United Gas Pipe Line Company v. McCombs

PETITIONER:United Gas Pipe Line Company
RESPONDENT:McCombs
LOCATION:Congress

DOCKET NO.: 78-17
DECIDED BY: Burger Court (1975-1981)
LOWER COURT: United States Court of Appeals for the Tenth Circuit

CITATION: 442 US 529 (1979)
ARGUED: Feb 22, 1979
DECIDED: Jun 18, 1979

ADVOCATES:
Knox Bemis – for petitioner in No. 78-17
Richard A. Allen –
Stanley L. Cunningham – for respondents in both cases

Facts of the case

Question

Audio Transcription for Oral Argument – February 22, 1979 in United Gas Pipe Line Company v. McCombs

Warren E. Burger:

We’ll hear arguments next in the case originally scheduled for the opening argument, United Gas Pipe Line, 78-17 and the consolidated case.

Mr. Allen, I think you may proceed whenever you are ready.

Richard A. Allen:

Mr. Chief Justice and may it please the Court.

The issue in this case is whether the Court of Appeals was correct in the holding that respondents and their predecessors in interest had lawfully abandoned the service of delivering natural gas in interstate commerce even though the Federal Energy Regulatory Commission had never authorized the abandonment under Section 7(b) Natural Gas Act.

Section 7(b) of the Act provides that natural gas company may abandon the service within the Commission’s jurisdiction “without permission and approval of the Commission first had and obtained after due hearing and a finding by the Commission that the available supply of natural gas is depleted to the extent the continuation of service is unwarranted or that the present or future public convenience or necessity permits abandonment.”

To summarize the pertinent facts; in 1948 W. R. Quin acquired an oil and gas lease of attractive land in Texas known as the Butler B Tract.

In 1953, his widow and successor in interest B. Quin entered into a gas sales contract with the United Gas Pipe Line company under which Mrs. Quin undertook to sell to United all merchantable natural gas produced from “all wells now or hereafter drilled during the term of the contract on a number tracks including Butler B.”

In 1954, Mrs. Quin applied for and received from the Commission, a certificate of public convenience and necessity authorizing the sales of gas as provided for in the contract.

Subsequently, the lease was assigned several times.

In one subsequent assignment amended the certificate — amended the contract with the United to extent its term to 1981 and obtained a certificate from the Commission that authorized the service as proposed in the amended certificate — in the amended contract and replacing the certificate that was originally issued to Mrs. Quin.

Before 1966, one well on Butler B produced natural gas that was delivered to United under the contract.

In 1966, the then assignee of the lease informed United that there was — that the well was not producing any more gas and that no further gas would be available at that time.

No gas was produced from property for five years and during that time no one applied to the Commission for authority to abandon service under Section 7(b).

In 1971, the assignee Haring assigned part of his interest in the Butler B Tract to the respondents.

They drilled a deeper well on Butler B, discovered more gas and entered into a contract to sell that gas to a DuPont plant in Texas that is in intrastate commerce.

In 1973, United asserted a right to that gas under its 1953 contract as amended.

And United — respondents denied that the United had any right to the gas and United filed a complaint with the Commission, which commenced these proceedings.

In the proceeding before Commission, respondent’s principle claim was that the original, the contracts with the United and the certificates from the Commission dedicated only the gas that was produced from the first well that was drilled on the property that is the well that was drilled before 1966, but not gas produced from the well that they had subsequently drilled.

Respondents also suggested to the Commission that even if the gas they were currently producing was dedicated to interstate commerce, the Commission should grant them abandonment authority nunc pro tunc or retroactively in 1966 when production from the first well had ceased.

The Commission held that the certificates issued to respondent’s predecessors dedicated all the gas produced from the Butler B Tract and thus imposed upon respondents an obligation under the Natural Gas Act to continue supplying that gas in the interstate commerce to United.

In view of the fact that the supply of gas under Butler B was concededly not depleted, the Commission also denied respondent’s suggestion that the grant abandonment nunc pro tunc to 1966.

The Court of Appeals reversed.

The Court of Appeals reversed on the ground that the facts of this case, established abandonment as a matter of law even though the Commission had never granted abandonment.

Particularly the Court of Appeals relied on the fact that production had ceased from during the period 1966 to 1971 that the parties during that period seem to believe that there was no more gas on the property and that the Commission probably would have granted an abandonment application if one had been filed in that period.

Those facts the court concluded made it necessary for respondents to comply with the requirements to Section 7(b) which forbids abandonment without obtaining approval from the Commission and until the Commission finds appropriate facts in an appropriate hearing and proceeding.

In the court’s view, the facts believed to be true in 1966 —

John Paul Stevens:

Mr. Allen, you mentioned a hearing and proceeding.

Is there a routinely a hearing into the abandonment applications filed?

Richard A. Allen:

There is not routinely a hearing.

The statute Mr. Stevens — Justice Stevens provides for a due hearing, where there is an abandonment application and all of the interested parities were notified and the application itself demonstrates depletion of supply and the interested parties are concurring that there’s usually not a hearing.

Richard A. Allen:

But where there is some dispute there will be hearing.

John Paul Stevens:

I got the impression from the briefs that normally there’s not a hearing.

Richard A. Allen:

Normally there’s not a hearing.

John Paul Stevens:

Yeah.

Richard A. Allen:

But in any of that Commission — in the Court of Appeals view, the facts that were believed to be true in 1966 made the Commission’s participation in the abandonment process unnecessary.

