Petition — Arkansas Louisiana Gas Co. v. Hall

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| RECEIVED

etal

18 1978

Nee

Supreme Court of the United State

Ocroper TERM, 1978

No. —15- Pho

ARKANSAS DOUISIANA Gas Company, Petitioner,

Vv

FRANK J. HALL, Mrs. W. E. Hay, Se., THe H. M.

HARRELL TESTAMENTARY TRUST, JAMES E. HARRELL,

JOHN K. HARRELL, Sr., ASA BENTON ALLEN, SIDNEY G.

Myers, Jr., W. O. CocHran, THomas F. PHILYAW,

Mrs. ELaInet ALLEN, JAMES A. Nor, D. B. MCCONNELL,

Mrs. Eva L. Wertss, Sot Kapitan and NATIONAL

AMERICAN BANK, New Orleans, Co-Testamentarv

Executors of the Succession oF SEYMOUR WEISS,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO

THE COURT OF APPEAL, SECOND CIRCUIT,

STATE OF LOUISIANA.

Rospert Roserts, JR.

MARLIN RISINGER, JR.

W. MIcHAEL ADAMS

BLANCHARD, WALKER, O’QUIN & ROBERTS

Post Office Drawer 1126,

Shreveport, Louisiana 71163

Counsel for Petitioner

EUBEN GOLDBERG

GLENN W. LETHAM

GoLpBERG, FELDMAN & LETHAM, P.C.

1700 Pennsylvania Ave., N.W.

Washington, D.C. 20006

Of Counsel

Press or Byron S. ADAMS PRINTING, INC., WASHINGTON, D. C.

— lee

Page

Dee ac Gaehecoseees il

I. SE ISIE ee 2

NEE 2

Er 3

IV. Statutes anp Recuiations INVOLVED .......... 4

V. STATEMENT OF THE CASE .........cccccccescecs 4

Proceedings in the Trial Court ........... 6

Opinion and Judgment of Trial Court ..... 7

Opinion of the Court of Appeal ......... a>

Federal Questions Raised in Lower Courts. 10

VI. Reasons Way A Writ or Crrtiornari SHouLp Bg

ee Ee eee yee bibe 12

Dee Bes evn abebedewsces eee 24

ee cee sa babenes la

ii TABLE OF AUTHORITIES

CasEs: Page

Appalachian Power Co., 49 F.P.C. 387 (1973) ....... 20

Appalachian Power Co. v. FPC, 529 F.2d 342 (D.C.

Cir. 1976), cert. den. 429 U.S. 816 (1976) ........ 20

Burnet v. Harmel, 287 U.S. 103 (1932) .............. 19

Cox Broadcasting Corp. v. Cohn, 420 U.S. 469 (1975) .. 3

Far East Conference v. United States, 342 U.S. 570

DO a iw ks xs PADDR ANA Shee sh td RRE Ee cK es 13

FPC v. Louisiana Power ¢ Light Co., 406 U.S. 621

GaN E Fines chance heed Keee bane bt GAM KE 4 21

FPC v. Mobil Oil Corp., 406 U.S. 976 (1972) ........ 19

FPC v. Sierra Pacific Power Co., 350 U.S. 348 (1956) . 13

FPC v. Tennessee Gas Transmission Co., 371 U.S. 145

SP Pa is ce aces hee adv oak sy Mahone aks.» 21

FPC v. Transcontinental Gas Pipe Line Corp., 365

Oe oo co eka Bika vices i: 21

Great Northern R. Co. v. Merchants Elevator Co., 259

Sh ee A AGS Gin Ok kis ik web ota FOS 15,17

Interstate Natural Gas Co. v. Mississippi River Fuel

Corp., 220 La. 43, 55 So.2d 775 (1951) ........... 8

Morris Mizel, et al., Op. No. 407, 30 F.P.C. 1103 (1963) . 16

Mobil Oil Corporation v. FPC, 364 F.2d 256 (D.C. Cir.

1971), cert. den. sub. nom. FPC v. Mobil Oil Corpo-

PORE, GOS Si. OVO COTE bn cei vciscwancacicucs 19

Montana-Dakota Util. Co. v. Northwestern Public Serv-

OO Tra, UR Cts Oe COUOED acm censccecscieds 12

NAACP v. FPC, 425 U.S. 662 (1976) ................ 21

Natural Gas Pipeline Co. v. Panoma Corp., 349 U.S. 44

SS SS tn Sah aay Sick kiw ga xn nv weno ae WANS 12

Northern Natural Gas Co. v. State Corporation Co.,

Ee ERD 55d boo ws 0 Sas 0 08s 50 Wales Oh 13, 19

O’Meara v. Union Oil Co., 212 La. 745, 33 So.2d 506

DPE Uiroas sok ckatenbess bana vecdieeynueuns 18

Phillips Petroleum Co. v. Wisconsin, 374 U.S. 672

ree ae See as 5, 20

Port of Boston Marine Terminal Assn. v. Rederiaktie-

bolaget Transatlantic, 400 U.S. 62 (1970) ........ 18

Porter v. O’Neal, 205 La. 445, 17 So.2d 622 (1944) .... 18

Shell Oil Co., et al., Memo. Op. No. 382, 29 F.P.C. 498

PED 5 kaa b-ee phases HORA eae HAA atan 00k 16

Shell Oil Co. v. FPC, 334 F.2d 1002 (3rd Cir. 1964) .... 16

Socony Mobil Oil Co. v. Brooklyn Union Gas Co., 299

fs Bg OR er eee 12

—. v. Lawyers Title Insurance Corporation, 329

Oe Cae See OR, OTOP: hina c co vccccncccess 18

ee ee Se

Table of Authorities Continued iii

Page

Sunray Mid-Continent Oil Co. v. FPC, 364 U.S. 137

SE ok bc cE Raa ks ouak bh ebs> bes cases tas 21

Tenneco Oil Co. v. FERC, 580 F.2d 722 (5th Cir. 1978) . 18

Texas & Pacific R. Co. v. American Title € Timber Co.,

ey ao ike. a ion’ ewan x veh b's ese we 13

United Gas Improvement Co. v. Continental Oil Co.,

GE Gt | er ere rere 17, 20, 21

United Gas Pipe Line Co. v. Mobile Gas Service Corp.,

Be RN I Es ok OR edwin ne Cee bescppncns 13

United Gas Pipe Line Co. v. Memphis Light, Gas &

Water Division, 358 U.S. 103 (1958) ............ 13

United States v. Western Pacific R. Co., 352 U.S. 59

CEE Set Fad £366 OCA bs Chota EAA sae aed 15-16, 18

United States Navigation Co. v. Cunard Steamship Co.,

SE AE I SEE 6 Ck 6 xc nadine soo cucu eheen sun

West Texas Gathering Co., 29 F.P.C. 510 (1962) ..... 16

STATUTES:

Code of Federal Regulations, Title 18, §§ 154.92, 154.93,

I 3 5s ek Gang 6 eRe N Na oe 4

DEE L0G inv hs ceed POETS Ss ene heaei 21

Federal Power Act, 41 Stat. 1063, as amended, 16 USC

fk Re ee er eee ye rer Tee 12

Mineral Leasing Act, 30 USC §§ 226, et seq. .......... 7

Natural Gas Act, 52 Stat. 821, as amended, 15 USC _

eg SE GE SP eee eee er ES Tes ee ee passim

Natural Gas Act, 52 Stat. 821, as amended, 15 USC

§ 717, et seq.

ED. son gdh KOSS Wis ko eeeh tds dion 4,5

NE i Nak hi a kee cach w edie aheeen 4, 23

RSE, AP Rete Sree arene ere an rene 3

DEEL -s <UcUa i eaataNhateea s Heeeene anaes 3

United States Code, Title 28, § 1257(3) .............. 3

eR SE a Et ew

NO ne RS Pw he

IN THE

Supreme Couwt of the United States

OcTOBER TERM, 1978

No.

ARKANSAS LouIsIANA Gas Company, Petitioner,

wa

FRANK J. Haut, Mrs. W. E. Hatz, Sr., THe H. M.

HARRELL TESTAMENTARY TRUST, JAMES E. HARRELL,

JOHN K. HARRELL, Sr., ASA BENTON ALLEN, SIDNEY G.

Myers, Jr., W. O. CocHran, THomMas F. PHILyaw,

Mrs. ELAINE ALLEN, JAMES A. Nog, D. B. McCoNNELL,

Mrs. Eva L. Weiss, Sou Kapitan and NATIONAL

AMERICAN BAnkK, New Orleans, Co-Testamentary

Executors of the Succession oF SEYMOUR WEISS,

Respondents.

PETITION FOR A WRIT OF CERTIORARI T

THE COURT OF APPEAL. SECOND CIRCUT',

STATE OF LOUISIANA.

To THE HONORABLE °‘HE CHIEF JUSTICE AND ASSOCIATE

J USTICES OF THE SUPREME COURT OF THE UNITED STATES:

ARKANSAS LOUISIANA Gas Company prays that a Writ

of Certiorari issue to review the judgment and decree

of the Court of Appeal, Second Circuit, State of Lou-

isiana, entered in this cause on May 1, 1978 setting

aside the judgment of the First Judicial District Court

2

of Louisiana in and for Caddo Parish rendered on the

5th day of December, 1977, and remanding the cause to

said District Court with directions.

I. OPINIONS BELOW.

A copy of the opinion and decree of the Court of

Appeal is attached in the appendix to this petition,

page 2a; it is reported at 359 So.2d 255. Petitioner and

Respondents filed applications in the Court of Appeal

for rehearing, both of which were denied by order en-

tered on June 6, 1978; see App. p. 21a.

Respondents and Petitioner each timely applied to

the Supreme Court of Louisiana for a writ of certiorari

or review of the judgment of the Court of Appeal. Pe-

titioner’s application was denied by an order of the

Louisiana Supreme Court entered September 22, 1978

(App. p. 22a); and Respondents’ application, which

sought review and reversal of a part of the judgment

of the Court of Appeal in favor of Petitioner, was

granted by an order entered the same date (App. p.

23a) and is still pending in the Supreme Court of

Louisiana.

The opinions in this cause of the First Judicial] Dis-

trict Court of Louisiana in and for Caddo Parish are

not reported. The original opinion dated October 14,

1977 and cpinion denying new trial dated December 2,

1977 are included in the Appendix respectively at pages

24a and 39a; and the trial court’s judgment is repro-

duced at Appendix p. 44a.

II. JURISDICTION.

The judgment of the Court of Appeal was entered

May 1, 1978, rehearing was denied on June 6, 1978, and

3

by order entered September 22, 1978 the Supreme

Court of Louisiana refused to review said judgment

against Petitioner; the judgment of the Court of Ap-

peal, Second Circuit, State of Louisiana, of which re-

view and reversal are here sought is, under the judicial

and procedural system of Louisiana, a judgment of the

highest court of the State of Louisiana in which a de-

cision in this cause could be had. The judgment of which

review is sought is a final judgment within the mean-

ing of the jurisdictional statute, United States Code,

Title 28, § 1257(3), (App. p. la) as interpreted by this

Court in its recent decisions, particularly Cox Broad-

casting Corporation v. Cohn, 420 U.S. 469 (1975).’

Ill. QUESTIONS PRESENTED.

Central to the lawsuit involved in this case are the

questions of whether the favored nation provision of

Respondents’ FPC Rate Schedule was activated by

Petitioner’s payment to the United States Government

of value royalties at a rate higher than prices paid by

Petitioner to Respondents under Respondents’ FPC

Rate Schedule and, if it were activated, what prices

Respondents may collect from Petitioner.

The questions presented are: (1) whether the court

below erred in failing to refer to the Federal Power

Commission the interpretation of the favored nation

' Since a decision in Petitioner’s favor on the jurisdiction of the

District Court or on the meaning and effect, under the Natural

Gas Act (15 U.S.C. § 717, et seq.), of the price escalation provi-

sion of Respondents’ Rate Schedule will be determinative of all

issues in the case, Petitioner submits that, under the rules estab-

lished by this Court in the Coz Broadcasting Corporation deci-

sion, supra, the judgment of the Court of Appeal is final and re-

viewable; see 420 U.S. 482, 483.

+

provision of Respondents’ F' PC Rate Schedule, whether

the favored nation provision was activated, and, if the

favored nation provision were activated, the prices that

Respondents may collect under the Natural Gas Act

and the Regulations thereunder.

(2) Whether the Court of Appeal’s judgment as to

the Small Producer status of Respondents and the

computation of their recovery was in accordance with

the Natural Gas Act and Commission Regulations.

IV. STATUTES AND REGULATIONS INVOLVED.

The statute of the United States involved, rights

under which have been denied to Petitioner by the

Louisiana courts, is Section 4 of the Natural Gas Act,

52 Stat. 822, 15 USC §717c, and Regulations there-

under of the Federal Power Commission (the “Com-

mission’’),? Code of Federal Regulations, Title 18,

§§ 154.92, 154.93, 154.94, 154.95, 157.40, copies of which

are at App. p. 52a, 54a, 55a, 60a, and 60a.

V. STATEMENT OF THE CASE.

Petitioner (‘‘Arkla’’) is an integrated gas utility en-

gaged in all phases of the natural gas business in Ar-

kansas, Louisiana, Texas and Oklahoma, and to a lim-

ited extent in Kansas and Missouri. It is a ‘‘natural

gas company”’ as that term is defined in Section 2(6)

of the Natural Gas Act, subject to the jurisdiction of

The period covered by the judgment in this cause ended De-

eember 31, 1975, before the Federal Energy Regulatory Commis-

sion on October 1, 1977 succeeded to the functions and regulatory

responsibilities of the Commission. The term ‘‘Commission’’ refers

to Federal Energy Regulatory Commission as to matters occur-

ing after October 1, 1977.

2 enh 1 etl nin 2a,

4)

the Commission. Respondents are engaged in the pro-

duction of natural gas and the sale thereof to Arkla in

interstate commerce for resale and they also are ‘‘nat-

ural gas companies,”’ as defined in Section 2(6) of the

Natural Gas Act, subject to the jurisdiction of the

Commission.

On January 11, 1952 Respondents, or their predeces-

sors, entered into a written agreement with Arkla pro-

viding for the sale by them to Arkla of natural gas

(including extractable liquids but not including con-

densate) to be produced from Respondents’ wells in the

Sligo Gas Field, Bossier Parish, Louisiana for a pri-

mary term expiring in 1980. After the decision in

Phillips Petroleum Company v. Wisconsin, 374 U.S.

672 (1954), Respondents filed for and received a Cer-

tificate of Public Convenience and Necessity from the

Commission in Docket No. G-3891 authorizing the sales.

The 1952 contract was filed with the Commission and

became Respondents’ FPC Gas Rate Schedule No. 4.

Under the price provisions of this contract the price to

be paid by Arkla to Respondents for the gas, including

all liquids contained therein except condensate, was

$0.06997 with escalations each five years until the price

became $0.11496 in 1975.

Section 8(D) of Respondents’ gas sales contract and

Rate Schedule contains the escalation provision which

the parties refer to in this suit as the ‘“‘favored nation

provision” and which is quoted, so far as here relevant,

as follows:

“If at any time during the term of this agree-

ment Buyer should purchase from another party

seller gas produced from the subject wells or any

other well or wells located in the Sligo Gas Field at

a higher price than is provided to be paid for gas

6

delivered under this agreement, then in such event

the price to be paid for gas thereafter delivered

hereunder shalt de increased by an amount equal

to the differences between the price provisions here-

of and the concurrently effective higher price pro-

visions of such subsequent contract; provided that

in determining whether a given price is in fact

‘higher’ than the price provisions of this contract,

the inquiry shall not be limited to the actual prices

stipulated but due consideration shall also be given

to a comparison of all other pertinent provisions of

the two contracts, such as point of delivery, basis

of measurement, taxes, dehydration, and delivery

pressures (provided that the number of years

stated as the terms during which the two contracts

shall respectively remain in force and effect shall

not be a factor to be considered for purposes of

comparison under this paragraph) and the price

to be thereafter payable in accordance with this

paragraph for gas delivered hereunder shall be ad-

justed accordingly insofar as may be necessary to

make allowances for any discrepancies as may exist

between such comparable provisions of the two con-

tracts. It is agreed that any such higher price for

as delivered hereunder shall be effective on the

rst day of Buyer’s accounting month (as else-

where herein defined) next following the effective

date of such subsequent contract, all subject, how-

ever, to any rules and regulations of the Office of

Price Stabilization or any other regulatory body

having jurisdiction.’’ [Emphasis added].

Proceedings in the Trial Court

This suit was begun in 1974 in the First Judicial Dis-

trict Court of Louisiana in and for Caddo Parish. The

suit claims that payments.made by Arkla to the United

States (which were made beginning in 1961) as royalty

under an oil and gas lease (covering parts of the Barks-

dale Field Reservation in Bossier Parish in the Sligo

7

Gas Field) amounted in law to purchases of gas from

a party seller and ‘‘triggered’’ the favored nation

clause; and that Arkla has thereby incurred substan-

tial liabilities to Respondents for higher rates for gas

sold.

