Central States Electric Co. v. City of Muscatine , 65 S. Ct. 565 ( 1945 )

Mr. Justice Roberts

delivered the opinion of the Court.

We are concerned in this case with the nature and extent of the powers of a federal court sitting to review an order of the Federal Power Commission.

The decision of the court below denied the petitioner’s application for payment to it of a fund of some $25,000 deposited in court, and directed its payment to persons not privies to the transaction which created the fund. A detailed recitation of events is required to show how the question arises.

The Federal Power Commission (hereinafter called Commission), proceeding under the Natural Gas Act,¹ entered an order against the Natural Gas Pipeline Company of America (hereinafter called Pipeline) requiring it to cut its rates on natural gas to effect an annual reduction in revenue of not less than $3,750,000, effective September 1, 1940.

The petitioner, Central States Electric Company (hereinafter sometimes called Central), an Iowa corporation doing a public utility business in that State and elsewhere, purchased gas at wholesale from Pipeline and distributed it in Iowa.

Pipeline sought a review of the Commission’s action by the Circuit Court of Appeals. The court set aside the order but, on certiorari, we reversed and sustained it.² At the inception of the case Pipeline had petitioned for a temporary stay and the court below had granted a stay on condition that a bond be filed to secure the refund to purchasers at wholesale of the amounts respectively due them if the court should sustain the reduction of rates ordered by the Commission. On the dissolution of the temporary stay another was entered to continue until the further order of the court, conditioned that Pipeline should enter a second bond in the same terms. This was done.

When this court rendered its judgment sustaining the rate order, Pipeline became liable to make refunds in accordance with the bond. The court below, prior to the payment of the amount due under the bond, filed an opinion holding that it was its duty to take exclusive control over the refund when made and to determine the rights of all claimants in the fund, and made an order enjoining claimants to the fund from further proceeding in any other court. This action was pursuant to a petition of Pipeline showing that suits were being filed against it in other courts by the ultimate consumers of the gas sold by Pipeline to the local distributing companies and alleging that unless the court retained jurisdiction of the fund Pipeline would be subjected to numerous similar suits. Illinois Commerce Commission, in an answer, stated that the rates charged by distributing companies in Illinois were fixed by it and reflected the prices paid by distributors to Pipeline and that the refund, representing excessive rates paid by distributors, had been collected from the ultimate consumers and was equitably due them. The Illinois local distributors then before the court agreed that the refund . should be ratably paid to the ultimate consumers.

Central was not a party to the proceeding in the Circuit Court of Appeals, but, on June 29, 1942, it sent a letter to the Clerk, in response to one from him, asserting that the portion of the refund representing excessive rates paid by Central during the refund period should be repaid to it and not to the ultimate consumers. June 30, 1942, the court rendered an opinion in which it discussed the relative rights and interests of local distributors and ultimate consumers. The court found that, since the rates charged to local consumers included the excess charges paid by distributors to Pipeline, the ultimate consumers were in equity entitled to receive the refund. July 1, 1942, Pipeline paid into court a sum representing that portion of the rates paid to it in excess of the rate permitted by the Commission’s order. The court thereupon entered an order to show cause, which specified the refund period, determined that the amount paid into court was the property of the ultimate consumers, and allocated the fund to the customers of the local distributors, including Central’s customers (to whom there was allocated $25,708.54), reserved jurisdiction of the fund for the protection of all persons having rights therein, and directed all claimants to the fund to show cause why the order should not be binding on them. Later the court entered an order in which it found that Central had raised an issue concerning the relative rights of itself and its customers to the amount in question. Central, which, as we have said, had not become a party to the proceedings, then filed a petition in intervention praying that the sum be paid to it, and leave to intervene was granted. Central’s petition set forth that it purchased natural gas from Pipeline during the refund period, pursuant to a contract; that the sum in question represented amounts paid by Central during the refund period in excess of the rates fixed by the Commission’s order; that Central sold more than 81 %■ of the gas in question without profit to Iowa Electric Company, which resold the same to some 2,400 consumers in Muscatine, Iowa, and that Central sold the balance directly to some 320 consumers in Greenfield, Iowa, 597 in Knoxville, Iowa, and 366 in Pella, Iowa; that less than 12%% of the gas sold in Knoxville and Pella was natural gas; that Iowa Electric Company had transferred all its rights in and to the fund to Central for the purpose of these proceedings; that, by the law of Iowa, the power to fix rates for gas service is vested in its municipalities, and the utility rates in that State are not regulated by any State agency or commission; that rates to consumers had been voluntarily reduced to meet competitive conditions and that such rates had been approved by resolution of the Council of Muscatine; and that, due to conditions in the communities serviced, the rates charged consumers were insufficient to produce a fair return.

