Missouri v. Kansas Gas Co., 265 U.S. 298 (1924)

U.S. Supreme Court

Missouri v. Kansas Gas Co., 265 U.S. 298 (1924) Missouri ex Rel. Barrett v. Kansas Natural Gas Company

Nos. 155, 133 and 137

Argued April 21, 1924

Decided May 26, 1924

265 U.S. 298

APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES

FOR THE WESTERN DISTRICT OF MISSOURI

Syllabus

1. The business of piping natural gas from one state to another and selling it not to consumers, but to independent distributing companies which sell it locally to the consumers is interstate commerce free from state interference. Pennsylvania Gas Co. v. Public Service Comm'n, 252 U. S. 23, distinguished. P. 265 U. S. 307.

2. An attempt of a state to fix the rates chargeable in this interstate business is a direct burden on interstate commerce, even in the absence of any regulation of it by Congress. P. 265 U. S. 308.

282 F. 341 (No. 155) affirmed.

111 Kans. 809 (No. 133) reversed.

282 F. 680 (No. 137) affirmed.

In the first of these cases, the appellants sought to enjoin the Kansas Natural Gas Company from increasing

Page 265 U. S. 299

its rates in Missouri without the consent of the Public Utilities Commission of that state. The decree of the district court refusing the injunction is here affirmed.

In the second case, the Kansas Supreme Court allowed a peremptory mandamus to compel the same company to reestablish and maintain certain rates in Kansas until otherwise ordered by the Utilities Commission of that state. Reversed.

The third case was a suit in the federal court in Kansas to enjoin collection by the same company of increased rates in Kansas until allowed by the Kansas Utilities Commission. The injunction was denied. Affirmed.

Page 265 U. S. 305

MR. JUSTICE SUTHERLAND delivered the opinion of the Court.

These cases were consolidated for argument. They present for decision the single question whether the business of the Kansas Natural Gas Company, hereinafter called the Supply Company, consisting of the transportation of natural gas from one state to another for sale, and its sale and delivery, to distributing companies, is interstate commerce, free from state interference?

The facts necessary to be considered in reaching a conclusion are, shortly, as follows:

The Supply Company is a Delaware corporation, engaged in producing and buying natural gas, mostly in Oklahoma but some in Kansas, and, by means of pipelines, transporting it into Kansas and from Kansas into the state of Missouri, and in each state selling and delivering it to distributing companies which then sell and deliver it to local consumers in numerous communities in Kansas and Missouri. The gas originating in Kansas is mingled for transportation in the same lines with that originating in Oklahoma. The pipelines are continuous from the wells to the place of delivery.

The three cases are alike in the fact that they arise from the action of the Supply Company in making an increase of rates from 35 cents to 40 cents per 1,000 cubic feet -- in Missouri, without the consent and approval of the Public Utilities Commission of the state, and in Kansas notwithstanding a previous order of the federal court fixing a 35-cent rate and the action of the Utilities Commission approving and fixing that rate. The power of the Utilities Commission of each state is challenged on the ground that the matter, under

Page 265 U. S. 306

the commerce clause of the Constitution, is not subject to state control.

In No. 155, appellants brought suit in the federal district court to enjoin the Supply Company from increasing its rates. The injunction prayed was denied. 282 F. 341.

In No. 133, the defendants in error filed a petition in the Kansas Supreme Court for a writ of mandamus to compel the Supply Company to reestablish and maintain the rate of 35 cents per 1,000 cubic feet for gas furnished to the distributing companies, until otherwise ordered by the Utilities Commission. The case was presented to that court on demurrer to the return and answer. The demurrer was sustained, and a peremptory writ of mandamus allowed, as prayed, 111 Kan. 809.

In No. 137, the suit was to enjoin the Supply Company from collecting or attempting to collect the increased rates from various gas distributing companies until the consent thereto of the Utilities Commission of the state should be secured. The federal district court denied the injunction, but retained the bill for another purpose not necessary to be stated. Central Trust Co. of New York v. Consumers' Light, Heat & Power Co., 282 F. 680.

The business of the Supply Company, with an exception not important here, is wholly interstate. The sales and deliveries are in large quantities not for consumption, but for resale to consumers. There is no relation of agency between the Supply Company and the distributing companies, or other relation except that of seller and buyer, Public Utilities Comm'n v. Landon, 249 U. S. 236, 249 U. S. 244-245, and the interest of the former in the commodity ends with its delivery to the latter, to which title and control thereupon pass absolutely. The question is therefore presented in its simplest form, and, if the claim of state power be upheld, it is difficult to see how it could be denied in any case of interstate transportation and sale of gas. Both federal courts denied the power. The state

Page 265 U. S. 307

court conceded that the business was interstate and subject to federal control, but rested its decision the other way upon the fact that Congress had not acted in the matter and that, in the absence of such action, it was within the regulating power of the state.