Under the provisions of the lease, the United States

is entitled to a royalty of 1624% of the amount or

value, at the option of the United States, of the pro-

duction obtained from the leased lands. Under the

terms of the government lease and the authority of the

Mineral Leasing Act, 30 USC §§ 226, et seq., the De-

partment of the Interior, acting through the United

States Geological Survey, has the right to make a bind-

ing determination as to the value of the oil and gas

produced by the lessee for the purpose of computing

the amount of the value royalty. This right was exer-

cised by notice in the form of letters to Arkla fixing

the value of Arkla’s share of the production from the

government lease at unit values higher than the Re-

spondents’ cortract prices with Arkla.

Arkla has paid royalties to the United States, under

the g« .ernment lease, calculated as being 1624% of the

value of Arkla’s 15% of the production from the gov-

ernment lease, determined, as required by the lessor,

at the unit values referred to in the preceding para-

graph, including value of extracted products at the

price at which sold by Arkla, with no deduction for the

cost of extraction.

Opinion and Judgment of Trial Court

The District Court entered two opinions—on October

14, 1977 (App. p. 24a) and on December 2, 1977 (App.

p. 39a). Its judgment in favor of Respondents is at

§

Appendix page 44a. The court held that as a matter of

oil and gas law, the United States owned the gas as it

was produced and that, therefore, the value royalty was

paid by Petitioner as the price of a sale and triggered

the favored nation provision of the contract.

The trial court also held, on the authority of the

Louisiana decision of Interstate Natural Gas Co. Vv.

Mississippi River Fuel Corp., 220 La. 43, 55 So.2d

775 (1951), that Respondents could not recover addi-

tional price for gas sold in the period 1961 to October,

1972 (when, the court held, Respondents attained the

status of Small Producers) because they had made no ~

Commission filing for the increased contractual rate.

The court granted them judgments (App. p. 44a) for its

calculated ‘‘favored nation’’ price increase for the

period October, 1972 to December, 1975.

The demands of one of plaintiffs, W. E. Hall, Jr.,

were rejected on the ground that he had agreed to an

amendment of his contract with Arkla deleting the

favored nation clause. It should also be stated that by

an earlier opinion (App. p. 46a) the District Court had

entered an interlocutory order overruling Petitioner’s

declinatory exception to the court’s jurisdiction on the

ground that the Commission was vested with primary

and exclusive jurisdiction over the questions presented

by the lawsuit.°

* Following the overruling of its declinatory exception, Respond-

ent filed a petition with the Commission for a declaratory order

construing Respondents’ rate schedule and determining the rates

at which each of Respondents was entitled to be paid in the period

involved in this suit. The Commission, while agreeing that it had

jurisdiction, denied the petition, holding that it would defer to

the state court. Petitioner sought review of the Commission’s

order in the United States Court of Appeals for the District of

9

Opinion of Court of Appeal

On appeals by all parties to the Louisiana Court of

Appeal, Second Circuit, that court in an opinion en-

tered May 1, 1978 (App. p. 2a), reported at 359 So.2d

255, affirmed the District Court’s judgment in all re-

spects except as to quantum. On the basic issue of

Arkla’s liability the Court of Appeal’s reasoning was

different from the trial court’s ruling: the appeal court

in a short paragraph in its opinion (App. p. 9a) re-

jected the ground on which the District Court had

found Arkla liable, holding that Arkla was correct in

arguing that its payment to the federal government of

royalty was a payment of rent and not the payment of

the price of a sale. The court then went on to say:

‘*We nevertheless find it inappropriate to accept

the technical and restrictive interpretation on the

term ‘purchase from another party seller’ relied

on by defendant under the circumstances shown in

this instance.”’

The court concluded that the favored nation provi-

sion should be construed in the interest of the seller

and held that it was activated.

As to quantum, the Court of Appeal affirmed the

- District Court as te Respondents’ Small Producer

status and reversed and remanded the judgment for

recalculation with directions that, as Petitioner sub-

mits, ignored constraints imposed by Commission regu-

lations.

Columbia Circuit (Case No. 77-1146, Arkansas Louisiana Gas

Company v. Federal Power Commission). During pendency of the

review proceedings, the Commission sought, and the Court of Ap-

peals granted, remand of the declaratory proceeding to the Com-

mission for further consideration.

10

Respondents applied to the Supreme Court of Loui-

siana for review of the Court of Appeal’s judgment

and decree insofar as they rejected their demands,

and Peti.ioner applied for review of that part of the

judgment against it. Respondents’ application was

granted and Petitioner’s application denied by sepa-

rate orders entered September 22, 1978 (App. pp. 23a

and 22a).

Federal Questions Raised in Lower Courts

Petitioner recounts its continuous and repeated ef-

forts to protect and achieve its rights and immunities

which it has specially set up and claimed under the

Natural Gas Act:

(1) Petitioner’s answer to Respondents’ petitions in

the trial court put at issue, in part in reliance on the

Natural Gas Act, Respondents’ interpretation of the

favored nation provision of their Rate Schedule; and

set up, in the alternative, defenses under the Natural

Gas Act as to Respondents’ right to recover any

amounts not in accord with their rates on file and ef-

fective under the Natural Gas Act.

(2) The rules of the Louisiana courts of appeal in-

clude Rule IX-A which requires that the appellant

specify the errors in the lower court’s opinion of which

he complains and provides further as follows:

‘‘Ordinarily, however, the courts of appeal will

review only issues which are submitted to the trial

court and which are contained in the specification

of errors in the briefs or in an application for

writs, unless the interests of justice clearly require

otherwise.”’

il

Petitiones’s brief in the Court of Appeal specified,

and among others, the following errors and issues:

(a) The error of the District Court in holding that

it had jurisdiction of the case.

(b) The error of the District Court in holding that

the favored nation clause was activated, in part on the

ground that such holding was contrary to the Natural

Gas Act and the decisions of the courts of the United

States thereunder.

(ec) The error of the District Court, under the pro-

visions of the Natural Gas Act, in permitting change

to be made in Respondents’ sales contract without

approval of the Federal Power Commission, and the

consequent errors in the court’s computation of Re-

spondents’ recovery.

(d) The District Court’s error in holding that all

of plaintiffs had the status, under the Natural Gas Act,

of ‘‘Small Producers’’.

( e) The issue of the correctness of the trial court’s

decision that Respondents’ could not recover addi-

tional price, without a filed rate, in the period 1961 to

October, 1972.

(3) In its application to the Court of Appeal for

rehearing dated May 15, 1978, Petitioner again insisted

upon its rights under the Natural Gas Act.

(4) In its application to the Supreme Court of

Louisiana for review of the judgment and decree of

the Court of Appeal, Petitioner’s Assignments of Er-

ror raised the same issues which were argued in the

Court of Appeal.

12

Throughout this litigation Petitioner has insisted

upon its rights, privileges and immunities under the

federal law which have been, with limited exceptions,

denied to it by the Louisiana courts.

VI. REASONS WHY A WRIT OF CERTIORARI SHOULD

BE GRANTED.

A. The Louisiana courts do not have power or au-

thority to determine the rate at which Respondents’

gas was or will be sold. One of the few questions recur-

ring under the Natural Gas Act which has been well

settled is that neither the regulatory commission nor

any court has power to fix retroactively a price at

which gas has been sold; a corollary is that they cannot

entertain a damage suit, under a contract or otherwise,

in which the plaintiff’s claim depends upon proof as to

a rate which is other than that lawfully on file with the

Commission, in the case of gas under the Natural Gas

Act, and in the case of electric power under the Federal

Power Act. See Natural Gas Pipeline Co. v. Panoma

Corp., 349 U.S. 44 (1955); Socony Mobil Oil Co. v.

Brooklyn Union Gas Co., 299 F.2d 692 (5th Cir. 1962),

cert. denied, 371 U.S. 887 (1962); and Montana-

Dakota Utilities Co. v. Northwestern Public Service

Co., 341 U.S. 246, 251 (1951), in which this Court said

of a suit similar to Respondents’ suit here:

«|. It ean claim no rate as a legal right that is

other than the filed rate, whether fixed or merely

accepted by the Commission, and not even a court

ean authorize commerce in the commodity on other

terms.”’

B. The Commission, not the courts, should interpret

Respondents’ FPC Rate Schedule. This Court has con-

13

sistently held that matters involving the interpretation

of a tariff or rate schedule should be decided by the

regulatory agency in the first instance. See Tezras &

Pacific R. Co. v. American Tie € Timber Co., 234 U.S.

138 (1914) ; Far East Conference v. United States, 342

U.S. 570 (1952) ; United States Navigation Co. v. Cu-

nard Steamship Co., 284 U.S. 474 (1932); and Port

of Boston Marine Terminal Assn. v. Rederiaktiebo-

laget Transatlantic, 400 U.S. 62 (1970).

The jurisdiction of the Commission over a gas pur-

chase contract on file with the Commission as a rate

schedule has been recognized by this Court. See North-

ern Natural Gas Co. v. State Corporation Commission,

372 U.S. 84, 85, 92 (1963) ; United Gas Pipe Line Co.

v. Mobile Gas Service Corp., 350 U.S. 332 (1956) ; FPC

v. Sterra Pacific Power Co., 350 U.S. 348 (1956) ;

United Gas Pipe Line Co. v. Memphis Light, Gas €

Water Division, 358 U.S. 103 (1958). In these same

cases, the Court has approved the Commission’s regu-

lar practice of interpreting contracts on file with it as

rate schedules, and of determining the meaning of such

rate schedules.

The Louisiana Court of Appeal’s error in rejecting

. Petitioner’s argument that the Commission has pri-

mary jurisdiction is apparently based on its under-

standing of the law which it expressed as follows

(App. pp. 7a-8a) :

‘‘Defendant’s initial argument is in error because

the relief sought is not that of a rate increase but

is instead a claim for damages arising under state

contract law. ... [This court] is a proper forum

for adjudication of a state contract law dispute.

Furthermore, the Natural Gas Act evinces no

purpose to abrogate private rate contracts. ... The

14

Act recognizes the rights of the parties to rates

established by individual contract and does not

alter ordinary contractual relationships where the

controversy is one of ordinary contract law. .. .

A claim founded on state contract law does not

lose its character just because the Natural Gas Act

is in some way involved.”’

The emphasis placed by the Court of Appeal upon

the fact that the Rate Schedule began as a contract

between private parties, loses sight of the fact that it is

no longer subject to the parties’ will, Rather, the con-

tract and any proposed changes must conform strictly

to the Natural Gas Act and the procedures required

thereunder.

The interpretation of the favored nation provision

of the Rate Schedule requires the expertise and special

competence of the Commission, For example, the pro-

vision not only requires a comparison of prices but also

requires a comparison of provisions of the two con-

tracts, such as ‘‘ point of delivery, basis of measurement,

taxes, dehydration, and delivery pressures,’’ among

others, to determine ‘‘whether a given price is in fact

‘higher’ than the price provisions’”’ of the contract be-

tween Petitioner and Respondents. The interpretation

of the Rate Schedule also involves questions of policy,

e.g., is the rate provided by the Rate Schedule favored

nation clause just and reasonable; should the Rate

Schedule be construed broadly in favor of lower gas

rates, or should it be construed broadly in favor of

higher prices for the independent producer natural gas

company; is the producer the kind of seller contem-

plated and are the words ‘‘purchase’”’ and ‘‘seller’’

used as they are commonly employed in the gas in-

dustry. The court below should have referred the ques-

15

tion of whether the favored nation clause was triggered

to the Commission together with the question of the

appropriate price if it was triggered.

This Court in its opinion in United States v. West-

ern Pacific R. Co., 352 U.S. 59, 63-64 (1956), compared

the rules with respect to “primary jurisdiction’? and

the rules with respect to ‘exhaustion of administrative

remedies’’ as follows: 3

‘**Kixhaustion’ applies where a claim is cognizable

in the first instance by an administrative agency

alone; judicial interference is withheld until the

administrative process has run its course. ‘Pri-

mary jurisdiction,’ on the other hand, applies

Where a claim is originally cognizable in the

courts, and comes into play whenever enforcement

of the claim requires the resolution of issues

which, under a regulatory scheme, have been

placed within the special competence of an admin-

istrative body; in such a case the judicial process

is suspended pending referral of such issues to

the administrative body for its view.”

The Court in the Western Pacific case also called at-

tention to its decision in Great Northern R. Co. v. Mer-

chants Elevator Co., 259 U.S. 285 (1922), where it had

held that ‘where the question is simply one of con-

struction the courts may pass on it as an issue ‘solely

of law.’ ’’ 352 U.S. at 66. But then the Court went on

to say:

‘But where words in a tariff are used in a peculiar

or technical sense, and where extrinsic evidence is

necessary to determine their meaning or proper

application, so that ‘the enquiry is essentially one

of fact and of discretion in technical matters,’ then

the issue of tariff-application must first go to the

16

Commission. The reason is plainly set forth: sueh

a ‘determination is reached ordinarliy upon vol-

uminous and conflicting evidence, for the adequate

appreciation of which acquaintance with many

intricate facts of transportation is indispensable ;

and such acquaintance is commonly to be found

only in a body of experts.’ ”’

The issue of triggering in the present suit surely is

one of those that is required to be passed on, under the

decisions of this Court, in the first instance by the Com-

mission. The Commission has described in several cases

the burden of proof on a producer in order for the

Commission to hold that a favored nation clause has

been triggered by the purchaser paying another pro-

ducer a higher rate; see Shell Oil Co., et al, Memoran-

dum Opinion No. 382, 29 F.P.C. 498, 499 (1963) ; aff’d,

Shell Oil Co. v. EPC, 334 F.2d 1002 (3rd Cir. 1964) ;

West Texas Gathering Company, 29 F.P.C. 510 (1962) ;

and Morris Mizel, et al., Opinion No. 407, 30 F.P.C. 11038

(1963). In order for the triggering to oceur, the pro-

ducer filing the most favored nation rate increase must

show, to the Commission:

(1) that the other producer is the type of seller

contemplated and producing in the area in-

dicated ;

(2) that the gas being purchased from the other

purchaser is comparable gas ;

(3) that the rate being paid for it is higher in fact

as well as in appearance;

(4) that the rate sought is a just and reasonable

rate; and

(5) that the ‘‘purchase’’ compared is in fact an

agreement of the type contemplated.

17

The uniformity of rate regulation under the Natural

Gas Act requires that the Commission determine

whether triggering occurred in the instant case meas-

ured against these standards.

The Rayne Gas Field case, United Gas Improve-

ment Co. v. Continental Oil Co., 381 U.S. 392 (1965),

illustrates precisely the reason that the Commission

should determine the meaning and legal effect of con-

tracts for the sale of natural gas subject to the Com-

mission’s jurisdiction. In that case the Commission de-

termined, largely on the basis of the dominant price

reducing purpose of the Natural Gas Act, that the as-

signment, or sale, of developed oil and gas leases in the

Rayne Gas Field, in Louisiana, to an interstate pipeline

was, under the Natural Gas Act, a sale of gas in inter-

state commerce; and this Court affirmed the Commis-

sion’s determination, a decision which almost certainly

would not have been reached by a Louisiana court.

The present suit was tried for many days (the tran-

script contains 4,987 pages of testimony) and 367 ex-

hibits were introduced by plaintiffs and 87 by defend-

ant. It involves the meaning and application of terms

that call into play the expertise of the Commission in

_ the field of natural gas and the need for uniformity in

their application under the Natural Gas Act. As this

Court stated in Great Northern Co., supra, “the en-

quiry is essentially one of fact and of discretion in tech-

nical matters,’’ which requires that ‘‘the issue of tariff

application must first go to the Commission.’’

The Louisiana Supreme Court is committed to, and

has recently reaffirmed, the necessity of exhaustion of

administrative remedies and the need to respect the

primary jurisdiction of an administrative tribunal,

18

which this Court pointed out in the Western Pacific

R. Co. ease, supra. See also, Steeg v. Lawyers Title In-

surance Corp., 329 So.2d 719 (La. Sup. Ct. 1976) ; Por-

ter v. O’Neal, 205 La. 445, 17 So.2d 622 (1944) ; O’Meara

v. Union Oil Co., 212 La. 745, 33 So.2d 506 (1948).

The Louisiana courts have consistently deferred to

the administrative remedy where the question before

the court has been one within the jurisdiction and com-

petence of a Louisiana administrative tribunal, regard-

less of whether or not the administrative tribunal has

been granted exclusive jurisdiction. Their failure in

this case to defer to the competence and expertise of a

federal commission which has power and jurisdiction

to decide the issue before it, and where the federal

courts would be bound to defer to the administrative

tribunal under the settled federal law,’ is denial to

Petitioner of a right granted to it by the federal law.