Thereafter the court entered an order directing that the Attorney General of Iowa and the purchasers of gas from Central, and their respective municipal representatives in Muscatine and Greenfield, be notified of Central's claim to- the fund and that they show cause why the relief sought by Central should not be granted. No such order was made with respect to consumers in Knoxville and Pella nor to any officials of those cities. The City of Muscatine and the Mayor of Greenfield, purporting to represent the consumers in those cities, filed separate pleadings in which they asserted that the fund in question belonged to the consumers.

The court, without hearing, evidence, denied the relief prayed by Central by an order which was stated to be “without prejudice” to Central's “making claim of adjustment with the cities of Muscatine, Greenfield, Knoxville and Pella ... or with the consumers of gas furnished by it in said cities.” The reason stated for making the order was that the court was without jurisdiction to hear Central’s claim since it involved a determination of “the reasonableness of petitioner’s rates” and further since the court had previously ruled that the - refund belonged to the ultimate consumers. In a separate order entered the same day, the court directed payment of the sum in question to the treasurers of the several cities in specified amounts. It fixed the amount allocated to Muscatine at 81% of the fund, apparently relying upon the allegation of the petition that more than 81% of the gas purchased from Pipeline was delivered to consumers in that city. It apparently failed to give consideration to the allegation that less than 12%% of the gas sold in Knoxville and Pella was natural gas. The order recited that’the fund belonged to the ultimate consumers and that the court desired to pay it at the earliest possible time to “such parties as are entitled to the same, and to permit of a determination of said rights by a court or body having jurisdiction thereof.” Thereafter Central filed a supplemental petition setting forth that, except for the stay order, Central would have retained the sum in question; that Central was the only party in privity with Pipeline and was, therefore, entitled to the benefit of the rate reduction, and that the bond filed pursuant to the court’s order called for payment of the refund to purchasers at wholesale, one of whom was Central. It further attacked the jurisdiction of the court to award the sum to Central’s ultimate consumers since such an award amounted to a retroactive reduction of local rates to which the Natural Gas Act, by express terms, did not apply, and, finally, asserted that the court ought not to make the award based on a conclusion of fact unsupported by any evidence that the burden of the excessive rates had been passed on to the consumers whereas the court, at the same time, disclaimed jurisdiction to determine the reasonableness of local rates and, therefore, refused to hear evidence of Central’s equitable right to the fund. Muscatine and the Mayor of Greenfield responded. The court denied the petition without hearing or argument.

