author: WILKEY, Circuit Judge.

text:
    CITY OF HUNTINGBURG, INDIANA, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Public Service Company of Indiana et al., Intervenors. The PUBLIC SERVICE OF INDIANA NEGOTIATING COMMITTEE OF the INDIANA MUNICIPAL ELECTRIC ASSOCIATION CORPORATION et al., Petitioners, v. FEDERAL POWER COMMISSION, Respondent, Public Service Company of Indiana et al., Intervenors.
    Nos. 72-1890, 72-1893.
    United States Court of Appeals, District of Columbia Circuit.
    Argued Jan. 29, 1974.
    Decided May 6, 1974.

      Charles F. Wheatley, Jr., Washington, D. C., with whom Jerome C. Muys and Grace Powers Monaco, Washington, D. C., were on the brief, for petitioner in No. 72-1890.
    George Spiegel, Washington, D. C., with whom Sandra J. Strebel and Robert C. McDiarmid, Washington, D. C., were on the brief, for petitioner in No. 72-1893.
    Drexel D. Journey, Deputy Gen. Counsel, F. P. C., with whom Leo E. Forquer, Gen. Counsel, and George W. McHenry, Jr., Acting Solicitor, F. P. C., at the time the brief was filed, were on the brief, for respondent.
    Charles W. Campbell, Plainfield, Ind., of the bar of the Supreme Court of Indiana, pro hac vice, by special leave of court with whom Howard E. Wahrenbrock and Christopher T. Boland, Washington, D. C., were on the brief for intervenors, Public Service Co. of Ind. and Southern Ind. Gas and Electric Co.
    David S. Richey, Lebanon, Ind., and William C. Wise, Washington, D. C., were on the brief for intervenor, Indiana Statewide Rural Electric Cooperative, Inc.
    Before LEYENTHAL, MacKINNON and WILKE Y, Circuit Judges.
   WILKEY, Circuit Judge.

Petitioners, the City of Huntingburg, Indiana, and the cities affiliated with the Public Service of Indiana Negotiating Committee (hereinafter collectively referred to as Cities), seek review of a Federal Power Commission order of 26 May 1972 accepting the rate schedule filings of Public Service Company of Indiana (PSCI) and Southern Indiana Gas and Electric Co. (SIGECO). PSCI and SIGECO are public utilities subject to FPC regulation under subchapter II of the Federal Power Act. The rate schedule filings, as the Commission put it, “embody the terms and conditions of an Interconnection Agreement entered into on March 9, 1971, among the United States, acting through the Rural Electrification Administration, Indiana Statewide, Public Service and Southern Indiana.” Indiana Statewide Rural Electric Cooperative, Inc. (Statewide) is a cooperatively owned utility whose facilities were financed in large part by loans from the Rural Electrification Administration.

Cities raise no objections to the basic provisions of the Interconnection Agreement, which obligate PSCI, SIGECO, and Statewide to interconnect their bulk power supply systems, to coordinate operation of their facilities in certain respects, and to consult mutually on advance systems planning. However, the Cities argue that certain provisions of the Agreement would produce substantial anticompetitive effects in the market served by PSCI and SIGECO. They seek an order instructing the FPC to excise the disputed provisions from the Interconnection Agreement or, in the alternative, an order remanding the case to the Commission for an evidentiary hearing on whether the challenged provisions, if retained, would advance the public interest.

On the basis of the record supplied to us on review and the opinion accompanying the Commission’s order, we are unable to discern the reasons for the Commission’s decision to accept the allegedly restrictive provisions of the Interconnection Agreement as part of the PSCI-SIGECO rate filing. We therefore remand to the Commission for hearings in accordance with Part III of this opinion.

I. BACKGROUND

A. History of the Interconnection Agreement

Most of the historical background of this controversy centers on the formation and development of Statewide and its predecessor, Hoosier Cooperative Energy, Inc. (Hoosier). Hoosier was organized by sixteen rural electric membership cooperatives in 1961. On 15 June 1961 it received a loan commitment of $60 million from the Rural Electrification Administration (REA) for construction of a generation and transmission system. When Hoosier could not readily obtain a certificate of convenience and necessity from the Indiana Public Service Commission (Indiana PSC), it transferred its loan commitment to Statewide, which had been incorporated in 1935 with PSC approval. Statewide then entered into long-term contracts with the Hoosier member distribution cooperatives. However, SIGECO and PSCI successfully challenged Statewide’s authority to operate the Hoosier system in Southern Indiana Gas & Electric Co. v. Indiana Statewide Rural Elec. Coop. The Indiana Supreme Court directed the circuit court to enjoin Statewide from generating or transmitting electricity “until it obtains a current ‘certificate of convenience and necessity’ from the Public Service Commission of Indiana.”

Subsequently the REA took title to Statewide’s facilities under the authority of section 7 of the Rural Electrification Act. Title was to revert to Statewide within four and one half years if it could obtain authority to operate the system from the Indiana PSC. In 1969 Statewide filed with the PSC a petition for certification in which it sought only the authority to serve its own members. PSCI and SIGECO intervened in opposition to Statewide’s petition. In a letter dated 16 February 1970 the Indiana PSC set forth a proposed settlement among the parties. The proposal contained essentially the same terms as the Interconnection Agreement ultimately signed by the parties, including a clause providing:

Hoosier Energy’s certificate shall . be so conditioned that it can sell and resell within the terms of the wheeling agreement only to its 17 REMC [Rural Electric Membership Cooperative] members, with its 17 members being named in the certificate.

The Interconnection Agreement was signed by Statewide, the REA, PSCI, and SIGECO on 9 March 1971 for a 25-year term beginning on that date. On 25 June 1971 the Indiana PSC granted Statewide a certificate of convenience and necessity allowing Statewide to “engage in the production, transmission, delivery, distribution, supplying, furnishing or sale of electric energy to the Member REMCs and to PSCI and SIGECO . . . ,”

B. The Challenged Contractual Provisions

The main focus of the controversy is on section 5.05 of the Interconnection Agreement, which provides:

. Statewide will serve only NSA [National Southwire Aluminum Co.] during the remaining term of said contract and Hoosier Members while the systems of the parties are interconnected, and power and energy furnished and delivered by Public Service and SIGECO under this Agreement shall be resold or delivered by Statewide to NSA during the term of said contract and to Hoosier Members only; provided, however, that Statewide may continue to perform its obligations under (i) its power supply agreement with Southeastern Power Administration, and (ii) all power and purchase pooling agreements it now has with other entities until the agreements referred to in (i) and
(ii), can be legally or mutually terminated by Statewide and the other parties thereto.

Cities assert that this provision represents a horizontal division of markets, a per se violation of section 1 of the Sherman Antitrust Act under United States v. Topeo Associates, Inc. They further argue that section 1.03 of the Agreement, which requires that Statewide contractually prohibit its members from reselling electric power sold to them at wholesale by Statewide, constitutes an unlawful restraint on alienation under United States v. Arnold, Schwinn & Co. The potential for anticompetitive impact is also raised with respect to sections 1.01 (limiting the scope of Statewide’s application for a state certificate of convenience and necessity), 1.03.1 (requiring Statewide to assign its contract with the City of Jasper, Indiana, to SIGECO), 3.02.1 (prohibiting Statewide from constructing a contemplated 161 kilovolt interconnection with East Kentucky Rural Electric Cooperative), 3.03 (assigning to PSCI and SIGECO all unused capacity in Statewide’s tie line with the Big Rivers Rural Electric Cooperative Corporation), and Schedule H (giving PSCI and SIGECO exclusive right to all unused capacity in the Statewide transmission system).

The Cities describe the harm that these provisions would allegedly occasion as follows:

The net effect of the restrictive provisions in the Interconnection Agreement is to prevent Hoosier [Statewide] from acting as a viable competitive force in the wholesale power supply market in Indiana and Kentucky, thereby preventing not only Hoosier itself from competing with PSI [PSCI] and SIGECO in the supply ci power in bulk to the ' U -s, but effectively preventing Cities from entering the bulk power supply market as their own bulk power suppliers with generating sources other than PSI or SIGECO. Thus, Cities are for at least the next quarter century “assigned” to PSI as captive wholesale customers.

C. The Commission’s Action

PSCI and SIGECO submitted the Interconnection Agreement to the FPC on 14 June 1971 as an interstate rate schedule filing. On 26 May 1972 the Commission accepted the tendered filing with the following observation:

In granting the relief herein afforded, we have examined the controlling legal requirements, considered relevant and material factual data and applied the policy considerations which are committed to the discretion of the Commission under the Federal Power Act. We are persuaded that the public interest will be served by authorizing the filing of the rate schedules and the transfer of the utility facilities. . . . We find it unnecessary and inappropriate to order formal hearings as requested by Cities in light of our investigation and analysis, as reflected herein. Accordingly, we deny their requests in that regard.