The question is controlled by familiar principles. Transportation of gas from one state to another is interstate commerce, and the sale and delivery of it to the local distributing companies is a part of such commerce. In Public Utilities Comm'n v. Landon, supra, at 249 U. S. 245, this Court said:

"That the transportation of gas through pipelines from one state to another is interstate commerce may not be doubted; also it is clear that, as part of such commerce, the receivers might sell and deliver gas so transported to local distributing companies free from unreasonable interference by the state."

See Pennsylvania v. West Virginia, 262 U. S. 553, 262 U. S. 596, and cases there cited.

The line of division between cases where, in the absence of congressional action, the state is authorized to act and those where state action is precluded by mere force of the commerce clause of the Constitution is not always clearly marked. In the absence of congressional legislation, a state may constitutionally impose taxes, enact inspection laws, quarantine laws and, generally, laws of internal police, although they may have an incidental effect upon interstate commerce. Pennsylvania Railroad Co. v. Hughes, 191 U. S. 477, 191 U. S. 488-491. But the commerce clause of the Constitution, of its own force, restrains the states from imposing direct burdens upon interstate commerce. In Minnesota Rate Cases, 230 U. S. 352, 230 U. S. 396, Mr. Justice Hughes, speaking for the Court, said:

"If a state enactment imposes a direct burden upon interstate commerce, it must fall, regardless of federal legislation. The point of such an objection is not that Congress has acted, but that the state has directly restrained

Page 265 U. S. 308

that which, in the absence of federal regulation, should be free."

The question is so fully discussed in that case that nothing beyond its citation is required.

The contention that, in the public interest, the business is one requiring regulation need not be challenged. But Congress thus far has not seen fit to regulate it, and its silence, where it has the sole power to speak, is equivalent to a declaration that that particular commerce shall be free from regulation. See Robbins v. Shelby County Taxing District, 120 U. S. 489, 120 U. S. 493. With the delivery of the gas to the distributing companies, however, the interstate movement ends. Its subsequent sale and delivery by these companies to their customers at retail is intrastate business, and subject to state regulation. Public Utilities Comm'n v. Landon, supra, p. 249 U. S. 245. In such case, the effect on interstate commerce, if there be any, is indirect and incidental. But the sale and delivery here is an inseparable part of a transaction in interstate commerce -- not local, but essentially national, in character -- and enforcement of a selling price in such a transaction places a direct burden upon such commerce inconsistent with that freedom of interstate trade which it was the purpose of the commerce clause to secure and preserve. It is as though the commission stood at the state line and imposed its regulation upon the final step in the process at the moment the interstate commodity entered the state and before it had become part of the general mass of property therein. See Brown v. Houston, 114 U. S. 622, 114 U. S. 634. There is nothing in Pennsylvania Gas Co. v. Public Service Comm'n, 252 U. S. 23, inconsistent with this view. There, the Gas Company, a Pennsylvania corporation, transmitted gas from Pennsylvania into New York and sold it directly to the consumers. The service to the consumers, which was the thing for which the regulated charge was made, was essentially local, and the decision rests upon this feature. Mr. Justice Day, in the

Page 265 U. S. 309

course of the opinion, said (p. 252 U. S. 31):

"The pipes which reach the customers served are supplied with gas directly from the main of the company which brings it into the state; nevertheless, the service rendered is essentially local, and the sale of gas is by the company to local consumers who are reached by the use of the streets of the city in which the pipes are laid, and through which the gas is conducted to factories and residences as it is required for use. The service is similar to that of a local plant furnishing gas to consumers in a city."

The commodity, after reaching the point of distribution in New York, was subdivided and sold at retail. The Landon case, so far as this phase is concerned, differs only in the fact that the process of division and sale to consumers was carried on not by the Supply Company, but by independent distributing companies.

In both cases, the things done were local, and were after the business in its essentially national aspect had come to an end. The distinction which constitutes the basis of the present decision is clearly recognized in the Landon case. The business of supplying, on demand, local consumers is a local business, even though the gas be brought from another state and drawn for distribution directly from interstate mains, and this is so whether the local distribution be made by the transporting company or by independent distributing companies. In such case, the local interest is paramount, and the interference with interstate commerce, if any, indirect, and of minor importance. But here, the sale of gas is in wholesale quantities, not to consumers, but to distributing companies for resale to consumers in numerous cities and communities in different states. The transportation, sale, and delivery constitute an unbroken chain, fundamentally interstate from beginning to end, and of such continuity as to amount to an established course of business. The paramount interest is not local, but national, admitting of and requiring

Page 265 U. S. 310

uniformity of regulation. Such uniformity, even though it be the uniformity of governmental nonaction, may be highly necessary to preserve equality of opportunity and treatment among the various communities and states concerned. See, for example, Welton v. Missouri, 91 U. S. 275, 91 U. S. 282; Hall v. De Cuir, 95 U. S. 485, 95 U. S. 490.

That some or all of the distributing companies are operating under state or municipal franchises cannot affect the question. It is enough to say that the Supply Company is not so operating, and is not made a party to these franchises by merely doing business with the franchise holders.

No. 155 Affirmed.

No. 133 Reversed.

No. 137 Affirmed.