IDEAL CEMENT COMPANY v. United Gas Pipe Line Company

Decision Date16 November 1960
Docket NumberNo. 18103,18118.,18103
Citation282 F.2d 574
PartiesIDEAL CEMENT COMPANY, Appellant, v. UNITED GAS PIPE LINE COMPANY, Appellee. SCOTT PAPER COMPANY, Appellant, v. UNITED GAS PIPE LINE COMPANY, Appellee.
CourtU.S. Court of Appeals — Fifth Circuit

Edwin J. Curran, Jr., Mobile, Ala., Joseph F. Johnston, E. T. Brown, Jr., Birmingham, Ala., Vickers, Riis, Murray & Curran, Mobile, Ala., for Ideal Cement Co.

E. Dixie Beggs, Pensacola, Fla., George E. Stone, Mobile, Ala., Yonge, Beggs & Lane, Pensacola, Fla. (Saunders Gregg, Shreveport, La., of counsel), for United Gas Pipe Line Co.

Hardy B. Smith, Mobile, Ala., Joseph F. Johnston, E. T. Brown, Jr., Birmingham, Ala., Gaillard, Gaillard & Smith, Mobile, Ala., for Scott Paper Co.

MacDonald Gallion, Montgomery, Ala., Guy Sparks, Anniston, Ala., William H. Burton, Montgomery, Ala., for State of Alabama, amicus curiae.

Before RIVES, Chief Judge, and JONES and WISDOM, Circuit Judges.

RIVES, Chief Judge.

The issue in these cases is whether a municipal license tax is applicable to the business of distributing natural gas to industrial consumers within the municipality's taxing jurisdiction, when such distribution is the terminal act of the transportation of that natural gas from without the state. The tax is measured by gross receipts from sales of natural gas within the municipality's taxing jurisdiction.

The issue arises out of suits filed by the United Gas Pipeline Company against Ideal Cement Company and Scott Paper Company for reimbursemment of such taxes paid by United on gas distributed to Ideal and Scott. Ideal and Scott defended on the ground that the tax reimbursement articles1 of their separate contracts with United did not obligate them to reimburse United for taxes not validly levied upon and paid by United, and that the tax could not validly be applied to gas distributions. Both Ideal and Scott assert that United's right to reimbursement fails entirely if the tax ordinance is found to be inapplicable. United's position is that, if the tax were held to be inapplicable, it would be obligated to credit Ideal and Scott with any amounts which United might recoup from the municipality. Thus the inapplicability of the tax would be either a complete or partial defense to United's actions.

If it appeared that United, on the one hand, and Ideal and Scott, on the other, were engaging in a friendly or simulated test, then the court should refuse to pass upon the applicability of the taxing ordinance.2 When, however, as in this case, in pursuance of an honest and actually antagonistic assertion of rights and defenses by the one party against the other, there is presented a question involving the applicability3 of a municipal ordinance, then, even though the municipality has not intervened or been made a party, and will not be bound under principles of res judicata, the court must proceed to determine the question as between the parties to the suit.4

United is a Delaware corporation, which has its principal place of business in Louisiana. It maintains pipelines for the transmission of natural gas from Louisiana into Mississippi, Alabama and Florida. In Alabama, United distributes directly to seven industrial consumers located in the City of Mobile and its police jurisdiction, including Ideal and Scott, and to a local distributor, Mobile Gas Service Corp., which in turn services domestic, commercial and industrial customers of its own.

United brings gas into the Mobile, Alabama area from Mississippi and Louisiana by three pipelines and these pipelines converge at a station owned by United near the City of Mobile. At this station, the pressure of the gas is reduced by United from that at which it entered the State of Alabama. From this station, United has four pipelines, one of which continues on to Pensacola, Florida. The remaining three lines go to three separate metering stations where the gas is either sold to Mobile Gas Service Corporation or delivered into its pipelines. United has contracted with Mobile Gas Service Corporation to handle the distribution and metering of the gas in the City of Mobile, even to United's own customers, and likewise to handle the accounting and collecting of revenues of sale. As compensation to Mobile Gas Service Corporation for the services so provided, United pays it a certain percentage of the money United collects from the sale of gas.

On June 28, 1946, Ideal entered into a contract with Mobile Gas Service Corporation for the sale and purchase of natural gas. Mobile Gas Service Corporation assigned this contract to United on November 1, 1954, and United subsequently sold and delivered natural gas to Ideal directly under said contract until July 25, 1956, when the agreement expired. On July 17, 1956, United and Ideal entered into a contract for the sale and purchase of natural gas for a term commencing on July 26, 1956 and ending January 1, 1965, which contract is still in effect, and under this contract substantial quantities of natural gas have been sold and delivered by United to Ideal.

