Texaco Inc., A Corporation v. Phillips Petroleum Company, A Corporation, 481 F.2d 70, 10th Cir. (1973)

481 F.
2d 70
TEXACO INC., a corporation, Plaintiff-Appellant,

v.
PHILLIPS PETROLEUM COMPANY, a corporation,
Defendant-Appellee.
No. 72-1758.
United States Court of Appeals,

Tenth Circuit.
Argued and Submitted May 23, 1973.
Decided July 13, 1973.
Elmer W. Adams, Tulsa, Okl. (Philip R. Wimbish, Tulsa, Okl., on brief),

for plaintiff-appellant.
Don L. Jemison, Bartlesville, Okl. (Kenneth Heady, Bartlesville, Okl.,
and Richard B. McDermott, Tulsa, Okl., on brief), for defendant-appellee.
Before BREITENSTEIN, BARRETT and DOYLE, Circuit Judges.
BREITENSTEIN, Circuit Judge.
The question is whether the complaint of plaintiff-appellant Texaco Inc. states

a controversy arising under the laws of the United States. If it does, federal
court jurisdiction lies under 28 U.S.C. Sec. 1331(a). Otherwise, there is no
federal jurisdiction. The district court sustained the motion to dismiss of
defendant-appellee Phillips Petroleum Company and dismissed the action on
the ground that there was no federal question jurisdiction. We reverse.
We have here another controversy over helium. The basic background is

outlined in our decision in the Consolidated Helium cases. See Northern
Natural Gas Company v. Grounds, 10 Cir., 441 F.2d 704, cert. denied, 404 U.S.
951, 92 S.Ct. 268, 30 L.Ed.2d 267, 404 U.S. 1063, 92 S.Ct. 732, 30 L.Ed.2d
751, and 404 U.S. 1065, 92 S.Ct. 732, 30 L.Ed.2d 754. We there held that
lessee-producers of natural gas could recover the reasonable value of contained
helium out of interpleader funds created by the government's purchases of
helium from helium extraction companies and parent pipeline companies. In
Consolidated Helium, federal jurisdiction was invoked under the Federal

Interpleader Act, 28 U.S.C. Sec. 1335, the Federal Tort Claims Act, 28 U.S.C.
Secs. 1346(b), 1402, and 2674, and the Tucker Act, 28 U.S.C. Sec. 1346(a)(2).
None of those jurisdictional grounds are found in the case at bar.
3
Diversity of citizenship is not present. More than the jurisdictional amount is

admittedly at stake. The only basis for federal jurisdiction is 28 U.S.C. Sec.
1331(a) which confers jurisdiction when "the matter in controversy * * * arises
under the * * * laws * * * of the United States." Phillips says that the complaint
presents no more than a simple, common law, contract action and does not
pertain to any right or immunity created by any law of the United States.
The complaint alleges that plaintiff, a lessee-producer, and defendant are

natural gas companies within the scope of the Natural Gas Act; that plaintiff
has made written contracts to sell gas to defendant for movement in interstate
commerce; that for several years defendant has separated out the helium content
of the gas and sold it; that defendant has not paid plaintiff for the helium
contained in, and separated from, the gas; and that plaintiff has a right under the
Natural Gas Act, 15 U.S.C. Sec. 717 et seq., and under Sec. 11 of the Helium
Act amendments, 50 U.S.C. Sec. 167i, to be paid for the helium.
It is said in Wright, Fed. Courts 2d H.B., p. 55, that no "clear test has yet been
developed to determine which cases 'arise under' the Constitution, laws, or
treaties of the United States." The leading case on the subject is Gully v. First
National Bank, 299 U.S. 109, 57 S.Ct. 96, 81 L.Ed. 70. The Court recognized
these tests, Ibid. at 112-113, 57 S. Ct. 96: (1) a right or immunity created by the
Constitution or laws of the United States must be an essential element of
plaintiff's cause of action; (2) the right or immunity must be such as will stand
or fall on the construction or effect of the federal Constitution or laws; (3) the
controversy must be genuine and present; and 94) the controversy must be
disclosed on the face of the complaint, unaided by the answer or the petition
for removal.
We have recognized and applied the Gully tests in Regents of New Mexico v.
Albuquerque Broadcasting Co., 10 Cir., 158 F.2d 900 (jurisdiction upheld in
suit asserting rights under Communications Act of 1934 and regulations issued
thereunder); Prairie Band of Pottawatomie Tribe of Indians v. Puckkee, 10 Cir.,
321 F.2d 767 (jurisdiction denied in suit for declaration of rights in
congressionally appropriated funds for payment of money judgment of the
Indian Claims Commission); and Midwestern Developments, Inc. v. City of
Tulsa, Oklahoma, 10 Cir., 333 F.2d 1009, cert. denied, 379 U.S. 989, 85 S.Ct.
702, 13 L. Ed.2d 610 (jurisdiction upheld in suit relating to right of way granted
under the Enid-Anadarko Act). In Mountain Fuel Supply Company v. Smith, 10

