Brief for Respondent — Shell Oil Co. v. Federal Power Commission (No. 399)

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INDEX

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A SSE NE EN ADEM SORE PDN ALR PREM UE Bae

Questions presented___.________-____.- Pea aer eats

gk i ale ee ok

Argument. ...... . See Pease eee baa ta ee aa o

ID no bo ede WupeeG iw rics evewas

CITATIONS

Cases:

Barber Asphalt Paving Co. v. St. Louis Cypress

en I ee et as wa

Commissioner v. Sunnen, 333 U.S. 591_______-

Cromwell v. County of Sac, 94 U.S. 351... __-

First lJowa Hydro-Electric Cooperative v. Federal

Power Commission, 328 U.S. 152. ___-_ - ees

Leiter Minerals, Inc. v. United States, 352 U.S.

Propper v. Clark, 337 U.S. 472.......-.----

Stoll v. Gottlieb, 305 U.S. 165_._.....---_---

Tacoma, City of v. Taxpayers, 357 U.S. 320___ -

Statute and rules:

Natural Gas Act, 52 Stat. 821, 15 U.S.C. 717,

6153818—61——_1 (I)

CONN KS =

Miscellaneous:

Comment, Certainty of Promise in the Law of page

Sale, 30 Tul. L. Rev. 568 (1956)_________- 12

Hebert and Lazarus, Some Problems Regarding

Price in the Louisiana Law of Sales, 4 La. L.

te I oid ee 11-12

Smith, Crvil Code and Related Subjects (Particu-

lar Contracts), 16 La. L. Rev. 242 (1956) _ __- 12

Gu the Supreme Court of the United States

OcToBER TERM, 1961

No. 399

SHELL O1L COMPANY, PETITIONER

Vv.

FEDERAL POWER COMMISSION, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

BRIEF FOR THE FEDERAL POWER COMMISSION IN OPPOSITION

OPINIONS BELOW

The opinion of the Court of Appeals for the Third

Circuit (Pet. App. A-1—A-7) is reported at 292 F.

2d 149. The orders of the Federal Power Comnis-

sion (R. 133-145, 153-161) are reported at 18 F.P.C.

617 and 19 F.P.C. 74.’

JUBISDICTION

The judgment of the court of appeals was entered

on June 15, 1961 (Pet. App. A-8). The petition for

a writ of certiorari was filed on September 12, 1961.

1 Also relevant here are the prior opinion of the court of

appeals and this Court’s opinion reversing that court’s judg-

ment and remanding the case for decision on certain questions.

These are reported at 263 F. 2d 223 and 363 U.S. 263,

respectively.

(1)

2

The jurisdiction of this Court is invoked under 28

U.S.C. 1254(1) and Section 19(b) of the Natural

Gas Act, 15 U.S.C. 717r(b).

QUESTIONS PRESENTED

1. Whether the court below correctly held that, in

the respects here relevant, Louisiana law does not

differ from general contract law. _

2. Whether, in the circumstances here presented,

this Court should direct the suspension of this pro-

ceeding to await a decision by the Louisiana courts

in the state action instituted by petitioner after the

adverse judgment of the court of appeals.

STATEMENT

The petition in this case seeks review of the judg-

ment of the Court of Appeals for the Third Circuit.

adjudicating certain questions remanded to it by this

Court in Teras Gas Transmission Corp. v. Shell Oil

Co., 363 U.S. 263. The ultimate issue concerns the

interpretation of a favored-nation clause of a natural

gas sales contract dated May 1, 1951, between Texas

Gas Transmission Corporation and Shell Oil Com-

pany (Shell centract)’ and the effect under that clause °

of:a price redetermination agreed to by Texas Gas

with The Atlantic Refining Company in 1954 pur-

suant to a 25-year contract which had been executed

on September 1, 1943 (Atlantic contract).? The back-

* The Shell contract was originally with Texas Gas’ wholly-

owned subsidiary, Louisiana Natural Gas Corporation. _ The

corporations merged in June 1955 (R. 134).

