevant to this action, Respondents were
all engaged in the production and sale of oil and gas
from mineral leases in the Texas Panhandle. Casing-
head gas produced by Respondents was sold to Phil-
lips pursuant to precentage-of-proceeds contracts which
provided that the amount payable under the contract
would be pegged as a percentage of the price at which
Phillips sold gas to third parties.
The price of gas charged by Phillips in its sales to
pipeline companies for interstate transportation and
resale was controlled by the Federal Power Commis-
sion (‘*FPC”’ or ‘‘Commission’’) under its broad au-
thority to fix just and reasonable rates for such sales.
The Natural Gas Act allows a company such as Phillips
to increase its rates without prior FPC approval, but
the Commission may impose a five-month suspension
period and require the refund to purchasers of all or
4
part of the increase if it ultimately finds the higher rate
was unjustified. 15 U.S.C. § 717e(e) ; 18 C.F.R. § 154.
102. By statute the FPC may order payment of interest
on the monies refunded to the pipeline companies. 15
U.S.C. §717e(e); 18 C.F.R. § 154.102(c).
Phillips filed numerous proposed price increases with
the FPC that were originally suspended by the Com-
mission and later put into effect by Phillips subject to
refund. Phillips was required to file a corporate
undertaking with the FPC to make certain that such
refunds would be made to purchasers if the FPC so
ordered. Phillips made monthly payments to Re-
spondents for its gas purchases on the basis of the ‘‘firm
proceeds’’ of Phillips’ own sales (i.e., calculated on the
rates which FPC had previously approved) and did
not remit any of the monies attributable to the pro-
posed rate increases waile FPC approval of the rates
was still pending. This practice assured the availabil-
ity of sufficient funds to pay any refunds to purchasers
ordered by the FPC. If the higher rates were not ap-
proved by the FPC, Phillips would have an obligation
to refund all or part of the funds to purchasers, and
neither Phillips nor Respondents would have any legal
claim to the money. If, on the other hand, there were an
FPC approval of the increases, Phillips would become
legally obligated to account for a portion of the excess
funds to Respondents. Prior to final FPC action,
Phillips was thus in the nature of a stakeholder among
interested parties.
The FPC consolidated for hearing Phillips’ pending
rate increase applications and those of other companies
under the consolidated designation Docket No. AR 64-
1, et al., known as the Hugoton-Anadarko Rate Cases.
——
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sate wn a
5
On September 18, 1970, the FPC issued Opinion 586
which approved a portion of the price increases re-
quested by Phillips and established refund require-
ments for those increases that were not approved. 44
F.P.C. 761 (1970). The State of California challenged
the legality of the FPC Opinion, but on July 31, 1972,
the Ninth Circuit Court of Appeals affirmed the FPC’s
decision. People of the State of California, et al.
v. Federal Power Commission, 466 F.2d 974 (9th Cir.
1972). No petition for writ of certiorari was filed by
any party during the 90-day period following the
court’s decision and on October 28, 1972, FPC Opin-
ion 586 became final.
After the FPC Opinion become final, Phillips divided
the excess funds it was holding subject to refund into
two categories: (i) ‘‘refundable monies’’ which were
based on rate increases disallowed by the FPC and
which Phillips was obligated to return to purchasers
with interest, and (ii) ‘‘sustainable monies’’ which
Phillips was entitled to retain except that there now
existed under the percentage-of-proceeds contracts an
obligation by Phillips to account for a portion of the
sustainable monies to the Respondents. Phillips there-
fore recomputed the weighted average price on each
month’s gas sales in the Texas Panhandle field to
determine the difference between the firm proceeds
which had been disbursed on a month-by-month basis
and the amount to which the supplier of natural gas
was now entitled as a result of the price increases just
approved.
During the period the gas had been produced and
sold to Phillips, the mineral leases were held by per-
sons who, before FPC Opinion 586 was issued, as-
6
signed their leasehold interests to other parties. When
FPC Opinion 586 became final, and Phillips’ obliga-
tion to account for the additional funds matured, both
the former owners and the present holders of the
leases asserted conflicting claims to the funds which
Phillips was prepared to pay. Phillips brought a diver-
sity interpleader action in District Court to ascertain
which claimant was entitled to receive the additional
proceeds. Each of the Respondents not only asserted
claims to the additional funds but also filed counter-
claims against Phillips seeking interest on the money
that had been held by the Company prior to the time
the FPC action approving the rate increases became
final. ;
Upon trial of these cases the District Court deter-
mined the ownership of the principal sum, but rejected
the claims for interest. In disallowing the interest
claims, the District Court stated that the claimants
had no enforceable right to receive any of the money
collected by Phillips subject to refund until the FPC
approved the rate increases. Inasmuch as the money
did not become due and payable until October 28,
1972, when the time for final challenge to FPC Opinion
586 had expired, the District Court held that the Com-
pany was not liable under Texas law for interest prior
to that time. Further, from October 28, 1972, until
December 21, 1973, when Phillips paid the money into
the registry of the Court, there existed a bona fide dis-
pute among the claimants to the money and Phillips
was therefore not liable for interest during that time.
The District Court noted that none of claimants had
demanded that the money be paid into the registry of
the Court following the final effective date of the FPC
Opinion.
——
tit
Pg OO ate Mame AR AO em I i AN Real Oe Wiel ne hh te il es i Se at Genk lite
Te ee ee ee ee ee ee CS een ee een etn ay
7
The District Court’s ruling on the matter of interest
was appealed to the United States Court of Appeals
for the Fifth Circuit which reversed the District Court
on this issue. The Court of Appeals held that notwith-
standing the fact that the principal sum did not become
due and payable until the FPC’s Order became final,
Phillips should nevertheless pay interest for the money
collected prior to that time on equitable grounds.
REASONS FOR GRANTING THE WRIT
The Texas statutes and controlling judicial precedents
of the State permit interest to be awarded only after
the date that the principa! sym of money owed becomes _.
due and payable. These legal requirements, under
the Rules of Decision Act, 28 U.S.C. § 1652 and the law
of Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938),
control the disposition of the instant diversity cases.
The District Court faithfully followed this State law
and denied Respondents the right to insist on interest
during the period the FPC was deciding whether, and
to what extent, the increase in rates would be ap-
proved. The Fifth Circuit Court of Appeals, in over-
ruling the District Court, did not follow the interpreta-
tive criteria used by the Texas courts in determining
when interest is to be paid; instead the Fifth Cireuit
superimposed on the clear statutory directive its own
“equity’’ test. The decisions of the Court of Appeals
are in direct conflict with the Texas statutory law and
decisions of the Texas state courts. In addition, these
decisions are in conflict with a prior decision of the
Fifth Circuit which interpreted the Texas interest stat-
ute, but which was not cited in the Court of Appeals’
opinions,
While these cases themselves involve large amounts
of money, their outcome has an importance far greater
8
than the financial self-interests of the particular liti-
gants. Failure to follow the state courts’ interpreta-
tion of Texas law will subject Phillips and numerous
other companies in the industry to thousands of claims
aggregating many millions of dollars. In the Pan-
handle field of Texas alone, Phillips had 966 outstand-
ing percentage-of-proceeds gas purchasing contracts
with more than $9.7 million in additional proceeds at-
tributable to these contracts." The same legal issue
in controversy here has already been raised in numer-
ous pending cases; and the large financial stakes at
risk make certain that hundreds of additional cases
will be filed.”
1 Phillips Petroleum Company v. J. H. Adams, 513 F.2d at 397.
2A demand against Phillips for interest has been made in the
following cases pending in federal or state courts: Phillips Pe-
troleum Company v. Grady Hazelwood, et al., No. CA-2-1398,
U.S.D.C., N.D. Tex., Amarillo Div.; Bolton, et al. v. Phillips Pe-
troleum Company v. Glass, No. CA-2-1478, US.D.C., N.D. Tex.,
Amarillo Div.; Van Norman Oil Company v. Phillips Petroleum
Company v. Van Norman Oil Company and American Petrofina
Company of Texas, No. CA-2-1492, U.S.D.C., N.D. Tex., Amarillo
Div.: R. P. Fuller, et al. v. Phillips Petroleum Company, No. CA-
5-74-140, U.S.D.C., N.D. Tex., Lrobock Div.; Dunn, et al. v. Phil-
lips Petroleum Company v. Barker, No. CA-2-75-46, U.S.D.C., N.D.,
Tex., Amarillo Div.; Lubell Oil Co. v. Phillips Petroleum Company,
et al., No. C73-86, in the District Court in and for Tulsa County,
Oklahoma; Mitchell, et al. v. Phillips Petroleum Company v. Service
Drilling Co., No. 53830A, in the 47th District Court in and for
Potter County, Texas; Shutts, et al. v. Phillips Petroleum Com-
pany, No. 5309, in the District Court of Kiowa County, Kansas
(a class action). In addition, various other class actions have been
filed against other companies in District Court in the State of
Kansas in which the issue of interest is being litigated: Gray,
et al. v. Amoco Production Company, No. 3125, in the District
Court of Grant County, Kansas; Helmley, et al. v. Cities
Service Oil Company, No. 10,998, in the District Court of
Stafford County, Kansas; Maddoz, et al. v. Gulf Oil Curporation,
—
Ltt lh ON Re et EE eR al A OI le
oe one MEF ee reek oe
eet ee. ek
9
A Supreme Court determination is needed to put this
legal question to rest and avoid a multiplicity of bur-
densome, expensive and needless lawsuits. Since the
issue in dispute has widespread and continuing im-
portance, not only to an essential segment of American
industry, but also to the orderly administration of
justice, these cases merit the attention of the Supreme
Court.
I, The Decisions of the Fifth Circuit Are in Conflict with the
Applicable Texas Statutes and State Court Decisions.
A. Texas Statutory and Case Law Do Not Allow an Award of Interest
for the Period Prior to the Time the Interpleaded Funds in These
Three Cases Became Legally Due and Payable.
Under Texas state court decisions, it was not legally
proper for the Court of Appeals to disregard the ex-
plicit statutory criteria and hold, on broad equity
grounds, that Phillips was legally obligated to pay
interest on the money for the entire period the legal
status of the proposed rate increases was being adjudi-
No. 11,230 in the District Court of Seward County, Kansas; Niz,
et al. v. Northern Natural Gas Producing Company, et al., No.
3116, in the District Court of Grant County, Kansas; Sterling, et
al. vy. Marathon Oil Company, No. 10,764, in the District Court of
Rice County, Kansas; Sterling, et al. v. Superior Oil Company, No.
2715, in the District Court of Stanton County, Kansas; Coffey v.
Atlantic Richfield Co., No. 3115, in the District Court of Grant
County, Kansas; Helmley v. Ashland Oil Company, No. 125,388,
in the District Court of Shawnee County, Kansas.
The instant three cases relate to FPC Opinion 586 governing
rates in the Hugoton-Anadarko area. FPC Opinion 662 also has
been issued regarding rates in the Permiah Basin area of Texas
and it is estimated that $7,500,000 in additional proceeds is attri-
butable to natural gas transactions by Phillips in that area. Fur-
ther, Phillips presently is collecting money subject to refund
under the provisions of FPC Opinion 699, as amended (Docket
R-389-B, Nationwide New Gas Rate) and collects approximately
$500,000 per month at current rates.
10
cated by the FPC. Admittedly, no amount was due
and payable to anyone until after the FPC Opinion
became final and under the Texas statute this was the
controlling factor.
Interest is defined under the Texas statute as ‘‘the
compensation allowed by law for the use or forebear-
ance or detention of money... .’’ Tex. Rev. Civ. Stat.
Ann. art. 5069-1.01. The Texas statute further pro-
vides that:
‘‘When no specified rate of interest is agreed
upon by the parties, interest at the rate of six per-
cent per annum shall be allowed on all written
contracts ascertaining the sum payable, from and
after the time when the sum is due and pay-
able. . . .”’ (Tex. Rev. Civ. Stat. Ann. art.
5069-1.03. )
The parties have stipulated and admitted that the
interpleaded funds did not become legally available for
distribution until October 28, 1972, the date on which
FPC Opinion 586 approving certain rate increases and
disapproving others became immune from further legal
attack. From that date until December 21, 1973,
when Phillips paid the disputed funds into court, the
Company was a stakeholder faced with the conflicting
claims to the monies being held.
The Court of Appeals acknowledged that no award
of interest should be made ‘‘except in such cases as
come within the terms of the enabling legislation.
Watkins v. Junker, 1897, 90 Tex. 584, 40 S.W. 11;
Kirkpatrick v. Great American Ins. Co., Tex. Civ. App.
1927, 299 S.W. 943, no writ.’? 513 F.2d at 365. The
Court of Appeals held in this regard that the claimants
could seek interest from Phillips only as ‘‘compensa-
tion allowed by law for the use... of money,”’ and that
ca A Nem Set eth ON bwin chad Bi ete alles eh —_
ee ee eed
11
the principal sum owed here was ‘‘neither ascertain-
able nor due and payable until after the FPC Order
became final... .’’* 513 F.2d at 365.
The Texas courts have consistently held that interest
not be awarded for the period prior to when the debt
became due and payable. As far back as 1932 in
Watson Co. v. Shaw, 47 S.W. 2d 474 (Tex. Civ. App.
Dallas, 1932), rev’d on other grounds, sub nom. Ameri-
can Surety Co. v. Shaw, 69 S.W. 2d 47 (Tex. Comm.
App. 1934) the Texas Court of Civil Appeals explained
the rule by means of a short question:
‘But when did the principal sums become d
and payable? For it is from this date that ietee-
est should be caleulated.’’ (47 S.W. 2d at 481.)
In G&4W Marine, Inc. vy. Morris, 471 S.W. 2d 644
(Tex. Civ. App., Beaumont, 1971, writ ref’d n.r.e. )
an employee had brought an action against a corporate
employer to recover amounts claimed to be due under
an employment contract. The court awarded the em-
ployee additional compensation but held that under
Tex. Rev. Civ. Stat. Ann. art. 5069-1.03, the statute in-
volved here, interest could only be awarded “from the
date the sum became due and payable....’’ 471 S.W
2d at 649 (Emphasis added). fice
In a somewhat analogous situation to the instant
cases, the Attorney General of the State of Texas is-
sued an opinion regarding the potential liability of
pipeline companies for interest under the Texas inter-
3 The Court of Appeals also noted that ‘‘Phillips has done the
Adams family no wrong, so that the Adamses cannot claim in-
terest as an item of damages, nor does this case fall within the
Statutory rubric of ‘forebearance or detention’ ’
ping etention’ of money.’’ 513
12
est statute for nonpayment of royalties to the State.
The Attorney General indicated that no interest can
legally be awarded when the principal sum to be ascer-
tained depends on action of a third party which has not
occurred. Interest only accrues in that case after
the amount has been ascertained and has become due
and payable. Op. Att’y Gen. Tex. V-791 (1949).
The Fifth Circuit acknowledged that the Texas
courts have been ‘‘strict in refusing interest for periods
prior to the time when an obligation becomes due and
payable’’ but concluded that interest could be awarded
for a period prior to the due date of the debt for equit-
able reasons. 513 F.2d at 365-366. The only authority
cited in support of this view is one case which did not
even involve the Texas interest statute at issue here.
Treon v. Richter, 265 S.W. 2d 125 (Tex. Civ. App.,
San Antonio, 1954, writ ref’d nr.e.). Treon is an
interest as damages case * and dealt with an interpreta-
tion of the provisions of the Agricultural Protective
Act, Tex. Rev. Civ. Stat. Ann: art. 1287-1, et seg. The
Court held only that under that statute where the buyer
defaulted on a crop purchase payment, interest would
start to accrue from the date the crop was delivered,
even though a separate section of the statute permitted
a 30-day payment delay. Tex. Rev. Civ. Stat. Ann. art.
1287-3, § 11. The Fifth Circuit stated that this decision
4The four cases cited in Treon all dealt with interest awarded
as damages. Routon v. Phillips, 246 S.W. 2d 223, 227 (Tex. Civ.
