City of Jamestown v. Pennsylvania Gas Co.

• Decision Date: 28 June 1924
• Docket Number: No. 106.,106.
• Parties: CITY OF JAMESTOWN v. PENNSYLVANIA GAS CO. et al. (JEFFERSON et al., Interveners).
• Court: U.S. Court of Appeals — Second Circuit

1 F.2d 871 (1924)

CITY OF JAMESTOWN v. PENNSYLVANIA GAS CO. et al. (JEFFERSON et al., Interveners).

No. 106.

Circuit Court of Appeals, Second Circuit.

June 28, 1924.

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COPYRIGHT MATERIAL OMITTED

Robert H. Jackson, of Jamestown, N. Y. (J. E. Mullin, of Kane, Pa., J. H. Alexander, of Warren, Pa., and Benj. S. Dean, of Jamestown, N. Y., of counsel), for appellant Pennsylvania Gas Co.

John E. Mullin, of Kane, Pa., for appellant National Fuel Gas Co.

J. H. Alexander, of Warren, Pa., for intervening appellants.

Louis L. Thrasher, of Jamestown, N. Y., for respondent.

Before ROGERS, MANTON, and MAYER, Circuit Judges.

ROGERS, Circuit Judge (after stating the facts as above).

This suit was instituted in the United States District Court for the Western District of New York by a municipal corporation existing under the law of the state of New York and which was threatened by a public service corporation, existing under the law of the state of Pennsylvania, with a discontinuance of the supply of natural gas which it was furnishing under an alleged contractual obligation which had not expired.

The reasons assigned by the Gas Company for the proposed discontinuance of the service, briefly stated, were the following:

(1) The gradually diminishing gas supply possessed by the defendant.

(2) The inability of the defendant to render with safety an adequate service.

(3) The right to withdraw from its occupied territory in Jamestown and abandon its service, which right it claims is secured to it by the law of its incorporation.

The question this court must determine is whether the court below committed error in issuing an injunction restraining the defendant from discontinuing its service in the city of Jamestown.

The complainant is, and has been since the year 1886, a city by virtue of the laws of the state of New York. Laws 1886, c. 84. Prior to that time and for a number of years it had existed as a village. When the city was created, it succeeded to all the rights, interests, and obligations owned and held by it as a village, including all contractual rights and obligations growing out of the franchise grant made by the village to the Pennsylvania Gas Company, the defendant herein, and which will be more fully set forth hereafter in this opinion.

The Gas Company was organized as a corporation under the laws of the State of Pennsylvania, being incorporated therein in the year 1881, and is a citizen of that state. While created a corporation in 1881, it surrendered its charter of that year and on June 15, 1885, received a new charter under the act passed by the General Assembly of the state of Pennsylvania approved May 29, 1885, and it alleges that it derives all of its corporate powers and duties from that act, and was operating under it at the time the contract with the village of Jamestown was made. The defendant is, under the laws of the state of Pennsylvania, a public service corporation. It owns certain gas fields located in that state, from which it derives a supply of natural gas, and which it transports in pipes and sells to the consuming public.

The Fuel Company, also a defendant herein, was organized as a business corporation in the year 1902 under the laws of the state of New Jersey, and is a citizen of that state. It maintains an office in the city of New York for its principal place of business. The complaint alleges and the answer admits that it owns and controls a majority of the capital stock of the Gas Company, and by virtue of such stock ownership it controls the election of the directors and officers of the Gas Company, the direction of its business policies, and the general management of its affairs.

The complaint charges, and the answer admits, that the Fuel Company acquired and held all the corporate stock of the Buffalo Fuel Company, which furnished natural gas to the city of Buffalo, in the state of New York, and to the residents of that city until the year 1911. The complaint alleges, and the answer of the Fuel Company admits, that in the year 1911 there was organized the Iroquois Company, a New York corporation, but it denies that soon after the incorporation of the Fuel Company the latter acquired all of the corporate stock of the Iroquois Company. It, however, admitted that it acquired and now holds a large majority of the capital stock of that company.