Chairman Nassikas and Commissioner Moody dissented with the statement, “[T]he Commission is required to consider the anticompetitive allegations raised by Cities . . . [and] to provide a hearing for the adjudication of the factual predicates for such allegations.” On 26 July 1972 Cities’ application for rehearing was denied by operation of law since the Commission ■1 s ' <uenly divided [2-2] on the question of whether they should be granted.”

II. BASIS FOR THE REMAND

A. The Commission’s Duty to Evaluate the Potential Anticompetitive Effects of the Interconnection Agreement

The Commission is charged with the general responsibility of carrying out its regulatory tasks in a manner that will advance the public interest. Courts have long recognized that careful assessment of the potential effects of a proposed action on competition in the regulated industry is an integral aspect of any application of the public interest standard. As we stated in Northern Natural Gas Co. v. FPC:

Although the Commission is not bound by the dictates of the antitrust laws, it is clear that antitrust concepts are intimately involved in a determination of what action is in the public interest, and therefore the Commission is obliged to weigh antitrust policy.

Most recently, in Gulf States Utilities Co. v. FPC, the Supreme Court held that the Commission must consider the potential anticompetitive consequences of a public utility’s proposed securities issue before authorizing the issue pursuant to section 204 of the Federal Power Act. The Court made the following remarks concerning the relationship of the Commission’s regulatory authority under the Act and the general policies embodied in the antitrust laws:

Title II certainly did not preclude the operation of the antitrust laws, and it vested the Federal Power Commission with important and broad regulatory power in the areas described above. [Citations omitted.] This power clearly carries with it the responsibility to consider, in appropriate circumstances, the anticompetitive effects of regulated aspects of interstate utility operations pursuant to §§ 202 and 203, and under like directives contained in §§ 205, 206, and 207. The Act did not render antitrust policy irrelevant to the Commission’s regulation of the electric power industry. Indeed, within the confines of a basic natural monopoly structure, limited competition of the sort protected by the antitrust laws seems to have been anticipated.

In the case at bar, the Interconnection Agreement was “properly filed as an interstate rate schedule” of PSCI and SIGECO and was therefore subject to the regulatory authority vested in the Commission by sections 205 and 206 of the Federal Power Act. Gulf States made it clear that this regulatory authority “carries with it the responsibility to consider . . . the anticompetitive effects” of any proposed action by a public utility. Therefore, when the Commission faced the decision of whether to approve the Interconnection Agreement as filed, it was obligated to consider the alleged anticompetitive effects of the provisions to which the Cities objected. As the Commission itself recognized, “Anticompetitive arguments fall within the scope of the public interest concept. Public interest considerations are the touchstone of the Federal Power Act.” The court fully agrees, so our task is now to assess the manner in which the Commission attempted to discharge its responsibility.

B. Inadequacy of Record and Commission’s Order

The Commission’s approval of the PSCI-SIGECO-Statewide Interconnection Agreement could have been based on any one of three grounds: (1) the Agreement contains no negative restrictions on the operations of the parties and thus cannot create anticompetitive effects; (2) the provisions labelled as negative restrictions by the Cities do not per se limit the scope of Statewide’s facilities and marketing, but merely recognize limitations already lawfully imposed by the REA and the Indiana PSC; or (3) the Agreement does contain restrictive provisions, as the Cities allege, but the restrictions are not inconsistent with federal antitrust policy, or at least not to an extent sufficient to outweigh other factors in the Commission’s overall public interest calculation.

Since the court is unable to glean from the record or the Commission’s opinion which of these grounds the Commission regarded as controlling, we cannot properly review the order accepting the Interconnection Agreement as a rate filing. Therefore, a remand is necessary for clarification of the Commission’s position.

At first blush, the Commission’s opinion appears to rest on the third ground described above. The following passages from the opinion lend support to this interpretation:

We have reviewed Cities’ alleged anti-competitive arguments. We do so pursuant to the exercise of our regulatory authority under the Federal Power Act. [Citations omitted] We find nothing therein which would warrant formal evidentiary hearings at this time as requested by Cities. The March 9 Agreement is a reasonable arrangement and its effectuation will serve the purposes of the Federal Power Act. Cities do not purport to show the March 9 Agreement, executed by the United States, to be, per se, in violation of the antitrust laws and our analysis shows no basis therefor.
In our disposition of this matter and Cities’ contentions, we have taken a “hard look” at all matters, including those which the Cities find objectionable. . . . Anti-competitive arguments fall within the scope of the public interest concept. Public interest considerations are the touchstone of the Federal Power Act. Through application of the requirements of the Federal Power Act to power pooling and coordination arrangements, the interests of the antitrust laws are served. Those laws contemplate application of the rule of reason standard. The Federal Power Act standards are not dissimilar — just, reasonable, without undue discrimination or preference, otherwise unlawful, and in accordance with the objectives of Section 202(a) thereof. The March 9 Agreement is a reasonable arrangement. Its effectuation will serve the purposes of the Federal Power Act.

The dissenting Commissioners apparently assumed that the Commission majority had found restrictive provisions in the Agreement but had justified them on the basis of an antitrust “rule of reason” or general public interest principles. The dissenters stated:

Without a hearing, we cannot fairly assess the merits, if any, of Cities’ allegations in the pleadings before us. For example, it may well be that the competitive impact of territorial restrictions in the interconnection agreement are outweighed by the public interest and the need to avoid duplication of facilities. On the other hand, the Supreme Court has stated that horizontal territorial agreements are per se violative of the Sherman Act. We should require a hearing and afford the Cities the opportunity to present evidence in support of their allegations. Here, there are substantial anticompetitive issues requiring resolution based on a hearing record.

Thus, a common ground between the majority and minority in the Commission seems to have been that the Agreement limits the potential for competition with PSCI and SIGECO in the electricity distribution market. The apparent focus of the dispute between the two factions was the Cities’ allegations that these limitations violate antitrust policy and disserve the public interest.

However, at oral argument, counsel for the FPC interpreted the Commission’s opinion as holding that the Interconnection Agreement imposes no negative restrictions on Statewide’s ability to compete with PSCI and SIGECO. As counsel explained his construction in a colloquy with the court reproduced in the margin, the Commission concluded that the Agreement does not preclude Statewide from expanding its facilities, seeking new customers and new interconnections, or otherwise exploiting the market served by PSCI and SIGECO. Under counsel’s reading of the Commission’s opinion the only constraints on such activities by Statewide are that Statewide consult with PSCI and SIGECO in its planning, as prescribed by section 9.03 of the Agreement, and that it obtain necessary authorization for its plans from the Indiana PSC and the REA. While the court will not permit counsel to supply a rationale for an agency’s order when the agency itself has clearly articulated reasons for its action, the Commission’s opinion in this case is not so lucid and unambiguous that we can reject out-of-hand counsel’s construction of it.

Finally, a variant of the rationale offered by the FPC’s counsel is another possible basis for the Commission’s order. The Commission might have reasoned that although the Interconnection Agreement contains provisions that appear to subject Statewide to negative restrictions on its operations, those provisions do no more than recite limitations already imposed on Statewide by the Indiana PSC and the REA. We would note that if this was the rationale of the Commission’s order, it should be re-examined on remand. While the terms of Statewide’s certificate of convenience and necessity, the Indiana Rural Electric Membership Corporation Act, and the federal Rural Electrification Act now limit Statewide’s range of customers to its membership cooperatives, these limitations are not immutably fixed. The controlling legislation could be revised or repealed, thus enabling Statewide to apply for expanded authority from the Indiana PSC. However, if the contested provisions of the Interconnection Agreement do in fact restrict Statewide’s capacity as an electricity supplier for the full term of the Agreement, Statewide will be contractually disabled from seeking expansion of its operational authority for 25 years. This distinction between contractual disabilities of fixed duration and statutory or regulatory restrictions of indefinite applicability demonstrates that the Commission should study the potential anti-competitive effects of the challenged provisions in the Agreement without regard to current legal limitations on Statewide’s authority.

In SEC v. Chenery Corp. the Supreme Court stated:

[T]he courts cannot exercise their duty of review unless they are advised of the considerations underlying the action under review. . . . [T]he orderly functioning of the process of review requires that the grounds upon which the administrative agency acted be clearly disclosed and adequately sustained.

