Petition for a Writ of Certiorari — United Gas Pipe Line Co. v. Federal Power Commission

“YU N/ - Office - Supreme Court, 0. %

FILwBpD

JUL 2 4 1950

CHARLES FLMORE CROPLEY

IN THE _— OLE RK

Supreme Court of the Anited States

Octoser Term, 1950.

No. 216

Untrep Gas Pree Line Company, a corporation, Petitioner,

v.

FreperaL Power Commission, Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE DISTRICT OF COLUMBIA CIRCUIT.

C. Hurrman Lewis

1525 Slattery Building

Shreveport, Louisiana

W. Scorr WILKINson

1525 Slattery Building

Shreveport, Louisiana

Geo. D. Fiszr

United Gas Building

Shreveport, Louisiana

Counsel for Petitioner

United Gas Pipe Line Company

Press or Byron S. Apams, Wasutncron, D.C.

INDEX.

Page

CGE MOUNT oo :cis ces cvcncsc eed w see denseuayucanse 1

SOE 6a oi. akc bons (4 tne eh SAMO es oe CER EAS Ue 2

Statutes 1 vOlved 65. vooc vn wevens ceive susew Vesee nee 2

IIIS 2s oath Gy Cn Rc oe vn cect nod Kamtemenbhoerss 2

Question presented ... 5.6.5 cccsccccceencresepsecess 3

Specification of errors . «2.2.05 se cece eases uccscceees 4

Reasons for granting the writ ...........sseeeeeeeee 4

Cm aoa ik. svn Fas Rai eon ba Rabe eo ens topo nnn 21

CITATIONS.

CasEs :

American Federation of Labor v. National L. R.

Board, 308 U. 8S. 401, 60 Sup. Ct. 300............. 19

American Sumatra Tobacco Corporation v. Securities

and Exchange Commission, 93 F. 2nd 236 ...... 8, 9,18

Colorado Interstate Gas Co. v. Federal Power Com-

mission, 142 Fed. (2d) 943, aff’d., 324 U. S. 581, 65

a SS ern rer re Tepe re 16

Columbia Broadcasting System v. United States, 316

U. 8S. 407; 62 S. Ct. 1194, 86 L. Ed. 1563....... 8, 11, 14

Mallory Coal Co. v. National Bitwminous Coal

Com’n., 69 App. D. C. 166, 99 F. (2d) 399......... 18

Philadelphia Co. v. Securities and Exc e Commis-

ont, TO6 TD GOD sink 8 icc cine enecenees 8,9,19

Philadelphia Co. v. Securities and Exchange Commis-

SO, FTO FT GOD i. oo 68 ei iia kg CN ieee 8, 10, 17

SratTurss:

Administrative Procedure Act, Act of June 11, 1946,

c. 324, 60 Stat. 237, 5 U.S. C. 1001, WOE, Voc cccs 2,7

Section LS Ber rer rny es apy re CLT ee 7

Federal Power Act, Act of June 10, 1920, ¢. 285, 41

Stat. 1063, as amended by the Act of ——— 26,

1935, c. 687, 49 a 838, i6 U.S. C. 791a-825r.. 4

Section 313(b) . LOGS ey Cr eer Sree Eee 5

Judicial Code, Reattins 239 and 240, as amended, 28

ne Re | - BOR mere rr ern ae yer te

~ 190248

SiC NTL EL LTE SLID OTT TE

Index Continued.

Page

Natural Gas Act, Act of June 21, 1938, c. 556, 52 Stat.

a A as se REO RE cng e cn vce cneeccksasee 2,4

I ii ina snci wines eames tban pe bhee 15

NN NN oe bi ss aw’ soon cw seed em 3, 6, 7, 13, 16

SR MEIN a oO Saws ecu 2, 3, 4, 5, 7, 9, 10, 12, 13

Public Utility Holding Company Act of 1935, Act of

August 26, 1935, c. 687, 49 Stat. 803, 15 U. S. C.

EERE reare pv ar armen erp aera 4

| Sara pp hap 5, 9, 10

Securities Exchange Act of 1934, Act of June 6, 1934,

48 Stat. 881, 15 U. S. C. 78a-78}j .... -- 2... eee +

SE IEE. Sb cd cme heck cusecesdisbasee 5, 9

IN THE

Supreme Court of the United States

Ocroser TreRM, 1950.

——_—-

No.

——_—_—_—_—_——

Untrep Gas Pres Line Company, a corporation, Petitioner,

v.

FeperaL Power Commission, Respondent.

—

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE DISTRICT OF COLUMBIA CIRCUIT.

—

United Gas Pipe Line Company, Petitioner, prays that

a writ of certiorari issue to review the opinion, decision,

and the judgment and decree of the United States Court of

Appeals for the District of Columbia Cireuit, entered in

the above-entitled case on April 5, 1950.

OPINION BELOW.

The opinion of the United States Court of Appeals for

the District of Columbia Circuit (R. 349) is reported at 181

F. (2d) 796. Its judgment and decree of dismissal appears

at R. 355. ;

2

JURISDICTION.