Our position is the Court of Appeals holding is contrary to the plain terms of Section 7(b).

In this case, the Commission never approved abandonment and never made any of the fact findings that abandonment would be warranted and indeed no one ever sought the Commission’s approval for abandonment at the time that those findings might have been made.

The court’s holdings thus violates the plain language of Section 7(b) and it also violates the general principle of administrative law that a court is not empowered to make findings of fact or engage in functions that a statute entrusts exclusively to an administrative agency.

The court’s holding that the facts of this case established abandonment also violates the specific objectives of Section 7(b) in at least three respects.

First, Section 7(b) serves to ensure that the Commission and all other interested parties will have an opportunity at relevant time to examine the facts bearing on abandonment.

The court’s holding would deprive them of that opportunity because the court found abandonment on the basis of facts that appeared to be true in 1966, but they were never examined by the Commission, by United or any other interested party in the kind of proceeding that Section 7(b) requires.

Second; Congress in Section 7(b) entrusted the Commission as the expert agency.

The task of making the determinations of facts pertaining to abandonment such as the alleged depletion of gas supplies.

The court’s holding on the other hand would authorize courts to make and to examine those facts and to determine those facts wholly independently of the Commission.

For example, if it would authorize courts in this kind of case to determine whether the geological evidence known or available in 19 — or discoverable in 1966 supported respondent’s predecessor’s assertion that the gas supply was depleted.

Third, Section 7(b) provides necessary certainty in the entire regulatory system, by providing that only the Commission can grant lawful abandonment.

Producers, pipelines, purchasers, another interested parties have someway of knowing whether gas from acreage that was once dedicated to interstate commerce, remains dedicated to interstate commerce.

Under the Court of Appeals holding, such persons would have no way of knowing whether that gas remains dedicated to interstate commerce, because some court in the future might find that some previous state of facts established a lawful abandonment, notwithstanding the absence of any Commission action.

Now the holding of the Court of Appeals that the fact established lawful abandonment appears to have been based in part on its view that if an application had been filed with the Commission in 1966, the Commission probably would have granted it.

And the respondents emphasized that notion in their brief to this Court by arguing primarily that because the Commission would have granted an abandonment application in 1966, the Commission erred as a matter of law in failing to grant abandonment nunc pro tunc in 1975, nunc pro tunc to 1966.

There are two answers to that contention.

First; it has no basis in fact. No one knows what the Commission would have done if an abandonment application had been filed in 1966.

No application was filed and therefore no one had any occasion or reason to examine the facts —

Thurgood Marshall:

And the Commission is different.

Richard A. Allen:

And the Commission is different, that’s absolutely correct, but in any event no one had any opportunity to examine the facts in the kind of proceeding that Section 7(b) contemplates.

Moreover we know now that the supply gas was in fact not depleted and it seems very strange to assume that the Commission would have made a finding that we now know to be false.

John Paul Stevens:

Mr. Allen I think your position is, if I’m not mistaken that even if they did demonstrate to put the Commissioners on the stand, that yes we would have granted it, you’d still say they didn’t have statutory authority.

Richard A. Allen:

Absolutely that would be our second and principle argument.

The notion that the Commission would have granted, respondent’s contention that the Commission would have granted abandonment in 1966 is totally irrelevant.

In fact it reflects a rather startling proposition of law that few regulatory agencies could operate under.

Richard A. Allen:

In effect, it would mean that anytime a statute requires agency authorization for an action, such as a certificate to operate an airline or license to sell alcoholic beverages, a person who was charged with failing to obtain that authorization would have a defense, a legal defense that if he had applied to the agency at some previous and proper time, the agency probably would have given him the authority.

In essence that’s what respondents’ position boils down to.

Warren E. Burger:

Do you think that might put a premium on having some lawyers go around pursing Mr. Justice Marshall’s suggestion and get affidavits from the former members of the Commission as some lawyers do going around the jurors —

Richard A. Allen:

It would put a tremendous premium on such activity Your Honor.

Now respondent is trying to buttress this argument by arguing that Haring’s failure to apply for an abandonment application was “good faith.”

It’s hard to see on this record what they mean by good faith because the fact of the matter is that the Secretary of the Commission during this period of non-production, twice wrote letters to the respondent’s predecessors and once to Haring saying that if no further sales are contemplated from this property, it’s going to be necessary for you to file an abandonment application and further more it’s going to be necessary for you to submit a statement of United with respect to it’s position on abandonment.

Haring nevertheless conceded in his testimony in this proceeding that he nevertheless made the determination that it wasn’t necessary and he didn’t do it.

In conclusion, I’d like to stress what this Court has recognized in a number of cases.

Namely that Section 7(b) is of key important to the Commissions’ regulatory responsibilities under the Natural Gas Act.

Although the Commission makes every effort to do so to monitor service obligations under the Act, there is no way that it can keep track of the performance of every gas sales contract that it certificates under the Act.

In some cases deliveries under such contracts may fluctuate from day-to-day or even from year-to-year and in some cases production may cease and resume several time for any number of reasons, but unless somebody complains to the Commission, the Commission has absolute enforcement and assurance that the service obligations will be complied with is extremely difficult, if not impossible.

Section 7(b) is critical to the Commission’s enforcement powers because as this Court recognized in Sunray Mid-Continent Oil Company.

It ensures that the Commission keeps legal control over service obligations even though the physical facts may be beyond its physical control.