Since we are unable to determine on what ground the Commission accepted for filing the allegedly anticompetitive provisions of the Interconnection Agreement, we must remand for clarification of the Commission’s reasoning.

III. SCOPE OF THE REMAND

On remand, the Commission should endeavor to answer several questions. The fundamental inquiry is whether the provisions of the Interconnection Agreement challenged by the Cities represent negative restrictions on Statewide’s potential as a competitor with PSCI and SIGECO. If the Commission finds that there are no negative restrictions in the Agreement, as its counsel suggested at oral argument, the inquiry will be at an end. If it finds the contrary, however, the Commission must determine the scope and duration of the restrictions. As we indicated in Part II of this opinion, it is material whether the restrictions, if any, will bind the parties for the full 25-year term of the Agreement. If the Commission finds that the Agreement does contain negative restrictions that are binding on the parties for a definite term, it should examine in detail whether, on balance, those restrictions would advance the public interest. A component of the public interest standard is, of course, the policy expressed in the federal antitrust statutes. If the Commission concludes that the restrictive provisions both vindicate some public interest and violate anti-trust policy, it should “ascertain whether there exist ‘alternative courses, other than those suggested by the applicant[s].’” Finally, if the challenged provisions are found on balance to be contrary to the public interest, the Commission must determine whether they are severable from the remainder of the Agreement. This recitation of issues is not intended to be all-in-elusive, for the Commission should pursue any avenues that may lead to clarification of its reasoning process.

As in other eases in which we have instructed an agency to explore further potential anticompetitive problems, we leave it to the judgment of the Commission to determine the nature and scope of the procedures to be employed on remand. However, the issues that the Commission must investigate are sufficiently complex and difficult that some form of hearing appears necessary. In selecting the form of its hearing, the Commission should heed the following language from Marine Space Enclosures, Inc. v. FMC:

The requirement of a hearing in a proceeding before an administrative agency may be satisfied by something less time-consuming than courtroom drama. In some cases briefs and oral argument may suffice for disposition. Ordinarily, however, antitrust issues do not lend themselves to disposition solely on briefs and argument. Even though there may be no disputed “adjudicatory” facts, the application of the law to the underlying facts involves the kind of judgment that benefits from ventilation at a formal hearing. In some cases, however, the public hearing may usefully approach the legislative rather than the adjudicatory model.
[W]e refrain at this juncture from specifying that our remand order requires an evidentiary hearing. . It may be that the issues can be adequately developed for Commission determination through receipt of documents and sworn statements, and hearing oral argument. Any evidentiary hearing may be limited to certain specific issues.

Finally, the Commission should re-examine whether its consideration of the issues would benefit from permitting the cities affiliated in the Public Service of Indiana Negotiating Committee to intervene in the proceedings.

Remanded.

      . Public Service Co. of Indiana, Inc. and Southern Indiana Gas & Elec. Co., E.P.C. Docket No. E-7638; Public Service Co. of Indiana, Inc., P.P.C. Docket No. E-7647 [hereinafter Commission Order], Joint App. at 445.

      . As defined by section 201 of the Federal Power Act, 16 U.S.C. § 824(b), (c), (e) (1970).

      . 16 U.S.C. §§ 824-824h (1970).

      . Commission Order, supra note 1, Joint App. at 450-51.

      . Pursuant to the Rural Electrification Act, 7 U.S.C. § 901 et seq. (1970). The Commission has determined that Statewide “is not properly classifiable as a ‘public utility’ and therefore not subject to the general Part II regulatory jurisdiction of this Commission .... Dairyland Power Cooperative, et al., 37 F.P.C. 12 (1967) [Further citations omitted].” Commission Order, supra note 1, Joint App. at 450. We need not pass on this assertion in disposing of this case as we do.

      . Hoosier and its member cooperatives were organized pursuant to the Rural Electric Membership Corporation Act, Ind.Stat.Ann. § 55-4401 et seq. (Burns [Code Ed.] 1973).

      . Authority for this loan was provided by section 4 of the Rural Electrification Act, 7 U.S.O. § 904 (1970).

      . 251 Ind. 459, 242 N.E.2d 361 (1968).

      . 251 Ind. at 466, 242 N.E.2d at 368.

      . 7 U.S.O. § 907 (1970).

      . The REA designated Statewide as its agent for operation of the system. PSOI and SIGECO obtained a preliminary injunction against REA’s generation, transmission, and sale of electricity in competition with the two utilities, but the injunction was dissolved in Public Serv. Co. of Indiana v. Hamil, 416 F.2d 648 (7th Cir. 1969), cert. denied, 396 U.S. 1010, 90 S.Ct. 571, 24 L.Ed.2d 503 (1970).

      . H.R.Rep.No.91-1767, 91st Cong., 2d Sess. 30 (1970).

      . Id. at 32.

      . Joint App. at 343.

      . Id. at 101.

      . 15 U.S.C. § 1 (1970).

      . <OTv U.S. 596, 92 S.Ct. 1126, 31 L.Ed.2d (1972).

      . 388 U.S. 365, 87 S.Ct. 1856, 18 L.Ed.2d 1249 (1967).

      . Brief for Petitioner Public Service of Indiana Negotiating Committee at 36.

      . Commission Order, supra note I, Joint Api>. at 447.

      . Id. at 472.

      . Public Service Co. of Indiana, Inc., et al., F.P.C. Docket Nos. E-7638, -7647, Separate Statements on Rehearing (27 July 1972), Joint App. at 522.

      . See Citizens for Allegan County, Inc. v. FPC, 134 U.S.App.D.C. 229, 237, 414 F.2d 1125, 1133 (1969) : “[T]he FPC has an active and independent duty to guard the public interest . . . . ”

      . 130 U.S.App.D.C. 220, 399 F.2d 953 (1968).

      . 130 U.S.App.D.C. at 225, 399 F.2d at 958. See also City of Lafayette v. SEC, 147 U.S.App.D.C. 98, 105, 454 F.2d 941, 948 (1971), aff’d sub. nom. Gulf States Utilities Co. v. FPC, 411 U.S. 747, 93 S.Ct. 1870, 36 L.Ed.2d 635 (1973); Latin America/Pac. Coast S.S. Conf. v. FMC, 150 U.S.App.D.C. 362, 465 F.2d 542, cert. denied, 409 U.S. 967, 93 S.Ct. 269, 34 L.Ed.2d 234 (1972).

      . 411 U.S. 747, 93 S.Ct. 1870, 36 L.Ed.2d 635 (1973).

      . 16 U.S.C. § 824c (1970).

      . 411 U.S. at 758-759.

      . Commission Order, supra note 1, Joint App. at 462.

      . 16 U.S.C. §§ 824d and 824e (1970).

      . Commission Order, supra note 1, Joint App. at 467. The Commission also made the following statements:
      Under the provisions of the Federal Power Act, inter alia Sections 205 and 206, 16 U.S.C. 824d and 824e, this Commission may enter upon a hearing and change provisions of such rate schedules as it determines to be unlawful. In the exercise of that jurisdiction, the Commission is guided by the standards of the Federal Power Act: just, reasonable, without undue discrimination or preference or otherwise unlawful.
      * * $ * *
      We have reviewed Cities’ alleged anti-competitive arguments. We do so pursuant to the exercise of our regulatory authority under the Federal Power Act.

        Id. at 462, 464. The Commission’s assertion that it had jurisdiction to scrutinize the Interconnection Agreement under the regulatory authority conferred by sections 205 and 206 should be afforded great weight. See Pan Am. World Airways, Inc. v. CAB, 129 U.S.App.D.C. 159, 172, 392 F.2d 483, 496 (1968); American Airlines, Inc. v. CAB, 125 U.S.App.D.C. 6, 10 n. 4, 365 F.2d 939, 943 n. 4 (1966). PSCI and SIGECO argue that the main provision of the Federal Power Act relating to interconnection arrangements is section 202(a), 16 U.S.C. § 824a(a) (1970), which merely expresses the policy of promoting interconnection and does not empower the Commission to regulate the terms of specific interconnection agreements under the public interest standard. Supplemental Brief for Intervenors at 2-11. We do not disagree. However, we note that the Interconnection Agreement involved here was offered to the Commission as part of a rate schedule filing and was thus subject to a public interest determination under sections 205 and 206. The Commission can evaluate whether specific provisions of a given interconnection agreement are consistent with the public interest without negating the general policy of promoting electric systems interconnections expressed in section 202(a).