App., Fort Worth, 1952, writ ref’d n.r.e.) ; Settegast v. Timmins,
6 S.W. 2d 425, 429-430 (Tex. Civ. App., Beaumont, 1928, writ
ref’d n.r.e.); Ewing v. Wm. L. Foley, Inc., 115 Tex 222, 280 S.W.
499, 503-504 (1926) ; and Watkins v. Junker, 90 Tex. 584, 40 S.W.
11, 12 (1897). Here, as the Court of Appeals itself noted, we are
not concerned with interest as damages. 513 F.2d at 365.
13
was ‘‘apparently for equitable reasons.’’ 513 F.2d at
366.
The controlling provision of the Texas interest stat-
ute states clearly that interest shall not be awarded
until an obligation is ‘‘due and payable.’’ Tex. Rev.
Civ. Stat. Ann. art. 5069-1.03. The Court of Appeals
cites no Texas state court decision where interest on
the principal sum was awarded pursuant to this statute
for a period prior to the time the obligation became due
and payable.° The Court of Appeals does cite a num-
ber of cases where the Texas courts had to ascertain
as a factual matter the amount actually owed on the
date the legal obligation to pay matured. JIn those
cases the sums due were found in fact also to be ascer-
tainable and the decisions are therefore consistent with
the literal requirements of the statute. By contrast
the decisions in our cases cannot be reconciled with
the statutory language because until the FPC decision
became final, not only was the amount to be paid not
ascertainable, but there was no legal obligation to pay
anything at all—and there might never be such an
®* The Texas courts have explained that in construing State stat-
utes, the ordinary meaning of words shall be used:
‘‘Courts must take statutes as they find them. More than
that, they should be willing to take them as they find them.
They should search out carefully the intendment of a statute,
giving full effect to all of its terms. But they must find its
intent in its language, and not elsewhere. They are not the
law-making body. They are not responsible for omissions
in legislation. They are responsible for a true and fair in-
terpretation of the written law. It must be an interpreta-
tion which expresses only the will of the makers of the law,
not forced nor strained, but simply such as the words of
the law in their plain sense fairly sanction and will clearly
sustain.’’ Texas Highway Commission v. El Paso Bldg. &
Const. Trades Council, 149 Tex. 457, 234 S.W. 2d 857 (1950)
(Emphasis added).
14
obligation. Thus, there was no due and payable date
within the meaning of the statute.
B. Interest on the Interpleaded Funds Is Barred Under Texas Law
for the Period Following the Effective Date of the FPC Order.
The Fifth Circuit held that interest to Respondents
should be awarded not only for the period prior to
when the FPC Order became final, but also from that
date until December 21, 1973, when the Company ten-
dered the interpleaded funds into the Registry of the
District Court. The District Court refused to award
interest for this period, holding that since there was
‘a bona fide dispute among the claimants to the money,
Phillips Petroleum Company was not obligated in any
respect for the payment of interest on said money up
until December 21, 1973’’ when the money was depos-
ited with the Clerk of the Court. In so ruling, the
District Court correctly applied the law in Texas that
a stakeholder who is uncertain to whom to pay a fund
because of conflicting claims is not liable for interest
for use of the funds during the period of uncertainty.
For this ruling the District Court relied on Allied
Building Credits, Inc. v. Grogan Builders Supply Co.,
365 S.W.2d 692 at 696 (Tex. Civ. App., Houston, 1963,
writ ref’d n.r.e.), among other cases. See also, Op.
Att’y Gen. Tex. V-791 (1949).
® We note the well-established rule prohibiting an award of
interest in bankruptey cases. As stated by the Supreme Court in
Thomas v. Western Car Co., 149 U.S. 95, 116-117 (1893), and
followed thereafter in a long line of cases:
‘“‘after property of an insolvent passes into the hands of a
receiver or of an assignee in insolvency, interest is not allowed
on the claims against the funds. The delay in distribution is
the act of the law; it is a necessary incident to the settle-
ment of the estate.’’ (Emphasis added)
15
The Fifth Circuit Court of Appeals ignored the ap-
plicable law of Texas as expressed by the courts of the
State and instead based its ruling in this regard on its
reading of cases in other jurisdictions. In so doing
the Court stated:
‘*We do not believe that the Texas law in this area
is different from that in other jurisdictions, but
see Allied Building Credits, Inc. v. Grogan Build-
ers Supply Co....’’ (513 F.2d at 369.)
While Phillips neither disputes nor concedes that the
Court’s interpretation of the law of other jurisdictions
is correct, we submit that the only relevant law is that
of the State of Texas and Texas law provides that a
bona fide dispute over the title to funds bars any award
of interest.
In Allied Building Credits, Inc. v. Grogan Builders
Supply Co., 365 8.W.2d 692 (Tex. Civ. App., Houston,
1963, writ ref’d n.r.e.), the Texas appellate court held
that ai: award of interest for a time prior to the re-
lease of a federal tax lien was improper. The court
thus stated:
‘*Grogan was not entitled to any payment from the
reserve account until that date. Prior to that date
Grogan had become subject to a federal tax lien,
so that Allied, which was served with such lien,
could not make payment to Grogan with impunity
until such tax lien was released. We are of the
opinion that the trial court erred in allowing in-
terest as was done, and that the amount of $4,532.00
should bear interest from October 18, 1960, when
such lien was released. ...’’ (365 S.W. 2d at 696.)
Similarly, in Gulf Pipe Line Co. v. Nearen, et al., 138
S.W.2d 1065 (Tex. Comm. App. 1940), the Court held
16
that the purchase price of oil did not become due and
payable until a dispute as to ownership was resolved
and the amount due would not commence to draw in-
terest until adverse claims to the funds were settled.
The Fifth Circuit’s decision to overturn the District
Court interpretation of State law on the issue of in-
terest constituted an abrupt departure from settled
principles of appellate review. In a diversity action
the determination by a district court as to questions
of the local law of the state where it sits is to be ac-
corded great weight by the Court of Appeals, which
will not adopt a contrary view unless clearly convinced
of error. In this regard in another case involving the
interpretation of Texas law, the Fifth Circuit stated:
‘Tt is not our function to expand the law of Texas.
Rather, we must apply the interpretation which
most likely would be applied by the Texas court
of last resort. In this effort, due to his experience
and familiarity with Texas law, precedent directs
us to extend great deference to the Trial Judge’s
understanding of it....’’ (Devers v. Mobil Chem-
ical Corp., 488 F.2d 258, 260 (5th Cir. 1973),
cert. denied, 417 U.S. 947 (1974).)
The Court of Appeals in the instant cases has improp-
erly refused to follow the clear mandate of Texas de-
cisional law which, as the District Court determined,
bars any award of interest.
II. The Decisions in the Instant Cases Are in Conflict with a
Prior Decision of the Fifth Circuit.
The Fifth Cireuit has not only refused to follow the
applicable law of the State of Texas regarding the
award of interest, but in addition, has ignored a prior
decision in which the Court of Appeals had occasion
17
to construe the Texas interest statute. The facts of
the earlier Fifth Circuit case, City of Texarkana,
Texas v. Arkansas Louisiana-Gas Company, 118 F.2d
289 (5th Cir. 1941), vacated per stipulation, 315 U.S.
780 (1942), bear a striking similarity to the facts pre-
sented here, although this contrary decision was not
even cited in the Court of Appeals’ opinions. In the
Texarkana case the Appellee served as a public utility
for the distribution of gas in both the City of Texar-
kana, Texas and the City of Texarkana, Arkansas.
The Gas Company was required under the terms of its
Texas franchise to charge no higher rates in Texas
than it collected in Arkansas. The Gas Company had
been compelled in litigation to establish lower rates in
Arkansas and an action was brought to order the Gas
Company to maintain in Texas these lower gas rates
and to refund to Texas consumers any amounts that
had been overcharged plus interest.
Upon trial of the case the District Court held that
refunds to Texas consumers were due but that no in-
terest would be allowed. The sole issue on appeal to
the Fifth Circuit related to the disallowance of inter-
est claims by the District Court. Since the case was a
diversity action, the Fifth Circuit reviewed Texas
law to determine whether interest should have been
awarded the Texas consumers and held that interest
was not required by statute, nor could it be awarded
as damages for the detention of money. The Court
thus stated:
‘*The amount of each refund due in this case de-
pended on simple fixed factors, to-wit, the rate
charged and the rate finally established in Arkan-
sas .... [T]he refund in this case was not due
to be made as soon as the money was collected, for
18
under the contract an involuntary lower rate was
not to be put into effect in Texas until it was
finally established in Arkansas. [citations omit-
ted] Until then the Gas Company could collect
and keep the money under the current Texas rate.”’
(118 F.2d at 294-295.)
The Fifth Cireuit explained that interest was not
owing under the Texas interest statute since ‘‘the rates
collected were collected under a bona fide claim of
right ...’’ and the refunds were not due and payable
until the rates established in Arkansas became final.
118 F.2d at 291. Similarly, no interest can properly be
awarded under Texas law in the instant cases until
FPC Opinion 586 became final since Phillips had no
duty to pay any sums to Respondents until that time.
Indeed, the factual context here requiring the denial of
interest is even more compelling than in the Texarkana
case since no money was ever collected from claimants,
held for a period, and subsequently refunded as in Tez-
arkana, but rather the money was collected by Phillips
from third parties and ultimately paid to Respondents
when the amounts became due and payable.
The decisions of the Fifth Cireuit in the instant
eases are thus in direct conflict with the decision of the
same Court of Appeals in the Terarkana case. Under
Texas law the Fifth Cireuit determined in Texarkana
that interest could not be awarded for a period during
which sums were collected from consumers under a
bona fide claim of right, but would only aecerue from
the date that the sum were to be refunded, the due and
payable date. In the instant cases the Fifth Circuit
construed the virtually identical interest statute and
held that interest should be paid prior to the due date
for equitable reasons despite an explicit statutory pro-
19
hibition. Under these circumstances, this intracireuit
conflict on a question of local law that is of great and
recurring importance to the natural gas industry re-
quires the exercise of the Supreme Court’s power of
supervision. Commissioner of Internal Revenue v.
Estate of Bosch, 387 U.S. 456 (1967); Dickinson v.
Petroleum Conversion Corp., 338 U.S. 507, 508 (1950).
As this Court stated in John Hancock Ins. Co. v. Bar-
tels, 308 U.S. 180, 181 (1930):
‘* Because of conflict in the rulings of the Court of
Appeals of the Fifth Circuit, due to the differing
views of the judges composing the court in the
eases cited, and because of the importance of the
question, we granted certiorari... .’’
CONCLUSION
For the reasons stated, the petition for writ of cer-
tiorari should be granted.
Respectfully submitted,
CLARK M. CLIFFoRD
Carson M. Grass
Ropert A. ALTMAN
CLIFFORD, WARNKE, GLAass,
McIiwain & FINNEY
815 Connecticut Ave.
Washington, D.C. 20006
Lioyp G. MINTER
C. J. Roperts .
Phillips Petroleum Company
Bartlesville, Oklahoma 74004
JACK RITCHIE
T. L. Cuppace IT
Phillips Petroleum Company
Amarillo, Texas 79105
APPENDIX
la
APPENDIX
Texas Revised Civil Statutes Annotated, Articles 5069-1.01
and 5069-1.03 provides:
Article 5069-1.01. Definitions
(a) ‘‘Interest’’ is the compensation allowed by
law for the use or forbearance or detention of money;
provided however, this term shall not include any time
price differential however denominated arising out of
a credit sale.
(b) ‘‘Legal Interest’’ is that interest which is al-
lowed by law when the parties to a contract have not
agreed on any particular rate of interest.
(c) ‘*Conventional Interest’’ is that interest which
is agreed upon and fixed by the parties to a written
contract.
(d) ‘*Usury”’ is interest in excess of the amount
allowed by law.
(e) ‘*Person’’ means an individual, partnership,
corporation, joint venture, trust, association or any
legal entity, however organized.
Article 5069-1.03. Legal rate applicable
When no specified rate of interest is agreed upon by
the parties, interest at the rate of six percent per an-
num shall be allowed on all written contracts ascer-
taining the sum payable, from and after the time when
the sum is due and payable; and on all open accounts,
from the first day of January after the same are made.
Rules of Decision Act, 28 U.S.C. § 1652 provides:
The laws of the several states, except where the Con-
stitution or treaties of the United States or Acts of Con-
gress otherwise require or provide, shall be regarded as
rules of decision in civil actions in the courts of the United
States, in cases where they apply.
2a 3a
Natural Gas Act, 15 U.S.C. §§717-717w provides: § 717a. Definitions.
§ 717. Necessity for regulation of natural gas companies. | When used in this chapter, unless the context other-
(a) As disclosed in reports of the Federal Trade
Commission made pursuant to S. Res. 83 (Seventieth
Congress, first session) and other reports made pur-
suant to the authority of Congress, it is declared
that the business of transporting and selling natural
gas for ultimate distribution to the public is affected
with a public interest, and that Federal regulation in
matters relating to the transportation of natural gas
and the sale thereof in interstate and foreign com-
merce is necessary in the public interest.
(b) The provisions of this chapter shall apply to
the transportation of natural gas in interstate com-
merce, to the sale in interstate commerce of natural
gas for resale for ultimate public consumption for
domestic, commercial, industrial, or any other use,
and to natural-gas companies engaged in such trans-
portation or sale, but shall not apply to any other
transportation or sale of natural gas or to the local
distribution of natural gas or to the facilities used
for such distribution or to the production or gather-
ing of natural gas.
(c) The provisions of this chapter shall not apply
to any person engaged in or legally authorized to en-
gage in the transportation in interstate commerce or
the sale in interstate commerce for resale, of natural
gas received by such person from another person
within or at the boundary of a State if all the natural
gas so received is ultimately consumed within such
State, or to any facilities used by such person for such
transportation or sale, provided that the rates and
service of such person and facilities be subject to
regulation by a State commission. The matters ex-
empted from the provisions of this chapter by this sub-
section are declared to be matters primarily of local
concern and subject to regulation by the several States.
A certification from such State commission to the
Federal Power Commission that such State commis-
sion has regulatory jurisdiction over rates and service
of such person and facilities and is exercising such
jurisdiction shall constitute conclusive evidence of
such regulatory power or jurisdiction.
wise requires—
(1) ‘‘Person’’ includes an individual or a corpor-
ation.
(2) ‘*Corporation’’ includes any corporation, joint-
stock company, partnership, association, business
trust, organized group of persons, whether incorpor-
ated or not, receiver or receivers, trustee or trustees of
any of the foregoing, but shall not include munici-
palities as hereinafter defined.
(3) ‘‘Municipality’’ means a city, county, or other
political subdivision or agency of a State.
(4) ‘‘State’’ means a State admitted to the Union,
the District of Columbia, and any organized Territory
of the United States.
(5) ‘*Natural.gas’’ means either natural gas un-
mixed, or any mixture of natural and artificial gas.
(6) ‘‘Natural-gas company’? means a person en-
gaged in the transportation of natural gas in interstate
commerce, or the sale in interstate commerce of such
gas for resale.
(7) ‘‘Interstate commerce’? means commerce be-
tween any point in a State and any Point outside there-
of, or between points within the same State but through
any place outside thereof, but only insofar as such
commerce takes place within the United States.
(8) ‘*State commission’’ means the regulatory body
of the State or municipality having jurisdiction to
regulate rates and charges for the sale of natural gas
to consumers within the State or municipality.
(9) ‘*‘Commission’’ and ‘‘Commissioner’’ means
the Federal Power Commission, and a member thereof,
respectively.
§ 717b. Exportation or importation of natural gas.
After six months from June 21, 1938, no person
shall export any natural gas from the United States
to a foreign country or import any natural gas from
a a
4a
a foreign country without first having secured an
order of the Commission authorizing it to do so. The
Commission shall issue such order upon application,
unless, after opportunity for hearing, it finds that the
proposed exportation or importation will not be con-
sistent with the public interest. The Commission may
by its order grant such application, in whole or in part,
with such modification and upon such terms and con-
ditions as the Commission may find necessary or ap-
propriate, and may from time to time, after oppor-
tunity for hearing, and for good cause shown, make
such supplemental order in the premises as it may find
necessary or appropriate.