Thus for example if it discovers that a producer is selling gas in intrastate commerce for sometime that it was dedicated to intrastate commerce, it may — and the producer claims that well at some prior period there had been cessation of production and I thought my obligation had lapsed, the Commission can say if you thought that the supply of gas was depleted at some prior time, you should have come to us then to prove it.

But since you didn’t your service obligation and your legal service obligation remains, that’s essential to the Commission’s responsibilities under the Act.

In larger measure we submit the Court of Appeals decision would undermine that regulatory authority.

With respect to the other points made by respondents in their brief, I’d like to rely on our brief on our reply brief and reserve the balance of my time for rebuttal.

John Paul Stevens:

Mr. Allen may I ask you one very trivial question?

Assume the property really had been exhausted and they never found any gas and somebody doesn’t file an abandonment application, is there any practical adverse consequence for his failure to do so or is the only adverse consequence that you have this problem if you do later discover gas?

Richard A. Allen:

As far as I can see this is the only significant adverse consequence.

John Paul Stevens:

So this is a significant consequence in itself, I just wonder anything else.

Richard A. Allen:

There might be the Commission’s ability to monitor reserves of natural gas and the Commission may have some particular reasons to enforce —

John Paul Stevens:

I can see how the Commission might want to kind of clean up and keep it’s files current or something of that —

Richard A. Allen:

Well that’s right and if somebody —

John Paul Stevens:

Was there any sanction on the operator?

Richard A. Allen:

Well if an operator willfully refused to file an abandonment application as he was required to, the Commission might have some regulatory reasons to take sanctions against him, even though his supply had depleted.

Thank you.

Warren E. Burger:

Mr. Bemis.

Knox Bemis:

Mr. Chief Justice may it please the Court.

Mr. Justice Stevens you were asking of practical consequences.

Knox Bemis:

The only one that I can cite for you is the producer has to continue to file reports on the particular acreage.

That in fact is apparently how the Commission knew to send the letters to the producer involved here asking to file for abandonment.

I intend to speak primarily of the reasons why Pipe Line and it’s customers need the safeguards of the Section 7(b) of the Natural Gas Act, and why these safeguards would be undercut by the holding of the Tenth Circuit on the position of the McCombs group here.

I also intend to speak of practical problems and uncertainties that would arise either from the holding of the Court below or the position of the McCombs group.

One of the statutory purposes or Section 7(b) as indicated in the due hearing language in that Section, is that interested parties be afforded the opportunity to be heard when a producer or any other natural gas company files for abandonment.

Indeed it is the Commission’s policy and practice to issues notices of the filing of such applications; such notices giving any interested party the chance to come in and state any objections.

That opportunity is afforded whether or not a formal hearing is actually held.

Now of course in this case there was no such hearing.

There was no such notice.

Indeed there was no informal notice even.

The producer never asked United either to agree to abandonment of the certificate or to release the producer from his contract obligations.

Now, yet as asserted by the McCombs group and apparently assumed by the Court below, that abandonment would have been routinely granted if it had been sought.

That however is by no means clear.

First of all, it is by no means clear in the circumstance that United having a contract that it regarded as still being in effect with the producer, would have agreed, would have consented or would have agreed not to object, if you will.

Second, we have few other question of whether the reserves were in fact depleted in 1966.

Now a lot of the routine abandonment cases I believe involve a situation where you have no indication whatsoever of continuing production.

We know that on the Butler B lease in 1966 despite the cessation of the natural gas production there was production from an oil well.

In other words you have continuing hydrocarbon productions all the way through the period.

Furthermore the record does not show the extent if any to quite show there were deeper test in areas adjoining or close by the Butler B lease when the producers asserts abandonment that would have been routine like granted.

So I think it is —

Warren E. Burger:

This has happened with coal mines for example, hasn’t it?

Coal mines have been not regulated as these are, They have abandoned and then when the price of steel, I should I have said iron mines, iron mines when the price of steel went up it became economic to operate what previously were an abandoned mine, abandoned because it was not economic to operate?

Knox Bemis:

That’s exactly, right.

Warren E. Burger:

Exactly the situation we would have here, could have here?

Knox Bemis:

Yes, that’s very close to this situation.

I believe, what happened here was a drill for deeper reserves that is of course related to the economics of the –

Warren E. Burger:

New equipment just developed over period of–

Knox Bemis:

That is correct too.

And indeed this is not an uncommon situation there.

The fact that production seized at one time in the past is by no means and itself indicative of there being no future gas production or the supplies being exhausted within the meaning of Section 7(b) of the Natural Gas Act.

Knox Bemis:

So we really do not know what would have happened even though as the McCombs group points out there were a number of routine abandonment applications granted during that period.

That incidentally is not so more recently.

In fact there is a recent decision of the Commission proceeding involving a Texaco where the Commission declined to grant abandonment on essentially the same facts as what have appeared here in the period 1966 through 1971.

The right of the interstate pipeline and its customers have been cut-off by the decision of the Tenth Circuit and would be cut-off by the position adopted by the McCombs group here.

In its brief the McCombs group argues that the hearing in this proceeding is not a good substitute for the hearing that should have been held on the abandonment application they should have filed in 1966.

That clearly cannot be maintained.

The hearing in this case involved the question of retroactive abandonment of course.

It also has as its basis, as its starting point, the knowledge that the central fact that the producer would have been trying to establish then i.e. depletion of reserves is false.