*The Atlantic contract had initially been between Atlantic

and the Defense Plant Corporation, an agency of the Federal

2?

%

3

ground of the present controversy aud the relevant

_faects-are as follows:

1. After this Court's decision in Phillips Petroleum

Co. v. Wisconsin, 347 U.S. 672, holding sales of natural

gas in interstate commerce by independent producers

to be subject to the Natural Gas Act (52 Stat. 821, 15

U.S.C. 717, et seqg.), the Commission directed such

producers to file rate schedules showing their rates

in effect on June 7, 1954, the date of that decision (18

C.F.R. 154.91, et seq.) ; in addition, all changes there-

after made were to be subject to the Commission’s

regulations and filing procedures under Section 4 of

the Act.

In November 1954, Shell duly filed, as part of its

rate schedule, its contract with Texas Gas. Pursuant

to a requirement of the Commission's regulations (18

CFR 154.92) that it attach *‘a statement showing esti-

mated sales and billing for the first month of service,”’

Shell attached a copy of the credit statement for that

month rendered by Texas Gas (which metered the gas)

showing the rate actually being paid on that date was

8.997 cents per Mcf (thousand cubic feet) (R. 81).

Shell also attached, however, a ‘*sample’’ billing state-

ment which purported to show that the correct rate

was 12.5 cents (R. 80). The Commission, in January

1955, notified Shell that it would not accept the filing

until an explanation of the effective rate was provided

(R. 161-162).

Government, but Texas Gas (through its subsequently-merged

subsid:-ry) had acquired all the latter’s rights on May 11,

1949 (R. 125).

4

Shell took po action until February 1957, when, in

filing a new rate schedule prospectively changing its

rate for the sale to 16.75 cents,’ it again claimed that

its effective rate on June 7, 1954, was 12.5 cents. This

claim was based 6n the ground that the February 22,

1954, Atlantic price redetermination setting that price

(1.e., 12.5 cents per Mcf) for gas delivered by Atlantic

to Texas Gas under the 1943 Atlantic contract had

triggered the favored-nxition clause of its contract

with Texas Gas (R. 116). The Commission directed a

hearing to determine the validity of Shell’s claim with

regard to the rate in effect on June 7, 1954 (R.

116-117).

2. The favored-nation clause of the Shell contract

provides (R. 63-64) :

If at any time after December 31, 1951,

Buyer [Texas Gas] shall enter into a contract

providing for the purchase by it of gas pro-

duced from a field or fields located, and: de-

livered to Buyer, within a radius of fifty (50)

miles of any point of delivery provided here-

under, Buyer shall forthwith notify Seller

[Shell] of such fact, and if the price per one

thousand (1,000) cubic feet at any time pay-

*The Commission suspended the proposed 16.75-cent-rate,

pending a determination of its reasonableness, in a proceeding

which is still pending before the Commission. That rate (based

upon the triggering of the favored-nation clause in Shell's con-

tract with Texas Gas by another purchase of gas by Texas Gas

admittedly made under a new contract within the meaning of

the favored-nation clause) went into etfect after the expiration

of the five-month suspension period, subject to the Commission's

power to order refunds and rate reductions if the increased

rate is ultimately found to have been unjustified. See Section

4(e) of the Act, 15 UIS.C. T17e(e).

5

able under such other contract is higher than

the price payable hereunder, each price payable

hereunder which is less than the price payable

at the same time under such other contract

shall be immediately increased so that it will

equal the price payable under such other

contract. * * *

At the time the Shell contract was made, Texas

Gas was also buying gas from Atlantic under the

Atlantic contract. Condition 1II of that contract

specifies the price for gas delivered during the first

five years of its 25-year term, and then goes on

to provide (R. 87-88):

* * * * *

(b) At the end of the first five-year period,

Buyer and Seller are to reach an agreement as

to the price for gas sold and delivered under

this contract during the second five-year period.