The jurisdiction of this Court is invoked under Section

19(b) of the Natural Gas Act, 15 U.S.C. 717r(b) (R. 280)

and Sections 239 and 240 of the Judicial Code, as amended,

28 U.S.C. 346 and 347. The original opinion and judgment

of the lower Court was entered on April 5, 1950. The peti-

tion for rehearing was denied on May 31, 1950.

STATUTES INVOLVED.

Administrative Procedure Act, Act of June 11, 1946, c.

324, 60 Stat. 237, 5 U.S.C. 1001, et seq.

Natural Gas Act, Act of June 21, 1938, ¢. 556 (52 Stat.

821), U.S.C., Title 15, §§ 717-717w. All sections of said act

referred to will be found at R. 277 to 282, inclusive.

STATEMENT.

On October 30, 1948, the Federal Power Commission, Re-

spondent, issued its Order No. 144 (R. 227) amending its

regulations governing the form, composition, substance

and filing of schedules of rates and charges for the trans-

portation and sale for resale of natural gas in Interstate

Commerce. The regulations promulgated by said order

are shown in R. 231 to R. 256, inclusive. The said Order

No. 144 was issued in a so-called rule making proceeding,

Docket No. R-107 of the Federal Power Commission. Peti-

tioner appeared in said so-called rule making proceeding

and by proper pleadings (R. 27, 36, 49, 91, 257) and by oral

argument (R. 102-120, 142-145) demonstrated that the pro-

posed rules subsequently promulgated by Order No. 144

required the abrogation and breach of many of Petitioner’s

contracts for the transportation and sale of natural gas

subject to the jurisdiction of Respondent, which contracts

had been validly executed and approved by the Commission

and were in the course of performance, and that said pro-

posed rules prohibited the supplementation, extension or

renewal of all of petitioner’s said contracts, many of which,

os

3

e. g., percentage contracts, contemplate and require supple-

mentation.

Under Section 5(a) of the Natural Gas Act (R. 279) Re-

spondent was prohibited from so affecting Petitioner’s said

contracts except after a hearing and a justified finding of

fact upon proper evidence that said contracts and the ex-

tension and supplementation thereof were unjust, unrea-

sonable, unduly discriminatory or preferential.

Respondent refused to hold a hearing including the intro-

duction of evidence and examination and cross-examination

of witnesses, taking the position that no such hearing was

required and issued its order ‘‘without passing upon the

validity of the industry contention’’ (R. 229), after which

Petitioner duly and timely applied for a rehearing and

pointed out that such an order vitally affecting matters of

substance would §» avalid without a hearing, and again

demanded a hee”). (R. 257). On December 21, 1948, Re-

spondent issued its order denying Petitioner’s application

for a rehearing (R. 274).

Thereafter, Petitioner duly and timely filed its Petition

for a Review of Order No. 144 of Respondent, (R. 287) and

of its Order issued December 21, 1948, denying Petitioner’s

application for rehearing (R. 274).

In compliance with Section 19(b) of the Natural Gas Act,

(R. 280) Respondent on the 30th day of August, 1949, filed

in the lower Court its certified record of the proceedings

before it (R. 341-348). The Court below issued its opin-

ion on April 5, 1950 (R. 349) and its judgment of dismissal

on the same day (R. 355).

On the 17th day of April, 1950, Petitioner filed its appli-

cation for a rehearing (R. 356) which was denied by the

lower Court on the 31st day of May, 1950 (R. 368).

QUESTION PRESENTED.

The one basic question is: Should the lower Court have

held that Respondent should have held a hearing under

Section 5(a) of the Natural Gas Act (R. 279) before issuing

4

its Order No. 144 (R. 227), i.e., was such a hearing neces-

sary for the validity and enforceability of said order?

The question of the substantive validity of Order No. 144

*f issued after a real hearing is not presented.

The question on the merits as to whether Petitioncr’s

said contracts and practices are unjust, unreasonable, un-

duly discriminatory or preferential is not presented.

SPECIFICATION OF ERRORS.

1. The lower Court erred in not holding that Order No.

144 of Respondent was null and void because no hearing

was held, or in the alternative, in not ordering a hearing

under penalty of nullity.

2. The lower Court erred in dismissing the petition for

review.

REASONS RELIED ON FOR THE ALLOWANCE OF

THE WRIT.

I.

The impact of the opinion of the lower Court is national

in its effect because it affects the scope of the rule making

power of every administrative agency of the Federal Gov-

ernment, and particularly the right of a party affected to

obtain a Court review under the statute creating the agency.

This is especially true of parties seeking a Court review

under the Securities Exchange Act of 1934,’ the Federal

Power Act,? the Public Utility Holding Company Act of

1935,° and the Natural Gas Act,‘ because the review pro-

visions of each of the first three named statutes are sub-

stantially similar to the review provisions of Section 19(b)

1 Act of June 6, 1934, 48 Stat. 881, 15 U. 8. C. 78a-78jj.

2 Act of June 10, 1920, c. 285, 41 Stat. 1063, as amended by Act of August 26,

1935, c. 687, 49 Stat. 838, 16 U. S. C. 791a-825r.

