You Can Run But You Can’t Hide: U.S. Supreme Court Rules That Interstate Pipeline and Gas Companies Can Be Sued in State Court under State Antitrust Laws

On April 21, 2015, the United States Supreme Court issued a ruling allowing state law to address gas industry practices that many in the industry previously believed were the exclusive domain of the Federal Energy Regulatory Commission (FERC).  In Oneok, Inc. v. Learjet, Inc., No. 13-271, 2015 WL 1780926 (U.S. Apr. 21, 2015), a group of manufacturers, hospitals and other institutions that bought natural gas directly from interstate pipelines sued various interstate pipeline and gas companies for allegedly violating state antitrust laws.  Specifically, the plaintiffs alleged that they overpaid in certain transactions due to the defendants’ manipulation of natural gas price indices, behavior that FERC has prohibited as anticompetitive.  The pipeline-defendants’ behavior affected federally regulated wholesale natural-gas process as well as non-federally regulated retail natural gas prices.

The defendants argued that through the Natural Gas Act (NGA) Congress implicitly “occupied the field in matters relating to wholesale sales and transportation of natural gas in interstate commerce” and therefore such state antitrust laws were preempted.  In rejecting this argument, the Court noted that the NGA limits the FERC’s “jurisdiction” to (1) “the transpor­tation of natural gas in interstate commerce,” (2) “the sale in interstate commerce of natural gas for resale” and (3) “natural-gas companies engaged in such transportation or sale,” but leaves regulation of other portions of the industry—such as production, local distribution facilities and direct sales—to the States.

The Court also highlighted that the NGA “was drawn with meticulous regard for the continued exercise of state power, not a handicap to dilute it in any way,” and that its precedents “emphasize the importance of considering the target at which the state law aims in determining whether that law is pre-empted” (emphasis in original).  Thus, the Court held:

Accordingly, where (as here) a state law can be applied to nonjurisdictional [i.e. retail] as well as jurisdictional sales [i.e. transportation of natural gas in interstate commerce], we must proceed cautiously, finding pre-emption only where detailed examination convinces us that a matter falls within the pre-empted field as defined by our precedents.

Justice Scalia dissented with Chief Justice Roberts.  They believe that the state laws are clearly preempted by federal law and that the majority’s decision will have negative consequences going forward:

The Natural Gas Act divides responsibility over trade in natural gas between federal and state regulators.  The Act and our cases interpreting it draw a firm line between national and local authority over this trade.  If the Federal Government may regulate a subject, the States may not.  Today the Court smudges this line.  It holds that States may use their antitrust laws to regulate practices already regulated by the Federal Energy Regulatory Commission whenever “other considerations … weigh against a finding of pre-emption.”  The Court’s make-it-up-as-you-go-along approach to preemption has no basis in the Act, contradicts our cases, and will prove unworkable in practice. (internal citation omitted).

Because the Court rejected the argument that antitrust laws are in a field of matters preempted by the FERC’s jurisdiction over wholesale, interstate gas activities regulated by the NGA, some practitioners fear that this new precedent will require an “issue-by-issue analysis to determine if there is a conflict.”  Practically speaking, this could force interstate pipelines and other gas companies to litigate each state’s antitrust laws instead of dealing solely with the FERC as they have grown accustomed.  Moreover, many in the industry are not just fearful of being subject to state laws, but to state juries as well.  To avoid state proceedings and state antitrust laws, interstate pipeline and gas companies will need to show conflict preemption, as opposed to just “occupying the field” preemption.  See Keith Goldberg, High Court Blurs Dividing Line of Natural Gas Act Authority, Law360 (Apr. 21, 2015).  Further, even if there is not federal preemption, state utility regulators may have jurisdiction that could similarly preempt court litigation.  As state and federal courts begin to interpret and apply Oneok, we will start to see its precise effects on the legal landscape.

footer image footer image footer image