Saturn Oil and Gas Co. v. Northern Natural Gas Co.

• Decision Date: 04 May 1966
• Docket Number: No. 18070.,18070.
• Citation: 359 F.2d 297
• Parties: SATURN OIL AND GAS COMPANY, a Corporation, Appellant, v. NORTHERN NATURAL GAS COMPANY, a Corporation, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

359 F.2d 297 (1966)

SATURN OIL AND GAS COMPANY, a Corporation, Appellant, v. NORTHERN NATURAL GAS COMPANY, a Corporation, Appellee.

No. 18070.

United States Court of Appeals Eighth Circuit.

May 4, 1966.

Flavel A. Wright, of Cline, Williams, Wright, Johnson, Oldfather & Thompson, Lincoln, Neb., and Chisman Hanes, of Klagsbrunn & Hanes, Washington, D. C., made argument for appellant and filed brief.

John B. Will, Omaha, Neb., made argument for appellee and filed brief with Jack C. Osborne and F. Vinson Roach, Omaha, Neb., and Robert B. Crosby, of Crosby, Pansing, Guenzel & Binning, Lincoln, Neb.

Before VAN OOSTERHOUT, MATTHES and MEHAFFY, Circuit Judges.

VAN OOSTERHOUT, Circuit Judge.

This is an appeal by Saturn Oil and Gas Company (Saturn) from an adverse judgment in the United States District Court for Nebraska awarding appellee Northern Natural Gas Company (Northern) $29,327.51 plus interest as a refund on natural gas purchase overpayments allegedly made under protest from January 1, 1954, to February 1, 1958, and dismissing Saturn's counterclaim for $69,074.10 representing the difference between the alleged contract price and the price actually paid by Northern from February 1, 1958, to August 31, 1964.

This case was heard by the court without a jury. The court's findings of fact, conclusions of law and basis of decision are set forth in its memorandum opinion reported at 240 F.Supp. 89.

This suit was originally filed in the state court and was properly removed. Jurisdiction in the trial court, based upon diversity of citizenship and the requisite amount, is established. 28 U.S.C.A. § 1332.

The rights of the parties hereto are based upon contract. It is well-settled that the type of action here involved is not barred or superseded by the provisions of the Federal Natural Gas Act. See Pan American Petroleum Corp. v. Superior Court of Delaware, 366 U.S. 656, 663, 81 S.Ct. 1303, 6 L.Ed.2d 584; Landon v. Northern Natural Gas Co., 10 Cir., 338 F.2d 17, 20; Pan American Petroleum Corp. v. Kansas-Nebraska Natural Gas Co., 8 Cir., 297 F.2d 561, 566.

In our present case, as was the situation in our Pan American case and Landon, FPC accepted for filing the producer's tendered rate based in part on a Kansas minimum price order but held no statutory hearing and made no determination as to the validity of the rate. Each of the courts held such filing did not preclude recovery of excess payments made by reason of the Kansas minimum rate order which was subsequently held to be void.

The basic issue presented by this appeal relates to the construction of the letter contract of March 27, 1957, entered into between Saturn and Northern. Saturn contends that the agreement fixes a new price for the gas furnished for the period commencing January 1, 1957, at the level of the Kansas minimum price order — 11¢ per thousand cubic feet (Mcf) at 14.65 pounds pressure per square inch absolute (psia). The original contract between Saturn and Northern entered into on December 1, 1951, provides for the sale of gas produced by Saturn at certain wells in the Kansas-Hugoton field for 11¢ per Mcf measured at 16.4 psia. Such rate was to be effective for a five-year period commencing January 1, 1952, at the end of which period the price was open for renegotiation with provision made for arbitration if the parties were unable to agree upon a price.

In 1953 the Kansas Corporation Commission issued an order effective January 1, 1954, setting a minimum price of 11¢ per Mcf measured at 14.65 psia for gas produced in the Hugoton field. Since the volume of gas varies inversely with the pressure applied, the effect of this order was to increase the price of the gas involved in the Saturn-Northern contract.