The price to be paid during such second five-

year period is to be agreed upon at the

beginning ef such period after a survey of

prevailing prices for gas being sold in simi-

lar quantities in the southwestern part of

Louisiana.

(c) During succeeding five-year periods,

prices to be paid will be determined at the

beginning of each period in the same manner

as provided for in paragraph (b) above.

(d) In the event that the parties are unable

to agree upon the price to be paid for gas

after the first five-vear period, in accordance

with the arrangements set forth in paragraphs

(b) and (ec) above, such determination shall be

submitted to arbitration in) accordanee with

Condition XIT.

6

Condition XII of the Atlantic contract provides

(R. 93-94) :

In case the parties hereto shall be unable

to agree on any question or dispute arising

under this contract, such question or dispute

shall be referred for settlement to three arbi-

trators, one appointed by Seller, one appointed

by Buyer, and the third appointed by the two

others so chosen. The party desiring such

arbitration shall notify the other and in such

notice shall name an arbitrator, the arbitrator

to be appointed by the other party shall be

named within ten (10) days after receipt of

such notice of arbitration, and an additional

arbitrator shall, within ten (10) days of the

appointment of the second arbitrator, be se-

lected by the two (2) arbitrators theretofore

appointed, but if one of said parties shall have

failed to appoint an arbitrator within the time

provided herein, it is expressly understood and

agreed that the sole arbitrator shall arbitrate

the question alone. If arbitrator shall have

been appointed by the respective parties and

shall have failed to select the third arbitrator

within the above stated time, the third arbi-

trator shall be appointed by the senior Judge

of the 5th Federal Judicial Circuit upon ap-

plication therefor by either of the said parties

to the arbitration. |

The matter in question or dispute shall be

submitted in writing to the arbitrators im-

mediately upon the completion of their ap-

pointment, and the parties shall do all things

necessary to make proper submission thereof

according to the character of the question or

dispute involved, or as required by the arbi-

7

trators. The decision in writing signed by a

majority of the arbitrators shall be final and

conclusive with respect to the matter submitted

and the parties hereto agree to aceept and

abide by the same. * * *

The 1954 Atlantic price redetermination, as well

as that made in 1948, was arrived at by agreement

under Condition III of the Atlantic contract and

without resort to arbitration machinery set out in

Condition XIII. |

3. After hearings, the Commission ruled that the

1954 Atlantic price redetermination had not trig-

gered the Shell favored-nation clause, and accord-

ingly concluded that Shell’s effective rate in 1954

for its sale of gas to Texas Gas was unchanged

from 8.997 cents which Texas Gas had been paying

(R. 133-145). On review sought by Sheil, the court

of appeals, in its initial decision, set the Commis-

sion’s order aside. 203 F. 2d 223. |

The court assuried for the purposes of that decision

that the Atlantic contract imposed an enforceable

obligation for fixing ices for the subsequent five-

vear periods (263 F. 2d at 226). Nevertheless, the

court held that the Shell favered-nation clause was

intended to be triggered by price redeterminations

pursuant to earlier (7¢., pre-1952) gas purchase con-

tracts as well as by prices fixed in entirely new

contracts entered into thereafter. Accordingly, the

court of appeals did not reach Shell’s further argu-

ment that the 1954 Atlantie price ‘redetermination

necessarily involved the “enter{ing} into a contract”

within the Shell favored-nation clause because the

615313—61 2

8

provisions for price redetermination of the Atlantic

contract were not, as Shell argued, legally enforceable.

In reversing the court of appeals, this Court made

the same assumption as to the enforceability of the

Atlantic contract. 363 U.S. at 271, fn. 8. Noting

Shell’s further argument based on the alleged non-

enforceability of the Atlantic contract, the Court

remanded this question for determination by the

court of appeals. In addition, the Court adverted

to the Commission’s contention that, in any event,

the question of enforceability was immaterial, and

remanded this issue as well to the court of appeals.