In other words, it is very difficult to have a due hearing about whether the reserves have been depleted when you know that they have not been depleted and you are trying to speculate as to what the parties would have thought about depletion if the hearing had been held at some date in the past.

So clearly the hearing in this proceeding cannot substitute for what was the party’s right under Section 7(b) at the earlier date.

I would like to speak also to the practical problems and uncertainties so that would stem from the decision of the court below or the position of McCombs group.

The abandonment order is a trust, a definitive reliable and public document, telling you whether the acreage is still dedicated.

There would be substitute for that, of the decision that court below, a determination by the parties I suppose whether at some point in the past people would reasonably have thought the reserves to have been depleted.

Moreover, the court below speaks about the length of time, five years, between the last production and the new production.

If that’s a factor how long does it have to be.

Similarly on the position of McCombs group you have to determine not only those factors, but also whether there is good faith involved.

The McCombs group also makes the point that the abandonment orders themselves may not be recordable and argue that that’s the reason for not requiring abandonment.

However, the problem there is not whether you can record the abandonment orders.

The real problem and the real goal is to put the producers on notice or to put subsequent lessees on notice that there is a gas purchase contract, an obligation in that respect, that was on record here.

United had filed in the land records the evidence of this contract and it indeed turn up in one of the title opinions that the producers got.

It’s easy to find out if you are on notice to the contract whether the property has been certificated and whether an abandonment has been granted, you get from pipeline and no where else.

Finally I would like to mention this, at one point in McCombs brief on page 19, there is a quotation in the testimony of United witness Mr. Oban that suggests that United thought and took the position that the certificate obligation terminated when the property ceased to produce 1966.

That is not correct and that’s not the implication of his testimony.

It’s not just the implication of his testimony, he says something very different in the record.

The record will show that what he was talking about was United’s right as it constituted to remove a metering station because it was a gathering facility not because any certificate obligation terminated.

United never took any action here that indicated that it felt that either the certificate obligation or the contract obligation had terminated.

Thank you.

Warren E. Burger:

Very well.

Mr. Cunningham.

Stanley L. Cunningham:

Mr. Chief Justice, may it please the Court.

Stanley L. Cunningham:

There is a threshold issue in this case about what the Court of Appeals held.

The Commission and United read the Court of Appeals opinion as engaging in prohibited judicial fact finding and as bypassing the Commission’s functions.

We on the other hand make no such reading of the Court of Appeal’s opinion and as I present my argument this morning I would point out the relevant aspects of the Court of Appeal’s opinion which we believe support our reading there.

In opinion number 740, the Commission took two actions which formed the basis of the issues before the Court.

First, the Commission failed to grant McCombs’ request to retroactively apply the Act as if Haring had applied for abandonment and had filed the proper papers in 1966.

Second, the court ordered McCombs to deliver gas to United on the grounds that the word service rendered as used in Section 7(b) are not to be accorded their plain meaning.

On judicial review, McCombs argued to the Court of Appeals that both of these holdings constituted error.

We believe that a proper reading of the Court of Appeals’ opinion indicates that the court agreed with us on the first issue and therefore found it unnecessary to discuss the second.

The first issue depends on the application of equitable principle which has been worked out between the courts and the Commission and for nearly a period of 40 years and which involves — and which does not involve the interpretation of any Federal statute.

This principle and the principle which was urged to the Court of Appeals was that when a party is in good faith and failing to file the proper papers with the Commission at the proper time the Commission should retroactively apply the Act as if the party had complied with the Act at the proper time.

This principle is supported by four decisions of the Courts of Appeals cited in our brief.

I would point out that the Courts of Appeals have required the Commission to apply the principle uniformly regardless of whether it benefited or burdened the party failing to file.

That’s in the Niagara Mohawk case cited in our brief, the application of the principle burdened the party for the reason that it obtained a hydroelectric license for a shorter duration then it would otherwise had received.

However, in the Highland’s case, also cited in our brief, the party failing to file was benefited, because it achieved higher rates than it would otherwise had been permitted.

Similarly, in Plaquemines and Ellwood cited in our brief, the party failing to file was benefited for the reason that they were not required to make refunds that was —

Warren E. Burger:

We’ll resume at 1 o’clock Mr. Cunningham.

Stanley L. Cunningham:

Very good.[Luncheon Break]

Warren E. Burger:

Counsel, you may resume.

Stanley L. Cunningham:

Mr. Chief Justice, may it please the Court.

Before the luncheon recess, I was discussing the equitable principle in this case that where a party as in good faith in failing to file the proper papers with the Commission at the proper time that the Commission should retroactively apply the Act as if the party had complied there with.

I pointed out that this principle has been required by the courts to be applied in situations where both benefits and burdens the party failing to file.

The application of the principle involves asking the present Commission to, in the language of the Plaquemines case reconstruct the past to reflect compliance with the Act and does not therefore involve the obtaining of affidavits or sworn statements from past Commissions as to what they might have done with the situation.

Moreover, the principle applies the Section 7(b) of the Natural Gas Act as demonstrated by the Commission’s own order in the Hewitt and (Inaudible) case which is cited in our brief.

In that case, the reserves were depleted before this Court’s decision in the Phillips case.

Thurgood Marshall:

Mr. Cunningham how far back does the (Inaudible) run?

Stanley L. Cunningham:

It has a history of about 40 years Your Honor.

Thurgood Marshall:

No, I mean will it go back that long?

Stanley L. Cunningham:

You mean the —

Thurgood Marshall:

Would you say that this could send us into — should have been done 40 years ago as hadn’t been done?

