Earl Warren: -- 47 and 48. Mr. Solomon, you may continue with your argument.
Richard A. Solomon: May it please the Court. As I made clear yesterday all of the gas purchases involved in this case like all of the other gas purchases that El Paso makes from producers or intermediate pipelines go into its regular system and are used primarily for sales in interstate commerce for resale. The only sense in which these sales are restricted for intrastate or for internal use by El Paso is that, the contracts between El Paso and the sellers purport to saw a tribute to gas. And the majority of the Fifth Circuit below believed this process which they called contractual segregation was sufficient to remove these sales from the jurisdiction of this Commission but I think what we think is the correct law is summed up shortly and succinctly as probably as it could be done in the dissenting opinion of Judge Reeves. And I'm referring to page 376 of the short Volume 2 of the appendix. And what Judge Reeves said there was, whether gas is transported in interstate commerce, I'm reading from the first full paragraph on that page, whether gas is transported in the interstate commerce or is sold in interstate commerce for resale depends not on what the party say about the transaction but what is done with the gas. This Court referring to the Fifth Circuit so held in Deep South Oil Company and its companion case Shell Oil Company, both of which were referred to on our briefs. In decisions of analogous question, the Supreme Court has continually disregarded contracts, which give a fictional construction to business transactions, and then he cites a series of cases, which we also discuss in our brief. As said in Connecticut Company versus the Power Commission, 324 U.S. 515 and 529, federal jurisdiction was to follow the flow of electric energy, and engineering, and scientific rather than a legalistic or governmental test. And I might just add that this language was used by this Court only last year in the Colton case. Now basically, this is our argument. Jurisdiction in both the gas and power fields --
Potter Stewart: What case last year in this Court, you just said --
Richard A. Solomon: It was called Federal Power Commission against Southern California Edison. And it appears at 376 U.S. 209, Footnote 5. This was the case involving whether the ga -- whether the power from Boulder Dam --
Potter Stewart: Yes, yes --
Richard A. Solomon: -- is in engineering. There are number instances where this has been so held by the lower courts in this Court. This is really the first time to our knowledge where any lower court has held that this type of contractual segregation is permissible. For example, in the Deep -- in the Shell Oil case which I mentioned a second ago, their sale was made by producers in Texas to a Texas company which processed the gas, which was casinghead gas, to extract natural gasoline and other products and then sold what was left to another company which send it in to interstate commerce. And it was argued that that was both a local sale and that it was not a sale for resale since the contract provided that the purpose of this sale was for manufacturer at the second plant. But the Fifth Circuit simply said that the legal determination of the question rests not on the parties' use of the word manufacture but upon the actual disposition of the gas. Now, Judge Reeves also said in the same opinion that careful consideration of the cases upon which the lower court relied and upon which my opponents here rely permit a finding -- none of them permit a finding of “nonjurisdictional” status solely on the language of the contract in each case. In addition to the language purporting to restrict the use of gas or electricity, there was also an actual flow of gas or electricity from the “nonjurisdictional” seller into the particular restricted use. And with the brief time I have left, I'd like to discuss what I think are the two principal props for the lower court's opinion and why he was -- why it was wrong. I think this whole device which was new with El Paso here and which is by no means something which was common in the gas industry up to this time of the sale. I think this whole idea stems from some language that this Court included in the United States v. PUC of California at 345 U.S. As the Court may remember, that case involved the sale of gas by the California Electric Company to the navy. The navy took the power in California and transmitted over its lines into Nevada. Most of that purchased by the navy was for its own users, but about 17% was used for resale to residents of a housing project. Given these facts, the Court had no difficulty in saying that the entire transaction was jurisdictional. And it brushed off with a single work unsubstantial, a claim that the sale was not jurisdictional because California Electric didn't intend to make sales for resale and hadn't so specified in its contract. The Court said, and I'm quoting from page 316, “The concrete fact of resale of some portion of the electric energy transmitted from a state to a point outside thereof invokes federal jurisdiction at the outset.” The problem comes from the language of the Court in the California case in which it suggested, which had left open the question, as to whether if California Electric had made two separate sales to the navy, one for resale and one for its own use, whether the latter sale could have been classified as juris -- as “nonjurisdictional”. The Court citing its own opinion in the Penn Water case at 343 U.S. strongly implied that such a segregation would not have been available to split an interstate from an intrastate's dream of gas or power. But it did question as to whether or not the problem might be as it said different with respect to splitting off such a stream between a purchaser's own use and the resale situation. Now, I suggest that nothing in this Court's opinion supports the lower court decision here. All the Court was suggesting was that on appropriate circumstances it might be possible for the sole supplier of a buyer as California electric of course was the sole supplier of the navy, to make two separate sales to that buyer, one of which would be jurisdictional and the other which would not be jurisdictional. Thus, a pipeline at the end of its pipeline might take the gas which should had El Paso, it might take the gas which had -- had been transporting and make a sale -- make one sale to a city for a jurisdictional purpose and another sale to the same city for its own use. The problem involved in the City of Hastings case which was referred to in the footnote in California and which is one of the other major cases relied on here. But in such a situation of course when the pipeline says that the “nonjurisdictional” sale is a sale of my gas for use in your boiler fuel. That is where the fuel for use in the boiler is coming from. It's not coming from three or four other sellers. We don't have a situation in where the “nonjurisdictional” contract merely claims to be providing this gas, it is providing this gas. Now, the other primary prop in the lower court's opinion for this decision is the case in the Eight Circuit Court of Appeals called State of North Dakota against the Federal Power Commission, which is discussed at considerable length in the briefs. And which may possibly represent a peculiar situation in which it limited amount of segregation, if you want to use the word, is possible in the intrastate field. The facts there were that the Montana-Dakota Pipeline was buying gas from one source in Montana. It was buying gas at the so-called Tioga Station. All of its gas came from there. The gas actually previously was 85% from Amerada and 15% from Cigna. But all the gas they purchased was at that point. They bought it under two contracts; one of which was admittedly for intrasta – interstate, and the other of which was restricted for intrastate deals. Most of the intrastate gas actually went over a separate line which didn't get out of the state at all. But some of the intrastate gas traveled along with the interstate gas in a line which extended into Wyoming and was siphoned off before it got to Wyoming into four small North Dakota communities. And the Court, the Eight Circuit held in that case that those sales were intrastate commerce because they were made in the State of North Dakota and never got outside of the State of North Dakota. Well, it's perfectly clear I think from my recital of the facts that the reason that they were able to do so was that you didn't have between the Tioga plant and the four laterals to these North Dakota communities intervening parties coming in and bringing gas. So that it was fair to say, that all of the gas sold at the Tioga plant for intrastate sale and no other gas was the gas that got into these four laterals. The problem, I suggest, would be analogous to this case. If instead of the complex arrangements we had, we had only the two Lo-Vaca contracts and the “nonjurisdictional” one was limited to the gas used at the Coquat station and a route to Sonora. In other words, it was gas which had to be from Lo-Vaca because there was no other gas coming in to the picture. That would be the North Dakota case presented here. And since that's the case, we don't have to get in to the separate problem of whether or not the North Dakota case is right or not since it again depends on what this Court in California said it was probably not possible segregation of intrastate and interstate gas. Now finally, let me just say a word about what's not in this case, although you might be told it is. And I'm referring now to so-called direct sales contracts where a producer sells to an industry or utility in a different state and the buyer picks up the gas. But because he can't use it in Texas or Louisiana, he transfers it to a pipeline and the pipeline, in turn, retransfers an equivalent amount of gas at the other end of the pipeline. Or transportation agreements as such whereby a shippers and if they gives a pipeline gas and the pipeline gives him an equivalent amount of gas at the other end of the pipeline. Now, the Commission in this very case may express that it was not holding those types of transactions jurisdictional, and it has never held either type of transaction jurisdictional. It does have and I would -- do not deny it, a proceeding pending before, at the present moment, undecided looking into the question of transportation agreements, because there are questions as to whether or not how they should be treated. But it hasn't done anything of this nature so far and contrary to what you may hear, a decision here does not necessarily decide those other questions. And the reason for that is very simple in my opinion. There's a separate serious question involved in calling direct sales or transportation agreements, sales for resale. And they are the question which has not been resolved as to whether there's any sales relationship involving the pipeline in those cases. If there is and maybe there are very well might be, but if there is, we might have this case. But whether there is or not, has never been determined.