363 U.S. at 276-277.

On remand, the court of appeals affirmed the Com-

mission’s order (Pet. App. A-1—A-7). While hold-

ing that the enforceability issue was material (Pet.

App. A-2), the court ruled that the Atlantic contract

was enforceable (Pet. App. A-d—A-7). With ref-

erence to Shell’s contention that Louisiana law gov-

erned the enforceability issue, the court commented

(Pet. App. A-7) :

* * * under our conception of the controverted

document, Louisiana law, in this instance at

least, does' not differ from general contract

doctrine. Therefore, abstract discussion of

whether I,ouisiana law controls the enforce-

ability of the Atlantic pact is not called for. * * *

ARGUMENT

Petitioner Shell does not question the principal

holding of the court helow, t.e., that the 1943 Atlantic

contract was enforceable under general contract law,

so that the 1954 grice redetermination was made in

ee

9

accordance with the 1943 agreement and hence does

not involve the ‘‘enterling] into of a [new] contract’”’

within the Shell favored-nation clause. Instead,

Shell urges that, under what it asserts to be appli-

eable principles of conflict of Jaws, the enforceability

of the 1943 Atlantie contract is controlled by Louisi-

ana law rather than general contract law, and that

Louisiana law, because of the alleged peculiarities of

its Civil Code provisions, dictate a differeni result. The

court below, however, found it unnecessary to reach this

conflict of laws question since it concluded that in all

material respects Louisiana law does not differ from

general contract principles. There is, moreover, no

reason to grant Shell’s request to suspend these pro-

ceedings pending decision by the Louisiana courts in

the action recently instituted by Shell. Shell’s posi-

tion on both matters is predicated upon alleged pecu-

liarities of Louisiana Jaw, and the questions are not

of general importance.© There is no oceasion for fur-

ther review by this Court.

®*In an attempt to show general importance, Shell refers to

the “thousands of independent producer gas sales contracts

[which] have been filed as ‘trate schedules’ with the Federal

Power Commission” (Pet. 9-10), and asserts that “* * * the

recurrence of such questions before the Commission was urged

by respondents in support of their successful petitions for writs

of certiorari previously filed in this very case” (Pet. 10).

The questions earlier brought by the Commission to this

Court were radically different and the Commis-ion’s petition

expressly noted the lack of any general importance with regard

to the enforceability question. See Petition for Writ of Cer-

tiorari in No. 170, October Term, 1959, p. 17, fn. 15. Indeed.

at that time, when the questions presented were patently of far

broader scope, Shell urged (Brief in Opposition in Nos. 167,

10

1. According to Shell, the issue which it ‘*primarily

* * * ask[s] this Court to review’’ is a question of

conflict of Jaws— ‘whether federal substantive law or

State law [of Louisiana] should govern”’ in the cir-

cumstances said to be involved here (Pet. 11). The

judgment below, however, is based ou general contract

principles, not on a separate rule of federal substan-

tive law (Pet. App. A-7). Shell’s attempt to amal-

gamate the two by stating that ‘general contract

doctrine” is merely a characterization adopted by the

court below for federal substantive law (see Pet. 2,

11) is wholly unsupported. Moreover, and more

significantly, the court below clearly did not decide

any conflict of laws question, andnone is presented

by the case. In the view that in this instance Louisi-

ana law did not differ from general contract doctrine,

the court of appeals expressly held, as Shell relue-

tantiy recognizes (Pet. 11), that there was no need for

it to consider or pass upon the choice of law problems ~

which Shell undertook to pose (Pet. App. A-7; supra,

p. 8).