      . Commission Order, supra note 1, Joint App. at 464.

      . Id. at 467-468.

      . Id. at 473.

      . COUNSEL FOR FPC: . . . [T]hese are restrictions which provide operating reasons to keep a system in parallel phase and synchronism. And when you get to 903 and you look at the planning coordination for the future, so far as I know . . . there is nothing in this document that says that Indiana can’t — Indiana Statewide can’t plan for whatever it can legally serve.

      THE COURT: . . . [Y]ou’re saying there are no negative restrictions?
      FPC COUNSEL: I do, yes, sir. I do not read this as having negative restrictions, and I’m suggesting to you you’re being asked to decide a hypothetical case.

      THE COURT: Well, this puts a very different complexion on the controversy, I must say.
      :¡s #
      THE COURT: ... [I]f that was the answer to the dissenters, I don’t know why the Commission could not have just said so, if that was their theory. The dissenters said, “We’re worried about these negative restrictions, and maybe they require a hearing.” Why couldn’t the Commission have said, “We don’t see any negative restrictions. All we see is a statement of present capabilities and present service area . . . . And everybody says, ‘This is our obligation, and this is how we are going to cooperate with each other . . . and, we are free to do whatever comes naturally in the future except that we agree to coordinate with each other. We agree under the contract, that is, to do whatever we want to. We may have to get state approval, that sort of thing, but we’re free as far as the contract is concerned. . . . We are free to do whatever we want to as a utility. All we have to do is coordinate with each other on interchange of power and on our planning to conserve power.’ ”
      FPC COUNSEL: The Commission reviewed it in the technical jargon that it uses in power pooling operation ....
      * * * * *
      THE COURT: . . . [C]an you tell me that the Commission said that there are no negative restrictions in these contracts, and the Commission found that was the basis for not setting a hearing on the anticompetitive-related aspects?
      FPC COUNSEL: That is how I read the majority order.
      THE COURT: Are you aware that you caused great surprise to the court, who had read the majority decision and didn’t think that was the gravamen of their rationale?
      FPC COUNSEL: I saw some surprise registered, yes, sir.
      THE COURT: Do you realize the two dissenting commissioners also would be surprised because they addressed their dissents to the same question I’m raising and not to the one that you say is in the majority oi)in-ion?
      FPC COUNSEL: I so understand. I’m giving you my reading of the majority opinion ....

      . Joint App. at 108.

      . City of Lafayette v. SEC, 147 U.S.App.D.C. 98, 109, 454 F.2d 941, 952 (1971), aff’d sub nom. Gulf States Utilities Co. v. FPC, 411 U.S. 747, 93 S.Ct. 1870, 36 L.Ed.2d 635 (1973); National Air Carrier Ass’n v. CAB, 141 U.S.App.D.C. 31, 41, 436 F.2d 185, 195 (1970); Public Serv. Comm’n v. FPC, 141 U.S.App.D.C. 174, 176 n. 2, 436 F.2d 904, 906 n. 2 (1970).

      . For example, the Commission stated enigmatically :
      [W]e deem it important to note that the action herein taken does not foreclose legitimate options or interests of Cities, or others, in coordinating their electric utility operations with Indiana Statewide, Public Service, Southern Indiana or others. They are encouraged to do so.
      Commission Order, supra note 1, Joint App. at 465. If the Interconnection Agreement does in fact prevent Statewide from supplying power to anyone except its member cooperatives, PSCI, and SIGECO, it is not clear how the Commission’s approval of the Agreement “does not foreclose . . . Cities . . . [from] coordinating their electric utility operations with Indiana Statewide . . . . ” In addition, the Commission concluded that “Cities’ contentions are shown ‘ * * * too insubstantial or barren to indicate the existence of substantial anticompetitive issues . . . .’” Id. at 466. We might fairly construe this statement as a Commission finding that the Interconnection Agreement imposes no restraints on the competitive potential of any of the parties thereto.

      . There is language in the order suggesting that the Commission may have relied on this rationale:
      The scope of Indiana Statewide’s undertaking, as a bulk power supplier, is fundamentally a matter for decision and determination by it within the constraints of Rural Electrification Administration requirements. That agency, not this Commission, is the one charged by the Congress with overall Federal supervision and responsibility over activities and operations of entities such as Indiana Statewide. [Citations omitted.] The March 9, 1971, Agreement was negotiated and executed under the aegis of the Administrator. His judgments are reflected therein concerning Indiana Statewide’s undertaking to serve various resale customers . . . and the types of contractual relationships between Indiana Statewide and its distribution type cooperative resale customers .... The Administrator’s conclusions are not within the decisional authority of this Commission.
      Similarly . . . the type of certificate of public convenience and necessity and other regulatory authority which Indiana Statewide may seek from the Indiana State Public Service Commission, is not within the regulatory jurisdiction of this Commission. They are questions to be considered and resolved by that Commission in the light of decisions of the Administrator and Indiana Statewide.
      Commission Order, sxipra note 1, Joint App. at 460-61.

      . See text accompanying note 14 supra.

      . Ind.Stat.Ann. § 55-4401 et seq. (Burns [Code Ed.] 1973). Statewide is, as the Commission found, “a General District Corporation organized and existing pursuant to the laws of Indiana, the Rural Electric Membership Corporation Act, as amended, Burns Indiana Statutes Anno. 55-4401 et seq.” Commission Order, supra note 1, Joint App. at 456. Section 21 of the Act provides: “A general district corporation is a corporation formed under this act for the purpose of furnishing services to local district corporations.” Ind.Stat.Ann. § 55^4421 (Burns [Code Ed.] 1973). In section 11, a corporation formed under the Act is empowered to “make any and all contracts necessary and/or convenient for the full exercise of the powers in this act granted, including, without limiting the generality of the foregoing, contracts with any person, federal agency, or municipality for the purchase of energy needed by the corporation to supply its members . . . .” Ind.Stat.Ann. § 55-4411 (Burns [Code Ed.] 1973) (emphasis supplied). On their face, these provisions seem to indicate that Statewide can furnish energy only to its members, and is legally disabled from transmitting electricity to any of the Cities allegedly harmed by the Interconnection Agreement. Given our disposition here, however, we need not express a view on the impact of these provisions.

      . 7 Ü.S.C. § 901 et seq. (1970). Under section 4 of the Act, 7 U.S.C. § 904 (1970), a borrowing cooperative like Statewide is limited to “furnishing of electric energy to persons in rural areas who are not receiving central station service.”

      . See notes 15-19 supra and accompanying text.

      . Section 11.02 of the Agreement provides: “This Agreement shall remain in effect for an initial term of twenty-five (25) years from the date above written and thereafter until written notice of termination given by [PSCI], SIGECO or Statewide to each of the others at least five (5) years before the date of termination set forth in such notice.”

      . This court confronted a similar problem in Marine Space Enclosures, Inc. v. FMC, 137 U.S.App.D.C. 9, 420 F.2d 577 (1969). The FMC had approved without a hearing a contract for construction of a passenger terminal in the port of New York City and an accompanying agreement between carriers and the Port Authority for use of the terminal facilities. We remanded to the FMC for hearings on certain clauses of the' agreements that (1) prohibited the City or the Port Authority from subsequently constructing or authorizing construction of any other passenger terminal facilities and (2) bound carriers who contracted with the Port Authority to exclusive use of the new facilities. The clauses were binding for the 20-year term of the lease under which the Port Authority agreed to rent the facilities from the City, plus 50 years thereafter. The court expressed concern about the duration of the restrictions, which we described as amounting to “a significant and perhaps total barrier to entry for the next seventy years.” 137 U.S.App.D.C. at 16, 420 F.2d at 584. Although the FMC had retained jurisdiction to consider any application filed 20 years later to construct or operate new terminals, the court observed:
      [I]f the interim exclusion is a restraint going beyond the necessities of the case, the retention of jurisdiction could not undo the consequences of twenty years of complete market foreclosure and the vested interests and relationships that will inevitably develop.
      137 U.S.App.D.C. at 21, 420 F.2d at 589. Because of the duration and scope of the challenged contractual provisions, we remanded to the FMC for hearings on whether the provisions were necessary and in the public interest.

      . 318 U.S. 80, 94, 63 S.Ct. 454, 462, 87 L.Ed. 626 (1943). See also Air Line Pilots Ass’n v. CAB, 154 U.S.App.D.C. 316, 321-322, 475 F.2d 900, 905-906 (1973); Greater Boston Television Corp. v. FCC, 143 U.S.App.D.C. 383, 393, 444 F.2d 841, 851 (1970), cert. denied, 403 U.S. 923, 91 S.Ct. 2229, 29 L.Ed.2d 701 (1971).

