Northern Natural Gas Company v. Landon

• Decision Date: 07 September 1961
• Docket Number: No. T-2166.,T-2166.
• Citation: Northern Natural Gas Company v. Landon, 212 F.Supp. 856 (D. Kan. 1961)
• Parties: NORTHERN NATURAL GAS COMPANY, a Corporation, Plaintiff, v. Alf M. LANDON, an Individual, Defendant.
• Court: U.S. District Court — District of Kansas

212 F. Supp. 856

NORTHERN NATURAL GAS COMPANY, a Corporation, Plaintiff, v. Alf M. LANDON, an Individual, Defendant.

No. T-2166.

United States District Court D. Kansas.

September 7, 1961.

Lawrence I. Shaw, F. Vinson Roach, John T. Grant and Patrick J. McCarthy, Omaha, Neb., Cosgrove, Webb & Oman, Topeka, Kan., for plaintiff.

Byron M. Gray, Topeka, Kan., for defendant.

ARTHUR J. STANLEY, Jr., Chief Judge.

This is an action for the recovery of alleged overpayments to the defendant, Alf M. Landon, for natural gas produced from the Hugoton Field in Kansas and purchased from the defendant by the plaintiff. The action is based on an alleged contract to refund the overcharges and on a theory of restitution. The defendant has counterclaimed for claimed deficiencies in payments to him after plaintiff ceased paying the overcharges.

The parties have stipulated as to the facts and have submitted the matter to the court for decision on the merits based on the pleadings and stipulation of facts, the court reserving for later determination the issue as to the amount, if any, due from either party to the other.

Prior to January 1, 1954, the plaintiff, Northern Natural Gas Company, hereinafter called Northern, entered into several contracts to buy natural gas from Landon at prices of four cents and five cents per Mcf (thousand cubic feet) measured at 16.4 pounds p. s. i. a. (per square inch absolute).

On December 2, 1953, the Kansas Corporation Commission ordered the imposition of a minimum price of eleven cents per Mcf at 14.65 pounds p. s. i. a. The order became effective January 1, 1954. Northern notified Landon by letter dated February 23, 1954, that the eleven-cent price would be paid, but under protest and involuntarily. Also that, should the minimum price be declared invalid in judicial proceedings, the additional amount paid was to be refunded. Other similar letters were sent in 1955 and 1958.

Northern paid for its gas purchases monthly. On every check issued for gas bought during the period in question Northern wrote the following endorsement:

"Endorsed and accepted subject to conditions of a letter dated Feb. 23, 1954 received by payee from payor pertaining to the wellhead price order of the Kansas Commission dated Dec. 2, 1953."

After the 1955 and 1958 letters from Northern, the endorsements mentioned them also. Landon cashed these checks without objection.

On June 7, 1954, the United States Supreme Court rendered its decision in Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672, 74 S.Ct. 794, 98 L.Ed. 1035. It was therein held that the Natural Gas Act included regulation of independent producers such as Landon. Pursuant to this decision, the Federal Power Commission required Landon to file, as "rate schedules," his existing contracts for the sale of gas. In response to the Commission's inquiry as to why eleven cents was being charged when the contracts provided for four cents and five cents, Landon filed a copy of the Kansas Corporation Commission's minimum price order.

The F. P. C. accepted these "rate schedules" for filing by letters each of which contained the following statement:

"This acceptance for filing shall not be construed as a waiver of the requirements of Section 7 of the Natural Gas Act, as amended; nor shall it be construed as constituting approval of any rate, charge, classification, or any rule, regulation or practice affecting such rate or service contained in the rate filing; nor shall such acceptance be deemed as recognition of any claimed contractual right or obligation associated therewith; and such acceptance is without prejudice to any findings or orders which have been or may hereafter be made by the Commission in any proceeding now pending or hereafter instituted by or against your company."