C. Under federal law, which is determinative of the

triggering issue, the payment of royalty to the United

States as lessor did not activate the favored nation

clause, which was conditioned on the ‘‘purchase from

another party seller’’; and the Court of Appeal com-

mitted error in failing to recognize the features of the

contract which are governed by federal law and that

federal law controls the interpretation of the contract.

The Court of Appeal in adopting a broad interpre-

tation of the contract favoring the seller (359 So.2d 261,

App. pp. 9a-10a) ignored controlling federal decisions

furnishing a definition of the terms used.

‘See the order entered on September 6, 1978 in Tenneco Ou Co.

v. FERC, 580 F.2d 722 (5th Cir. 1978).

19

In Mobil Oil Corporation v. F PC, 364 F.2d 256 (D.C.

Cir. 1971) ; cert. den. sub. nom., FPC vy. Mobil Oil Cor-

poration, 406 U.S. 976 (1972), the court held, what is

now the settled federal law, that a royalty settlement

under an ordinary market value oil and gas lease was

not in fact a sale of gas in interstate commerce over

which the Commission had rate jurisdiction; and that

neither under the common understanding of the words

used, industry parlance, economic equivalent or any

other foundation, was the royalty settlement a sales

transaction. See also, Burnett v. Harmel, 287 U.S. 103

(1932).

In Northern Natural Gas Co. v. State Corporation

Commission, 372 U.S. 84 (1963) this Court determined

that conservation orders of the Kansas State Corpora-

tion Commission were invalid because they would inter-

fere with the producer contracts ‘‘duly filed with the

Federal Power Commission’? which are within the

*‘paramount and exclusive authority’’ of the federal

agency, 372 U.S. at 85, 92. The Court said, 372 U.S. at

91-93:

‘These state orders necessarily deal with matters

which directly affect the ability of the Federal

Power Commission to regulate comprehensively

and effectively the transportation and sale of nat-

ural gas, and to achieve the uniformity of regula-

tion which was an objective of the Natural Gas

Act. They therefore invade the federal agency’s

exclusive domain.”

* * * *

‘‘It may be true, as the State Commission urges,

that accommodation on the part of the Federal

Power Commission could avoid direct collision—

but this argument misses the point. Not the federal

20

but the state regulation must be_ subordinated,

when Congress has so plainly occupied the regula-

torv field.”’

In Appalachian Power Co. v. FPC, 529 F.2d 342

(D.C. Cir. 1976) cert. denied, 429 U.S. 816 (1976), it

was held ‘‘that the Commission had properly treated

[state] law as irrelevant to the interpretation of con-

tracts’’ on file as rate schedules, 529 F.2d at 347. The

Commission’s order in Appalachian Power Co., 49

F.P.C. 387, 388 (1973) was affirmed, where it was held:

“TS]tate law is not relevant to these wholesale

rates, which are under the jurisdiction of the Fed-

eral Power Commission.”

Terms used in the Natural Gas Act and in a Commis-

sion Rate Schedule should not have one meaning if they

come from Texas and another meaning coming from

Louisiana. See United Gas Improvement Co. v. Con-

tinental Oil Co., 381 U.S. 392 (1965), where the Court

said, 381 U.S. at 400:

“A regulatory statute such as the Natural Gas

Act would be hamstrung if it were tied down to

technical concepts of local law.”

Of more importance than the Louisiana court’s ex-

cessive liberality with the terminology used in the con-

tract is its failure to observe the rules of interpreta-

tion established by this Court under the Natural Gas

Act. As the Court said in Phillips Petroleum Co. v. Wis-

consin, 347 U.S. 672, 685:

“Protection of consumers against exploitation at

the hands of natural gas companies was the pri-

mary purpose of the Natural Gas Act.”’

21

See also, United Gas Improvement Co. v. Continental

Oil Co., supra, FPC v. Transcontinental Gas Pipeline

Corp., 365 U.S. 1 (1961); Sunray Mid-Continent Oil

Co. v. FPC, 364 U.S. 137 (1960) ; NAACP v. FPC, 425

U.S. 662 (1976); FPC v. Tennessee Gas Transmission

Co., 371 U.S. 145 (1962); FPC v. Louisiana Power &

Light Co., 406 U.S. 621 (1972).

It is obvious that the Court of Appeal did not adopt

a construction of the Rate Schedule which would carry

out the Natural Gas Act’s primary purpose of protec-

tion of consumers against exploitation. Nor did it refer

to the Commission’s policy, in effect for more than 15

years, of refusing to permit indefinite price escalation

provisions (favored nation provisions) in newly filed

rate schedules; Code of Federal Regulations, Title 18,

§ 154.93 (App. p. 54a). The Court of Appeal’s reference

to the prevention of discrimination by the buyer fur-

nishes extremely tenuous support; and the court noted

in its opinion (App. p. 9a) that Petitioner had re-

fused to make market value the trigger of the favored

nation provision. A lessee has no choice under the ordi-

nary form of oil and gas lease as to the payment to his

lessor of market value in calculating the royalty. It is

common knowledge that a high price for natural gas

* is supported in Louisiana as a matter of public policy,

enhancing the interest of one of the dominant indus-

tries of the state in which the citizens generally, owning

the land and drawing royalties, have the same interest

as the gas producer. It is also well known that the

State of Louisiana depends in major part for its public

revenues upon taxes levied on the production of oil and

gas. Since the only reason given by the Court of Ap-

peal for its very broad interpretation does not bear

analysis, we submit that we are justified in assigning

oO”

-——

the state policy for high oil and gas prices as the public

policy adopted by the courts.

D. The Court of Appeal prescribed detailed direc-

tions as to how the computation should be made of

Respondents’ increased prices (App. pp. 17a-20a), a

matter which surely should be decided by the Commis-

sion alone.

The gas contract between Respondents and Peti-

tioner provided for the delivery of gas at wellhead and

payment of the price which was specifically stated as

including such liquids as could be extracted from the

gas. The lease contract between Petitioner and the

United States, as administered by the United States

Geological Survey, required Petitioner to process the

gas for extraction of liquids (at no cost to the govern-

ment) and base its royalty settlement on the reduced

volume as it issued from the tailgate of the extraction

plant plus a settlement for the market value of the ex-

tracted liquids. The government also required Arkla

to process the condensate (oil produced with the gas,

which in the case of Respondents’ contract Petitioner

was under no obligation to buy), and to pay the United

States, without deduction, the market value of the

upgraded product.

In the guise of making the ‘“‘price’’ under the gas

purchase contract comparable with the ‘‘price’’ under

the oil and gas lease, the remand order of the Court of

Appeal has the effect of requiring the lower court to

adopt the same settlement provisions as are in the roy-

alty settlements with the United States.

Without going into detail, this will have the effect

of (1) requiring significant changes in Respondents’

Rate Schedule and (2) raising the total consideration

23

for the gas to be paid to Respondents materially above

the maximum area rates. The first is flatly in conflict

with Section 4 of the Natural Gas Act and the regula-

tions thereunder, as a change in Respondents’ Rate

Schedule will be required; and the second flatly con-

flicts, even conceding that all of Respondents are Small

Producers, with the Small Producer regulations, which

limit contractual price increases to the area rate.

E. This suit presents important questions in the ad-

ministration of the Natural Gas Act which will affect

not only this case but many others: first, should the

meaning and effect of gas rate schedules be deter-

mined by state courts applying local law; and second,

and equally important, should a state court in constru-

ing a gas rate schedule apply state contract law and

local legal policy, or is it bound to apply federal law

and controlling precedents and policies under the

Natural Gas Act.

24

Vil. CONCLUSION.

For the reasons stated, a writ of certiorari should be

granted in this case to review the judgment rendered

May 1, 1978 in this case by the Court of Appeal, Second

Circuit, State of Louisiana.

Respectfully submitted,

Rosert Roserts, Jr.

MARLIN RIsINGER, JR.

W. MicuHae.t ApaMs

BLANCHARD, WALKER, O’QUIN & RoBErts

Post Office Drawer 1126,

Shreveport, Louisiana 71163,

Counsel for Petitioner

RevuBen GOLDBERG

Guenn W. LeTHAM

Go.tpsera, FretpMAN & LetuaM, P.C.

1700 Pennsylvania Ave., N.W.

Washington, D.C. 20006

Of Counsel

APPENDIX

APPENDIX TO PETITION FOR CERTIORARI

ContTENTS

Page

A.-United States Code, Title 28, § 1257 .......... 0005 la

B. Opinion, Court of Appeal, Second Circuit, State of

Louisiana, May 1, 1978 (reported 359 So.2d 255) .. 2a

C. Order of Court of Appeal, Second Circuit, State of

Louisiana, June 6, 1978, Denying Rehearing ...... 21a

D. Order of Supreme Court of Louisiana Denying Pe-

titioner’s Application for Writ of Certiorari, Sep-

Se No Find 34 ih 6 baie eas tendeaceawass 22a

E. Order of Supreme Court of Louisiana Granting Re-

spondents’ Application for Writ of Certiorari, Sep-

MN a vn bak si 6 665.8. sbo ko ROR e hee be 23a

F. Opinion of First Judicial District Court of Louisi-

ana in and for Caddo Parish (‘‘Trial Court’’),

oe . ee ere et ae Sone e era are 24a

G. Opinion of Trial Court Denying Motions for New

py AB 8 ae ee re 39a

H. Judgment of Trial Court, December 5, 1977 ...... 44a

I. Opinion of Trial Court Overruling Petitioner’s

Declinatory Exception to Jurisdiction, July 30,

ea A ee eG ENT Feb fPkee k Mk KA CAREER TAS EO 46a

J. Natural Gas Act, Sections 4 and 5, 52 Stat. 822, as

amended by 76 Stat. 72, 15 U.S. Code §§717e,

SE dat eead cs ot wh a's eee heen teen or 6 48a

K. Federal Power Commission Regulations under the

Natural Gas Act, Code of Federal Regulations,

Title 18, $4 154.92, 154.93, 154.94, 154.95 and 157.40 . 52a

la

APPENDIX A

United States Code, Title 28.

§ 1257. Strate Courts; AppraL; Cerriorart

Final judgments or decrees rendered by the highest court

of a State in which a decision could be had, may be reviewed

by the Supreme Court as follows:

(1) By appeal, where is drawn in question the validity

of a treaty or statute of the United States and the decision

is against its validity.

(2) By appeal, where is drawn in question the validity

of a stitute of any state on the ground of its being repug-

nant to the Constitution, treaties or laws of the United

States, and the decision is in favor of its validity.

(3) By writ of certiorari, where the validity of a treaty

or statute of the United States is drawn in question or

where the validity of a State statute is drawn in question on

the ground of its being repugnant to the Constitution,

treaties or laws of the United States, or where any title,

right, privilege or immunity is specially set up or claimed

under the Constitution, treaties or statutes of, or commis-

sion held or authority exercised under, the United States.

June 25, 1948, c. 646, 62 Stat. 929.

2a

APPENDIX B

No. 13,549

COURT OF APPEAL

SECOND OIRCUIT

STATE OF LOUISIANA

May 1, 1978

Frank J. Hatt, et at, Plaintiffs-Appellants

v.

Arxansas-Lovistana Gas Company, Defendant-Appellant

Appealed from the

First Judicial District Court for the

Parish of Caddo, Louisiana

Honorable ©. J. Bolin, Jr., Judge

Wiener, Weiss, Mapison & Attorney for Plaintiff s-

Howe. Appellants

by James Fleet Howell

Buancnarp, WaLKER, O’Quin Attorneys for Defendant-

& Roberts Appellant

by Robert Roberts, Jr.

Before: Price, Marvin, Jongs, JJ.

By Price, J.

Plaintiffs seek damages for an alleged breach of contract

by defendant for failing to escalate the price of gas pur-

chased from them in accord with a price adjustment pro-

vision contained in a long-term gas purchase contract.

3a

Plaintiffs are either independent producers or owners of

various mineral interests under numerous leases producing

natural gas in the Sligo Gas Field of Bossier Parish. De-

fendant, Arkansas Louisiana Gas Company (Arkla) is a

large integrated gas utility company, which engages in

exploration, production, transmission, purchase, and sale

of natural gas and its by-products. Arkla has for many

years been a major purchaser of gas in the Sligo Field.

The gas purchase contract forming the basis for this

litigation was executed in 1952 between Arkla and several

independent producers pursuant to a lengthy renegotiation

of an existing contract which had been in effect since 1937,

and which would have expired in 1954. Although all of the

multiple plaintiffs herein were not original parties to the

1952 contract, they have subsequently become parties sub-

ject to the agreement by amendment or by operation of

law. The 1952 agreement obligated plaintiffs to sell all of

the gas produced or owned by them in the Sligo Field to

Arkla for a period of twenty-eight years and provided for

a fixed schedule of prices per MCF to be paid for raw gas

throughout the period of the contract. The agreement fur-

ther contained a price adjustment provision referred to

in the contract as a “Favored Nations Clause,” providing:

(D) If at any time during the term cf this agree-

ment Buyer should purchase from another party seller

gas produced from the subject wells or any other well

or wells located in the Sligo Gas Field at a higher price

than is provided to be paid for gas delivered under this

agreement, then in such event the price to be paid for

gas thereafter delivered hereunder shall be increased

by an amount equal to the difference between the price

provisions hereof and the concurrently effective higher

price provisions of such subsequent contract; provided

that in determining whether a given price is in fact

“higher” than the price provision of this contract, the

inquiry shall not be limited to the actual prices stipu-

4a

lated but due consideration shall also be given to a

comparison of all other pertinent provisions of the two

contracts, such as point of delivery, basis of measure-

ment, taxes, dehydration, and delivery pressures (pro-

vided that the number of years stated as the terms

during which the two contracts shall respectively re-

main in force and effect shall not be a factor to be

considered for purposes of comparison under this para-

graph) and the price to be thereafter payable in ac-

cordance with this paragraph for gas delivered here-

under shall be adjusted accordingly insofar as may be

necessary to make allowances for any discrepancies

as may exist between such comparable provisions of the

two contracts. It is agreed that any such higher price

for gas delivered hereunder shall be effective on the

first day of Buyer’s accounting month (as elsewhere

herein defined) next following the effective date of

such subsequent contract, all subject, however, to any

rules and regulations of the Office of Price Stabiliza-

tion or any other regulatory body having jurisdiction.

In February 1961 Arkla acquired, as lessee, a fifteen per-

cent interest in an oil and gas lease granted by the United

States on approximately 2,400 acres of land owned by it in

the Sligo Field. Arkla participated with its co-lessees in

drilling for and producing gas in substantial amounts from

this leased acreage. Arkla has taken its fifteen percent

share of the gas produced into its own processing plant in

the Sligo Field and disposed of it through its own distri-

bution system including transmission through an interstate

pipeline. The lease from the United States stipulated a

royalty to be paid by the lessees of a percentage of the oil

or gas production obtained or, at the option of the United

States, a payment in money by the lessees of the fair market

value attributed to its percentage of production. The gov-

ernment has continuously elected to be paid a “value roy-

alty,” and in accord with the right reserved by it to have

5a

the Secretary of Interior establish the reasonable minimum

value of gas for computation of royalty due, the price de-

termined and ultimately acceded to by Arkla was and has

continued to be in excess of that being paid plaintiffs under

the 1952 contract.

Plaintiffs brought this action in October 1974 alleging

that the payment of the higher price to the United States by

Arkla beginning in 1961 activated the provisions of the

Favored Nations clause of the 1952 contract and obligated

Arkla to increase the purchase price paid plaintiffs com-

mensurate with the price paid the government.

Plaintiffs seek compensatory damages and an account-

ing from Arkla alleging that it was in bad faith in inten-

tionally concealing from them for fourteen years that a

higher price was being paid for gas to the United States.

Arkla filed appropriate responsive pleadings question-

ing the jurisdiction of the state court alleging that the gas

purchases in question have always been subject to the pro-

visions of the Natural Gas Act, and solely within the juris-

diction of the Federal Power Commission (FPC), which has

since been superseded by the Federal Energy Regulatory

Commission (FERC). Arkla’s attempt to have the case re-

moved to the Federal District Court on that basis was

denied.

In answer to the original and several amended pleadings

of plaintiffs, Arkla denied it had triggered the Favored

Nations clause of the 1952 contract by payment of an

amount for gas to the United States which exceeded that

being paid plaintiffs since the payment to the United States

was solely a “rental royalty” and not a purchase of gas

from another “party seller” as required for activation of

the price adjustment provision.

An exception of no cause of action was filed by Arkla

against the claim of one of plaintiffs, W. E. Hall, Jr., on

the basis that he executed an amendment to the contract

6a

dated May 25, 1969, which deleted the benefit of the Favored

Nations clause as to him. Hall through responsive pleadings

contends the amendment by him was ineffective because it

was executed in error as he had no knowledge at the time

that Arkla had previously breached the contract by paying

the higher price to the United States.

After a very lengthy trial on the merits,’ the district

court sustained the exception of no cause of action as to

the claims of W. E. Hall, Jr., and dismissed his demands.

