United States v. Atlantic Refining Company – Oral Argument – April 22, 1959 (Part 2)

Media for United States v. Atlantic Refining Company

Audio Transcription for Oral Argument – April 22, 1959 (Part 1) in United States v. Atlantic Refining Company

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Earl Warren:

Mr. Peck, you may proceed.

David W. Peck:

Thank you, Mr. Chief Justice.

I was advising the Court at the recess reminding you of the substance of the complaint filed in 1941 which was that the receipt of dividends, any dividends by the shipper-owners of the pipelines was a rebate.

The Government painted with the broadest possible brush in that complaint.

There was nothing about relating the dividends to shipments.

It was all-embracing that the payment of any dividend to any shipper-owner was a rebate and the relief requested was treble damages over a period of years and an injunction against the payment of dividends in the future.

The answer of the defendants was a categorical denial that the payment of dividends which were calculated as any dividend would be calculated in ordinary course from earnings and paid in ordinary course without any relation to shipments out of earnings in due course, could not be considered in anyway a rebate.

And the defendants contended that the Elkins Act had no application whatever to the situation.

In that posture, the parties agreed to a consent decree, a simple decree which was a limitation on dividends.

Now, if Your Honors would turn to the decree which you may find as an appendix to our brief, the pertinent provisions or at page 10 of the record, I would like to call Your Honors’ attention to the exact wording of paragraph 3 of the decree because there in a sentence or two, is the whole issue in this case.

Paragraph 3 provides that no common carrier may thereafter, in any year, pay to any of its shipper-owners as a dividend or any payment, any sums in excess of its share.

That is, a shipper-owner’s share, its share of 7% of the valuation of such common carrier’s property.

And then it goes on to say that so far as the Interstate Commerce Act and Elkins Act are concerned, a carrier may pay 7%.

Valuation is defined in 3 (a) and I think it not — need not be tamed, Your Honors.

There is no dispute about it.

It is valuation as found from time to time by the Interstate Commerce Commission.

Now, the question in this case, very simple question and we respect a very — respectfully submit a very simple answer.

What is the meaning of the words “its share of 7 percentum of valuation”?

And we submit that that meaning is perfectly clear and always has been clear.

Valuation as I have advised Your Honor and as Mr. Bicks has told you is not in dispute.

It is the valuation as found by the Interstate Commerce Commission.

Likewise, there can be and there’s no dispute about what 7% of valuation is in any year.

So, the question is what is meant by a shipper-owner as an individual, single shipper-owner’s — its share of that 7% of valuation?

This decree obviously had two purposes.

One, was to limit dividends overall to 7% of valuation.

The other, was to provide a formula as to how that 7% of valuation was to be distributed among the shipper-owners.

That comes back to what I said to Your Honors in the beginning, a basic fact here that many of these carriers are owned by several shipper-owners.

In other words, the ownership is shared and as you observe this limitation is framed in the singular as to what a carrier may pay to each shipper-owner and of course what could be paid was its share, its equity share of 7% of the valuation as defined, because if Your Honors will just concentrate for one moment on that language and bracket out, if you’re well either physically or mentally the words “its share” and you will see the significance and purpose of the words “except for its share.”

It would mean that a carrier could pay to each shipper-owner 7% of the valuation.

Clearly, that was not intended and as I had observed because this decree was — was framed in the singular as to what might be paid to each shipper-owner, it provided that each shipper-owner might get only its share, plainly we say, a share proportionate to share owners.

David W. Peck:

It would be impossible to give it any other meaning.

Now, I come to the 16 years of uniform and consistent administration of this decree between 1941 and 1957 about which Mr. Bicks has been entirely frank.

Paragraph 8 of this decree requires each carrier, each year to submit to the Attorney General a report showing its compliance with the decree.

There is set fourth the information which must be supplied in order that each year the Attorney General might check on compliance, be fully informed and know at a glance whether or not this decree is being observed and that is —

Felix Frankfurter:

(Voice Overlap) for us a sample copy of one of those returns (Inaudible) or is it an —

David W. Peck:

I think I can cite it to you in the record.

Would you bear with me just one moment?

Felix Frankfurter:

(Inaudible)

David W. Peck:

I will give it to you.

As the Government counsel has conceded, all during those 16 years from 1951 to 1957, the Attorney General was fully informed as to exactly how this decree was being applied.

Yes, Mr. Justice Frankfurter, at — at page 31 of the record, 31, you will find the — a sample.

Felix Frankfurter:

Thank you very much.

David W. Peck:

I’m told also page 100 — page 118 of the record and 159 of the record.

The Attorney General has known what the fullest disclosure, valuation has been used, 7% has been taken, and that the 7% has been divided where there were several shipper-owners among the shipper-owners in any case in accordance what their shares of ownership and that no deduction at anytime has ever been made for debt, that no consideration has been given at anytime to any suggestion that there was such a thing as a creditor share of this dividend that could not be paid.

The full 7% as the decree provides, 7 percentum may be paid, has been paid divided as I have indicated.

Now, that is no mere negative attitude upon the part of the Attorney General who was not only charged with responsibility of observing the enforcement of this decree but who actually as has been pointed out, policed it by raising numerous questions over the years as to how this was being done or how that was being done.

But at no time suggesting that the central provision of the decree, this heart of it, the 7% provision was not being observed in exact accordance with its terms and intent.

And indeed, in the year 1944 in February I believe, Senator Gillette, addressed the communication to then — then Attorney General, Attorney General Biddle who was also the Attorney General at the time in this decree was entered and who was, this record shows, actually participating in the framing of the decree.

So the Court maybe sure that Attorney General Biddle was familiar with the decree, what was in the decree, what was intended by the decree, and how the decree had been observed.