8 Act of August 26, 1935, c. 687, 49 Stat. 803, 15 U. S. C. 79-792-6.

4 Act of June 21, 1938, ¢. 556, 52 Stat. 821, 15 U. 8. C. 717-717w.

tance ewere 5

of the Natural Gas Act (R. 280 and 281), which is involved

in the instant case.

The opinion of the lower Court will, if unreversed, be

cited as authority for the proposition, especially under the

above statutes, that regardless of the impact of rule mak-

ing, and the fact that it may be adjudicatory in character

and a hearing be required by the applicable act, there can

be no Court review under the statute creating the agency,

if no hearing be held, as long as the proceeding is labelled

‘‘Rule Making’’.

Petitioner, as a natural gas pipe line company, is one of

the hundreds of electric power and natural gas companies

subject to the plenary regulatory powers of the Federal

Power Commission. Additional hundreds of companies

are subject to the regulatory powers of the Securities and

Exchange Commission. Prior to the decision of the Court

below, such companies had assurance from applicable stat-

utes, as interpreted by the courts, that the named regula-

tory agencies could not, by the artful use of the ‘‘Rule

Making”’ label, and the careful avoidance of holding a real

record hearing, prevent direct judicial review of adjudi-

ecatory action on substantive matters. This assurance was

found in the provisions of the basic acts conferring regula-

tory powers which make the exercise of such powers sub-

ject to direct court review,” and in the rationale of decisions

of this and other courts as hereinafter cited and discussed.

The opinion and decision of the Court below has de-

stroyed such assurance and has made the right of direct

review in the courts charged with judicial supervision of

the regulatory agencies dependent upon the particular

agency’s willingness to recognize m express terms that its

action is controlled by a specific provision or provisions

requiring a record hearing. The truth of the foregoing

statement can best be ascertained by a reading of the lower

Court’s opinion in its entirety (R. 349). Without intend-

5 Natural Gas Act, supra, Section 19(b); Federal Power Act, supra, Seetion

313(b) ; Securities Exch Act of 1934, supra, Section 25(a); Public Utility

Holding Company Act of 1935, supra, Section 24(a).

6

ing that the language be considered out of context, but as

aptly emphasizing the reason for the granting of the writ

as here presented, we quote in the footnote three excerpts

from the opinion below, with emphasis supplied.®

Because of the importance of the United States Court of

Appeals for the District of Columbia Circuit as the court

of review most generally applied to by parties aggrieved

by regulatory commission orders, the departure of that

Court from the rationale of earlier decisions, including its

own, is submitted to be of national import. We do not think

it strained to say that the entire operation of administra-

tive agency procedure and direct court review thereof is

vitally affected.

Il.

The lower Court, by the Petition for Review, was asked to

determine that a hearing was necessary under Section 5(a)

of the Natural Gas Act for the validity of Order No. 144 of

Respondent.

' 6‘*As petitioner views the case, although the regulations are procedural

in form and superficially prospective in nature, they will in reality work a

change in rates, cause certain provisions to be eliminated from its contracts,

and will be retroactive in effect. Thus the argument proceeds, a quasi-judicial

hearing has been denied where it should have been granted for, under Section

5(a) of the Natural Gas Act, 15 U. 8. C. A. § 717d(a), rates may be changed

by the Commission only after a hearing is held and they have been found to be

unjust and unreasonable. Since Commission acceptance of this view would

have resulted in an order reviewable under Section 19(b), 15 U. 8. C. A.

§ 717r(b), it is contended that, even absent such acceptance, review may be

obtained here under that section. * * * ’’ (R. 350)

* + * * * *

‘«* * * Although the distinction between rule and order is not always clearly

definable, our authority to review orders of the Federal Power Commission

under the Natural Gas Act does not suffer the same weakness. Not all orders

were made reviewable under Section 19(b). As in the analogous provision of

the Federal Power Act, Congress set out ‘a distinctive formulation of the con-

ditions under which resort to the courts may be made.’ On its face, the Act

contemplates review of a decision based on evidence presented in a quasi-

judicial proceeding before the Commission. It specifies that the Commission

shall file with the proper circuit court of appeals ‘a transcript of the record

upon which the order complained of was entered * * *.’ ‘The finding of the

Commission as to the facts, if supported by substantial evidence, shall be con-

elusive,’ etc. Unless the case comes to us after such a proceeding, we are given

no authority to directly review the Commission’s action.’’ (R. 351)

* * * * * *

‘*This is not a case where the Commission has asserted authority under one

of the many sections of the Act which specifically require a hearing. If a

had been denied under such circumstances, we would have no difficulty

in one to be held. * * *’’ (R. 352)

—

7

Said section of the Natural Gas Act mandatorily requires

a real record hearing and a justified finding of facts before

the contracts and practices of Petitioner, theretofore recog-

nized as valid by Respondent, could be abrogated or

changed.

If a hearing was necessary the lower Court could have

ordered one held under penalty of nullity.

