Miami Pipe Line Co. v. Panhandle Eastern Pipe Line Co., 9018.

• Decision Date: 06 October 1967
• Docket Number: No. 9018.,9018.
• Citation: 384 F.2d 21
• Parties: The MIAMI PIPE LINE COMPANY, Inc., a Corporation, Appellant, v. The PANHANDLE EASTERN PIPE LINE COMPANY, a Corporation, Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

384 F.2d 21 (1967)

The MIAMI PIPE LINE COMPANY, Inc., a Corporation, Appellant, v. The PANHANDLE EASTERN PIPE LINE COMPANY, a Corporation, Appellee.

No. 9018.

United States Court of Appeals Tenth Circuit.

October 6, 1967.

Robert R. Irwin, Topeka, Kan., for appellant.

William S. Richardson, Kansas City, Mo., (Byron M. Gray, Topeka, Kan., and Wendell J. Doggett, Kansas City, Mo., on the brief), for appellee.

Before PHILLIPS, LEWIS and HILL, Circuit Judges.

ORIE L. PHILLIPS, Circuit Judge.

On October 16, 1961, the Miami Pipe Line Company¹ commenced this action against the State Board of Social Welfare of Kansas² and Panhandle Eastern Pipe Line Company³ in the District Court of Shawnee County, Kansas.

Miami is a Kansas corporation, with its principal office in Osawatomie County, Kansas. Panhandle is a Delaware corporation, with its principal office in Kansas City, Missouri. The Welfare Board is an official board of the State of Kansas.

Panhandle removed the action to the United States District Court for the District of Kansas. A motion of Miami to remand the case was denied.

The trial court dismissed the action against the Welfare Board without prejudice, on the ground that as to it the action was a suit against the State and the State had not consented to be sued.

The action then proceeded to trial against Panhandle before the court, without a jury, and resulted in a judgment in favor of Panhandle. Miami has appealed.

In its petition for removal, Panhandle averred that Miami's petition set up a separate and independent claim against it, which would be removable if sued upon alone, and joined it with one or more otherwise nonremovable claims or causes of action within the meaning of 28 U.S. C.A. § 1441(c); and that the Welfare Board was fraudulently joined as a party defendant for the sole purpose of preventing Panhandle from removing the case from the State court to the Federal court.

Part I

Miami contends that the trial court erred in not remanding the action to the State court. Hence, we must consider the pertinent allegations of Miami's petition in the State court.

In the first cause of action of its petition, Miami alleged:

That Panhandle owns and operates under certificates of public convenience and necessity issued by the Federal Power Commission an integrated gas pipeline system in the States of Texas, Oklahoma, Kansas, Missouri, Illinois, Indiana, Ohio and Michigan; that it produces natural gas from its leases located in Texas and Kansas, and purchases natural gas produced in Texas, Oklahoma and Kansas; that it transports and sells such gas in interstate commerce for resale for domestic, commercial and other uses and also directly to industries and others for their own use;

That "on or about January 6, 1953, the plaintiff (Miami) had a contract with the defendant Panhandle for the purchase of natural gas to be transported through plaintiff's (Miami's) pipeline for resale to the defendant Board (the Welfare Board) for use at the Osawatomie State Hospital";

That "at the same time the plaintiff (Miami) had a contract with the defendant Board (Welfare Board) for the purchase of such gas";

That on or about such date "the defendants (Panhandle and the Welfare Board) entered into a plan or devise for the purpose of breaching their contracts with plaintiff (Miami)" and obtaining for Panhandle "the 6½¢ per M.C.F. rightfully due plaintiff (Miami)."

Miami undertook to set out the particulars of the plan or devise by the allegations in its petition hereinafter set out.

Miami alleged that for many years prior to October 1, 1943, it "had been supplying natural gas to the Osawatomie State Hospital from shallow gas wells in and about the * * * hospital grounds" and that "the last written contract was entered into on October 1, 1943." Miami attached to its petition as Exhibit A a copy of such contract.

The first paragraph of such contract read:

"This Contract made and entered into this 1st day of October, 1943 by and between the Miami Pipe Line Company, a Kansas Corporation, hereinafter called the vendor, and The State of Kansas, hereinafter called the vendee."

It recited that "The vendor * * * for the past several years" had been "furnishing to the vendee the greater part of its fuel requirements at the Osawatomie State Hospital" and that it was "the mutual desire of the parties" to the contract "that the facilities of the vendor * * * be enlarged and increased to meet the entire fuel requirements of" the State Hospital.

