341 U.S. 246 (1951), 77, Montana-Dakota Utilities Co. v. Northwestern Public Service Co.

Docket Nº:No. 77
Citation:341 U.S. 246, 71 S.Ct. 692, 95 L.Ed. 912
Party Name:Montana-Dakota Utilities Co. v. Northwestern Public Service Co.
Case Date:May 07, 1951
Court:United States Supreme Court
 
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Page 246

341 U.S. 246 (1951)

71 S.Ct. 692, 95 L.Ed. 912

Montana-Dakota Utilities Co.

v.

Northwestern Public Service Co.

No. 77

United States Supreme Court

May 7, 1951

Argued November 27, 1950

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

Syllabus

Petitioner and respondent are public utility electric companies engaged in interstate commerce and subject to the Federal Power Act. For ten years, while under the same management through interlocking directorates and joint officers with the approval of the Federal Power Commission, petitioner's predecessor and respondent interchanged electric energy, shared expenses, and made a number of intercompany contracts establishing rates and charges which were filed with and accepted by the Commission. After separation of their management, petitioner sued in a federal district court to recoup losses alleged to have resulted from its predecessor's paying respondent unreasonably high charges for what respondent furnished it and receiving unreasonably low rates for what it furnished respondent. It alleged that these rates and charges were fraudulent and unlawful, and were due to the interlocking directorates, which prevented protest to the Commission to have reasonable rates and charges established pursuant to the provisions of the Federal Power Act. There was no diversity of citizenship of the parties, and federal jurisdiction was asserted solely on the ground that the case arose under the Federal Power Act.

Held:

1. Since the complaint asserted a cause of action under the Federal Power Act, the District Court had jurisdiction to determine whether it stated a cause of action maintainable in a federal court and, if so, whether it was sustained on the facts. P. 249.

2. The complaint stated no cause of action maintainable in a federal court. Pp. 249-255.

(a) Under the Federal Power Act, the right to a reasonable rate is the right to the rate which the Commission files or fixes, and, except for review of the Commission's orders, a court can assume no right to a different rate on the ground that, in the opinion of the court, such different rate is the only reasonable rate or a more reasonable rate. Pp. 250-252.

(b) In the absence of diversity of citizenship, the allegation of fraud resulting from the interlocking relationship did not state a cause of action maintainable in a federal court. Pp. 252-253.

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(c) Since the Federal Power Act does not authorize the Commission to grant reparations for unreasonable rates collected in the past, the District Court could not properly refer the case to the Commission for determination of the reasonableness of the rates here involved. Pp. 253-254.

3. Since the case involves only issues which a federal court cannot decide, and can only refer to a body which also would have no independent jurisdiction to decide them, the complaint must be dismissed. P. 255.

181 F.2d 19 affirmed on a different ground.

In a suit alleged to be founded on the Federal Power Act, the District Court awarded petitioner a judgment for losses sustained on past rates and charges which the District Court found to be unreasonable and based on fraud. The Court of Appeals reversed on the ground that the District Court was without jurisdiction. 181 F.2d 19. This Court granted certiorari. 340 U.S. 806. Affirmed on a different ground, p. 255.

JACKSON, J., lead opinion

MR. JUSTICE JACKSON delivered the opinion of the Court.

Petitioner and respondent are public electric utilities companies engaged in interstate commerce. Petitioner's predecessor and respondent were under the same management through interlocking directorships and joint officers.

Page 248

During that relationship, the two interchanged electric energy, shared expenses, and made a number of intercompany contracts establishing rates and charges, which contracts were filed with and accepted by the Federal Power Commission. These contract rates and charges are at the root of this controversy. Petitioner charges that, during the period 1935-1945, its predecessor paid respondent unreasonably high prices for what respondent furnished it, and that it received unreasonably [71 S.Ct. 694] low rates for what it provided respondent. That advantage, it is alleged, was fraudulent and unlawful, and was due to the interlocking directorate, which prevented protest to the Commission to have reasonable rates and charges established pursuant to the provisions of the Federal Power Act.1

Petitioner sued in United States District Court and asserted jurisdiction on the ground that the case "arises under the Constitution, or laws of the United States,"2 and, more particularly, under a "law regulating commerce,"3 specifically the Federal Power Act.