Stanley L. Cunningham:

Your Honor, the principle I think would be applicable regardless of the time span between the date the filing should have been made and the date of filing was actually made.

Stanley L. Cunningham:

In some of these cases, the time span runs from five to ten years.

I don’t recall a case that has had a time span, which is longer than 10 years, for example.

John Paul Stevens:

Mr. Cunningham, under your theory should not the Commission have been directed to hold the hearing that was never held, because he didn’t file at the right time and that’s not what the Court of Appeals ordered.

Stanley L. Cunningham:

Your Honor, there was a hearing before the Commission —

John Paul Stevens:

They didn’t make all these findings.

They didn’t find that they would have granted the abandonment if the petitioner had filed in time, did they?

Stanley L. Cunningham:

They refused to apply the Act retroactively not on the grounds that if they had applied the Act retroactively that they would have found in 1966 that the reserves were totally exhausted.

John Paul Stevens:

No, but what I’m saying is that if your theory were correctly applied by the Court of Appeals, should not the Court of Appeals have remanded the matter to the Commission with directions to hold a hearing and decide what it would have decided in 1966, if a timely application had been filed?

Stanley L. Cunningham:

No Your Honor, because the evidence in 1966 was that of Haring, who was a petroleum geologist who testified that at the time his reserves were depleted in 1966 that neither he nor United or anyone else knew of any further reserves.

Now, in the light of that testimony, the Commission could only had made one finding, concerning the situation as it existed in 1966 and that finding was as required by the statute that the available supply of natural gas was depleted.

Now that file —

John Paul Stevens:

You’re saying that the Court of Appeals has found as a fact that this is true and it is so clear that we know that the Commission would have come to the same conclusion if they had a hearing?

Stanley L. Cunningham:

The evidence in the record is un-controverted, Your Honor.

If the Commission had found the other way concerning the facts in 1966 that would have been reversible as being contrary to the evidence.

John Paul Stevens:

It didn’t move well, that’s not the standard of review of course, just contrary to the evidence, there had been no substantial evidence supporting the contrary finding.

Stanley L. Cunningham:

There would have been no substantial which would have supported the finding that the reserves were not depleted in 1966.

In the Hewitt and Dougherty case which shows that this principle is applicable to Section 7(b), the reserves were depleted before this Court’s decision in the Phillips case and the Commission then applied the Act as if Hewitt and Dougherty had complied with Section 7(B).

United and the Commission seek to distinguish these cases on the grounds that they arose out of previously unannounced points of law.

Yet in the Plaquemines case, the filing should have been made after the Commission announced that it had jurisdiction under the (Inaudible) case.

Similarly, in Ellwood a part of the refunds and a substantial part of the refunds were incurred after the Commission asserted jurisdiction and what ultimately became the (Inaudible) before this Court.

In Highlands, the party failing to file was simply relying on Commission regulations and here the Court of Appeals observed that there were no cases, which dealt with similar factual circumstances.

So, the common thread of all these cases is that the party failing to file was in good faith and once you’ve made that finding then you proceed to retroactively apply the Act as if the party had complied with the provisions of the Act at the proper time.

Concerning the issue of good faith, the courts have required more than mere ignorance of the law or mere inadvertence in filing.

In each case cited in our brief and in this case, the party failing to file was aware of the filing requirement, but the facts, there were facts and circumstances in each case which made the party believe in good faith that those filing requirements were inapplicable.

The Court of Appeals opinion first stressed extensively the facts relating to Haring’s good faith and why he felt it was unnecessary to file.

Thus in 1966, when Haring acquired the Butler B lease, there was one well on that lease, which was not producing.

Haring attempted to restore production by diligent efforts, but was unsuccessful.

Both the buyer and the seller recognized that there could be no more gas produced and this was contrary to their wishes.

United removed its equipment and Haring believed that the contract was at an end.

Haring was a petroleum geologist and as I had stated testified that in 1966 neither he nor anyone else knew of any further gas reserves.

Stanley L. Cunningham:

Haring believed that it was unnecessary to file the papers which the court observed could in view of the facts had only been for the purpose of tidying up the records.

Since Haring believed, the 1953 contract had been ended, he had not inform McCombs about it.

McCombs acquired his interest in the Butler B lease relying on the 1967 title opinion, which failed to mention the 1953 contract.

McCombs was therefore unaware that Haring had not filed with the Commission until the hearings before the Commission in this case.

As further —

Warren E. Burger:

Isn’t that episode with one of the good indications why these abandonments should always be a matter of records, so that your title examiner can know what the situation is?

Stanley L. Cunningham:

I think they should be a matter of record Your Honor, but in most states the abandonment orders of the Commission are un-recordable and indeed inquiry to the Commission would prove useless, for the reason that the Commission’s records are not kept so that the Commission can –-

Warren E. Burger:

Well, when you say they’re un-recordable under State law you mean?

Stanley L. Cunningham:

Yes.

Warren E. Burger:

Well, but a careful examiner when he’s dealing with this kind of property isn’t going to rely just on the registered deeds or the registrar whatever it maybe, he is going to communicate with the Commission, isn’t he?

Stanley L. Cunningham:

That was my point Your Honor, inquiry to the Commission would be fruitless for the reason that the Commissions records are not kept in a manner so that it can be determined whether abandonment has been granted with respect to any particular tract.