The court below was right in its view that as a federal court it had no power, at least in the absence of federal legislation purporting to confer such power upon it, to fix or adjust Central’s rates, that being a legislative function of the State of Iowa. This would be so where the fund in dispute came into its possession in a proceeding to enjoin the operation of an order affecting state rates,³ and must be equally true where the proceeding was one to enjoin collection of a rate for interstate service. This, because the court below had no power as a court of equity to fix rates, and as a federal court had no power to adjudicate a matter within the legislative competence of Iowa. The court below so held in this case, and has dealt with the matter more fully and to the same effect in another.⁴ ■ The Natural Gas Act clearly discloses that, though its purpose may have been to protect the ultimate consumer at retail, the means adopted was limited to the regulation of sales in interstate commerce at wholesale, leaving to the states the function of regulating the intrastate distribution and sale of the commodity. That Congress intended to leave intrastate transactions to state regulation is clear, not only from the language of the Act,⁵ but from the exceptionally explicit legislative record,⁶ and from this Court’s decisions.⁷

The showing made by the petitioner’s pleadings, and not denied, is that in Iowa rates are set by municipal ordinance; that the rates collected from consumers during the refund period were the lawful rates, so fixed; and that the sums impounded were deducted from the payments to 'Pipeline by Central out of its own funds. The only reply made by the municipal authorities is that the fund belongs to the ultimate consumers. Whether this is so, whether under Iowa law reparation may be demanded for sums paid by consumers under a standing rate, we do not know. Nor do we know who are proper parties under Iowa law to any proceeding to determine the relative rights of petitioner and its customers. Certainly these are questions of Iowa, not of federal, law.

We are of opinion that the court below lacked jurisdiction to adjudicate the question of the consumers’ rights in the fund in dispute. United States v. Morgan, 307 U. S. 183, on which the respondents rely, is obviously distinguishable. There the fund impounded was part of the charges paid to the stockyard merchants by persons who had been charged the rates found by the Secretary of Agriculture to be excessive. Here, since the fund represents a portion of sums paid by Central to Pipeline out of Central’s funds and pursuant to contract with Pipeline, the Morgan case would be authority for repayment to Central. This is true also of Inland Steel Co. v. United States, 306 U. S. 153. Moreover, if Central had paid Pipeline the excessive rates, the latter could not have defended a suit by Central to recover the excess on the ground that Central had passed on the burden to its customers.⁸

The ultimate consumers’ rights being such as the law of Iowa affords, there is no reason for the payment of the fund to municipalities or municipal officers under a quasi trust for those found ultimately entitled, thus placing the burden on Central to pursue the cities or their officers for its recovery. An order to this effect is certainly not within the court’s jurisdiction as a federal court of equity. The most the court below should do, in view of the apparent controversy as to the consumers’ right to a refund of rates heretofore paid to Central, is to order that the fund be held for a reasonable time to permit interested persons to litigate the issue in a tribunal having jurisdiction, the order to be conditioned that if such litigation is not instituted within a reasonable time, and prosecuted to final adjudication, the fund shall be paid over to Central, and that if it be adjudged as a result of such litigation that Central is indebted to its consumers because of the reduction of wholesale rates in this proceeding, further application may be made to the court as to its disposition.

The judgment is reversed and the cause remanded for further proceedings in conformity to this opinion.

So ordered.

1 52 Stat. 821; 15 U. S. C. § 717.

2 Federal Power Commission v. Natural Gas Pipeline Co., 315 U. S. 575.

3 Central Kentucky Natural Gas Co. v. Railroad Commission, 290 U. S. 264, 271, 272.

4 Natural Gas Pipeline Co. v. Federal Power Commission, 141 F. 2d 27.

5 See, e. g., § 2 (8), 15 U. S. C. § 717 (a) (8); § 5 (a), 15 U. S. C. § 717d (a); § 13, 15 U. S. C. § 7171; § 14a, 15 U. S. C. § 717m (a); § 15a, 15 U. S. C. § 717n (a); § 17 (a), 15 U. S. C. § 717 (p).

6 H. R. No. 709, 75th Cong., 1st Sess., pp. 1-3.

7 Public Utilities Comm’n v. United Fuel Gas Co., 317 U. S. 456, 467; Federal Power Comm’n v. Hope Natural Gas Co., 320 U. S. 591, 609-610.

8 Southern Pacific Co. v. Darnell-Taenzer Lumber Co., 245 U. S. 531.