Court Opinion

ID: 6909490
Source: CourtListenerOpinion
Date Created: 2022-07-23 22:15:40.051169+00
Date Added: 2024-06-11T16:06:28.436920
License: Public Domain

CLARK, Circuit Judge
(dissenting).
I am able to agree neither with the reasoning of the majority nor with its conclusions. In my opinion, the Federal Power Commission had no jurisdiction over Phillips and no power to fix the rates at which Phillips sells gas to pipe line or transportation companies, and the order of the Commission therefore should be sustained. The Commission has claimed authority in so many cases in which it did not have a shadow of a claim, that it ought to be encouraged in its latest effort to stick strictly within its jurisdiction.
The answer to the question whether Phillips is a “natural-gas company” within the meaning of the Natural Gas Act and as such subject to regulation thereunder depends, in so far as this controversy is concerned, solely and exclusively upon the answer to the preliminary question whether Phillips’ activities are encompassed within the concepts of “production” or “gathering.” If they are, then Phillips cannot be regulated by the Commission, for section 1 (b) plainly and unequivocally states that “ * * * this Act * * * shall not apply * * * to the production or gathering of natural gas.” Manifestly, then, the problem as to whether Phillips’ sales are a part of the production or gathering process goes to the very crux of the issue before us and determines the outcome of this litigation. Consequently I find it impossible to go along with my brethren of the majority, who, at the very outset of their opinion, simply assume that “Phillips sells the gas after the time and beyond the place at which production and gathering are complete * * * ” and then go on to build on that assumption of the answer elaborate and imposing arguments leading quite naturally to the final conclusion that Phillips’ sales are indeed without the gathering exemption of § 1(b). It is perhaps noieworthy that the Court’s assumption flies directly in the face of a diametrically contrary administrative determination, arrived at by the Commission after it had heard testimony and read exhibits filling close to 10,000 pages of the record.
J do not disagree with the view that the exi ent and scope of the production or gathering exemption must be determined by reference to the statute and to familiar principles of statutory construction. In ocher words, the meaning of the word “gathering” is a question of law, not of fact, and therefore not dependent upon or controlled by the factual findings of the Commission, irrespective of the quantity and quality of evidence cited in support thereof. But once the scope of the exemption is established as a matter of law — and I believe the only reasonable construction of the statute and of the decisions is that sales may be included in the gathering exemption — then the Commission has the power to find and determine whether the particular operations of a particular company fit within or without the niche carved out for the exemption. Such findings should not be overturned if supported by substantial evidence;1 they certainly may not simply be disregarded.
The natural gas business in this country consists of three main operations, separate and distinct in character and economic purpose, and usually performed by separate and distinct business units: (1) production and gathering of natural gas, carried on by independent producers and gatherers, such as Phillips; (2) transportation of gas, performed by pipe line companies; and (3) *713distribution of gas to the ultimate consumers, carried on by local distributing companies.2 But this separation of functions is not and cannot be absolute. For example, some transportation is involved in both the production and the distribution phases. Similarly, all three phases culminate in sales, for the sale is the expected and necessary economic reward for the service performed. It is a trite but true observation that, as Judge Waller said in his dissent in the Interstate case: “ * * * there can be no sustained production unless the gas can be collected and carried to market.” Interstate Natural Gas Co. v. F.P.C., 5 Cir., 1949, 156 F.2d 949, 953. Nothing could be more absurd than to say that production and gathering are exempt but that the final sale by the producer and gatherer is subject to the Act.3 That line of reasoning reduces the exemption to a hollow shell without content or meaning. In my view, the sale is as much part and parcel of the service performed as the labor or the tools which create that service, or the leases by which gas reserves may be transferred from one company to another.4 Only the transportation phase of the natural gas business is covered by section 1(b) and I read that to mean that the jurdisdiction of the Commission extends only (1) to sales made during the transportation phase proper and (2) to sales by companies engaged in the business of transporting natural gas. On the other hand, sales made during or at the culmination of gathering and those which are a part of distribution are exempt from regulation by the negative language of § 1(b). That interpretation of the meaning of the statute is strengthened by the additional safeguard that the Act should not apply “to any other transportation or sale of natural gas” except to what in effect is the transportation phase of the natural gas business.