Earl Warren: Mr. Tuttle.
Richard E. Tuttle: Mr. Chief Justice, speaking for the State of California, I would like to talk to the Court about those aspects of this case which are particularly concerned to the California consumer and which are the reason for my presence here. Mr. Solomon has explained the case broadly and discussed the authorities which are relied on by respondents. We're concurring his presentation. We feel that the respondents here seek to take the undisputed physical facts and turn them upside down by means of a legal fiction of contractual segregation. All of the parties here agree that the gas that we're talking about, the gas to be sold to El Paso, is the same gas at least in very large part which is later to be resold in California. This physical fact is not contested and because of these admitted facts, each of the sales thus fall literally within the terms of a Natural Gas Act as a sale in the words of the Act in interstate commerce of natural gas for resale.
Speaker: Well, it could be also be single (Inaudible).
Richard E. Tuttle: Yes, there are degrees with this the Court --
Speaker: Thus, the physical gas is (Inaudible)
Richard E. Tuttle: There are --
Speaker: The contract arrangements are singled so far is thought to be jurisdictional --
Richard E. Tuttle: Yes, Your Honor. It perhaps making the point if you can take molecular identification and put it to an extent that if literally applied might have some effect on existing practices. With this, I concur and I think that my position on this would come out as I proceed with my discussion on this. I do say that the sales are within the literal language of the Act and the question is whether there is any reason under the facts presented here. The Court showed as a matter of policy seeks to insulate these transactions from federal control. We feel that the gap that would be created in this situation by giving effect to this contractual segregation was a serious one and it's -- it's a special interest to California because we consume nearly 80% of El Paso's gas. And if the device tested here proves successful, some 7% or 8% of the gas purchased under FPC controlled prices by El Paso could escape that control. The gas would become more costly. This additional cost within large part be ultimately carried by the California consumer, and with the elimination of FPC control over these price of these contractually segregated sales, and with no control possible by the California Commission over these sales, what protection is left for the consumer. It's not fair and it's not reasonable to expect that Texas, even if it could legally act, would regulate these prices so as to reduce Texas income and provide California consumers with a saving of the expense of Texas. The Natural Gas Act is designed to provide some comprehensive and effective regulation. It doesn't contemplate ineffective regulation or a gap on either the State or the federal level. We suggest that this is not the place to apply a legal fiction and depart from an interpretation of the Act according to its terms. As a matter of physical fact, the sales do fall within the language of the statute.
Speaker: (Inaudible)
Richard E. Tuttle: The sales that -- we are talking about the sales of Lo-Vaca and Houston. In Texas, no, we can't.
Speaker: Not with those regulations.
Richard E. Tuttle: Not over those sales, no Your Honor. In light of the background that I've given, it would appear that only the most extra ordinary and compelling extrinsic policy considerations would just apply a plain, a legal fiction, so as to reach a result that's contrary both to the literal language and we believe to the policy of the Natural Gas Act. Are there any such unique and extraordinary reasons here such overwriting policy considerations which would lead, tend to support respondents position? We can look at some of the readings, it would have been suggested. The respondents placed great weight in their written statements of intent -- of intention. These solemn and ritualistic recitals careful and precise recitals of intent to perform an Act that admittedly can't be physically performed. And indeed, this was one of the things urged in support of their position but the fact the act is physically impossible. The recitals then are simply self-serving declarations. The lower court suggested another point. It said that fictitious segregation might be required in order to avoid construction of unnecessary duplicate pipelines, lines that might otherwise be constructed so that Houston and Lo-Vaca could directly serve the source where the gas was to be consumed. This seems to us somewhat unrealistic. FPC jurisdiction may appear on the pleasant but the economic facts of business lie for such that it would seem federal jurisdiction would be preferable to the construction of new and separate pipelines across Texas, New Mexico and Arizona simply to provide fuel for El Paso's compressors and other facilities. We feel that worry about that kind of duplicate construction is just sheer speculation about an unlikely alternative. It's not sheer speculation, however, to be concerned about unnecessary construction such as proposed in this case. In order to make the ferry hold water, it's necessary to put in additional valves, construct a 16-inch pipelines to the expense of millions of dollars also that it can be set with a straight phase that it's theoretically possible for one molecule of Houston or Lo-Vaca gas to reach the place where it's supposed to reach. Although everyone agree that only a tiny portion of that gas would ever reach the destination where it's supposed to be consumed under the recitals in the contract. Another point has been mentioned is that, I don't say this is directly urged but to some extent it is in the case. It appears that the gas obtained under these contracts might not be offered for sale by the producers or the gatherers unless the transactions are insulated from FPC jurisdiction. One might argue from this that FPC jurisdiction should be curtailed to enable El Paso to get gas that otherwise would not be available. We feel it unnecessary to elaborate on the objections to that type of a consideration. It might be helpful in understanding El Paso's motivations but this could hardly serve as the basis for a judicial decision surrendering federal jurisdiction. Again, the Commission's factual analysis at the flow of gas is criticized by the respondents. The respondents describe it in this way as the molecular identification theory. And actually what they're talking about is the Commission's effort to find out what gas actually flows where. And it said that this concern of the Commission where the actual flow of gas, now I used the words from respondent's brief runs counter to the whole stream of law governing commercial practices involving fungible commodities. There are other general allegations in respondent's brief with respect to the law of fungibles. And I would like to take a few moments just to discuss in general about that law and see its application if any to the facts before us. The term fungible is used by respondents as though it's a meaningful and significant legal description that would be helpful in this case. But it doesn't appear that fungible has a significant legal meaning in this context. The law of fungibles developed largely in cases of which the grain elevators are perhaps the typical ones. The question usually comes before the Court where there's been an unexpected development, a disaster of some sort either a physical disaster, fire, or flood, or a financial disaster wiping out the grain elevator proprietor, something about nature. The goods -- something has happened so that it's necessary to determine the interest, the ownerships of different people, perhaps a buyer, a seller, a bank. The question is to whether or not, there was a lien on property where their title had passed. The loss from the disaster must be allocated. Fungibility as applied by the courts in this context is nothing more than a device sometimes artificial perhaps to determine the intent of the parties that is not otherwise expressed. The intent of the party is clear, there is no problem. The man who out his grain on the grain elevator if he intended to become a co-owner, he did. He can pledge his interest