2. The content of the Louisiana law on the narrow

noint at issue is plamly not a question appropriate for

review here. Tnany event, the couelusion of the court

of appeals that Levisiana law on the point does not

differ from general coutract doctrine is not based ona

misinterpretation of Louisiana law. In the relevant re-

170. October Term, 1959, pp. 17-18. see. also, pp. 11-14: ef. 363

U.S. at 268, 270):

“* * * (T]his is not x case of general importance but, in real-

itv, is nothing more than a contract dispute between Shell and

Texas Gas involving a privately negotiated contract in a unique

situntion * * *"

11

spects, the law of that state is the same as general con-

tract doctrine, despite the differences in terminology.°

Shell argues that, despite the conceded enforceabil-

ity of the Atlantic arbitration provision (see Pet.

App. A-5), that contract, under Louisiana law, was

not “enforceable for any of its five-year periods after

the first, because there was no fixed and determined

price; hence the contract was subject to a ‘suspensive’

condition * * * and was of no effect whatever, for

any purpose, until the price was actually fixed. When

that was accomplished by virtue of the February 17,

1954 agreement, a contractual obligation to sell and

to buy gas was created’’ (Pet. 12-13). In so urging,

Shell confuses a sale (1.e., preseri transfer of title

with its concomitant risks) with a contract to se!] (1.e.,

present agreement for future transfer of title), a dis-

tinction made in Louisiana as in common law juris-

dictions. Thus, while under Louisiana law there may

be no present enforceable sale in the absence of a

fixed and determined price, contracts to sell contain-

ing arbitration provisions (such as that in the At-

lantic contract) are enforceable in Louisiana as else-

where and damages may be recovered for breach

thereof. As stated in Hebert and Lazarus, Some

Problems Regarding Price in the Louisiana Law of

Sales, 4 La. L. Rev. 378 (1942), an article upon which

Shell relies heavily (Pet. 19-21) (4 La. L. Rev. at

400-401) :

* Significantly, Shell, while contending for a contrary sub-

stantive ruling, urged in the court below that the Louisiana law

was not dissimilar from genera] or federal law. See, ¢.7.. Reply

Brief for Petitioner filed on remand in C.A. 5, No. 12568, pp. 11,

12, 15, 1S.

12

* * * It is true that one of the parties may

refuse to comply with his obligation of ap-

pointing the estimator and thus has it within

his power to nullify the agreement; but the

contract is nonetheless binding, even though it

cannot be effective as a sale until and unless

the parties have named arbitrators and thev

have fixed the price. That the contract is inef-

fective if the parties only agree to designate

the experts afterwards, is true only to the ex-

tent that there is no sale. However, the con-

tract is binding upon the parties to the extent

that should either one refuse to comply with

his obligation to appoint the appraiser, which is

an obligation to do, he will subject himself to

damages for the breack thereof.

The rule announced in the Werner case

should therefore be qualified by the foregoing.

What was evidently intended was that the sale

was unenforceable as such, but that the obliga-

tion to name the experts was nevertheless bind-

ing. * & #7

In the Werner case (Louis Werner Sawmill Co. v.

O’Shee, 111 La. 817), the parties had left the price

for timber lands to he fixed by two estimators, one to

be appointed by each party with no provision for

resolving disagreements between them. When the

estimators could not agree, the buyer sought specific

performance, alleging bad faith and requesting the

court to appoint an estimator. The Louisiana court,

pointing to the obvious defects of the arbitration

7 See, also, Comment, Certainty of Promixe in the Law of Sale,

30 Tul. L. Rev. 568, 569-570 (1956); Smith, Civil Code and

Reluted Sub je cls (Particular Contracts), 16 La. wm Rev. 242

(1956).

13

scheme, held that there was no sale, and quoted with

approval from the commentator Mareadé (111 La.

at 822): q

‘What is essential,’? savs Mareadé, Comm.

on art. 1592, C.N., ‘‘is that the parties should

have bound themselves in such way that the

price may be thereafter determined as a mere

consequence of the consent given by them, with-

out any new act of volition on their part.