§ 717c. Rates and charges; schedules; suspension of new
rates.
(a) All rates and charges made, demanded, or re-
ceived by any natural-gas company for or in con-
nection with the transportation or sale of natural gas
subject to the jurisdiction of the Commission, and all
rules and regulations affecting or pertaining to such
rates or charges, shall be just and reasonable, and any
such rate or charge that is not just and reasonable
is declared to be unlawful.
(b) No natural-gas company shall, with respect to
any transportation or sale of natural gas subject to
the jurisdiction of the Commission, (1) make or grant
any undue preference or advantage to any person
or subject any person to any undue prejudice or dis-
advantage, or (2) maintain any unreasonable differ-
ence in rates, charges, service, facilities, or in any other
respect, either as between localities or as between
classes of service.
(c) Under such rules and regulations as the Com-
mission may prescribe, every natural-gas company
shall file with the Commission, within such time (not
less than sixty days from June 21, 1938) and in such
form as the Commission may designate, and shall
keep open in convenient form and place for public
inspection, schedules showing all rates and charges
for any transportation or sale subject to the jurisdic-
tion of the Commission, and the classifications, prac-
5a
tices, and regulations affecting such ratés and charges,
together with all contracts which in any manner affect
or relate to such rates, charges, classifications, and
services,
(d) Unless the Commission otherwise orders, no
change shall be made by any natvral-gas company in
any such rate, charge, classification, or service, or in
any rule, regulation, or contract relating thereto, ex-
cept after thirty days’ notice to the Commission and
to the public. Such notice shall be given by filing with
the Commission and keeping open for public inspection
new schedules stating plainly the change or changes to
be made in the schedule or schedules then in force and
the time when the change or changes will go into effect.
The Commission, for good cause shown, may allow
changes to take effect without requiring the thirty
days’ notice herein provided for by an order specify-
ing the changes so to be made and the time when they
shall take effect and the manner in which they shall be
filed and published.
(e) Whenever any such new schedule is filed the
Commission shall have authority, either upon com-
plaint of any State, municipality, State commission,
or gas distributing company, or upon its own initiative
without complaint, at once, and if it so orders, with-
out answer or formal pleading by the natural-gas
company, but upon reasonable notice, to enter upon
a hearing concerning the lawfulness of such rate,
charge, classification, or service; and, pending such
hearing and the decision thereon, the Commission,
upon filing with such schedules and delivering to the
natural-gas company affected thereby a statement in
writing of its reasons for such suspension, may sus-
pend the operation of such schedule and defer the
use of such rate, charge, classification, or service,
but not for a longer period than five months beyond
the time when it would otherwise go into effect;
and after full hearings, either completed before or
after the rate, charge, classification, or service goes
into effect. the Commission may make such orders
with reference thereto as would be proper in a pro-
ceeding initiated after it had become effective. If the
proceeding has not been concluded and an order made
6a
at the expiration of the suspension period, on motion
of the natural-gas company making the filing, the
proposed change of rate, charge, classification, or serv-
ice shall go into effect. Where increased rates or
charges are thus made effective, the Commission may,
by order, require the natural-gas company to furnish
a bond, to be approved by the Commission, to refund
any amounts ordered by the Commission, to keep ac-
curate accounts in detail of all amounts received by
reason of such increase, specifying by whom and in
whose behalf such amounts were paid, and, upon com-
pletion of the hearing and decision, to order such na-
tural-gas company to refund, with interest, the portion
of such increased rates or charges by its decision found
not justified. At any hearing involving a rate or charge
sought to be increased, the burden of proof to show
that the increased rate or charge is just and reason-
able shall be upon the natural-gas company, and the
Commission shall give to the hearings and decision
of such questions preference over other questions
pending before it and decide the same as speedily as
possible.
§ 717d. Fixing rates and charges; determination of cost of
production or transportation.
(a) Whenever the Commission, after a hearing had
upon its own motion or upon complaint of any State,
municipality, State commission, or gas distributing
company, shall find that any rate, charge, or classifi-
cation demanded, observed, charged, or eollected by
any natural-gas company in connection with any trans-
portation or sale of natural gas, subject to the juris-
diction of the Commission, or that any rule, regulation,
practice, or contract affecting such rate, charge, or
classification is unjust, unreasonable, unduly discrim-
inatory, or preferential, the Commission shall deter-
mine the just and reasonable rate, charge, classifica-
tion, rule, regulation, practice, or contract to be there-
after observed and in force, and shall fix the same b
order: Provided, however, That the Commission sha
have no power to order any increase in any rate con-
tained in the currently effective schedule of such na-
tural gas company on file with the Commission, unless
7a
such increase is in accordance with a new schedule filed
by such natural gas company; but the Commission may
order a decrease where existing rates are unjust, un-
duly discriminatory, preferential, otherwise unlawful,
or are not the lowest reasonable rates.
(b) The Commission upon its own motion, or upon
the request of any State commission, whenever it can
do so without prejudice to the efficient and proper
conduct of its affairs, may investigate and determine
the cost of the production or transportation of nat-
ural gas by a natural-gas company in cases where the
Commission has no authority w establish a rate gov-
erning the transportation or sale of such natural gas.
§ 717e. Ascertainment of cost of property.
(a) The Commission may investigate and ascer-
tain the actual legitimate cost of the property of every
natural-gas company, the depreciation therein, and,
when found necessary for rate-making purposes, other
facts which bear on the determination of such cost or
depreciation and the fair value of such property.
(b) Every natural-gas company upon request shall
file with the Commission an inventory of all or any
part of its property and a statement of the original
cost thereof, and shall keep the Commission informed
regarding the cost of all additions, betterments, ex-
tensions, and new construction.
§ 717f. Construction, extension, or abandonment of facili-
ties; certificate of convenience and necessity; condem-
nation proceedings.
(a) Whenever the Commission, after notice and op-
portunity for hearing, finds such action necessary or
desirable in the public interest, it may by order direct
a natural-gas company to extend or improve its trans-
portation Fac ilities, to establish physical connection of
its transportation facilities with the facilities of, and
sell natural gas to, any person or municipality engaged
or legally authorized to engage in the local distribution
of natural or artificial gas to the public, and for such
purpose to extend its transportation facilities to com-
8a
munities immediately adjacent to such facilities or to
territory served by such natural-gas company, if the
Commission finds that no undue burden will be placed
upon such natural-gas company thereby: Provided,
That the Commission shall have no authority to com-
pel the enlargement of transportation facilities for
such purposes, or to compel such natural-gas company
to establish physical connection or sell natural gas when
to do so would impair its ability to render adequate
service to its customers.
(b) No nautral-gas company shall abandon all or any
portion of its facilities subject to the jurisdiction of the
Commission, or any service rendered by means of such
facilities, without the permission and approval of the
Commission first had and obtained, after due hearing,
and a finding by the Commission that the available
supply of natural gas is depleted to the extent that the
continuance of service is unwarranted, or that the pres-
ent or future public convenience or necessity permit
such abandonment.
(c) No natural-gas company or person which will be
a nautral-gas company upon completion of any pro-
posed construction or extension shall engage in the
transportation or sale of natural gas, subject to the
jurisdiction of the Commission, or undertake the con-
struction or extension of any facilities therefor, or
acquire or operate any such facilities or extensions
thereof, unless there is in force with respect to such
natural-gas company a certificate of public convenience
and necessity issued by the Commission authorizing
such acts or operations: Provided, however, That if
any such natural-gas company or predecessor in inter-
est was bona fide engaged in transportation or sale of
natural gas, subject to the jurisdiction of the Commis-
sion, on February 7, 1942, over the route or routes or
within the area for which application is made and has
so operated since that time, the Commission shall issue
such certificate without requiring further proof that
public convenience and necessity will be served by such
operation, and without further proceedings, if appli-
cation for such certificate is made to the Commission
within ninety days after February 7, 1942. Pending
én
oe OAD Pn eet abe Mend <r ihe! o ++ SD cetnee ” bellies ie.
Reber t Cem a i he eee og ES
9a
the determination of any such aplication, the continu-
ance of such operation shall be lawful.
In all other cases the Commission shall set the matter
for hearing and shall give such reasonable notice of
the hearing thereon to all interested persons as in its
judgment may be necessary under rules and regula-
tions to be prescribed by the Commission; and the ap-
plication shall be decided in accordance with the pro-
cedure provided in subsection (e) of this section and
such certificate shall be issued or denied accordingly:
Provided, however, That the Commission may issue a
temporary certificate in cases of emergency, to assure
maintenance of adequate service or to serve particular
customers, without notice or hearing, pending the de-
termination of an application for a certificate, and may
by regulation exempt from the requirements of this
section temporary acts or operations for which the
issuance of a certificate will not be required in the pub-
lie interest.
(d) Application for certificates shall be made in
writing to the Commission, be verified under oath, and
shall be in such form, contain such information, and
notice thereof shall be served upon such interested
parties and in such manner as the Commission shall,
by regulation, require.
(e) Except in the cases governed by the provisos
contained in subsection (c) of this section, a certificate
shall be issued to any qualified applicant therefor,
authorizing the whole or any part of the operation,
sale, service, construction, extension, or acquisition
covered by the application, if it is found that the appli-
cant is able and willing properly to do the acts and to
perform the service proposed and to conform to the
provisions of this chapter and the requirements,
rules, and regulations of the Commission thereunder,
and that the proposed service, sale, operation, construc-
tion, extension, or acquisition, to the extent authorized
by the certificate, is or will be required by the present
or future public convenience and necessity; otherwise
such application shall be denied. The Comission shall
have the power to attach to the issuance of the certifi-
cate and to the exercise of the rights granted there-
ee
10a
under such reasonable terms and conditions as the
public convenience and necessity may require.
(f) The Commission, after a hearing had upon its
own motion or upon application, may determine the
service area to which each authorization under this
section is to be limited. Within such service area as
determined by the Commission a natural-gas company
may enlarge or extend its facilities for the purpose of
supplying increased market demands in such service
area without further authorization.
(g) Nothing contained in this section shall be con-
strued as a limitation upon the power of the Commis-
sion to grant certificates of public convenience and
necessity for service of an area already being served
by another natural-gas company.
(h) When any holder of a certificate of public cqn-
venience and necessity cannot acquire by contract, or
is unable to agree with the owner of property to the
compensation to be paid for, the necessary right-of-way
to construct, operate, and maintain a pipe line or pipe
lines for the transportation of natural gas, and the
necessary land or other property, in addition to right-
of-way, for the location of compressor stations, pres-
sure apparatus, or other stations or equipment neces-
sary to the proper operation of such pipe line or pipe
lines, it may acquire the same by the exercise of the
right of eminent domain in the district court of the
United States for the district in which such property
may be located, or in the State courts. The practice
and procedure in any action or proceeding for that
purpose in the district court of the United States shall
conform as nearly as may be with the practice and pro-
cedure in similar action or proceeding in the courts of
the State where the property is situated: Provided,
That the United States district courts shall only have
jurisdiction of cases when the amount claimed by the
owner of the property to be condemned exceeds $3,000.
§ 717g. Accounts; records; memoranda.
(a) Every natural-gas company shall make, keep,
and preserve for such periods, such accounts, records
of cost-accounting procedures, correspondence, memo-
oe ee — -
|
.
lla
randa, papers, books, and other records as the Com-
mission may by rules and regulations prescribe as
necessary or appropriate for purposes of the adminis-
tration of this chapter: Provided, however, That noth-
ing in this chapter shall relieve any such natural-gas
company from keeping any accounts, memoranda, or
records which such natural-gas company may be re-
quired to keep by or under authority of the laws of
any State. The Commission may prescribe a system of
accounts to be kept by such natural-gas companies, and
may classify such natural-gas companies and prescribe
a system of accounts for each class. The Commission,
after notice and opportunity for hearing, may deter-
mine by order the accounts in which particular outlays
or receipts shall be entered, charged, or credited. The
burden of proof to justify every accounting entry ques-
tioned by the Commission shall be on the person mak-
ing, authorizing, or requiring such entry, and the Com-
mission may suspend a charge or credit pending sub-
mission of satisfactory proof in support thereof.
(b) The Commission shall at all times have access
to and the right to inspect and examine all accounts,
records, and memoranda of natural-gas companies; and
it shall be the duty of such natural-gas companies to
furnish to the Commission, within such reasonable —
time as the Commission may order, any information
with respect thereto which the Commission may by
order require, including copies of maps, contracts, re-
ports of engineers, and other data, records, and papers,
and to grant to all agents of the Commission free ac-
cess to its property and its accounts, records, and mem-
oranda when requested so to do. No member, officer,
or employee of the Commission shall divulge any fact
or information which may come to his knowledge dur-
ing the course of examination of books, records, data,
or accounts, except insofar as he may be directed by the
Commission or by a court.
(c) The books, accounts, memoranda, and records
of any person who controls directly or indirectly a
natural-gas company subject to the jurisdiction of the
Commission and of any other company controlled by
such person, insofar as they relate to transactions with
12a
or the business of such natural-gas company, shall be
subject to examination on the order of the Commission.
§ 717h. Rates of depreciation.
(a) The Commission may, after hearing, require
natural-gas companies to carry proper and adequate
depreciation and amortization accounts in accordance
with such rules, regulations, and forms of account as
the Commission may prescribe. The Commission may
from time to time ascertain and determine, and by
order fix, the proper and adequate rates of deprecia-
tion and amortization of the several classes of property
of each natural-gas company used or useful in the pro-
duction, transportation, or sale of nautral gas. Each
natural-gas company shall conform its depreciation and
amortization accounts to the rates so ascertained, de-
termined, and fixed. No natural-gas company subject
to the jurisdiction of the Commission shall charge to
operating expenses any depreciation or amortization
charges on classes of property other than those pre-
scribed by the Commission, or charge with respect to
any class of property a percentage of depreciation or
amortization other than that prescribed therefor by
the Commission. No such natural-gas company shall
in any case include in any form user its operating or
other expenses any depreciation, amortization, or other
charge or expenditure included elsewhere as a depreci-
ation or amortization charge or otherwise under its
operating or other expenses. Nothing in this section
shall limit the power of a State commission to deter-
mine in the exercise of its jurisdiction, with respect to
any natural-gas company, the percentage rates of de-
preciation or amortization to be allowed, as to any class
of property of such nautral-gas company, or the com-
posite depreciation or amortization rate, for the pur-
pose of determining rates or charges.
(b) The Commission, before prescribing any rules
or requirements as to accounts, records, or memo-
randa, or as to depreciation or amortization rates, shall
notify each State commission having jurisdiction with
respect to any natural-gas company involved and shall
give reasonable opportunity to each commission to pre-
13a
sent its views and shall receive and consider such views
and recommendations.
§ 717i. Periodic and special reports.
(a) Every natural-gas company shall file with the
Commission such annual and other periodic or spe-
cial reports as the Commission may by rules and regu-
lations or order prescribe as necessary or appropriate
to assist the Commission in the proper administration
of this chapter. The Commission may prescribe the
manner and form in which such reports shall be made,
and require from such natural-gas companies specific
answers to all questions upon which the Commission
may need information. The Commission may require
that such reports shall include, among other things,
full information as to ae liabilities, capitaliza-
tion, investment and reduction thereof, gross receipts,
interest due and paid, depreciation, amortization, and
other reserves, cost of facilities, cost of maintenance
and operation of facilities for the production, trans-
portation, or sale of natural gas, cost of renewal and
replacement of such facilities, transportation, delivery,
use and sale of natural gas. The Commission may re-
quire any such natural-gas company to make adequate
provision for currently determining such costs and
other facts. Such reports shall be made under oath
unless the Commission otherwise specifies.
