United States v. Atlantic Refining Company

PETITIONER:United States
RESPONDENT:Atlantic Refining Company
LOCATION:Union Station

DECIDED BY: Warren Court (1958-1962)

CITATION: 360 US 19 (1959)
ARGUED: Apr 22, 1959
DECIDED: Jun 08, 1959

Facts of the case


  • Oral Argument – April 22, 1959 (Part 2)
  • Audio Transcription for Oral Argument – April 22, 1959 (Part 2) in United States v. Atlantic Refining Company

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

    Earl Warren:

    Number 210, United States of America, Appellant, versus the Atlantic Refining Company et al.

    Robert A. Bicks:

    Mr. Chief Justice, may it please the Court.

    The United States appeals for an order — from an order entered by the District Court over the District of Columbia.

    That order first denied the United States’ motion directed against the Arapahoe Pipeline Company to carry out an Elkins Act judgment provision.

    And at the same time, the Circuit granted the motion made by two other pipeline companies to construe that same provision.

    Both motions post essentially the same issue and as a perhaps, helpful preliminary focus for the statement of the case to come.

    That issue maybe simply put at the outset.

    The issue involved interpretation of an Elkins Act judgment provision limiting to 7%, dividends payable by the bulk of this country’s oil pipeline to the shipper-owners, that is to the major oil company that owned oil pipelines and shipped oil over.

    On the one hand, the United States urges that the judgment permits each shipper-owner only a fair return on his investment outlay of his share in the pipeline’s total capitalization.

    On the other hand, defendant’s urge and the court below agreed, the judgment permits each shipper-owner not only a return on his investment outlay, but an equal return on investment outlays made by others.

    That is on loans to the pipeline not by the shipper-owner but by third parties.

    The defendant’s construction applied to the facts of Arapahoe would permit each of Arapahoe’s two shipper-owners a more than 70% return on their less than three-year old investment.

    This construction issue takes on the meaning in light of a brief, very brief march of those events that preceded entry of the Elkins Act judgment at issue.

    The Elkins Act recall made oil pipelines common carriers and sought to ensure equal access for all oil shippers to oil pipelines at equal cost.

    To this end, the Elkins Act barred the granting or receipt by or through any means or device, whatsoever, of rebates, offsets or concessions from published tariff rate.

    The chief purpose of the Elkins Act that this Court put it in the Union Pacific case at pages 461 and 462 was to eliminate rebates, concessions and discrimination from the handling of commerce to the end that all persons and places might carry on their activities on an equal basis.

    In fact, favoritism which destroys equality between shippers, however brought about it, is at an end.

    It was with this purpose uppermost, that the United States proceeded under the Elkins Act on December 21, 1941.

    That complaint named as defendant from 52 oil common carrier pipelines and their shipper-owner parents that is the major oil companies that own the pipelines and the 27 shipper-owner parents, that is the major oil companies that own the pipelines and shipped oil.

    The complaint alleged that although the oil company parents were normally paying published tariff rates, they were in fact receiving rebates, offsets or concessions in the guise of dividends and earnings from their pipelines.

    On the same day, that complaint was filed.

    The judgment here at issue was added.

    That judgment in its crucial portion which, may I suggest, is found on page 10, the middle of page 10 of volume 1 of the record before you.

    That judgment, in its crucial portion, limits payments by a pipeline in any year to its shipper-owner to its share of 7% evaluation.

    Felix Frankfurter:

    Is it at all — is it all relevant or is it disclosed who drew this decree or just a joint effort between the Government and the party?

    Robert A. Bicks:

    That matter is not in the record.

    Felix Frankfurter:

    Not in the record, all right.

    Robert A. Bicks:

    And the provision goes on to specify that dividends paid in accord with that limitation formula shall be deemed permitted insofar as the Interstate Commerce and Elkins Act is concerned.

    Evaluation, of course, is defined by — by precisely as the latest final evaluation made by the Interstate Commerce Commission of property owned and used for common carrier purposes by the oil pipeline.

    The word, “seven percent” need no definition.

    Robert A. Bicks:

    But undefined, however, are the words, “its share.”

    And it’s on the interpretation of the words, “its share” that the controversy before this Court focuses.

    The United States’ position is that the dividend limitation formula, the words, “its share of 7% evaluation,” were meant to permit each shipper-owner only a fair return on his capital outlay, his share of the pipeline’s total capitalization.

    To this end, the United States would define the words, “its share,” to relate not only to other stockholdings, but to the pipeline’s total capitalization for a fair measure of capital outlay for the purpose of gauging a fair return on capital outlay, must relate not only to other stockholding, but to the entire bundle of investors rights, whether labelled, equity or debt, which make up the pipeline’s capitalization.