Cir., 471 F.2d 594, a suit involving rights under land patents granted pursuant to
the Act of July 17, 1914, we upheld jurisdiction without discussion of Gully.
7
In Consolidated Helium we considered the claims of the pipelines and helium

separation companies that they were entitled under their gas purchase contracts
to receive the entire gas stream at the Federal Power Commission service rate
and said that "private contract law and the principles applicable thereto are not
controlling." 441 F.2d at 722. No good purpose would be served by repeating
our analysis of the Natural Gas Act and the 1960 Helium Act amendments. We
held that, Ibid. at 723:
8 * * the reconciliation of the Natural Gas Act and of the 1960 amendments to the
"*
Helium Act to attain a symmetrical whole requires the conclusion that the FPC
service rates do not apply to deny recovery for the contained helium which is
processed in the separation plants."
9
In holding that it had no jurisdiction, the trial court said that the judgment in
Consolidated Helium does not raise a federal question which will support
jurisdiction under Sec. 1331(a). We agree that the judgment will not itself
support that jurisdiction. See Metcalf v. Watertown, 128 U.S. 586, 588, 9 S.Ct.
173, 32 L.Ed. 543, and Prairie Band of Pottawatomie Tribe of Indians v.
Puckkee, 10 Cir., 321 F.2d 767, 770.
10
The trial court went on to say that the Natural Gas Act did not abrogate the
contracts and that neither that Act nor the 1960 Helium Act amendments
created any right in the plaintiff. In Consolidated Helium we recognized that
the Natural Gas Act did not abrogate private rate contracts as such, 441 F.2d at
720, and pointed out that price and other provisions of contracts for the
interstate sale of natural gas have largely been nullified by Federal Power
Commission regulations and orders. The trial court construed our decision in
Consolidated Helium as permitting recovery by lessee-producers "on principles
of equity by a reconciliation of federal statutes which did not abrogate existing
gas contracts." We thought that we made plain that we did not allow recovery
on the application of any principles of equity, see 441 F.2d at 719-720, but on
the ground that satisfactory utility regulation does not permit a utility rate to be
used to obtain a commodity which is not within the contemplation of that rate.
441 F.2d at 720 and 722-723.
11
We adhere to our decision in Consolidated Helium. Absent circumstances not

present there or disclosed on the record now before us, recovery of the value of
helium separated from gas moving interstate can be had only by reconciliation
and application of the Natural Gas Act and the 1960 amendments to the Helium
Act, not under contract law or principles of equity. We reject defendant's
assertion that Consolidated Helium was an interim decision. The Supreme
Court denied certiorari, 404 U.S. 951, 92 S.Ct. 268, 30 L.Ed.2d 267, 404 U.S.
1063, 92 S.Ct. 732, 30 L.Ed.2d 751, and 404 U.S. 1065, 92 S.Ct. 732, 30
L.Ed.2d 754. The decision is final and is the law of this circuit. We say nothing
on plaintiff's claim that Consolidated Helium is res judicata on the issues
presented here. We are concerned with jurisdiction, not with the merits.
12
We have here a genuine and present controvesy disclosed on the face of the
complaint and not asserted in anticipation of any defense. Plaintiff presents a
substantial claim resting on a reasonable foundation. The right asserted under
federal laws is an essential element of plaintiff's case which must stand or fall
on the construction or effect of the federal laws. The tests announced in Gully
have all been met.
13
One further matter should be mentioned. In Consolidated Helium we pointed

