Kansas-Nebraska Nat. Gas Co. v. City of St. Edward, Neb.

• Decision Date: 14 June 1956
• Docket Number: No. 15489,15490.,15489
• Citation: 234 F.2d 436
• Parties: KANSAS-NEBRASKA NATURAL GAS COMPANY, Inc., a Kansas Corporation, Appellant, v. The CITY OF ST. EDWARD, NEBRASKA, a Municipal Corporation, et al., Appellees. KANSAS-NEBRASKA NATURAL GAS COMPANY, Inc., a Kansas Corporation, Appellant, v. The CENTRAL CITY, NEBRASKA, a Municipal Corporation, et al., Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

234 F.2d 436 (1956)

KANSAS-NEBRASKA NATURAL GAS COMPANY, Inc., a Kansas Corporation, Appellant, v. The CITY OF ST. EDWARD, NEBRASKA, a Municipal Corporation, et al., Appellees.

KANSAS-NEBRASKA NATURAL GAS COMPANY, Inc., a Kansas Corporation, Appellant, v. The CENTRAL CITY, NEBRASKA, a Municipal Corporation, et al., Appellees.

Nos. 15489, 15490.

United States Court of Appeals Eighth Circuit.

June 14, 1956.

James D. Conway, Hastings, Neb., and Frank D. Williams, Lincoln, Neb. (Elmer J. Jackson, Hastings, Neb., and Douglas Gleason, Ottawa, Kan., on the brief), for appellant.

Earl Hasselbalch, St. Edward, Neb. (Charles H. Phares and Donald F. Sampson, Central City, Neb., on the brief), for appellees City of St. Edward, Neb. et al.

Donald F. Sampson, Central City, Neb. (Charles H. Phares, Central City, Neb., and Earl Hasselbalch, St. Edward, Neb., on the brief), for appellees Central City, Neb. et al.

Before GARDNER, Chief Judge, and JOHNSEN and VAN OOSTERHOUT, Circuit Judges.

GARDNER, Chief Judge.

These were equitable actions brought by appellant against appellees seeking to enjoin appellees from preventing appellant from putting into effect new rates for natural gas distributed and sold to inhabitants of said cities. The mayor and councilmen of the respective cities were also joined as parties defendant. Both the named cities are Nebraska cities of the second class. The actions were consolidated for purposes of trial and for purposes of appeal and they are presented here on a single record. In the course of this opinion we shall refer to the parties as they were designated in the trial court.

Plaintiff, at all times pertinent, was and now is a corporation organized and existing under the laws of the State of Kansas and during all such times was engaged in the purchase, production, transmission, distribution and sale, both at wholesale and retail, of natural gas within the States of Kansas, Colorado and Nebraska. Its principal supply of natural gas is obtained from the Hugoton Natural Gas field located largely in southwestern Kansas, but extending into Oklahoma and Texas. It also secures some, though a comparatively small portion, of its gas in northeastern Colorado and southwestern Nebraska. It both produces natural gas and acquires it by purchase. The plaintiff owns and operates a coordinated natural gas gathering, transmission, and distribution system whereby natural gas produced or purchased by it is transmitted from the point of its acquisition, through pipe lines, to the points of its final disposition and sale. This system extends from its natural gas sources in Kansas northerly into Nebraska and is connected with like elements of it originating at acquisition points in Colorado and Nebraska, with the consequence that natural gas from the three states is commingled for transmission to, and sale within, any of them; and from all of such states plaintiff collects, transmits and distributes natural gas for sale both at wholesale and at retail within the state of Nebraska. At all times here pertinent it sold the gas to the inhabitants of municipalities in the state of Nebraska including the inhabitants of defendant cities.

Plaintiff was granted a franchise by each of the defendant cities. Defendant Central City first passed an ordinance February 11, 1946, granting plaintiff a franchise for a period of twenty-five years to construct and maintain within the City of Central City a natural gas distribution system and to engage in the sale of natural gas to the inhabitants thereof. By ordinance passed October 13, 1947, Central City amended the prior ordinance to establish a lower schedule of rates. On October 2, 1950, defendant City of St. Edward passed a similar franchise ordinance. Each of these ordinances fixed a maximum rate which might be charged for the term of the franchise.