Only one change has subsequently been made in the rate schedules. This was in 1957, when the rate was raised to 11.055 cents to reflect Northern's share of a severance tax imposed by the Kansas legislature. Northern was obligated by one of the contracts with Landon, entered into prior to January 1, 1954, to pay one half of any such taxes imposed. By agreement with Landon, Northern continued to pay eleven cents and remitted the .055 cent tax directly to the State of Kansas. The severance tax was declared void by the Kansas Supreme Court in January, 1958. State ex rel. Dole v. Kirchner, 182 Kan. 437, 321 P.2d 183 (formal opinion, 182 Kan. 622, 322 P.2d 759). Also in January, 1958, the Supreme Court of the United States held unconstitutional and void ab initio, the minimum price order of the Kansas Corporation Commission. Cities Service Gas Co. v. State Corp. Comm., 355 U.S. 391, 78 S.Ct. 381, 2 L.Ed.2d 355.

Thereafter, on March 24, 1958, Northern notified Landon that it would pay four cents and five cents as per the original contracts, for all gas purchased after February 1, 1958. Northern next, on July 31, 1958, made demand for refund of the "excess" payments which Landon refused. This suit ensued.

Defendant raises the question of this court's jurisdiction, alleging that the plaintiff cannot collaterally attack the F. P. C. order which accepted the eleven-cent rate. The plaintiff should first, says defendant, exhaust its administrative remedies and then appeal for review of the order. The Natural Gas Act gives exclusive jurisdiction to the United States Courts of Appeal where review of an F. P. C. order is sought. 32 Stat. 831, 15 U.S.C.A. § 717r. A similar jurisdiction question has been considered recently by the United States Supreme Court. Pan American Petroleum Corp. v. Superior Ct., 366 U.S. 656, 81 S.Ct. 1303, 6 L.Ed.2d 584 (1961). In the Pan American case, the plaintiff sued to recover overcharges paid to a gas producer pursuant to the Kansas Corporation Commission's eleven cents minimum rate order. The court said that jurisdiction depends on how the plaintiff "casts his action," not on "ultimate substantive issues of federal law." In other words, since plaintiff demanded recovery based on alleged contracts for refund, a traditional common law claim, and not on the Natural Gas Act, a federal law claim, he invoked the state court's jurisdiction.

The present case is in this court by virtue of diversity of citizenship. It could not have been brought here as a claim or right arising under an Act of Congress regulating commerce as provided in 62 Stat. 931, 28 U.S.C.A. § 1337. See Pan American Petroleum Corp. v. Cities Serv. Gas Co., 182 F.Supp. 439 (D.Kan.1958). Therefore, this court is vulnerable to the same jurisdictional objection as was the Delaware court in Pan American Petroleum Corp. v. Superior Ct., supra. The present plaintiff casts its complaint in the form of an action on contract and for restitution. It does not mention the Natural Gas Act except to identify itself as a "gas company" as defined therein. The present case is well within the holding of Pan American Petroleum Corp. v. Superior Ct., supra. This court has jurisdiction.

The next question to be considered is: What is the proper rate for gas purchased from January 1, 1954, to January 31, 1958, the period during which the Kansas Corporation Commission order had its spurious existence?

Prior to January 1, 1954, the rate or price was governed solely by the contracts. The contracts of course were subject to applicable laws. Consequently, when the Kansas Corporation Commission issued its minimum price order, the contract was modified and the rate increased to eleven cents per Mcf. This order was later held to be a nullity by the United States Supreme Court. If the order was a nullity, the modification was likewise. If nothing further had occurred, the proper rate would clearly be four cents and five cents.

After the United States Supreme Court ruled that independent producers such as Landon should be regulated under the Natural Gas Act, Phillips Petroleum Co. v. Wisconsin, supra, the F. P. C. issued orders requiring producers to file "rate schedules." These schedules were defined by the order as the "basic contract and all supplements or agreements amendatory thereof, effective and applicable on and after June 7, 1954."

The defendant argues that once the contracts were filed, the rates therein took on an independent existence and remained despite destruction of the reason for their existence. Thus although the eleven cents minimum price order and the .055 cent tax have been destroyed by the courts, defendant seeks to...