(b) It shall be unlawful for any natural-gas com-
pany willfully to hinder, delay, or obstruct the mak-
ing, filing, or keeping of any information, document,
report, memorandum, record, or account required to
be made, filed, or kept under this chapter or any rule,
regulation, or order thereunder.
§ 717j. State compacts; reports on.
(a) In case two or more States propose to the Con-
gress compacts dealing with the conservation, produc-
tion, transportation, or distribution of natural gas it
shall be the duty of the Commission to assemble per-
tinent information relative to the matters covered in
any such proposed compact, to make public and to
report to the Congress information so obtained, to-
l4a
gether with such recommendations for further legis-
lation as may appear to be appropriate or necessary
to carry out the purposes of such proposed compact
and to aid in the conservation of natural-gas resources
within the United States and in the orderly, equitable,
and economic production, transportation, and distri-
bution of natural gas.
(b) It shall be the duty of the Commission to
assemble and keep current pertinent information rela-
tive to the effect and operation of any compact be-
tween two or more States heretofore or hereafter ap-
proved by the Congress, to make such information
public, and to report to the Congress, from time to
time, the information so obtained, together with such
recommendations as may appear to be appropriate or
necessary to promote the purposes of such compact.
In carrying out the purposes of this chapter,
Phy Fk vw shall so far as practicable, avail itself
of the services, records, reports, and information of
the executive departments and other agencies of the
Government, and the President may, from time to
time, direct that such services and facilities be made
available to the Commission.
§ 717k. Officials dealing in securities.
It shall be unlawful for any officer or director of
any natural-gas company to receive for his own bene-
fit, directly or indirectly, any money or thing of value
in respect to the negotiation, hypothecation, or sale by
such natural-gas company of any security issued, or
to be issued, by such natural-gas company, or to share
in any of the proceeds thereof, or to participate in
the making or paying of any dividends, other than
liquidating dividends, of such natural-gas company
from any funds properly included in capital account.
§ 7171. Complaints.
Any State, municipality, or State commission com-
plaining of anything done or omitted to be done by
any natural-gas company in contravention of the pro-
visions of this chapter may apply to the Commission
15a
by petition, which shall briefly state the facts, where-
upon a statement of the complaint thus made shall
be forwarded by the Commission to such natural-gas
company, which shall be called upon to satisfy the
complaint or to answer the same in writing within a
reasonable time to be specified by the Commission.
§ 717m. Investigations by Commission; attendance of wit-
nesses; depositions.
(a) The Commission may investigate any facts, con-
ditions, practices, or matters which it may find neces-
sary or proper in order to determine whether any
person has violated or is about to violate any provi-
sion of this chapter or any rule, regulation, or order
thereunder, or to aid in the enforcement of the provi-
sions of this chapter or in prescribing rules or regula-
tions thereunder, or in obtaining information to serve
as a basis for recommending further legislation to
the Congress. The Comission may permit any per-
son to file with it a statement in writing, under oath
or otherwise, as it shall determine, as to any or all
facts and circumstances concerning a matter which
may be the subject of investigation. The Commission,
in its discretion, may publish in the manner authorized
by section 825k of Title 16, and make available to
State commissions and municipalities, information
concerning any such matter.
(b) The Commission may, after hearing, determine
the adequacy or inadequacy of the gas reserves held
or controlled by any natural-gas company, or by any-
one on its behalf, including its owned or leased prop-
erties or royalty contracts; and may also, after hear-
ing, determine the propriety and reasonableness of the
inclusion in operating expenses, capital, or surplus of
all delay rentals or other forms of rental or compensa-
tion for unoperated lands and leases. For the pur-
pose of such determinations, the Commission may re-
quire any natural-gas company to file with the Com-
mission true copies of all its lease and royalty agree-
ments with respect to such gas reserves.
(c) For the purpose of any investigation or any
other proceeding under this chapter, any member of
16a
the Commission, or any officer designated by it, is
empowered to administer oaths and affirmations, sub-
pena witnesses, compel their attendance, take evidence,
and require the production of any books, papers, cor-
respondence, memoranda, contracts, agreements, or
other records which the Commission finds relevant or
material to the inquiry. Such attendance of witnesses
and the production of any such records may be re-
quired from any place in the United States or at any
designated place of hearing. Witnesses summoned by
the Commission to appear before it shall be paid the
same fees and mileage that are paid witnesses in the
courts of the United States.
(d) In ease of contumacy by, or refusal to obey a
subpena issued to, any person, the Commission may
invoke the aid of any court of the United States within
the jurisdiction of which such investigation or pro-
ceeding is carried on, or where such person resides or
carries on business, in requiring the attendance and
testimony of witnesses and the production of books,
papers, correspondence, memoranda, contracts, agree-
ments and other records. Such court may issue an
order requiring such person to appear before the Com-
mission or member or officer designated by the Com-
mission, there to produce records, if so ordered, or to
give testimony touching the matter under investiga-
tion or in question; and any failure to obey such
order of the court may be punished by such court as
a contempt thereof. All process in any such case may
be served in the judicial district whereof such person
is an inhabitant or wherever he may be found or may
be doing business. Any person who willfully shall
fail or refuse to attend and testify or to answer any
lawful inquiry or to produce books, papers, corres-
pondence, memoranda, contracts, agreements or other
records if in his or its power so to do in obedience to
the subpena of the Commission, shall be guilty of a
misdemeanor and upon conviction shall be subject to
a fine of not more than $1,000 or to imprisonment for
a term Of not more than one year, or both.
(e) The testimony of any witness may be taken at
the instance of a party, in any proceeding or investi-
17a
gation pending before the Commission, by deposition
at any time after the proceeding ioe ‘ae The
Commission may also order testimony to be taken by
one im any proceeding or investigation pending
before it at any stage of such proceeding or investi-
gation. Such depositions may be taken before any
person authorized to administer oaths not being of
counsel or attorney to either of the parties, nor inter-
ested in the proceeding or investigation. Reasonable
notice must first be given in writing by the party or
his attorney proposing to take such deposition to the
opposite party or his attorney of record, as either may
be nearest, which notice shall state the name of the
witness and the time and place of the taking of his
deposition. Any person may be compelled to appear
and depose, and to produce documentary evidence, in
the same manner as witnesses may be compelled to
appear and testify and produce documentary evidence
before the Commission, as hereinbefore provided.
Such testimony shall be reduced to writing by the
— —e —— - a his direction, and
ll, after i s been reduced to writin
scribed by the deponent. ——
(f) If a witness whose testimony may be desired
to be taken by deposition be in a cools canoer. the
deposition may be taken before an officer or person
designated by the Commission, or agreed upon by the
parties by stipulation in writing to be filed with the
Commission. All depositions must be promptly filed
with the Commission.
(g) Witnesses whose depositions are taken as au-
thorized in this chapter, and the person or officer
taking the same, shall be entitled to the same fees as
dang for like services in the courts of the United
es.
§ 717n. Hearings; rules of procedure.
(a) Hearings under this chapter may be held be-
fore the Commission, any member or members thereof,
or any representative of the Commission designated
by it, and appropriate records thereof shall be kept.
any proceeding before it, the Commission in ac-
18a
cordance with such rules and regulations as it may
prescribe, may admit as a party any interested State,
State commission, municipality or any representative
of interested consumers or security holders, or any
competitor of a party to such proceeding, or any other
person whose participation in the proceeding may be
in the public interest.
(b) All hearings, investigations, and proceedings
under this chapter shall be governed by rules of prac-
tice and procedure to be adopted by the Commission,
and in the conduct thereof the technical rules of evi-
dence need not be applied. No informality in any
hearing, investigation, or proceeding or in the manner
of taking testimony shall invalidate any order, deci-
sion, rule, or regulation issued under the authority of
this chapter.
§ 7170. Administrative powers of Commission; rules, regula-
tions, and orders.
The Commission shall have power to perform any
and all acts, and to prescribe, issue, make, amend, and
rescind such orders, rules, and regulations as it may
find necessary or appropriate to carry out the provi-
sions of this chapter. Among other things, such rules
and regulations may define accounting, technical, and
trade terms used in this chapter; and may prescribe
the form or forms of all statements, declarations,
applications, and reports to be filed with the Commis-
sion, the information which they shall contain, and
the time within which they shall be filed. Unless a
different date is specified therein, rules and regula-
tions of the Commission shall be effective thirty days
after publication in the manner which the Commission
shall prescribe. Orders of the Commission shall be
effective on the date and in the manner which the
Commission shall prescribe. For the purposes of its
rules and regulations, the Commission may classify
persons and matters within its jurisdiction and pre-
scribe different requirements for different classes of
persons or matters. All rules and regulations of the
Commission shall be filed with its secretary and shall
be kept open in convenient form for public inspection
and examination during reasonable business hours.
19a
§717p. Use of joint boards; cooperation with State com-
(a) The Commission may refer any matter arising
in the administration of this chapter to a board to be
composed of a member or members, as determined by
the Commission, from the State or each of the States
affected or to be affected by such matter. Any such
board shall be vested with the same power and be
subject to the same duties and liabilities as in the case
of a member of the Commission when designated by
the Commission to hold any hearings. The action of
such board shall have such force and effect and its
proceedings shall be conducted in such manner as
the Commission shall by regulations prescribe. The
Board shall be appointed by the Commission from
persons nominated by the State commission of each
State affected, or by the Governor of such State if
there is no State commission. Each State affected
shall be entitled to the same number of represenatives
on the board unless the nominating power of such
State waives such right. The Commission shall have
discretion to reject the nominee from any State, but
shall thereupon invite a new nomination from that
State. The members of a board shall receive such
allowances for expenses as the Commission shall pro-
vide. The Commission may, when in its discretion
sufficient reason exists therefor, revoke any reference
to such a board.
(b) The Commission may confer with any State
commission regarding rate structures, costs, accounts,
charges, practices, classifications, and regulations of
natural-gas companies; and the Commission is au-
thorized, under such rules and regulations as it shall
prescribe, to hold joint hearings with any State com-
mission in connection with any matter with respect
to which the Commission is authorized to act. The
Commission is authorized in the administration of this
chapter to avail itself of such cooperation, services,
records, and facilities as may be afforded by any State
commission.
(c) The Commission shall make available to the
several State commissions such information and re-
20a
ports as may be of assistance in State regulation of
nautral-gas companies. Whenever the Commission can
do so without prejudice to the efficient and proper con-
duct of its affairs, it may, upon request from a State
commission, make available to such State commission
as witnesses any of its trained rate, valuation, or other
experts, subject to reimbursement of the compensation
and traveling expenses of such witnesses. All sums
collected hereunder shall be credited to the appropria-
tion from which the amounts were expended in carry-
ing out the provisions of this subsection.
§ 717q. Appointment of officers and employees.
The Commission may, subject to civil-service laws,
appoint such officers and employees as are necessary
for carrying out its functions under this chapter and
fix their salaries in accordance with chapter 51 and
subchapter III of chapter 53 of Title 5.
§ 717r Rehearing; court review of orders.
(a) Any person, State, municipality, or State com-
mission aggrieved by an order issued by the Commis-
sion in a proceeding under this chapter to which such
person, State, municipality, or State commission is a
party may apply for a rehearing within thirty days
after the issuance of such order. The application for
rehearing shall set forth specifically the ground or
grounds upon which such application is based. Upon
such application the Commission shall have power to
grant or deny rehearing or to abrogate or modify its
order without further hearing. Unless the Commis-
sion acts upon the application for rehearing within
thirty days after it is filed, such application may be
deemed to have been denied. No proceeding to review
any order of the Commission shall be brought by any
person unless such person shall have made application
to the Commission for a rehearing thereon. Until the
record in a proceeding shall have been filed in a court
of appeals, as provided in subsection (b) of this sec-
tion, the Commission may at any time, upon reasonable
notice and in such manner as it shall deem proper,
modify or set aside, in whole or in part, any finding or
21a
order made or issued by it under the provisions of this
chapter.
(b) Any party to a proceeding under this chapter
aggrieved by an order issued by the Commission in
such proceeding may obtain a review of such order in
the court of appeals of the United States for any cir-
cuit wherein the natural-gas company to which the
order relates is located or has its principal place of
business, or in the United States Court of Appeals for
the District of Columbia, by filing in such court, within
sixty days after the order of the Commission upon the
application for rehearing, a written petition praying
that the order of the Commission be modified or set
aside in whole or in part. A copy of such petition shall
forthwith be transmitted by the clerk of the court to
any member of the Commission and thereupon the
Commission shall file with the court the record upon
which the order complained of was entered, as pro-
vided in section 2112 of Title 28. Upon the filing of
such petition such court shall have jurisdiction, which
upon the filing of the record with it shall be exclusive,
to affirm, modify, or set aside such order in whole or in
part. No objection to the order of the Commission
shall be considered by the court unless such objection
shall have been urged before the Commission in the
application for rehearing unless there is reasonable
ground for failure so to do. The finding of the Com-
mission as to the facts, if supported by substantial
evidence, shall be conclusive. If any party shall apply
to the court for leave to adduce additional evidence,
and shall show to the satisfaction of the court that such
additional evidence is material and that there were
reasonable grounds for failure to adduce such evidence
in the proceedings before the Commission, the court
may order such additional evidence to be tak n before
the Commission and to be adduced upon the hearing in
such manner and upon such terms and conditions as to
the court may seem proper. The Commission may
modify its findings as to the facts by reason of the
additional evidence so taken, and it shall file with the
court such modified or new findings. which if supported
by substantial evidence, shall be conclusive, and its
recommendation, if any, for the modification or setting
aside of the original order. The judgment and decree
of the court, affirming, modifying, or setting aside, in
whole or in part, any such order of the Commission,
shall be final, subject to review by the Supreme Court
of the United States upon certiorari or certification as
provided in sections 346 and 347 of Title 28.
(c) The filing of an application for rehearing under
subsection (a) of this section shall not, unless specific-
ally ordered by the Commission, operate as a stay of
the Commission’s order. The commencement of pro-
ceedings under subsection (b) of this section shall not,
unless specifically ordered by the court, operate as a
stay of the Commission’s order.
§ 717s. Enforcement of chapter; regulations and orders.
(a) Whenever it shall appear to the Commission that
any person is engaged or about to engage in any acts
or practices which constitute or will constitute a vio-
lation of the provisions of this chapter, or of any rule,
regulation, or order thereunder, it may in its discretion
bring an action in the proper district court of the
United States, or the United States courts of any Ter-
ritory or other place subject to the jurisdiction of the
United States, to enjoin such acts or practices and to
enforce compliance with this chapter or any rule, regu-
lation, or order thereunder, and upon a proper showing
a permanent or temporary injunction or decree or re-
straining order shall be granted without bond. The
Commission may transmit such evidence as may be
available concerning such acts or practices or concern-
ing apparent violations of the Federal antitrust laws
to the Attorney General, who, in his discretion, may
institute the necessary criminal proceedings.
(b) Upon application of the Commission the district
courts of the United States and the United States
courts of any Territory or other place subject to the
jurisdiction of the United States shall have jurisdic-
tion to issue writs of mandamus commanding any per-
son to comply with the provisions of this chapter or
any rule, regulation, or order of the Commission
thereunder.
(c) The Commission may employ such attorneys as
it finds necessary for proper legal aid and service of
the Commission or its members in the conduct of their
work, or for proper representation of the public inter-
est in investigations made by it, or cases or proceed-
ings pending before it, whether at the Commission’s
own instance or upon complaint, or to appear for or
represent the Commission in any case in court; and
the expenses of such employment shall be paid out of
the appropriation for the Commission.
§ 717t. General penalties.
(a) Any person who willfully and knowingly does
or causes or suffers to be done any act, matter, or
thing in this chapter prohibited or declared to be un-
lawful, or who willfully and knowingly omits or fails
to do any act, matter, or thing in this chapter required
to be done, or willfully and knowingly causes or suffers
such omission or failure, shall, upon conviction thereof,
be punished by a fine of not more than $5,000 or by
imprisonment for not more than two years, or both.