The court rendered judgment for all other plaintiffs as

follows:

Frank J. Hall $135,413.44

Virgil J. Hall 36,930.88

Carlyle W. Urban, Trustee

under Will of H. M. Harrell 202,954.56

John K. Harrell, Sr. 25,368.96

James E. Harrell 25,368.96

Elva L. Weiss 56,853.12

National American Bank, Executor under

Will of Seymour Weiss 56,853.12

T. F. Philyaw 1,187.84

W. O. Cochran 4,644.16

D. B. McConnell 42,301.76

James A. Noe, Jr. and C. T. Munholland,

Testamentary Executors under Last Wills

of Mr. and Mrs. James A. Noe 153,128.96

S. G. Myers 130,215.91

Asa Benton Allen 21,530.24

Elaine Allen 20,874.88

There are several issues on appeal which can be gener-

ally categorized as follows: (1) whether the Federal Energy

1The pleadings and testimony consume twenty-six volumes con-

taining 4,987 pages. There are additionally over 360 exhibits offered

by plaintiff and over 80 offered by defendant.

7a

Regulatory Commission has the sole and exclusive subject

matter jurisdiction ; (2) whether the Favored Nations clause

was activated when defendant paid value royalty at a higher

price to the United States than it paid for gas purchases

to plaintiffs; (3) whether W. E. Hall, Jr., validly waived

his interest in the Favored Nations clause when he signed

an amended contract in 1969; and (4) whether the award

of damages by the trial court was correct.

JT. JURISDICTION

The threshold issue on appeal is whether the trial court

had proper subject matter jurisdiction to entertain this

suit. Defendant contends the trial court lacked the power

and authority to determine the rate at which natural gas

was or is sold in interstate commerce since the rate-making

function is vested solely and exclusively in the FERC by

the Natural Gas Act. Defendant further contends that the

FERC has primary jurisdiction to determine the contrac-

tual issue of whether the Favored Nations clause of the

1952 contract was activated by its payment of value royalty

to the United States. Neither of these contentions can be

maintained. Defendant’s initial argument is in error be-

cause the relief sought is not that of a rate increase, but is

instead a claim for damages arising under state contract

law. Although the state court must adhere to the provisions

of the Natural Gas Act and the pertinent regulations of the

FERC in its determination of damages, it is a proper forum

for adjudication of a state contract law dispute. Further-

more, the Natural Gas Act evinces no purpose to abrogate

private rate contracts. United Gas Pipe Line Co. v. Mobile

Gas Serv. Corp., 350 U.S. 332, 76 S.Ct. 373 (1956). The act

recognizes the rights of the parties to rates established by

individual contract and does not alter ordinary contractual

relationships where the controversy is one of ordinary con-

tract law. Cities Service Gas Company v. Federal Power

Commission, 255 F.2d 860, cert. den. 358 U.S. 837, 79 S.Ct.

61 (1958); Skelly Oil Co. v. Federal Power Commission,

8a

532 F.2d 177 (1976); Phillips Petrolewm Co. v. Federal

Power Commission, 349 F.2d 535 (1965). A claim founded

on state contract law does not lose its character just be-

cause the Natural Gas Act is in some way involved. Pan

American Petro. Corp. v. Superior Court of Del., 366 U.S.

656, 81 S.Ct. 1303 (1961).

Defendant's contention that the FERC has primary ad-

ministrative jurisdiction to decide this contract dispute is

also in error. In recent years the doctrine of primary ad-

ministrative jurisdiction has been refined to apply to claims

involving the special competence and expertise of an ad-

ministrative body. Montana-Dakota Util. Co. v. Northwest-

ern Pub. 8. Co., 341 U.S. 246, 71 S.Ct. 692 (1951); Best v,

Humboldt Placer Mining Company, 371 U.S. 334, 83 S.Ct.

379 (1963); United States v. Western Pacific Railroad Co.,

352 U.S. 59, 77 S.Ct. 161 (1956). State courts do have juris-

diction to determine matters of contract law not within the

specific technical expertise of the FERC. Pan American

Petro Corp. v. Supertor Court of Del., supra. The major

issue in the case before us is one of construing the provi-

sions of a contract and the intentions of the parties at the

time of the execution of the contract. Such a determina-

tion does not require the specific technical expertise of the

FERC. Although the FERC may have original jurisdiction

in this case, it does not have exclusive original jurisdiction,

but rather shares concurrent original jurisdiction with the

state court.

Il. Activation or tHe Favoren Nations CLause

Plaintiffs contend payments made to the United States

by defendant in its dual capacity as lessee and pipe-line

purchaser are tantamount to a “purchase from another

party seller,” as this term was intended in the price adjust-

ment clause of their 1952 gas sales contract with defend-

ant. Defendant contends the payments were royalty or rent

being paid in its position of lessee and not a purchase be-

cause the United States had no title to any gas produced

ee

9a

under the lease, it having continuously elected to accept a

value royalty on the gas produced.

We recognize that the theory of ownership and classifica-

tion of lease royalty payments as rent as urged by defend-

ant is in accord with the prevailing state law and federal

decisions on this issue. See Shell Petrolewm Corp. v. Calca-

sieu Real Estate & O. Co., 185 La. 751, 170 So. 785 (1936) ;

Logan v. State Gravel Co., 103 So. 526 (La. 1925); Board

of Com’rs. of Caddo Levee Dist. v. Pure Oil Co., 167 La.

801, 120 So. 373 (La. 1929); Melancon v. Texas Company,

230 La. 593, 89 So. 2d 135 (1956). Mobil Oil Corporation v.

Federal Power Commission, 463 F.2d 256 (1971), cert. den.

406 U.S. 976, 92 8.Ct. 2413 (1972).

We nevertheless find it inappropriate to accept the tech-

nical and restrictive interpretation on the term “purchase

from another party seller” relied on by defendant under the

circumstances shown in this instance.

The evidence shows that during the lengthy negotiations

between defendant and the principal plaintiffs in 1952, de-

fendant’s prime objective in renegotiating the preexisting

contract was to commit the plaintiffs to a long-term con-

tract. As an inducement for a twenty-eight-year-term the

officials of the defendant corporation offered to include a

Favored Nations clause. The request by plaintiffs to have

the clause pivot on the highest market price being paid by

anyone in the field was rejected by defendant.

The handwritten notations made at that time by the

defendant’s attorney who prepared the final draft of the

agreement show that his instructions from the official of

defendant handling the negotiations were to prepare a

price adjustment clause based on “highest price we pay for

gas in the Sligo Field.” Thereafter, agreement on the sub-

ject clause was reached which tied it to the highest price

being paid by defendant in the Sligo Field.

There is no evidence suggesting the description of the

contracting parties as “Buyer” and “party sellers” was in-

10a

tended to have any restrictive legal meaning and the terms

were apparently standard phrases contained in a Favored

Nations clause of another contract used as a model by the

attorney drafting the agreement. Indicative of the fact that

little thought was given to these terms having any signifi-

cant restrictive effect on the broad application of the clause

is the absence of a definition of the words “Buyer” and

“party seller” within the agreement. Although defendant

strenuously urges that the terms “Buyer,” “seller,” and

“purchase” as used in the Favored Nations Clause has a

restrictive legal meaning and limits the applicability of

the clause to “sales” of gas, defendant’s actions subse-

quent to execution of the contract show a tendency on its

part to use sales terminology in a very broad manner to

also include royalty interests in the preparation of division

orders and the payment of royalty to lessors from a bank

account styled “Gas Purchase Account.”

The general rule of contract interpretation concerning a

Favored Nations clause is that “in order to give effect to

the intention of the parties the Court must consider the

cireumstances surrounding the making of the contract, its

subject, and the situation and relation of the parties at

the time of its making; and the construction placed upon

the contract by the parties to it as reflected by their words

and acts is entitled to great, if not controlling influence in

ascertaining the parties’ understanding of its terms.” [em-

phasis added] Louisiana-Nevada Transit Co. v. Woods, 393

F. Supp. 177 (1975).

The basic purpose of a price adjustment or Favored Na-

tions clause is to protect a seller from discrimination by

the pipe-line purchaser of gas under a long-term contract.

Eastern Petrolewm Company v. Kerr-McGee Corporation,

447 F.2d 569 (1971); Lowisiana-Nevada Transit Co. v.

Woods, swpra. As it is intended for the protection of the

seller, the clause should be broadly construed to effectively

carry out this purpose. Therefore, to exclude the substan-

lla

tial amounts paid to the government by defendant as having

any bearing on the price being paid for gas by defendant

in this field because of a technical semantic classification

of the payment as being rent royalty would render the

protection intended to be afforded plaintiffs by a price

adjustment clause meaningless.

The factors affecting our decision on this issue are ana-

logous to those presented in Kastern Petroleum Company

v Kerr-McGee Corporation, supra, in which the court

found a payment of royalty to the state of Arizona under a

lease of public lands to activate a Favored Nations clause

in a contract providing that payment for gas “shall never

be less than the price paid by Buyer to other sellers of

helium-bearing gas from leases or lands in the same gen-

eral area.” The defendant pipe-line purchaser in that case

contended the payment of royalties to the state was not a

“price” paid to another “seller” within the meaning of the

contract as the gas was “owned” by the lessee at the time

it was reduced to possession. The court found it unneces-

sary to decide whether the payment under the lease to the

state was a purchase of gas or royalty as either classifica-

tion was within the purpose and intent of the price adjust-

ment clause of the contract before it. As we are unaware of

any appellate decisions in this state coucerning the inter-

pretation of such unusual contractual provisions, we are

constrained to follow the federal jurisprudence in resolv-

ing this question.

For the foregoing reasons, we conclude the trial court

was correct in holding that the payment by defendant for

gas produced under the lease from the United States was

within the scope of the price adjustment clause of plain-

tiffs’ contract.

12a

IIT. Watver or Favorep Nations Ciause By W. FE. Hatt,

JR.

On May 25, 1969, W. E. Hall, Jr., one of the numerous

plaintiffs herein, executed an amendment to the 1952 gas

purchase contract wherein he deleted his interest in the

Favored Nations clause. Defendant asserts plaintiff’s waiver

as an affirmative defense against his claim for damages

arising under the price adjustment clause. Plaintiff con-

tends the waiver was ineffective because he executed the

amendment under an error of fact induced by defendant’s

misrepresentations and concealment of the true facts caus-

ing him to believe the price adjustment clause had not been

activated. Plaintiff contends he would not have deleted the

clause had he known of the higher prices being paid by

Arkla to the government. However, plaintiff’s testimony

reveals that in 1969 Hall had an interest in a well under

contract to Texas Gas Producing Company with gas pro-

duced therefrom being sold to the latter. At that time the

well had nearly depleted, and the pressures were dropping.

In order to keep from having to cap the well, Hall con-

tacted defendant who agreed to take over the well and use

its pipe lines wherein the pressures would be lower, thus

allowing the well to keep producing. In order to contract

with defendant, plaintiff had to execute an amendment de-

leting the Favored Nations clause to comply with the FPC’s

more recent regulations prohibiting the inclusion of such

a clause in a gas purchase contract. By using defendant’s

pipe lines, Hall was able to sell the gas without having to

compress it. He testified that the main reason for executing

the contract was to keep selling the gas without having to

buy and operate a compressor to compress the gas.

The Louisiana Civil Code articles dealing with error of

fact (C.C. Arts. 1820-1845) provide that a contract will not

be considered invalid unless there was error as to the

“principal cause,” or “motive,” for making the contract.

C.C. Art. 1825. In this case the principal motive for W. E.

13a

Hall, Jr.’s signing the contract was to continue selling gas

without the expense and time of having to purchase and

operate a compressor. Therefore, as correctly found by the

trial court, there was no legal error of fact upon which this

plaintiff can rely to vitiate the waiver.

IV. Damaces

The first issue presented in determining the correctness

of the award made to plaintiffs is the effect the “filed

rate doctrine” of the Natural Gas Act has on the rights

of plaintiffs to recover damages. Sections 4(c) and 4(d)

of the act require a seller of natural gas to file a proposed

rate increase with the FPC for its approval before such an

increase can be effective. The only rate schedule ever filed

by plaintiffs with the FPC in this instance was the original

gas purchase contract in 1952. The FPC regulations,

§ 157.50(c¢), provide an exception to the foregoing rule in

regard to a “small producer” as defined in the regulation,

who has obtained a certificate from the commission exempt-

ing him from having to file a rate schedule as long as the

increase in rate does not exceed the ceiling rate set by the

commission. Several of the plaintiffs obtained certificates

as small producers in October 1972, and the certificates

issued to those parties were made effective to all plaintiffs

in this action by the order of the FPC.

The trial court found that the plaintiffs were precluded

by the Natural Gas Act from recovering damages, which

are measured by a standard related indirectly to a retro-

active price increase, except for the period subsequent to

the issuance of the small producer certificates in October

1972. This holding is in accord with the jurisprudence con-

struing the effect of this statute. Interstate Natural Gas

Co., Inc. v. Mississippi River Fuel Corporation, 220 La. 43,

55 So. 2d 775 (1951) ; Ashland Oil & Refining Co. v. Federal

Power Commission, 421 F.2d 17 (1970); Socony Mobile Oil

Co. v. Brooklyn Union Gas Co., 299 F.2d 692 (1962).

l4a

laintiffs claim quantum based on an amount

Pros ico with the difference between the oo 0

received and that which they would have received . war

been granted a price increase in 1962, they conten .

suit is for damages and not for a retroactive price ag y

and is therefore not affected by the Natural Gas Act.

intiffs’ alternative theory of recovery 1s that they

Posie guns for damages caused by the oe ond

cealment by defendant of the fact it was paying ot . nt

price to the United States for gas which et a “a

from timely filing for a change in rate schedule wi

FPC.

Neither of these positions is tenable. The action for oo

ages to be successful necessarily assumes a price eab

would have been granted by the FPC. That such oer '

would have been granted by the commission 18 _ y -

ulative and cannot serve as a basis for an awa ao a

ages. See Interstate Natural Gas Co. v. Southern Cat,

Co., 102 F. Supp. 685 (1952).

The trial court did not make a finding that defendant

was guilty of fraudulent concealment, and we find the evi-

dence is insufficient to support such an allegation.

The evidence shows that in the fall of 1961 pie of vee

officials of defendant were concerned that the roya y og

negotiated with the United States might have the i ec :

activating the price adjustment clause of Lae ope co

tract. The question was submitted to defendant's : “aes

who advised that payment of royalty would not ave :

legal effect. Defendant did not make any dise “on

plaintiffs at that time or subsequently which woul : :

allowed plaintiffs the opportunity to seek a determina - :

before an appropriate vribunal. In early 1974 when inquiri

were made by plaintiffs, the officials of Arkla were ong

operative and evasive in answer to questions Are “

possible purchase of gas from the United States. Althoug

15a

this failure to inform and later evasiveness on the part of

defendant was not commendable, it nevertheless does not

prove fraudulent concealment. A party alleging fraud has

the burden of establishing it by more than a mere pre-

ponderance of the evidence. The conclusive proof required

must be by clear and convincing legal evidence, Placid Oil Co.

v. Taylor, 345 So, 2d 254 (La. App. 3rd Cir. 1977) ; Capital

Bank & Trust Co. v. Core, 343 So, 2d 284 (La. App. Ist

Cir. 1977); and Jackson v. Fontenot Building Inc., 314 So.

2d 516 (La. App. Ist Cir. 1975). For these reasons plain-

tiffs cannot be awarded damages bearing any relationship

to an increase in gas prices for the period prior to October

1972.

Defendant primarily complains on appeal of the admis-

sibility and probative value of the plaintiffs’ evidence to

sustain any award of damages. The evidence relied on by

plaintiffs to prove their damages for breach of contract was

the testimony of Frank J. Hall, a plaintiff having substan-

tial gas holdings in Sligo that are subject to the contract.

The evidence shows Hall to be a knowledgeable oil and gas

operator with many years of experience in the exploration

for, production, and sale of natural gas. Hall gathered all

of the pertinent data necessary to calculate the damages

to which plaintiffs claim they are entitled for the entire

period from September 1961 through December 1975. Based

on the data obtained, Hall, with the avsistance of his ac-

countant who is also a plaintiff in this suit, prepared sched-

ules to reflect a comparison in the price being paid by Arkla

to plaintiffs with that being paid to the United States for

each year during this fourteen-year period. Under the in-

structions and supervision of Hall, the accountant further

prepared summaries which related the differential in the

price of gas to the volumes sold by plaintiffs to defendant

for the period. Built into these summaries are the adjust-

ing factors which Hall considered necessary to render the

prices comparable. The summaries were further extended

OE EE

l6a

to caleulate and show the accrual of the legal rate of in-

terest on the sums claimed during the period.