The majority attempts to justify its conclusions with the argument that the legislative history shows that this statute was enacied in order to close the “gap” between Federal and State regulation and that the Commission order frustrates that purpose. But it is by no means clear that there was a gap where the majority thinks it was. The cases cited by the House Committee in H. Rep. 709, 75th Cong., 1st Sess., in support of the statement that the statute was designed to occupy a field in which the Supreme Court had held that the states cannot act (the famous gap), these cases dealt with sales after transportation in interstate commerce and were related to transportation and distribution, not to transportation and gathering.5 Even more, the existence of a gap presupposes that the states have no power to regulate activities of the type in which Phillips was engaged. But not only is that field not preempted by the commerce clause,6 for, as the Supreme Court said 340 U.S. at page 186, 71 S.Ct. at page 219, in the Cities Service case i7 “It is now well settled that a state may regulate matters of local concern over which federal authority has not been exercised, even though the regulation has some impact on interstate commerce,” and 340 U.S. at page 187, 71 S.Ct. at page 220, “Nor should we lightly translate the quiescence of federal power into an affirmation that the national interest lies in complete freedom from regulation,” but by § 1(b) the Congress specifically reaffirmed *714the power of the states to deal with this problem if the existence of such power had previously been in doubt. Panhandle v. Public Service Comm, of Indiana, 1947, 332 U.S. 507, 517, 519, 68 S.Ct. 190.
Since the majority opinion leans so heavily upon the Interstate decision,8 it may perhaps be well to compare that case with the instant one in order to determine whether Interstate really is controlling here. There, the Commission found and determined, and pointed out to the courts, that the sales were made after the gathering process had been completed and after there had been some transportation in a pipe line transmission system.9 Here, the Commission made a contrary finding. There, the State of Louisiana never opposed Federal jurisdiction;10 here, the states involved very vigorously objected to Commission jurisdiction because, they asserted, such regulation would interfere with state regulation or state conservation policies.11 That conflict clearly brings into play the exception contemplated in the 'Interstate opinion.12 And finally, there, the Supreme Court based its decision not upon the reasoning supporting the opinion of the Court of Appeals for the Fifth Circuit— which is the reasoning again relied on here — that the sales were outside of the gathering process, but it expressly declined to support its ruling on that ground when it said that it found it unnecessary to resolve the issues of whether the sales were made from the transmission or the gathering‘ lines. Quite the contrary. The Court flatly stated: “By the time the sales are consummated, nothing further in the gathering process remains to be done.” 331 U.S. at page 692, 67 S.Ct. at page 1488. That statement can mean only that the Court recognized that Interstate’s sales were a part of the gathering process, which is precisely what the majority of this Court flatly rejects in the instant case, even though the facts here even more strongly than there suggest sales from gathering lines.
As I see it, Phillips’ sales were a part of gathering and exempt from regulation as such. I need not, therefore, discuss at length the problem whether they might be outside the regulatory coverage of the statute if they were not a part of the gathering process but merely related or incident to the production or gathering business. Suffice it to say that I cannot agree with the fine-spun reasoning of the majority which purports to find an “and” where the Commission found an “or”. While the Inter-:ate case, as the majority correctly points ut, refers to sales made during the course *715of gathering and closely connected with the local incidents of that process, the Panhandle decision, a later case, at least intimated that the “or” interpretation is not so far-fetched.13 Also, any interpretation other than that suggested by the Panhandle case is unreasonable and illogical, for the Act can hardly be read to require that sales, to be exempt, be not only made during gathering but be also related thereto. Only the first half of the clause is listed in § 1(b). If that clause is to be extended by interpretation, it might more logically be extended by reading “or related to gathering” into it than by adding a brand-new requirement by an “and” clause which cannot be found anywhere in the Act.
But that issue need not he decided. To me, it seems inescapable under the statute, under the decisions, and in the name of plain economic common sense, that sales by a gatherer are a part of gathering so long as they are made before the gas enters the transmission lines proper. It is the function of the Commission to determine whether, in fact, the gas is sold before or after that point. A finding was made by the Commission in this case that the gas was sold while it was still in the gathering lines and that finding seems unassailable either in fact or under the law as I interpret it.
The petition for review should be denied.