And Senator Gillette addressed the inquiry to the Attorney General and asked whether or not the decree was being complied with by the defendants.

And the Attorney General responded by saying that with an exemption which is wholly immaterial as far as this case is concerned, the carriers have been in compliance with the judgment.

And then he summed up in order to enlighten the Senator, in a capsule, by saying that the shipper-owner may receive 7% of the valuation.

Of course, that’s what the decree said.

That’s the way it had been observed.

Now, I want to address for just one moment to pick up one comment made by Mr. Bicks.

He suggested something about changing conditions over the years as far as debt is concerned.

He has appended to his brief here, as in Appendix Court, what purports to be a picture of the debt progress over the years.

Not in the record, anything about this but he has produced that here and I will make a comment or two upon it.

One, is that if regard is had for surplus as well as for capital, which he does have regard for in his Appendix A and B, the debt proportion will come down to about 50%.

In other words, at the present time accepting this chart and these figures, debt in these companies now amounts to about 50% which I suggest to Your Honors, is quite an ordinary debt picture.

David W. Peck:

Again, accepting this table, if you would draw some conclusion as to when debt became very significant, it certainly was there 10 years ago.

The reason is quite obvious.

Within the year since this decree has been in operation, pipelines have been extended three times over.

William J. Brennan, Jr.:

Was debt there, Judge Peck, when the decree was signed?

David W. Peck:

Debt was there, Mr. Justice Brennan.

The record shows that several of the companies had debt in varying amounts.

The plantation pipeline had debt at that time of 50% of its capitalization, $10 million of debt and $10 million in capital stock and there can be no question but what the Attorney General was fully conscious of the presence of debt because this decree in paragraph 5 which is also attached to our appendix and which might — may be found at page 12 of the record contains this provision.

The earnings in excess of 7% on valuation may not be paid out.

And Section 5 provides what may be done with such earnings.

They may be employed for working capital or certain other purposes.

But the particular one I would call You Honor’s attention to at the moment in response to your question, Mr. Justice Brennan, is that one other thing that maybe done with the excess earnings is to pay off existing debt.

So, perfectly, obviously the parties were conscious of the existence of debt and that impact on the decree.

In other words, perhaps there’s still a prospect of debt.

Within the year after this decree was framed and entered, the Attorney General and the same Attorney General and the same Assistant Attorney General in charge of the Antitrust Division, Mr. Thurman Arnold, a gentleman who signed the decree received an application from the Great Lakes Pipe Line Company to recapitalize and for quite obvious reasons it was necessary to get an order of the Court that the proposed recapitalization would not be a violation of the decree.

And to simplify it in a word, I think a word is all that is necessary, the proposal was in the case of the Great Lakes Company which at that time had some debt but not much debt.

It was at least 90% equity capital, less than 10% of debt, wanted to retire its capital by issuing the benchers in the amount of $12 million and to take almost the entire $12 million out and retire capital, in other words, the substitute debt to the extent of 83% of its capital structure.

Now, obviously, that had to be approved by the Court because all that could be paid under the decree was 7% on valuation in any year which I don’t know what it was, perhaps — well I don’t know.

But nothing like $11 million or $12 million could have been paid out.

So, without going into any curlicues about it, I would just advise Your Honors, that the Attorney General, Mr. Thurman Arnold, consented to an order signed by the Court saying that this might be done without violating the decree.

So, there was there sanctioned in the clearest form, the creation of debt in a relatively huge amount.

Now, I’m come to 1957.

I think that it is clear that the Attorney General has recognized what this decree has meant and has approved all this administration.

In 1957, at the time when the congressional committee was investigating the enforcement activities of the Department of Justice, the motion which started this proceeding was made by the Government.

It was denominated a motion to carry out the judgment and the Government selected a single company for the purpose, carefully selected quite clearly, the Arapahoe Pipe Line Company, a company which have been incorporated only three years or four which happened to have a very high debt ratio and undoubtedly thinking that they might not be so embarrassed with the new company as to this record of 16 years of administration they said that the Arapahoe Pipe Line Company was violating this decree by paying or at least crediting their shipper-owners with 7% of valuation without doing what the Government then suggested should be doing — done making a deduction and now I’m going to practically quote verbatim what they said, “of making a deduction from valuation of that share of valuation attributable to the loans of third parties.”

This was the beginning of the investment theory.

Earl Warren:

When was that — when was that?

David W. Peck:

1957 Your Honor —

Earl Warren:

1957.

David W. Peck:

1957.

In other words, the theory wasn’t a word that the 7% should be calculated not on the valuation but it should be 7% on the so-called “investment” and by that they meant the capital contribution of the individual shipper-owner.

David W. Peck:

And in order to get that concept into the wording of the decree because the decree doesn’t say a word about investment or a return on investment, that the slightest suggestion of it in words or thought in order to insert or insinuate that concept into the language of the decree, they seized upon this word “share” and said that there should be deducted from valuation, a share of valuation which they attributed to creditors.

Now, that construction of the decree frankly has always been based upon what I call legerdemain with language.

In their pleadings in the District Court and even in the reply brief, they post the problem as if the wording of this decree were not its share of 7% of the valuation but as if it were 7% of its share of the valuation.

In other words, that share does not qualify 7% of its share qualifies valuation and by that transposition which is really the basis of the whole Government’s case here, by that transposition of words they tried to impart the idea that what you should do is take a share of valuation, attributing a certain share of the creditors and a certain share to owners and then give the owners only 7% on its share.

Now, the reason for this transposition is quite clear.

It seems conceivable to the Government that there might be such a thing as a creditor share of valuation and that lawyers, drafting a decree, lawyers of experience, many of them representing the Government and the defendants might abuse the word “share of valuation”.

To my mind, it’s inconceivable that lawyers would speak about a creditor share of valuation.