    Defendants, on the other hand, urge and the court below agree that the dividend limitation formula, the words, “its share of 7% evaluation,” permit each shipper-owner a return not only on his capital outlay, but an equal return on capital outlays made by others that is on loans, to our pipelines, not by the shipper-owner, but by third parties.

    To this end, defendants would define the words, “its share,” to relate only to other stockholdings in the pipeline.

    As a result, as soon as the pipeline increases its capitalization by borrowing from a third party permissible dividends to the shipper-owners jump immediately and precise proportions of the money borrowed by the pipeline from third parties.

    This, despite the fact that the increase in capitalization stands from no new capital outlay, no new out-of-pocket capital contribution by the shipper-owners.

    I think one brief factual or hypothetically should draw clear the difference between the two constructions before this Court.

    Assume, two oil companies set up a pipeline, assume further that each of the oil companies owns half the stock of the pipeline and assume finally that the pipeline incurs no debt.

    In these circumstances, both parties agreed that each shipper-owner’s permissible dividend would be equal to one-half that is the share of its stockholdings — of the total stockholdings in the pipeline of 7% evaluation.

    However, as soon as the pipeline incurs debt, the difference in the two constructions becomes significant.

    Assumed to carry on with our hypothetical that the pipeline owned equally by two oil companies incurs that as did Arapahoe equal roughly to eight times the value of the stock bought by the shipper-owner.

    In all circumstances, according to defendant’s construction, permissible dividends to each shipper-owner would jump immediately eight times as the pipeline borrows capital equal to eight times — borrows from third party’s capital equal to eight times the stock owned by the shipper-owner, so dividends to the shipper-owners increase immediately eight times.

    This, despite the fact that the increase in the pipeline’s capitalization, represents no new capital outlay, no new capital contribution by the shipper-owner.

    As a result, divorced — divorced from the measure of each shipper-owner’s return is his capital outlay — his capital outlay, his share in the capitalization.

    There is little but no relation to the measure of his return from the pipeline.

    This result, we urge, is at odds with the judgment’s basic rationale.

    This judgment, after all, not only specifies a dividend limitation formula, but in addition, makes clear that dividends paid in the court with that formula — and I’m quoting from the last line of paragraph three on page 10 of volume 1, “Shall be permitted insofar as the Interstate Commerce and Elkins Act are concerned.

    The judgment’s essential purpose then drawn from the Elkins Act, which gave it life, was to equalize net transport cost, equalize the net transport cost between on the one hand shipper-owners and on the other hand, independent oil shippers, shippers with no ownership interest in pipelines.

    To this end, the judgment sought to limit each shipper-owner to a fair return on his capital outlay, a return, if you will, that reflected simply the cost to the pipeline of the shipper-owner’s capital contribution.

    The shipper-owner’s capital cost to the extent that the judgment is construed to limit each shipper-owner only a fair return, on his capital outlay, his net transport cost become the same, become the same as the independent oil shipper with no ownership interest in the pipeline.

    And as a result, no discrimination, no concessional rebate, no unfairness result.

    However, to the extent that each shipper-owner’s dividends are related not only to his capital contribution, but are measured by capital contribution that’s made by others, that excess in return is deemed by the judgment to be a kin for discrimination, an offset or a rebate, at odds with this judgment in the Elkins Act.

    Stated other ways, this judgment had two really basically simple purposes, two basic purposes that are twinned, but related.

    Those purposes were first, on the one hand, to limit each shipper-owner to a fair return on his capital outlay in order that the second, on the other hand, independent shippers, shippers with no ownership interest to the pipeline, might be protected against — if you will, that favoritism which destroys equality between oil shippers which the Elkins Act and presumably this judgment, were meant to eliminate.

    Let’s compare.

    Let’s see what defendant’s construction does to those twin purposes, first, to limit each shipper-owner’s return to a fair return on his capital outlay, Table 1 and Appendix A of the United States reply brief, sets forth dividends actually paid — actually paid to each of the shipper-owners of the 15 pipelines that are active parties and interests before this Court, now.

    That table reveals that in the year 1956, the last year before the actions — now, before this Court were filed, each of the shipper-owners received an average of 18.7% return on their investment, plus surplus.

    An 18.7% return on their investment plus surplus in the pipelines, a return more than two and a half times.

    Robert A. Bicks:

    That was the judgment envisioned.

    And second, what impact did that return have?

    What impact did that return have on the second goal of this judgment, the second goal to promote some sort of equal competitive status for independent oil shippers, oil shippers with no ownership interest in the pipeline.

    Compare if you will, dividends actually paid for the year 1956, the 18.7% with the total transport revenue of the pipelines for that year.

    That comparison is quite striking.

    It shows that in the year, 1956, 22 cents, 22 cents out of every dollar that each shipper-owner nominally paid in rates, he got back via dividend.

    Non owner-shippers, independent oil shippers, got no 20 — such 22 cents back.