      . We employ the term “negative restrictions” to denote those restrictions that are not simply necessary incidents of the parties’ positive undertakings to interconnect, consult on planning, and the like.

      . See notes 24-31 supra and accompanying text. We emphasize that it may be the province of the Indiana PSC and the REA to determine the scope of operations by Statewide that will best serve the public interest at present. The issue is whether Statewide should be contractually disabled from expanding its operations in the event the Indiana Commission and the REA alter their concepts of the public interests in such a way that they are willing to expand Statewide’s operational authority. See notes 39-45 supra and accompanying text.

      . Marine Space Enclosures, Inc. v. FMC, 137 U.S.App.D.C. 9, 17, 420 F.2d 577, 585 (1969), quoting Citizens for Allegan County, Inc. v. FPC, 134 U.S.App.D.C. 229, 237, 414 F.2d 1125, 1133 (1969).

      . City of Lafayette v. SEC, 147 U.S.App.D.C. 98, 454 F.2d 941 (1971); Marine Space Enclosures, Inc. v. FMC, 137 U.S.App.D.C. 9, 420 F.2d 577 (1969). See generally Air Line Pilots Ass’n v. CAB, 154 U.S.App.D.C. 316, 475 F.2d 900 (1973); Citizens for Allegan County, Inc. v. FPC, 134 U.S.App.D.C. 229, 414 F.2d 1125 (1969).

      . 137 U.S. App. D.C. at 21-22, 420 F.2d at 589-590.


source: Caselaw Access Project

author: HART, Chief District Judge:

license: Public Domain

text:
    Newman A. LAMB v. Edward L. CAREY, Appellant, C. W. Davis, and Paul R. Dean, Trustees, United Mine Workers of America Welfare & Retirement Fund. Willie Ray BLANKENSHIP et al., v. W. A. (Tony) BOYLE et al., and Edward L. Carey, Individually and in their capacities as president, vice president and general counsel, respectively, of the United Mine Workers of America, Appellants, The United Mine Workers of America et al.
    Nos. 73-1513, 73-1514.
    United States Court of Appeals, District of Columbia Circuit.
    Argued March 4, 1974.
    Decided May 6, 1974.

      Ross O’Donoghue, Washington, D. C., with whom George A. Fisher, Washington, D. C., was on the brief, for appellant Carey, etc., in Nos. 73-1513 and 73-1514.
    Joseph A. Yablonski, Washington, D. C., with whom Daniel B. Edelman, Washington, D. C., and Lewis D. Sargentich, Washington, D. C., were on the brief, for appellee, United Mine Workers of America.
    Fred M. Vinson Jr. and Michael P. Bentzen, Washington, D. C., entered appearances for appellee United Mine Workers of America and Retirement Fund.
    Before TAMM and ROBINSON, Circuit Judges, and GEORGE L. HART, Jr., Chief Judge, United States District Court for the District of Columbia.

       Sitting by designation pursuant to Title 28, U.S.Code Section 292(a).

   HART, Chief District Judge:

In June of 1971 appellant, Edward L. Carey, was named a Trustee of the United Mine Workers of America Welfare and Retirement Fund of 1950 (hereinafter the “Fund”) to fill the unexpired term of W. A. Boyle who had been removed pursuant to an Order entered in the ease of Blankenship v. Boyle, 329 F.Supp. 1089 (D.D.C.1971). By the terms of the National Bituminous Coal Wage Agreement of 1971 between the United Mine Workers of America (hereinafter the “Union”) and the coal operators (hereinafter the “Operators”), Carey was named as the Union’s representative on the Fund’s Board of Trustees, the appointment to expire upon the termination of the Agreement, November 12, 1974. On March 19, 1973, the District Court, after holding a hearing on the matter, entered an Order removing Carey as a Trustee of the Fund. The appeal from that Order raises two questions for decision here:

1. Whether the District Court had jurisdiction to enter an order removing appellant; and

2. Whether the District Court abused its discretion in removing appellant.

BACKGROUND

The Fund is an irrevocable trust originally established in 1950 pursuant to Section 302(c) of the Labor-Management Relations Act of 1947, 29 U.S.C. § 186(c). A detailed discussion of the Fund is provided by the District Court in its opinion in Blankenship v. Boyle, swpra. The salient features of the Fund relevant to this appeal are hereinafter set forth. The purpose of the Fund is to pay various benefits “from principal or income or both”, to employees of coal operators, their families and dependents. These benefits cover medical and hospital care, pensions, compensation for work-related injuries or illness, death, or disability.

The Fund is administered by three Trustees: one designated by the Union, one designated by the Operators, and the third a “neutral party designated by the other two . . . ” Trustees. Each Trustee serves for the duration of a given collective bargaining agreement, subject to termination by resignation, death, or an inability or unwillingness to serve. The Trustees have considerable discretion to determine the types and levels of benefits. The direct income to the Fund is provided by royalty payments made by the Operators as specified in the collective bargaining agreement and based on the tonnage mined.

The operation of the Fund has recently been the subject of complex and far-reaching legal challenges. See Blankenship v. Boyle, supra. The essence of that litigation was a class action on behalf of the coal miner beneficiaries challenging certain Trustees of the Fund for breaches of their fiduciary duty. That lawsuit, which also named the Union as a defendant, was divided into three parts: (1) fiduciary breaches, (2) challenges to Fund regulations, and (3) internal Union issues. The second issue was settled prior to trial, and the third part was consolidated with Yablonski v. UMWA, C.A. 3436-69 (now Weaver v. UMWA). For the purposes of this appeal we are concerned with the history of the litigation involving the fiduciary issues.

After lengthy consideration of the case in Blankenship, the District Court found a variety of breaches of fiduciary duty, some conspiratorially inspired, others not. As part of the equitable relief granted, the Court removed two of the Trustees, including W. A. Boyle, ordered the Fund to cease doing business with the National Bank of Washington, and set a limit on the Fund’s non-interest bearing accounts. This Order was appealed, and stays were denied both in the District Court and in this Court.

As a result of Boyle’s removal as Trustee, appellant, Carey, who was already serving as the Union’s general counsel, was appointed by the Union to fill the vacancy. This appointment was incorporated in the terms of the new agreement signed with the Operators in November 1971.

Meanwhile Boyle’s presidency of the Union was challenged in Hodgson and Trbovich v. UMWA, (D.D.C.1972), 344 F.Supp. 17. The plaintiffs there were ultimately successful in requiring a new election, in which the pro-Boyle forces were defeated. Arnold Miller was certified as the new president on December 22, 1972, and thereafter on January 8, 1973, sent a telegram to Carey stating that he was being removed as a Trustee of the Fund. On January 9 the Operator's Trustee and the neutral Trustee, over Carey’s objection, directed the Fund’s special counsel to seek instructions from the District Court, and the instant litigation resulted.

Appellant contends that the District Court lacked jurisdiction to consider this matter because jurisdiction had vested in this appellate Court by virtue of the Blankenship appeal which is still pending, that in any event the District Court lacked any ancillary jurisdiction to decide the issues raised, and that the District Court abused its discretion in removing appellant. We will respond to each argument in turn.

JURISDICTION

Appellants cite Goldsborough v. Marshall, 100 U.S.App.D.C. 134, 243 F.2d 240 (1957), to support the proposition that the pending appeal in Blankenship deprived the District Court of any jurisdiction to consider the issues raised in this case. Goldsborough cannot sustain appellant’s argument. There the Court had before it co-administrators of a testamentary trust who were continually antagonistic towards each other because of conflicting claims. The court removed both administrators and replaced them with a neutral trustee. While this decision was on appeal, the newly appointed trustee declined to serve, and the District Court appointed a new trustee. In the course of its opinion the Court stated that the general rule was that an appeal suspends the power of the trial court to proceed further in the case. However in support of its actions the Court stated:

“The substantial rights directly involved in the appeal from the first order related to whether appellant should have been allowed to continue to administer th-» estate. The appointment of a second neutral administrator after the first neutral administrator declined the appointment did not finally adjudicate substantial rights involved in that appeal . In the circumstances the District Court had authority to protect the assets of the estate, and did not abuse its discretion by acting as it did.” 243 F.2d at 244.