Because there was no hearing on the merits, the lower

Court was not required to pass on the merits or demerits of

any contract or business practice, or on the merits or de-

merits of Order No. 144.

The lower Court held in effect that there can be no Court

review under Section 19(b) unless a record hearing on the

merits be held.

This means that Respondent could do anything lawful or

unlawful and by refusing a hearing on the merits even

though one be required by Section 5(a) of the Natural Gas

Act prevent a review of its action under Section 19(b) of

the Natural Gas Act.

III.

If the proceedings leading up to the adoption of the chal-

lenged Order No. 144 be tested under the Administrative

Procedure Act, supra, it appears clear that the Commission

violated that Act in refusing to hold a hearing in this

matter.

The Administrative Procedure Act, Section 4(b), pro-

vides ‘‘* * * Where rules are required by statute (such as

Section 5(a) of the Natural Gas Act) to be made on the

record after opportunity for an agency hearing the re-

quirements of sections 7 and 8 (which require a real record

hearing) shall apply * * *’’ (Parenthetical insertions

ours).

Since 5(a) of the Natural Gas Act (R. 279) prohibits the

change in ‘‘any rate, charge or classification, * * * or any

rule, regulation, practice or contract’’ affecting same with-

out a real hearing, it distinctly restricts what can be done

~

8

under the Administrative Procedure Act under the guise of

‘Rule Making’’.

IV.

The lower Court was required to consider and act upon

the entire record and admissions before it, and to determine

if a hearing was necessary. To the contrary its opinion con-

cedes that it is based merely on the proposition that there

was not sufficient evidence before it to enable it to decide

this case on the merits, i.e., as to whether the contracts and

practices of Petitioner are in fact unjust, unreasonable,

unduly discriminatory or preferential (R. 349). The lower

Court was not asked to decide this cause on the merits.

As we shall hereinafter point out there was an abundant

record before the lower Court to enable it to decide whether

a hearing was necessary for the validity of Order No. 144.

In addition important admissions were made by Respon-

dent.

The opinion and decision of the lower court shows on its

face (R. 352) that it was based ‘‘merely on the basis of alle-

gations in a Petition for Review”’.

The admissions made by Respondent which are set forth

in paragraph 5 of Petitioner’s Petition for Rehearing (R.

361), and hereinafter discussed, were apparently ignored.

V.

The opinion of the lower Court is in direct conflict with

the reasoning of three other decisions of the same Court,

and with a decision of this Court. These cases are:

1. American Sumatra Tobacco Corporation v. Securities

and Exchange Commission, 93 F. 2nd 236.

2. Philadelphia Co. v. Securities and Exchange Commis-

sion, 164 F’. 2nd 889 (Writ of Certiorari denied Feb-

ruary 2, 1948).

3. Philadelphia Co. v. Securities and Exchange Commis-

stom, 175 F. 2nd 808.

4. Columbia Broadcasting System v. United States, 316

U. 8. 407; 62S. Ct. 1194, 86 L. Ed. 1563.

9

1. The Sumatra Case, supra, involved a petition for re-

view under Section 25(a) of the Securities Exchange Act of

1934; Act of June 6, 1934, 48 Stat. 881, 901, 15 U. S. C. 78a,

78y(a), which is similar to the review provisions of Sec-

tion 19(b) of the Natural Gas Act (R. 280).

In this case the Securities and Exchange Commission

made the same basic argument that Respondent made be-

fore the lower Court in the instant case. The Court said

on page 238 of the opinion:

‘The position which the Commission takes is that a

reviewable order within the contemplation of section

25(a) is one entered only after notice and opportunity

for hearing, and upon a finding of fact. ah Bere

The Court definitely rejected the Commission’s argu-

ments and said on page 241, ‘‘* * * Under our construction

of the Act there will be a record, and sufficient evidence

upon which to test the conclusion reached. * * *”’

Petitioner shows that there was before the lower Court

‘‘a record and sufficient evidence upon which to test the con-

clusion reached,’’ and it was a basic error for the lower

Court to disregard that record, and the admissions in Re-

spondent’s brief filed in the lower Court, said brief being

hereinafter referred to as Exhibit 1.’

2. In the Philadelphia case (164 F. 2nd 889), a review

was sought under Section 24(a) of the Holding Company

Act, 15 U. S. OC. Section 79x(a). This section is almost

identical with the review provisions of the Natural Gav’

Act, Section 19(b) (R. 280).

This case involved ‘‘rule making’? and the Respondent

Commission sought to escape judicial review by making the

same argument that Respondent made in the instant case,

i.e. that since no evidence was taken there was no record

upon which review could be had.

1 At the express request of Petitioner, the Clerk of the lower Court has

certified the brief filed by ony Nesey ow therein, and the certified copy thereof

and ten additional copies have been with the Clerk of this Court for use

in connection with this petition, as bit 1 hereto.