If, for example, after the parties had said that

the sale was made for a price as to which they

would agree thereafter, they added, or which,

in case of disagreement, should be fixed by an

expert to be appointed by the parties them-

selves or by the judge of the district, it is clear

that there would be a sale, since it would no

longer be within the power of the parties to

prevent the fixing of the price. The result

would be the same if, without expressing them-

selves thus explicitly, the parties had, however,

manifested the idea of leaving matters to the

courts, if need were, to name one or more ex-

perts; but, when nothing indicates such a con-

sent, the fixing of the price will have to be by

the expert or experts that the parties will have

designated, and if one of them refuses, or dies,

or is unable to make the estimation, there will

be no sale, the condition upon which it de-

pended not having materialized.”’

Thus, while recognizing the possibility that a valid obli-

gation to arbitrate price can, like any other contractual

obligation, be frustrated by chance circumstances, the

Louisiana court has held that a contract contaiming an

arbitration provision under which it would no longer

14

be within the power of either party unilaterally to

| prevent the fixing of the price is enforceable.*

Inasmuch as the fixing of the price under the arbi-

tration provision of the Atlantic contract cannot be

prevented by one of the parties, that contract fully

meets the Louisiana standards of enforceability. Con-

dition XII of the Atlantic contract provides that if

the parties are unable to agree upon the price, either

one can name an arbitrator by notice to the other.

Within ten days, the second party is empowered to

designate a second arbitrator and a third arbitrator

is to be named by the first two within a second ten

days. If either party fails to designate an arbitrator,

the one chosen “‘shall arbitrate the question alone’’.

If two arbitrators are appointed and they cannot agree

on the third, the latter ‘“‘* * * shall be appointed by

the senior Judge of the 5th Federal Judicial Circuit

upon application therefor by either of the said parties

to the arbitration’’. See supra, pp. 6-7. :

3. Shell’s further suggestion that the instant pro-*

® Barber Asphalt Paving Co. v. St. Louis Cypress Co., 121 La.

152 (Pet. 17-19), is not to the contrary. In that case, the Loui-

siana court, in denying the validity of what is commonly known

as a conditional sale, said that payment of the price could not

be the condition precedent of a sale (i.e., passage of title) but

rather that a saie was a condition precedent to the obligation

to pay the price. At the same time, however, the court made

it clear that parties to a contract can subject themselves to

binding obligations to perform certain acts as conditions pre-

cedent to a sale. There are no conditions precedent here to

the obligation to submit the price to arbitration if the parties

were otherwise unable to agree.

15

ceedings should he held in abeyance, pending decision

by the Louisiana courts in the action instituted by

Shell after the decision below in this case (Pet. 21-24),

is similarly lacking in merit. The ordinary practice,

at least in cases which do not involve constitutional

issues, is that federal courts will adjudicate state law

issues arising in controversies properly before them;

only in special and exceptional circumstances will reso-

lution be suspended pending state decision. See, e.g.,

Propper v. Clark, 337 U.S. 472, 489-492; cf. First Iowa

Hydro-Electric Cooperative v. Federal Power Commis-

ston, 328 U.S. 152, 160-162.

The special circumstances of this ease strongly sup-

port the conclusion that its disposition should not be

deferred. This controversy dates back at least to

November 1954 when Shell, in filing the contract with

the Commission as a rate schedule, first claimed en-

titlement to the 12.5-cent price in its ‘“‘sample’’ bill-

ing statement (R. 80). In addition, Shell has been

aware since March 1957 when the Commission set this

matter for hearing (R. 116-117) that the Commission

intended to adjudicate the controversy. Shell actively

participated in these hearings, introducing witnesses

and filing briefs, and.when the Commission’s decision

was unfavérable, it was Shell which initiated the in-

stant court proceedings by seeking review in the court

below. This case has already been the subject of two

decisions on the merits by the court of appeals (263

F. 2d 223, 292 F. 2d 149, Pet. App. A-1—A-~7) and one

by this Court (563 U.S. 263).

