Arkansas Louisiana Gas Company v. Hall

PETITIONER: Arkansas Louisiana Gas Company
RESPONDENT: Hall
LOCATION: Indiana State Employment Security Division

DOCKET NO.: 78-1789
DECIDED BY: Burger Court (1975-1981)
LOWER COURT: Louisiana Supreme Court

CITATION: 453 US 571 (1981)
ARGUED: Apr 20, 1981
DECIDED: Jul 02, 1981

ADVOCATES:
James Fleet Howell - on behalf of the Respondents
Reuben Goldberg - on behalf of the Petitioner

Facts of the case

Question

Media for Arkansas Louisiana Gas Company v. Hall

Audio Transcription for Oral Argument - April 20, 1981 in Arkansas Louisiana Gas Company v. Hall

Warren E. Burger:

We'll hear arguments next in Arkansas Louisiana Gas Company v. Hall.

Mr. Goldberg, you may proceed when you are ready.

Reuben Goldberg:

Mr. Chief Justice and may it please the Court:

This case involves a suit filed by the respondents in the State Court of Louisiana with respect to a contract that is on file with the Federal Energy Regulatory Commission as the respondent's Rate Schedule No. 4.

In that suit they sought damages which were in fact a claim for a retroactive rate increase under the Natural Gas Act.

The respondents were successful in that suit and it is petitioner's position that the decision of the court below violated the Filed Rate Doctrine, violated the primary jurisdiction of the Commission and its exclusive rate jurisdiction and Commission regulations.

And I should say to the Court that these positions were steadfastly maintained through each of the courts through the State of Louisiana, the trial court as well as the courts of appeal.

The contract between petitioner and respondents provides for the sale by respondents to petitioner at the wellhead of the entire stream of wet gas from respondents' wells located in the Sligo field in North Louisiana.

I should say at this point that gas is known as wet gas when the gas stream contains liquefiable hydrocarbons.

These liquefiable hydrocarbons exist in the gas stream in a gaseous state and they are extractable through a simple process at a processing plant at the surface.

When these liquefiable hydrocarbons have been extracted, the gas stream is known as dry gas or residue gas, and the terms are used interchangeably.

Now, to return to the contract which is at the seat of this case, the negotiations leading to its execution were quite lengthy.

The respondents wanted a provision included in the contract which is known in the industry as a favored nation provision.

They wanted one that would escalate fixed prices that had been agreed to in the contract if any buyer of gas in the Sligo field paid any seller a price higher than the fixed prices in the contract.

They also wanted the favored nation provision to apply to liquefiable hydrocarbons and to condensate, which is a form of crude oil that at the surface without any processing drops out; it becomes a liquid and drops out in the separator.

The favored nation provision that finally emerged when the petitioner rejected these proposals of respondent is the one that appears in the contract.

It's in the Joint Appendix at page 99.

It does not apply to hydrocarbons and condensate and is triggered only by the purchase of gas by petitioner in the Sligo field from... and I quote these words, because they are important... "another party seller" at a price higher than the fixed prices established in the contract for the wet gas.

The favored nation provision provides that in determining whether a given price is in fact a higher price, the provisions of the contracts being compared bearing on that determination such as point of delivery, delivery pressure, are to be compared and adjustments made for the differences between them.

Only when the differences are found and adjustments are made for them can it be known whether in fact the favored nation was triggered.

Petitioner also agreed to a proposal that had been made by respondents for the elimination from the contract of payments for extracted liquids in return for an increase in the price for the gas of 1/4 of a cent.

The favored nation provision during the negotiations received so much attention and was so carefully dealt with by the petitioner that it actually became thereafter the model for petitioner's favored nation provisions in contracts.

In 1954, after this Court in the Phillips Petroleum case had declared that producers of natural gas selling gas in interstate commerce were subject to the Natural Gas Act, the respondents filed a contract and secured from the Commission certificates of public convenience and necessity to make the sales as required by the Act.

And as I have said before, at the outset, it's the respondents' Rate Schedule No. 4 on file with the Commission.

Some years later, in 1961, the petitioner acquired an interest in a United States Government mineral lease of lands in the Sligo field, the very same field.

Petitioner, having acquired that interest, thereby became obligated to make royalty payments to the United States for the value of the extracted liquid hydrocarbons and condensate and for the value of the residue or dry gas.

The lands involved in the government lease had been withheld for a time by the Government from production and development but it developed that adjacent landowners were draining the minerals from underneath the Government lands and the Government opened them up to development and that produced the government lease.

And it is interesting that the Hall group... I refer to the respondents sometimes as the Hall group... had land adjacent to the government lease.

Petitioner's acquisition of the interest in the government lease was not concealed from anyone.

The petitioner had no reason to keep the matter hidden; it did not keep it hidden; and it could not have been kept hidden from knowledgeable, active oil and gas men such as existed in the Hall group.