Creditors, of course, have a lien on probably everything.

They don’t have a share of any problem and certainly, they don’t have a share of a dividend.

That is the most formed thought to law one could suggest.

But upon the assumption, that lawyers might speak of a share of valuation and then treating this decree as if they actually did speak of a share of valuation.

They reach the conclusion that 7% of a share of valuation is 7% on the capital contribution of the owner.

Now, the answer complete and conclusive is that there just isn’t any such a wording in the decree.

The lawyers didn’t use that language.

They said each share of 7% of valuation and I submit that those words cannot be misunderstood.

And so I’m suggesting to Your Honor, that the Government is not attempting to do what they suggested here originally, carry out this decree.

They’re not even doing what they’ve said secondarily, they were attempting to do, which is to construe the decree because there is nothing to construe.

This is an almost unabashed attempt to rewrite this decree.

And the District Court so observed it and in so many words said that he could not rewrite the decree which the parties agreed to in 1941 and which they interpreted by this amended order in 1942, in the Great Lakes case.

Now, it’s perfectly apparent by reading the Government’s briefs here, particularly the reply brief that this is an attempt to rewrite the decree.

Indeed that it is legislating in thought and effort.

It is addressed to minds who would be particularly interested in policy as to what should be pipeline administration.

For one thing, you will note that they have emphasized that all they intend to do here is something for the future.

They are very careful to say that they couldn’t possibly say that this decree has been violated over the last two decades.

Certainly, it would be unconscionable they recognize that, in view of their approval.

But they say to the future, legislatively, they want to make this decree over for the future.

Secondly, they cite to Your Honors in an elaborate footnote, the report of the Royal Commission in Canada, charged with investigating the administration of energy in the dominion a policy body which started with the observation that pipelines were hardly regulated at all at Canada, said that there should be regulation of traffic and tolls, said that the pipeline shouldn’t be constructed without a certificate of necessity and convenience which does not apply to pipeline construction here, anyone can construct a pipeline in this country.

And then says as a matter of policy recommended, which Mr. Bicks says is a part of wisdom that the rate return should be based upon equity investment without leverage.

And the brief is otherwise largely beyond the record.

Now, if this Court with this late date were interested in framing a decree or in defining national or legislative policy in regard to pipelines, I can understand your being interested.

David W. Peck:

But I suggest that these references have no place in this case or in this brief.

Now, the excuse for rewriting the decree is quite frank.

It is based upon certain new theories of the application of the Elkins Act to the pipeline industry, and they say that this decree must be interpreted and by that they mean reframe to reflect what they regard to be the purpose of the Elkins —

Potter Stewart:

Is that —

David W. Peck:

— Act

Potter Stewart:

— fact in there — was there any question that what the Government could have gone into the District Court and very frankly asked the Court to reframe the decree along the lines of —

David W. Peck:

I would — I would assume that, of course, they could have made an application for modification of the decree upon the submission of evidence and going in to a lot of things which they did not elect to go into.

They submitted this case to the District Court, Your Honor, on a motion without any facts attached to it except the statement of what Arapahoe was doing in administering the decree.

They weren’t even recognized for the purpose of the submission that there was an ambiguity here.

Now, they say that there’s an ambiguity.

The way they fashion the ambiguity is this share of valuation business, but in the District Court, there was no suggestion even of an ambiguity, they said —

Potter Stewart:

There’s nothing to stop them right now — tomorrow going into District Court and asking that the decree be modified.

David W. Peck:

Legally, nothing at all that I know of to stop them from going into the District Court and asking from a —

Felix Frankfurter:

Or stopping you from saying the decree was void?

David W. Peck:

Precisely, Your Honor.

Charles E. Whittaker:

Well, isn’t then, the fact was they had not.

David W. Peck:

Well, they wouldn’t admit it.

In the — in the District Court, they’re attacked upon this decree and it was an attack upon the decree, it was so clear that the District Court judge got the idea that they were actually asking that the decree be vacated and you will note in his decision that he does not interpret this application, as an application to abandon the decree in toto and then he makes the observation if the question was before him, he would not regard the decree has any violation of the Elkins Act.

No, they don’t want to abandon this decree.

They don’t want to have the trial that they didn’t want to have and if they didn’t have 20 years ago.

They want to hold these defendants to this decree but they want to hold them to an amended version of the decree.

Felix Frankfurter:

Well Mr. Bicks, made no suggestion that he addressed it for a modification.

David W. Peck:

No.

Felix Frankfurter:

This case is presented as a construction.

David W. Peck:

Yes, indeed Your Honor.

My observations on the subject were in response to Mr. Justice Stewart’s question.

I would like to just mention in this connection, the decision of this Court in the Hughes case, Hughes versus United States written by Justice — Mr. Justice Black for this Court in 342 U.S. 353 in which you will recall that the Government, to use the words of the Court, operating on a front broader than language seeking to serve what they consider to be the larger purpose of a bigger picture wanted to change the wording of a decree and this Court said in words very apt to this case, “the detailed plan of a decree may not be set aside as a matter of construction by ignoring language and looking to some larger purpose which is asserted.”

Now, if I may, let me spend just a few minutes on these Elkins Act theories.

I think they are entirely beside the point.

I do believe that this case has been adequately covered to find me up to the moment as far as the problem before the Court goes but I do not want to neglect the Elkins Act theories which are now advanced.

David W. Peck:

These theories and why they have them, I don’t know but I will state them.

The basic theory seems to be that the normal method of financing a business, including any utility, should be denied to the pipeline.

They should not be able to borrow money to construct pipelines or if they do, they shouldn’t be able to earn any money on either the money borrowed or the facilities so constructed.