And indeed, the record in this case and the Commission’s opinion below indicates that the Commission has destroyed its records of a certain advantage as of 1964, so that nothing can be told about records of that advantage.

As evidence of Haring’s good faith and belief that he did not have to file, we pointed out in our brief that United also did not believe that they had to file, although this Court in the United case decided in the same year, 1966, had said that Section 7(b) is equally applicable to the purchaser.

Thus the United witness testified that he didn’t believe it was necessary.

Thurgood Marshall:

How much would it have cost to have filed this abandonment approximately?

Stanley L. Cunningham:

I’m sorry Your Honor, I didn’t understand.

Thurgood Marshall:

How much in a United States Dollars and cents would it approximately cost to carry through and abandon the proceedings in the 1960s?

Stanley L. Cunningham:

At the time your honor the cost would not have been great for the reason —

Thurgood Marshall:

Why in the world do we have to bend all of the law around to protect a company with counsel who deliberately didn’t follow the rule.

Stanley L. Cunningham:

Your Honor although the Harings failed to file —

Thurgood Marshall:

I just want to give you a break there, it will cost you so much money, but you can’t even help me with that, can you?

Stanley L. Cunningham:

It would not have been costly at that time to file Your Honor for the reason that the Commission withheld processed the abandonment papers and did not hold a formal hearing, an evidentiary hearing on it.

The Court of Appeals observations were based on the statement of facts which were contained in opinion 740.

The Commission however did more than state facts concerning good faith.

It made an express finding in paragraph 71 that McCombs and Haring were not willful.

In view of Haring’s testimony that he was not merely ignorant of the requirement, but that he consulted his lawyer and both of them thought it was unnecessary to file, I think that this holding is another way of saying that the respondents before the Commission is in good — were in good faith.

Moreover the administrative law Judge made his own findings of innocence and good faith which in view of, which were not accepted to and in view of the Commission’s regs —

Thurgood Marshall:

What happens if you in complete innocence and in good faith to fail file your petition for certiorari in this Court on time, what happens to you?

Stanley L. Cunningham:

Well, Your Honor the —

Thurgood Marshall:

With all the good faith in the world, what happens?

Stanley L. Cunningham:

Well, Your Honor you are right, of course, but that’s not the situation in this case.

Thurgood Marshall:

And I don’t want to bend it over either?

Stanley L. Cunningham:

Well, we would ask you Your Honor to consider that the filing — that Haring was in good faith in failing to file and reason to believe that it was not necessary to file whereas in Your Honor’s situation no one would believe that it is unnecessary.

Thurgood Marshall:

No, mine is that you thought you had 91 days and you only had 90.

Stanley L. Cunningham:

Well the statute very clearly sets forth that you have 90 days Your Honor, whereas —

Thurgood Marshall:

(Inaudible) in good faith.

Stanley L. Cunningham:

I don’t think, Your Honor and I pointed out that the doctrine was not applicable to mere inadvertence although ignorance but rather it is applicable to a situation where the party had reason to believe that he didn’t have to file and in this connection if there is any doubt about what the Administrative Law Judge thought about the subject, it may be laid to rest by his statement on the record at the conclusion of the proceedings.

Speaking of the McCombs group he said, it is clear to me that are equities involved in this proceeding and that there are parties involved in good faith and who proceeded in good faith without knowledge and without notice of the claim of United until after they had taken certain steps and actions and made various commitments and entered into various contractual arrangements.

We therefore submit that the findings of the Commission and of the Administrative Law Judge on the issue of good faith are clear and are supported by the substantial evidence —

John Paul Stevens:

Without notice of United’s claim, but does that show — does that say they didn’t know that the statute said or they didn’t get a form that said you have a file a petition of this kind?

Stanley L. Cunningham:

Without notice United was claiming rights under its contract Your Honor, which it did not do until after the negotiations with the United were over until and until year after McCombs had entered into his contract with DuPont.

John Paul Stevens:

Isn’t this — the statutory language pretty clear in this case, isn’t that the big problem?

Stanley L. Cunningham:

No Your Honor, I don’t think it is clear because if you examine the law at that time you have two cases which said that’s the Hart and the Harbor cases before the Fifth and Tenth Circuit respectively, but so — that the petitioner, that the requirement to continue deliveries continues down to the exhausting the reserves or so long as production continues.

In light of that I think that Haring could reasonably have felt that he didn’t have to file after it was clear to him that there were no further reserves and that the reserves which he had tried to produce were totally exhausted.

The second part of the two-part analysis of this equitable doctrine is, what would have been the result had the proper papers been filed at the proper time, that is when Haring’s reserves were depleted.

The Court of Appeals had no doubt on this because it observed that in light of facts in 1966 the filing could only have been for the purpose of tidying up the Commission’s records.

The Commission on the other hand refused to apply the Act retroactively, not because of the facts as they existed in 1966, but rather because of the facts as they existed in 1975 when the Commission issued its order.

These facts were there in 1971 McCombs had discovered the McCaskill field which lay at depths of approximately a mile deeper than the South Porter field from which Haring had attempted to produce.

This is not like the situation in which an iron mine which has known deposits becomes economic because of — uneconomic because of price fluctuations, but rather these were separate and unknown reserves.

The Court of Appeals held that the Commission erred in this respect as a matter of law, that is the Commission the wrong evidence in applying the Act retroactively.

The court was correct in this because the required finding under Section 7(b) is that the available supply is depleted. And the facts are un-contradicted as I mentioned in 1966 that the available supply of natural gas was depleted.

