174 F.2d 89 (10th Cir. 1949), 3751, Skelly Oil Co. v. Phillips Petroleum Co.

Docket Nº:3751.
Citation:174 F.2d 89
Party Name:SKELLY OIL CO. et al. v. PHILLIPS PETROLEUM CO.
Case Date:March 28, 1949
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit
 
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Page 89

174 F.2d 89 (10th Cir. 1949)

SKELLY OIL CO. et al.

v.

PHILLIPS PETROLEUM CO.

No. 3751.

United States Court of Appeals, Tenth Circuit.

March 28, 1949

Rehearing Denied May 9, 1949.

Page 90

[Copyrighted Material Omitted]

Page 91

Charles L. Balck, of Austin, Tex., and W. P. Z. German and Hawley C. Kerr, both of Tulsa, Okl. (Alvin F. Molony, Donald Campbell and Ray S. Fellows, all of Tulsa, Okl., Dan Moody, of Austin, Tex., and Walace Hawkins and Earl A. Brown, both of Dallas, Tex., on the brief), for appellants.

George L. Sneed, of Madill, Okl., and Harry D. Turner, of Oklahoma City, Okl. (Don Emery, Rayburn L. Foster and R. B. F. Hummer, all of Bartlesville, Okl., S. E. Floren, Jr., of Oklahoma City, Okl. and Eugene O. Monnet, and Jack N. Hays, both of Tulsa, Okl., on the brief), for appellee.

Before PHILLIPS, Chief Judge, and HUXMAN and MURRAH, Circuit Judges.

PHILLIPS, Chief Judge.

Phillips Petroleum Company and Michigan-Wisconsin Pipe Line Company 1 brought this action against Skelly Oil Company, Stanolind Oil and Gas Company, and Magnolia Petroleum Company 2 for a declaratory judgment. From a judgment in favor of the plaintiffs, the defendants have appealed.

Federal jurisdiction is challenged. Hence, we must examine the allegations of the complaint. The alleged facts as set forth in the complaint are these:

The action arises under the Natural Gas Act, 3 and the matter in controversy between each plaintiff and each defendant exceeds, exclusive of interest and costs, the sum of $3,000.

Each of the several parties to the action, except Magnolia, is a corporation organized and existing under the laws of Delaware. Magnolia is a corporation organized and existing under the laws of Texas. Phillips, Skelly, Stanolind, and Magnolia are duly authorized to transact business in the State of Oklahoma. The actions are brought under Sec. 274d of the Judicial Code, 28 U.S.C.A. 400. 4 There is an actual controversy existing between the parties arising out of a like transaction or occurrence and involving a question common to all parties in respect to which each plaintiff needs a declaration of its rights by the court.

During and prior to the month of December, 1945, Pipe Line Company was desirous of obtaining from the Federal Power Commission 5 a certificate of public convenience and necessity, under the requirements of the Act, for a pipe line system to be constructed and operated by it, extending from a point in the State of Texas to points in the States of Michigan and Wisconsin, or either of them, and intermediate points. In order to obtain such certificate, it was necessary that Pipe Line Company have available adequate reserves of natural gas. During that month, Phillips was negotiating a contract with Pipe Line Company which would obligate Phillips to make available to Pipe Line Company reserves of natural gas in the Hugoton Field, which extended over parts of the States of Kansas, Oklahoma, and Texas, including both gas to be produced by Phillips and purchased by it from others.

On December 5, 1945, Phillips and Skelly entered into a written contract whereby Phillips agreed to purchase, and Skelly agreed to sell, gas to be produced from its properties in the Hugoton Field, consisting of leases covering approximately 46,528 acres of land. On the same date, Phillips and Stanolind entered into a written contract whereby Phillips agreed to purchase, and Stanolind agreed to sell, gas to be produced from its properties in such

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Field, consisting of leases covering approximately 118,000 acres. On December 7, 1945, Phillips and Magnolia entered into a written contract whereby Phillips agreed to purchase, and Magnolia agreed to sell, gas to be produced from its properties in such Field, consisting of approximately 25,000 acres. In each of such contracts, reference was made to the desire of Pipe Line Company to obtain from the Commission a certificate of public convenience and necessity, under the requirements of the Act, for the pipe line system which it proposed to construct and operate.