By its terms "the vendee" agreed "to purchase and accept delivery from the vendor the merchantable natural gas that said vendor" could "deliver toward the fuel demand of" the State Hospital; and "the vendor" agreed it would "use its best endeavors and abilities to supply enough of such natural gas to meet the entire fuel requirements of the" State Hospital; and "the parties * * * mutually" agreed "that the price of said gas" should be "twenty-one (21¢) cents per 1000 cubic feet" and that the contract should remain in force and effect for a period of one year from its date.

The closing paragraph of the contract read:

"In Witness Whereof, The parties hereto have set their hands and seals this date above first mentioned."

The contract was signed as follows:

"Attest: The Miami Pipe Line Company Kenneth R. Johnson, By Emil J. Miller, President Secretary Vendor Approved The State of Kansas David L. MacFarlan, By (illegible) Chairman Its Business Manager, Vendee" State Board of Social Welfare

It is important to keep in mind that the parties to the contract of October 1, 1943, were Miami and the State of Kansas; that the recitals therein referred to Miami and the State and to no other parties; that the agreements and covenants in the contract were those of the State and Miami and no other persons, and that only Miami and the State by its Business Manager executed the contract; that Miami asserted no claim of a breach of any contract by the Welfare Board other than the contract of October 1, 1943; that Miami's allegations referred to above that the gas to be purchased from Panhandle by Miami was for resale to the Welfare Board, and that the Welfare Board entered into a plan or devise with Panhandle for the purpose of breaching a contract of Miami's with the Welfare Board are clearly refuted by the contract of October 1, 1943, the contract to which the allegations referred, which shows that the Welfare Board was not a party to such contract, and that the gas purchased from Panhandle by Miami was not for resale to the Welfare Board, but to the State.⁴ Moreover, as we shall later undertake to show, on October 1, 1943, the authority, jurisdiction and power to enter into contracts for the purchase of gas to be used for fuel and other purposes at the State Hospital were vested in the State Business Manager, under the direction of the State Department of Social Welfare, which succeeded to all the powers, jurisdiction and authority of the State Board of Social Welfare on April 15, 1939, with respect to the purchase of supplies, including natural gas, for the use of the State Hospital.

Miami further alleged:

That following the expiration of the one-year term of the contract of October 1, 1943, "the parties continued to operate under the terms of the contract and extended it by gas supplied, bills rendered, bills paid, efforts on the part of both parties to make a supply of gas available";

That by August 30, 1946, the amount of gas produced from the local wells adjacent to the State Hospital was falling off, and that on that date Miami entered into a contract with Panhandle, whereby the latter agreed to apply to the Federal Power Commission for a certificate of public convenience and necessity, authorizing it to install the necessary facilities and to sell to Miami gas, as provided for in the contract, "for resale to Osawatomie State Hospital", and upon the issuance of such certificate to construct and operate a metering and regulating station at a point on its pipeline in close proximity to Miami's transmission line; and whereby Miami agreed to construct and operate all necessary pipeline connections to the outlet side of Panhandle's meter, that such gas should be used solely at the Osawatomie State Hospital and that Miami would cooperate with Panhandle in securing such certificate; and whereby the parties thereto mutually agreed such contract should continue "for a term of one year commencing on the date of First delivery" thereunder "and from year to year thereafter unless terminated by either party upon not less than sixty (60) days notice prior to the termination of the then current term"; that Panhandle made application to the Federal Power Commission for such certificate and that Miami cooperated with Panhandle in its efforts to secure such certificate; that on October 11, 1946, the Federal Power Commission granted Panhandle temporary authorization to proceed with the construction and operation of the facilities and rendering service to Miami referred to in such contract, and that the certificate was granted on March 12, 1947;

That on December 4, 1950, Miami mailed a letter to the Business Manager of the State Hospital and sent copies to other various state agencies involved, which stated that the State Hospital was taking in excess of the base load; that such excess was costing Miami 1½¢ per M.C.F. more than the base load; and suggested the following future rate:

"For the first 425 M.C.F. per day 21¢ per M., as at present; for any and all gas delivered in excess of 425 M. per day for the billing period, 22½¢ per M.C.F.";

that the letter concluded:

"If this proposal is agreeable to you, we will increase the volume of gas available to you up to the reasonable limits of our physical plant and the current rules and regulations of the Federal Power Commission";

and that "on December 12, 1950," Miami "received verbal assurance from" the Business Manager of the State Hospital "of...