    But the most important, 22 cents out of every dollar they did pay, ended up in the pocket of the shipper-owner against who may might well be competing at the other end of the pipeline.

    Look at this graphically, in terms of two oil producers in the same field trying to get their oil in the market.

    One owns the pipeline, the other doesn’t.

    William J. Brennan, Jr.:

    So Mr. Bicks, are all these consequences — do you have a burden of joining us instead of not to feel the differences?

    Robert A. Bicks:

    I certainly do and it’s a — a point I’d like to meet quite directly.

    There’s no question, but that enforcement of this decree has hardly been marked by system and diligence.

    Felix Frankfurter:

    Has what?

    Robert A. Bicks:

    Has hardly been marked by system and diligence.

    There’s no question.

    Felix Frankfurter:

    Well, I didn’t get your — and diligence, what’s the other one, by —

    Robert A. Bicks:

    System and diligence.

    Felix Frankfurter:


    Earl Warren:

    It’s hardly been what?

    Robert A. Bicks:

    Marked by system and diligence.

    There’s no question, but throughout the years, defendants have consistently construed this decree as they now would.

    And there’s no question, but that they have regularly reported that construction to the Attorney General via the filing of their annual report.

    In these —


    Robert A. Bicks:

    That — well, there’s no question that he never goes to court.

    And these circumstances, our delay in moving, compels that considerations of basic enforcement fairness, dictate that we raise no issue of illegal dividends seeking penalty payments, seek no retroactive sweep for the construction pressed now before this Court.

    Equally true, however, in action warrants no basis for concluding the approval from our failure to move — from our failure to move.

    You can’t conclude our agreement with what the defendants did.

    Throughout the years, this judgment has posed numerous and (Inaudible) enforcement problems.

    Robert A. Bicks:

    And only as the years have passed and the debt to equity ratios with these pipelines have shifted so drastically, has this problem even become significant.

    And it’s only reasonably that the problem has become of such crucially importance.

    Bear in mind that the time this judgment was entered, put that to equity ratio of the 15 pipelines, active parties and interests before this Court was one to 100.

    Now, it’s more than 2 to 1 the other way.

    This has been — if only as this trend developed, this problem loomed so large.

    Until it did, we were preoccupied with other problems under the judgment.

    Now, in these circumstances — in these circumstances, our delay in movement shouldn’t blur this Court’s examination now.

    Felix Frankfurter:

    Would it may — you said things have — which I’d like — I have little more enlightenment.

    Delay may make a difference that this was a delay.

    When did this decree come into operation?

    Was it — was it active during the war, but (Inaudible) to be counted?

    Robert A. Bicks:

    Well —

    Felix Frankfurter:

    But I —

    Robert A. Bicks:

    I — I don’t think fairly so because —

    Felix Frankfurter:

    Fairness and (Voice Overlap) —

    Robert A. Bicks:

    But — but I want to answer that completely.

    Felix Frankfurter:

    All right.

    Anyhow, they didn’t — the war is the war and the war is also —

    Robert A. Bicks:

    That’s right.

    Felix Frankfurter:

    Everybody is busy at everything.

    Certainly from 1946 up, it was — as period of 10 years, when the Government raised no question.

    Now, I’m not getting estoppel for it, but make a lot of difference if no question was raised because the problem wasn’t significant.

    The problem haven’t emerged.

    It makes another difference whether — to me, it makes a difference, not on an illegal ground, but on — on wisdom in construing if there’s doubt.

    After all, one doesn’t suppose that excessive Attorney General, a thief in charge of the Antitrust Division, were to (Inaudible) I should make — to make that attribution.

    I believe in (Inaudible) that you make an easier attribution in believe that they couldn’t construe it that way, I’d do that.

    What I want to know in view of what you said, whether what ground there is for an impression you left on my mind, that this really wasn’t an emerging problem until you dot under way to object to the way the pipeline company’s work history, was that the impression you want to me think?

    Robert A. Bicks:

    I can’t honestly answer that question yet.

    I think the problem has become more significant after the — only after the war, but if you’ll–

    Felix Frankfurter:

    Well, that gives you 10 years.

    Robert A. Bicks:

    That’s right.

    Felix Frankfurter:

    More than ten — more that ten years.

    Robert A. Bicks:

    That’s exactly right.

    And each year, the problem has become more significant, but I cannot say that the problem was insignificant in 1946 which is —

    Felix Frankfurter:

    I understand and it was not raised I don’t need some formal litigation.

    There was not — there wasn’t even a controversy and dispute through negotiation or et cetera, et cetera, was there?

    Robert A. Bicks:

    Well, there certainly was no negotiation.

    There were some — it was raised — and as Footnote 3 of the Government’s reply brief suggests, it was raised in a — a letter to one of the defendants in 1951.

