United States v. Kansas Gas and Electric Company

• Decision Date: 27 March 1963
• Docket Number: Civ. A. No. T-1838.
• Citation: 215 F. Supp. 532
• Parties: UNITED STATES of America, Plaintiff, v. KANSAS GAS AND ELECTRIC COMPANY, a corporation, Defendant.
• Court: U.S. District Court — District of Kansas

215 F. Supp. 532

UNITED STATES of America, Plaintiff, v. KANSAS GAS AND ELECTRIC COMPANY, a corporation, Defendant.

Civ. A. No. T-1838.

United States District Court D. Kansas.

March 27, 1963.

COPYRIGHT MATERIAL OMITTED

Newell A. George, U. S. Atty., Kansas City, Kan., Robert M. Green, Asst. U. S. Atty., Wichita, Kan., John J. Cowan, Dept. of Justice, Washington, D. C., for plaintiff.

Stanley Garrity, Wichita, Kan., for Kansas Gas and Elec. Co.

WESLEY E. BROWN, District Judge.

FINDINGS OF FACT

This is an action for breach of contract. The case is now for trial on the merits. The Court had heretofore sustained a motion for summary judgment. The case was remanded for trial on the merits by the Court of Appeals because of the existence of a good faith dispute of a material fact and for further proceedings in harmony with its views.¹

1. This case involves a suit by the United States, hereinafter referred to as the "Plaintiff" against the Kansas Gas and Electric Company, hereinafter referred to as the "Utility" to recover alleged overpayment made under a contract for the sale by the Utility of electrical energy for the use on the Planeview Federal Housing Project, hereinafter referred to as "Planeview" located near Wichita in Sedgwick County, Kansas. The claim of overcharge involves the years 1947 to 1952. The amount of the alleged overcharge is not in dispute. It is stipulated to be $62,468.75 with interest from September 2, 1953 at six per cent (6%) per annum.

2. The contract involved is referred to herein as the "Planeview contract" and was dated June 26, 1942. The issue of fact to be determined by the Court as contained in the pre-trial order is as follows:

"What was the intent of the parties in the use of the words, `this general class of service' in Paragraph 7(h) of the contract dated June 26, 1942?"

3. The stipulations and admissions of fact made by the parties have all been considered by the Court but for the purposes of our findings, those admissions and stipulations which go to the question of fact to be determined by the Court will be set out in these findings. The record has been analyzed generally with regard to actions of the parties prior to the execution of the disputed agreement, during its existence and after service under the agreement was discontinued.

4. The admissions of the parties show there were no extended or lengthy negotiations between the parties in connection with the execution of the Planeview contract. It followed similar negotiations and the form and terms of a similar contract between the same parties for a similar purpose in connection with a Hilltop Housing Project also in or near Wichita, referred to as the "Hilltop contract" and was dated August 18, 1941.

5. The Court received evidence with respect to the Hilltop contract as disclosing some evidence of the intent of the parties because of this admitted similarity to the Planeview contract.

6. The Hilltop contract was negotiated between the parties by written communications and not with any face to face negotiations. The negotiations started out with a wire from the Plaintiff asking for the rate available for service through a single master meter. The Utility answered that they would furnish service at standard retail rates. The Plaintiff requested information as to whether or not they could obtain wholesale service. The defendant advised that they did not have a rate applicable for wholesale service through a master meter and proposed to serve the Plaintiff under their regular urban residential service for residential use. The Plaintiff indicated that the retail service offered by the defendant was high and advised that it was "a well established practice in the utility industry that slum clearance and defense housing projects are special customers and as such are entitled to separate rate consideration."