Petitioner was successful in the District Court, which found the contracts void for fraud and the rates and charges established therein unreasonable. The court also determined what would have been reasonable rates and charges for the period in question, and gave judgment for the difference between its conception of reasonable charges and the actual charges, amounting to over three-quarters of a million dollars.4

The judgment was reversed by the Court of Appeals for the Eighth Circuit on the ground that the District Court was without jurisdiction.5

Page 249

As frequently happens where jurisdiction depends on subject matter, the question whether jurisdiction exists has been confused with the question whether the complaint states a cause of action. The Judicial Code, in vesting jurisdiction in the District Courts, does not create causes of action, but only confers jurisdiction to adjudicate those arising from other sources which satisfy its limiting provisions. Petitioner asserted a cause of action under the Power Act. To determine whether that claim is well founded, the District Court must take jurisdiction, whether its ultimate resolution is to be in the affirmative or the negative. If the complaint raises a federal question, the mere claim confers power to decide that it has no merit, as well as to decide that it has. In the words of Mr. Justice Holmes,

. . . if the plaintiff really makes a substantial claim under an act of Congress, there is jurisdiction whether the claim ultimately be held good or bad.

The Fair v. Kohler Die & Specialty Co., 228 U.S. 22, 25. See also Hurn v. Oursler, 289 U.S. 238, 240. Even a patently frivolous complaint might be sufficient to confer power to make a final decision that it is of that nature, binding as res judicata on the parties.

Petitioner's complaint, in substance, alleges existence of the interlocking directorship, contends that such relationship was used fraudulently to deprive it of its federally conferred right to reasonable rates and charges, and demands reparations. We think there was power in the District Court to decide whether the claims so grounded constitute a cause of action maintainable in federal court, and, if so, whether it is sustained on the facts. We think a direction to dismiss for want of jurisdiction was error, and that it should not stand as a precedent.

However, it is clear that the reason underlying the Court of Appeals' decision was that no federal cause of action was established. If this was correct, we should sustain

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the judgment of reversal, though on other grounds than those stated.

The petitioner's problem is to avoid Scylla without being drawn into Charybdis. If its cause of action arises from fraud and deceit, it is a common law action of which a federal court has no jurisdiction, there being no diversity in citizenship of these parties. But if it arises from being charged rates in excess of those permitted by the Power Act, it is confronted with the exclusive powers of the Commission to determine what those rates are to be. Hence, it is necessary to bring the case [71 S.Ct. 695] into court not as a fraud action, but as one to enforce the Power Act, using the allegations of fraud to escape the limitations of the Power Commission remedies.

I

Petitioner identifies as the source of its cause of action the Federal Power Act's requirement of reasonable electric utility rates,6 which, it contends, creates its legal right to rates which a court may deem reasonable, even if different from those accepted by the Federal Power Commission. It is admitted, however, that a utility could not institute a suit in a federal court to recover a portion of past rates which it simply alleges were unreasonable. It would be out of court for failure to exhaust administrative remedies, for, at any time in the past, it could have applied for and secured a review and, perhaps, a reduction of the rates by the Commission.7

Petitioner gives its case a different cast by alleging that, by fraudulent abuse of the interlocking relationship,

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its predecessor was deprived of its independence and power to resort to its administrative remedy.

But the problem is whether it is open to the courts to determine what the reasonable rates during the past should have been. The petitioner, in contending that they are so empowered, and the District Court, in undertaking to exercise that power, both regard reasonableness as a justiciable legal right, rather than a criterion for administrative application in determining a lawful rate. Statutory reasonableness is an abstract quality represented by an area, rather than a pinpoint. It allows a substantial spread between what is unreasonable because too low and what is unreasonable because too high. To reduce the abstract concept of reasonableness to concrete expression in dollars and cents is the function of the Commission. It is not the disembodied "reasonableness," but that standard when...

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