And then jumping over to their legal conclusion, they say just ipse dixit any return on borrowed money, any return on the facilities constructed with borrowed money as a matter of course becomes a rebate as a matter of law, must be so considered.

And therefore they say, that this decree must be interpreted consistent with that version of the Elkins Act to deny to the defendants any profit whatever on any facilities constructed.

Felix Frankfurter:

I thought you said at the outset either that at least I got the impression that the theory of the Government’s original suit was that any return to the —

David W. Peck:

Any —

Felix Frankfurter:

— owner was inherently a rebate.

Would you challenge which the pipelines challenged would finally agree to this decree is that right?

David W. Peck:

That’s right.

Yes, Your Honor.

This is an amended version.

Of course, they don’t say now that they can’t have any dividends.

Now, they say they can only have dividends in amount 7% upon their capital contribution.

Now, of course, there’s no law.

There’s no case to support such a theory and at the moment let me just call Your Honors’ attention to what’s perfectly obvious to my mind that the theories are economically untenable.

I don’t know what the earnings of the pipelines have been over these years.

I wouldn’t regard them as material.

Appended to this brief, our figures, not in the record, for the year 1956 suggesting earnings in the terms of permissible dividends or actual dividends for that year of about 17% or 18%.

I do not know why the year 1956 was selected.

I don’t know anything about the accuracy of the table.

I’m not going to comment further beyond just saying one or two things which I happen to know and that is that the Humble Oil Company for example has not earned its 7% at anytime since the year 1944, that the Tuscarora company has not earned its 7% any year since 1946 and the Arapahoe Company which they talk about, all they paid out at anytime together is 1% on valuation.

But sufficient through this point economically, that the suggestion that pipeline and the owners of pipelines should be limited in their return to 7% on their capital contribution is wholly unrealistic.

In the first place, it’s unrealistic to talk about the “investment” of the shipper-owners and the pipelines as if their only investment was their capital contribution.

That’s almost the least of it.

Of course, their capital contribution is a foundation contribution but this isn’t money put out of investment.

This is a business to which they give themselves in the planning, the designing, the building, the financing, the operating, the responsibility of management.

The capital that they put in it is — is only one item.

And more than that, it has been quite the common practice for the owners to undertake to see that the debt which is incurred by the pipelines is repaid principal and interest.

Arapahoe for example, the company that they singled out, when they borrowed this large amount of money, it was under a throughput agreement in which the Metropolitan Life Insurance Company that loaned the money was assured not merely by Arapahoe but by the owners, Sinclair and Pure, that each intrastate, whether the pipeline was there or whether it wasn’t there, whether it was earning money or whether it wasn’t earning money.

David W. Peck:

On each intrastate, that interest would be paid and in 15 years, the principal would be paid.

And that’s been quite commonly done, the investors in the pipelines.

I’ll just digress for a moment to say that the reason that you find this pipeline picture of almost entirely oil company ownership is that no one else is interested in investing in a pipeline with the particular hazards of that business, hazards which have been pointed out by the Interstate Commerce Commission in their ratemaking cases over and over again.

The pipeline construction ownership and operation are a particularly hazardous venture for reasons which will occur to Your Honors.

The pipes there, it can’t be used for anything else.

All it can transport is oil from an oil field to a — a refinery in the case of crude and the oil field depletes.

Other oil fields may come in, more accessible, more productive and in short time or long time, no one can say the asset is — is wasted.

No one wants to invest in a pipeline except in oil company as far as equity is concerned in operation and investors invest on ventures upon the assurance of the oil company owners behind them.

Now, it’s perfectly obvious that a 7% return on capital alone is no recognition of the contribution or the investment of the owners and that certainly, the oil companies would never have accepted the decree of any such terms, a word about the shipper and the public interest.

Rates which are reasonable come under the jurisdiction of the Interstate Commerce Commission and the chairman, the then chairman of the Interstate Commerce Commission at the time that the congressional committee was in session, testified there and this was called to the District Court’s attention that rates, pipeline rates had steadily declined from the year 1933 to the year 1948 that there had been no complaints whatever from shippers or anyone about pipeline rates being too high.

That the only complaints that they’d have about pipeline rates is from other competing carriers, water people, railroads and the like, the pipeline rates are too low.

An oil company, any oil company has complete freedom of the use of these pipelines, the same privilege as an owner, the same rates which were determined to be reasonable and without the necessity of making any investment.

Finally, I would suggest to Your Honors that the Government has wholly lost sight of the fact that there has been a settlement of this case.

All these arguments, whatever you might say about them as a matter of merit and I have tried to indicate briefly why I think they have no merit, at least are inadmissible, I suggest, because this case was settled nearly two decades ago.

But I must pause for a moment to take exception to this adding to a brief, matters which are not in the record because it has an obvious vice and it’s illustrated by one document which is referred to here.

As a footnote in the brief, the Court has referred to a letter written by Mr. Chaffetz, counsel for Service Pipeline to the president of that company.

The legend on when — under which this letter is referred to is the indication that the Government believe that the investment concept had been adopted in the decree.

And this letter is cited as proof of that.

The letter of March 29, 1950, refers to a position which was then indicated by a member of the staff of the Department of Justice an individual by the name of Snyder that at time it was doubtful whether the department was going to recognize new ICC valuations value written in this frame of reference.

During the war period, the ICC had suspended making a valuation of pipeline property so that for a period of years, the valuation employed under this decree was a rather an old valuation going back to 1933.

After the war, they came back to making valuation.

The first one as of the end of the year, 1947, they spent several years doing that, they didn’t complete it until 1952.

Since then, they’ve kept the valuations up to date.

And the gentleman for the name of Snyder in the Department of Justice was casting some doubt as to whether the department was going to recognize the new valuation or whether it was going to try to insist upon a position that the decree throws the old valuation.

