Natural Gas Pipeline Co of America v. Slattery

CourtUnited States Supreme Court
Citation58 S.Ct. 199,82 L.Ed. 276,302 U.S. 300
Docket NumberNo. 230,230
Decision Date06 December 1937

302 U.S. 300
58 S.Ct. 199
82 L.Ed. 276



No. 230.
Argued Nov. 8, 1937.
Decided Dec. 6, 1937.

Appeal from the District Court of the United States for the Northern District of Illinois.

[Syllabus from pages 300-302 intentionally omitted]

Page 302

Messrs. Douglas F. Smith and William P. Sidley, both of Chicago, Ill., for appellant.

Mr. Harry R. Booth, of Chicago, Ill., for appellees.

Mr. Justice STONE delivered the opinion of the Court.

This appeal presents the question whether the court below rightly denied an application for an interlocutory

Page 303

injunction restraining appellees, members of the Illinois Commerce Commission, from enforcing an order by which appellant was directed to open its records and accounts to inspection by the commission and to furnish certain statistical data for use in a proceeding pending before it. The proceeding was brought to fix rates charged for gas sold in Illinois by the Chicago District Pipe Line Company, an affiliated corporation.

Appellant, a Delaware corporation, sells in Illinois natural gas, which it transports through its pipe lines from Oklahoma to points in Illinois where, pursuant to a longterm contract, it delivers the gas to the District Company, an Illinois corporation. The latter is engaged in intrastate commerce in Illinois where it sells the gas, which it purchases from appellant, to other companies which in turn distribute the gas to consumers within the state. The rates of the District Company are subject to regulation by the commission, as provided by the Illinois Public Utilities Act (Ill.Rev.Stat. c. 111 2/3, § 1 et seq.). All its shares of stock are owned by the Natural Gas Investment Company, an Illinois corporation, which owns 26.63 per cent. of the outstanding shares of appellant. Of the eight or nine directors of appellant, at all times since its incorporation, two have been members of the board of directors of either the Investment Company or of corporations wholly controlling it or the District Company, through stock ownership. The commission has found that the president of the District Company is president and director of the Investment Company and a director of appellant, and that a director of the District Company and of the Investment Company is a vice president and director of appellant.

Section 8a(2) of the Illinois Public Utilities Act, Ill.Rev.Stat.1937, c. 111 2/3, § 8a(2) gives the commission jurisdiction over 'affiliated interests having transactions, other than ownership of stock and receipt of dividends

Page 304

thereon, with public utilities under the jurisdiction of the commission, to the extent of access to all accounts and records of such affiliated interests relating to such transactions, * * * and to the extent of authority to require such reports with respect to such transactions to be submitted by such affiliated interests, as the commission may prescribe.' The subsection defines 'affiliated interests' as meaning:

'(c) Every corporation, ten per centum or more of whose voting capital stock is owned by any person or corporation owning ten per centum or more of the voting capital stock of such public utility; * * *

'(f) Every corporation which has one or more elective officers or one or more directors in common with such public utility.'1

In November, 1936, the commission, in the exercise of its authority under the act, began a proceeding to which the District Company was, and appellant was not, a party, to determine whether the rates charged by the District Company should be reduced. After hearing evidence, the commission found that appellant was an affiliate of the District Company and that in order to fix reasonable rates for the sale of gas by the latter, inquiry was

Page 305

necessary into its operating charges including the cost of gas purchased from appellant. The commission accordingly made an order, the validity of which is assailed here, directing that appellant make available for examination by the commission all of its accounts and records relating to transactions between it and the District Company. It further ordered that appellant file with the commission a report of the cost of property used in, and a statement of income and expenses in connection with, supplying gas to the District Company; or, in the alternative, that it report to the commission a statement of the cost of all properties used by it in the business of transporting and selling natural gas, together with a statement of the income and expenses of such operations.

In the present suit in equity, brought in the District Court for Northern Illinois, petitioner prayed that appellees be enjoined from enforcing the order and that it be set aside as made without authority of state law, and on the further grounds that the statute and order are invalid because they violate the commerce, equal protection, and due process clauses of the Federal Constitution. The case comes here on appeal, Judicial Code, § 266 (as amended, 28 U.S.C.A. § 380), from the order of the District Court of three judges, which denied an interlocutory injunction. It held that appellant had failed to show that the order infringed any constitutional immunity or that appellant would suffer irreparable injury by reason of the action of the commission.

The court thought that the commission, in conducting the pending rate proceeding, and in investigating the reasonableness of the operating costs of the District Company, was entitled to the information it sought, which might be disclosed by an examination of appellant's accounts and records; that for that purpose the commission would have been entitled to compel their production by subpoena; and that as appellant had failed

Page 306

to present to the commission any objection to the breadth of the order, or to the use of an order rather than a subpoena to secure the information, no case was made for the interposition of a court of equity.

First. The appellant assails the statute as unconstitutional so far as it authorizes the commission to obtain from appellant's books and records any information bearing upon the reasonableness of the price of gas sold to the District Company. Appellant recognizes that the absence of 'arm's length bargaining' between contracting affiliates is sufficient to support such an inquiry, and may be an adequate ground, in fixing the reasonable rates of a public utility company, for disregarding the price at which it purchases the commodity distributed. See Western Distributing Co. v. Public Service Comm., 285 U.S. 119, 52 S.Ct. 283, 76 L.Ed. 655. But it is said that here the statute infringes the commerce clause (article 1, § 8, cl. 3) and the Fourteenth Amendment because it authorizes the inquiry without proof of common control or want of arm's length bargaining; that the Constitution forbids all inquiry as to the relations between he two companies and the prices at which the gas is sold by one to the other, in advance of proof of their common control or other evidence that the bargaining was not at arm's length. Assuming, without deciding, that the breadth of this attack relieves appellant of the necessity of applying to the commission to vacate its order before seeking equitable relief in the federal courts, see Hollis v. Kutz, 255 U.S. 452, 41 S.Ct. 371, 65 L.Ed. 727; cf. United States v. Sing Tuck, 194 U.S. 161, 167, 24 S.Ct. 621, 48 L.Ed. 917, we think that the objection is not substantial.

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