in the undivided mask to the bank, the bank can have a lien on it. But if there's no expression of intent and this is where fungibility becomes important, the courts where the goods are homogenous have supplied an intent, an intent on the part of the parties to actually become co-owners of the undivided indivisible mask of commodities. The device as they say is artificial under these circumstances but it's not totally fictitious. And it's fair and reasonable. There is no great public policy involved. The object is to reach justice between the parties and to have a workable rule that fits into the practices of the marketplace. Other cases discuss fungibility in connection with confusion of goods. Those cases are low interesting because some of them suggest that one who voluntarily puts his commodity into a mask where it can't be distinguished from other commodities in the same mask can't profit from such voluntary commingling. And indeed, tortuous confusion of goods may lead to one who does it to lose the title to what he did own. And as we know in community property, states her husband to get things confused may find that he can't segregate his separate property, he no longer holds it. We feel that this doesn't have any direct bearing on the case but it illustrates that fungibility as an abstract concept doesn't get us anywhere. Our case is not a dispute between private parties where the intent of the parties is an important thing to define in order to achieve justice. The intent that's important here is the intent of Congress in the Natural Gas Act. It will also be noted that there is more make believe involved here than in the grain elevator cases. There, an intent is artificially supplied where there's fungibility. But the intent that is assumed on the basis of fungibility, is an intent to do something that is physically, logically, and legally possible. That's to become a co-owner in a mass of goods. That can be contrasted with this case where the intent is expressed by one owner with respect to all of his goods that he's going to make a separate use that admittedly is physically impossible of a commodity that he is willfully commingle with other commodities in an undistinguishable mask. This intent is recited of course for one purpose only, to escape regulation over a sale gas, a sale which admittedly is physically within the terms of the Natural Gas Act. We don't feel then that the general case is talking about fungibility are important here. There had been regulatory decisions which have referred to fungibility and have applied a rule involving the Natural Gas Act that do depart from molecular identification. They have cut out a federal jurisdiction gas that cannot be molecularly distinguished from other gas. And these cases were referred to by Mr. Solomon. I won't discuss them in detail other than to say that they are different from our case in several respects. First and most important practical difference is the regulatory impact in both the Hastings case and the North Dakota case. This Court said that the Federal Power Commission lack jurisdiction over an intrastate transaction that was segregated, although molecularly you could not tell the difference in the gas. But the result in both of those cases was to lead regulatory control in the Commission, in the state where the consumer who needed the protection resided that consumer could then look as he should look to his own state to protect his interest and to his regulatory commission to see that he had a fair treatment. That of course is to be contrasted with this case as I explained at the outset. Furthermore, there is a larger element of fiction involved with respect to the fungibility question in this case than in those cases. In those cases, there is no question that the gas that went to the “nonjurisdictional” source and was in fact the gas of the seller that was a sale. The gas went to the “nonjurisdictional” source and it went to a jurisdictional course -- purpose. But all of the gas was a seller's gas. The fiction that was applied in those cases was to depart from a strict molecule pursuit and say that under those facts, in the North Dakota, there was a tailgate of a plant. Some of the gas served communities in North Dakota. Others -- other of the same stream of gas left the state. At the time of sale, it's true, you couldn't tell which molecules were going to go where. But there's no question that the tailgate of this plant, all of the gas was bought from one source by one gas company and there's no question that those intrastate “nonjurisdictional” deliveries were deliveries of the same gas that we're talking about. We just couldn't be sure which molecule went which way. Whereas in this case, we know that 90% to 95% of the gas, which according to the contractual recitals, is to serve a certain purpose, it's never going to get there. It's commingled in the stream where it has a very tiny proportion of the total stream. And I would just like to say in closing. And we respectfully urge the Court not to reduce the protection which is presently enjoyed by the consumer under the Natural Gas Act as interpreted by this Court in the Phillips decision in 1954.
Earl Warren: Mr. Ormasa.
John Ormasa: Mr. Chief Justice and members of the Court, the Southern California Gas Company and the Southern Counties Gas Company of California are gas public utility distributing companies in Central and Southern California serving approximately 9 to 10 million people. We purchase some 75% to 80% of our gas supply from out of state. We received that at the California border principally from El Paso Natural Gas Company. We are taking at the border daily from El Paso approximately 1,300,000,000 cubic feet of gas per day which is the substantial flow of gas. Our neighbor utility to the north, the Pacific Gas and Electric Company also a California public utility pays approximately the same amount. The fact is that 80% of El Paso's gas is sold to the California market. That 90% of its jurisdictional gas is sold in the California market. Section 1 (b) here in question, provides when you have a sale or resale interstate commerce, the jurisdiction of the Federal Power Commission shall attach, and it does. In the Deep South case, the Fifth Circuit pointed out that as a practical matter and that this was brought to the attention of the Congress when they had it in mind in Section 1 (b) that the price which a public utility distributing company can charge his costumers. Or the low-price, he can charge these customers are dependent in large part in turn upon what it must pay the interstate pipeline company providing its gas supply. The price we pay for gas at the border is set by the Federal Power Commission. Why? Because as in Section 1 (b) and as this Court said in that FPC v. Natural Gas Pipeline Company, when you sell gas in one state and transport it and deliver it to a distributing company in another state, that is interstate commerce or resale. The fact is here that the Houston Lo-Vaca Gas would be the gas sold in the State of Texas and would in substantial part be transported and delivered to the State of California. This has been conceded throughout this proceeding. The parties so testified. The president of Houston Pipeline Company acknowledged it. The chief pipeline engineer of El Paso acknowledged it. No one said otherwise. The examiners so found, the Federal Power Commission so found, the majority opinion in the Fifth Circuit so found. In fact, the gas flows to California. Why then can we device some way of avoiding that jurisdiction? What justifies it? We are asked to engage in false idolatry. I used that term with some care having sat through the sections here the past couple of days on what is this, not in relation to what have you. But here, all the parties acknowledged that this is false idolatry. They say let's pretend, however, that the gas is used where the sale would be used. Let's pretend the gas will be used in Texas on the Houston gas, and let's ignore reality. Now, I like you to turn, if you would, to record page 115 which is a map that Mr. Solomon turned your attention to yesterday. It's Exhibit 6 in the proceeding. It describes the flow of gas. Perhaps while you are doing that, I might deal more generally with what I see the concepts been here.