(b) Any person who willfully and knowingly vio-
lates any rule, regulation, restriction, condition, or
order made or imposed by the Commission under
authority of this chapter, shall, in addition to any other
penalties provided by law, be punished upon convic-
tion thereof by a fine of not exceeding $500 for each
and every day during which such offense occurs.
§ 717u. Jurisdiction of offenses; enforcement of liabilities
and duties.
The District Court of the United States and the
United States courts of any Territory or other place
subject to the jurisdiction of the United States shall
have exclusive jurisdiction of violations of this chapter
or the rules, regulations, and orders thereunder, and
of all suits in equity and actions at law brought to
enforce any liability or duty created by, or to enjoin any
violation of, this chapter or any rule, regulation, or
order thereunder. Any criminal proceeding shall be
brought in the district wherein any act or transaction
constituting the violation occurred. Any suit or action
to enforce any liability or duty created by, or to enjoin
any violation of, this chapter or any rule, regulation,
or order thereunder may be brought in any such dis-
trict or in the district wherein the defendant is an in-
habitant, and process in sych cases may be served
wherever the defendant may be found. Judgments and
decrees so rendered shall be subject to review as pro-
vided in sections 225 and 347 of Title 28. No costs
shall be assessed against the Commission in any judi-
cial proceeding by or against the Commission under
this chapter.
§ 717v. Separability of provisions.
If any provision of this chapter, or the application
of such provision to any person or circumstance, shall
be held invalid, the remainder of the chapter, and the
application of such provision to persons or circum-
stances other than those as to which it is held invalid,
~ Shall not be affected thereby.
§ 717w. Short title.
This chapter may be cited as the ‘‘ Natural Gas Act.’’
18 Code of Federal Regulations § 154.102 provides:
§ 154.102 Suspended in rate schedules; motions to
— effective at of period of suspension; proce-
ure.
(a) If a rate suspension proceeding initiated under
section 4(e) of the Natural Gas Act has not been con-
cluded and an order made at the expiration of the
suspension period, the proposed change of rate, charge,
classification, or service shall go into effect upon mo-
tion of the independent producer proposing the change
as the legally effective rate and shall b charged,
effective as of a date not earlier than the date of
receipt of such motion by the Commission or the ex-
piration of the suspension period, whichever is later.
Three copies of the motion and any accompanying
papers shall be filed. The Secretary, upon receipt of
such a motion, shall, if the motion is legally adequate
for the purpose, notify the movant that the proposed
change shall be effective as provided in this section:
Provided, That the Secretary shall refer to the Com-
mission any motion requesting that a change in rate,
charge, classification, or service be made effective, if
in his judgment the motion should receive the specific
attention of the Commission;
(b)(1) Unless otherwise ordered by the Commission,
increased rates or charges shall be charged and col-
lected pursuant to paragraph (a) of this section and
there shall be filed by the independent producer a
surety bond, or other undertaking, to be approved by
the Secretary, to comply with the provisions of para-
graph (c) of this section.
(2) In compliance with subparagraph (1) of this
paragraph, an independent producer may file a gen-
eral undertaking affording blanket refund coverage
of any present and future rate increases suspended
under section 4(e) of the Natural Gas Act and col-
lected subject to refund thereunder. Upon acceptance
of such general undertaking, the »roducer need not file
further refund assurance when filing a motion to make
increased rates effective unless specifically required
to do so by order of the Commission.
(c) Upon an increased rate being made effective
pursuant to the provisions of this section the inde-
pendent producer shall be obligated to keep accurate
accounts in detail of all amounts received by reason
of the increased rates or charges for each billing
period, and for each purchaser; the billing determi-
nants of natural gas sales to such purchasers and
the revenues resulting therefrom, as computed under
the rates in effect immediately prior to the effective
date of the change, and under the rates which become
effective pursuant to the motion, together with the
differences in the revenues so computed; and to refund
at such times and in such amounts to the persons en-
titled thereto, and in such manner as may be required
by final order of the Commission, the portion of any
increased rate found by the Commission in that pro-
ceeding not justified, together with interest thereon at
the rate of seven percent per annum for all rate filings
26a
tendered prior to October 10, 1974, and nine percent
per annum for all rate filings tendered on or after
October 10, 1974, from the date of payment to the
producer until refunded, except as provided in para-
graph (f) of this section; and to bear all costs of any
such refunding.
(d) If the producer, acting in conformity with the
terms and conditions of the bond or undertaking,
makes the refunds as may be required by order of
the Commission, the bond or undertaking shall be
discharged ; otherwise it shall remain in full force and
effect ;
(e) The bond or undertaking required by paragraph
(b) of this section may be filed concurrently with the
motion to make the increased rates effective. If with
his motion the producer has not filed a satisfactory
bond or undertaking such bond or undertaking must
be filed within 30 days after the issuance of the Sec-
retary’s notice provided for in paragraph (a) of this
section. Unless notified to the contrary by the Secre-
tary of the Commission within 30 days from the date
of filing, such bond or undertaking shall be deemed to
be satisfactory and to have been accepted for filing.
(f) No interest is required to be paid on any portion
of a refund which represents payments of royalties or
taxes to Federal or State governmental authorities,
except to the extent that such authorities pay interest
to the producer when refunding overpayments of roy-
alties or taxes.
Hugoton—Anadarko Rate Cases, 44 F.P.C. 761 (1970), Opinion
586, Docket No. AR 64-1, et al. Ordering paragraphs (D),
(G) and (H) provide in pertinent part:
(D) The applicable area rate as defined in ordering
paragraph (A) above, shall be effective from and after
October 1, 1970, and any amounts collected in excess
thereof on or after that date shall be collected subject
to refund plus interest at 7 percent. * * *
(G) Refund Reports. On or before November 2,
1970, a refund report shall be filed with this Com-
27a
mission in triplicate, and one copy served on the buyer,
by each respondent involved in one or more of the
Section 4(e) proceedings set out in Appendix A to
this decision and as to which refunds are required un-
der the terms of this decision. Within 20 days from
the filing of the refund report the buyer shall file its
written concurrence or disagreement with such report.
The report shall set forth the following information
(if more than one rate schedule is involved the re-
spondent shall supply the information for each sched-
ule separately) :
(i) The rate collected during the period subject
to refund and the periods during which each rate
was collected.
(ii) The volume of gas sold at each such rate,
(iii) The difference between the total amount col-
lected during the period subject to refund and the
amount that would have been collected at the appli-
cable area rate as defined herein subject to the pro-
visoes of ordering paragraph (D).
(iv) The computation of the applicable area rate
and the basis for any difference between it and the
base area rate.
(v) The interest, at rates as specified in each
Section 4(e) proceeding, on the above refundable
excess revenues, subject to the limitation by Section
154.102(f) of the Commission’s Regulations under
the Natural Gas Act. The interest shall be calculated
to September 1, 1970.
(H) Treatment of Refunds. Each respondent shall
retain the amounts shown in the report required under
ordering paragraph (G) subject to further order of the
Commission directing the disposition of those amounts.
If a respondent elects to commingle these retained
refunds with its general assets and use for its cor-
porate purposes, it is authorized so to do after notice
to the Commission; and it shall pay interest thereon
at the rate of 8 percent per annum on all funds
thus available from the effective date of this order to
the date on which they are paid over to the person
ultimately determined to be entitled thereto in a final
28a
order of the Commission. If a respondent elects to
deposit the retained refunds in a special escrow ac-
count, the respondent shall make such deposit and shall
tender for filing on or before the date of the filing
of the refund report an executed Escrow Agreement,
or a certificate attesting to the fact that it has exe-
cted such an agreement, in the form provided by Sec-
tion 250.12 of Part 250 of the Regulations under the
Natural Gas Act (18 CFR Part 250).
IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF TEXAS
Civil Action No. CA-2-1356
Purturrs Petroteum Company, Plaintiff,
v.
J. H. Apams, eT AL., Defendants.
Judgment and Memorandum Opinion
(February 7, 1974)
On this the 7th day of February, 1974 came on to be
heard the above-entitled and numbered cause and there
appeared in court by and through their attorneys the
plaintiff, Phillips Petroleum Company, the defendants,
J. H. Adams, Waylon Adams and Arlwone H. Adams, and
the defendants, Robert O. Schnell, W. S. Etchieson, and
L. Jack Gross, and all other parties having settled and
compromised their claims, and the parties having an-
nounced ready for trial before the court without a jury,
and introduced their evidence, and the court having con-
sidered the evidence, the entire record in this case, and the
briefs and argument of counsel, has this day filed its Memo-
randum Opinion which constitutes the court’s Findings of
Fact and Conclusions of Law, here referred to and incor-
29a
porated herein for all purposes. It therefore appears that
judgment should be entered as follows:
I
That the said Robert O. Schnell, W. S. Etchieson and
L. Jack Gross have no right, title or interest in and to the
sum of $16,161.88 heretofore deposited by Phillips Petro-
leum Company with the Clerk of this court in this case
and all relief prayed for by these parties is Dente.
II
That the following parties are hereby Apsupcep to be
entitled to and own and the Clerk of this court shall pay
ta sum of $16,161.88 to the parties of this suit as fol-
ows:
Mh To — Ardath Thomson (formerly Mary Ardath
ning, widow of Earnest H. Dunning, d
sum of $1,288.36. en
B. To Patricia Nelson (formerly Patricia T. White,
widow of Oadus White, deceased,) the sum of $2,576.71.
C. To J. HH. Adams, Waylon Adams, and Arlwone H.
Adams the sum of $12,296.81.
Ill
The counterclaim of J. H. Adams, Waylon Adams, and
Arlwone H. Adams against Phillips Petroleum Company
for interest is Dentep.
IV
Rosemary J. Walker and Don Walker, although duly
served with summons, have failed to answer or appear
herein, and it is hereby Founp and Apsupcep that the said
Rosemary J. Walker and Don Walker are in default and
it is further Apsvupcep that they have no right, title or
interest in and to any of the funds in dispute in this case.
30a
v
All relief prayed for by any of the parties hereto not
granted specifically herein is Denrep.
VI
Costs are assessed against J. H. Adams, Waylon Adams
and Arlwone H. Adams.
The Clerk will furnish a copy hereof to each attorney.
E.nterep this 7th day of February A.D. 1974.
/s/ Hausert O. Woopwarp
Halbert O. Woodward
United States District Judge
MEMORANDUM OPINION
On the 7th day of February, 1974 there appeared in open
court the plaintiff, Phillips Petroleum Company, its coun-
sel, and there also appeared, by and through their attorney,
the defendants, J. H. Adams, Waylon Adams and Arlwone
H. Adams, hereinafter referred to as ‘‘Adams Family,’’
and there also appeared in open court by and through their
attorney the parties to this suit, Robert O. Schnell, W. S.
Etchieson, and L. Jack Gross, hereinafter called the
‘‘Schnell Group.’’ It had been previously stipulated and
agreed that all of the other parties to the controversy in
question had agreed and compromised their respective
claims as will hereinafter be more detailed.
This Memorandum Opinion shall serve as the court’s
Findings of Fact and Conclusions of Law, the case being
tried before the court without a jury, and in addition to
this opinion the stipulations and admissions of the parties
set forth in the court’s Pre-Trial Order dated January 31,
1974 are here adopted as a part of these Findings of Fact.
The dispute in this case concerns the production of gas
from a lease containing 86.52 acres of land in Hutchinson
3la
County, Texas. The gas in question, as stipulated to by
the parties, was actually produced between the dates of
July 1, 1963 when the Adams Family purchased this lease,
Adams Ex. 4, and the date of June 1, 1967 when the Adams
Family sold the lease in question to Robert O. Schnell.
Adams Ex. 1.
On December 21, 1973 the plaintiff, Phillips Petroleum
Company, deposited in the registry of thi court the sum
of $16,161.88 which sum of money represents additional
moneys for the purchase price of the gas produced and
sold between the above dates. At the time of the produc-
tion of the gas in question Phillips Petroleum Company
had paid the leasehold owners, pursuant to certain casing-
head gas purchase contracts, Adams Exs. 2 and 3, the
amount then approved as the correct amount to be paid
by the Federal Power Commission. Subsequently, by a
decision of the Federal Power Commission, Pltf’s Ex. 3,
effective October 1, 1970, an increase in the price of the gas
produced was allowed for the periods involved in this case.
The sum on deposit with the registry of this court repre-
sents this allowed increase in price for the gas produced
and sold between July 1, 1963 and June 1, 1967, being the
dates respectively that the Adams Family purchased the
lease in question and sold the lease in question.
The decision of the Federal Power Commission was ap-
pealed to the courts, was affirmed, The People of State of
California, et al. v. Federal Power Commission, 466 F.2d
974 (9th Cir. 1972), and the last date for the application
for writ of certiorari by the parties to said case to the
Supreme Court of the. United States expired on October 28,
1972.
On January 26, 1972 a suit was filed in this court, Spear-
man, et al. v. Phillips, et al., number CA-2-1159, to recover
the moneys in question in this suit as well as certain other
moneys not in dispute in this particular suit. Cause 2-1159
was compromised and settled among some of the parties
32a
thereto aud the lawsuit now under consideration was placed
on the «.ocket of this court to determine the dispute as to
the ownership of the $16,161.88.
The pleadings in this cause show that the plaintiff herein,
Phillips Petroleum Company, tendered the money into the
court and these pleadings do not reveal that any of the
parties ever demanded a deposit of the moneys with the
Clerk although the plaintiff did deposit same on December
21, 1973 and they now remain on deposit.
The Schnell Group claims that the assignment of the
lease to them, Adams Ex. 1, the division order signed by
Adams and Schnell, page 3 of Plitf’s Ex. 2, and certain
prior actions of the Adams Family do in effect assign not
only the oil and gas lease in question but operate to assign
the funds in question in this case even though these funds
represent part payment for gas produced and severed from
the land prior to the effective date of the assignment from
the Adams Family to the Schnell Group. The prior action
relied upon is that when the Adams Family purchased the
lease in 1963 from the Spearmans and subsequent to the
purchase thereof, Phillips Petroleum Company had sent
the Adams Family a check for four hundred plus dollars,
which funds were similar to the funds in this case, and
that the Adams Family’s acceptance of this $400 check
from their seller in 1963 constitutes evidence that when
the Adams Family sold to the Schnell Group in 1967 that
all similar funds would then be conveyed to the Schnell
Group.
Two other matters remain in dispute; first, that is the
claim of the Adams Family that Phillips Petroleum Com-
pany should be required to pay interest on the amount now
on deposit with the Clerk of this court from the effective
date of the Federal Power Commission decision on Octo-
ber 1, 1970 until the time that said sum was deposited with
the Clerk of this court on December 21, 1973. Secondly,
Phillips Petroleum Company, in its prayer for relief, asks
33a
for its costs, but did not specifically mention attorney’s
fees. The Pre-Trial Order entered in this cause and agreed
to by the attorneys for the parties hereto did not mention
any claim for attorney’s fees for the plaintiff and it was
not until the hearing on the 7th day of February, 1974 that
the plaintiff informed the court of its claim and presented
evidence that it was entitled to $1,450 attorney’s fees as a
stakeholder. Even though the court finds that the amount
of the fees is a reasonable amount, the court will deny re-
covery of any attorney’s fees because the plaintiff did not
specifically plead for same nor did it indicate a claim for
attorney’s fees in the proposed pre-trial order submitted
to the court. Further, the court does not feel that attor-
ney’s fees are properly allowable in this case because, as
admitted by counsel for plaintiff in argument, this partic-
ular case was in the nature of a ‘‘test’’ case that would
control this court’s rulings on similar issues in many other
cases now pending that involve sums of money held and
owed for the purposes as the funds in this case are. Ac-
cordingly when the judgment is entered this plea for at-
torney’s fees will be denied.
Other evidence introduced for consideration by the court
indicates and this court finds as a fact that at all material
times hereto there has been a bona fide dispute between
the Adams Family and the Schnell Group as to the true
ownership of the money now held by the Clerk.