16

Despite the fact that it has pressed the alleged

peculiarities of Louisiana law at every opportunity

throughout these proceedings, Shell has never pre-

viously filed an action in the Louisiana courts, much

less suggested suspension of the federal proceedings

to await decision in Louisiana. It was only after

the adverse decision below that Shell instituted an

action in the Louisiana courts (which is still pending

undecided) and made its present suggestion in this

Court. The suggestion clearly comes much too late.

Moreover, rejection of Shell’s suggestion will not

“bring about the area of friction between the State and

Federal judiciaries which this Court has said should

be avoided” (see Pet. 22-23). Although the issues

involved in the Louisiana case appear to be identical

to those raised here, that case is still undetermined,

while the Commission and the court of appeals have

issued final deciSions.’ If certiorari is-denied, settled

doctrines would dictate that the decision in this case

would be binding in the Louisiana action. City of

Tacoma v. Taxpayers, 357 U.S. 320; Stoll v. Gottlieb,

305 U.S. 165; Commissioner v. Sunnen, 333 U.S. 591,

* Leiter Minerals, Inc. v. V’nited States, 352 U.S. 220, cited by

Shell (Pet. 23), involved special and exceptional circumstances

inasmuch as a state interpretation of its local statute might

have eliminated a constitutional question. In addition, the pro-

ceedings in both the state and federal courts were still in their

preliminary stages.

17

597-599; Cromwell v. County of Sac, 94 U.S. 351,

352-353."

1° Should certiorari be granted, the Commission will further

urge in support of the judgment below that, despite the court's

contrary ruling, the issue of enforceability was in fact imma-

terial. Whether an agreement such as that embodied in the

1954 Atlantic price redetermination would trigger the Shell

favored-nation clause depends in the first instance upon the in-

tention of the parties to that contract. That these parties did

not so intend, irrespective of the enforceability of the Atlantic

contract, is apparent from this Court’s earlier opinion in this

case. The Court commented that the language of the favored-

nation clause, “enter into a contract” was used elsewhere in the

Shell contract in a context showing that these words “meant to

the parties the making of a full-fledged contract containing all

the terms letining the complete relationship” (363 U.S. at 273).

Further noting the usual complexity and comprehensiveness of

gas sales contracts, this Court found that the 1954 price rede-

termination embodied in the simple one-page letter specifying

only a price was not “the making of a full-fledged contract”;

accordingly, the Court concluded that the periodic price adjust-

ment under the Atlantic contract did not “partake of the na-

ture of ‘enter[ing] into a contract providing for the purchase

* * * of gas,’ within the meaning of the language of the Shell

‘favored nation’ clause” (363 U.S. at 274).

Moreover, apart from this Court’s prior opinion, practical

considerations also indicate the immateriality of the enforce-

ability question. It is highly unlikely that the parties to the

Shell contract intended the “enter into a contract” language in

the favored-nation clause to exclude only those price redeter-

minations made pursuant to pre-existing contracts which were

technically binding and enforceable. This would conflict with

the parties’ obvious purpose to provide a simple, practicable

standard for determining when the favored-nation clause had

been triggered. Shell's interpretation would defeat this pur-

pose by making that determination complex and difficult, in-

volving as it would possible conflict of laws and like problems.

18

CONCLUSION

For the foregoing reasons, it is respectfully sub-

mitted that the petition for a writ of certiorari should

be denied.

ARCHIBALD Cox,

Solicitor General.

Wiiu1amM H. Orrick, dr.,

Assistant Attorney General.

JOHN G. LAUGHLIN, Jr.,

Attorney.

RaupH S. SPRITZER,

General Counsel,

Howarp EF. WAHRENBROCK,

Solicitor,

Luke R. Lams,

Assistant General Counsel,

MixTon J. GROSSMAN,

Attorney,

Federal Power Commission.

OcToBER 1961.

*

U.S. GOVERNMENT PRINTING OFFICE: 1961