Hugo L. Black: What page is that?
John Ormasa: 115 of the record Your Honor. There's a map there. There should be.
Hugo L. Black: Yes, right.
John Ormasa: Let me deal with the concept before we get to the actual facts of this case. The Section 1 (b) has two requirements in order to have a sale for resale interstate commerce. Number one, you must have the actual sale itself. Number two, you must have a natural gas company. The natural gas company is defined as the person making the sale for resale in interstate commerce. I think it's important to bear those two things in mind. Now, there's been much talk of commi -- commingling. Now, what does commingling mean? How does it affect this case? And I think that we have failed to express properly what we mean by commingling and how it affects this case. I think we feel on the Fifth Circuit. I hope we don't make that mistake here. Let me give you this example. Part of the gas of Houston Pipeline Company theoretically is to be sold to the Phillips Goldsmith Plant in the State of Texas. Now, let's change the facts of this case. Let's assume that that part is still true, but that you have an interstate pipeline company into Texas. It stops there. It does not go beyond Texas. Let's speed into that line. Commingle if you will. There's Houston Pipeline Company gas. Let's do it before it can get to that Phillips Goldsmith Plant. Now, is that Houston Pipeline Gas, gas flowed in the interstate commerce for resale because of the commingling? Obviously not, the gas never left the State. It couldn't possibly leave the State. There's no possible basis for FPC jurisdiction. So if it's not commingling that really we're talking about, we're talking about the flow of the gas to California for resale as part of a commingled supply. That's which is the Federal Power Commission jurisdiction. Now, let me give you another simple example on the other side of the case perhaps. Let's start out with El Paso and let's assume that if Three Rivers, Texas where this new line is to start. You -- you have El Paso Natural Gas Company and let's assume that all its gas is going to flow in interstate commerce for resale. Let's assume that Lo-Vaca now provides a certain portion of gas and that theoretically, this is to be sold let's say to a -- or a cement plant in the State of Arizona. I submit to you that that gas from Lo-Vaca just as much as the El Paso gas flows to California for resale in substantial part. And that accordingly the jurisdiction of Federal Power Commission must impose a tax so long as it flows in that interstate pipeline. Now, you reached a point when that jurisdiction ceases. And where is that point? That point is when you had your lateral going off the interstate pipeline to the cement plant. This is the Panhandle Eastern case in 372 U.S. 305. Remember that in that case the question was, “Does the State of Indiana have jurisdiction over this industrial sale?” This Court held that it did. That despite the fact that the Federal Power Commission had certified the facilities and they pointed that there is cooperation if you will between the State and federal jurisdiction that this is your comprehensive regulation. It pointed out that on the very FPC certificate that the FPC has referred to the Indiana statute and said nothing. It was doing, it was meant to interfere with the jurisdiction of Indiana over the industrial sale. Now let me apply these concepts, if I will, to this record I've asked you to turn to. You will note that this new pipeline of 227 miles from Sonora South to Three Rivers is to obtain access to South Texas supply as Mr. Solomon told you about it. Let's just look at ban over that pipeline. That's a 30-inch pipeline. It's bigger on the existing pipeline of El Paso stopping at Sonora which is the most southern part of the El Paso system which is a 20-inch line. Now, that 227-mile line, 30 inches diameter which can take what, 500, 600 million cubic feet a gas per day. That's not going down there to bring fuel to El Paso plant all through Texas hundreds of miles apart and then lead to Arizona and New Mexico. That's going down there to get new sources of supply. There has been no question about that in this proceeding. Let's bear this in mind. Lo-Vaca has two separate contracts, one which is so-called jurisdictional now which is conceded the Federal Power has jurisdiction. The other which they say that no jurisdiction because of this clause that is going to be use in Arizona and New Mexico, this impossible clause. That gas will commingle before it ever reaches that new pipeline. Even Lo-Vaca's jurisdictional and “nonjurisdictional class” will commingle before it reaches the pipeline. There it will commingle in turn with the Houston gas which is theoretically “nonjurisdictional”. All along the line, gas will flow in. You can never segregate that out and that's why the gas ultimately reaches California. That's why Houston Lo-Vaca gas gets there. To maintain this theory that the gas physically could reach compressor plants, you might take a look up there from the northeastern part of the map, you can see a place called Fullerton --
Speaker: What's that?
John Ormasa: Fullerton, F-U-L-L-E-R-T-O-N station, south of Watson. You see Benedum Junction. There's a line going up to the right. You'll note on the map that at Benedum Junction which appears just below Magnolia, follow up the line up to Magnolia through Phillips Goldsmith and you see a green line of the name Fullerton there, right on the line.
Potter Stewart: Where?
John Ormasa: Now, what is going to be done at Fullerton, you know what's going to be done at Fullerton? We're going to build a pipeline into the Fullerton plant. Does the Fullerton plant need that gas? Not only does it need it, Fullerton provides its own gas supply. In addition, you notice there's a 16-inch line going directly west from Fullerton, it supplies gas itself to the general El Paso system. It doesn't need any gas for compressor use at all. This is true of many of these facilities, which are sought to be built. You see the line that Mr. Tuttle referred to at Keystone ML. It may be difficult to find. It's just where everything seems to come together there we have those pipelines in New Mexico. At the present time, there's no way at all that any gas of Houston Lo-Vaca can get to these compressor stations in West Texas without going into New Mexico commingling with New Mexico gas then coming back into the State of Texas, no way at all. So they say, “Alright, in order to help this fiction out we'll build a pipeline, a 210-mile pipeline.” So that theoretically part of the Houston Lo-Vaca gas would then go through that 16-inch pipeline and serve the compressor plants there. Well, in truth and in fact, it does not happen. The testimony in these case is, that part of the Houston Lo-Vaca gas will flow through that pipeline, that part of that Houston Lo-Vaca gas is going to flow up through Fullerton station which we were talking about over to Unison New Mexico and then down from Unison New Mexico back to Pickles River station back into Texas. The testimony is that part of the Houston Lo-Vaca gas is going to go through those pipelines just west of Keystone station into the State of New Mexico then going back into Texas. This is all fiction. This is not the kind of case, if the Court please, that demands that we permit a contractual segregation which is meaningless, which we end up with the result where we don't have the comprehensive regulation that this Court has recently as Transco said we ought to have. I'd like to leave a little time for rebuttal for Mr. Solomon, if I may. Thank you very much justices of the Court.
Earl Warren: Mr. Poland.
