Cities Service Gas Company v. United States

• Decision Date: 04 October 1974
• Docket Number: No. 40-73.,40-73.
• Citation: 500 F.2d 448
• Parties: CITIES SERVICE GAS COMPANY, a Delaware corporation v. The UNITED STATES.
• Court: U.S. Claims Court

500 F.2d 448

CITIES SERVICE GAS COMPANY, a Delaware corporation v. The UNITED STATES.

No. 40-73.

United States Court of Claims.

July 19, 1974.

As Amended on Denial of Rehearing October 4, 1974.

Melvin Richter, Washington, D. C., attorney of record for plaintiff; Littman, Richter, Wright & Talisman, Washington, D. C., Alfred O. Holl, Tulsa, Okl., and Daniel R. Hopkins, Oklahoma City, Okl., of counsel.

John W. Showalter, Washington, D. C., with whom was Asst. Atty. Gen., Carla A. Hills, for defendant.

Before COWEN, Chief Judge, and SKELTON and KASHIWA, Judges.

SKELTON, Judge:

This suit was filed by plaintiff, Cities Service Gas Company, against the United States, defendant, on an alleged implied in fact contract to recover on a quantum meruit basis compensation for the sale of natural gas to the Department of the Army at Fort Leavenworth, Kansas, from March 15, 1971, to the present time. The defendant filed a Motion to Dismiss plaintiff's case on the ground we lacked jurisdiction of the case. The plaintiff filed a Motion for Partial Summary Judgment on the issue of liability. Whereupon, the defendant filed an alternative Motion to Remand the Proceedings to the Federal Power Commission (FPC). The case was submitted to the court on these pleadings, together with briefs and oral argument. Thereafter, on March 1, 1974, the court issued an order stating that if within 90 days from the date of the order the Department of the Army files with the FPC an application under section 7(a) of the Natural Gas Act for a determination that the gas involved in this case is within the jurisdiction of the FPC, proceedings in this case shall be suspended for a period of not more than six months from the date the application is filed with the FPC.

On April 12, 1974, plaintiff filed an Application for Rehearing of the Order Suspending Proceedings. The defendant contested plaintiff's application. Both parties submitted briefs.

On May 24, 1974, the Department of the Army filed an application with the FPC under section 7(a) of the Natural Gas Act for a Certificate of Public Convenience and Necessity directing the plaintiff herein to sell and deliver to the applicant at jurisdictional rates the volume of natural gas in interstate commerce estimated to be required for "sale, resale, and distribution" at Fort Leavenworth, Kansas. From an analysis of FPC opinion No. 489, it is clear that this section 7(a) proceeding applies prospectively only and that it can have no effect on the charges for gas sold by plaintiff to the Army before the institution of these proceedings, nor to charges in the future for direct sales to the Army for its own use.

After carefully considering the briefs of the parties, oral argument, and the section 7(a) proceedings filed by the Army on May 24, 1974, described above, the court concludes that the suspension order should be withdrawn and canceled and that the case should be decided on the merits. The court further concludes that judgment should be entered in favor of the plaintiff. A discussion of the facts and the law follows:

Plaintiff is a natural gas company and sells gas in interstate commerce. The rates for such sales for resale are subject to regulation by the FPC under the Natural Gas Act, 15 U.S.C. § 717 et seq. The rates for gas sold for direct use (not for resale) are not subject to regulation by the FPC.

For many years, the plaintiff sold gas in interstate commerce to the Army at Fort Leavenworth, Kansas, under two written contracts, namely: (1) a contract for the sale of gas on a firm basis (i. e., without interruption) for use in Army facilities (exclusive of its Disciplinary Barracks), which sale is hereafter described as the Fort Leavenworth sale (the Army resold 6.7 percent of this gas to private users); (2) a contract for the sale of interruptible gas to the Army for its Disciplinary Barracks (Disciplinary Barracks sale). The gas sold under this contract was for direct use by the Army and none of it was resold.

Until September 1963, both parties considered that the rates for the gas sold under both contracts were not subject to regulation by the FPC because they were sales for direct consumption and use by the Army. However, in September 1963, the defendant instituted proceedings before the FPC (FPC Docket No. RP64-17) claiming that the FPC should treat these sales as sales for resale subject to its rate jurisdiction.