This finding was correct in 1966 and is not erroneous today as the Commission would suggest with the benefit of hindsight, for it remains true today that in 1966 when the finding was required to be made and the papers should have been filed, the available supply of natural gas was depleted.

Therefore we believe the court’s opinion properly understood holds that the Commission erred in failing retroactively to apply the Act.

This holding does not, as the Commission in United suggest bypassed the Commission’s processes or denied interested parties the right to be heard.

As reflected in the Administrative Law Judge’s opinion the Commission issued a notice of complaint on October 18, 1973 inviting any party desiring to be heard to file a petition to intervene or to protest.

McCombs raised the issue of retroactive abandonment in its first submitted answer filed at a date long before the hearings in this case in this language.

This Commission must treat that which should have been done as having been done and should therefore issue an order permitting Louis H. Haring et al to abandon their sale to United as of the exhaustion of reserves in 1966.

Harry A. Blackmun:

Mr. Cunningham, I know you have already said this, but do you know of any case where the Commission actually has permitted abandonment nunc pro tunc on its own or under the mandate of the court?

Stanley L. Cunningham:

In the Hewitt and Dougherty case, Your Honor, the Commission applied the Act as if Hewitt and Dougherty had complied with the Act in 1954 before the Philips case was decided.

Now in view of McCombs’ answer at the hearings all the parties had opportunities to present evidence on this issue and yet the only evidence in the record was that of Haring and McCombs that they were in good faith and that in 1966, the available supply of natural gas was depleted.

Stanley L. Cunningham:

Nor has this bypassed the Commission’s functions for the reason that the Commission was asked to exercise its powers under Section 7(b) and failed to do so.

The Commission and United suggest that they have had less than a full opportunity to cross examine the evidence on this issue and in response to this I would point to the record which contains extensive cross examination of McCombs and Haring’s witnesses before the Commission and the presentation by United of its own witnesses.

Thurgood Marshall:

How about little hypothetical Mr. Cunningham?

Stanley L. Cunningham:

Yes sir.

Thurgood Marshall:

You got a Commission in existence now that everybody knows would not give an abandonment to anybody under certain conditions.

So wouldn’t it be better not to apply and wait for another Commission.

Stanley L. Cunningham:

No Your Honor, because —

Thurgood Marshall:

Why not?

Stanley L. Cunningham:

— the application —

Thurgood Marshall:

Why not?

Stanley L. Cunningham:

The application of this doctrine requires a producer to come to Commission and to ask the Commission to exercise its statutory function under Section 7(b) as of the date the paper should have been filed.

Now, in order to do that, the producer has to show that he was in good faith.

Now, if the producer is conspiring to avoid the requirements —

Thurgood Marshall:

Well, if I would do, what I suggest that I would do, I wouldn’t tell anybody that was the reason I would do it, would I?

Stanley L. Cunningham:

I would suggest that in that case Your Honor, the producer could not make the required showing of good faith and therefore the doctrine would not be applicable.

Thurgood Marshall:

Well, suppose I put on 10 years later, I put on a lawyer that said, we didn’t just think you needed abandonment and lawyers they said exactly what the lawyer said in this case.

Stanley L. Cunningham:

Your Honor, it’s a question of good faith.

Thurgood Marshall:

Would that be good?

Stanley L. Cunningham:

It’s a question of good faith in each case.

And that’s the question that the Commission to file.

Thurgood Marshall:

I said that the lawyer said exactly what these lawyers said.

Wouldn’t the law Judge say exactly what this law Judge said?

If not, you’re wrong?

Stanley L. Cunningham:

That the parties were innocent that is?

Thurgood Marshall:

Yeah.

Stanley L. Cunningham:

And we’re in good faith.

Thurgood Marshall:

Yeah.

Stanley L. Cunningham:

It would depend on the facts and the circumstances of that case.

Here they were extensive [Voice Overlap]

Thurgood Marshall:

Well, the only facts are that they should have applied but they didn’t.

Stanley L. Cunningham:

I don’t think that would do, that would meet the requirement showing of good faith Your Honor.

Thurgood Marshall:

What other requirements do you have here?

Stanley L. Cunningham:

Haring entered in 1964.

Thurgood Marshall:

Well, all I heard you say was that the lawyer said it wasn’t necessary to file this piece of paper.

Stanley L. Cunningham:

No Your Honor.

That was not the only reason, I think that’s supports Haring’s good faith, but Haring’s good faith was based on the fact that he — when he acquired the Butler B lease there was only one well on it which was not producing.

He undertook extensive operations in order to restore production, which ended in failure and he was the —

Thurgood Marshall:

But what about the fact that you can shop around for Commission?

Stanley L. Cunningham:

The Commission in —

Thurgood Marshall:

Is that right?

Can’t you wait until you get a Commission that likes McComb?

Stanley L. Cunningham:

Well Your Honor, the required finding is whether the available supply was exhausted as over the time —

Thurgood Marshall:

Well, haven’t there been cases where they held up on trade Commission cases until the whole Commission changed by delaying tactics?

Stanley L. Cunningham:

I’m not familiar with those cases Your Honor, but —

Thurgood Marshall:

Why in the world do you think they passed the rule that you had to file for this, if you didn’t have to?

Stanley L. Cunningham:

It’s the same as in any filing requirement.

It’s same as in the Plaquemines case where there was a filing requirement, but the party was in good faith by not making it, when he had failed to make the required filing.