Under the first contract (June 28, 1946), Ideal agreed to pay Mobile Gas Service Corporation, as seller, for any "increased or new tax" which might be imposed on it as a result of "the production, severance, gathering, transportation, handling, sale or delivery of gas, or upon the right or privilege to produce, sever, gather, transport, handle, sell, or deliver gas." The tax in question, if applicable, is such an "increased or new tax."

In the second contract, that is, the one which has been in force since July 26, 1956, Ideal agreed to reimburse United for all taxes which might be levied upon and paid by United, or which United under contractual or legal obligation might pay to another person or company on which such taxes were levied with respect to gas delivered under such contract to Ideal.

On July 21, 1955, Scott and United entered into a contract for the purchase and sale of natural gas, which is still in force, and which contains a tax reimbursement article heretofore quoted in footnote 1.

United paid the taxes at issue in this case to the City of Mobile for the years 1956, 1957 and 1958, and has paid to Mobile Gas amounts equal to the increased taxes paid by Mobile Gas for deliveries to Ideal and Scott pursuant to United's contract with Mobile Gas. These taxes were assessed in 1956 and 1957, and are in addition to the taxes paid directly to the City of Mobile by United for these years.

United made demands on Ideal and Scott for reimbursement, which demands were refused, on the ground that such taxes were not reimbursable under the contracts; whereupon United filed these actions.

There is no genuine issue as to any of the material facts. Consequently each of the parties filed a motion for summary judgment. Rule 56, Federal Rules of Civil Procedure, 28 U.S.C.A. The district court, after stating the facts in more detail, denied the motions of Scott and Ideal and granted United's motion.5

The Mobile License Ordinance reads, in pertinent part, as follows:

"An Ordinance
"To fix the rate of annual licenses in the City of Mobile and in the police jurisdiction thereof.
"Be It Ordained by the Board of Commissioners of the City of Mobile as follows:
"Section 1: The following is hereby declared to be and is adopted as the schedule of licenses for the year beginning January 1, 1955, and ending December 31, 1955, and for each subsequent year:
"(1) For practicing, engaging in, carrying on or conducting any exhibition, trade, vocation, occupation or profession in the City of Mobile, Alabama;
"(2) For keeping, engaging in or carrying on business of any nature, offering merchandise for sale, soliciting orders, or making deliveries of any merchandise, rendering or giving or selling service of any kind, taking orders for merchandise to be subsequently delivered by any agency or means, or accepting payments on orders for merchandise to be delivered subsequently by any agency or means, any or all of which acts or transactions are done in or from the City of Mobile, Alabama;
"(3) For entering the City of Mobile to do business, to make sales, to make deliveries or to do any act for which a license is required of businesses located in the City of Mobile;
"(4) For storing, storing for sale or use, withdrawing from storage for sale or use, any or all of which acts or transactions are done in or from the City of Mobile;
"And each and every person, firm, company, association, partnership, agency or corporation, wherever located, engaging in or carrying on or doing any act or thing herein specified, in or from the City of Mobile, Alabama, shall pay the City of Mobile an annual license therefor as follows, to-wit:
* * * * * *
"193. Gas Companies: Each person, firm or corporation engaged in the business of selling or distributing natural gas, in an amount equal to 3% of the gross receipts for the business transacted by such person, firm or corporation, in the City of Mobile for the preceding year from the sale of such natural gas sold or distributed from any point or points in the City of Mobile by such person, firm or corporation for any purpose whatsoever.
"The provisions of the above paragraph to be applied to operation in the Police Jurisdiction on the basis of 1½% of said gross receipts." (Emphasis supplied.)

From the terms of the ordinance, the Mobile license tax applies to the United Gas Pipe Line Company from the time its gas enters the City of Mobile for the purpose of delivery to Scott and Ideal. Moreover, procurement of a license is a prerequisite to United distributing its gas within the City of Mobile. This is made evident by Section 19 of the Ordinance:

"Section 19: That any person, firm, association or corporation, who shall engage in any business, trade or profession, or keep any establishment, or do any business or any act for which a
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2 cases
  • Colonial Pipeline Co. v. Mouton, 7788
    • United States
    • Court of Appeal of Louisiana — District of US
    • November 17, 1969
    ...it never discharged products in Louisiana that were picked up in Louisiana. In our sister State of Alabama, in Ideal Cement Co. v. United Gas Pipeline Co., 5 Cir., 282 F.2d 574, the validity of a License Ordinance of Mobile, Alabama, was at issue. The incidence of the tax was upon 'the keep......
  • United Gas Pipe Line Company v. Ideal Cement Company
    • United States
    • U.S. Supreme Court
    • March 19, 1962
    ...local portion of interstate commerce but as a means of licensing appellant's right of entry into the City from without the State. 282 F.2d 574, 580. We postponed determination of our jurisdiction to consideration of the merits, 366 U.S. 916, 81 S.Ct. 1093, 6 L.Ed.2d 240 and now find that th......

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