In the instant case the District Court faced a similar situation. The gravamen of the plaintiffs’ claims in Blankenship was that the Trustees of the Fund were engaged in acts of fiduciary indiscretion to the detriment of the beneficiaries and to the detriment of the Fund itself. The trial Court agreed with many of these assertions and ordered that certain Trustees be removed. While the appeal from the trial Court's order was pending, a problem arose concerning one of the “replacement” Trustees, the appellant herein. Following the rule in Goldsborough, the District Court here had the right to determine if the remedial effect of its order in Blankenship was being undermined. The action taken by the District Court to protect the efficacy of its equitable relief was in no way dispositive of the issues raised on the appeal of the main case.

The question has also been raised as to whether the District Court had ancillary jurisdiction to consider the instant case, arising as it did, subsequent to the acts complained of in the original complaint. We hold that it did.

In Morrow v. District of Columbia, 135 U.S.App.D.C. 160, 417 F.2d 728 (1969), this Court held that the proper determination of what ancillary action a court may appropriately take in aid of its original jurisdiction turns on the relationship between the original matter and the ancillary issue. The major purpose of such jurisdiction is to insure that a judgment of a court is given full effect. This Court set forth four guidelines to aid in the determination of proper ancillary jurisdiction:

“ . . . [Ajncillary jurisdiction should attach where: (1) the ancillary matter arises from the same transaction which was the basis of the main proceedings, or arises during the course of the main matter, or is an integral part of the main matter; (2) the ancillary matter can be determined without a substantial new fact-finding proceeding; (3) determination of the ancillary matter through an ancillary order would not deprive a party of a substantial procedural or substantive right; and (4) the ancillary matter must be settled to protect the integrity of the main proceeding . . . ” 417 F.2d at 740

In applying this approach to the matter at hand: (1) the nature of the issues raised in this case was integral to the main proceeding, that is the fiduciary relationship of the Trustees to the Fund; (2) the essential matters concerning the Fund had already been extensively briefed and argued before the District Court; (3) appellant was afforded due process through a hearing in which he was given the opportunity to present evidence and to cross-examine witnesses; and (4) the protection of the Fund’s assets was essential to maintain the integrity of the Court’s equitable decree.

Additionally the District Court fully expected to exercise supervisory powers over the Fund during the pendency of the appeal because the Court’s decree of May 1971 provided that the District Court would retain jurisdiction “for the construction or carrying out of [its] judgment and for the enforcement of compliance therewith.”

DISTRICT COURT’S DISCRETION

Having decided that the District Court properly asserted jurisdiction, we examine whether the trial Court abused its discretion. We find that it did not.

The Fund involved here is unique, established under a specific exception to the Labor-Management Relations Act of 1947, 29 U.S.C. § 186(c). It is a hybrid trust which does not neatly fit into the categories of ordinary trusts. Roark v. Lewis, 130 U.S.App.D.C. 360, 401 F.2d 425 (1968). The funds which make up the trust res are not paid to the trust as acts of beneficence, but rather are paid to satisfy a contractual duty owed by the signatory operators to the signatory union and the employees so represented. Roark v. Lewis, supra.

The statutory scheme for the Fund provides that “ . . . employees and employers are equally represented in the administration of such fund, together with such neutral persons as the representatives of the employers and the representatives of the employees may agree upon . . . ” It is evident that Congress was aware of the unusual need in the field of labor relations for the special interests of the employers and the employees to be represented in the administration of the trust. Also, recognizing that such representation might frequently lead to irreconcilable conflict, a neutral party had to be added to the board.

Regardless of their representative relationships, the Trustees of the Fund are still required to act with the highest fiduciary integrity toward the Fund and the beneficiaries. However, the District Court on March 15, 1973, made the unchallenged finding that “[c]lose collaboration with the Union is required in an atmosphere of mutual confidence to further the objectives and the effectiveness of the Fund.” This places an even more stringent requirement on the actions of a Union Trustee, a requirement which is here of crucial importance.

Of course, this does not mean that the Union may replace its Trustee merely because it dislikes him. In its Opinion and Order of February 15, 1973, the trial Court noted that:

“If the Union desires changes in benefits or changes in the administration of the Fund, it can make its wishes known to the Trustees who will consider such suggestions in a deliberate fiduciary atmosphere. . . . The very nature of the Fund, however, is such that its integrity will be undermined if the Union is given the unilateral right to remove the Union Trustee whenever dissatisfaction or differences prompted by personality or political differences prompt the Union’s management to seek a change.”

Equally true, it does not mean that the Court can remove a Trustee whenever the Union expresses dissatisfaction.

Carey, the general counsel of the Union, was designated a Trustee by Boyle after Boyle was removed by the District Court in June 1971. His appointment was continued in the new collective bargaining agreement effective November 12, 1971. After that agreement became effective, Boyle was ousted in a Court-ordered election, and Arnold Miller was certified president on December 22, 1972. The election was hotly and bitterly contested.

When the Court considered the matter of appellant’s removal on February 15, 1973, the evidence presented was directed primarily to the Union’s feelings that because Carey was closely allied with the defeated Boyle faction, that he would not “seek to implement the wishes and programs of the membership.” The Court declined to remove appellant at that time, finding that there had been no concrete, factual showing that Carey had failed to fulfill his fiduciary obligations. However the Court warned Carey that “[h]is conduct must in all respects be responsible, impartial, and devoid of political motivation.”

Shortly thereafter, the Union petitioned the Court for reconsideration of its Order and brought additional matters to the Court’s attention. Primarily, the Union showed that Carey had, since the prior hearing, become associated with a law firm which was then pursuing active litigation against the Union in a number of cases. In addition the Court took notice of Carey’s suit in his own behalf against the Union for damages arising from his removal as general counsel of the Union.

As to his association with the law firm, appellant claims that he later severed all connection with that firm, and that during his period of association he had merely leased office space. Further, appellant stated that he never became involved with any of the litigation concerning the Union. While all of these assertions may be true, appearance, in this instance, is more important than legal hairsplitting. The fact is that Carey, a known associate of the ousted W. A. Boyle, voluntarily created a relationship with a law firm which was openly and actively pursuing a variety of suits against the Union whose present management had defeated Boyle. Carey was using space in the law firm’s office, had his name on the building directory, had a phone number that was listed under the firm name, and had circulated formal announcements of his association with the law firm. The fact that the liaison was terminated may be compared with a word spoken in haste —it can be retracted, but the effect remains. Here, the trial Court noted that such severance “does not remove the suspicion and hostility that this obviously serious error of judgment perforce engenders.” We concur in that judgment.

Additional matters were also weighed by the District Court. Appellant had filed a suit for reinstatement, back wages, and punitive damages as a result of his dismissal as the Union’s general counsel. While neither this Court nor the trial Court would contend that any Trustee of the Fund should be precluded from pursuing his legal rights, we feel that the present situation at best makes Carey a nominal antagonist to the current Union administration and at worst may embroil him in an extensive and particularly bitter adversary proceeding. The trial Court which also had the opportunity to judge the demeanor of appellant found that even outside the lawsuit appellant “harbors intense antagonism towards the Union’s present management.”

In view of the foregoing, we hold that the District Court did not abuse its discretion in removing appellant.

Finally, while appellant’s bitterness and actions toward the Union management justified the trial Court in removing him as a Trustee, we are constrained to note that at no time during the stewardship of appellant as Trustee is there the slightest indicia or evidence of any improper action on his part as a manager of the Fund. His actions relating to the management of the Fund have at all times comported with the degree of care required of a Trustee.

Affirmed.

      . The firm has for the most part represented former Union officials in the following actions:
      Yablonski v. UMWA (now Weaver v. UMWA) C.A. 3436-69
      Trillion v. Miller C.A. 292-73
      UMWA v. Miners Loyalty Fund C.A. 1-73 United Mine Workers of America 205 NLRB No. 87


author: WEICK, Circuit Judge.

text:
    Judy HRUSKA, Plaintiff-Appellee, v. SEVERANCE SPECIALTY, INC., Defendant-Appellant.
    No. 73-1884.
    United States Court of Appeals, Sixth Circuit.
    Argued April 8, 1974.
    Decided June 18, 1974.
    Arthur J. Stern, Stern & Keller, Cleveland, Ohio, on brief for appellant.
    Norman W. Shibley, Spangenberg, Shibley, Traci & Lancione, Cleveland, Ohio, on brief for appellee.
    Before WEICK and LIVELY, Circuit Judges, and CECIL, Senior Circuit Judge.
   WEICK, Circuit Judge.

Severance Specialty, Inc. [Severance] appealed from a judgment entered upon a jury verdict in the District Court awarding $40,000 to plaintiff, Judy Hruska, in her action for malicious prosecution.