It’s an equitable doctrine, which excuses those filings, where it would be inequitable to enforce the requirements of the Act against the party who is in good faith and further I would point out that in this case what the application of the doctrine would impose the devastating consequences of Haring’s good faith failure upon McCombs, who was totally innocent.

The Commission also Your Honors, indicates that something could have been added to these proceedings by the filing of an abandonment application at the time of the hearings below.

I believe this is unnecessary in view of the clear answer, which McCombs filed raising this issue and I would further point to the Commission’s regulations, which contain the requirement, the information required to be set forth in an abandonment application.

This is 250.7 of the Commission’s regulations.

10 items, name of seller, name authorized in docket number, name of purchaser and alike, all of which were in the record, in the proceedings below and all of which every party had an opportunity to cross-examine.

In summary on this point Your Honor, the critical issue is whether the equities permit the devastating consequences of Haring’s good faith failure to file to be vested on the totally innocent third party, that is to say McCombs.

The answer to this must be no.

The court should permit the application of the equitable doctrine, which we have urged here, which is designed to prevent these inequities from happening.

This application will not upset any regulatory scheme or statutory function of the Commission, but rather it’s a matter of equitable principles addressed to these particular facts.

Your Honors, we also urge an issue, which does include statutory interpretation, that is to say that the word service rendered as set forth in Section 7(b) of the Natural Gas Act are to be accorded their plain meaning that is to say services rendered when delivers of natural gas are made in interstate commerce and the public as thereby relied on the reserves, which support those deliveries.

We submit that reliance is at the heart of the Section 7(b) and therefore when Haring commenced deliveries from his reserve, the public relied on the reserves quoting those deliveries and those deliveries were therefore within the scope of Section 7(b).

However, McCombs reserves which were almost a mile deeper and which were discovered at a later time were not relied upon by the public and are therefore not within the scope of Section 7(b).

We submit that the decisions of the courts show that neither the certificate nor the contract, nor the oil and gas lease is a proper measure of service rendered under Section 7(b) and we would point out and this is not pointed out in our brief that the Natural Gas Act when it was first enacted contained Section 7(b) intact, but did not contain a certificate provision except in very limited circumstances where a natural gas company wanted to serve another market, which was already being served by another natural gas company.

Stanley L. Cunningham:

So, that in our view Congress did not intend the certificate to be the measure of Section 7(b) because in the original version of the Natural Gas Act, there was no certificate provision except for very limited circumstances.

We believe Your Honors that the pipeline company’s right to purchase unknown reserves upon which the public has not relied was therefore intended by Congress to be left to the gas purchase contract under state law.

That concludes my argument.

Warren E. Burger:

Thanks Mr. Cunningham.

Do you have anything further?

Richard A. Allen:

Mr. Chief Justice, may it please the Court.

There is no basis, whatever in law or facts for respondent’s claim that their alleged “good faith” requires the Commission to grant them nunc pro tunc abandonment.

Their claim of “good faith” that comes down even if you accept it to be true simply to an ordinary mistake of law and as Justice Marshall pointed out, if your lawyer tells you, you don’t have to file a petition for certiorari on time or you don’t have to get a drivers license or you don’t have to do anything else that statutes require you to do, that is no excuse for not doing that that you are — the statutory requirements remain in force.

Furthermore, there is no basis for respondent’s suggestion that it is difficult for producers to find out whether the Commission is certificated particular gas sales contracts.

As Mr. Bemis pointed out, the contracts are typically recorded in the Recorder of Deeds Office and any person searching a title will find the contract would have no difficulty going to the pipeline to determine or to the Commission to determine whether there is a certificate authorizing that service and whether there has been an abandonment order issued with respect to it.

William H. Rehnquist:

Mr. Allen, you say they are typically recorded in the Recorder of Deeds Office, you mean county by county?

Richard A. Allen:

I believe that is correct Your Honor.

William H. Rehnquist:

Under what heading?

Richard A. Allen:

They are filed with the lease.

The lease must be filed in gas sales; typically a gas sales contract will be filed together with the lease to reflect an encumbrance on the lease.

The cases that the respondents rely on for their alleged good faith argument —

Thurgood Marshall:

Mr. Allen I think I didn’t understand say the court had did by his argument.

His argument was that the court could —

Richard A. Allen:

His argument was – as I understand that the Commission is required as a matter of law and was required in this case.

Thurgood Marshall:

But he says the court can do that.

Richard A. Allen:

The court can require the Commission.

Thurgood Marshall:

I think it is a little dirty to say the court has to.

Richard A. Allen:

Well, it is not entirely clear what his position is, but if he says that’s the law, then presumably the court would have to.

The cases on which he relies are completely distinguishable, they involve two situations.

The first situation is where somebody has failed to comply with statutory requirements and in order to make he doesn’t get away with evading the statutory obligations, the Commission has to make a assumption that what he did, he did in fact what he should have done.

The other situation is where a person does not do something and there is reasonable reliance on the existence of the state of law at that time and then subsequently there is a change in the state of law.

For example; in 1954, when this Court first determined and held that producer contracts were subject to the Natural Gas Act to producer activities, if there are no further questions —

John Paul Stevens:

Is the Hewitt and Dougherty in latter category?

Richard A. Allen:

That is in that later category where there had been a cessation of production before 1954 and of course the person did not file for an abandonment application, because nobody thought he was subject to the Act.

Warren E. Burger:

Thank you gentleman.

Warren E. Burger:

The case is submitted.