Mr. Chaffetz had a conference with Mr. Snyder, and Mr. Snyder cast this doubt and in the course of a conversation he said that when the decree was negotiated, the department sought the limit permissible return to 7% on the shipper-owners investment and he said that was a discussion of putting in exhibit into that effect.

According to him, at the industry’s suggestion, valuation was substituted for investment and then he opined that they ought to stick to the old valuation instead of the new evaluation.

So, the letter instead of supporting what it cited for of any idea upon the part of members of the department as to what this decree meant, it’s’ perfectly clear what it meant that while somebody may have had a notion back there in 1941, that investment would be a nice idea.

It certainly wasn’t accepted and it wasn’t incorporated in the decree, and I will finish this thought by referring to page 212 of this congressional record in which just completing the picture, that’s all right on this point that Assistant Attorney General Bergson in charge of the Antitrust Division completed the question of what valuation should be used by saying explicitly the valuation has brought down the date from time to time.

So, there has been no question, and apart of the people in the department all these years as to what this decree meant and that’s the importance of these 16 years of administration.

The Attorney Generals who have occupied this position and the gentlemen who have been in charge of the Antitrust Division have not been incompetent.

David W. Peck:

They’ve been able to understand this decree.

They’ve been duly conscientious, I think in the discharge of their responsibilities of enforcement.

I think they can be charged neither with neglect or dereliction of duty.

The importance of five Attorneys General and the heads of their antitrust departments over 16 years giving the same uniform interpretation to this decree is of the utmost significant namely, that this decree means what it says.

Thank you, Court very much for your courtesy.

Earl Warren:

Mr. Searls.

David T. Searls:

Chief Justice and if the Court please.

This is a proceeding as has been stated to carry out the decree.

To carry out the decree as it was written in December 1941.

It is not a proceeding to abandon, to modify or change the decree in any respect, but it is a motion to carry out the decree.

And in further answer to Mr. Justice Stewart’s question, of course a Court would have jurisdiction in fact, the Court in this case reserve jurisdiction to enforce the decree and in paragraph 10 they are — they expressed the reserved jurisdiction to modify the decree, of course, upon proper motion being filed.

But that issue is not involved here.

And of course, we would oppose any modification because we do not like a modification is justified under of any facts.

Now, I fear for the Great Lakes Pipeline Company which is one of the multiple ownership lines and it’s the multiple ownership line that exemplifies and establishes the true meaning of the words as they appear in paragraph 3 of this decree on page 10, where it has said that no defendant common carrier shall give, grant, or pay to any shipper-owner in excess of its — its share of 7 percentum of the valuation of such common carrier’s property.

Now, what was the case with respect to Great Lakes Pipeline Company owned by eight shipper-owners, the Continental Oil Company owns 29%.

The Mid-Continent Petroleum Corporation owns 19%, Phillips Petroleum Company 5%, Texas Company 12%, Pure Oil Company 8%.

Each of those owners was not entitled for 7% of the valuation but each was entitled to its share of 7% of the valuation.

And I submit to Your Honors that that’s the reason that word “share” is in paragraph 3 of this decree.

Now, this is only one of the multiple ownership lines that was in existence in 1941 and that was a party to this decree and to this proceeding in 1941.

There were 10 multiple ownership lines before the Court and it was essential that they placed the word “share” in this decree so that it would provide that each shipper-owner could not receive more than its share of the 7%, 29% of 7%, 19% of 7%, 5% of 7% or as the case would be.

Now, the Government tried in the trial court to say that share relate to valuation.

Notwithstanding the fact that it immediately preceded 7%.

Apparently, they have abandoned that position before Your Honors but we pointed out in the trial court as we do here that nothing is said in this decree about deducting indebtedness or property attributable to debt from valuation.

But the decree expressly provides specifically and precisely what shall be deducted from debt.

It provides that the valuation should be the latest final valuation as established by the Interstate Commerce Commission.

And then it says there shall be conducted from that valuation depreciation.

There shall be deducted from that evaluation retirements from the property account and also at this frozen surplus this excess surplus if there is any is invested in additions to lines, it shall be taken out and excluded from the valuation, despite the fact that that’s provided precisely as to what shall be deducted.

Nothing appears in this decree about deducting indebtedness or property attributable to debt from valuation.

But it clearly provides that you shall take the valuation as established by the Interstate Commerce Commission.

Well, now they have more or less abandoned that argument and so they say, “Well, a creditor has a share of the 7% and the shipper-owners as a class have a share of the 7%.”

David T. Searls:

But that’s not what the decree says.

It speaks of each shipper-owner’s share of the 7%.

And further more, how could creditors have a share of the 7%?

As the Government says, the permissible dividends or 7% of the valuation, creditors have no interest in dividends.

Creditors can’t share in dividends and both the Government and ourselves agree that the 7% states the limits as to what shall be the amount of the permissible dividends but creditors have no right to share in dividends and nothing is said in the decree about the creditors having any interest in the dividends.

And furthermore, it does not refer to the shipper-owner as a class, but refers to each shipper-owner, and we submit that that language of the decree is clear on its face and just as a trial court said, it should be carried out on in accordance with the language and it’s clear on its face.

Now, this investment in the pipeline company, of course, is always carried out as a general rule by the — by the oil companies themselves because they are the ones interested in getting their oil to the market.

Other invertors won’t take the risk.

So when the Pure Oil Company and the Sinclair Company found oil out in Colorado, they became interested in building this Arapahoe Pipeline Company to Kansas City where it would connect with other lines and carry this oil to the market.

Other the investors weren’t interested investing their money in that pipeline because the economic life for that pipeline was dependable in the oil reserves.

There’s various risk incident to it.

