Central Kentucky Natural Gas Co v. Railroad Commission of Kentucky

• Decision Date: 04 December 1933
• Docket Number: No. 11,11
• Citation: 78 L.Ed. 307,290 U.S. 264,54 S.Ct. 154
• Parties: CENTRAL KENTUCKY NATURAL GAS CO. v. RAILROAD COMMISSION OF KENTUCKY et al
• Court: U.S. Supreme Court

290 U.S. 264

54 S.Ct. 154

78 L.Ed. 307

CENTRAL KENTUCKY NATURAL GAS CO.

v RAILROAD COMMISSION OF KENTUCKY et al.

No. 11.

Argued Nov. 7, 1933.

Decided Dec. 4, 1933.

Appeal from the District Court of the United States for the Eastern District of Kentucky.

[Syllabus from pages 264-265 intentionally omitted] Messrs. Henry T. Duncan, of Lexington, Ky., and D. L. Hazelrigg, of Frankfort, Ky., for appellant.

Messrs. Robert H. Winn, of Mt. Sterling, Ky., and Clinton M. Harbison, of Lexington, Ky., for appellees Railroad Commission of Kentucky and City of Lexington.

Mr. Joseph A. Edge, of Lexington, Ky., for appellees Mrs. George Hignight et al.

Mr. Justice STONE delivered the opinion of the Court.

This is a suit in equity, brought by appellant, a Kentucky corporation, in the District Court for Eastern Kentucky, against the state Railroad Commission, certain state officers, and the city of Lexington, to set aside as confiscatory a rate prescribed by the commission for the sale of natural gas distributed by appellant through its pipe lines to consumers in Lexington. The District Court, of three judges, found the rate confiscatory, but refused to enjoin it because of the failure of the appellant to conform to a condition prescribed by the court as prerequisite to granting the injunction. 60 F.(2d) 137. From this decree the present appeal was taken under section 266 of the Judicial Code (28 USCA § 380).

In 1905 the appellant had secured a twenty-year franchise for the distribution of natural gas to consumers through its pipe lines in the city of Lexington. After the expiration of the franchise on September 5, 1925, and pursuant to ordinance of the city of Lexington of January 28, 1927, the appellant became the purchaser, at public sale, of a new franchise to distribute natural gas to consumers in Lexington, upon the terms and conditions of a written contract between appellant and the city, which was incorporated in the ordinance and became effective on its acceptance by the city by ordinance of February 25, 1927.

The rate to be charged to consumers for gas was not fixed by the franchise contract. It stipulated that the gas supplied by appellant should be at just and reasonable rates, but it provided that, in the first instance, the rates should be designated by appellant in writing, by a rate schedule, filed with the mayor of the city and the Railroad Commission, and that if the city should consider the scheduled rates in excess of just and reasonable rates, it should, within a time specified, institute proceedings before the Railroad Commission to have a just and reasonable rate found and prescribed by it in accordance with the applicable statutes of the state. It was also agreed by the franchise contract that pending proceedings before the commission and 'subsequent proceedings in court,' for the determination of a just and reasonable rate, the appellant should charge its patrons a temporary rate of 50 cents per thousand feet for gas consumed until such time as it should furnish certain increased pipe line service, required by the franchise, after which, and during the proceedings for fixing the rate, the temporary rate should be increased to 60 cents per thousand feet; that pending such proceedings 10 cents of the rate collected from customers, whether 50 cents or 60 cents, should be impounded under the direction of the commission and that at their conclusion 'the Commission or the court' should distribute the impounded fund in accordance with the respective interests in it of appellant and its consumers.

Acting under the provisions of the franchise contract, appellant promulgated a schedule of rates on February 26, 1927, whereupon the city, on March 25, 1927, lodged a complaint with the Railroad Commission assailing the scheduled rates as excessive, and asked that it establish a just and reasonable rate. The commission directed that 10 cents of the temporary rate collected by appellant from consumers should be impounded with a custodian, appointed by the commission, to receive and hold it pending final determination of the rate. In December, 1927, while the proceeding before the commission was pending, the additional pipe line service required by the franchise was brought into operation and the prescribed temporary rate of 60 cents per thousand was established. Hearings were had and the proceedings continued before the commission, which resulted in its order of October 9, 1929, assailed here, which fixed 45 cents per thousand as a just and reasonable rate and directed appropriate preliminary steps for the distribution of the impounded fund.