Severance was responsible for having the plaintiff prosecuted for shoplifting. After her acquittal of charges of larceny in the state court, she filed suit against Severance in the District Court to recover $250,000 damages.

Jurisdiction was based on diversity of citizenship. 28 U.S.C. § 1332. Mrs. Hruska was a resident of Florida when she filed the suit, and Severance was an Ohio corporation. The case is governed by Ohio law.

On May 2, 1971 Mrs. Hruska was in a retail dress store operated by defendant in Severance Center at the Westgate Shopping Center in Fairview Park, a suburb of Cleveland, Ohio. The name of this particular store was “William Kitt”. Plaintiff was accompanied by her son, then five years of age.

Plaintiff had driven to the shopping center in her automobile and was having some mechanical work done on the car while she shopped. She testified that before entering defendant’s store she had gone to Kresge’s and purchased a pair of mittens for her son. She testified that she placed these mittens in a Higbee’s shopping bag which was an ordinary white paper shopping bag with pink and red flowers on it. After leaving Kresge’s store plaintiff and her son spent a few minutes in a pet shop before entering defendant’s store.

While in the Severance store plaintiff was looking at dresses in one area of the store while her son was seated on a chair in another nearby area, with her shopping bag and purse on the chair beside him.

As plaintiff and her son were leaving the store, a sensomatic device was activated. This is an electronic device which activates a warning system when that device is being carried out of the store. The store had placed this device on all items of merchandise; this device would be removed from the merchandise by the sales clerk only when the item was purchased.

When the sensomatic device was activated the store manager, Robert Gould, was notified immediately and he confronted plaintiff. He asked if she had a device on her person, and she replied that she did not think so. With her permission Gould looked in her shopping bag and found a size 10 multicolored dress with jeweled belt, which retailed for $130; the dress had not been purchased, and had thereon the sensomatic device which activated the warning system. He found nothing else in the bag.

The store manager asked plaintiff to go to the back of the store with him; she complied with his request, taking her son with her. Gould immediately called the Fairview Park police station; a policeman responded, and took Mrs. Hruska to the station for questioning. Gould did not interrogate Mrs. Hruska additionally about the incident before he called the police.

During the interrogation by the police at the police station plaintiff spelled her name “Ruska,” and gave them “phony addresses” instead of her correct address. The police asked for her driver’s license or for other identification, and she told them that she did not have a driver’s license with her; and that she had gone to the shopping center on the bus. She later told the police the truth. Her explanation for these initial false statements was that she was “shook up” since she had never before been in such a situation. She also said that she told the police of the circumstances involving her divorce, custody of her children, and “the various factors that led me at that particular moment to distort the truth.” (App. p. 27). Plaintiff was released on a $500 personal bond.

The store manager Gould signed an affidavit charging the plaintiff with larceny, which affidavit was filed in Rocky River Municipal Court, where a preliminary hearing was conducted.

At the hearing the Municipal Judge heard witnesses offered by the prosecution and also by Mrs. Hruska who was represented by counsel. At the conclusion of the hearing the Municipal Judge found probable cause and bound Mrs. Hruska over to the Grand Jury of Cuyahoga County, which indicted her for larceny of the dress. In a trial before a Judge without a jury she was acquitted.

Attorney Charles Clarke, who represented Mrs. Hruska in connection with the criminal proceedings against her, contacted Edgar Bruml, President of Severance, in an effort to persuade him to drop the charges against her while the case was pending in the Municipal Court. Mr. Clarke requested Mr. Bruml to advise him the name of the company’s attorney so that he might discuss the case with him. Mr. Bruml informed Mr. Clarke that his company was represented by Albert Borowitz. Mr. Clarke then telephoned Mr. Borowitz, who testified in part as to the conversation as follows:

A After introducing himself — and by the way, I did not know Mr. Clarke before that call — he told me that he represented Mrs. Hruska, that she had been apprehended at the Westgate Shopping Center, that she had been accused of taking a dress which retailed at about $130, that the store manager who had spoken to the police in connection with the apprehension was Mr. Gould, that the case was before the Rocky River Municipal Court.
He hold me that he had spoken to Mr. Bruml and told Mr. Bruml of his view, that is, Mr. Clarke’s view that Mrs. Hruska had been apprehended in error, and that he had asked Mr. Bruml whether he would give Mr. Clarke the name of his lawyer so that Mr. Clarke could contact Mr. Bruml’s lawyer.
Mr. Bruml agreed. Mr. Clarke called me, and the substance of his message, other than introducing me to the facts of the case, was to suggest and request that I talk to Mr. Bruml, that I look into the facts, and that I advise my client, in light of what I found the facts were.
Q Well, following that telephone call from Mr. Clarke, what did you do?
A I consulted one of my partners, Harry Nester, who is a trial lawyer, as I am not. And I gave him this slip on which I sketched these few words from Mr. Clarke.
I explained what the substance of the call was, and I asked him to contact the staff of Severance Specialty to make inquiry into the incident.
Q Did you have any further contact with this entire incident?
A Yes. Mr. Nester, after making his calls, consulted with me again, and it was our joint conclusion that the client had proceeded in the matter in good faith, that it had a reasonable basis for having had a warrant sworn out, and that there was no legal basis to advise the client to interfere with the course of the prosecution. (Tr. pp. 345-347).

Mr. Clarke called Mr. Borowitz again after his client had been indicted by the Grand Jury. Mr. Borowitz testified:

About three months went by at this stage of the matter without it coming to my attention again, until I find again, from my records which I have here, on June 15, 1971, when Mr. Clarke called me again.
Mr. Clarke now told me that Mrs Hruska had been indicted and that he, Mr. Clarke, had spoken to Mr. Hy 'Freidman in the prosecutor’s office to see what Mr. Freidman’s attitude toward the case was. He quoted Mr. Freidman as having said that he was not happy about the case and as indicating to Mr. Clarke if Severance Specialty would concur, that he would not be unhappy to see the case dropped.
The purpose of Mr. Clarke’s call was to ask me whether I would refer that message on to Mr. Bruml. But in connection with giving me that message, he' now stated to me, for the first time in detail, what conclusions he had reached from his' investigation of his client’s matter. And he identified Mrs. Hruska as the daughter, I believe the gentleman’s name is Jay Ehle of Cleveland Builder Supply.
He told me that she was the daughter-in-law of Senator Hruska and that she was in the process of obtaining a divorce.
He told me, in response to my questions, that he had not found any evidence of kleptomania in this picture, but that he felt that Mrs. Hruska was confused at the time of the incident, possibly as a result of her concern over the divorce proceedings.
He then outlined, for me what his defense would be, and as I understood his message, it was that a shopping bag of Mrs. Hruska had been switched by a professional shoplifter. He gave me his evidentiary findings in support of that position, which I carefully noted.
He then went on to ask me to advise Mr. Bruml that the case would be vigorously defended, and if there was an acquittal, a case for false arrest and malicious prosecution would be filed against Mr. Bruml’s store.
Now, my response to this, after hearing a statement of the position of Mr. Clarke’s client, was to tell him my understanding of our client’s position. I didn’t know Mrs. Hruska and I didn’t think he knew Severance Specialty.
So I explained to him that Severance Specialty was a specialty shop that was not in the same size league as Halle’s and Higbee’s, that it had to be extremely concerned about inventory losses and, therefore, its policy was that where circumstances indicated a possible shoplifting, the police would be called, the matter would be turned over to the police, and if the circumstances were appropriate, a warrant would be sworn out and the store personnel would thereafter . cooperate with the prosecution of the matter. (Tr. pp. 347-349).

Mr. Borowitz did relay Mr. Clarke’s message to Mr. Bruml.

Mr. Clarke testified by deposition as to what the son told him about some lady “messing” with his mother’s shopping bag. Mrs. Hruska testified as to what her son told her to the same effect. No objection was made to the testimony of Mrs. Hruska on the ground that it was hearsay evidence.

In appellee’s brief there appears the following statement:

Young Quentin [plaintiff’s son] testified at both the criminal trial and in the case at bar that some lady “messed” with his mother’s shopping bag while she was looking at dresses and the bag was next to him (App. Vol. I., pp. 108-110). (Brief, p. 13).

The cited record reference contains the testimony of young Quentin, which testimony does not support the citation. However, the District Judge, after voir dire examination, observed Quentin to be “a very articulate young man” whose “memory and recollection of what occurred on the day in question is very fine.” (App. Vol. I, p. 109).