7. The Plaintiff called Utility's attention to the fact that commissions of nine states recognized defense housing and slum clearance projects as special customers. The Utility furnished the Plaintiff with its standard form contract which included its service regulations approved by the Kansas Corporation Commission which applied to the supplying and taking of all classes of electrical service. The Plaintiff then forwarded copies of their approved form of contract and suggested that the defendant follow it in all respects unless changes were absolutely necessary to meet special local conditions. The Utility then sent back a draft of a proposed contract calling attention to a change which they had made in Section 4 which provided for a five year contract with suitable cancellation provisions which permitted them to give the Plaintiff a five per cent (5%) discount on the rates. The Plaintiff approved of this reduction, would not approve of the service regulations nor the penalty provision for nonpayment contained in the defendant's proposal. The Plaintiff in further negotiations with respect to the proposed agreement would not approve of the service regulations because they should not enter into contracts in which it agreed to abide by all rules and regulations which apply to all corporations, partnerships, or individuals, and advised that their approved form of contract covered all necessary items. The Hilltop agreement was finally agreed to in the form prepared and submitted by the Plaintiff, but prior to its execution, the Utility asked for an executed contract in order that they could comply with the State Corporation Commission's rules and file the rate with the Commission because they could not apply the rate unless they had the Commission's approval of it.

8. The above procedure was generally followed in the negotiation, preparation and execution of the Planeview contract. There were no face to face negotiations and the Utility was required to follow substantially the same form of agreement submitted by the Plaintiff and used in the Hilltop contract. The proposed Hilltop contract had in it the same provision now in issue and contained in the Planeview contract, referred to hereafter as "7(h)".

9. On June 26, 1942, and thereafter while the Planeview contract was in force and effect, the Utility conformed to and followed the statutory procedure of filing its rates of charges to customers with the State Corporation Commission in the following ways: (a) Filing of General Rate Schedules under Section 66-117, G.S. of Kansas, 1949; and (b) Filing individual contracts for electric service which incorporates therein the rates to be charged to the customer under each such individual contract, under Section 66-108, G.S. of Kansas, 1949.

10. The Hilltop and Planeview contracts were received, filed, and approved by the State Corporation Commission. They were not filed as a part of any General Rate Schedule and no rate schedule number was assigned to either.

11. It is pertinent to these findings to include a brief description of the Planeview project, a detailed description set out in the pre-trial order was used by the experts in giving their testimony to the Court. The admission of the parties was in part as follows:

"The Planeview project was constructed in two sections, denominated project KAN-14023 and KAN-14024 respectively. Project KAN-14023, on a site of approximately 352 acres, was composed of 2,300 dwelling units; * * * buildings or facilities with square feet of floor area * * *."

"Project KAN-14024, the other section of Planeview was on a site of approximately 193 acres, and contained 2,200 dwelling units, * * * This section contained one main administration building and four sub-administration buildings, four auditoriums which also served as churches, and a reservoir with pumping equipment and a coal yard with railroad spur line.

"The two sections shared a fire house, five principal school buildings, and eight auxiliary elementary schools."

12. The Planeview contract may be generally summarized in the language used by the Court of Appeals² and that summary discloses the provisions of the contract over which the dispute has arisen. The Court of Appeals said:

"The contract required the Utility to deliver electricity to a designated point where it was metered for billing purposes. Beyond that point the Housing Authority distributed the electricity to the users and included the charge therefor in the rent as an incident of tenancy. The dispute arises over the interpretation and application of the following provision of the contract:

"`If during the period of this contract, the Utility makes general reductions in rates or if lower rates are made applicable to this general class of service, then such reductions shall be applicable to the rates for the service covered by this contract.'" (Italics ours).

13. The only two people whose direct testimony could be considered informative with respect to the intent of the parties by the insertion of paragraph 7(h) in the Planeview contract at the time of its execution, were Mr. Morris Miller who represented the Plaintiff, and Mr. Frank Barr, who as Vice-President represented the Utility. Neither of these gentlemen ever met or discussed the provisions of 7(h), or any other provisions of the Planeview contract, or any other contract.

14. Mr. Miller stated that the provisions shown by 7(h) were drawn by the Plaintiff and put in the contract in general terms so that the Plaintiff would get the benefit of reduced rates under widely varying local circumstances or given to any customer who or which was similar to the housing project in terms of size, load factor or any other item that goes into rate making. The defense housing projects were entitled to separate rate consideration because the acquisition by a utility company of sizeable additional numbers of consumers formed the basis for special rates. The practice in the utility industry at the time was that slum clearance and defense housing were special customers. The usual factors which rate making people used to...