242 F. 658 (D.Kan. 1917), 136, Landon v. Public Utilities Commission of State of Kansas

Docket Nº:136-N.
Citation:242 F. 658
Party Name:LANDON v. PUBLIC UTILITIES COMMISSION OF STATE OF KANSAS et al.
Case Date:April 21, 1917
Court:United States District Courts, 10th Circuit, District of Kansas
 
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Page 658

242 F. 658 (D.Kan. 1917)

LANDON

v.

PUBLIC UTILITIES COMMISSION OF STATE OF KANSAS et al.

No. 136-N.

United States District Court, D. Kansas, First Division.

April 21, 1917

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John H. Atwood, of Kansas City, Mo., Robert Stone, of Topeka, Kan., Chester I. Long, of Wichita, Kan., and George T. McDermott, of Topeka, Kan., for plaintiff.

William G. Busby, of Carrollton, Mo., and Alex Z. Patterson and James D. Lindsay, both of Jefferson City, for defendants Public Service Commission of Missouri, its individual members, and John T. Barker, Attorney General of Missouri.

H. O. Caster and Fred Jackson, both of Topeka, Kan., for defendants Public Utilities Commission of Kansas, its individual members, and S. M. Brewster, Attorney General of Kansas.

J. W. Dana and C. E. Small, both of Kansas City, Mo., for defendants Kansas City Gas Co. and Wyandotte County Gas Co.

J. A. Harzfeld and A. F. Evans, both of Kansas City, Mo., for defendant Kansas City, Mo.

William E. Stringfellow, of St. Joseph, Mo., for defendant St. Joseph Gas Co.

T. F. Doran, of Topeka, Kan., for defendants Consumers' Light, Heat & Power Co. and its receiver.

Charles A. Loomis, of Kansas City, Mo., for defendants Ottawa Gas & Electric Co. and other distributing companies.

C. L. Faust, of St. Joseph, Mo., for defendant city of St. Joseph, Mo.

Charles Blood Smith, of Topeka, Kan., for defendant Fidelity Title & Trust Co.

A. M. Baird, of Carterville, Mo., for defendant city of Oronogo, Mo.

E. F. Cameron, of Joplin, Mo., for defendant city of Joplin, Mo.

BOOTH, District Judge.

This is a suit in equity, brought by John M. Landon as receiver of the Kansas Natural Gas Company against the Public Utilities Commission of the state of Kansas and numerous other defendants, praying for an injunction against said Commission to prevent the enforcement of an order, commonly known as the 28-cent rate order, made by said Commission December 10, 1915, establishing rates to be paid in numerous cities in Kansas for natural gas

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furnished by the plaintiff; also praying for various other relief, partly against the above-named defendant, partly against other defendants. The application for a preliminary injunction was heard before an enlarged court of three judges, pursuant to section 266 of the Judicial Code (Act March 3, 1911, c. 231, 36 Stat. 1162 (Comp. St. 1916, Sec. 1243)). A preliminary injunction was granted upon certain conditions. See 234 F. 152. The conditions were fulfilled. Thereafter the case was brought on for final hearing, evidence was introduced and submission had upon the issue as to the 28-cent rate, and questions directly involved therein, and the issue as to interstate commerce; the other issues being expressly reserved for future hearing.

A brief summary of the history of the Kansas Natural Gas Company is necessary to a proper understanding of the present case. The company was organized under the laws of the state of Delaware in April, 1904, with a capital stock of $6,000,000. In July, 1905, it obtained a license to do business in the state of Kansas. The principal business of the corporation was the production and sale of natural gas, but it was authorized under its charter to purchase the stock, business, and property of other corporations. Its first gas fields were located in the state of Kansas. Prior to 1912 the company had, by purchase and consolidation with other companies, largely increased its initial holdings. It had by means of various contracts undertaken to supply gas through distributing companies to more than 30 cities in the state of Kansas, as well as certain cities in the state of Missouri, including the cities of St. Joseph and Kansas City, Mo. These contracts were of various types, but, generally speaking, covered a considerable period of years, and provided for increases in the rates at certain fixed dates. They provided, further, for a division of the price paid by the consumers between the distributing company and the Kansas Natural Gas Company, generally on a basis of one-third to the distributing company and two-thirds to the Kansas Natural Gas Company.