The trouble is that young Quentin did not testify in the District Court that some lady “messed” with his mother’s shopping bag. His testimony was as follows:

Q. They were already there. Did you see anybody near the bag?
A. Yes. A lady came and she said, “Hi little guy.”
Q. “Hi little guy.” A lady. All right. What did she look like?
A. She had freckles on her.
Q. She had freckles. Do you know what kind of hair she had.
A. Black.
Q. Black hair. And where did she go?
A. In back of the chair.
Q. In back of the chair. And then did you — what were you doing when you were sitting in the chair ?
A. I was watching my mom’s stuff. (App. p. 112).

This was a very important matter. It is not understandable why the son was not interrogated as to what, if anything, the lady did with his mother’s shopping bag.

In her statement to the police, in reporting what her son had told her, Mrs. Hruska did not use the words “messed with”, but stated that she asked her son if he had put the dress there and he said that an unknown female had put it in the bag and then left the store.

Appellant’s principal contention on appeal is that plaintiff failed to establish a lack of probable cause which is an essential showing .to maintain successfully an action for malicious prosecution. Appellant argues that the Court erred in not granting its motion for a directed verdict.

The essential elements of a malicious prosecution were stated by the Supreme Court of Ohio in the first syllabus of Rogers v. Barbera, 170 Ohio St. 241, 164 N.E.2d 162 (1960):

The essential elements of a malicious prosecution are (1) malice in instituting or continuing the prosecution (2) lack of probable cause, and (3) termination of the prosecution in favor of the defendant. (Paragraph two of the syllabus of Davis v. Tunison, 168 Ohio St. 471, 155 N.E.2d 904, modified.) (Syl. 1)

As to probable cause, the Court stated:

An almost classic definition of probable cause, as it pertains to a malicious prosecution action, was adopted by this court, as follows, in Ash v. Marlow, 20 Ohio 119:
“What, then, is the meaning of the term ‘probable cause’? We answer, a reasonable ground of suspicion, supported by circumstances sufficiently strong in themselves to warrant a cautious man in the belief that the person accused is guilty of the offense with which he is charged.” (170 Ohio St., at 246, 164 N.E.2d. at 166).

See also Melanowski v. Judy, 102 Ohio St. 153, 131 N.E. 360 (1921).

Appellee contends that store manager Gould did not act as a cautious man in •that he made no real investigation before calling the police and signing the warrant. Appellee further contends that a cautious person would have made such an inquiry, and that there were facts tending to indicate Mrs. Hruska’s innocence which would have put a cautious person on notice that Mrs. Hruska might well be innocent.

In Ash, supra, the Supreme Court of Ohio held:

“Probable cause” is a mixed question of law and fact; and if the facts are contested, the court must leave them to the jury with instructions as to what is “probable cause.” (20 Ohio at 130).

This rule has been followed by Ohio Appellate Courts. In Etter v. Mullett, 40 Ohio App. 222, 178 N.E. 279 (Stark Co. 1931), it was held:

The main and only question of importance in the case in the court below, and in the error proceedings now before this court, is whether or not the defendant had reasonable and probable cause for the institution of the proceedings; this being purely a question of fact to be determined by a jury under proper instructions from the court. (Id. at 222-223, at 279 of 178 N.E.).

In Burke v. Kearney, 51 Ohio App. 287, 200 N.E. 649 (Hamilton Co. 1935), the Court held:

[Ujnder the law laid down in those cases (Ash, supra, and others] want of probable cause is an issue of fact to be determined by the jury, like any other issue of fact . . . . (Id. at 293, at 652 of 200 N.E.).

Thus, the rule in Ohio is that where the facts are disputed, the determination of want of probable cause is for the jury. The Court may direct a verdict on this issue where reasonable minds can reach but one conclusion.

In Rogers v. Barbera, supra, the Supreme Court of Ohio reversed a judgment in favor of the plaintiff in a malicious prosecution action against a police officer who had signed an affidavit for a warrant for the arrest of the plaintiff on a charge of armed robbery. In signing the affidavit for the warrant the officer had relied on three disinterested witnesses who had identified the plaintiff as the robber at a police lineup. The Court held that probable cause was established as a matter of law. To the same effect is Kinter v. Cheeks, 71 Ohio App. 333, 49 N.E.2d 962 (Cuyahoga Co. 1942).

In Sessoms v. Union Sav. & Trust Co., 338 F.2d 752 (6th Cir. 1964), cert. denied, 382 U.S. 821, 86 S.Ct. 49, 15 L.Ed. 2d 67 (1965), we held that the defendant in a malicious prosecution action had the right to put in issue the guilt of the plaintiff even though plaintiff had been acquitted of the criminal charge.

We hold that the defendant had probable cause to detain the plaintiff and to call the police when plaintiff activated the sensomatic device as she was walking out of the store with the stolen dress in her shopping bag. Taking this into account and the false answers which she gave to the police, the store manager had probable cause to execute an affidavit for a warrant charging her with larceny of the dress. We must determine, however, whether under the facts of this case the defendant had probable cause to continue the prosecution in the state court.

In considering this issue we are not helped by the fact that counsel did not at the trial address any questions to plaintiff’s son to elicit the claim that some lady “messed with” his mother’s shopping bag.

Under Ohio law it is clear that the binding over of a defendant to a grand jury by a Court establishes prima facie evidence of probable cause. C. F. Adams Co. v. Robertson, 16 Ohio C.C.R. (n.s.) 278 (Cuyahoga Co. 1908), aff’d, 82 Ohio St. 400, 92 N.E. 1110 (1910); Neff v. Palmer, 78 Ohio L.Abs. 34, 152 N.E.2d 719 (C.P.C. Fayette Co. 1956), aff’d, 78 Ohio L.Abs. 58, 151 N.E.2d 380 (Fayette App.Ct.1956).

Similarly, indictment by a grand jury establishes prima facie evidence of probable cause. Cincinnati, H. & D. R. R. v. Winnes, 25 Ohio C.C.R. (n.s.) 321 (Hamilton App.Ct.1916).

In addition to the foregoing, the conversation between plaintiff’s attorney Clarke and defendant’s attorney Borowitz must be considered. Mr. Clarke certainly informed Mr. Borowitz of all of the facts of which he had knowledge in order to persuade Mr. Borowitz to advise his client to drop the prosecution. Mr. Borowitz was of the opinion that his client “had a reasonable basis for having had a warrant sworn out, and that there was no legal basis to advise the client to interfere with the course of the prosecution.” Mr. Borowitz doubtless was influenced by the fact that Mrs. Hruska was detained as she was leaving the store with a stolen dress in her shopping bag, and that she had lied to the police.

Under all the circumstances we are of the opinion that probable cause was established as a matter of law, and that the District Court erred in not directing a verdict in favor of the defendant. Rogers v. Barbera, supra.

Appellant further assigns as error the refusal of the Court to give to the jury certain special instructions, the Court’s instructions given to the jury, and certain comments made by the Court on the evidence, which comments appellant claims destroyed the credibility of the store manager Gould as a witness. In view of our disposition of this case, it is not necessary for us to pass upon these other issues.

The judgment of the District Court is reversed, and the cause is remanded with instructions to dismiss the complaint.

      . Plaintiff testified that she did not notice any difference in the weight of the bag containing only the dress than when it contained only one pair of boy’s mittens. She also testified that the stolen dress was neither her size nor her style.

      . Plaintiff testified on direct examination as follows:
      Q. All right. When was it that you told him [the policeman] your real name and that you had a driver’s license and that you came in a car and why you had told these lies?
      A. Well, when I got to the police station they separated me from my son. They took him into another room and I was in front of two men, I believe, possibly even a third, the police officer. And they even made me sign a statement, and suddenly one man came back in and he said, “You’re a liar. You live at 1057 Park-side.” He said, “Little children don’t tell lies.” In other words, he had been in the other room talking to my boy. (App. p. 26).

      . The District Court sustained an objection to this conversation on the ground that it was hearsay evidence. However, it was later admitted, over the objection of defendant. in a conversation between Clarke and Bruml testified to by Clarke. There was no proof that a professional shoplifter had switched shopping bags with Mrs. Hruska, or that such shoplifter had put the stolen dress in Mrs. Hruska’s shopping bag, as she told the police and as contained in the police report. Certainly it would take a most heartless thief to plant a stolen dress in the shopping bag of an innconet lady while that lady’s bag was being watched by her son, arid then steal the son’s mittens. The District Court found that the son was a very articulate young man with a very fine memory, and the son testified to' no such occurrence. All the thief had to do, if she decided not to consummate the theft, was to leave the dress in the store where she had found it.