Sherman S. Poland: Mr. Chief Justice, may it please the Court. For 25 years, Section 1 (b) of Natural Gas Act has been interpreted by the Commission and by the courts including this Court as permitting parties to enter into transactions treating their gas as a fungible commodity. Now, according to the Commission, this is no longer possible. And if Lo-Vaca or Houston enter into a contract with El Paso for El Paso's own use in his compressor stations or for El Paso's or for use in intrastate commerce, that sale in itself is defeated if El Paso commingles the gas received from Lo-Vaca and Houston with other gas which is bought for resale. The question then it seems is, does Section 1 (b) deny the fungibility of natural gas or more fundamental – mentally? Does it deny the power of parties in the first instance to set their relationships by contract whether it'd be a restricted use sale or whether it'd be in a bailment in the transportation or a bailment in the storage project where there is joint storage. The cases which have interpreted the Commission's power under Section 7 -- under Section 1 (b) have uniformly held that the parties themselves established that relationship. And they established it using the standard commercial concept that gas is a fungible commodity. And when gas is a fungible commodity, they may and do sell by volume. For a -- a seller of gas is like a seller of grain. When a farmer puts 50,000 bushels of wheat into an elevator and later sells that wheat to the mill, he doesn't sell the same grains to be put in, he sells by volume. He puts in 50,000 bushels and he takes out 50,000 bushels. In the grain elevator case, perhaps none of the same 50,000 bushels that he put in is any longer in the elevator. That is not this case here, however, to the extent that the gas which we put in will flow continuously downstream to the points of use but we sell by volume. Gas like grain, or oil, or coal in each unit is indistinguishable and interchangeable, so that the mo -- molecule has no separate and independent legal significance and parties sell by volume. They enter into and make their contractual commitment by volume. And there can be no doubt that in the absence of the Natural Gas Act, the parties could and would make this type of a transaction, it would be a restricted use transaction. The question is, does the Section 1 (b) of the Natural Gas Act which describes a type of a transaction which the Commission has jurisdiction over give the Commission power to determine the -- what kind of transaction parties may enter into? We will approach this problem by reference to the several cases involving your Section 1 (b) of the Natural Gas Act or 301 (b) -- 301 (b) of the Power Act which is in this respect substantially similar. Also giving reference to which what we think is a fundamental law back of the basis for Commission regulation which is recognized in these cases. We shall also then turn to the question of whether recognition of fungibility opens up a -- or creates a regulatory gap.
Earl Warren: Mr. Poland, I wonder what -- what is the interest of the seller of this gas in that particular clause of the contract which says that they should be use for that purpose?
Sherman S. Poland: Houston Pipeline, Your Honor, has contracts with its producers, one of which is in the record in this case for reference, which provides that the producer must be given notice before Houston ever sells any gas in interstate commerce. Houston is an entirely intrastate commerce now. And the producers may -- may cancel their contracts prior to the sale by Houston into interstate commerce. So that if Houston sale were in interstate commerce, producers upon whom Houston depends not only for this sale but for its service to the City of Houston. It could cancel out and they would be without that supply of gas. So they must and this is the reason why they filed a petition for declaratory order and the basis for the way this case started. They filed a petition for declaratory order to determine what the jurisdiction was over this particular sale.
Speaker: (Inaudible)
Sherman S. Poland: With respect to -- to those producers I think it must be the -- the one portion of the producer contract which is in the record here -- makes it explicit that they don't want to or they have the opportunity to pull out if it's going to go in interstate. Now -- now, this is not so, I might say, in -- on the other -- other side with respect to the sale to Lo-Vaca. The producer sales to Lo-Vaca will be sales to Lo-Vaca for resale to El Paso in interstate commerce. The producer sales to Lo-Vaca will be subject to the commission jurisdiction and the commission regulation and their rates will be subject to Commission's jurisdiction and regulation. And of course, El Pa -- Lo-Vaca has entered into jurisdictional contracts and a “nonjurisdictional” contract. Finally, in -- in ending our -- our argument we would like to -- to go into the question of -- of what power the Commission does. In very real power, the Commission does have over many aspects of these proposals. It is not a question of regulation or no regulation as we should show. I think that the starting point for discussion of the -- the fungibility doctrine is the case of United States versus California at 345 U.S. which was discussed earlier this morning. In that proceeding, the California Electric Company was making a single sale of electric energy to the navy, to the navy in California, which the navy would carry across the state line into Nevada and devote a portion -- a large portion to its own use and a smaller portion for resale. California -- the State of California and the California Company argued that at least that portion of the energy, which was used by the navy for its own use in another state similar to the type of a transaction of Lo-Vaca in -- in the sense that it was a sale in one state for use in another state. California argued that that portion of the sale was subject to its jurisdiction because it was not a jurisdictional sale. This Court held that the sale, since it included admittedly energy being sold for resale, was subject to Commission re -- Federal Power Commission regulation. The very terms which would control the sale for the navy's own use would be regulated by the Federal Power Commission and the Federal Power Commission's regulation as a necessary incident covered the sale to the navy for its own use. But in -- in making that decision, the Court was at pains to point out that if the parties had entered into a separate transaction in terms of separate rates, separate negotiations, separate contracts, separate middling, the indicia of a separate transaction, then what was admittedly “nonjurisdictional” because it is a sale for resale -- sale for the purchaser's own consumption would not be subject to a Federal Power Commission jurisdiction. But note, it did not say that that sale was converted necessarily into a sale for resale because of later commingling. Commingling in none of the cases has any effect upon the type of transaction, which is entered into because gas or electricity is a fungible. And the intermingling makes no legal difference to the type of a contract and it is the -- it is the sale itself as the Court said in the California case. It is the sale itself, which fixes the limits of jurisdictional grant not the use of the -- not the intermingling of the gas by the purchaser but the sale itself. In the California case, the Court, I submit, was recognizing what this Court had also recognized in the well-known case of United Gas Pipeline Corporation versus Mobile Gas Service Corporation, which is it appears that 332 U.S. or 350 U.S. 332. In that proceeding, the Court will recall the question involved whether the Commission had jurisdiction to entertain a unilateral rate increase filing of a sale which is admittedly subject to Commission's jurisdiction. And the Court said in reversing the Commission, said that that -- the Commission did not have jurisdiction to consider unilateral filing because there was no contract between the parties. And it started from the fundamental basis that it is the parties themselves that fix the relationships between themselves by contract. And when they have fix that relationship, it is then brought to the Commission, and if -- if it is a jurisdictional relationship, the Commission may review it. The Commission may review it under Section 4 or 5 or may review it under Section 7. But if it is not a jurisdictional relationship, the Commission cannot because of its jurisdiction over sales for resale convert what the parties have made to be a sale for purchaser's own use into a sale for resale, contrary to the standard commercial concept fungible -- dealing with fungible commodities. The Court in California recognized that this case with the same theory was coming again before the Commission, was then before the Commission in case which became the Hastings case. In the Hastings case, the seller sold gas at the city gate in the interstate commerce under two contracts, a portion that the -- or sold under one contract was for the city's own use for boiler fuel since it was