As grounds for injunctional relief plaintiff alleged that the rates established for gas customers in each of the franchise ordinances granted by defendant cities failed to give plaintiff a fair and reasonable return on its invested capital required for the service of gas customers in defendant cities; that prior to commencement of the actions plaintiff had submitted to each of the defendant cities a request for an increase in rates to provide it with sufficient revenue to earn it a fair and reasonable return on its invested capital required for the service of the gas customers in defendant cities and that said requests were supported by detailed information concerning plaintiff's business, showing the necessity for the increase requested in such rates; that each of the defendant cities failed and refused, though requested so to do, to establish for plaintiff a new rate schedule which would provide a reasonable return on its invested capital; that in so refusing the reasonable request of the plaintiff to establish a new rate schedule defendants acted in a confiscatory manner, thus depriving plaintiff of its property without due process of law in violation of the Fourteenth Amendment to the Constitution of the United States and in violation of Article I, Section 3, of the Constitution of Nebraska; that the rates which plaintiff asked defendant cities to establish are necessary to provide plaintiff with a fair and reasonable return on its invested capital; and that for the injury complained of and threatened plaintiff has no adequate remedy at law.

Based upon these allegations plaintiff asked for injunction enjoining defendants from preventing it from putting the requested rates into effect and collecting same.

Each of the defendants interposed a motion to dismiss the actions on the grounds, among others, that:

"* * * said complaint, as amended, fails to state a claim upon which relief can be granted to the plaintiff.

"* * * this Court lacks jurisdiction over the subject matter of this action for the reason that this is an action falling within the provisions of Sec. 1342, Title 28, U.S.C.A. * * *"

The court did not pass upon these motions as filed nor on the motions for preliminary injunctions, expressing the view that disposition of the motions should be deferred until final trial. D.C., 135 F. Supp. 629.

Each defendant answered, in effect pleading that the franchise ordinance establishing the maximum rates was passed and adopted by the defendant cities at the request and solicitation of the plaintiff and that the ordinance constitutes a valid and binding contract based on mutual and valuable considerations and that the plaintiff is estopped from denying the validity of such franchise contract or the rates prescribed therein and is estopped from claiming or asserting that it has been deprived of its property without due process of law.

On trial of the issues joined the court found that the rates established by the city ordinances in question were confiscatory but that they were established by contract induced by plaintiff for a valuable consideration and that plaintiff was estopped from denying the validity of the franchise contracts. The court also held that such rates only indirectly and incidentally affected interstate commerce but did not interfere with interstate commerce. The court also concluded that Section 1342, Title 28 U.S.C.A., referred to in the record as the Johnson Act, prohibited any relief by way of injunction. Based on the findings of fact and conclusions of law thus made and entered the court entered judgments dismissing the actions on their merits as well as for lack of jurisdiction. The judgments do not on their face show that the actions were dismissed for lack of jurisdiction but this may be inferred from the court's memorandum opinion. D.C., 134 F.Supp. 809.

It was contended by the plaintiff below, and it renews the same contentions here, that: (1) in the event the Johnson Act applies to the actions instituted by plaintiff the trial court was without jurisdiction to dispose of said actions on their merits so as to foreclose plaintiff from seeking relief in the Nebraska state courts; (2) the distribution and sale of natural gas in the defendant cities by plaintiff under the facts stated above constitutes interstate commerce; (3) the refusal of defendants to grant plaintiff relief from a confiscatory rate is an interference with interstate commerce which is excepted from the prohibition of the Johnson Act; (4) cities of the second class in Nebraska were, by Section 17-125, R.S.N.1943 (Reissue 1954), given jurisdiction to regulate rates for the distribution of natural gas and defendants retained such power in Section 4 of the franchise ordinances and their refusal to approve the proposed rates takes plaintiff's property without due process of law.

As has been observed, the jurisdiction of the Federal Court to hear and determine these actions was challenged by defendants' motions to dismiss for want of jurisdiction and this contention was urged throughout the trial and is here renewed by the defendants. Lack of jurisdiction in a Federal Court over the subject matter of litigation is always open for consideration as jurisdiction over the subject matter cannot be conferred by waiver of the parties and when such lack of jurisdiction is brought to the attention of the trial court it should decline jurisdiction even though the question be not urged by either party to the litigation....