out that there are over 30,000 persons receiving income from helium-bearing
natural gas produced by over 500 lessee-producers under thousands of leases.
441 F.2d 710 and 715. The Supreme Court said in Gully, 299 U.S. at 117, 57
S.Ct. at 100:
14 Court has had occasion to point out how futile is the attempt to define a 'cause
"This
of action' without reference to the context. * * * To define broadly and in the
abstract 'a case arising under the Constitution or laws of the United States' has
hazards of a kindred order. What is needed is something of that common-sense
accommodation of judgment to kaleidoscopic situations which characterizes the law
in its treatment of problems of causation. One could carry the search for causes
backward, almost without end."
15
The problems relating to the recovery of the value of the helium content of
natural gas traveling in interstate commerce have arisen because of, and under,
federal statutes. Plaintiff asserts rights under those statutes and is entitled to sue
in federal court. We believe that the federal courts have jurisdiction under 28
U.S.C. Sec. 1331(a).
16
The judgment is reversed and the case remanded for further proceedings.
WILLIAM E. DOYLE, Circuit Judge (dissenting):
17
I respectfully dissent. Although the claim which is here presented bears a
relationship to federal law, namely, the Natural Gas Act, 15 U.S.C. Sec. 717 et
seq. and the Helium Act, 50 U.S.C. Sec. 167 et seq., the relationship is not
sufficiently close to justify holding that this cause arises under federal law. The
claim in question is based on a contract express or implied (in law) and the
granting of relief does not require consideration, construction or interpretation
of a federal statute. The fact that federal law is indirectly related to the
controversy or that federal law may be an insubstantial ingredient of the claim
is not sufficient.
18
The doctrine enunciated by Chief Justice Marshall in Osborn v. Bank of United