10

The Court flatly rejected Respondent’s argument and said

with respect to the record before it on page 890:

‘«* * * The relevant facts are either alleged in the pe-

tition for review and admitted, for the purposes there-

of, by the motion to dismiss (cf. American Sumatra To-

baeco Corporation v. Securities and Exchange Com-

mission, 1937, 68 App. D. C. 77, 93 F. 2nd 236), or are

stated in the brief of Philadelphia and treated as true,

or not denied, in the brief of the Commission. * * *”’

3. In the Philadelphia case, swpra, 175 F. 2nd 808,' review

was sought under Section 24(a) of the Holding Company

Act, supra, and the Respondent Commission sought to es-

cape review by making a somewhat similar argument to that

made by Respondent in the instant case.

As noted above, the review provisions of Section 24(a) of

the Holding Company Act are almost identical with the re-

view provisions of Section 19(b) of the Natural Gas Act.

This Philadelphia case was another ‘‘rule making”’’ case

and the Court found that the record before it was so incom-

plete that it could not decide the case on the merits, but

DID DECIDE that a hearing was necessary and ordered

one,

The Court said on page 819:

‘‘Whether or not material issues of fact exist we can

determine only after an appropriate hearing and a

proper record.’’

* * * * *

‘“We cannot now determine the validity of the Com-

mission’s order on the merits. As we point out in the

WJR case, to do so would be to omit to recognize the

distinction between questions of correct procedural ac-

tion and questions of correct decision on the merits.

Whether the Commission was under a duty to accord

a quasi-judicial hearing to Philadelphia, including allo-

cation to the Commission of the burden of proof, is a

procedural question quite separate from the question

1Certiorari gi 837 U. 8. 901. Appeal ordered dismissed as moot

bevetoi at testllenseak’

11

on the merits whether or not the order of the Commis-

sion had a rational and lawful basis. * * *’’

4. In the Columbia Broadcasting case, supra, rule mak-

ing was involved and this Court said:

««* * * The regulations are the effective implement by

which the injury complained of is wrought, and hence

must be the object of the attack. It is because they are

an exercise of the rule-making power, and because they

presently determine rights on the basis of which the

Commission is required to withhold licenses and au-

thorized to cancel them, that there is an order within

the meaning of Section 402(a) and the Urgent Deficien-

cies Act.’’

e * * * *

««* * * The ultimate test of reviewability is not be

found in an overrefined technique, but in the need of the

review to protect from the irreparable injury threatened

in the exceptional case by administrative rulings which

attach legal consequences to action taken in advance of

other hearings and adjudications that may follow, the

results of which the regulations purport to control.’’

In the instant case, purporting to exercise rule making

power, the Commission adopted rules and regulations whose

operation is not made subject to the contingency of future

administrative action. The impact of the rules is immedi-

ate and final upon existing and future contracts and busi-

ness relationships of Petitioner and determine, prescribe

and control the Commission’s conduct in advance of future

administrative action. The impact in the instant case is

direct whereas in the Columbia case it was indirect.

VI.

The opinion of the lower Court (R. 349) states:

‘‘For we are asked to pierce form and find substance,

to make an important decision concerning the scope of

the Commission’s regulatory authority, merely on the

basis of allegations in-a Petition for Review. The cen-

12

tral question here is the effect of Order No. 144 on cer-

tain contracts of petitioner. Yet we do not even have

such contracts before us as part of the record. Nor

do we have the aid of testimony, affidavits, ete. It is

clear to us that decisions of this kind cannot be made

in vacuo; and that Congress realized it when it made

our review dependent upon the sort of conditions con-

tained in Section 19(b).’’

The central question was not as above stated. The cen-

tral question was whether a hearing should have been heid.

The statement that the Court had no affidavits before it is

not correct. The entire position of Petitioner was sub-

mitted under oath. See affidavit of M. A. Abernathy, Vice-

President of Petitioner (R. 49 to 54, affidavit on page 54.

See also afh'avit of same official R. 262).

The above affidavits were certified by Respondent to the

lower Court as a part of the record before it. This is

shown by the letter of transmittal and the certification of

Respondent (R. 341, 342). It is to be noted that the record

certified by Respondent to the lower Court is very volumi-

nous and consists of approximately 103 documents aggre-

gating 878 pages in three volumes.

The petition for rehearing pointed out in paragraph 5

thereof (R. 361) the many admissions made by Respondent

in its brief (Exhibit I) and otherwise to the effect that cer-

tain illustrative contracts, i.e., perccntage contracts and tax

clause contracts [the nature of which were fully explained by

Petitioner under oath (R. 49-54, 257-263), and by the oral

argument of Petitioner’s Counsel before Respondent (R.

102-120, 142-145)] were abrogated, prohibited or changed

by Order No. 144.

Under the rules of the lower Court, Respondent had ten

days after the Petition for Rehearing was filed to answer

and to deny or repudiate said admissions and to deny that

Petitioner’s contracts, rates, schedules, charges and method

of doing business were substantially modified, changed or

prohibited by said Order No. 144. It is submitted that the

13

failure of Respondent to answer as above set forth is not

without weight in assaying the allegations of the Petition

for Rehearing (R. 357) and of the Petition for Review (R.

