Appeal from Bituminous Coal Division, Department of the Interior.
Before BIGGS, MARIS, and GOODRICH, Circuit Judges.
The petitioner, Keystone Mining Company, is a corporation of the State of Pennsylvania, wholly owned and controlled by the Delaware, Lackawanna and Western Railroad Company. It has no funded indebtedness. It owns coal-mining properties in Pennsylvania and produces coal from its mines at cost for use in the locomotives of the Lackawanna Railroad Company. The petitioner has a board consisting of five directors who are elected by the vote of the stock held by the Lackawanna Railroad Company. Two of these directors are officials of the Lackawanna Railroad Company, being respectively general attorney and general superintendent. Keystone's treasurer is also the securetary-treasurer of the Lackawanna Railroad Company; its auditor is assistant to the Lackawanna Railroad Company's comptroller. The petitioner has an office at Scranton, Pennsylvania, which is furnished to it gratis by the Lackawanna Railroad Company. The coal company's books are maintained at Lackawanna Railroad Company's office at New York City.
The petitioner has absolute ownership of the coal properties, the mining equipment and accessories. It leases some parts of the properties to third persons. The title to the coal mined is retained by Keystone until it is loaded for shipment in cars at the tipples upon its property. The petitioner has a mining supply store which is managed by it. The Lackawanna Railroad Company does not supervise Keystone's operations. These operations are conducted by petitioner's general superintendent subject to the supervision of its president. These two officers are neither directors, officers, nor employees of the Lackawanna Railroad Company. Keystone's legal work is handled by its secretary who is not employed by the Lackawanna Railroad Company.
The petitioner employes about nine hundred men. Its superintendent heres and discharges them. He purchases all mining supplies and necessary equipment and bills them to petitioner. The coal company maintains its own bank account and pays its employees by chechs drawn against this account. Its employees who are also employees of the Lackawanna Railroad Company receive salary checks from the petitioner which cover their services to it in so far as their services can be allocated to it. Charges capable of being allocated directly to Keystone are paid by it. Petitioner enters into collective bargaining contracts with a local of the United Mine Workers of America at Scranton and is also a member of an operators association. It assumes liability for all accidents which may happen to its employees, settles claims against it, using its own checks and vouchers for this purpose, and, being a selfinsurer under the Pennsylvania Workman's Compensation Insurance Law, has deposited United States government bonds under a trust agreement in accordance with law.*fn1
Keystone pays its own federal, state and local taxes, files in its own name all the returns and reports required of it, including the reports required by the National Bituminous Coal Commission.*fn2 Prior to 1934, however, the petitioner's federal income tax returns, consolidated with those of the Lackawanna Railroad Company, were filed by the latter company. Until April, 1938, Keystone paid all assessments levied against it as a member of the Bituminous Coal Code.
As we have indicated, all of the coal produced by the petitioner (save that sold to its own employees) is sent to the Lackawanna Railroad Company. There is no written contract between the coal company and the railroad company for the mining and sale of coal, but the railroad company places orders as coal is required by it through its general purchasing agent. The quantity of coal produced by the petitioner is insufficient to meet the railroad company's demands and that company procures coal also from other sources. When coal is needed, the railroad company's purchasing agent notifies Keystone's superintendent of its reuqirements and gives him loading instructions and shipping directions. When the required tonnage is produced it is placed in railroad cars and is shipped in interstate commerce over lines of the Pennsylvania Railroad Company to designated points upon the Lackawanna Railroad Company's trackage. Petitioner's officers prepare and render monthly accounts or invoices to the purchasing agent of the Lackawanna Railroad Company. The coal furnished by Keystone is priced so as to approximate the cost of production, including all of the expenses incurred by the petitioner, less the income received by it from its mine store, its rented cottages, its oil and gasoline leases and the government bonds owned by it, the price of the coal being raised or lowered from time to time as is necessary to cover the expenses of petitioner and to prevent its operations from creating a deficit in its treasury. The Lackawanna Railroad Company for its part makes advances to the petitioner, unually upon a semi-monthly basis, as requested by the coal company in order to enable it to meet its payroll and other current expenses. The railroad company also advances sums of money to meet the petitioner's purchases of supplies and materials. It should be noted that the total of all advances equals approximately the total price of the coal received by the railroad from petitioner, but apparently no precise balance is ever struck. The accounting systems of Keystone and the railroad company are kept entirely separate and distinct, the railroad including as part of its operating expenses the price at which it takes coal from the petitioner plus the freight charges for transportation from petitioner's mines to points on Lackawanna's lines. The coal company also prepares statements and balance sheets showing profit and loss and assets and liabilities. It should be pointed out, none the less, that sums going to make up profit or loss which enter into the determination of cost of production of the coal appear only upon petitioner's books and are not directly reflected in the Lackawanna Railroad Company's books. Keystone keeps the ordinary books of account which are kept by most private corporations.
Further facts must be stated in order that a fair picture may be presented of the relations of the two compaines. Prior to 1934, when consolidated income tax returns were filed by the Lackawanna Railroad Company for itself and Keystone, the coal company delivered all of its coal to the railroad company at approximately the market price. Following the abolition of the consolidated income tax privilege that practice was abandoned. Prior to 1934, Keystone also declared dividends. These, however, never were actually paid to the Lackawanna Railroad Company, but were reflected in bookkeeping items by the two companies; that is to say, the coal company received credits upon the books of the railroad company to the extent of the dividends declared by Keystone. The general policies of the petitioner are established by consultation between its president and the president of the Lackawanna Railroad Company.
The petitioner prayed the National Bituminous Coal Commission to enter an order exempting it from the provisions of Section 4, 15 U.S.C.A. §§ 831-833, and Section 4-A, 15 U.S.C.A. § 834, of the Bituminous Coal Act of 1937, c. 127, 50 Stat. 72, 15 U.S.C.A §§ 828-851, by virtue of Section 4, pt. II(l ) of the Act, 15 U.S.C.A. § 833(l ) with respect to the coal produced and disposed of by it. The Director of the Bituminous Coal Division*fn3 denied exemption and a petition was filed in this court to review the Director's order. This court has jurisdiction of the proceeding by virtue of Sections 4-A, 15 U.S.C.A. § 834, and 6(b), 15 U.S.C.A. § 836(b), of the National Bituminous Coal Act.
Section 4, pt. II(l ) of the Act, 15 U.S.C.A. § 833(l ) provides: "The provisions of [section 831, 832 and] this section shall not apply to coal consumed by the producer or to coal transported by the producer to himself for consumption by him." The contention of the petitioner was and is that it is a wholly owned agency of the Lackawanna Railroad Company, that it has but one function, viz., the production of coal for the Lackawanna Railroad ...