On December 11, 1945, Phillips entered into a contract with Pipe Line Company whereby Phillips contracted to supply Pipe Line Company with gas and obligated itself to provide gas reserves including the gas to be purchased by it under the contracts of December 5 and 7. Pipe Line Company has an interest in the contracts of December 5 and 7.

The contract of December 11 contained the following provision:

' * * * upon the happening of any one of the following contingencies, to-wit:

'(a) the failure of Buyer to procure from the Federal Power Commission, on or before September 1, 1946, a certificate of public convenience and necessity for the construction and operation of the Pipe Line, or

'(b) The issuance by the Federal Power Commission of an order refusing to grant a certificate of public convenience and necessity for the Pipe Line, or

'(c) The failure of Buyer to commence the actual construction of the Pipe Line on or before March 1, 1947, or

'(d) The failure of Buyer to commence, on or before January 1, 1948, the acceptance of deliveries of gas hereunder for delivery by Buyer for resale in one or more municipalities east of the Missouri River, 'Seller shall have the right to terminate this contract by written notice to be delivered to Buyer not later than thirty days after the happening of such contingency.'

Each of the contracts of December 5 and 7 provides that the contract of December 11 shall contain the provision quoted above; and Sec. 2, Article II, of each of the contracts of December 5 and 7 provides that if the contract of December 11 shall be terminated upon the happening of one of the four stipulated contingencies, then, and in either of those events, either party shall have the right to terminate 'this contract by written notice to be delivered to the other party * * * within thirty (30) days after the termination of the pipe line contract as aforesaid; provided, however, that, in the event this contract shall not be terminated for any of the foregoing reasons on or before October 1, 1946, and in the event * * * Pipe Line Company shall fail to secure from the * * * Commission on or before that date a certificate of public convenience and necessity for the construction and operation of its pipe line, Seller shall have the right to terminate this contract by written notice to Buyer delivered to Buyer at any time after December 1, 1946, but before the issuance of such certificate. * * * '

The contract of December 11 between Phillips and pipe Line Company recites that Pipe Line Company 'proposes to construct and operate a gas pipe line system (herein referred to as the pipe line) extending from the point of delivery * * * in the Hugoton Gas Field in Hansford County, Texas, in a northeasterly direction to points of connection with distribution systems in Wisconsin and Michigan, or either of them, and at intermediate points.' The proposed pipe line was described in substantially the same language in the contracts of December 5 and 7.

Pipe Line Company, pursuant to the terms and requirements of the Act, instituted proceedings before the Commission to obtain a certificate of public convenience and necessity. In accordance with the requirements of the Act and the rules, regulations, and procedure of such Commission, adopted pursuant to the Act, and, on November 30, 1946, the Commission made an order granting such application and 'issued said certificate of public convenience and necessity' to Pipe Line Company and caused notice thereof to be given on such date. On December 2, 1946, each of the defendants sent a telegram to Phillips, which referred to its contract with Phillips,

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stated that no certificate of public convenience and necessity had been issued to Pipe Line Company, and that it elected to terminate and did terminate its contract with Phillips under Sec. 2, Article II, thereof. On December 3, 1946, Phillips sent a telegram to Skelly in which it stated that, prior to December 2, 1946, Pipe Line Company secured from the Commission a certificate of public convenience and necessity for the construction and operation of the pipe line, and thereby precluded Skelly's right to terminate its contract with Phillips, under Sec. 2, Article II, thereof, and that the telegram of December 2 did not operate to terminate or cancel such contract. It sent like telegrams on the same day to Stanolind and Magnolia. Each of the defendants was asserting, in effect, that no certificate of public convenience and necessity within the requirements of the Act had been secured by Pipe Line Company from the Commission by December 2, 1946, and that accordingly each had the right to and did terminate its contract with Phillips and was no longer obligated by its contract; and that the actions and proceedings of the Commission on November 30, 1946, and prior to the telegraphic notices of cancellation did not amount to the issuance by the Commission of a certificate of public convenience and necessity. Each of the plaintiffs, on the other hand, was asserting that, prior to such notices of cancellation, a certificate of public convenience and necessity was issued by the Commission to Pipe Line Company consonant with and in compliance with the requirements of the Act and with the rules, regulations, and procedure of the Commission under the Act, which was a certificate of public convenience and necessity within the meaning of the Act and such contracts.

In their complaint, Phillips and Pipe Line Company further alleged: ' * * * that is said Natural Gas Act, and the requirements thereof, be properly construed and applied to be given appropriate effect, the actions and proceedings of...

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