And furthermore, the Metropolitan Life Insurance Company was not interested in loaning money to that pipeline company in the amount of $26 million until these two shipper-owners entered into a throughput agreement agreeing to ship and transport their oil through that pipeline to afford it sufficient cash.

But they’d not only agreed to — entered into a proof of agreement, they also provided that if the transportation of oil did not furnish sufficient revenues and sufficient cash, these two shipper-owners will put up the cash to pay off all the current obligations and expenses of this pipeline company.

They not only wrote, under wrote the debt in effect to the — to the –of the Metropolitan Life Insurance Company, they under wrote the operating expenses of the pipeline company.

And we respectfully submit Your Honors that this decree is clear on its face and that it should be enforced in accordance with this plain language.

Thank you so very much for giving me this time.

Earl Warren:

Mr. Bicks, you may proceed.

Robert A. Bicks:

I would think that the basic disagreement between the United States and the defendant stands initially from certainty over the meaning of the word “its share”.

The essence of the defendant’s position as I understand it is that the word “its share” has been constantly and consistently understood by both parties as describing only the relation between groups, stockholders and not between the groups of investors more broadly, the relation between one stockholding and the total bundle of investors right.

I’d like to — on that point refer, a bit more specifically to the Great Lakes petition I think it’s quite helpful on this point.

The Great Lakes petition didn’t deal with the problem of recurring dividend.

It dealt with the problem as Mr. Judge Peck has accurately described with the capital or liquidating dividend.

However in doing so, it did have occasion — it did have occasion to define quite precisely rights as between shareholders the very problem, the very problem which defendants would now urge this Court the word “its share” beyond doubt clearly defines.

However, when it came to defining that right, when it came to defining the relation between groups of stockholders, the Great Lakes petition did not use the word “share”.

I think that is quite significant, that’s one year after the decree was added and defendants argument is that its share was constantly understood and consistently understood to describe simply the relation between stockholders.

If you would turn to page 139 of the record before you, you’ll see that —

What volume — what volume?

Robert A. Bicks:

Volume 2.

You’ll see that when the problem of relation between stockholders was expressly of issue a different concept was used.

This is one year after the decree, the concept the shipper-owner’s proportion.

Robert A. Bicks:

You don’t see the words “its share”, and that concept is specifically defined the way defendants would have this Court decide “share” was always understood.

If that was so, what will be purpose of using different words, using different words which specifically defined them.

Really, I don’t mean to minimize the difficulty of the problem before this Court.

I think this case is important.

I think this decision will have significant consequences.

Felix Frankfurter:

What is the quotation from the — the shipper-owners before?

Robert A. Bicks:

Portion.

Felix Frankfurter:

Where is the — where is the quotation taking from?

Robert A. Bicks:

The shipper-owner, the quotation is taken from the words appear particularly in paragraph (c) of the page before it.

Page 4?

Robert A. Bicks:

Page before it.

Earl Warren:

What is the importance of this case outside of the money differences between the parties?

Robert A. Bicks:

The — well —

Earl Warren:

If any — the fact that you said it’s a very important case and this —

Robert A. Bicks:

Well I — I think the importance of this case —

Earl Warren:

Is it your part of money involved?

Robert A. Bicks:

Well now, the importance of —

Earl Warren:

Now this —

Robert A. Bicks:

— this case is the extent to which the competitive disadvantage which non owner shippers which independent shippers in the oil industry or labor will be minimized to the extent that dividends are limited to a fair return on the investment outlay of each shipper-owner a return which reflects the capital cost of his contribution to the pipeline.

My so point in mentioning that was to say that there’s no question that this decisions are difficult.

I don’t think it’s very helpful in answering it to say, “Well the Government is trying to modify this.”

This isn’t construction proceeding but this is a modification proceeding.

Let’s look at this by way of the language, it was always clear.

Let’s not look at the purpose of what the parties were trying to do.

Felix Frankfurter:

Are you suggesting to not to infer that you’re suggesting — in view of the last remark you made a minute ago that this disadvantages non-shipper, non owner-shippers.

Are you suggesting that this is an indirect violation of the Elkins Act as its operating?

Robert A. Bicks:

I — no.

Felix Frankfurter:

Is that what you’re suggesting?

Robert A. Bicks:

I — I’m suggesting that the United States is estopped by its entry into this judgment from arguing as to whether or not the Elkins Act is violated by these parties paying any sort of dividends.

I’m suggesting —

Felix Frankfurter:

I — I didn’t mean, I didn’t get that impression for myself.

Robert A. Bicks:

Oh, yes.

Felix Frankfurter:

I’m wondering whether you’re suggesting that the way this works out in view of what you claim, a new condition, in effect there’s a new violation of the Elkins Act fully apart from the abstract question whether any kind of dividend could constitutes inherently a violation.

Robert A. Bicks:

We do not claim that Mr. Justice Frankfurter.

This decree represents an agreed upon construction of the Elkins Act.

A construction of the Elkins Act binding upon the United States as — and binding on these parties, I — I — it — we’re stopped.

Our position really is — is quite simple.

These words quite patently are not clear.

I don’t think it helps the problem of deciding what they meant to stand up and say, we say they’re clear.

The Government says there’s an ambiguity.

So let’s not even look at what the parties were trying to do and really looking at — at any —

Felix Frankfurter:

Is it clear what the parties were trying to do from your point of view?

Is that also ambiguous?

Robert A. Bicks:

No, I — I say — I think what’s ambiguous — substantially that’s ambiguous in the words they chose to do.

Substantially that’s ambiguous after all, let’s start with — with this decree’s specific reference.

Not only to an injunction against paying dividends beyond a certain amount but the positive statement that such dividend shall be permitted under the Elkins Act.

The very statute which gave this decree life was the Elkins Act.