Based on the record in this case, the evidence introduced,
the briefs and argument of counsel, the court is of the opin-
ion that the Adams Family is the righful owner of the
$16,161.88 subject to certain amounts to be paid out of said
fund as stipulated in the Pre-Trial Order and that the
Schnell Group has no interest in such sum. The money in
question is in part payment of gas severed from the lease-
hold estate and sold therefrom prior to any assignment of
the lease by the Adams Family. The documents assigning
such lease pass only the leasehold title and the personal
34a
property and equipment used or obtained in connection
therewith and located thereon, Adams Ex. 1, and none of
these documents can be construed to nor do they constitute
an assignment of the moneys in question.
Further, as there was a bona fide dispute among the
claimants to the money Phillips Petroleum Company was
not obligated in any respect for the payment of interest
on said money up until December 21, 1973, and when it paid
the money into the registry of the court on said date it
was relieved from any payment of interest subsequent
thereto. Had the claimants previously made a demand,
after the final effective date of the Federal Power Com-
mission’s decision, that the money be placed in the registry
of the court, and had Phillips Petroleum Company refused
to do so within a reasonable time, then the question of
interest might be determined differently, but such are not
the facts in this case.
Accordingly judgment will be entered distributing the
money and awarding the money as follows:
1) To Mary Ardath Thomson (formerly Mary Ardath
Dunning, widow of Earnest H. Dunning, deceased,)
$1,288.36.
2) To Patricia Nelson (formerly Patricia I. White,
widow of Oadus White, deceased,) the sum of $2,576.71.
3) To J. H. Adams, Waylon Adams, and Arlwone H.
Adams the sum of $12,296.81.
A judgment will be entered accordingly.
The Clerk will furnish a copy hereof to each attorney.
Enrerep this 7th day of February A.D. 1974.
/s/ Hatsert O. Woopwarp
Halbert O. Woodward
United States District Judge
35a
SupPLEMENTAL F'rnpinec or Fact
Supplementing the findings of fact set forth in the
Court’s Memorandum Opinion, filed in the above entitled
action on February 7, 1974, the Court finds as a fact that
the Four Hundred Dollars plus check mailed by Phillips
Petroleum Company to the Adams Family was accom-
panied by a written statement reading as follows:
“NOTICE
‘*The enclosed check represents additional payment
for royalties or for prior purchases of gas from you.
This payment is based on rate increases for various
sales of gas by Phillips Petroleum Company which
have been finally approved by the Federal Power Com-
mission. These increases were originally suspended by
the Commission and later put into effect by Phillips
subject to refund. The Commission’s decision allow-
ing these increases was appealed to the U.S. Supreme
Court by other parties, and the decision of the court
affirming the Commission’s decision has just recently
become final.
‘‘The increases on which the enclosed payment is based
were filed at various times prior to January 1, 1957.
Kach of these increases has been superseded by a later
increase which was also suspended by the Commission.
The enclosed payment covers only that period from
the time each of these increases became effective until
the following increase became effective subject to re-
fund. None of the later increases has yet been con-
sidered by the Commission. Further additional pay-
ments will be made to you from time to time if and
when such later increases are approved in whole or
in part.
‘‘This payment will not result in any change in the
price currently being paid you for royalties or for gas
purchased from you.
Phillips Petroleum Company
Bartlesville, Oklahoma’”’
Enterep this 5th day of March, 1974.
/s/ Harsert O. Woopwarp
Halbert O. Woodward
United States District Judge
36a
SupPLEMENTAL Conclusions or Law
Supplementing the Conclusions of Law set forth in the
Court’s Memorandum Opinion, filed in the above-entitled
action on February 7, 1974, the Court finds, as an initial
determination, that the counterclaims are proper under
Rule 13, Federal Rules of Civil Procedure, and that the
court has jurisdiction to hear and determine the counter-
claims. Phillips’ technical argument that they are not an
‘‘opposing party’’ within the meaning of Rule 13 is not
persuasive. Phillips in its Complaint prays that it be dis-
charged from all liability in connection with the fund,
which would, of course, include discharge from any liabil-
ity for interest. Phillips is asking for affirmative relief
against the defendants and, therefore, this court feels com-
pelled to characterize them as opposing parties for the
purposes of Rule 13, supra. Further, the court finds that
defendants’ counterclaims are ‘‘compulsory’’ within the
meaning of Rule 13(a). Clearly, the claims for interest
arose ‘‘out of the transaction or occurrence that is the
subject matter of the opposing party’s claim.’’ Accord-
ingly, there is no jurisdictional amount requirement as to
the counterclaims and the court has ancillary jurisdiction
over them. Childress v. Cook, 245 F.2d 798 (5th Cir. 1957).
Datep this 11th day of March, 1974.
/3/ Harsert O. Woopwarp
Halbert O. Woodward
United States District Judge
'
.
37a
Text or SrrpvLaTions AND ADMISSIONS OF THE PaRTIEs,
Numsers 1-32, Incorporatep sy RererReENCcE INTO THE D1s-
trict Court’s MemoranpuM Optnion aS Finpinos or Fact.
The parties admit the following:
1. That on January 22, 1951, Neil Johnson, et al., as
lessor, executed and delivered to Earl C. H. Walker, as
lessee, an Oil, Gas and Mineral Lease covering the follow-
ing described property, to wit:
The North and East 86.52 acres out of the East One-
Half (E/2) of Survey 4, Exciuprxe the South and
West 42.93 acres of said survey, Block ‘‘V’’, Dave
Blaker, Original Grantee, Astract Number 1167, S. F.
7941, described by metes and bounds as follows:
Becinninc at a point, the same being the Southwest
corner of Section 71, H&TC Railway Company Survey,
Hutchinson County, Texas;
Tuence East 2640 feet along the South line of Section
71 to a point, the same being the Southeast corner of
Section 71;
Tuence North 338 feet along the East line of said
Section 71 to a point, the same being the Southwest
corner of Section 70;
Txence East 1,072.2 feet along the South line of Sec-
tion 70 to a point;
TxHence South 1,334.2 feet along the East line of Sur-
vey 4, Block ‘‘V’’, Dave Blaker, Original Grantee
Survey, to a point;
THence West 1,557.8 feet along the North line of the
Cody Oil Company lease to a point;
Trence North 86° 14 13” West a distance of 2,148.3
feet to a point, the same being the Southeast corner
of Section 72;
Tuence North along the East line of Section 72 a dis-
tance of 800 feet to the point of beginning, and con-
sisting of 86.52 acres, more or less;
38a
which lease, hereinafter called the ‘‘Neil Johnson Lease’’,
is recorded in Volume 144, at page 3 of the Deed Records ~
of Hutchinson County, Texas. The above-described tract
is referred to hereinafter as ‘‘subject property.”’
2. That by assignment dated December 8, 1952, and re-
corded in Volume 151 at page 505 of the Deed Records of
Hutchinson County, Texas, the said Earl C. H. Walker
assigned to Blanard W. Spearman all of the gas rights
(except casinghead gas) and an undivided 1/32 to 8/8 over-
riding royalty interest on oil and other minerals produced
under the terms of the Neil Johnson lease.
3. That by assignment dated February 20, 1960, and re-
corded in Volume 242 at page 641 of the Deed Records of
Hutchinson County, Texas, the said Earl C. H. Walker
assigned to the said Blanard W. Spearman all of the right,
title and interest owned by the said Earl C. H. Walker in
the Neil Johnson lease.
4. That by assignment dated February 20, 1960, and re-
corded in Volume 244 at page 644 of the Deed Records of
Hutchinson County, Texas, Blanard W. Spearman assigned
to Rosemary J. Walker and her husband, Earl C. H.
Walker, an undivided 17/144 of an 8/8 overriding royalty
interest on the casinghead gas produced and sold from the
Neil Johnson lease.
5». That on July 1, 1963, Blanard W. Spearman owned a
49/64 working interest in the Neil Johnson lease, subject
to the overriding royalty interest described in paragraph
IV, hereinabove.
6. That by assignment dated July 11, 1963, recorded in
Volume 288 at page 39 of the Deed Records of Hutchinson
County, Texas, to be effective July 1, 1963, the said Blanard
W. Spearman assigned all of his right, title and interest in
the Neil Johnson lease (being a 49/64 working interest
subject to an overriding royalty interest) to J. H. Adams.
39a
7. That the said J. H. Adams, in turn, assigned an un-
divided 1/4 interest in the Neil Johnson lease to Waylon
Adams by assignment dated May 21, 1964, recorded in
Volume 300 at page 36 of the Deed Records of Hutchinson
County, Texas.
8. That additional undivided 1/4 interest in the Neil
Johnson lease was assigned by the said J. H. Adams to
Arlwone H, Adams by assignment dated May 21, 1964, and
recorded in Volume 300 at page 39 of the Deed Records of
Hutchinson County, Texas.
9. That J. H. Adams, Waylon Adams, and Arlwone H.
Adams, by instrument of assignment dated June 5, 1967,
recorded in Volume 336 at page 126 of the Deed Records
of Futchinson County, Texas, a true copy of which is at-
tached hereto and marked Exhibit ‘‘A’’, assigned the sub-
ject property and certain rights, title and interests enu-
merated in said instrument to Robert O. Schnell.
10. That by assignment dated June 6, 1967, recorded in
Volume 336 at page 129 of the Deed Records of Hutchin-
son County, Texas, Robert O. Schnell assigned all of his
right, title and interest in the Neil Johnson lease to W. S.
Etchieson and L. Jack Gross.
11. That W. S. Etchieson and L. Jack Gross, by assign-
ment dated September 27, 1968, recorded in Volume 349 at
page 106 of the Deed Records of Hutchinson County, Texas,
reassigned their interest in the Neil Johnson lease to Rob-
ert O. Schnell.
12. That on January 2, 1964, by virtue of an execution
issued out of the District Court of Hutchinson County,
Texas, on November 30, 1964, in Cause No. 11,428, wherein
Oadus White and James Blair were plaintiffs and Earl
C. H. Walker was defendant, the Sheriff of Hutchinson
County did levy on the 17/144 of 8/8 overriding royalty
interest, described hereinabove in paragraph IV, and on
the 1st Tuesday in January 1964, sold the same at public
40a
auction to Oadus White, as evidenced by the Sheriff’s Deed
dated January 5, 1965, recorded in Volume 308 at page 699
of the Deed Records of Hutchinson County, Texas.
13. That by assignment dated January 5, 1965, and re-
corded in Volume 310 at page 17 of the Deed Records of
Hutchinson County, Texas, Oadus White assigned to Ear-
nest H. Dunning an undivided one-third (1/3) interest in
and to that certain overriding royalty interest conveyed to
Oadus White by the Sheriff of Hutchinson County, Texas.
14. That on January 12, 1968, Earnest H. Dunning died
in Borger, Texas. Presently, Mary Ardath Thomson (for-
merly Mary Ardath Dunning, widow of Earnest H. Dun-
ning, deceased) owns an undivided one-third (1/3) inter-
est in and to that certain overriding royalty interest con-
veyed in and to that certain overriding royalty interest
conveyed to Oadus White by the Sheriff of Hutchinson
County, Texas.
15. That on October 26, 1972, Oadus White died in Bor-
ger, Texas. Presently, Patricia Nelson (formerly Patricia
I. White, widow of Oadus White, deceased) owns an un-
divided two-thirds (2/3) interest in and to that certain
overriding royalty interest conveyed to Oadus White by
the Sheriff of Hutchinson County, Texas.
16. That while the Adams Family owned and operated
subject property, the produced casinghead gas which was
sold to Phillips under certain casinghead gas purchase
agreements, more particularly described hereinafter.
17. That on or about March 29, 1957, Phillips, as buyer,
entered into a Casinghead Gas A’ontract (recorded in Vol-
ume 200 at page 178 of the Deed Records of Hutchinson
County, Texas. a true copy of which is attached hereto and
marked Exhibit ‘‘B’’) with B. W. Spearman and G. E.
Hatton, as seller, to purchase casinghead gas produced
from wells located on subject property. Said contract, in
paragraphs 7 and 8, provided that seller was to receive
4la
as a part of the payment due him, for the gas sold by him
to Phillips, a sum computed in relation to the price for
which Phillips sold any gas within the Panhandle Field of
Texas to third parties. Said contract was superseded and
terminated by a Casinghead Gas Contract dated Septem-
ber 1, 1966, described hereinbelow.
18. That on or about September 1, 1966, Phillips, as
buyer, entered into a Casinghead Gas Contract (recorded
in Volume 331 at page 59 of the Deed Records of Hutchin-
son County, Texas, a true copy of which is attached hereto
and marked Exhibit ‘‘C’’) with the Adams Family, doing
business as J. H. Adams Oil Company, as seller, to pur-
chase casinghead gas produced from wells located on sub-
ject property. Said contract, in paragraphs 7 and 8, pro-
vided that seller was to receive as a part of the payment
due him, for the gas sold by him to Phillips, a sum com-
puted in relation to the price for which Phillips sold any
gas within the Panhandle Field of Texas to third parties.
19. That by various orders issued since the United States
Supreme Court, on June 7, 1954, decided Phillips Petro-
leum Company v. State of Wisconsin, et al., 346 U. .S. 672,
74 S. Ct. 794, 984L. Ed. 1036, and determined that Phillips,
as an independent natural gas producer selling gas to
interstate pipeline companies for interstate transporta-
tion and resale, was a ‘‘natural gas company’’ within the
Natural Gas Act, the Federal Power Commission (FPC)
suspended increases in prices for sales of residue gas filed
by Phillips and permitted such increases to be collected
beginning at some date subsequent to the original date
proposed by Phillips, only upon Phillips’ filing a corporate
undertaking with the FPC to refund all or any portion of
such increases which the FPC might not find to have been
justified.
20. That subsequent to June 7, 1954, Phillips sold gas
obtained under the above-referenced casinghead gas con-
tracts, and other contracts, subject to the jurisdiction of
42a
the FPC, at prices, a portion of which had not been ap-
proved by the FPC; the increased sales prices of the gas
were collected by Phillips subject to a duty to refund the
same to the purchasers in the event the FPC failed to ap-
prove the sales prices pursuant to Section 4(e) of the
Natural Gas Act (15 U.S.C. - 717c(e); and until such time
as the FPC approved such increased sales prices or a por-
tion of said prices, there was no right in the Adams F'am-
ily, the Schnell Group, the Walker Family, Thomson or
Nelson to recover from Phillips any such monies held sub-
ject to refund.
21. That Phillips chose to collect the higher rates sub-
ject to refund if the rates were not approved because in-
creases in gas sales prices not made effective subject to
FPC approval cannot be made retroactive. If Phillips
had not collected the higher rates subject to refund, the
owners of the casinghead gas contract rights could not
receive, as part payment due them under said contracts,
a sum computed in relation to the higher price for which
Phillips sold gas within the Panhandle Field of Texas to
third parties.
22. That Phillips had applications before the FPC re-
questing permission to increase the prices for sales of
residue gas and such applications, for this area, were con-
solidated in FPC Dockets AR 64-1, et al.
23. That on September 18, 1970, the FPC issued Opinion
586, Dockets No. AR 64-1, et al., Hugoton-Anadarko Rate
Cases, 44 EPC 761, which established sales prices appli-
cable to gas sales and established refund requirements;
on July 31, 1972, the Court of Appeals for the Ninth Cir-
cuit affirmed the above-said Opinion 586 in The People of
State of California, et al. v. Federal Power Commission,
No. 71-1036, reported at 466 F.2d 974, et seq., and, as of
October 28, 1972, no writ of certiorari was filed by any of
the parties to said Ninth Circuit action.
Se Deke DT Bh Alle WB ARTE NC NRO RR RAL AN
43a
24. That after Opinion 586 became final, the monies col-
lected subject to refund could be divided into two classes
‘‘sustainable’’ money and ‘‘refundable’’ money. The
‘‘sustainable’’ monies are those which, according to Opin-
ion 586, represent lawful proceeds from the sales of gas.