287).

VII.

As pointing out one of the reasons relied on why the

writ of certiorari should issue herein, we desire to call the

Court’s attention to the following statement in the opinion

of the lower Court (R. 353):

‘‘The present case is quite different. We have be-

fore us a rule directed to all companies similarly situ-

ated, and we have the Commission’s binding assurance

that the regulations will operate only prospectively.®

Under such circumstances, there is at the very least a

strong presumption that the Commission has merely

promulgated regulations of general applicability and

not orders reviewable under Section 19(b).’’

And also to footnote 6 referred to in said statement giv-

ing a statement by Respondent which reads:

‘®Tn response to petitioners’ argument that such

regulations will not be merely prospective, the Com-

mission reaffirmed its position, which was made a part

of the stay order in the present case (issued February

28, 1949), that it ‘interprets Order No. 144 as not au-

thorizing the making of any change in an effective rate,

charge, or contract provision, without compliance with

the Natural Gas Act, as amended.’ ’’

The statement in the opinion is not justified by the state-

ment of Respondent as set forth in said footnote, and ap-

parently, the Court was misled thereby.

To say the least, Respondent’s statement is most ambig-

uous, and Respondent has in fact taken the position as

will be hereinafter pointed out, that changes in an effective

rate, charge or contract provision may be accomplished

through so-called ‘‘rule making’’ instead of through a

hearing and a finding of fact as required by Section 5(a)

of the Natural Gas Act.

14

Respondent made admissions in its brief in the lower

Court which are in conflict with the lower Court’s statement

that the new regulations operate only prospectively (see

Exhibit I). This is shown by paragraphs 5 and 6 of the Pe-

tition for Rehearing (R. 361, 363).

As illustrative of the impact of the new rules on existing

contracts, Petitioner has alleged and Respondent has not

denied, and we ¢onfidently assert will not deny that existing

tax clause contracts [fully explained and specifically illus-

trated in paragraph VII of the Petition for Review (R.

296) ] are prohibited by the new rules and particularly Sec-

tion 154.38(d) thereof. This section is quoted in a footnote

to the Opinion of the lower Court (R. 350).

Percentage contracts which are fully explained and spe-

cifically illustrated in paragraph VIII of the Petition for

Review (R. 299) require supplementation and amendment,

as pointed out in said paragraph VIII, and without such

supplementation and amendment, they become sterile and

cannot function.

Respondent has not and will not deny that the supple-

mentation and amendment of existing percentage contracts,

which have been approved by Respondent (and which sup-

plementation and amendment have been permitted for

more than ten years by Respondent, and never prohibited

until by said Order No. 144) are now by the last paragraph

of Section 154.85 of the new rules prohibited (R. 251).

The foregoing demonstrates that the new rules do not as

stated by the lower Court ‘‘operate only prospectively.”’

But assuming (which we deny) that they do ‘‘operate

only prospectively,’’ such would not make them valid. This

points out an error into which the lower Court has fallen.

In the Columbia Broadcasting Case, supra, this Court held

that rules operating prospectively could have such an im-

pact as to require a real hearing as a condition precedent to

validity.

The new rules require the Respondent to reject any new

tax clause and percentage contracts in the future, thus pre-

15

senting a similar question to that before this Court in the

Columbia Broadcasting Case.

VOW.

Tax adjustment clause contracts are specifically named

and prohibited by Section 154.38(d) of the new rules (R.

241). Tax adjustment clauses are 1.0t mentioned in the

Natural Gas Act and particularly in Section 4(d) thereof

(R. 277). The passing on of any part of an increased tax

is not a change in a rate because the seller does not receive

and keep any portion of the tax passed on. The seller re-

mits 100% of the tax to the tax collector. See footnote 58

page 44 of Exhibit 1 and page 52 thereof, where Respon-

dent admits, and cites authority, that a rate is the net

amount received and retained by the seller.

For the first time tax adjustment clauses are specifically

prohibited by Section 154.38(d) of the new rules. The rules

and regulations of Respondent which were in effect prior

to said Section 154.38(d), (which by said Order No. 144

became effective December 1, 1948) did not refer to or

prohibit tax adjustment clauses. The said prior rules and

regulations, as admitted by Respondent, are shown at R.

326, 327. A reading of the Natural Gas Act and particularly

Section 4(d) thereof (R. 277) shows that tax adjustments

are not prohibited by said Act.

Respondent states (Exhibit 1, page 50) ‘‘* * * that

prohibition merely restates the filing requirements of Sec-

tion 4(d) of the Act.’’

The above admitted prohibition of Section 154.38(d) of

the rules is not a restatement of Section 4(d) of the Nat-

ural Gas Act as will be shown by a comparison of the two,

through a reference to R. 241 and R. 277, respectively.

There can be no question but that Respondent admits

(Exhibit 1, pages 45 and 46) that Section 154.85 prohibits

amendments and supplementation of contracts. It is stated,

‘‘Thus, the former confusing practice of unlimited supple-

mentation was prohibited.’’ There is also here the inherent

——

16

admission that prior to the new rules Respondent permit-

ted unlimited supplementation. In addition to this see spe-

cific admission of counsel for Respondent that the practice

under the old regulations prior to December 1, 1948, was

to permit such supplementation (R. 326).