the sale in the interstate commerce to the purchaser's own consumption. It was not jurisdictional. The other sale for resale, general resale, was jurisdictional. But note that the city commingled the volumes so that the molecules themselves were just as much lost in that case as in the Lo-Vaca's case. A molecule of gas sold under the sale to the city for its own use might well end up and because of commingling, it did end up being reso -- going to the point of resale. And a molecule sold under the resale contract would end up at the point of the boiler fuel plant. But because gas is a fungible commodity, they sold by volume. They didn't sell the individual the -- the fact that they sold gas did not mean that there was any legal significance to the separate identity of indistinguishable molecules of gas. So too in North Dakota which I would like to point out involved not just one source of gas but involved two sellers under four contracts. Each seller had interstate resale contracts and each seller had intrastate resale contracts. And by far, the smaller amount was being sold for resale in intrastate commerce. The figures have stick in my mind where about six-and-a-half million Mcf delivered from the plant under all of the contracts and about 11,000 delivered under two contracts for resale within the state. The point is that 15% of the 11,000 was attributed to Signal but you could not go back and trace that 15% to Signal. It may very well and probably did come from Amerada and may very well and probably did by mol -- molecules coming from Amerada's sale for general use in Montana. So that what those cases hold is that commingling makes no difference. That the -- you do not trace molecules for this purpose. It's a sale of volumes. Now, the North Dakota case has an interesting sequel recently decided by the same court with the same parties, same buyer, and same sellers. Where all the sellers intended to do was to add more gas to go to the North Dakota intrastate use. You would think that the same theory would apply, that commingling would make no difference. The Commission, however, held on another show cost that those sales which had been sales in intrastate commerce were converted into sales in interstate commerce not for anything that the parties themselves did in fixing the relationship between them, but because of the presence of gas put into the commingled stream from a third source. We submit that the fact of a third source obviously can have no difference as the court in the Eight Circuit held in reversing the Commission for it is not the tracing of the molecules. In -- in the original North Dakota case and in the Amerada case, the molecules sold by Amerada or sold by Signal for use within the state at the point of sale might very well go to Montana and be resold to the same extend that a molecule sold by Houston to El Paso. Because of commingling, it might reach a point of resale. But the parties entered into a type of -- of contractual arrangement which the Commission then looked at - and if that arrangement described a sale for resale, it had jurisdiction, if it does not under Section 1 (b), it does not have jurisdiction. Perhaps the major fallacy of the Commission's new position here is -- is most graphically demonstrated in the transportation cases. It is correct that the Commission here held in its opinion in this case that it did not intend to disturb transportation arrangements. We submit that if it does not intend to disturb transportation arrangements when it admits that a producer selling say in -- let's use the case of Federal Power Commission versus Transcontinental which is set in our brief, it was a Supreme Court case a couple of years ago, as an example. Their producers sold to Consolidated Edison of New York. Consolidated Edison delivered the gas to Transcontinental for transportation to New York City. Transcontinental commingled that gas with other gas purchased from many other sources. So that the molecule delivered by Con-Ed would might very well reach a point of resold to be replaced by an identical molecule for kind of its own use. The Commission in its opinion here said it does not intend to disturb that relationship. If it does not intend to disturb that relationship, it is clear that it is because fungibility is a living and vital force which af -- is determines the type of transaction they enter into. If it is not, they haven't entered into that type of a transaction. To the same extent, if fungibility determines the type of transaction the parties have entered into, the parties here have entered into sales for El Paso's own use or sales in intrastate commerce. There can be no doubt about that. On the other hand, if as suggested by counsel, in -- the Commission counsel in its brief, fungibility is to be denied, then the delivery of the -- for transportation purposes is converted according to the theory into really three sales, into a sale by the producer to Con-Ed for resale, into a sale by Con-Ed to Transcontinental for resale, and a sale by Transcontinental to Con-Ed. This Court recognized in the Transcontinental case when it discussed the Commission's certificate power over transportation. It recognized that the producer's sale was “nonjurisdictional” because it was a sale to Con-Ed for its own use. But the Commission's theory would convert that bailment type of a transaction into several different sales. It is our position that Section 1 (b) does not give the Commission authority to convert what the parties established in the first instance into a different type of transaction. I'm filing a brief before the Commission tomorrow in another proceeding involving storage of natural gas where two companies store gas together. And one access operator from the other, one being a completely intrastate company putting its gas in retaining title, pulling it out, the other being an interstate company. The Commission stopped based upon the Commission's opinion here in Lo-Vaca is saying that that is not a bailment, it is a sale for resale when the intrastate company puts it gas into the storage field and commingles. Section 1 (b) simply does not give the Commission the authority to determine the type of transaction, the type of transaction determines jurisdiction. I would like to turn next to the argument on regulatory gap on whether recognition of fungibility just I submit recognized in all of the cases we have discussed and I have discussed it so far, whether that creates a regulatory gap. First, I think it would be wise to go back and determine what is the so-called regulatory gap that the Natural Gas Act was intended to fill. The Natural Gas Act, passed in 1938, was intended to cover only one type of transaction in interstate commerce, which was beyond the power of the states to regulate. And that type of transaction as determined by the decisions at that time. It was at that time a drawing of what had been considered national and local interest. And the Act itself now draws the distinction between national and local interest giving the Commission authority over sales in interstate commerce for resale but no other type of sale. It seems that this was clearly defined in -- in the Panhandle versus Indiana case in 332 U.S. and again discussed just last term in Federal Power Commission versus Southern California Edison case, where a contention was made by California. As I understand their contention here in somewhat adverse form that in that case, in the California Edison case, contention was made that even though it was a sale for resale in the interstate commerce, it was a local character and therefore beyond the Federal Power Commission jurisdiction. This Court disagreed and said that the Act had drawn a bright line. Sales for resale are subject to Commission jurisdiction, any other type of sale for whatever purpose are not subject to Commission jurisdiction. So too here, if this is not a sale for resale if the parties have not entered into a sale for resale, there is no regulatory gap by reason of the fact they've entered into a sale for the purchaser's own consumption in the interstate commerce. The Act was intended that such sales would not be subject to Federal Power Commission of jurisdiction, neither does the Act give the Commission jurisdiction based upon effect of interstate commerce. The fact that a 4% of a particular pipeline or overall the pipelines may be used for “nonjurisdictional” purpose does not mean that those sales are converted into sales for resale in interstate commerce, and that is the only test. The affect can be seen, it seems to me, just as clearly by the suggestion that if parties constructed their own separate line to these points of views, the sales to El Paso would not be subject as counsel have admitted to Commission jurisdiction for there would not be sales in the interstate commerce for resale, yet they would affect El Paso just as much. If Lo-Vaca or Houston were to sale oil for this compressor fuel, it would affect El Paso just as much. But the Commission would not have jurisdiction over that sale. The Commission simply does not have jurisdiction because of what it feels may be the affect. But we do not wish to leave this with the Court with the feeling that these transactions in their entirety are without regulation. For quite the contrary is true and the Commission has full power given to it under the Act to control these transactions in the public interest. Let's look first at Lo-Vaca. Lo-Vaca buys gas from producers. Those producer sales are 18 cents. 