Defendant attacks the admissibility of the above de-

scribed evidence contending that the schedules and sum-

maries were made from information that has not been of-

fered in evidence. There is a well recognized rule that sum-

maries of voluminous material or documents may be

introduced in evidence provided the opposing party has

equal access to the material from which the summaries were

prepared. Wigmore, “Evidence,” (1972) Vol. IV., § 1230, at

page 535, Northern Pac. Ry. Co. v. Keyes, 91 F. 47 (1898) ;

Sam Macri & Sons, Inc. v. U.S.A., 313 F.2d 119 (1963) ;

Midcontinent Broadcasting Company v. North Central Atr-

lines, Inc., 471 F.2d 357 (1973). In the instant case defend-

ant was in the superior position and had full access to all

data on which Hall relied. A substantial part of the infor-

mation gathered by Hall was from records of defendant's

accounting department which were inspected under discov-

ery procedure. Hall utilized division orders prepared by

defendant to determine percentages of ownership in each

drilling unit over the period in question. To establish pro-

duction quantities of raw gas and liquid hydrocarbons, he

relied partially on records in his own office and on infor-

mation obtained from the State Department of Conserva-

tion. Defendant had equal access to all such data. Although

there are others who would have better qualifications be-

cause of specialized training to make such an analysis, Hall

has exhibited a sufficient familiarity with the underlying

principles of gas pricing and methods of acco: .ting to

allow the admissibility into evidence of his testimony and

the summaries prepared under his supervision for what-

ever weight they may have.

Defendant also attacks the weight to be given the calcu-

lations made by Hall and his accountant as it contends they

are self-serving. While this evidence is to some extent self-

serving, this reason alone is not sufficient to reject it in the

17a

absence of any rebuttal evidence showing that the evidence

as a whole was unreliable and not prepared with any de-

gree of objectivity.

Defendant questions the acceptance of the summaries also

on the basis that Hall has calculated plaintiffs’ damages

by a determination of the difference between gas prices paid

to the United States and the plaintiffs and by assuming the

plaintiffs’ contract was revised to provide for processing

of raw gas at defendant’s plant and payment of the entire

value of extracted liquids to them and assuming that all

condensate was processed by defendant free of charge and

the proceeds paid to them. Defendant contends these ad-

justments made by Hall are improper and give plaintiffs

advantages which were never intended by the “pertinent

factors” adjustments provided in the Favored Nations

clause of the contract. The comparability provisions of the

Favored Nations clause of this agreement provides:

. . » provided that in determining whether a given

price is in fact “higher” than the price provisions of

this contract, the inquiry shall not be limited to the

actual prices stipulated but due consideration shall

also be given to a comparison of all other pertinent

provisions of the two contracts, such as point of deliv-

ery, basis of measurement, taxes, dehydration, and de-

livery pressures (provided that the number of years

stated as the terms during which the two contracts

shall respectively remain in force and effect shall not

be a factor to be considered for purposes of comparison

under this paragraph) and the price to be thereafter

payable in accordance with this paragraph for gas de-

livered hereunder shall be adjusted accordingly inso-

far as may be necessary to make allowances for any

discrepancies as may exist between such comparable

provisions of the two contracts.

A literal reading of this provision requires the interpre--

tation that all pertinent factors necessary to properly

18a

equate the price of gas shall be given consideration and

those specified are illustrative only. The only factor to be

excluded is the length of the contract term. We find the

adjustments made by Hall in the summaries were within the

purview of this provision.

Plaintiffs also calculated two other items of compensa-

tory damages claimed by all or some of the plaintiffs. The

first relates to losses occurring because of income tax ad-

vantages which would have inured to all plaintiffs under

depletion allowances had they received the increases in

price during the years they were due rather than in a lump

amount under a court award. The second refers to losses to

several of the plaintiffs who contend they would have drilled

an additional well in the field had they been advised timely

by defendant of the facts which would have enabled them

to have obtained a price increase in 1961. Both the dam-

ages for loss of the depletion allowance and the loss aris-

ing from the lack of knowledge concerning the increased

gas prices are consequential damages which cannot be re-

coverable for the breach of an obligation to pay money.

La. C.C. Art. 1935.

Defendant next complains that the method of the trial

court in arriving at the award of damages was erroneous.

The trial court accepted the summaries prepared by Hall

as competent evidence on which to award damages, but

was confronted with the problem that the summaries were

prepared for the total period from September 1961 through

December 1975. In order to limit plaintiffs’ award for the

period of October 1972 through December 1975, the court

reduced the total damages reflected by Hall’s summary by a

percentage of sixty-eight percent.

Yyefendant contends this method is erroneous as it gives

no consideration to the differences in the actual volumes of

gas produced and sold in the period for which damages are

allowed and assumes that they have remained constant over

the entire period since 1961. Further, defendant shows

19a

Hall’s summary contains a calculation of interest for the

entire period of fourteen years, and therefore, the method

used by the court allows recovery of interest on sums not

recoverable. Defendant also illustrates that the procedure

followed by the court does not compensate each plaintiff

equally for the volume of gas sold by him during the allow-

able period.

We recognize that during the presentation of evidence

on damages, the trial court suggested to the parties on

several occasions the possibility of an appointment of an

expert to assist the court in this very complex matter. As

this suggestion was not pursued, the court had no means at

hand to accurately reduce the summaries in evidence to the

period for which plaintiffs were entitled to damages, and

therefore, resorted to the percentage of allocation utilized.

Plaintiffs are only entitled to damages representing a dif-

ference between the price paid by the defendant to the

United States and the price paid to them, after applying

the adjustments for pertinent factors, for the period from

October 1, 1972, through December 31, 1975. They are addi-

tionally entitled to interest at the legal rate of seven per-

cent on the increased amount owed to them as it accrued

each month during this period. La. C.C. Arts. 1938 and

2553 (3).

We must agree that the method used by the trial court

does not achieve this result. These calculations cannot cor-

rectly and accurately be made by this court from the record

before us. Under La. C.C.P. Art. 2164 this court may render

any judgment which is just, legal, and proper, including the

power to remand for a new trial in the interest of justice.

See Guilott v. Guilott, 326 So. 2d 551 (La. App. 3rd Cir.

1976).

While wéare reluctant to protract this litigation, we find

it necessary to remand the case in the interest of justice to

both parties for the limited purpose of a recalculation of

20a

the damages and the interest to be allowed each plaintiff

in accord with the views expressed herein.

The district court may in its discretion appoint an expert

in the field of oil and gas accounting to perform the neces-

sary calculations based insofar as possible on the evidence

already in the record in this matter. The court may take

whatever additional evidence that is found necessary to

calculate damages in accord with these views.

For the foregoing reasons, the judgment is set aside, and

the case is remanded for a new trial restricted to the assess-

ment of damages. Costs of this appeal are assessed equally

to plaintiffs and defendant. Assessment of all other costs

shall await final determination of this cause.

2la

APPENDIX C

COURT OF APPEAL

SECOND CIRCUIT

STATE OF LOUISIANA

Office of the Clerk, Shreveport, Louisiana. June 6, 1978

As counsel of record in the capti

ptioned case, you are

hereby notified that the application or applications for

rehearing filed by Plaintiffs-Appellants and Defendant-

Appellant have this day been En Banc. Denied.

Frank J. Hann, et al

versus .

Arkansas Louisiana Gas Co.

Docket No. 13,549

Sincerely,

Haro.tp L. Boorn

Clerk of Court

22a

APPENDIX D

SUPREME COURT OF LOUISIANA

NEW ORLEANS, 70112

September 22, 1978

Frank J. HAL, ET AL

vs.

ArxKansas-Lours1ana Gas CoMPANY

No. 62,580

In re: Arkansas Louisiana Gas Company, applying for

Certiorari, or Writ of Review, to the Court of Ap-

peal, Second Circuit, Parish of Caddo.

Writ denied.

PFC

FWS

ATJR

JAD

WFM

JLD

Sanpvers, C.J., would grant this application, so that it can

be considered along with No. 62,560, which has been granted.

A True Copy

Clerk’s Office

Supreme Court of Louisiana

New Orleans

September 22, 1978

/s/ Frans J. La Brancue, JR.

Clerk

23a

APPENDIX E

SUPREME COURT OF LOUISIANA

NEW ORLEANS, 70112

September 22, 1978

Frank J. HAL, ET aL

v.

Arxansas Louisiana Gas Company

No. 62,560

In re: Frank J. Hall, et al applying for Certiorari, or writ

of review, to the Court of Appeal, Second Circuit,

Parish of Caddo

Writ granted.

PFC

JWS

ATJR

JAD

WFM

JLD

A True Copy

Clerk’s Office

Supreme Court of Louisiana

New Orleans

September 22, 1978

/s/ Frans J. La Brancue, Jr.

Clerk of Court

24a

APPENDIX F

FIRST JUDICIAL DISTRICT COURT

CADDO PARISH, LOUISIANA

NUMBER 225,699

Frank J. Hatt et al

Vv.

Arxansas Loutsiana Gas CoMPANY

Opinion

The plaintiffs in this case are the owners of mineral

leases located within the Sligo Field, Bossier Parish, Loui-

siana, and they have sold all of their gas production from

said leases to the defendant, Arkansas Louisiana Gas Com-

pany, since about 1939. Defendant took the gas into its

pipeline and into its processing plant and the residue gas

was delivered into its pipeline distribution system.

After extended negotiations a new gas sales contract

between the parties was executed (see Exhibit P-1) which

was dated January 11, 1952, under the terms of which

plaintiffs agreed to sell their gas production from their

said leases located in the Sligo Field for a period of

twenty-eight years for a stated price of $0.08547 per MCF

of gas (thousand cubic feet) at a pressure base of 15.025

p.s.i.a., and the defendant, Arkansas Louisiana Gas Com-

pany agreed to purchase the gas for said amount and in

addition included a ‘‘Favored Nations Clause’’ worded

as follows:

Section 8(D)

‘‘(D) If at any time during the term of this agree-

ment Buyer should purchase from another party seller

gas produced from the subject wells or any other well

or wells located in the Sligo Gas Field at a higher

price than is provided to be paid for gas delivered

25a

under this agreement, then in such event the price to

be paid for gas thereafter delivered hereunder shall

be increased by an amount equal to the difference

between the price provisions hereof and the concur-

rently effective higher price provisions of such subse-

quent contract; provided that in determining whether

a given price is in fact ‘higher’ than the price provi-

sions of this contract, the inquiry shall not be limited

to the actual prices stipulated but due consideration

shall also be given to a comparison of all other per-

tinent provisions of the two contracts, such as point

of delivery, basis of measurement, taxes, dehydration,

and delivery pressures (provided that the number of

years stated as the terms during which the two con-

tracts shall respectively remain in force and effect

shall not be a factor to be considered for purposes of

comparison under this paragraph) and the price to

be thereafter payable in accordance with this para-

graph for gas delivered hereunder shall be adjusted

accordingly insofar as may be necessary to make allow-

ances for any discrepancies as may exist between such

comparable provisions of the two contracts. It is agreed

that any such higher price for gas delivered hereunder

shall be effective on the first day of Buyer’s account-

ing month (as elsewhere herein defined) next following

the effective date of such subsequent contract, all sub-

ject, however, to any rules and regulations of the

Office of Price Stabilization or any other regulatory

body having jurisdiction.’’ (Emphasis supplied)

In February of 1961, the defendant, Arkansas Louisiana

Gas Company, as lessee, acquired a 15% interest in a

mineral lease granted by the United States on its lands in

the Sligo Field. (Exhibit P-45). In accordance with the

requirements of the lease, the defendant and its co-owners

drilled a number of producing wells on the property. The

defendant did not sell its 15% of the gas produced under

the lease but took it into its pipeline and into its processing

26a

plant where the liquefiable hydrocarbons were extracted

and the residue gas was delivered into its pipeline distri-

bution system.

The oil and gas lease from the United States provided,

in part, for the rights of the lessee in Section 1:

‘‘Section 1. Rights of Lessee —That the lessor, in

consideration of rents and royalties to be paid, and

the conditions and covenants to be observed as herein

set forth, does hereby grant and lease to the lessee

the exclusive right and privilege to drill for, mine,

extract, remove, and dispose of all the oil and gas

deposits owned by the lessor except helium gas in or

under the following-described tracts of land situated

in the Barksdale Air Force Base East Reservation,

Bossier Parish, Louisiana:—.’’ (Emphasis supplied)

The lessee was to pay royalty to the United States as

set forth in Section 2(d) (2):

‘‘2. To pay the lessor a royalty of 1624 per cent of

the amount or value of production obtained and saved

from the leased land. Also, to pay an additional royalty

of 81% per cent of the value of production until there

has been paid as such additional royalty an amount

equivalent to $500 an acre for the total number of acres

contained in this lease at time of issuance, such num-

ber being that cited in Section 1 hereof. In computing

such royalty on gasoline or other products extracted

from gas or on gas remaining after extraction of such

products, no allowance will be made for the cost of

gathering, boosting, transportation, extraction, or

processing.’’ (Emphasis supplied)

The lease further provided that the lessor, the United

States, had the option of receiving its royalties in ‘‘value’’

or in amount of production as provided by Section %(d) (4) :

27a

‘*(4) At the option of the lessor to pay the respective

royalties herein provided for in value or in amount of

production. If paid in value such royalties shall be

due and payable monthly on the last day of the calen-

dar month next following the calendar month in which

produced. If paid in amount of production the respec-

tive royalty products shall be delivered in merchant-

able condition on the premises where produced with-

out cost to lessor, unless otherwise agreed to by the

parties hereto, at such times and at such shipping

point as may be designated by the lessor, or in the

case of crude oil, in such tanks provided by the lessee

as reasonably as may be required by the lessor, but

in no event shall the lessee be required to hold royalty

oil or other royalty products in storage beyond the

last day of the calendar month next following the

calendar month in which produced. The lessee shall

not be responsible or held liable for the loss or de-

struction of royalty oil or other products in storage

from causes over which it has no control. (Emphasis

supplied)

The lessor, the United States, elected to receive its royal-

ties in value. Section 2(d)(5) provided as follows:

*“*(5) It is expressly agreed that the Secretary of the

Interior may establish reasonable minimum values for

purposes of computing royalty on any or all oil, gas,

natural gasoline, and other products obtained from

gas; due consideration being given to the highest price

paid for a part or for a majority of production of like

quality in the same field, to the price received by the

lessee, to posted prices and to other relevant matters

and, whenever appropriate, after notice and oppor-

tunity to be heard.’’ (Emphasis supplied)

Beginning in 1962, defendants began to pay the United

States Government under the above provision of the con-

28a

t sums of money based upon a fraction of all gas pro-

aelad on the lease with the price of gas fixed as $0.117432

per MCF until January 1, 1962, $0.130252 until January 1,

1967, and thereafter $0.140508 at a pressure base of 15.025

p.s.i.a. (Exhibit P-82). At the time these payments began

in 1962, the plaintiffs were receiving $0.08797 per MCF.

The principal question jn this case is whether or not

the payments of money under the above quoted provisions

of this contract had the effect of increasing prices under

the gas sales contract of plaintiffs as set forth in the

Favored Nations provision of said contract, Section 8(D).

Plaintiffs contend that the payments to the United States

Government by the defendant under the terms of its lease

(Exhibit P-45), but in its position as pipeline purchaser,

amounted to a ‘‘Purchase from another party seller’’ with-

in the meaning of plaintiffs’ contract with the defendant,

Section 8(D), while defendant, in effect, contends that the

payments were only a payment of royalty by defendant in

its position as lessee and not a purchase of gas, because

the United States Government, the lessor, had no title to

any gas under the terms of the contract and the amount of

gas and the price assigned thereto were only to be used

as a measure in figuring that ‘‘money”’ or ‘‘value’’ royalty

or rent.

Louisiana has adopted the ‘‘non-ownership’’ theory of

oil and gas, that is, that the oil and gas beneath the surface

of the ground is not subject to ownership by anyone until

it has reached the surface. After a long development the

usual oil and gas lease has been held to provide for owner-

ship of the oil produced by the lessee and lessor at the

time it reaches the wellhead in the proportions set forth

in the lease. The lessor is granted the option to receive his

royalty as a share of the oil production in kind or to be

delivered to the pipeline company by the lessee to the credit

of the lessor. In the usual situation the lessor sells his ou

to the pipeline company and is paid therefor by the pipeline

29a

company although it is the lessee that actually delivers

the oil to the pipeline for the lessor’s account.

At the time the oil and gas industry in Louisiana was

in its formative stages, there was less demand for natural

gas and it was less marketable. Mineral leases often granted

the lessor the same option to receive his royalty on gas

just as was done in the case of royalty on oil.

The usual more recent mineral lease in use in Louisiana

often makes a different provision for royalty on gas and

only provides for the lessor to receive a fraction of the

amount received from the sale of the gas, or a fraction of

the fair value of the gas if the gas is used by the lessee.

Regardless of whether it is oil or gas that is produced, it

is usually all sold to the pipeline company at the same price

and both lessee and lessor are paid their fractional part of

the proceeds of the sale based on the same price rate. -

Ordinarily a raise in the royalty payment was accomplished

by increasing the fractional part of the production due to

the royalty owner, rather than a raise in the price of his

share of the production.