The bill in the present suit assails the 45-cent rate as confiscatory and hence an infringement of appellant's immunity under the Fourteenth Amendment, and contains allegations showing that appellant will be irreparably injured if the rate becomes effective. It prays that the respondents be restrained from carrying out the order of the commission, and asks payment over to appellant of the impounded fund. The District Court, by interlocutory injunction, enjoined any further proceedings under the order, and appointed as receiver the custodian of the fund impounded by direction of the commission, to receive and hold, subject to the further order of the court, any fund required to be impounded by the franchise contract subsequent to the order of the commission, and directed appellant, pending the final decree, to pay over to the receiver 10 cents of the 60-cent rate which it should collect from its patrons.

After a hearing and consideration of the evidence, the court found that the 45-cent rate was confiscatory, that a rate of 50 cents would be just and reasonable, and directed that a permanent injunction issue restraining the imposition of the 45-cent rate, but upon the condition that appellant file with the court its consent that the fund impounded from the rate collected in excess of 50 cents per thousand be distrib- uted to such of its patrons as were entitled to share in it, and that it file with the Railroad Commission and with the Fayette circuit court of Kentucky its written consent that those tribunals make like orders of distribution of all funds in excess of the 50-cent rate which had been impounded and held by their orders. As appellant declined to consent to such distribution of the funds, final decree was entered denying the prayer for a permanent injunction, and directing that the fund impounded with the receiver the distributed among the consumers in proportion to their respective contributions to it.

From this decree appellant alone has appealed. While relying on the findings of the court below that the 45-cent rate is confiscatory, it challenges the finding that the 50-cent rate is just and reasonable, and upon that ground assails the provision of the decree directing distribution to the consumers of the impounded funds made up of collections in excess of the 50-cent rate. It also attacks the denial of a permanent injunction because of appellant's refusal to assent to the distribution of the impounded funds on the basis of that rate. Respondents, while resisting each of these contentions, seek also to sustain the decree denying the injunction on the ground that the 45-cent rate is not confiscatory. See Langnes v. Green, 282 U.S. 531, 51 S.Ct. 243, 75 L.Ed. 520; United States v. American Railway Express Co., 265 U.S. 425, 44 S.Ct. 560, 68 L.Ed. 1087.

1. There being no diversity of citizenship of the parties to the litigation, the jurisdiction of the District Court to enjoin the 45-cent rate prescribed by the commission is dependent wholly upon the allegations in the bill that the rate assailed was one prescribed by state authority and violates the Fourteenth Amendment because confiscatory. If the rate were fixed by agreement of the parties disclosed by the franchise contract exhibited in the bill, or if it were fixed by the commission, acting as an arbitrator pursuant to agreement of the parties thus deriving its authority from the contract, it is plain that no federal question would be presented. Georgia Railway & Power Co. v. Decatur, 262 U.S. 432, 438, 43 S.Ct. 613, 67 L.Ed. 1065; Columbus Ry., Power & Light Co. v. Columbus, 249 U.S. 399, 39 S.Ct. 349, 63 L.Ed. 669, 6 A.L.R. 1648.

But the 45-cent rate was not one prescribed by the contract. By its terms the only effect of the contract upon rates other than the temporary rates in force pending the proceedings before the commission, was to allow the appellant to promulgate a schedule of rates which were to be effective unless, within a time specified, the city should proceed under the laws of the state to have a rate prescribed by public authority. By sections 201e-2, 201e-5, 201e-11, 201e-14 of the Kentucky Statutes, the Railroad Commission is clothed with the authority of the state to fix rates for the distribution of natural gas by public service companies and is required, upon complaint, to fix just and reasonable rates. It derived its power to fix the rate in the present case, not from the agreement of the parties to this litigation, but from the state Legislature. It was that power which the city called into action by its complaint to the commission that the rates designated in appellant's rate schedule were excessive. The rate, being prescribed by state authority, was, if confiscatory, an infringement...