There can be no question but that Respondent admits that

percentage contracts are prohibited in the future, (Ex-

hibit 1, page 53) and as aforesaid that existing percentage

contracts are frozen for the reason that they cannot be

amended except by a superseding contract which must meet

the requirements of Section 154.38(d) of the new rules and

this prohibits percentage contracts because they are not

stated in dollars or cents per unit.

The lower Court should have given effect to these admis-

sions; they were specifically referred to in the Petition for

Rehearing.

IX.

By the record and the admissions of Respondent in Ex-

hibit 1 which we have pointed out above, it has been demon-

strated that Order No. 144 of Respondent is adjudicatory as

to Petitioner in that its contracts and business practices

have been condemned.

Such condemnation, including the abrogation, prohibi-

tion and changing of Petitioner’s contracts, cannot legally

be accomplished except after a hearing and a justified find-

ing of fact upon proper evidence that such contracts and

business practices are (as required by Section 5(a) of the

Natural Gas Act) unjust, unreasonable, unduly discrimina-

tory or preferential.

The following authorities abundantly sustain the fore-

going:

In Colorado Interstate Gas Co. v. Fed. Power Com’n., 142

Fed. (2d) 943, 954, aff’d., 324 U. S. 581, 65 Sup. Ct. 829, the

Court pertinently observed:

_ The passage of the Act did not automatically over-

throw the contracts into which these companies had

17

previously entered. Neither did it ipso facto set aside

the schedules of charges upon which they had agreed.

Such rates and charges could be modified only after an

express finding of umreasonableness. Wichita R. &

Light Co. v. Public Utilities Commission, 260 U. 8S. 48,

43 S. Ct. 51, 67 L. Ed. 124; Allen W. Hinkel Dry Goods

Co, v. Wichison Industrial Gas Co., 10 Cir., 64 F. 2d

881. And the right of the Commission to make a find-

ing of unreasonableness depends upon the existence of

the fact. In the absence of substantial evidence to

show that the rates and charges in existence are un-

reasonable, a finding to that effect constitutes the arbi-

trary exercise of power by administrative fiat and can-

not stand. Interstate Commerce Commission v. Louis-

ville & N. R. Co., 227 U.S. 88, 33 S. Ct. 185, 57 L. Ed.

431.’’? (Emphasis ours)

As the lower Court had occasion to observe in Philadel-

phia Co. v. S. E. C., 175 F. (2d) 808, 817:

‘*It is elementary also in our system of law that ad-

judicatory action cannot be validly taken by any tri-

bunal, whether judicial or administrative, except upon

a hearing wherein each party shall have opportuni

to know of the claims of his opponent, to hear the evi-

dence introduced against him, to cross-examine wit-

nesses, to introduce evidence in his own behalf, and to

make argument. This is a requirement of the due

process clause of the Fifth Amendment of the Consti-

woe

‘It follows from the foregoing and from the facts

set forth at the outset of this opinion that the Commis-

sion’s ‘hearing’ on the proposed amendment of Rule

U-49(c) was inadequate as to Philadelphia. The Com-

mission permitted only the submission of data, views

and comments and the making of oral argument. It

failed, so far as is shown by the record certified to this

court, except by its vague references to its ‘experience’

under Rule U-49(c) and to ‘situations in which the

security structures of registered holding companies

and their subsidiaries are entangled,’ to apprize Phila-

delphia of the facts upon which its proposed action

amending Rule U-49(c) was to be taken (thereby mak-

ing futile Philadelphia’s offer of proof); and it failed

18

to introduce or receive evidence, to hear witnesses, to

permit cross-examination, and to make a proper tran-

script of record. Accordingly its ‘hearing’ did not sat-

isfy the requirements, for adjudicatory action, of either

the due process clause, the Holding Company Act, or

the Commission’s own rule. The Commission errone-

ously failed to assume the burden of proof in respect of

the propriety of its proposed action. It was obliged to

observe ‘the essential rules of evidence.’ Cf. Inter-

state Commerce Commission v. Louisville & Nashville

Railroad Company, 1913, 227 U. 8. 88, 33 S. Ct. 185, 57

L. Ed. 431. With some exceptions not here pertinent

the burden of proof lies upon him who affirms, not him

who denies. 1 Jones, Evidence in Civil Cases (4th ed.

1938) See. 180; Stephen, Digest of the Law of Evidence

(12th ed. 1946) Article 100. On the contrary of assum-

ing the burden of proof the Commission, as appears

from the statement of facts at the outset of this opin-

ion, required Philadelphia to attempt to persuade it

that the exemption afforded Pittsburgh by Rule U-

49(c) should not be revoked. We hold accordingly that

the Commission’s order was invalid for lack of a

proper hearing.’’