The plaintiffs in this case have cited authorities for the

proposition that such wording of a lease as to gas that

provides for a ‘‘money’’ royalty or value royalty only

authorizes the sale of the lessor’s share of the gas pro-

duction to the pipeline purchaser by the lessee for the

lessor’s account. Plaintiffs then conclude that the lessor

does customarily sell gas to the pipeline company. On the

other hand defendant has presented authorities and cita-

tions, both State and Federal, to the contrary. The cases

referred to often cite the exact wording of the lease

involved.

At this point is becomes important to examine the exact

wording of this lease. The lease from the United States

Government (Exhibit P-45) treats the royalty due to the

lessor on oil and gas in principally the same fashion. It

30a

does not differentiate between royalty on gas as opposed

to royalty on oil. See the emphasized portions of the lease

by the United States (Exhibit P-45), Sections 2(d)(2),

2(d) (4) and 2(d)(5). In other words the lease contemplates

that the legal title to oil and gas would be the same at

the time it reaches the wellhead.

The same Exhibit P-45 in speaking of the rights of lessee

in Section 1 thereof as previously quoted herein states that

the lessee is granted ‘‘—the exclusive right and privilege

to drill for, mine, extract, remove, and dispose of all the

oil and gas deposits owned by the lessor—’’. (Emphasis

supplied).

Because it is well-established that in Louisiana the land-

owner does not own ‘‘deposits’’ of oil and gas in the

ground, but that oil and gas is only subject to ownership

when it is produced at the wellhead, it would be impossible

for the lessee to ‘‘dispose’’ of oil and gas deposits ‘‘owned’’

by the lessor until they are produced at the wellhead, but

at that point it is possible for the lessee to ‘‘dispose’’ of

the production including the share of the oi and gas pro-

duction ‘‘owned’’ by the lessor.

Although the words used in the form of the lease (Ex-

hibit P-45) do not seem to be designed for use in a state

such as Louisiana that subscribes to the ‘‘non-ownership”’

theory of oil and gas they are consistent with the Louisiana

theory if given the above construction. In other words, the

lessee is authorized to sell the lesaor’s share of the oil and

gas production to the pipeline purchaser for the lessor’s

account.

Defendant argues that the decisions of the Federal Courts

have held that no sale of oil and gas is involved on the

part of the United States as lessor in such an instance;

otherwise, the Federal Power Commission would be re-

quired to exercise jurisdiction of the sale of gas produced

in interstate commerce, which it does not. Also, if the

transaction by the United States, as lessor, amounted to a

3la

sale of gas or otl, the United States would be required to

exercise the option of taking its production in kind and

would not be able to dispose of it except by public bid and

sale under the applicable Federal statute. In my opinion

the answer to these contentions and the testimony of the

opinion of the Federal experts is the simple fact that this

Court is dealing with the construction of a Louisiana

contract under Louisiana law and not the construing of

the lease for the purpose of a Federal statute or statutes

as were the cases and opinions cited by the defendant.

Although inconsistent with the Federal decisions, the in-

consistency does not conflict with the Federal statutes to

the extent that both cannot co-exist.

Because of the contradiction of legal authority on the

technical question of whether a lessor has title of gas to

sell there is an ambiguity in the use of the words “—pur-

chase from another party seller—’’ as used in the contract

between plaintiffs and defendant, Exhibit P-1, which cannot

be gleaned from the other portions of the contract. For

this reason other evidence is admissible to discover the

true intention of the parties.

The defendant in this case customarily listed the lessor

as a ‘‘seller’’ on its required division orders and required

their signatures thereto. Essentially the same form was

used by the defendant whether the product produced was

oil, gas or condensate. Defendant argues that Section 11

of the contract provided that the plaintiffs would be paid

for 8/8th of the gas and would be responsible for paying

the royalty and that this provision demonstrates that the

intention of the parties was that a lessor was not contem-

plated as a ‘‘seller’’; however, the plaintiff points out that

this same Section 11 goes on to grant the plaintiffs the

option to require the defendant to pay the royalty and in

such case the plaintiffs were obligated io furnish signed

division orders to the defendant on forms provided by

32a

the defendant and that these forms, in fact, listed the

royalty owners as ‘‘sellers’’.

By citing the above facts, it is not my intention that

this case be decided on the wording in a division order,

but only to demonstrate that the evidence shows the word

‘*seller’’ to have a broader usage and more general mean-

ing than the more restricted definition plaintiff now asserts.

Defendant next argues that the United States under

the lease, Exhibit P-45, was not furnished with any division

order nor required to sign a division order and that this

fact illustrates that the United States Government, as

lessor, was not regarded as a ‘‘seller’’. On the other hand

the evidence in this case shows that the United States

does not sign a division order, but relies on the lease

contract, so that the failure of the defendant to require

a division order signed by the United States cannot be

relied on to demonstrate the intention of the parties to

P-45.

The gas purchase contract in this case between plaintiffs

and defendant (Exhibit P-1) was drafted after a long nego-

tiating process. Section 8(d) was the subject of give and

take negotiations, each party giving on one point in order

to gain another. The only things that this Court can con-

clude from the evidence of these negotiations is that Sec-

tion 8(d) was not to be restricted in its application to just

other formal ‘‘gas purchasing contracts’’ executed by buyer

with other sellers of gas produced in the Sligo Field, but

would apply to such a ‘‘purchase’’ of such gas from an-

other party seller by means other than a formal full-fledged

gas purchase contract, such as an oral contract. See testi-

mony of Mr. Hetherwick, Tr. Vol. 20, p. 74, line 6 to 30. The

fact that it was intended to apply to even oral contracts

evidences an intent that it should have a broad application.

It was intended to apply to gas from ‘‘any” wells located

in the Sligo Gas Field purchased by defendant. In addition

the intent of Section 8(d) was to protect plaintiffs against

33a

a rise in the purchase price of gas that might be paid by

defendant within the Sligo Field during the long 28-year

term of the contract by cutting across some of the tradi-

tional lines usually associated with such contracts.

Defendant’s principal argument is that in making pay-

ment to the United States under its lease, Exhibit P-45, that

it was paying royalty as lessee, not purchasing gas as pipe-

line purchaser. On the contrary, defendant was acting in a

dual capacity at one and the same time. It was paying

royalty as lessee and purchasing gas as pipeline purchaser

within the meaning and intent of Section 8(d).

For all of the above reasons it is the opinion of this

Court that the acceptance of gas produced from the mineral

lease executed by the United States, Exhibit P-45, by the

defendant as a pipeline operator and payment therefor to

the United States constituted a purchase of gas from an-

other party seller within the meaning of the contract of

plaintiff, Exhibit P-1.

The defendant next argues that the contract between

plaintiff and defendant, Exhibit P-1, is not comparable

with the lease from the United States to the defendant,

Exhibit P-45. As previously stated, the intention of the

parties in the execution of Exhibit P-1 was that Section

8(d) would be broader than just applying to the purchase

of gas through a formal gas purchase contract but it was

intended to also apply to such things as an oral contract,

which, in fact, evidences the intent of the parties that the

coverage would be extremely broad, because it would

neither contemplate that an oral contract would include all

the many provisions contained in the full-fledged gas pur-

chase contract, nor necessarily contemplate that the gas

purchased be shipped in interstate commerce, since the

Federal Power Commission does not recognize an oral

contract for the sale and purchase of gas.

The defendant argues that the drilling obligation con-

tained in the lease, Exhibit P-45, provides an item that

34a

makes the two contracts incapable of comparison, but the

list of items in Section 8(d) is not an exclusive listing of

either pertinent factors of comparison or non-pertinent

factors of comparison. It appears to the Court that since

Section 8(d) specifically states that the length of the term

of the contract shall not be a factor to be considered for

comparison of the two contracts that the drilling obliga-

tion contained in the lease, Exhibit P-45, would be of the

same type of factor and should not be considered for pur-

poses of comparison.

As one would imagine ine day-to-day administration and

accounting involved in a gas purchase contract is ex-

tremely complicated. The defendant is in the business of

administering these contracts and the head of its account-

ing department, Mr. W. W. McLeod, testified that it would

be possible to exmpare the price of gas received by plain-

tiff under Exhibit P-1 and the price received by the United

States under Exhibit P-45, and to compute all the pertinent

factors in making the comparison and that it could have

been done over the years had he been so instructed at the

time. See testimony of Mr. McLeod, Vol. 10, pages 83 to

85, and Vol. 12, page 17. .

The defendant in this case has made no comparison be-

tween the two prices, it having taken the position through-

out that the two are not capable of comparison; however,

it is my opinion that the evidence shows that the two are

capable of comparison. The best information was or 1s in

the possession of the defendant, although the sheer of vol-

ume of the documents to be considered (estimated by de-

fendant at one time as a literal box-car load) and the

length of time that has elapsed since most of them were

used presents a very difficult picture as to if all are still in

existence. The Court is required to act on the best infor-

mation produced before it. Absolute certainty is not re-

quired.

35a

Defendant next contends that one plaintiff, W. E. Hall,

Jr., executed a contract on May 25, 1969, deleting the

Favored Nations Clause from the 1952 contract for which

reason he has no claim against the defendant under Sec-

tion 8(d) thereof. It is my opinion that the defendant’s

contentions in this regard are correct and should be sus-

tained. He executed the contract, Exhibit P-285, which

deleted the Favored Nations Clause in order to be able to

sell gas from a well to the defendant in order to avoid

having to operate a compressor for the gas. There was no

error as to the principal cause of the contract, Exhibit

P-285, nor has he restored or offered to restore the benefit

he received under the contract as is a pre-requisite under

the Civil Code Articles 1819 and 1882.

Defendant relies on several defenses that arise from the

provisions of the Natural Gas Act. The first contention is

that plaintiffs cannot recover a raise in prices because

plaintiff never obtained approval of the higher rate or

price from the Federal Power Commission as required

under the Natural Gas Act, 15 U.S.C.A. 717 et seq., adopted

by Act of Congress on June 21, 1938. Defendants have

cited the case of Interstate Natural Gas Co. Inc., et al v.

Mississippi River Fuel Corporation, 55 So.2d 755; 220 La.

43, decided by the Supreme Court of the State of Louisiana

in 1951. The holding of that case is that the plaintiffs, hav-

ing failed to apply to the Federal Power Commission to

put the increase rate into effect, cannot recover such dam-

ages from the defendant.

The plaintiffs point out that the Federal Power Commis-

sion, by general rules, has established a system which per-

mits independent producers to obtain from the Commis-

sion a ‘‘Small Producers Certificate’? which authorizes

them from the effective date of such certificate to collect

increased rates provided by their contract within the limits

of the Commission Area Rate orders. Four of the plain-

tiffs herein, Frank J. Hall, Virgil J. Hall, James A. Noe

36a

and S. G. Myers received Small Producers Certificates

effective October, 1972, and would be eligible for the in-

creased rate provided by their contract within the limits of

the Commission’s Area Rate orders. The remainder of the

plaintiffs herein, other than Mr. W. E. Hall, Jr., above

referred to, are entitled to the benefit of a Small Producers

Certificate under the applicable statutes and would like-

wise be entitled to collect increased rates provided by their

contract within the limits of the Commission’s Area Rate

orders. See Federal Power Commission Order No. 607 and

607-a. The evidence demonstrates that the prices paid to

the United States per MCF of gas was below the maximum

area rate established in these orders, which means that the

area rate schedule would not actually impose any limit

under the facts of this case after October, 1972, but would

prevent recovery before that date.

Defendant has pled prescription of one, three and ten

years. The facts of this case are that the lease from the

United States, Exhibit P-45, was not even of record in

Caddo Parish, Louisiana, nor was the information avail-

able giving the prices being used to compute the Govern-

ment’s royalty payment until plaintiffs were able to obtain

the information about June 26, 1974. Suit was filed July 18,

1974.

Prescription does not run against one who is ignorant of

the existence of facts that would entitle him to bring a

suit, when such ignorance is not willful and does not result

from negligence. Plaintiffs were not advised of the facts in

this case until they succeeded in obtaining a letter dated

June 25, 1974, from Mr. F. L. Stelzer which included the

lease from the United States, Exhibit P-45, and the letter

of establishing the price set by the Government, Exhibit

P-65, and the letter in which defendant acceded thereto,

Exhibit P-82. Under this state of facts prescription does

not run against plaintiffs and defendant’s plea of prescrip-

tion is to no avail.

37a

One of the plaintiffs herein, Frank J. Hall, was qualified

as an expert in the oil and gas business, having drilled and

produced wells for many years. He, or others under his

direction, has prepared contracts, bought and sold gas and

oil, mineral leases, royalty, minerals, managed properties,

and dispersed and paid royalties on gas production. I find

that he has sufficient expertise because of his experience to

permit the introduction of his calculations or those made

under his supervision and direction. The objection goes to

the weight of the evidence and not to its admissibility.

Mr. Hall with the help of persons working at his direc-

tion prepared a calculation of the difference in prices be-

tween the two contracts in dispute here after consideration

of all the pertinent factors. He then considered the vol-

umes of gas purchased from plaintiffs and the fractional

part attributable to each plaintiff’s share. This calculation

is the best evidence that the Court has before it and

appears to be reasonable. This calculation, however, was

based upon the entire period of the claim back from 1961,

to December 31, 1975; whereas, the effective date of the

Small Producers Certificates began in October, 1972. It is

the opinion of this Court that, considering the differences

in prices each year and the share attributable to each

plaintiff that his itemization of the total damage due each

plaintiff, except W. E. Hall, Jr., should be reduced by 68%

to correctly reflect the deletion of plaintiffs’ claims before

October, 1972; damages for loss of depletion allowance;

damages for failure to drill Section 17, and to recognize the

difference in the comparisons involving raw condensate,

wet gas, extracted products, manufactured products and

combinations of each.

Lefendant has made no claim that the fractional division

of ownership between plaintiffs is in error, that the division

is contrary to the records in its own division order depart-

ment, or that there is any adverse claim of title against any

of the interests of plaintiffs. Under the terms of its own

38a

division orders defendant cannot equitably refuse to pay

the additional sums, there being no reason to fear that the

defendant would have to pay said sums to some one else.

Let there be judgment against the defendant in favor of

plaintiffs in the following amounts, plus costs and interest

from January 1, 1976:

Frank J. Hall — -$135,413.44

Virgil J. Hall, widow — 36,930.88

Carlyle W. Urban, Trustee under will

of H. M. Harrell — 202,954.56

John K. Harrell, Sr. — 25,368.96

James E. Harrell — 25,368.96

Elva L. Weiss, widow _— 56,853.12

National American Bank, Executor

under Will of Seymour Weiss — 56,853.12

T. F. Philyaw -— 1,187.84

W. O. Cochran — 4,644.16

DL. B. McConnell — 42,301.76

S. G. Myers — 41,668.80

James A. Noe — 153,128.96

Asa Benton Allen — 21,530.24

Elaine Allen _ 20,874.88

Let there be further judgment in favor of defendant,

Arkansas Louisiana Gas Company, rejecting the demands

of plaintiff, W. E. Hall, Jr., at his costs.

October 14th, 1977.

/s/ C. J. Bouin, Jp.

C. J. Bolin, Jr.

District Judge

39a

APPENDIX G

FIRST JUDICIAL DISTRICT COURT

CADDO PARISH, LOUISIANA

Number 225,699

Frank J. Hau, et aL

> Vv.

Arkansas Louisiana Gas Company

Opinion on Defendant's Motion for New Trial Limited To

Reargument and Supplement To Motion for New Trial

and

Opinion on Plaintiffs’ Motion for New Trial Limited To A

Rehearing and Motion for Modification of Judgment

The defendant in its motion and supplemental motion

for a new trial strenuously argues that it did not breach

Section 8(d) of the contract with plaintiffs.

After carefully considering the arguments made, it is

still my opinion that insofar as 8(d) is concerned the effect

is (and should be) the same regardless of whether P-45

was executed by the United States as lessor or had been

executed by a private party as lessor; that P-45 gave the

lessor, the United States, the right to exercise every inci-

dent of ownership of its royalty and when it elected to be

paid in value it had the unusual right to fix the value of

the production upon which its royalty payments were cal-

culated, all of which rights are consistent with ownership

of thd royalty by the lessor and a purchase of gas by de-

fendant-pipeline operator; that this Court is dealing with

the construction of the Louisiana law, Section 8(d) of

Exhibit P-1, which was intended to have a broad applica-

tion, to apply to gas from ‘‘any’’ wells located in the Sligo

Gas Field purchased by defendant, and with the purpose

of protecting plaintiffs against a rise in the purchase price

of gas that might be paid by defendant within the Sligo

Field during the long twenty-eight year term of the con-

40a

tract by cutting across some of the traditional lines usually

associated with such contracts; the lease from the United

States, Exhibit P-45, is to be construed in the light of such

intent and purposes and, insofar as Section 8(d), in accord-

ance with Louisiana law.