States, 9 Wheat. 738, 6 L. Ed. 204 (1824), has long since been repudiated. See
American Well Works Co. v. Layne & Bowler Co., 241 U.S. 257, 36 S.Ct. 585,
60 L.Ed. 987 (1916) by Justice Holmes holding that libel and slander of a
patent is lacking in federal jurisdiction since the state law governs and the
patent law does not preempt merely because it involves a patent.
19
A similar result has been enunciated in a case involving the scope of a real
estate patent where the dispute concerned accretion in an area bounded by the
Mississippi River. Joy v. City of St. Louis, 201 U.S. 332, 26 S.Ct. 478, 50 L.
Ed. 776 (1906). Shoshone Mining Co. v. Rutter, 177 U.S. 505, 507, 20 S.Ct.
726, 44 L.Ed. 864 (1900), an action to enforce a right arising under a patent
issued in connection with a mining claim issued by the Commissioner of the
General Land Office, is also illustrative. In Shulthis v. McDougal, 225 U.S.
561, 569, 32 S.Ct. 704, 706, 56 L.Ed. 12 (1912), the Supreme Court in an often
quoted passage stated:
20suit to enforce a right which takes its origin in the laws of the United States is not
A
necessarily, or for that reason alone, one arising under those laws, for a suit does not
so arise unless it really and substantially involves a dispute or controversy respecting
the validity, construction or effect of such a law, upon the determination of which
the result depends.
21
Professor Wright in his Law of Federal Courts (2d ed.) Sec. 17 concedes that
this area of the law is somewhat vague, but states unequivocally that federal
law must be an essential element in the case. He recommends Professor
Mishkin's test1 "that for original federal jurisdiction there must be 'a substantial
claim founded directly upon federal law."' The cases appear to support the
concept expounded in this test.
22
Turning to natural gas cases, we find that jurisdiction has been refused where
the subject matter was similar to that in the instant case. See, e.g., Pan
American Petroleum Corp. v. Superior Court, 366 U.S. 656, 81 S.Ct. 1303, 6
L.Ed.2d 584 (1961), wherein a pipeline company had purchased gas from the
petitioners. It was ordered by the Kansas Corporation Commission to pay
higher rates. It did so under protest, alleging that since it was subject to Federal
Power Commission jurisdiction the Kansas Commission could not exercise
jurisdiction over it. The Supreme Court later sustained this contention. 355 U.S.
391, 81 S.Ct. 1303. Subsequently, Pan American brought suit in Delaware State
Court to recover overpayments. The suppliers filed a petition for a writ of
prohibition in the Delaware Supreme Court contending that the action fell
within the exclusive jurisdiction of the federal courts under the Natural Gas
Act. The Delaware court rejected this contention and the Supreme Court
affirmed. The holding of the Supreme Court was that the action was governed
by state law, not federal; that determination of the suit did not depend upon
federal law. The fact that the prices to be paid were measured by rates filed with
or promulgated by the Federal Power Commission did not create a question
cognizable in a federal trial court.
23
The Supreme Court's earlier decision in Skelly Oil Co. v. Phillips Petroleum
Co., 339 U.S. 667, 70 S.Ct. 876, 94 L.Ed. 1194 (1950), dealt with contracts for
the supply of gas reserves for a pipeline. The contracts provided that the
supplier could terminate if the purchasers were unable to obtain a certificate of
public convenience and necessity from the Federal Power Commission. A
conditional certificate was issued. However, the supplier gave notice of
termination stating that the certificate was not as contemplated. Suit was
brought in federal court seeking a declaratory judgment that the contracts were
in effect. The district court and the court of appeals found that the action arose
under federal law, but the Supreme Court reversed and ordered that the case be
dismissed for lack of federal question jurisdiction. The basis for the Court's
decision was that the cause arose under state law. The Court pointed out that
the claim did not present in and of itself a federal question involving as it did a
question of substantive contract law. The presence of a federal question by way
of defense did not suffice.
24
This court has also reached the same conclusion as was reached by the
Supreme Court in Pan American Petroleum Corp. This was in Landon v.
Northern Natural Gas Co., 338 F.2d 17 (10th Cir. 1964), cert. denied, 381 U.S.
914, 85 S.Ct. 1529, 14 L.Ed.2d 435 (1965). It was there stated that the claims
involved were common law claims based on the substantive law of Kansas and
were before the court only by reason of diversity jurisdiction.
25
In view of the foregoing, the case at bar is a simple action in the nature of
quasi-contract or indebitatus assumpsit which is not dependent on federal law.
At most it would call for a reference to rates promulgated by a federal agency.
This is not enough of an ingredient to justify federal jurisdiction.
Mishkin, The Federal "Question" in the District Courts, 1953, 53 Col.L.Rev.

157, 165, 168

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481 F.

TEXACO INC., a corporation, Plaintiff-Appellant,

United States Court of Appeals,

Elmer W. Adams, Tulsa, Okl. (Philip R. Wimbish, Tulsa, Okl., on brief),

The question is whether the complaint of plaintiff-appellant Texaco Inc. states

We have here another controversy over helium. The basic background is

Consolidated Helium, federal jurisdiction was invoked under the Federal

Diversity of citizenship is not present. More than the jurisdictional amount is

The complaint alleges that plaintiff, a lessee-producer, and defendant are

under the Enid-Anadarko Act). In Mountain Fuel Supply Company v. Smith, 10

In Consolidated Helium we considered the claims of the pipelines and helium

We adhere to our decision in Consolidated Helium. Absent circumstances not

One further matter should be mentioned. In Consolidated Helium we pointed

I respectfully dissent. Although the claim which is here presented bears a

The doctrine enunciated by Chief Justice Marshall in Osborn v. Bank of United

This is not enough of an ingredient to justify federal jurisdiction.

Mishkin, The Federal "Question" in the District Courts, 1953, 53 Col.L.Rev.

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