Phillips Petroleum Co. v. Riverview Gas Compression Co.

• Decision Date: 03 March 1976
• Docket Number: No. CA-2-1365.,CA-2-1365.
• Citation: 409 F. Supp. 486
• Parties: PHILLIPS PETROLEUM COMPANY, a corporation, Plaintiff, v. RIVERVIEW GAS COMPRESSION COMPANY et al., Defendants.
• Court: U.S. District Court — Northern District of Texas

409 F. Supp. 486

PHILLIPS PETROLEUM COMPANY, a corporation, Plaintiff, v. RIVERVIEW GAS COMPRESSION COMPANY et al., Defendants.

No. CA-2-1365.

United States District Court, N. D. Texas, Amarillo Division.

March 3, 1976.

COPYRIGHT MATERIAL OMITTED

C. J. Roberts, Jack Ritchie, Thomas L. Cubbage, II, Amarillo, Tex., for plaintiff.

Paul H. Smith of Cox, Smith, Smith, Hale & Guenther, Inc., San Antonio, Tex., for Pensco & Nat'l Bank of Commerce of S. A.

Robert J. Hearon, Jr., of Graves, Dougherty, Gee, Hearon, Moody & Garwood, Austin, Tex., for Wm. Mark Day, Jr.

Maston C. Courtney of Culton, Morgan, Britain & White, Amarillo, Tex., for Riverview.

MEMORANDUM OF OPINION

FINDINGS OF FACT AND CONCLUSIONS OF LAW UPON REMAND

WOODWARD, District Judge.

I.

This is a continuation of an interpleader action filed on March 12, 1973, by Phillips Petroleum Company ("Phillips") to determine who was entitled to the interpleaded fund which represented additional proceeds due under several casinghead gas contracts in the wake of Federal Power Commission Opinion No. 586 (The Hugoton-Anadarko Rate Order) having become final, and in which several of the defendants counterclaimed against Phillips for interest. The prior aspects of this case are reported as Phillips Petroleum Company v. Riverview Gas Compression Company, 372 F.Supp. 282 (N.D.Tex.1974), and as Phillips Petroleum Company v. Riverview Gas Compression Company, 513 F.2d 374 (5th Cir. 1975),¹ cert. denied, sub. nom., Phillips Petroleum Company v. Adams, 423 U.S. 930, 96 S.Ct. 281, 46 L.Ed.2d 259 (1975).²

Prior to the initial trial of this action a number of the interpleaded defendants disclaimed any interest in the fund interpleaded by Phillips, and the other remaining defendants adopted the salutory course of resolving their disagreements with respect to the ownership of the interpleaded fund in two separate settlement agreements so that this Court was not required to interpret the various instruments of assignment between the remaining parties.

The first trial of this action was had on March 6, 1974, and the sole questions remaining were: (1) whether the court had jurisdiction to hear the defendants' counterclaims for interest; and (2) if jurisdiction existed, whether Phillips was liable to the defendants for interest. On March 12, 1974, this Court answered the first question in the affirmative and the second in the negative. The defendants appealed the Court's ruling on the interest question.

On May 22, 1975, on appeal, the Court of Appeals, relying on its decision in the companion case of Phillips Petroleum Company v. Adams, supra, reversed this Court's ruling on interest. Phillips' request for rehearing in banc was denied by the Fifth Circuit on June 18, 1975, 515 F.2d 1183. Thereafter, Phillips filed a petition for writ of certiorari which, on November 3, 1975, was denied by the United States Supreme Court.

In January 1976, the defendants filed with the Court of Appeals a Motion to Reform Mandate seeking therein to establish a right to obtain interest on any interest awarded in the remand phase of this action for the post March 11, 1974, period, that is, for the period subsequent to this Court's initial decision. On February 10, 1976, the Court of Appeals denied the defendants' motion.

Thus, this case was once again ripe for action by this Court under a mandate which reads in pertinent part:

"* * * We now remand this case to the district court for a determination of the amount of interest which Phillips must pay to each of the various claimants, consistent with Adams and the settlement agreements. For the reasons stated in Adams, Phillips need not pay interest for the period subsequent to March 12, 1973, the date of its unconditional tender of the principal sum into court." 513 F.2d at 375.

At the direction of this Court, the parties have submitted for the Court's approval an agreed Supplemental Pre-Trial Order, which order has been approved by the Court and filed in this case. In the Supplemental Pre-Trial Order it was determined that there are no contested ultimate issues of fact and that the contested issues of law to be determined at trial on remand are: (1) whether the defendants are entitled to interest in accordance with their contentions; and (2) whether Phillips is entitled to defeat, in whole or in part, defendants' claims for interest in accordance with Phillips contentions.³

II.