Defendant relies on the case of Wallis v. Pan American

Petroleum Corporation, 384 U.S. 63; 16 L.Ed 2d 368; 86

Sup.Ct. 1301, but that ease specifically held that the federal

common law does not govern the dealings of private par-

ties in an oil and gas lease validly issued by the United

States under the Mineral Leasing Act of 1920, and that the

decision of the case would depend upon state law. The

court refused to extend the application of federal law be-

yond the initial grant of the lease therein involved and

even refused the argument ‘‘that federal law retains its

initial hold on the lease until existing equities are re-

solved.’’ Cases cited in that decision which did extend

federal law to govern the outstanding equities existing at

the time of an original grant of land were distinguished

and ‘‘explained by a specific federal interest found in con-

flict with local law.’’ Other cases were distinguished where

there was no specific federal interest, because ihere was no

conflict with local law. See 16 L.Ed 2d 369, at page 375. In

the instant case there is also no specific federal interest in

the construction of the contract between plaintiff and de-

fendant and Section 8(d) thereof and, as stated in this

Court’s previous opinion, there is a conflict with local law.

The defendant here has relied on the case of Miree v.

United States, 538 F. 2d 643, in arguing that federal law

should control in the construction of the lease from the

United States, P-45, insofar as its effect on Section 8\d).

The facts of that case were that DeKalb County, Georgia,

entered into an agreement with the Federal Aviation Ad-

ministration whereby in return for a grant of money by

that agency DeKalb County gave the FAA certain assur-

ances, among which were its promises that it would oper-

ate its airport for the use and benefit of the public, main-

4la

tain it in a safe and serviceable condition, and limit use of

adjacent land so that it would not interfere with the safe

use of the airport. Thereafter, a jet aircraft crashed after

ingesting birds swarming over the airport and feeding on

the adjacent county garbage dump. The persons injured

and representatives of the persons thus killed filed suit

against DeKalb County as third-party beneficiaries under

the county’s agreement under the FAA. The United States

Court of Appeals, Fifth Circuit, held in an en banc decision

held that the Federal Common Law would apply, not the

law of Georgia. Five judges of the court joined in a dis-

senting opinion.

The dissent in the above cited case sets forth principles

and authorities which apply to the facts of the instant case.

The facts of the instant case are at least two steps removed

from those in the above cited case: (1) because plaintiffs

here are not suing as third-party beneficiaries of the agree-

ment with the United States, but are seeking to enforce an

entirely Louisiana contract and provision 8(d) thereof.

(2) the Federal Government is not a party to this suit and

should have no particular interest in the outcome of this

lawsuit. The interest of the Federal Government in the

construction of Exhibit P-1 and Section 8( d) thereof is too

remote to require the application of federal law, but the

State of Louisiana has an interest in construing this Loui-

siana contract and Section 8(d) thereof in the same fashion

regardless of whether the triggering mechanism be a pur-

chase of gas from a private individual or the United

States.

Defendant likewise relies on the case of Murphy Corpo-

ration v. Fontenot, 225 La. 379; 73 So.2d 180, for the prop-

osition that the Supreme Court of the State of Louisiana

has held that ‘‘the fugitive oil and gas when captured did

not belong to the Federal Government but to private own-

ers’’. The case did not involve an attempt to collect sever-

ance tax on the entire 8/8ths of the production from the

42a

lease, but only that 6/8ths portion belonging to the lessees.

The opinion states on Page 182 ‘‘protective measures from

the drainage were sought and secured by the Government’s

selling exploratory rights to private purchasers and lessees

who became the owners of all the severed minerals when

they were captured, except a 2/8th royalty paid the U.S.

Government.’’ At Page 183 the opinion used the following

language ‘‘—and the Government retained 2/8ths royalty

rights in the oil and gas produced—’’. Actually the opinion

did not address the question of the legal title of the 2/8ths

production, but if so then the opinion excepts the ‘‘2/8ths

royalty paid the U. S. Government”’ and seems contrary to

defendant’s contentions.

The plaintitfs in their motion contend that the case of

Interstate National Gas Company, Inc., et al v. Mississippi

River Fuel Corporation, 220 La. 43; 55 So.2d 775, was not

the authority for the proposition cited by the Court in this

ease. The decision of the Louisiana Supreme Court there

construed a gas purchase contract, the question being

whether or not the contract and the amendment thereto

resulted in a debt which accrued before 1938, the date the

National Gas Act went into effect, or whether or not the

result was a price increase that was to go into effect in

1944. The Court found that it was not an accrued debt, but

rather a part of a price increase and plaintiffs had failed

to apply to the Federal Power Commission as required by

the National Gas Act (and even though the parties had

contracted therefor), plaintiff was denied recovery. For

this reason the decision does have an application to the

facts of this case.

Plaintiffs also contend that the decision of this Court is

contrary to that of other state judges and the federal court

in this case in recognizing a defense under the National

Gas Act, but my understanding of those decisions is that

those courts looked to see whether or not plainiiff stated a

cause of action and permitted the case to go to trial. De-

43a

fenses based upon the National Gas Act, which are affirma-

tive defenses, were to be pled and proved by the defense,

as was done in this case.

Plaintiffs properly point out that one plaintiff, S. G.

Myers, did not acquire his interest in the properties until

December 1, 1972, and would not be subject to the reduction

of 68% imposed by the Court. For this reason it is my

opinion that Mr. Myers is entitled to his total damages of

$130,215.91, but all other damages were properly calcu-

lated and are to remain the same.

The motion for new trial and supplemental motion for

new trial filed by defendant is denied.

The plaintiffs’ motion for new trial limited to a re-hear-

ing and motion for modification of judgment is granted

limited to re-argument and, the re-argument having been

had, let there be judgment in favor of plaintiffs and

against defendant all as previously granted, except that

the amount of damages awarded to Sidney G. Myers is

fixed at $130,215.91, instead of the amount originally

stated.

December 2nd, 1977.

/8/ C. J. Bourn, Jr.

C. J. Bolin, Jr.

District Judge

44a

APPENDIX H

FIRST JUDICIAL DISTRICT COURT

CADDO PARISH, LOUISIANA

NuMBER 225,699

Frank J. HALL, ET AL

VERSUS

ArKansas Louisiana Gas CoMPANY

Judgment

This case having come on regularly for trial on its legal

merits on September 27, 1976, and the trial of said case

having been concluded on January 14, 1977; and the case

having been submitted for decision on June 20, 1977, after

the completion of oral arguments and the filing of written

briefs, the Court having found the law and the evidence

to be in favor thereof and for reasons assigned in written

Opinions dated October 14, 1977 and December 2, 1977,

which have been filed in the record herein;

Ir Is OnpERED, ApsupGEep AND Decreep that there be judg-

ment herein in favor of the following Plaintiffs against the

Defendant, Arkansas Louisiana Gas Company, awarding to

said Plaintiffs the sums as hereinafter set forth, to wit:

Frank J. HALL — $135,413.44

Vira. J. Haut, widow — 36,930.88

Cartyte W. Ursan, Trustee under

Will of H. M. Harre.u — 202,954.56

Joun K. Harre.u, Sr. — 25,368.96

James E. HarreELi — 25,368.96

Exva L. Weiss, widow — 56,853.12

45a

NationaL AMERICAN Bank, Executor

under Will of Seymour Weiss — 56,853.12

T. F. Paityaw — 1,187.84

W. O. CocHran — 4,644.16

D. B. McConnetu — 42,301.76

James A. Nor, Jr. and C. T.

MuNHOLLAND, Testamentary Executors

under Last Wills of Mr. and Mrs.

James A. Nog — 153,128.96

S. G. Myers — 130,215.91

Asa Benton ALLEN — 21,530.24

ELAINE ALLEN — 20,874.88

Ir Is FurtHer Orperep, ApyupGED AND Decreep that the

above and foregoing Plaintiffs are awarded legal interest

on the above and foregoing sums from January 1, 1976,

until paid and for all costs of this proceeding.

It Is FurtHer Orperep, ADJupGED AND Decreep that there

be judgment in favor of the Defendant, Arkansas LovuisIANA

Gas Company, rejecting the demands of the Plaintiff, W. E.

Hau, Jr., at his cost.

JupGMENT Renverep herein by virtue of written Opinions

dated October 14, 1977 and December 2, 1977, respectively,

which are filed in the record of this proceeding.

JupGMENT Reap anv Sianep on December 5, 1977, at

Shreveport, Louisiana.

/s/ C. J. Bouin, Jr.

C. J. Bolin, Jr.

District Judge

46a

APPENDIX I

FIRST JUDICIAL DISTRICT COURT

CADDO PARISH, LOUISIANA

NuMBER 225,699

Frank J. Hats, ET AL

VERSUS

ArxKansas LovisianA Gas CoMPANY

Opinion

For decision is defendant’s exception to the jurisdiction

of this Court. The plaintiffs seek damages for defendant’s

alleged breach of contract. Plaintiffs contend that in 1961

defendant began buying Sligo Field gas from the United

States government at a price higher than was being paid to

plaintiffs for their gas under the 1952 contract entered

into between defendant and plaintiffs or plaintiffs’ prede-

cessors in title. Plaintiffs contend that this activated the

Favored Nations clause of the contract, Section (D), which

would require defendant to pay to plaintiffs a price equal

to the highest price paid the government. Defendant con-

tends that this Court does not have jurisdiction.

This Court clearly has jurisdiction under the United

States Supreme Court decision in Pan-American Petroleum

Corporation vs. Superior Court of Delaware, 81 S. Ct. 1303

(1961). There the Court held that claims arising under state

law, in that case a claim sued in contract or quasi-contract,

were a proper subject for a state court to exercise jurisdic-

tion. The Court further stated that this jurisdiction was not

abrogated by the Natural Gas Act. Defendant’s declinatory

exception is without merit and is therefore overruled.

This Court has carefully read the briefs which able coun-

sel for plaintiffs and defendant have filed, as well as the

supplemental letters and attachments. We mention this for

47a

the purpose of making it clear to counsel that we have con-

sidered all points which have been raised, since the briefs

filed by counsel will not be part of the record which will be

considered by an appellate court.

July 30, 1975.

/s/ James E. Cuark

Judge

“

48a

APPENDIX J

NATURAL GAS ACT

United States Code, Title 15

§717c. Rates and Charges: Schedules: Suspension of New Rates

(a) All rates and charges made, demanded, or received

by any natural-gas company for or in connection with the

transportation or sale of natural gas subject to the juris-

diction 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 juris-

diction of the Commission, (1) make or grant any undue

preference or advantage to any person or subject any per-

son to any undue prejudice or disadvantage, or (2) main-

tain any unreasonable difference in rates, charges, service,

facilities, or in any other respect, either as between locali-

ties or as between classes of service.

(ce) Under such rules and regulations as the Commission

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 juris-

diction of the Commission, and the classifications, practices,

and regulations affecting such rates 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 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. Such notice shall be

49a

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 specifying 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 Com-

mission shall have authority, either upon complaint of any

State, municipality, State commission or gas distributing

company, or upon its own initiative without complaint, at

once, and if it so orders, without 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 rea-

sons for such suspension, may suspend the operation of

such schedule and defer the use of such rate, charge, classi-

fication, 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 refer-

ence thereto as would be proper in a proceeding initiated

after it had become effective. If the proceeding has not been

concluded and an order made at the expiration of the sus-

pension period, on motion of the natural-gas company mak-

ing the filing, the proposed change of rate, charge, classifi-

cation, or service 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

50a

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 rea-

sonable shall be upon the natural-gas company, and the

Commission shall give to the hearing and decision of such

questions preference over other questions pending before

it and decide the same as speedily as possible.

June 21, 1938, c. 556, § 4, 52 Stat. 822; May 21, 1962, Pub.L.

87-454, 76 Stat. 72.

§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, munici-

pality, State commission, or gas distributing company, shall

find that any rate, charge, or classification demanded, ob-

served, charged, or collected by any natural-gas company in

connection with any transportation or sale of natural gas,

subject to the jurisdiction of the Commission, or that any

rule, regulation, practice, or contract affecting such rate,

charge, or classification is unjust, unreasonable, unduly dis-

criminatory, or preferential, the Commission shall deter-

mine the just and reasonable rate, charge, classification,

rule, regulation, practice, or contract to be thereafter ob-

served and in force, and shall fix the same by order: Pro-

vided, however, That the Commission shall have no power

to order any increase in any rate contained in the currently

effective schedule of such natural gas company on file with

the Commission, unless 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

5la

unjust, unduly discriminatory, preferential, otherwise un-

lawful, 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 pro-

duction or transportation of natural gas by a natural-gas

company in cases where the Commission has no authority

to establish a rate governing the transportation or sale of

such natural gas.

June 21, 1938, c. 556, § 5, 52 Stat. 823.

52a

Federal Power Commission Regulations Under The

Natural Gas Act, Code of Federal Regulations, Title 18

§ 154.92 Filing of Rate Schedules By Independent Producer.

(a) Every independent producer who on or since June 7,

1954, has engaged in the interstate transportation or sale of

natural gas subject to the jurisdiction of the Commission

shall on or before December 1, 1954, filed with the Commis-

sion rate schedules, as defined in § 154.93, setting forth the

terms and conditions of service and all rates and charges

for such transportation or sale effective on June 7, 1954. To

each such rate schedule there shall be attached a statement

showing actual billing for a recent month in sufficient de-

tail to show how the billing amount is determined.

(b) Every independent producer who subsequent to the

effective date of this part, proposes to initiate an interstate

transportation or sale of natural gas subject to the juris-

diction of the Commission to an existing or new customer

shall file with the Commission not less than 30 days nor

more than 90 days prior to the date such transportation or

sale is proposed to be initiated a rate schedule as defined

in § 154.93, setting forth the terms and conditions of service

and all rates and charges for such transportation or sale.

To each such rate schedule there shall be attached a state-

ment showing estimated sales a.d billing for the first month

of service, in sufficient detail to show method of billing and

prices used. The statement shall also give the proposed date

of commencement of service. A complete copy of all material

shall be furnished to each purchaser under the rate sched-

ule. With each such filing there shall be submitted a list of

parties to whom such material has been mailed.

(c) Every independent producer who transports or sells

less than 100,000 Mcf annually of natural gas subject to the

jurisdiction of the Commission may, in lieu of the require-

ments of paragraphs (a) and (b) of this section file a state-

53a

chaser, and (4) the geographical location (field, county, and

State) at which delivery is made.

(d)(1) Every independent producer seeking authority to

render natural gas service previously authorized by the

Commission, as successor in interest in all the properties

or other rights covered by a particular rate schedule, shall

file three copies of the instrument of assignment whereby

the assignee acquired the properties (or rights therein) in-

volved, along with a request that the assignor’s rate schedule

be redesignated as the rate schedule of the assignee. He

shall also file three copies of an informational summary, in

the form prescribed in § 250.8 of this chapter, for each con-

tract of sale or transportation of gas involved in the assign-

ment.

(2) Where the authority being sought under subpara-

graph (1) of this paragraph relates only to an assigned por-

tion of the rights covered by the rate schedule of the as-

signor, the assignee shall file, as his rate schedule, three

copies of the assignor’s basic contract of sale, as amended,

and of the instrument of assignment together with the in-

formational summary required by subparagraph (1) of this

paragraph.

(3) If the rate schedule of the assignor relating to the

rights assigned is in effect subject to refund or if the sale

is being made by the assignor under temporary authoriza-

tion subject to a rate refund condition, authority to render

service will be granted to the assignee only upon condition

that he file assurance by way of bond or undertaking that

he will refund, at such times and in such amounts to such

persons as the Commission may find to be entitled thereto

any portion of the rate which had been permitted to become

effective pursuant to 4 154.102 or the rate condition in the

assignor’s temporary authorization as may be found by

the Commission not to be justified. Assignee’s obligation to

refund, in the absence of his voluntary assumption of some

greater proportion of assignor’s liability, shall attach as of

54a

the effective date of the Commission’s order granting the

assignee a certificate or temporary certificate as the base

may be unless otherwise ordered or provided.

(e) Any jurisdictional natural gas company that main-

tains a rate schedule on file with the Commission or makes

application to have a rate schedule approved by this Com-

mission or modifies any existing or proposed rate schedule

must, in addition to the requirements of this or any other

section, complete and submit Form No. 108, or applicable

schedules thereof, pursuant to the direction of § 260.6 of

this chapter.

[Order 174-B, 19 F.R. 8808, Dec. 23, 1954, as amended by

Order 278, 29 F.R. 3699, Mar. 25, 1964; Order 556, 41 F.R.

52443, Nov. 30, 1976]

§ 154.83 Rate Schedule Defined.