On February 23, 1954, Northern wrote Saturn a letter advising Saturn that it would pay the increased price called for by the Kansas minimum rate order under protest but would expect a refund for all payments made above the original price if the Kansas order was found to be invalid. Each check tendered thereafter bore a stamp endorsement reading: "Endorsed and accepted subject to conditions of a letter dated February 23, 1954, received by payee from payor pertaining to the wellhead price order of the Kansas Commission dated December 2, 1953."

On January 1, 1957, when the price fixed by the original contract became open for renegotiation, both parties were reluctant to enter into a new price agreement because of pending legislation in which they were interested. On March 27, 1957, they entered into an agreement, the pertinent portions of which read:

"Inasmuch as the parties have been unable to complete negotiations of the price to be effective January 1, 1957, Seller is agreeable to extending the time for the completion of such negotiations or arbitration and to postpone the commencement date on which a possible change in price shall become effective to a date not later than July 1, 1957; provided, however, that Seller may designate the first day of any month between the date hereof and July 1, 1957, as the commencement date on which a possible change in price shall become effective by written notice to Northern given not less than 30 days prior to such effective date.

"It shall be understood that during the period from the date hereof until July 1, 1957, or said designated date prior thereto, Northern agrees to pay Seller and Seller agrees to receive prices for gas delivered under said Contract at the rate provided for in Seller\'s F.P.C. Gas Rate Schedule corresponding with said Contract as now effective or hereafter modified by the Federal Power Commission, which rate at the present time is 11¢ per Mcf at 14.65 psia."

Following this agreement, Northern continued to place upon its checks the endorsement heretofore described and Saturn continued to accept and endorse the checks.

On January 20, 1958, the United States Supreme Court in Cities Service Gas Co. v. State Corporation Commission of Kansas, 355 U.S. 391, 78 S.Ct. 381, 2 L.Ed.2d 355, reversed the decision of the Kansas Supreme Court which had sustained the minimum price order, and thereafter the Supreme Court of Kansas held that the result of such reversal was to render the Kansas order void ab initio. Cities Service Gas Co. v. State Corporation Commission of Kansas, 184 Kan. 540, 337 P.2d 640.

On March 24, 1958, Northern by letter informed Saturn that payments for gas purchased in February 1958 and thereafter would be made at the price stipulated in the original contract — 11¢ per Mcf at 16.4 psia. Payments thereafter were made upon such basis.

Northern demanded a refund of $29,327.51, the difference between the payments it had made under protest and the amount that would have been due by the terms of the original contract price and upon Saturn's refusal to pay, brought this action to establish its claim. Saturn has counterclaimed for $69,074.10, the difference between the amount it claims is due under the March 27, 1957, agreement for the period from February 1, 1958, to August 31, 1964, and the amount actually paid by Northern on the basis of the original contract rate for such period.

Saturn admits that it owes Northern $20,628.18 for payments made above the contract price for the period to December 31, 1956. Such a result is compelled by Pan American Petroleum Corp. v. Kansas-Nebraska Natural Gas Co. and Landon v. Northern Natural Gas Co., supra. This court in Pan American, after holding that the effect of the Supreme Court's invalidation of the Kansas minimum price order was to make such order void ab initio and a complete nullity, stated:

"Being a nullity, it could not modify the contract rates between the parties. The effect could only have been to leave the parties where they were prior to the unlawful order — in other words, bound by the contract rates to which they had agreed in 1949, 1950 and 1952. * * *" 297 F.2d 561, 568.

We quoted with approval from Cities Service Gas Co. v. Federal Power Commission, 10 Cir., 255 F.2d 860, 865, as follows:

"When the United States Supreme Court struck down the Kansas order, there was no longer a valid order which could modify the contract rate, and the contract rate was the rate effective on June 7, 1954. * * *" 297 F.2d 561, 568.

Saturn urges that our present case differs from Pan American and Landon by reason of the agreement entered into between the parties on March 27, 1957, which has heretofore been set out. Saturn's claim of a new rate contract, if established, would distinguish this case factually from Pan...