It is from these lawful proceeds that the parties from
which Phillips purchased casinghead gas receive, as their
part payment, a sum computed in relation to the price for
which Phillips sold gas within the Panhandle Field of
Texas to third parties. The ‘‘refundable’’ monies are
those which, according to Opinion 586, represent sums in
excess of the just and reasonable rate; i.e., the sums in
excess of the lawful proceeds from the sales of gas,
25. That this action does not involve ‘‘firm proceeds’’;
that is, the proceeds derived from sales of gas within the
Panhandle Field of Texas to third parties at prices which
were at or below the rate which had already been approved
by the FPC. Such firm proceeds were all paid in a timely
manner in accordance with paragraph 9 of each of the
casinghead gas contracts referred to hereinabove.
26. That on and after October 28, 1972, and under the
sales prices approved by the FPC in Opinion 586, a sum of
money equal to the sustainable portion of the money col-
lected subject to refund, attributed to a 49/64 working in-
terest in the Neil Johnson lease covered by the casinghead
gas contract referenced hereinabove for the period from
July 1, 1963, through May 31, 1967, and to the gas con-
tracts covering the subject property, that is, $16,161.88
became due and payable to the lawful owner or owners of
said monies.
27. That of the $16,161.88, the sum of $1,006.85 is at-
tributable to the overriding royalty interest prior to Jan-
uary 1, 1965; the sum of $2,858.22 is attributable to the
overriding royalty interest on and after January 1, 1965.
The total sum attributable to the overriding royalty inter-
44a
est is $3,865.07. The balance of the $16,161.88 which is
$12,296.81, is the sum of the money, the ownership of which
is in dispute between the Adams Family and the Schnell
Group.
28. That by an instrument entitled Assignment of Oil
and Gas Lease, dated June 5, 1967, recorded in Volume 336
at page 126 of the Deed Records of Hutchinson County,
Texas, said instrument to be effective as of June 1, 1967,
at 7:00 a.m., a true copy of which is attached hereto as
‘Exhibit ‘‘A’’, the Adams Family assigned the subject
property and certain rights, title and interests enumer-
ated in the said instrument to the Schnell Group.
29. That the Adams Family has not been paid any por-
tion of the above-said $12,296.81, and all parties admit and
agree that either the Adams Family or the Schnell Group
is entitled to this sum of money from Phillips.
30. That the Adams Family and the Schnell Group ad-
mit and agree that they do not claim to be entitled to any
part of the $$3,865.07 referenced hereinabove; and that
Thomson and Nelson admit and agree that they do not
claim to be entitled to any part of the $12,296.81 referenced
hereinabove.
31. The Walker Family were served with summons on
April 16, 1973, but have not filed an answer herein and are
in default. The controversy between the Walker Family
and Thomson and Nelson which existed as to the sum of
$1,006.85 attributable to the overriding royalty interest
prior to January 1, 1965, was resolved when the Walker
Family declined to file their answer in this action.
32. That neither Thomson nor Nelson has heen paid any
portion of the above-said $3,865.07, and all parties admit
and agree that Nelson is entitled to receive two-thirds
(2/3) of the $3,865.07 or the sum of $2,576.71; and all
parties agree that Thomson is entitled to receive one-third
(1/3) of the $3,865.07 or the sum of $1,288.36.
45a
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 74-1777
Puituies PetroLeum Company, Plaintiff-Appellee,
v.
J. H. Apams, et au., Defendants.
Rosert O. Scone i, W. S. Ercuteson, and Jack Gross,
Defendants-Appellants,
Vv.
J.H. Apams, Warton Apams, and ArLwone H. Apams,
Defendants-A ppellees and Appellants.
Appeals from the United States District Court for the
Northern District of Texas
Judgment
(May 22, 1975)
Before Tutte, Gewrn and Goxipsere, Circuit Judges.
This cause came on to be heard on the transcript of the
record from the United States District Court for the North-
ern District of Texas, and was argued by counsel;
On ConsmperaTION WHEREOF, It is now here ordered and
adjudged by this Court that the judgment of the said Dis-
trict Court in this cause be, and the same is hereby, af-
firmed in part and reversed in part; and that this cause
be, and the same is hereby remanded to the said District
Court in accordance with the opinion of this Court;
It is further ordered that plaintiff-appellee and defend-
ants-appellants pay equally to defendants-appellees-appel-
lants, the costs on appeal to be taxed by the Clerk of this
Court.
46a
(Caption Omitted in Printing)
Opinion |
May 22, 1975
Before TutrLe, Gewrn and Goxpserc, Circuit Judges.
GotpBeErG, Circuit Judge:
In this case of first impression, and in two similar cases
also decided today, First National Bank v. Phillips Petrole-
um Co., 5 Cir. 1975, 513 F.2d 371 [May 22, 1975, No. 74-
2230], and Phillips Petroleum Co. v. Riverview Gas Com-
pression Co., 5 Cir. 1975, 513 F.2d 374 [May 22, 1975, No.
74-2009], we must determine the rightful owners of funds
payable by a pipeline company under contracts for the
sale of casinghead gas,’ where the gas underlying the debts
was produced while the mineral leases were held by claim-
ants who assigned their leasehold interests to other claim-
ants before the debt owed by the pipeline company became
due and payable.* After certain preliminary skirmishing,
1**Casinghead gas’’ is a term used in the oil and gas industry
to describe the gas which flows from the casinghead of an oil well.
The production of this type of gas is usually considered incident to
the production of oil from the same sources. See generally Read
v. Britain, Tex.Civ.App. 1967, 414 S.W.2d 483, aff’d, Tex. 1967,
422 S.W. 2d 902; Hardwicke, Evolution of Casinghead Gas Law,
8 Tex.L.Rev. 1 (1929).
?The problem presented by these three cases has attained epi-
demic proportions in the Texas Panhandle. By the time these
cases were orally argued before this Court, in December, 1974,
there were seven similar actions on the civil docket in the United
States District Court for the Northern District of Texas, Amarillo
Division, and three other such cases in the Texas courts. Phillips
says that it has 966 percentage-of-proceeds contracts of the type
involved here in the Texas Panhandle alone; $9,700,000 in pay-
ments is now due under these contracts.
47a
the pipeline company brought this diversity interpleader
action to obtain a judicial resolution of its contractual dif-
ficulties. The assignor-claimants (those who held the
leasehold interest at the time the gas was produced)
counterclaimed against the pipeline company for interest on
the funds held by the company. After a trial without
a jury, the district court decided that the assignor-claimants
ought to have the principal sum involved but that the pipe-
line company owed them no interest; the pipeline company,
the assignor-claimants and the assignee-claimants all ap-
peal. We affirm the district court’s decision as to the owner-
ship of the principal sum; we believe, however, that equity
requires that the assignor-claimants should receive in-
terest as well, so we must reverse that portion of the judg-
ment below relating to interest.
I
On July 1, 1963, the assignor-claimants [the Adams
family] purchased an oil and gas lease on property situated
in Hutchinson County, in the Texas Panhandle. At the
time of this purchase, a casinghead gas contract was in
force between Phillips Petroleum Company [Phillips] and
the holders of the mineral rights to the property. This
contract provided that Phillips would purchase the casing-
head gas produced on the lease and would pay therefore a
price based on the price which Phillips itself obtained for
all gas sold by it which originated in the Panhandle Field
of Texas. In September 1, 1966, the Adams family con-
cluded another percentage-of-proceeds gas sales agreement
with Phillips which was substantially similar to the one in
force from 1963 until 1966.
In 1967, one Schnell, a friend of one of the Adamses,
expressed interest in purchasing the mineral leasehold
interest in the Hutchinson County property. A deal was
soon worked out, and on June 5, 1967, the Adams family
conveyed to Schnell ‘‘all right, title and interest of the
48a
Original Lessee and present owners in and to [the lease in
question], and rights thereunder . . . together with all per-
sonal property and equipment used or obtained in connec-
tion therewith, and located thereon ...’’ The assignment
was to be effective as of June 1, 1967, at 7 am. The very
next day, Schnell conveyed his interest in the property to
two business associates, Etchieson, a recently-retired Phil-
lips executive, and Gross. On September 27, 1968, Etchie-
son and Gross reconveyed their interests to Schnell, who
held title to the mineral rights in question when this law-
suit commenced. We shall henceforth refer to Schnell,
Etchieson and Gross as ‘‘the Schnell group.’’
The difficulty in this case arises from the pricing provi-
sion in the casinghead gas contracts, for just as the price
Phillips undertook to pay to the holder of the mineral
rights was pegged upon the average price of gas sold in
the Panhandle Field, that field price was in turn dependent
upon the rate that the Federal Power Commission allowed
Phillips to charge for its gas, which latter variable was
very variable indeed until long after the Adams family had
assigned its lease to Schnell. In 1954, in Phillips Petrole-
um Co. v. Wisconsin, 347 U.S. 672, 74 S.Ct. 794, 98 L.Ed.
1035, the United States Supreme Court determined that
the Natural Gas Act, 15 U.S.C. §717 et seq., [the Act]
requires the Federal Power Commission to regulate well-
head sales by producers of natural gas to interstate pipe-
line companies for interstate transportation and resale.
From that time, gas prices charged by pipeline companies
such as Phillips have been subject to FPC approval.
In the nature of things, pipeline companies desire to
raise their gas prices from time to time, and, also in the
nature of things, the wheels of the FPC’s rate-setting mech-
anism grind slowly, at best. To add to the obvious difficul-
ties attendant upon long waits for approval of price in-
creases, a pipeline company may not file retroactive price
increases, 15 U.S.C. §717c(d) and (e); Atlantic Refining
49a
Co. v. Public Service Commission, 1959, 360 U.S. 378, 389,
79 S.Ct. 1246, 1253, 3 L.Ed.2d 1312, 1319-20; Shell Oil Co.
v. FPC, 3 Cir. 1964, 334 F.2d 1002, 1009; see 18 C.F.R.
§ 154.102,* so that if a pipeline company were to wait for
F PC approval of a proposed price hike, it might very well
3 Section 717¢ provides, in pertinent part:
(a) All rates and charges made, demanded, or received by
any natural-gas company for or in connection with the trans-
portation or sale of natural gas subject to the jurisdiction of
the Commission, and all rules and regulations affecting or
pertaining to such rates or charges, shall be just and reason-
able, and any such rate or charge that is not just and reason-
able is declared to be unlawful.
(ce) Under such rules and regulations as the Commission
may prescribe, every natural-gas company shall file with the
Commission, . . . and in such form as the Commission may
designate, and shall keep open in convenient form and place
for public inspection, schedules showing all rates and charges
for any transportation or sale subject to the jurisdiction of
the Commission, and the classifications, practices, and regula-
tions affecting such rates and charges, together with all con-
tracts which in any manner affect or relate to such rates,
charges, classifications, and services.
(d) Unless the Commission otherwise orders, no change
shall be made by any natural-gas company in any such rate,
charge, classification, or service, or in any rule, regulation, or
contract relating thereto, except after thirty days’ notice to
the Commission and to the public.
« e * e oe
(e) Whenever any such new schedule is filed the Commis-
sion shell have authority, either upon complaint of any State,
municipality, State commission or gas distributing company,
or upon iis own initiative without complaint, at once, ... but
upon reasonable notice, to enter upon a hearing concerning
the lawfulness of such rate, charge, classification, or service ;
and, pending such hearing and the decision thereon, the
Commission, . . . may suspend the operation of such schedule
and defer the use of such rate, charge, classification, or service,
but not for a longer-period than five months beyond the time
when it would otherwise go into effect, and after full hear-
ings, ... the Commission may make such orders with reference
thereto as would be proper in a proceeding initiated after
(Continued on next page)
50a
lose ten years’ worth of increased prices. Congress has
resolved this difficulty by allowing a pipeline company to
increase its prices on its own initiative, subject to a five-
month suspension period which may be imposed by the
FPC, and subject to a duty to refund to its purchasers
any portion of the increase that the FPC ultimately fails
to approve. 15 U.S.C. §717e(e); 18 C.F.R. § 154.102.*
it had become effective. If the proceeding has not been con-
cluded and an order made at the «xpiration of the suspension
period, on motion of the natural-gas company making the
filing, the proposed change of rate, charge, classification, or
service shall go into effect. Where increased rates or charges
are thus made effective, the Commission may . . . require the
natural-gas company to furnish a bond . . . to refund any
amounts ordered by the Commission, to keep accurate ac-
counts in detail of all amounts received by reason of such
increase, specifying by whom and in whose behalf such
amounts were paid, and, upon completion of the hearing and
decision, to order such natural-gas company to refund, with
interest, the portion of such increased rates or charges by its
decision found not justified. At any hearing involving a
rate or charge sought to be increased, the burden of proof to
show that the increased rate or charge is just and reasonable
shall be upon the natural-gas company, and the Commission
shall give to the hearing and decision of such questions pref-
erence over other questions pending before it and decide the
same as speedily as possible.
* See generally Placid Oil Corp. v. FPC, 5 Cir. 1973, 483 F.2d
80, aff'd sub nom. Mobil Oil Corp. v. FPC, 1974, 417 U.S. 283, 94
S.Ct. 2328, 41 L.Ed.2d 72; Phillips Petroleum Co. v. FPC, 10 Cir.
1965, 349 F.2d 535; Comment, Refund Beneficiaries and Refund
Benefits Under the Natural Gas Act, 41 U.Chi.L.Rev. 792 (1974).
18 C.F.R. § 154.102 provides, in part:
(a) If a rate suspension proceeding initiated under section
4(e) of the Natural Gas Act has not been concluded and an
order made at the expiration of the suspension period, the
proposed change of rate, charge, classification, or service
shall go into effect upon motion of the independent producer
proposing the change as the legally effective rate and shall be
charged, effective as of a date not earlier than the date of
receipt of such motion by the Commission or the expiration
of the suspension period, whichever is later.
@ @ @ * *
(b)(1) Unless otherwise ordered by the Commission, in-
ereased rates or charges shall be charged and collected pur-
(Continued on next page)
5la
The FPC may also order the pipeline company to pay seven
per cent interest on refunded monies if equitable con-
siderations so dictate. 15 U.S.C. §717ce(e); 18 C.F.R.
§ 154.102(c).°
The effect of this regulatory scheme is that the pipe-
line company collects the increased prices for years and
suant to paragraph (a) of this section and there shall be filed
by the independent producer a surety bond, or other under-
taking, to be approved by the Secretary, to comply with tne
provisions of paragraph (c) of this section.
(2) In compliance with subparagraph (1) of this para-
graph, an independent producer may file a general undertak-
ing affording blanket refund coverage of any present and
future rate increases suspended under section 4(e) of the
Natural Gas Act and collected subject to refund thereunder.
Upon acceptance of such general undertaking, the producer
need not file further refund assurance when filing a motion
to make increased rates effective unless specifieally required
to do so by an order of the Commission.
(ec) Upon an increased rate being made effective pursuant to
the provision of this section the independent producer shail be
obligated to keep accurate accounts in detail of all amounts
received by reason of the increased rates or charges of each bill-
ing period, and for each purchaser, the billing determinants
of natural gas sales to such purchasers and the revenues re-
sulting therefrom, as computed under the rates in effect im-
mediately prior to the effective date of the change, and under
the rates which became effective pursuant to the motion, to-
gether with the differences in the revenues so computed; and
to refund at such times and in such amounts to the persons
entitled thereto, and in such manner as may be required by
final order of the Commission, the portion of any increased
rate found by the Commission in that proceeding not justified,
together with interest thereon at the rate of seven percent
per annum from the date of payment to the producer until
refunded.
5 See Hunt Oil Co. v. FPC, 5 Cir. 1970, 424 F.2d 982; Texas
Eastern Transmission Corp. v. FPC, 5 Cir. 1962, 306 F.2d 345,
cert. denied sub nom. Manufacturers Light & Heat Co. v. Texas
Eastern Transmission Corp., 1963, 375 U.S. 941, 84 S.Ct. 347, 11
L.Ed.2d 273; Brooklyn Union Gas Co. v. Transcontinental Gas
Pipe Line Co., 8.D.Tex. 1960, 201 F.Supp. 679, aff’d sub nom.