18 cents happen to be the price the comm -- at that time the Commission had stated in its guideline policy statement that it would accept producers sales in that area and issue certificates without hearing so long as there was no intervention so that those prices were the guideline price at the time. In any event, regardless of whether the Commission changed its view and might come to a lower rate now, those rates would be subject to the Commission's jurisdiction. And the Commission would regulate those rates. Lo-Vaca, Lo-Vaca has here its application for a certificate. Not for the sale where it is making what is essentially a direct industrial sale in the interstate commerce, but for the transportation and for the construction facilities for that transportation, it applies for a certificate. It will in that proceeding, present a feasibility study justifying its proposal. Lo-Vaca also is making a sale for resale and will operate some of the same facilities in connection with the sale for resale. And its certificate application covers that. El Paso, if the Commission has a problem with El Paso coming to the South Texas to pickup this gas through the construction of this line, that line by El Paso gas supply, and actually the El Paso running from Sonora to Three Rivers, must be certificated. The Commission's consideration in certificating that line is much like the Commission's consideration in the Transcontinental case which came before this Court, where the Commission and the Court were concerned with the public convenience and necessity for transportation in interstate commerce. And the Court held that in it's public convenience and necessity determination, the Commission could consider what the gas was going to be used for, and it also consider at the other end the price of the gas, and its consideration of public convenience and necessity. So to here, when El Paso comes before the Commission for it's certificate for that line, the Commission can consider whether these prices are high or low or whether El Paso should buy this gas for compressor fuel or whether it has a presumably some other source and whether it has too much gas on its system. Those things are matters which the Commission has full power over. I would like to point out further that the Commission suggests that there were several dire results which might come to pass if this kind of a transaction is permitted. The Commission has permitted this type of transaction for 25 years. And so far as I have been able to determine, these dire results would not come to pass. I submit that they have not come to pass because the Commission does have full power in its certificate proceedings to control any unwanted result. Furthermore, it has power in rate proceedings to regulate El Paso's rates in such a way that for instance it could roll in average as it does. All of El Paso's purchased gas costs both gas be resold and gas which is not resold and get a unit cost so that there is no question of preferment insofar as the resale costumers are concerned. Finally, I think it is significant really that what the Commission is doing is seeking to increase its jurisdiction. This is not a chipping away from jurisdiction. This is an increase of jurisdiction. What the Commission is saying is that any delivery by anyone either by -- for any type of the sale is a -- into a commingle stream where a portion of that commingle stream is being sold for resale, is converted itself into a sale for resale. Perhaps the -- the extent of the expansion of Commission's jurisdiction can be illustrated by reference to the sale by El Paso to the companies at the California border. El Paso sells a large amount of gas at the California border for resale. For every single Mcf of gas that is sold by El Paso to the companies at California border, there is if you affirm the decision of the lower court a producer sale to El Paso which is a sale for resale in interstate commerce which the Commission regulates. There is a direct coincidence for every Mcf of gas sold for resale at the California border. There would be sale for resale over which the Commission has jurisdiction. However, if the Commission's view holds here there will be more gas sold to El Paso for resale subject to the Commission's jurisdiction than there is in fact resold, we submit that the parties have entered into sales, effective sales, to El Paso either for its own use or in intrastate commerce. Having done so, the description of the type of sale in Section 1 (b), which is subject to Commission's jurisdiction, does not apply. On the other hand, these sales come within the other clause of Section 1 (b) which says that the Commission shall not have a jurisdiction over any other type of sale in which this Court in the Panhandle case has said of any other type of sale of whatever sort. Thank you.
Richard A. Solomon: I just want to say Your Honor –
Earl Warren: Would you step over to be heard, please.
Richard A. Solomon: I won't take more than a minute, I just want to say the suggestion that we have allowed this type of activity such as Lo-Vaca and Houston here for 25 years and are only now stepping in to claim jurisdiction just isn't true. This is the first time that anybody's attempted this type of contractual segregation. If we've allowed things from the last 25 years, he's talking about the transportation deals which I mentioned before. There has never been a case like this which the Commission has approved and unless this Court says we have to, there never will.
Sherman S. Poland: May -- may it please the Court. It would be out of order to me to say that I -- I just don't want it to be interpreted as I might have said something which was just not true when trying to mislead the Court because I certainly did not mean that. What I was saying was that, these sales in the Hastings case and the sale in the North Dakota case which the Commission approved and fought in the courts saying that they did not have jurisdiction over, are identical in concept with these here. Thank you.


Earl Warren: Number 103, City of Chicago, Petitioner versus the Atchison, Topeka and Santa Fe Railway Company.
Joseph F. Grossman: Mr. Chief Justice, may it please the Court.
Earl Warren: Mr. Grossman, you may proceed.
Joseph F. Grossman: This case is here by writ of certiorari to the Court of Appeals for the Seventh Circuit. The suit was instituted in the United States District Court for a declaratory judgment and injunction by 21 frontline railroads operating to and from the City of Chicago in the interstate commerce and in the intrastate commerce. And the respondent, Railroad Transfer Service, Incorporated hereafter called “Transfer” for short, an uncertified motor carrier transferring passengers between terminal facilities of the various railroads of which there were I think eight in number in the City of Chicago. None of the railroads pass through the City of Chicago. There are eight terminals. Two of them on the west side of the Chicago River and six of them on the south and east side of the Chicago River, some distance south. The distance between the terminals vary from about a quarter of a mile to two miles distance. The case involved the construction or in the alternative as the pleading showed, the constitutionality of a city ordinance licensing the -- and regulating the use of the city streets by a motor vehicle for hire. The ordinance was known as Chapter 28 of the Municipal Court of Chicago which appears in the record at page -- beginning at page 171. Parmelee Transportation Company, another uncertified motor carrier intervened in the case. The Parmelee Company having -- have a contract of the railroads to operate at the -- the motor vehicles in the transfer of passengers in interstate commerce and intrastate commerce prior to the termination of that contract and the substitution of the Railroad Transfer Service. At that time until -- October 1, 1955, the terminal line had a contract arrangement with Parmelee as I said to furnish their service. But that operation was not limited to interstation service on through route railroad carriers. It also carried passengers for cash fares between terminal stations and from substations to hotels and other places within the central business district of the City of Chicago. Parmelee's operations were licensed as terminal vehicles under the city code relating to the public passenger vehicles, the licensing of public passenger vehicles. At that time, referring to the ordinance, a public passenger vehicle was defined by the code as a motor vehicle which is used for the transportation of passengers for hire accepting those devoted exclusively for funeral use or any operation of a Metropolitan Transit Authority or public utility under the laws of Illinois and the terminal vehicle was