A petition of intervention was presented to the District Judge, signed by 25 individuals, all of whom were minority stockholders in the Gas Company. All of this number, but one, were citizens of the state of Pennsylvania, and that one was a citizen of California. They asked to be permitted to intervene and to have the case determined upon the rights and obligations of the Gas Company, without reference to the duties or obligations of any other company whatsoever. An interesting allegation, contained in their petition, may be found in the margin.¹

The court granted permission to intervene in the same manner and with like effect as if the interveners were named in the original bill as party defendants. The injunction was issued against both defendants, the Gas Company and the Fuel Company, and is set forth in the statement of facts which precedes this opinion. The Gas Company, the Fuel Company, and the intervening defendants have all joined in an appeal to this court.

On November 18, 1885, the Gas Company and the village of Jamestown signed a written agreement, which stated that the Gas Company agreed to supply to Jamestown natural gas for heating and lighting purposes, and that the supply was to continue "so long as said company shall continue to bring natural gas to said village, not exceeding, however, the limit of its corporate existence, as fixed by its certificate of incorporation."

The complainant city has no other supply of natural gas, and no other person, whether individual, partnership, or corporation, has any franchise for the use of the streets and highways of the city for the installation or maintenance of any system for supplying gas either natural or manufactured, and there is in the city no other system for the distribution and sale of gas of any character other than that operated by the Gas Company. The gas so supplied is used for heating as well as for cooking purposes in the dwelling houses; and in the business section many business blocks are constructed with the view of heating solely by gas. In like manner many manufacturing institutions in the city are dependent upon the natural gas supply for power purposes.

The testimony indicates that, if the Gas Company ceases to supply the complainant with natural gas, thereby compelling householders to install a new system of heating and cooking, there will result a loss aggregating nearly $1,500,000. In addition to that there is the expense which would result from changing the system in stores and factories and for lighting the streets and public buildings of the city. What this would be is not disclosed. A manufacturer of small tools, such as wrenches, pliers, and screwdrivers, and employing from 250 to 300 men, and who used natural gas in his factory to operate his engines, however, stated that, if obliged to install a different system, his damage would exceed $100,000. It is sufficiently evident that, if the city of Jamestown is deprived of its supply of natural gas, which it has been receiving for more than 30 years, a great loss would result. It is clear, too, that the amount involved is much greater than is necessary to give the court below jurisdiction in accordance with the requirement of Judicial Code, ß 24, as amended (Comp. St. ß 991).

The Gas Company's gas fields are located in the state of Pennsylvania. It owns most of these fields in fee. It classifies as operating acreage 60,226.13 acres, and as unoperated acreage 52,796.45 acres. It has in operation approximately 500 wells. In 1915 the company drilled and purchased 30 wells, in 1916 it increased the number of its wells by 47, in 1917 by 80, in 1918 by 78, and in 1919 by 88. But in 1920 it drilled only 8 wells, which indicates a change in the policy which the company had, up to that time, pursued in the matter of increasing its output of gas.

It appears that in 1917 a corporation known as the Pennsylvania Oil Company, and organized under the laws of the state of Pennsylvania, began the extraction of gasoline from the gas produced by the defendant Gas Company, by what is known as the "absorption process." All of the capital stock of the Pennsylvania Oil Company is, and at all times has been, owned by the defendant Gas Company. But the special master has found as a fact that this extraction of gasoline from the natural gas has no appreciable effect in producing a shortage of gas in Jamestown.

In May, 1917, a complaint was filed with the Public Service Commission, Second District, of the state of New York, against the Gas Company in Jamestown, and complaining that the company had increased its rates for gas in Jamestown, and that the rates were excessive and unjust. The Gas Company filed a demurrer to the complaint, which was overruled, and the company was directed to answer. In its answer it contended that the Public Service Commission was without authority to fix the rates to be charged. This claim rested upon the theory that the transportation, distribution, and sale of gas by the defendant, obtained wholly in the state of Pennsylvania to consumers in the state of New York, was an act of interstate commerce, and so was within the exclusive control and jurisdiction of the federal government. It obtained a writ of prohibition which prohibited the commission from further proceeding with the rate complaint. This writ was later dismissed by the Appellate Division of the Supreme Court of New York, and the order dismissing the writ was carried to the New York Court of Appeals, and was affirmed by that court. Pennsylvania Gas Co. v. Public Service Commission, 184 App. Div. 556,...