Socony Mobil Oil Co. v. Brooklyn Union Gas Co., 5 Cir. 1962, 299
F.2d 692, cert. denied, 371 U.S. 887, 83 S.Ct. 182, 9 L.Ed.2d 121.
52a
years, using the funds thus collected as it pleases, although
it will ordinarily characterize this ‘‘suspense money’’ as
a liability for accounting purposes. See Ashland Oil &
Refining Co. v. Staats, Inc., D.Kan. 1967, 271 F.Supp. 571,
578. Then, one fine day, the FPC tells the pipeline com-
pany which portion of the funds it can keep and which
portion it must refund to its purchasers, with interest. At
this point, the pipeline company, such as Phillips in this
case, must recompute the price it must pay to its suppliers
under percentage-of-proceeds production agreements such
as the ones involved here.* Where the ownership of the
mineral leasehold interest does not change during the ten
or fifteen years in which the FPC is pondering the pro-
posed price increase, all the pipeline company need do is
to send a check along to the current leaseholder. Where,
as here, the leasehold has changed hands in the interim,
the pipeline company’s task is more difficult.
In this case, Phillips filed a proposed price increase
with the FPC subsequent to the Supreme Court’s decision
in Phillips Petroleum Co. v. Wisconsin, supra, and charged
_ its customers the higher price, subject to refund, during
the period in which the Adams family held the leasehold
interest in the property involved in this lawsuit. From
1963 until 1967, Phillips made monthly payments to the
Adams family, based only on the ‘‘firm proceeds”’ of its
own sales, that is, proceeds calculated on the rate which
the FPC had already approved; the pipeline company de-
ferred any payments calculated on the basis of the higher,
unapproved prices which Phillips was actually charging its
6 Phillips urges that it really has no obligation to recompute the
price it must pay to its suppliers under percentage-of-proceeds
contracts, and that the Adams family consequently ought not to
question such beneficence as Phillips might demonstrate. We
believe that the law of contract obliges Phillips to pay in full for
the gas that it purchases, regardless of the time at which the full
measure of payment may be revealed.
53a
customers throughout the period. On September 18, 1970,
the FPC finally concluded its deliberations on Phillips’
proposed rate hikes, approving a portion of the price in-
creases but rejecting another portion.’ Hugoton-Andarko
Rate Case, Op: 586, 44 F.P.C. 761, aff’d, 9 Cir. 1972, 466
F.2d 974. After the Ninth Circuit affirmed the FPC’s or-
der, Phillips divided the principal sum of the suspense
money collected over the years into two categories: ‘‘re-
fundable monies,’’ which it returned to its purchasers with
interest, and ‘‘sustainable monies,’’ to which it now had
certain entitlement. But a portion of these sustainable
monies represented certain debts payable to all producers
who had supplied Phillips with gas under percentage-of-
proceeds contracts. With respect to the particular pro-
perty involved here, Phillips determined that the Schnell
group was the undisputed owner of all sustainable monies
due on gas produced after June 1, 1967, and Phillips set-
tled a dispute with the Adams family’s predecessors in
interest with respect to monies collected before 1963. It
was readily apparent, however, that the Adams family and
the Schnell group were irremediably antagonistic with
respect to the 1963-1967 funds so Phillips brought this
interpleader action to determine title to $12,296.81, which
sum was the amount that Phillips owed either to the Adams
family or to the Schnell group for gas purchased during
1963-1967.°
II
The district court ruled that the Adams family ought
to receive the disputed suspense money, on the ground
that the payments were ‘‘in part payment of gas severed
7 The effective date of the order was October 1, 1970.
8 Phillips actually deposited $16,161.88 into court, but $3,865.07
of this sum is attributable to an undisputed overriding royalty
interest.
o4a
from the leasehold estate and sold therefrom prior te
any assignment of the lease by the Adams family,’’ and
that the document of assignment from the Adams family
to Schnell could not be construed to constitute an assign-
ment of the suspense money. The Schnell group and Phil-
lips *° argue that the money was not due and payable until
after the FPC order in Hugoton-Andarko, and contend
that since the order was not made until well after the
Adams family had conveyed its leasehold interest to
Schnell, the contingent right to the money attached to the
mineral estate. In these circumstances, Schnell and Phil-
lips conclude that since the Adams family did not expressly
reserve this contingent right in the instrument of assign-
ment, the right to any suspense money passed to Schnell.
Schnell urges that even though the gas for which the
disputed funds are partial payment was _ produced
while the Adams family held the leasehold interest,
the right to payment did not become certain and enforce-
able until after the FPC order, so that this case is analog-
ous to decisions involving dividends on stock, interest on
notes and unaccrued rent on real estate, where the income
goes to the party who holds title to the principal property
on the date the dividend, interest or rent is declared or be-
comes due.
The Schnell group and Phillips are undoubtedly cor-
rect in their contention that the Adams family had no
enforceable right to the suspense money during the time
when they held the leasehold interest, for neither Phillips
nor the Adams family had any reasonable expectation dur-
ing 1963-1967 that the FPC would approve the higher prices
upon which the suspense money was based. Neither party
could claim full title to any part of the disputed funds
® Although Phillips is the stakeholder in this interpleader action,
the pipeline company has from the beginning urged the validity
of the Schnell group’s claim as against that of the Adams family,
for the reason that the Schnell group, unlike the Adamses, does
not claim interest on the suspense money from Phillips.
55a
until the FPC had determined the validity of the price in- .
creases.
In Ashland Oil & Refining Co. v. Staats, Inc., D.Kan.
1967, 271 F.Supp. 571 individuals situated similarly to the
Adams family here demanded that a pipeline company pay
them suspense money before the FPC had taken any action
on the suspended price increase which had produced the
funds. The district court reasoned that the right to pay-
ment of the parties analogous to the Adams family:
can be no greater than the leese’s right to the monies
from which those royalties derive. Ashland [the pipe-
line company] has no final enforceable right to these
funds for they have not been approved, and may be
rescinded. [The pipeline company] holds them sub-
ject to refund, and is responsible for any refund which
may be ordered. We perceive no ground on which Ash-
land should be compelled to pay out sums, for the re-
fund of which it may be liable, and as to which its own
right is not finally determined, to royalty owners whose
own right to royalties from those funds will be finally
determined only when Ashland’s own right is deter-
mined .... If Ashland were required to pay over
funds which it now holds, and a refund of all or any
part thereof were subsequently ordered, it would have
to demand repayments from a large number of royalty
owners, and risk the necessity of a multiplicity of legal
actions. Ashland has taken a course designed and in-
tended best to serve the interest of the royalty owners
and of itself. As a result, it holds the sums sought
in what is roughly analogous to a fiduciary capacity.
In our view, [the royalty owners have] stated no right
to recover royalties on these funds, when it is not yet
finally determined that they represent lawful proceeds
from the sale of gas. |
271 F.Supp. 571, 579.
We believe that the Staats court correctly stated the law
governing Phillips’ contractual relations with the Adams
family during 1963-1967. See Boutte v. Chevron Oil Co.,
E.D.La. 1970, 316 F.Supp. 524 aff’d, 5 Cir. 1971, 442 F.2d
56a
1337.° The fact that the Adams family had no final and
enforceable right to the suspense money in 1963-1967, how-
ever, does not foreclose the possibility that they retained
the contingent right to the funds after their assignment to
Schnell and that the FPC’s 1970 order converted that con-
tingent right into a right presently enforceable against
Phillips. The resolution of this question requires us to
investigate the Texas law of contract and property.
It is the law in Texas, as elsewhere, that where a
contract is unambiguous, we must look solely to the terms
thereof to determine its meaning. Hennigan v. Chargers
Football Co., 5 Cir. 1970, 431 F.2d 308; Tenneco Oil Co. v.
Alvord, Tex. 1967, 416 S.W.2d 385; Wahlenmaier v. Ameri-
can Quasar Petroleum Co., Tex.Civ.App. 1974, 517 S.W.2d
390, no writ. All of the parties here agree that the instru-
ment of assignment is unambiguous, and that document
alone can show which property interests passed to Schnell
and which were retained by the Adams family. The Adams
family conveyed to Schnell:
all right title and interest ... in and to [the lease],
and rights thereunder, ... together with all personal
property and equipment used or obtained in connec-
tion therewith, and located thereon ... [The Adams
family also warranted that they] are the lawful own-
ers of the interest in said oil and gas lease .. , and of
10 We note that Phillips does not always hold suspense money in
its own accounts until the FPC approves or disapproves the under-
lying rate increases. The record contains two form letters from
Phillips, one written to Etchieson of the Schnell group, dated
February 20, 1968, and the other written to the Adams family
with regard to another piece of property, dated August 13, 1971,
in which Phillips (apparently at the request of Etchieson and the
Adams family) agreed to pay suspense money to the addressees
as it was collected, on the condition that they would agree to reim-
burse Phillips, with interest, for any suspense money which the
FPC might require Phillips to refund to its customers. The ap-
proach adopted by Phillips in those instances would obviate the
difficulties presented by this case.
57a
all personal properties thereon, or used in connection
therewith; . . and that said rights, interest and prop-
erty are free and clear from all liens and encum-
brances, and that all rentals and royalties due and pay-
able under said oil and gas lease have been fully paid.
This oil and gas lease shall be effective as of June
1, 1967, at 7:00 A.M..
The assignment appears on its face to pass title
to all realty interests, effective as of 7:00 A.M. on a day
certain, and all personal property interests bound up with
the operation of the wells; there is no mention of the right
to the suspense money or of any other personally unrelated
to the extraction process. In a conveyance of real property,
all of the interests in land ordinarily pass to the grantee
unless specifically exempted, for deeds are strictly con-
strued against the grantor. Tenneco Oil Co. v. Alvord,
supra; Humble Oil & Refining Co. v. Harrison, 1947, 146
Tex. 216, 205 S.W.2d 355; Melton v. Davis, Tex.Civ.App.
1969, 443 S.W.2d 605, writ ref’d n.r.e. On the other hand,
it is usually the case that personal property does not pass
in the assignment of an oil and gas lease unless it is ex-
pressly passed. See e.g., Moore v. Carey Bros. Oil Co., Tex.
Comm’n. App. 1925, 269 S.W. 75; Cox v. Rhodes, Tex.Civ.
App. 1950, 233 S.W.2d 924; Continental Oil Co v. Gillespie,
Tex.Civ.App. 1944, 178 S.W.2d 728, no writ; East Texas
Refining Co. v. Helvir Oil Co., Tex.Civ.App., 1935, 82 S.W.2d
392, writ dism’d w.o.j.; 3 W. Summers Oil and Gas § 555.
Thus, the problem in this case is whether the contingent
right to the suspense money constituted a realty or a
personalty interest. If the right to the money is a realty
interest, the assignment passed that right to Schnell, but
if the right is in the nature of personalty, the Adams family
did not expressly convey the right and therefore retained it.
Texas law provides that oil and gas are realty
when in place and personalty when severed from the land
by production. Harrington v. Texaco, Inc., 5 Cir. 1964,
58a
339 F.2d 814, cert. denied, 1965, 381 U.S. 915, 85 S.Ct.
1538, 14 L.Ed.2d 435; Humble Oil & Refining Co. v. West,
Tex. 1974, 508 S.W.2d 812; Phillips Petroleum Co. v. Me-
com, Tex.Civ.App. 1964, 375 S.W.2d 335, no writ; Lone
Star Gas Co. v. Murchison, Tex.Civ.App. 1962, 353 S.W.2d
870, writ ref’d n.r.e. With respect to debt obligations in-
curred as oil and gas are produced, unaccrued royalty inter-
est, oil payments and bonus payments are deemed by Texas
courts to be interests in realty, for such rights represent
interests in the oil and gas still in place on the property.
See Clyde v. Hamilton, Tex. 1967, 414 S.W.2d 434; Ten-
nant v. Dunn, 1937, 130 Tex. 285, 110 S.W.2d 53; Sheffield
v. Hogg, 1935, 124 Tex. 290, 77 S.W.2d 1021, on rehearing
124 Tex. 311, 80 S.W.2d 741; see generally Walker, Oil
Payments, 20 Tex.L.Rev. 259 (1942). The rule is other-
wise when the minerals giving rise to the right to payment
have already been taken from the ground, for the right to
future payments on past production cannot be said to
burden the mineral estate in the same way as an interest
in future production. The right to payment for past
production obviously has no effect upon the value to the
leaseholder of the oil and gas still in the ground at the
time the mineral estate changes hands—which property is
the usual object of leaseholder interest. So it is that ac-
erued royalty interests are personal property, Miller v.
Hathaway, Tex.Civ.App. 1972, 477 S.W.2d 655, no writ, as
is the right to payment for severed minerals. Shell Oil
Co. v. State, Tex.Civ.App. 1969, 442 S.W.2d 457, writ ref’d
0.T.e.
The district court here reasoned that since the disputed
funds are partial payment for gas produced while the
Adams family held the leasehold interest, those individuals
also held a contingent personal right to payment during
1963-1967, and that the Texas rules of contractual construc-
tion compelled the conclusion that the Adams family did
not convey these personal property rights to Schnell. The
Schnell group and Phillips argue that the disputed money
59a
cannot represent a personalty interest founded on a debt
because this purported debt did not become due and pay-
able until after the FPC order, that is, long after the
Adams family had conveyed its interest in the leasehold
estate to Schnell.
Although there are no Texas cases (nor cases from
any other jurisdiction) which have dealt with the problem
of suspense money not currently due and payable, com-
mon sense and elemental fairness can lead only to the
conclusion that the Adams family had a right to pay-
ment in full for the gas they sold to Phillips, and that
they have at no time reliquished their right to complete
compensation. The Texas law, as set out above, dictates a
like result. In East Texas Refining Co. v. Helvir Oil Co.,
supra, for example an assignor of an oil and gas lease quar-
reled with the assignee over the right to payments for oil
which had already been produced and sold to a third party
at the time the assignment was made. The language of
the instrument there was similar to that of the assign-
ment here, and the Texas court held that the assignor had
not conveyed its right to payment:
If we give to the lease contract the construction most
favorable to [the assignee’s] contention, it transfers
to [the assignee] [the assignor’s] interest in the lease
and all property incident to such lease. These prior
oil runs had been taken from the lease and sold and
delivered to [a third party] and were not, on [the date
of the assignment] connected with or incident to the
lease, and could not be transferred to [the assignee]
by a mere transfer of such lease.
82 S.W.2d 392, 395.”
11 We note that the Texas state tax on the production of oil, a
tax payable by the producer of the oil, accrues when the oil is pro-
duced—and not when it is paid for. Tex. Tax.-Gen. art. 4.01 et
seq., V.A.T.S.; State v. Humphrey, Tex.Civ.App. 1942, 159 S.W.2d
162; see also Alexander v. Texaco, Inc., 5 Cir. 1973, 482 F.2d 1248;
Fain-McGaha Oil Corp. v. Murko Oil & Royalty Co., 1937, 128
Tex. 646, 101 S.W.2d 547.
60a ~y
We do not believe that our case should be decided
differently from East Texas Refining simply because the
assignor there had a right to payment in full by the time of
the assignment, while the Adams family could not know the
extent of its earnings until several years after the assign-
ment to Schnell. The Adamses owned the gas in place at
the time of extraction, at which point they exchanged their
right to the gas for the right to be paid therefor. The
fact that the debt was not liquidated on the date of assign-
ment, and could not be ascertained for some time there-
after, does not make it any less a personal property right.
The Adams family did not convey this right to Schnell,
and they are entitled to the suspense money now in the
registry of the district court.’
12 The Schnell group argues, in face of the rule of construction
of unambiguous contracts, that the Adams family intended to
convey their right to the suspense money. We believe that the
evidence offers no support for this contention, and that the best
evidence of the Adams family’s intentions is the assignment it-
self, which makes no mention of the suspense money; that docu-
ment compels the legal conclusion that the Adams family retained
the
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