. Cf. Cardillo v. Liberty Mutual, 1947, 330 U.S. 469, 67 S.Ct. 801, 91 L.Ed. 1028.

. Traditionally, the first and third stages are local or state-wide in character, and only the second stage is an interstate business.

. The Supreme Court in Interstate, note 8, infra, very pointedly refused to sustain a Fifth Circuit ruling which held just that; and it said in F.P.C. v. Panhandle Eastern, 1949, 337 U.S. 498, 506, 69 S.Ct. 1251, 93 L.Ed. 1499, that Colorado Interstate Gas Co. v. F.P.C., 1945, 324 U.S. 581, 65 S.Ct. 829, 89 L.Ed. 1206, was “not a precedent for regulation of any part of production or marketing.” Marketing of course includes selling.

. F.P.C. v. Panhandle Eastern, supra, note 3.

. See Missouri ex rel. Barrett v. Kansas Gas Co., 1924, 265 U.S. 298, 44 S.Ct. 544; P.U.C. of Rhode Island v. Attleboro Steam, 1927, 273 U.S. 83, 47 S.Ct. 294.

. Cooley v. Board of Wardens, 1851, 12 How. 299, 13 L.Ed. 996.

. Cities Service Gas Co. v. Peerless Oil & Gas Co., 1950, 340 U.S. 179, 186, 71 S.Ct. 215.

. Interstate Natural Gas Co. v. F.P.C., 1947, 831 U.S. 682, 67 S.Ct. 1482.

. Brief filed by the Commission in the Supreme Court, at pp. 29-33.

. As a matter of fact, the Interstate Gas Co. had successfully prevented state regulation with the assertion that its sales were interstate in character. Interstate Natural Gas Co. v. Louisiana P.U.C., D.C.E.D.La.1940, 33 F.Supp. 50; Interstate Natural Gas Co. v. Louisiana P.U.C., D.C.E.D.La.1940, 34 F.Supp. 980.

. The Supreme Court has made it clear that the Natural Gas Act was not to encroach upon the jurisdiction of the states and their legitimate conservation policies. F.P.C. v. Panhandle Eastern, 1949, 337 U.S. 498, 509-513, 69 S.Ct. 1251.

. The Supreme Court said, 331 U.S. at page 691, 67 S.Ct. at page 1487: “There is nothing in the record to indicate that the regulation in question is in any way inconsistent with the exercise by Louisiana of the powers over production and gathering of natural gas reserved to it by Congress in § 1(b) of the Act. * * * The record is devoid of any suggestion that Louisiana has ever opposed the jurisdiction of the Federal Power Commission in this case or has ever urged that federal regulation of the sales in question would interfere with the exercise by the State of its regulatory functions. We do not suggest that the jurisdiction of the Commission in any case is to be determined by the resistance or lack of resistance on the part of the State to federal regulation. But * * * we regard it a matter of some significance that * * * there is no evidence of any conflict * * * in the performing of those functions by the State with the exercise of the jurisdiction of the Federal Power Commission * * (Emphasis supplied.) A glance at the briefs submitted by the intervenor States will reveal the obvious fact that, at least as to that point, the cases bear no resemblance.

. The Court said at page 506 of 337 U.S., at page 1257 of 69 S.Ct., that various sections referred to by the Commission “ * * * do not even by implication suggest to us an extension of the regulatory provisions of the Act to cover incidents connected with the production or gathering of gas,” and it reiterated 337 U.S. on page 515, 69 S.Ct. on page 1261. “As we have held above that the transfer of undeveloped gas leases is an activity related to the production and gathering of natural gas and beyond the coverage of the Act, the authority of the Commission cannot reach the sales.” (Emphasis supplied.)