Thus, the above styled case came on to be tried on remand before the Court, without a jury, on March 3, 1976, with the attorneys for each party appearing and announcing ready for trial. After hearing and considering the evidence, the pleadings, the arguments and briefs of counsel, the Court files this Memorandum of Opinion which shall constitute the Court's findings of fact and conclusions of law on remand. Additionally, the Court incorporates as a part of the findings of fact in this case the factual admissions contained in both the Pre-Trial Order and the Supplemental Pre-Trial Order, and the Court's earlier Memorandum Opinion (printed at 372 F.Supp. 282 et seq.). A summary description of the circumstances attending this case is given below, but the Court refers to the above-described orders and opinions for further specific findings-of-fact.

In addition to Phillips, the parties defendant involved in this action are Riverview Gas Compression Company, a partnership composed of Ron Blumberg and Roy E. Travis, executors of the estate of M. M. (Marion Mitchell) Travis, deceased, Arnold M. Travis, Edward Meltzer, Sr., and Julius Fligelman; Ron Blumberg and Roy E. Travis, individually and as partners or former partners of Riverview Gas Compression Company, hereinafter called the "Travis Group," William Mark Day, Jr., an individual hereinafter called "Day"; Pensco, Inc., a corporation, individually and as trustee; and National Bank of Commerce of San Antonio, a national banking association. Inasmuch as there is a community of interest between the latter two parties, they are referred to hereinafter simply as "Pensco."

Phillips is a petrochemical company which is engaged, among other things, in the purchase, transportation, and sale of natural and casinghead gas. During the time relevant to this action, the Travis Group, Day and Pensco were engaged in the production and sale of oil and gas from mineral leases located in the Texas Panhandle. Casinghead gas produced by the Travis Group, Day and Pensco was sold to Phillips pursuant to percentage-of-proceeds contracts which provided, among other things, that the amount payable under the contract would be pegged as a percentage of the price at which Phillips sold gas to third parties.

The price of gas charged by Phillips in its sales to pipeline companies for interstate transportation and resale was controlled by the Federal Power Commission ("FPC" or "Commission") under its broad authority to fix just and reasonable rates for such sales.

Phillips filed numerous proposed price increases with the FPC that were originally suspended by the Commission and later put into effect by Phillips subject to refund. Prior to making collections subject to refund Phillips was required to file a corporate undertaking with the FPC to make certain that such refunds would be made to purchasers if the FPC so ordered. It can be seen that if the FPC subsequently granted only part of the requested price increase, then Phillips was required to refund part of the sales proceeds it had received to the purchasers. These proceeds are known as "refundable" monies; those proceeds obtained as a result of the approved portion of the price increase are known as "sustainable" monies and were to be paid, in part, by Phillips to the producers pursuant to the casinghead gas contracts. Pending FPC approval of the price increase, Phillips made monthly payments to the Travis Group, Day and Pensco, and to the other percentage-of-proceeds contract sellers, for Phillips' gas purchases on the basis of the "firm proceeds" of Phillips' own sales (i. e., calculated on the rates which FPC had previously approved) and did not remit any of the monies attributable to the proposed rate increases while FPC approval of the rates was still pending. Until Opinion 586 became final, Phillips had no way of knowing what portion of the sales proceeds would be "refundable" and what portion would be "sustainable."

The FPC ultimately approved a portion of the price increases requested by Phillips and established refund requirements for those increases that were not approved. The ruling by FPC was affirmed by the Ninth Circuit Court of Appeals in People of the State of California v. Federal Power Commission, 466 F.2d 974 (9th Cir. 1972), and this decision became final on October 28, 1972.

Prior to October 28, 1972, Phillips and Day and Pensco entered into three separate indemnity agreements more particularly described as follows:⁴

a. Indemnity Agreement, dated July 18, 1966, between W. M. Day, Jr., and Phillips (Appendix I Supplemental Pre-Trial Order.);

b. Indemnity Agreement, dated April 12, 1972, between Pensco, Inc. and Phillips (Appendix II, Supplemental Pre-Trial Order); and

c. Extension of Indemnity Agreement, dated May 2, 1972, between Pensco, Inc. and Phillips⁵ (Appendix III, Supplemental Pre-Trial Order).

The indemnity agreements provided that the monies would be paid to Day and to Pensco, respectively, and if the ultimate decision in the rate matter before FPC required a refund of all or any portion thereof, then they would refund same to Phillips together with interest. It should be noted that if Phillips was required to refund monies to its purchasers then Phillips would also be required to pay interest to the purchasers on the monies refunded for the length of time same were held by Phillips. Day and Pensco were required to obtain bank letters of credit as security and this was done.

Subsequent to the dates of the execution of the three referenced indemnity...