It really doesn’t help very much in interpreting what the decree means say, “Don’t look at the purpose of the Elkins Act.”

Looking at the purpose of the Elkins Act constitutes legislative, turn this decree into a rather purposeless as Algebra, a purposeless verbal Algebra.

We agree to this — that — that a dividend limitation formula was intended.

There’s no dispute as to that, but toward what purpose?

Toward the simple purpose of just imposing a dividend limitation formula for the sake of opposing a dividend limitation formula?

Felix Frankfurter:

Well, you had a real difference of opinion.

One’s that you claim — the Government claims in 1941 that you have a violation to the Elkins Act, that was disputed and instead of going to trial and fighting it out, I could see that the parties although they might think they were clearly right, I’m not clear that they were — they were wholly wrong — I mean that’s not all —

Robert A. Bicks:

Yes two weeks after war —

Felix Frankfurter:

Yes.

Robert A. Bicks:

— begun.

Felix Frankfurter:

They say, well let’s settle it in so many criminal lawsuits, let’s settle on the whole of the business firms but it is the good way out, is that right?

Robert A. Bicks:

Not essentially, as far as the United States is concerned.

I — I think it — it’s very difficult to evaluate the parties’ purposes 16 years after the fact, but look at the word.

Felix Frankfurter:

But I do think there’s — there’s — when — when they questioned the clarity of purpose is that the Government could claim that all dividends they — payments are inherently a violation of the Elkins Act, I can make the case for that too if I had to.

Not a fanciful case either.

And yet if the Government then contends to a decree whereby they allow in any event on some basis 7% dividend?

Robert A. Bicks:

Yes, but much important than simply allowing 7% dividend consents to a construction of payment of such dividends is permissible in the Elkins Act.

This is very different, very different from the typical consent judgment, consent settlement and that — and that to the United States.

Felix Frankfurter:

That’s not covered, I mean that’s why I think the purposes isn’t so complicated that you should consent, that the Government should have consent whatever the dollar value is that the Government should have consented that that which he’d claim as a violation of the Elkins Act is within monetary limit.

It’s not a violation of the Elkins Act.

Robert A. Bicks:

No.

I — I don’t really think that that’s what the Government did here.I think that —

Felix Frankfurter:

Well, if — if any payment of dividends violates the Elkins Act directly or indirectly, then this consent decree was the consent of the — there should be such a violation should not be enforced in the ordinary methods of my own preferences but you still have people in jail for violating the Antitrust Laws instead of making paper settlement isn’t that true?

Robert A. Bicks:

I would suggest simply that the construction of the decree which the United States urges does reconcile its basic consequences with the purposes of the Elkins Act.

Felix Frankfurter:

Namely, that the matter that giving dividends to the shipper-owners constitutes a violation.

Robert A. Bicks:

No.

Felix Frankfurter:

Did you start with that counsel?

Robert A. Bicks:

Well, that’s not exactly clear, I mean, we —

Felix Frankfurter:

So, what —

Robert A. Bicks:

— we assume that —

Felix Frankfurter:

— was the basis of the Government’s —

Robert A. Bicks:

They got the —

Felix Frankfurter:

— suit?

Robert A. Bicks:

— the basis of the Government’s suit was that the level of dividends that had been paid constituted rebates, offsets and concession.

Felix Frankfurter:

Well, there’s too much of it.

Robert A. Bicks:

That’s right.

The prayers for relief, however, the prayers for relief are somewhat ambiguous.

I — I frankly have been trying to — we would concede it throughout this whole thing that that was the theory of the original complain, I’m not at all sure of what but really that’s water off the dam.

I think, the so point I — I would really like to make is that I don’t think it helps very much to say the words that are particular clear, don’t look at what the parties were trying to do.

That’s really — that sort of confession and avoidance.

We so admit that the consequences are pretty horrible and make a shambles of the purpose of the Elkins Act but really don’t look at that, just look at these words and they’re — they’re really clear beyond doubt.

This position seems patently impossible.

Felix Frankfurter:

Well, that isn’t the whole position.

Felix Frankfurter:

That would be the position if you make the claim that you now make in 1942.

Robert A. Bicks:

I think that’s — that’s a — has a very good relation to this problem.

Our position is that there is, there are some questions to what these words mean and that always happens.I think relevant in resolving that question is our delay in moving, but equally relevant, equally relevant are the purposes that the judgment obviously sought to fulfill.

And really —

Earl Warren:

Mr. Bicks what brought about this proceeding in 1957?

Robert A. Bicks:

Well, that’s — I think the — the facts are pretty well laid out outside the record of this case and of course the congressional testimony.

An FBI investigation was begun in late 1953, it was involving enforcement of this whole decree under the first decisions, that a new Assistant Attorney General had who came in saying, “Mr. (Inaudible) what are we going to do about it.

That’s sitting here for a great many years, let’s find out whether it’s being complied with.”s

Two FBI investigations were on their way before there was any talk of any hearings —

Earl Warren:

Oh, yes.

What —

Robert A. Bicks:

— any talk of hearings or investigation to that.

I — I don’t even think that’s worthy of comment and this was the — the flowering of — of really considerable year of quite serious thought as to how best to grapple with the problems that this decree followed and really this has been only one of the problems.

Others has been worked out, other proceedings have been filed and settled.

Well, I — I really have nothing more basically to say.

Really, I guess our position is that you can’t just turn this into a — a purposeless Algebra.

You really ought to look not only at – at the fact that we waited 16 years to face up to this issue but look also as to the purposes the parties were trying to effectuate and really all we’re trying to do is carry out what the parties’ original design was.

It doesn’t help doing that to say that this is a modification of — of what the design is.

If you conclude, this is a modification of what the design is we’ve had, we don’t claim that we have any right to prevail if you conclude this was a modification of the original design.