    But I hardly think the Government can rest very heavily on that, because we are, as to the — the United States wrote and asked the defendant to explain why he haven’t done — concurred with this construction, defendant wrote back and said, “I haven’t done it, because I disagree with you and we let it drop.”

    Felix Frankfurter:

    You — you’re telling me you — can’t I agree to that burden that defendant indicated by — by who’s testifying.

    No new — you truly (Inaudible)

    Robert A. Bicks:

    That’s right.

    The — the basic problem really is that after all this is in a sense, a — a product of compromise and negotiation between parties.

    On the one hand, the United States and on the other hand, the major components of the oil industry, but no more —

    Felix Frankfurter:

    (Voice Overlap) decree was that?

    Robert A. Bicks:

    Yes, yes.

    But in a more equally basic sense, it is a decree of a court, really is.

    And the inaction, the delay in moving to one part should not be held to dissipate the public rights.

    The important public rights of non-discriminatory oil transport which after all these decree, of course, was meant to produce.

    Really, our — our basic position on —

    Felix Frankfurter:

    Now, after all — after all, it’s going to be after all, it also was the — base in the fact that the court just signed the agreement to parties.

    This isn’t a (Inaudible) maybe injunctions come by justice, might punish you very wisely.

    Objected ever deciding a decree of the parties involved.

    But ever, when the (Inaudible) court, but this is a court decree if the parties is a consensual adopting.

    Robert A. Bicks:

    It is.

    Felix Frankfurter:

    And not a — a sua sponte judicial decree.

    Robert A. Bicks:

    That is true.

    That’s — that’s true.

    I think the fairest description of this decree is —

    Tom C. Clark:


    Robert A. Bicks:

    Yes, it was.

    Tom C. Clark:

    This is already complete when —

    Robert A. Bicks:

    Oh, yes.

    Tom C. Clark:


    Robert A. Bicks:

    There’s no a question of the — question.

    Felix Frankfurter:

    Be more than a day now that we didn’t understand.

    Robert A. Bicks:

    Well, really, our basic position must be that this delay — this delay in moving, warrants no conclusion of agreement or approval.

    Really, the important problem now — I — I think this delay definitely imposes an enforcement obligation on us in terms of not seeking any dividend payments, or not seeking any retroactive sweep.

    Felix Frankfurter:

    But no — but it’s their account of reasonableness, the one construction you have (Inaudible) —

    Robert A. Bicks:

    It certainly does.

    And our position is that although it’s relevant for that issue, which as you put it —

    Felix Frankfurter:

    It doesn’t foreclose.

    Robert A. Bicks:

    That’s right.

    It doesn’t foreclose this, because what — what you’re really talking about is the problem of inferring agreement or approval from inaction essentially.

    And — and the decree of this importance which really bonds the in perpetuity of the United States and the major components for the oil pipeline industry, this Court should be very low to dissipate those important public rights which the decree was meant to preserve by concluding agreement on the part of the United States to primarily of its own inaction.

    William J. Brennan, Jr.:

    (Voice Overlap) now with this increased evaluation through capital added whose borrowed money.

    When the borrowed money is all paid off, these companies will — under the decree, I think you conceive, would be entitled to this sum, wouldn’t they?

    Robert A. Bicks:

    Oh, that’s — that’s very true.

    But in — in that event, Mr. Justice Brennan, those sums would be no more than a fair — than a fair return on their capital outlay which according to the Elkins Act rationale of this judgment, produces no net difference and net transport cost, very different now, very different now.

    We’re really — a jump as in a case of Arapahoe, of eight times in the pipelines capitalization, produces an immediate jump and eight times the dividends to the shipper-owner.

    Under our construction, as the debt is gradually paid off, the shipper-owner’s share of capitalization increases and the share of dividends and its — and its level of dividends increase.

    But it’s only as the debt is completely paid off, that a share is equal to 7% evaluation.

    Earl Warren:

    I will use the two minutes.


    David W. Peck:

    Very well, Chief Justice, may it please the Court.

    Earl Warren:

    Mr. — Judge Peck.

    David W. Peck:

    Let me start by calling the Court’s attention to two basic facts here, a pipeline life.

    One is that the oil pipelines of this country are pretty close to entirely owned by oil companies, oil operating companies, which shipped over the lines and which they have a proprietary interest and other oil companies which are not owners also, shipped over them.

    The second basic fact is that in the case of many of these pipeline companies, the ownership is shared by several oil companies.

    In other words, there is joint ownership of many of the carriers by oil companies.

    David W. Peck:

    That basic fact is all important as Your Honors will see in a moment on the interpretation of this decree and the meaning of the crucial words, “its share,” which I shall come to in one moment.

    Now, as Your Honor is aware, this case started in 1941 with a complaint by the Government that the shipper-owners (Voice Overlap) —

    Earl Warren:

    We’ll recess now.