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U.S. Supreme Court

Natural Gas Pipeline Co. v. Slattery, 302 U.S. 300 (1937)

Natural Gas Pipeline Co. v. Slattery

No. 230

Argued November 8, 1937

Decided December 6, 1937

302 U.S. 300


A Delaware corporation, engaged in piping and selling natural gas in interstate commerce, sold and delivered gas in Illinois under a long-term contract to an Illinois corporation which, in turn, sold it in that State to distributing companies. All the stock of this local gas company and many of the outstanding shares of the pipeline company were owned by a local investment company. Two of the eight or nine directors of the pipeline company at all times since its incorporation had been directors of the investment company or of corporations wholly controlling it or the local gas company through stock ownership. The president of the local gas chanrobles.com-red

Page 302 U. S. 301

company was president and director of the investment company and a director of the pipeline company, and a director of the local gas company and of the investment company was vice-president and director of the pipeline company. An Illinois commission, in a proceeding under the Illinois Public Utility Act to determine whether the rates of the local gas company should be reduced, found, on evidence, that the pipeline company -- not a party to the proceeding -- was an "affiliate" of the local gas company within the meaning of that Act and that, in order to fix reasonable rates for the sale of gas by the local gas company, inquiry was necessary into operating charges, including the cost of gas purchased from the pipeline company. Accordingly, it made an order directing the pipeline company to make available for examination by the commission all of its accounts and records relating to transactions between it and the local gas company, and to file with the commission a report of the cost of property used in, and a statement of income and expenses in connection with, supplying gas to that company, or, in the alternative, that it report to the commission a statement of the cost of all properties used by it in the business of transporting and selling natural gas, together with a statement of the income and expenses of such operations.

Held that the Illinois statute is not unconstitutional insofar as it demands access to books and accounts of the pipeline company and requires production of the information which the order seeks. P. 302 U. S. 306.

2. The reasonableness of the price at which a public utility company buys the product which it sells is an appropriate subject of investigation when the resale rates are under consideration, and any relationship between the buyer and seller which tends to prevent arm's length dealing may have an important bearing on the reasonableness of the selling price. P. 302 U. S. 307.

3. The Constitution does not require that such an inquiry be limited to cases where common control is secured through ownership of a majority of voting stock. P. 302 U. S. 307.

4. Common management of corporations through officers or directors, or common ownership of a substantial amount, though less than a majority, of their stock gives such indication of unified control as to call for close scrutiny of a contract between them whenever the reasonableness of its terms is the subject of inquiry. P. 302 U. S. 308.

5. An interstate pipeline company cannot be bound by an order of a state commission with respect to its own rates or its contract with a local distributor in a proceeding concerning the chanrobles.com-red

Page 302 U. S. 302

distributor's rates to which the pipeline company is not a party. P. 302 U. S. 308.

6. It is not to be presumed that information sought by a state commission for which there is a probable legitimate use will be put to an unconstitutional use. P. 302 U. S. 309.

7. Application for preliminary injunction challenging the powers of a state commission under the state law, the commerce clause, and the Fourteenth Amendment, to require report from a corporation necessitating great expense, held premature, since recourse could have been had to the commission itself for a stay and a modification without subjecting the applicant to statutory penalties. P. 302 U. S. 309.

8. The rule that a suitor must exhaust his administrative remedies before seeking the extraordinary relief of a court of equity is of especial force when resort is had to the federal courts to restrain the action of state officers and the objection has been taken by the trial court. P. 302 U. S. 310.

9. The extent to which a federal court may relax this rule where the order of the administrative body is assailed in its entirety rests in sound discretion, but there are cogent reasons for requiring resort in the first instance to the administrative tribunal when the particular method by which it has chosen to exercise authority is also attacked, for there is the possibility of removal of such issues from the case by modification of its order. P. 302 U. S. 311.


Appeal from a decree of the District Court of three judges denying a preliminary injunction.


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