In Mallory Coal Co. v. National Bituminous Coal Com’n.,

69 App. D. C. 166, 99 F. (2d) 399, the lower Court referred

to the American Sun otra Tobacco Corp. case (93 F. 2nd

236) and stated at ps ze 406:

‘*We held in the Sumatra Case that the order of the

Commission might be subjected to review even though

no hearing was held aud no findings made to support |

the order, on the theory that under the circumstances

of that case it was the duty of the Commission to hold

a hearing and make findings. The failure, therefore, of

an administrative agency to comply with its duty in this

respect will not cut off the privilege and power of ju-

dicial review. In the same way, the action of such an

_ agency in holding a hearing and making findings, under

circumstances which do not call for such procedure, will

not give a resulting order reviewable character, when

otherwise it would not be subject to review. Thus, it is

not the mere arbitrary occurrence of notice, hearing

19

and findings — or the absence thereof — which deter-

mines whether an order is reviewable, but rather the

fact that the order is of such character that it should

have been preceded by a hearing and supported by find-

ings.

In American Federation of Labor v. National L. R. Board,

308 U.S. 401, 60 Sup. Ct. 300, the Court observed at page

408 :

‘«* * * Administrative determinations which are not

commands may for all practical purposes determine

rights as effectively as the judgment of a court, and

may be reexamined by courts under particular statutes

providing for the review of ‘orders’. See Rochester

Telephone Corporation v. United States, 307 U. 8. 125,

130, 135, et seq., 59 S. Ct. 754, 757, 759, 83 L. Ed. 1147 :

Federal Power Commission v. Pacific Power & Light

Co., 307 U.S. 156, 59 S. Ct. 766, 83 L. Ed. 1180. We

must look rather to the language of the statute, read in

the light of its purpose and its legislative history, to

ascertain whether the ‘order’ for which the review in

ceurt is provided, is contrasted with forms of admin-

istrative action differently described as a purposeful

means of excluding them from the review provisions.”’

The situation presented in the present case is, with re-

spect to the particular matter under consideration, very

similar to the case of Philadelphia Company v. Securities &

Eachange Commission, 164 F. (2d) 889, decided by the lower

Court on October 8, 1947 (writ of certiorari denied Febru-

ary 2, 1948. See 68 S. Ct. 452).

The factual situation in that case is concisely set forth

on page 893 of the opinion, reading as follows:

‘«* * * The Commission first published, on November

25, 1946, as Holding Company Release No. 7011, ‘Notice

of Proposed Rule Amending Rule U-49(c) Under the

Public Utility Holding Company Act of 1935.’ This

notice granted leave to file ‘data, views and comments.’

Philadelphia timely requested a hearing on the pro-

posed amendment so conducted as to apprize all par-

ties of the facts upon which a decision to adopt the pro-

20

posed amendment to Rule U-49 might be predicated and

and as to permit cross-examination of witnesses, intro-

duction of rebuttal evidence by any interested party,

as to apprize each party of the data, views, com-

ments and evidence of the other parties, and as to af-

ford a stenographiec record of the evidence in support

of and in opposition to the proposed amendment. This

request was denied by the Commission. The latter, af-

ter permitting Philadelphia to make oral argument,

adopted on February 28, 1947, the amendment to Rule

U-49(c), the lawfulness of which Philadelphia by vir-

tue of the petition in the instant proceeding, seeks to

review.* * *’’

On page 900 of the Opinion the Court said:

‘«* * * But not even the fact that the action of an ad-

ministrative agency is phrased to apply generally, or

may indeed have general application, is necessarily con-

clusive that its action is not subject to review as an

‘order’ under the Urgent Deficiencies Act as extended

by the Communications Act, or under Section 24(a)

of the Holding Company Act. If in its impact a ‘rule

or regulation’ applies specifically and affects or de-

termines the rights of a particular person or corpora-

tion, then the action of the agency in promulgating it is

reviewable even though the ‘rule or regulation’ is not

directed in terms to any particular person or corpora-

tion. This is evidenced by the ruling of the Supreme

Court in the Columbia System case just cited. There

the Federal Communications Commission by an ‘order’

promulgated regulations purporting to require the

Commission to refuse to grant a license to any broad-

casting station which entered into chain broadcasting

contracts with any broadcasting network organization.

The Commission had acted, as the Court said in its

opinion, ‘in the avowed exercise of its rule-making

power,’ * * *”?

x.

The lower Court, for the foregoing reasons in the very

words of Rule 38 of this Court ‘‘* * * has so far de-

parted from the accepted and usual course of judicial pro-

21

ceedings’’ and ‘‘decided a question of general importance’’

* * * ‘as to call for an exercise of this Court’s power

of supervision.’’

CONCLUSION.

For the foregoing reasons, this Petition for a Writ of

Certiorari should be granted.

Respectfully submitted,

C. Hurrman Lewis

1525 Slattery Building

Shreveport, Louisiana

W. Scorr Wiix1nson

1525 Slattery Building

Shreveport, Louisiana

Geo. D. Fiser

United Gas Building

Shreveport, Louisiana

Counsel for Petitioner

United Gas Pipe Line Company

July 21, 1950.