defined as a public passenger vehicle which is operated under contracts with the railroad and steamship companies exclusively for the transfer of passengers from terminal stations. Then Section 28-2 provided, it is unlawful for any person other than the Metropolitan Transit Authority or public utility to operate any vehicle or for any such person who is the owner of any vehicle to permit it to be operated on any public way for the transportation of passengers for hire from place to place within the corporate limits of the city except on a funeral trip unless it is licensed by the city as a public passenger vehicle. Those are the pertinent provisions of the ordinance which are involved in this case. Parmelee's operations as I said were licensed as terminal vehicles. Early in June 1955, the terminal lines notified Parmelee that their contractual arrangement would be terminated and other provision made for the transfer of passengers on through route tickets between terminal stations in Chicago. On July 26, 1955, the City Council passed an ordinance amending the city code by eliminating the requirement of a contractual arrangement with railroad companies to qualify terminal vehicles for license and limiting the number of such vehicles to those licensed unless after a public hearing is provided by the ordinance, public convenience and necessity require additional service of the character described. That provision in the ordinance was the -- in 2231-1 or 28 -- no, excuse me, it was 28-31.1, Chapter 28. It was amended at the same time that the definition of terminal vehicles was amended and also the section relating to the operation of terminal route vehicles which was limited to the central business district of the City of Chicago and it provided for a determination of public convenience and necessity prior to the issuance of any licenses for additional terminal vehicles. Now, Parmelee was then operating of course not in the transfer of passengers on through routes either in intrastate commerce or interstate commerce. It was operating after termination of its contract as a local public passenger vehicle. Still under license, transporting for a cash fare, passengers who happened to be at any railroad station to the hotels and to any destination which the passenger himself directed. The case was submitted in the District Court on the question of the construction of the contract both by the complaints and by the motion of the City of Chicago for summary judgment. The motion for summary judgment by the City of Chicago requested the Court to determine whether the Plaintiff by virtue of its contract with the plaintiff railroad company is operating its vehicles within the City of Chicago as exclusively as agent born in behalf of plaintiff railroads as public utilities under the law of Illinois, whether the plaintiff's operations are confined, the transportation of passengers on through route railroad and steamship transportation tickets between point out -- points outside of the corporate limits of the city in intrastate and interstate commerce. Now, the plaintiff in this case of course or the railroads and the Transfer Company, the Railroad Transfer Corporation under the new contract and whether said the plaintiff operates any vehicle on any public way for transportation of passenger for hire from place to place within the Court limits of the city as provided by Section 28-2 of the Municipal Court of Chicago, whether said plaintiff is operating terminal vehicles within the City of Chicago as defined in Section 28-1 of the Municipal Court of Chicago as amended in 1955, whether any of the said plaintiff's operations are in local transportation of passengers at rates of fares subject to Section 28-31.2 of the Municipal Court of Chicago. Now, I ought to make reference to 28-31.2 to indicate what kind of an operation it brought because under the powers of the City Council in the City of Chicago, the city has the right to determine the rates of fare of these passenger vehicles. And 28-31.2 provides that the rate of fare for local transportation of every passenger in terminal vehicles of the licensee shall be uniform regardless of the distance traveled provided that children under 12 years of age, when accompanied by an adult, shall be carried not more than half the fare.
Felix Frankfurter: Mr. Grossman.
Joseph F. Grossman: Yes, sir.
Felix Frankfurter: Will it trouble you if I ask you, what it is that the lower court decided?
Joseph F. Grossman: The lower -- the District Court --
Felix Frankfurter: And that you want us to reverse?
Joseph F. Grossman: -- yes, the District Court --
Felix Frankfurter: That is my question.
Joseph F. Grossman: All right. The District Court --
Felix Frankfurter: What -- what is it that it decided that you think is wrong and what is it that you want us to decide?
Joseph F. Grossman: The -- the Court of Appeals decided that the ordinance of 1955 was unconstitutional because Section 28-31.1 providing for the determination of public convenience and necessity was invalid as non-constitutional control by the city of interstate commerce.
Speaker: With the consequence of transfer did not have to get a license with the government?
Joseph F. Grossman: With the consequence of transfer would -- did not have to have a license. Yes, Your Honor.
Speaker: That it applied for a license.
Joseph F. Grossman: It had not applied for a license. And the point to that I make is that the Court of Appeals determined that 28-31.1, the public convenience and necessity provision gave Parmelee in effect a monopoly of the streets of the City of Chicago for the transfer of passengers between terminal stations. Whereas the point I make is that 28-31.1 was applicable to Parmelee because it was a local transportation facility after the enactment of the amendment, but 28-31.1 could not be applicable to the transport corporation because it was under the -- under its contract exclusively for the transfer of passengers between terminal stations in intrastate and interstate commerce. And so far as the intrastate commerce is concerned of course, there's no question about there ever having been required to have a license and even so far as the interstate commerce is concerned. They're -- they are subject to license. The power of the city to license that kind of an operation within the City of Chicago even though they are engaged in interstate commerce is there -- the question is did they exercise that power. Now, in the opinion of the Court of the Appeals, they -- the Court of Appeals decided what was the intent of the City Council in passing this ordinance of 1955 and permit me -- whether permit me to read and extract from the opinion which is in the appendix to my petition for certiorari.
Speaker: Do you contend Mr. Grossman the transfer of what make an application for license before they can raise your point?
Joseph F. Grossman: I do. I -- I contend the transfer should make an application for a license and that the city authorities should pass upon the questions to whether they can be licensed or they cannot be licensed and if the decision were against the transfer company. The transfer company should then commence a suit in the state courts to have the state courts determine the meaning or the construction of the ordinance.
Speaker: Has the -- have the state courts ever construe this ordinance?
Joseph F. Grossman: No, Your Honor. This ordinance has not been construed by the -- by the state court. This particular ordinance, I'm talking about the 1955 ordinance had not been construed.
Speaker: One is -- one is in dispute here.
Joseph F. Grossman: The -- the basic ordinance has been construed by the Supreme Court, yes. The basic ordinance was construed by the Supreme Court in taxi cab cases. In the taxi cab cases, they provided for a -- a finding of public convenience and necessity just exactly as it's provided here for the terminal vehicles. But the terminal vehicles in this particular case are the terminal vehicles without a contractual arrangement with the railroad. It's -- it's purely a local transportation facility.
William O. Douglas: Well, the Court of Appeals disagreed with you on that.
Joseph F. Grossman: No, the Court -- the Court of Appeals said that it was -- the Court of Appeals said that the provision for terminal vehicles applied to transfer but that it was unconstitutional because of the restriction.
William O. Douglas: The transfer was a shuttle as an interstate service.
Joseph F. Grossman: Yes, it is a shuttle but that's not the definition. That is not the definition of the terminal vehicle now. Terminal vehicle is merely another local transportation facility. This Court in the U.S. versus Yellow Cab Company, distinguished between the local transportation and the interstate transportation in the -- in the case of Yellow Cab against -- United States against Yellow Cab, 332 U.S. 218. The -- but I'm -- I'll come to that because what the Court did was to construe the ordinance in the light of what was said at a committee meeting of the city council. And I want -- I think that's a very important thing that I want to come to.
Earl Warren: We'll recess now Mr. Grossman.