The FPC issued its opinion No. 489 in which it held that sales of gas not resold but consumed by the purchaser are direct sales and are not subject to FPC's jurisdiction. It stated that the Disciplinary Barracks sales were not jurisdictional sales for resale, but were non-jurisdictional direct sales. As to the Fort Leavenworth sales, the FPC found that a small part of the gas was resold by the Army. However, it declined to hold that the commingling of the gas that was resold with the other gas converted the entire sales to jurisdictional sales for resale. The FPC took the position that before gas could be sold for resale, the FPC would have to authorize it and that had not been done in this case. Therefore, it held that the entire sale by the plaintiff "must be treated as a sale for the Army's own use." In this regard, the FPC held:

Since it seems clear, * * *, that prior to the initiation of the Army's complaint herein, the Commission had not consciously authorized any sale for resale, the entire sale by Cities to the Army up to the time appropriate relief procedures, if necessary, are prescribed, must be treated as a sale for the Army's own use. Emphasis supplied.

Notwithstanding the decision of the FPC, the Army continued to insist that all the gas must be treated as resale gas subject to plaintiff's jurisdictional rates on file with the FPC.¹ Negotiations between the parties failed, and plaintiff gave notice in writing to the Army that it was terminating the contracts on March 15, 1971, but that it would continue the Disciplinary Barracks and Fort Leavenworth sales after that date but would expect to be paid the reasonable price of 50 cents per Mcf (thousand cubic feet) for firm gas and 30 cents per Mcf for interruptible gas. The Army replied by letter that it "had no intention whatsoever to permit or consent to any reduction or abandonment of service by your company at Ft. Leavenworth," and that rates of 31 cents per Mcf and 23.081 cents per Mcf would apply.

The parties never reached an agreement on the price for the gas, although plaintiff has continued to deliver gas to the Army at the Disciplinary Barracks and Fort Leavenworth, and the Army has continued to accept such gas up to the present time, even though there were no written contracts in existence. The plaintiff alleges that up to November 22, 1972, it had delivered 1,171,525 Mcf of interruptible natural gas to the Army at Fort Leavenworth and the Disciplinary Barracks. The Army accepted the gas and tendered $510,617.19 for the gas. The plaintiff contends that based on a quantum meruit price of 50 cents per Mcf for firm gas and 30 cents per Mcf for interruptible gas, the Army owed plaintiff $652,307.30 for the gas delivered up to such date. The amount tendered by the Army left an unpaid balance of $141,690.11. The plaintiff sues here to recover this balance, plus the unpaid balance that has accrued at the same quantum meruit rate for gas delivered since November 22, 1972, up to the present time. The plaintiff has accepted the amounts previously tendered as partial payments only, reserving its right to claim additional amounts.

The defendant contends that this court does not have jurisdiction of this case. On the other hand, the plaintiff says we have jurisdiction of the case because it is a suit based on a contract implied in fact. The defendant disputes this argument. We agree with the plaintiff. We have jurisdiction under the Tucker Act, 28 U.S.C. § 1491 of claims against the United States, "founded upon any express or implied contract with the United States." Although we do not have jurisdiction of contracts implied in law, it is well established that we have jurisdiction of contracts implied in fact. See United States v. Minnesota Mutual Investment Co., 271 U.S. 212, 46 S.Ct. 501, 20 L.Ed. 911 (1926), wherein the Supreme Court held:

* * * An implied contract in order to give the Court of Claims or a district court under the Tucker Act jurisdiction to give judgment against the government must be one implied in fact and not one based merely on equitable considerations and implied in law. Merritt v. United States, 267 U.S. 338, 340, 341, 45 S.Ct. 278, 69 L.Ed. 643; Temple v. United States, 248 U.S. 121, 39 S.Ct. 56, 63 L.Ed. 162; Sutton v. United States, 256 U.S. 575, 581, 41 S.Ct. 563, 65 L.Ed. 1099, 19 A.L.R. 403. * * * Id. at 217-218, 46 S.Ct. at 503.

In Algonac Mfg. Co. v. United States, 428 F.2d 1241, 192 Ct.Cl. 649 (1970), we held:

* * * This court does have jurisdiction of claims based on contracts implied in fact. * * * Cases omitted. Id. 428 F.2d at 1256, 192 Ct.Cl. at 674.

See also J. C. Pitman & Sons, Inc. v. United States, 317 F.2d 366, 161 Ct.Cl. 701 (1963). It is unnecessary to cite additional authorities for this proposition, as there is no longer any question about our having jurisdiction over claims based on contracts implied in fact.

The next question to be considered is whether or not plaintiff's claim is based on a contract implied in fact between the plaintiff and the Army. We conclude that this question must be answered in the affirmative. The Supreme Court defined a contract implied in fact in Baltimore & Ohio R. R. v. United States, 261 U.S. 592, 597, 43 S.Ct. 425, 427, 67 L.Ed. 816 (1923), as follows:

* * * An agreement "implied in fact," founded upon a meeting of minds, which, although not embodied in an express contract, is inferred, as a fact, from conduct of the parties showing, in the light of the surrounding circumstances, their tacit understanding. * * *

In the...