For the purpose of completing its lines to Kansas City, Mo., the company had caused to be incorporated the Kansas City Pipe Line Company, and became owner of 50 per cent. of the stock of said company; the other 50 per cent. being owned by the United Gas Improvement Company. Shortly thereafter, in November, 1906, the Kansas City Pipe Line Company leased to the Kaw Gas Company (a subsidiary corporation of the Kansas Natural Gas Company) all of its property for 99 years. In place of this lease a new lease was substituted between the Kansas City Pipe Line Company and the Kansas Natural Gas Company in January, 1908. For the purpose of extending its pipe lines into Oklahoma, the Kansas Natural Gas Company had caused the incorporation of the Marnett Mining Company, and through stock ownership controlled said last-named company. Two issues of bonds had been made by the Kansas Natural Gas Company, first mortgage series and second mortgage series, and one by the Kansas City Pipe Line Company, and one by the Marnett Mining Company. The properties of the three mentioned companies were operated as a unit, and included a continuous pipe line, from the fields in Oklahoma to the two Kansas Citys, with other lines extending to various cities

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in Kansas and Missouri. The company, during the year 1912, was supplying natural gas to approximately 150,000 households, and selling for household and industrial uses upwards of 28,000,000,000 cubic feet of gas per annum.

The Kansas Natural Gas Company had, however, in acquiring its properties and extending its system, violated the anti-trust statute of the state of Kansas, and in January, 1912, suit was begun in the district court of Montgomery county, Kan., by the Attorney General of the state of Kansas, against the Kansas Natural Gas Company, the Independence Gas Company, and the Consolidated Gas, Oil & Manufacturing Company. Amongst other relief prayed for was the ousting of the defendants from the exercise of certain corporate powers within the state and the appointment of receivers. The case was heard, and resulted, so far as the Kansas Natural Gas Company was concerned, not in a complete ouster, but in the appointment of receivers, one of them being the plaintiff in the present suit; the order being filed February 17, 1913. Said receivers were to-- 'manage the corporate property and business of the said defendant until the perversion and abuses of privileges by said defendant are corrected, so as to protect the rights of all parties, especially all the gas consumers of the defendant company, and all parties interested in the property of the Kansas Natural Gas Company, whether as bondholders, trustees of bondholders distributers of gas, or otherwise.'

Meanwhile, in October, 1912, a suit (No. 1351, Equity) was commenced in United States District Court for the District of Kansas by John L. McKinney, a stockholder and a bondholder of the Kansas Natural Gas Company, alleging the insolvency of said company, and praying the appointment of receivers to take possession of and manage its property and assets. On October 9, 1912, Eugene Mackey, Conway F. Holmes, and George F. Sharritt were appointed receivers. They immediately took possession of the property and began carrying on its business. On February 3, 1913, another suit (No. 1-N, Equity) was commenced in the United States District Court for the District of Kansas by the Fidelity Title & Trust Company, trustee under the first mortgage of the Kansas Natural Gas Company, to foreclose said mortgage, and on the same date the receivership theretofore existing in the McKinney suit was extended to the Trust Company suit, and the same persons were appointed receivers in the latter suit.

Immediately after the appointment of the receivers in the state court, and acting under the suggestion of that court, the Attorney General of the state of Kansas and the receivers appeared in the federal court and urged the prior jurisdiction of the state court, and prayed the federal court for an order directing its receivers to turn the property of the Kansas Natural Gas Company over to the receivers appointed by the state court. Litigation followed, which finally resulted in all of the property of the Kansas Natural Gas Company, whether located in the state of Kansas, Missouri or Oklahoma, being turned over by the federal court to the two receivers of the state court, for the purpose of managing the property and carrying out of the decree of the state court in the anti-trust suit above mentioned. The history of this

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litigation may be found in 206 F. 772, 209 F. 330, 126 C.C.A. 226, and 217 F. 187, 133 C.C.A. 181. In the last-mentioned case the court in its opinion said:

'The court below (United States District Court for the District of Kansas) has the right to retain the foreclosure suit and await the progress and disposition of the action in the state court, with power to make such orders and decrees as future exigencies may require.'

On January 9, 1915, the United States District Court for the District of Kansas made an order appointing John M. Landon, the present plaintiff, ancillary receiver of the federal court for the properties located in Missouri and Oklahoma. At the present time John M. Landon is the sole receiver of the state court, and is ancillary receiver of the federal court, and George F. Sharritt is receiver under the federal court in the McKinney and Fidelity Trust Company suits; the other receivers having either died or resigned.

By chapter 238 of the Laws of 1911 of the state of...

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