For the purpose of §§ 154.92 through 154.101 ‘‘rate

schedule’’ shall mean the basic contract and all supple-

ments or agreements amendatory thereof, effective and

applicable on and after June 7, 1954, showing the service

to be provided and the rates and charges, terms, conditions,

classifications, practices, rules and regulations affecting or

relating to such rates or charges, applicable to the trans-

portation of natural gas in interstate commerce or the sale

of natural gas in interstate commerce for resale subject to

the jurisdiction of the Commission: Provided, That in

contracts executed on or after April 3, 1961, for the sale

or transportation of natural gas subject to the jurisdiction

of the Commission, any provision for a change of price

other than the following provisions shall be inoperative

and of no effect at law; the permissible provisions for a

change in price are:

(a) Provisions that change a price in order to reimburse

the seller for all or any part of the changes in production,

severance, or gathering taxes levied upon the seller;

55a

(b) Provisions that change a price to a specific amount

at a definite date;

(b-1) Provisions that permit a change in price to the

applicable just and reasonable area ceiling rate which has

been, or which may be, prescribed by the Commission for

the quality of the gas involved; and

(c) Provisions that, once in five-year contract periods

during which there is no provision for a change in price to

a specific amount (paragraph (b) of this section), change

a price at a definite date by a price-redetermination based

upon and not higher than a producer rate or producer

rates which are subject to the jurisdiction of the Commis-

sion, are not in issue in suspension or certificate proceed-

ings, and, are in the area of the price in question: Provided

further, That any contract executed on or after April 2,

1962, containing price-changing provisions other than the

permissible provisions set forth in the proviso next above

shall be rejected.

[Order 174-B, 19 F-.R. 8807, Dec. 23, 1954; as amended by

Order 232, 26 F.R. 1983, Mar. 8, 1961; Order 232-A, 26 F.R.

2850, Apr. 6, 1961; 242 27 F.R. 1356, Feb. 14, 1962; Order

329, 31 F.R. 15485, Dec. 8, 1966]

§ 154.94 Changes In Rate Schedules.

(a) No change shall be made in any rate, charge, or serv-

ice in effect on and after June 7, 1954, for the interstate

transportation or sale of natural gas in interstate com-

merce subject to the jurisdiction of the Commission by any

independent producer required to file rate schedules pur-

suant to § 154.92, without first filing a change in rates pur-

suant to section 4(d) of the Natural Gas Act and in ac-

cordance with this section.

(b) Every change in any rate schedule, rate, charge,

classification or service effective or applicable to a sale

56a

subject to the jurisdiction of the Commission as of June 7,

1954, and on file with the Commission, or required to be

filed pursuant to 4 154.92, or in any rate schedule, rate,

charge, classification or service effective or applicable to a

sale subject to the jurisdiction of the Commission initiated

subsequent to June 7, 1954, on file with the Commission, or

required to be filed with the Commission pursuant to

§ 154.92 shall be filed with the Commission in triplicate not

less than 30 days nor more than 90 days prior to the date

such change in rate schedule is proposed to be made effec-

tive.

(ec) The operation of any provision of the rate schedule

providing for future or periodic changes in the rate,

charge, classification, or service after June 7, 1954, or the

operation of any like provision in any initial rate schedule

filed after June 7, 1954, shall constitute a change in rate

schedule.

(d) Any change in any rate schedule, rate, charge, clas-

sification, or service provided in a rate schedule in effect on

June 7, 1954, which by the terms of said rate schedule is to

be operative after June 7, 1954 and prior to September 15,

1954, may be filed on less than thirty days’ prior notice,

subject nevertheless to the right of the Commission to sus-

pend any such proposed change, if the Commission in any

ease shall, within thirty days after the date of filing, find it

necessary to suspend such proposed change. If any such

proposed change is suspended, the suspension period will

begin with the designated effective date of such change.

(e) With each change in rate schedule not constituting a

change in rate level by any means there shall be submitted

reasons, nature and basis for the proposed change and the

date upor which the change is proposed to be made effec-

tive. Changes in service such as compression, dehydration,

etc., by either seller or buyer shall be considered as a

change in the existing rate level.

57a

(f) Notice of change in rate level. (1) An independent

producer who has sold in interstate commerce 5,000,000

Mcf of gas or less annually in each year of his operations

during the preceding five years and who is proposing a

contractual change in rates, charges, etc., shall file the in-

formation called for in the following form:

Notice or INDEPENDENT Propucer Rate CHANGE FiLine

1. Producer

(Name)

ay aa SN OO ee ay a ORE

2. Buyer

: ee

3. Location of sale

ies ace aaa

4. (a) FPC gas rate schedule No. ..........

(b) Basic contract date

5. (a) Type of increase

(Periodic, favored-nation, renegotiated, etc.)

(b) Contract basis

e©e2@0 6:8 ©

SOG 0 O88 26088 FCOFBH4COHHTEHEKCOKEOS CO 68 SIF O82 O10 Ce bE OO

*eeeneeve

adit Bde ede de he te ee Ee er eT. OE eS a 2 eee oe oe a aes

(Proposed Effective Date)

58a

6. Rates in cents per Mcf at ...... oo psia:

(Specify)

Present effective rate:

tg ” Ble rate Tax Reimbursement

yeuwese ds eee

(specify separately ) Total rate

(b) Proposed rate:

di Bass rate Tax Reimbursement

se ia he Pe

(specify separately ) T otal rate

**

480080686 0:9 8 ©¢ 2

sth comes Sea eeasD aes eS > eres OC e,©

“ere

7. Statement of estimated sales volume and comparative

revenues for the twelve-month period succeeding the

proposed effective date (shown with volume and rates at

the same psia as in Item 6):

Estimated volume Revenues at present

(Mcf) eff ective rate

ate Revenues at Difference in

proposed rate revenues

*e

oeereveeeevee

ra. Qe eb ee SS TRO Oe St 8 SS Pee BP eS he Ee PAD

“ee

8. Average Btu content per cubic foot of the gas sold dur-

ing the last twelve-month period Spyate: ; estimated for

the succeeding twelve-month period .. teens

(Date) (Signed)

neve Rieter ka: x40) Seliereten reo

eee

eee eee enereeeee eee e ee ee Fie #8

1 Dehydration, compression, Btu adjustment, ete.

59a

(2) An independent producer who has sold in interstate

commerce more than 5,000,000 Mef of gas annually in any

year during the preceding five years and who is proposing

a contractual change in rate level to a price below or equal

to the applicable area price level for increased rates as set

out in the Statements of General Policy No. 61-1, as

amended (§ 2.56 of this chapter), shall file the information

required in subparagraph (1) of this paragraph and may,

at his option, submit a statement in support of the pro-

posed change but shall, in any event, submit additional in-

formation in explanation of any pertinent circumstance

not specifically required by the form.

(3) An independent producer who has sold in interstate

commerce more than 5,000,000 Mcf of gas annually in any

year during the preceding five years and is proposing a

contractual change in rate level to a price higher than the

applicable area price level for increased rates set out in

the Statement of General Policy No. 61-1, as amended

(§ 2.56 of this chapter), and any independent producer (re-

gardless of the quantity of annual sales) proposing an ex

parte or unilateral rate change shall file, in addition to the

information required by subparagraph (1) of this para-

graph, a full statement in support of the proposed change

in rate.

(g) A complete copy of all material filed pursuant to

this section shall be furnished to each party to the rate

schedule. With each such filing there shall be submitted to

the Commission a list of the parties to whom such material

has been furnished.

{Order 174-B, 19 F.R. 8807, Dec. 23, 1954; as amended by

Order 202, 23 F.R. 3715, May 29, 1958; Order 217, 24 F.R.

9469, Nov. 25, 1959; Order 240, 27 F.R. 252, Jan. 10, 1962]

60a

§ 154.95 Oral Agreemenis.

If any rate schedule or change in a rate schedule is not

in writing, its terms shall be reduced to writing and filed

with the Commission. If the parties are not able to agree

to the precise terms within a reasonable time, the applicant

shall file, in triplicate, a statement of his understanding of

the agreement, serving a copy thereof on the other parties

to the agreement. Such other parties, in the latter event,

may subsequently file, in triplicate, their understanding of

the agreement.

[Order 174-B, 19 F.R. 8809, Dec. 23, 1954, as amended by

Order 202, 23 F.R. 3716, May 29, 1958]

§ 157.40 Exemption of Small Producers From Certain Filing

Requirements.

(a) Definitions. (1) A “Small Producer” is an independ-

ent producer of natural gas as defined in § 154.91 of this

chapter, who is not affiliated with a natural gas pipeline

company and whose total jurisdiction sales on a nationwide

basis, together with such sales of “affiliated producers” are

not in excess of 10,000,000 Mef at 14.65 p.s.i.a during any

calendar year. As used in this section, the term “jurisdic-

tional sales” include: volumes of gas paid for but not taken

under prepayment clauses or otherwise, and volumes of gas

sold under other independent producer rate schedules in

the proportion that the independent producers seeking to

come within this section has an interest in such sales, but

does not include sales made pursuant to percentage sales

contracts.

(2) “Affiliated producers” are persons who, directly or in-

directly, control, or are controlled by, or are under com-

mon control with, the applicant producer. Such control exists

if the producer has the power to direct or cause the direc-

tion of, or as a matter of acual practice does direct, the

6la

management and policies of another producer, whether such

power is exercised alone or through one or more inter-

mediary companies, or pursuant to an agreement, and

whether such power or practice is established through a ma-

jority or minority ownership or voting of securities, com-

mon directors, officers 0: stockholders, voting trusts, hold-

ing trusts, associated companies, relationship of blood or

marriage, or any other direct or indirect means. For the

further purposes of this section, the term “agreement”

she!! not include any agreement for the operation of a nat-

urai ss producing property or a plant processing natural

gas or any joint venture, partnership, nominee, or other

type of agreement pertaining to the joint exploration for

and development and operation of oil and gas properties,

unless such agreement otherwise establishes the power of

one producer to direct or cause the direction of the manage-

ment and policy of another producer. Also, for the further

purposes of this section, the existence of one or more di-

rectors of an applicant producer in common with another

producer shall be deemed a conclusive presumption of affili-

ation and control.

(3) “Small producer sales” are (i) sales by a small pro-

ducer of his own interests under his own contracts; (ii)

sales of all interests under a small producer’s contract if

producers not qualifying as smail producers have interests

which in the aggregate are no greater than 12% percent;

and (iii) sales of a small producer’s interests under another

producer’s contract.

(b) Procedure for securing blanket’ small producer cer-

tificate. (1) Small producers may apply for a blanket cer-

tificate to cover all existing and all future jurisdictional

sales that do not raise the producer’s total jurisdictional

sales on a nationwide basis above 10,000,000 Mcf during any

calendar year. Applications by these producers shall in-

clude the following information: (i) Total jurisdictional

sales on a nationwide basis for the year preceding the ap-

~

62a

plication; (ii) a list of outstanding certificates and rate

schedules together with names and percentage of interest

of other interest owners under such rate schedules; (iii)

a list of outstanding rate schedules of others in which ap-

plicant owns an interest together with applicant’s percent-

age of interest; and (iv) the names of all owners (stock-

holders, partners, joint venturers, etc.) of the applicant with

an interest of 10 percent or more, their percentage of own-

ership in the applicant and in any other natural gas com-

pany, and any positions such owners may hold with an-

other natural gas company.

(2) An applicant for a blanket certificate who has no

outstanding certificate issued by, or rate schedule filed with,

this Commission for the sale of natural gas shall include

the following information in his application:

(i) A list of all contracts to sell natural gas in interstate

commerce.

(ii) Source of production, total rate and the annual vol-

ume delivery obligations of the producer under each such

contract, together with names and percentage of interest of

other interest owners under each such contract, and

(iii) A list of owners of the applicant with an interest of

10 percent or more, their percentage of ownership in the

applicant and in any other natural gas company and any

position such owners may hold with another natural gas

company.

(3) The application shall contain the information re-

quired by the form set out in § 250.10 of this chapter. A con-

formed copy shall be served upon each of the applicant’s

purchasers.

(c) Rate and certificate regulation under blanket certifi-

cate. Small producers certificated hereunder shall be au-

thorized to make small producer sales pursuant to existing

and future contracts at the following rate levels:

63a

( 1) All sales of natural gas by small producers for re-

sale in interstate commerce made in accordance with, and

under the provisions of Opinion Nos. 699, et seq., shall be

made at a maximum base rate of 130 percent of the appli-

cable base ceiling rate established by the Commission in

Opinion No. 699, et seq.

( 2) All sales of natural gas by smal! producers for resale

in interstate commerce made in accordance with, and under

the provisions of Opinion Nos. 749, et seq., shall be made at

a maximum base rate of 35.0¢ per Mef except as provided

for below: ,

(i) For gas produced in the Permian Basin Area, as de-

fined by Opinion Nos. 662 and 662-A, and sold pursuant to

contracts dated on or after October 1, 1968, small producers

shall be entitled to collect a maximum base rate of 40.5¢

per Mef.

(ii) For gas produced in the Rocky Mountain Area, as

defined in Section 154.109(b) of the Commission’s Regula-

tions and Opinion No. 699, et seq., small producers shall be

entitled to collect a maximum base rate of 40.5¢ per Mef.

The above rates are subject to any adjustments permitted

or required under the particular order of general appli-

eability involved. Such rate may be charged and received

by the small producer and paid by the purchaser, as the

lawful, just and reasonable rate approved by the Commis-

sion pursuant to sections 4, 5, and 7 of the Act. However, no

small producer shall be relieved from compliance with sec-

tion 7(b) of the Natural Gas Act with respect to any small

producer sale regulated hereunder. Rate regulation as pre-

scribed herein shall not apply to any jurisdictional sales

made by a small producer where the gas reserves relating

thereto were acquired by the purchase of developed reserves

in place from a large producer. Nothing done hereunder

shall be recognized by the Commission as triggering any

escalation clause in an existing contract involving a pro-

64a

ducer not covered by a small producer certificate, except as

provided in paragraph (f) of this section.

(3) All sales of natural gas by small producers for resale

in interstate commerce that qualify for the base ceiling rate

of 93 cents per Mef set in Opinion No. 770-A shall be made

at a maximum rate of 130% of that ceiling rate.

(4) All sales of natural gas by small producers for resale

in interstate commerce that qualify for the base ceiling rate

of $1.42 per Mcf set in Opinion No. 770 shall be made at

that ceiling rate.

(d) Duration of the exemption. The exemption author-

ized hereunder shall remain in effect for each small pro-

ducer until the Commission on its own motion or on appli-

cation terminates such certificate because the producer no

longer qualifies as a small producer or fails to comply with

the terms of the exemption. Upon such termination the pro-

ducer will be required to file separate certificate applica-

tions and individual rate schedules for future sales but the

exemption will still be effective as to those made under

contracts dated prior to such termination.

(e) [Reserved]

(f) Filings by large producers with respect to related

resales. A large producer may file for the price specified in

its related contract for the resale of any natural gas sold to

it by a small producer pursuant to the exemption authorized

hereunder. In determining whether to accept or suspend

such a filing, we shall be guided by the rate level sought and

the size of the differential between the purchase and resale

price. A large producer under an area rate clause in its

resale contract may file for the rate paid by it for gas

purchased from a small producer as long as the rate does

not exceed the just and reasonable rate prescribed in para-

graph (c) of this section.

(g) Filing of contracts and notification of abandonment.

Pipeline purchasers and large producer purchasers shall

65a

file, within 60 days of the execution thereof, each new con-

tract and each contract amendment dated on or after March

18, 1971, for the sale of natural gas to them by a small

producer pursuant to the exemption authorized hereunder,

together with an estimate of the purchase volumes and the

rate to be charged for the first full year after the com-

mencement of deliveries with respect to each new contract

and each contract amendment dedicating additiona! natural

gas, and shall notify this Commission of the cessation of

deliveries made by a small producer pursuant to the exemp-

tion authorized hereunder within 60 days of such cessation.

(h) Resale authorization for large producer. A large

producer who has filed on or after July 15, 1971, an appli-

cation for a certificate of public convenience and necessity

for the resale of natural gas purchased from a small pro-

ducer authorized to sell such gas pursuant to the blanket

certificate provisions in paragraph (c) of this section may

resell such gas at any time after the filing of its certificate

application pending final Commission action thereon. Any

amounts collected by a large producer for resales made pur-

suant to this paragraph in excess of the rate finally deter-

mined to be required by the public convenience and neces-

sity for such resales shall be subject to refund with interest

at 7 percent per annum.

[Order 428, 36 F.R. 5601, Mar. 25, 1971, as amended by

Order 428B, 36 F.R. 13384, July 21, 1971; Order 428-C, 37

F.R. 7591, Apr. 18, 1972; Order 428-E, 39 F.R. 26631, J uly

22, 1974; Opinion No. 742, 40 F.R. 41772, Sept. 9, 1975;

Order 553, 41 F.R. 32213, Aug. 2, 1976; Order 553-A, 41

F.R. 40100, Sept. 17, 1976; 41 F.R. 50242, Nov. 15, 1976;

41 F.R. 56792, Dec. 30, 1976]