That’s not our position at all.

If that’s your conclusion, we have no case.

Our position is that really all we’re seeking to do is carry out the design.

And in looking to what the design was, look at what the parties tried to do and you gauge what the parties tried to do from looking at the Elkins Act.

Really, that was the statute under which the complaint was brought.

If that statute which the — which the decree specifically recite the dividends paid in accord with the formula are permitted on it.

Felix Frankfurter:

In all good conscience, in all good conscience, I find it hard by reading the Elkins Act which I thought the ones I knew by far for an answer to the question now before us in all their claims, would you mind stating how by careful and sympathetic consideration, and nobody can have a more sympathetic attitude towards your confessing.

I haven’t had for great many years, how can I with such knowledge answer this problem (Voice Overlap)?

Robert A. Bicks:

The purpose of the Elkins Act?

Felix Frankfurter:

Yes.

Will you please tell me that?

Robert A. Bicks:

I — I think I can.

The chief purpose of the Elkins Act is as this Court put it in its own language at pages 461 and 462 of the Union Pacific case was to eliminate rebate, concession and discrimination from the handling of commerce to the place, to the end that all persons —

Felix Frankfurter:

(Inaudible)

Robert A. Bicks:

— might carry on their activities on an equal basis.

In fact, favoritism which destroys the quality between shippers however, brought about.

Is it an end?

Then to go back into further history, the pipeline cases Mr. Justice Holmes’ classic description, if you recall, reaching back deep into the roots of this nation’s commercial history.

His classic description of why the Elkins Act was passed.

Do you recall that?

It said —

Felix Frankfurter:

It made a great many — has made a lot carrying each year to understand this very problem.

Robert A. Bicks:

[Laughs] And really it was to avoid that favoritism.

Felix Frankfurter:

But how — how to hook that up, I mean — I understand that —

Robert A. Bicks:

Well the — in — in terms of the realities —

Felix Frankfurter:

Yes.

Robert A. Bicks:

— the reality of oil production and transport, 50 producers in a field, one or two pipelines, producer’s real estate.Of course, either they use the pipeline to get their products to the market or sell to the oil company that owns the pipeline that the well had.

Felix Frankfurter:

That’s why the Act was passed, that’s what —

Robert A. Bicks:

That’s exactly —

Felix Frankfurter:

— sustained you.

Robert A. Bicks:

That’s right, that’s exactly right.

The statute —

Felix Frankfurter:

And how does that tell me what “its share” means and how does that tell me that merely the money investment, is it the share in the enterprise?

Robert A. Bicks:

No.

I — I don’t say it’s conclusive but I say that purpose —

Felix Frankfurter:

There was light that it shed on that, not that it’s conclusive.

Robert A. Bicks:

The light that it shed that — that what the — really to the extent, this judgment represents the conclusion.

Our view is that dividends beyond a certain level of return on investment or capital outlay are the sort of favoritism, or producer sort of favoritism that destroys equality which the Elkins Act and this judgment must have.

Felix Frankfurter:

I found the assumption that their share is merely the money share.

Robert A. Bicks:

That’s right.

That’s exactly —

Felix Frankfurter:

Now, is that — is that a self-evidence proposition?

Robert A. Bicks:

No.

I — we submit it is not.

Defendants which have you believe accept that.

We submit —

Felix Frankfurter:

Well, but is that a step economically of self-evidence proposition?

Robert A. Bicks:

Well —

Felix Frankfurter:

Or is it a self-evidence proposition, that if there’s — if it isn’t, violative as such of the Elkins Act for the shipper-owner would have if there’s a — turn on his — his share in the enterprise, if his share means his monetary investment alone.

Was that self evidence?

Robert A. Bicks:

Not at all.

Felix Frankfurter:

Is that economic?

Robert A. Bicks:

Not at all, not at all.

We — the — not — not as a matter of our priority reasoning that —

Felix Frankfurter:

Well, that — but if it isn’t self evidence and if “its share” may be beyond his equity interest, then maybe beyond his invested interest.

And then how does that — how can you derive a purpose, a purpose which illuminates the meaning of this concededly dubious term?

Robert A. Bicks:

The — first, the issue was what the share means, that’s where the ambiguity.

Our position is that in resolving that ambiguity, you look at the consequences of the differing construction of the word.

And in light of those differing consequences, you decide what was reasonable to conclude the parties originally meant.

Felix Frankfurter:

Suppose someone said it — it was very dubious as a matter of law whether getting interest at any dividend, that a dividend has such as the Government contended even, of ambulant dividend is not necessarily or is not even this — cannot be established as a violation of the Sherman law.

Robert A. Bicks:

Well —

Felix Frankfurter:

If the Government had been so cut short, you can consider this as a decree from going to trial.

That a decree is what result up.

Robert A. Bicks:

Two weeks after Pearl Harbor?

Felix Frankfurter:

What?

Robert A. Bicks:

Two weeks after Pearl Harbor?

Felix Frankfurter:

Well, maybe that also explains why the decree was phrased there before us.

Robert A. Bicks:

And —

Felix Frankfurter:

Because lots of things happened two weeks after Pearl Harbor or can’t be rendered in 16 or 18 years later.

Robert A. Bicks:

We’re not seeking any —

Felix Frankfurter:

So —

Robert A. Bicks:

— remedy.

That originally —

Felix Frankfurter:

You’re asking a resolution of what you concede is a — is an ambiguous —

Robert A. Bicks:

That’s right.

That’s all.

And we —

Felix Frankfurter:

All right.

Robert A. Bicks:

— and we — and our sole position is that looking for that resolution, you look to the purpose of the Act which the decree specifically recites, dividends would have been measured in terms of it.

Thank you.

Earl Warren:

Very well, Mr. Bicks.