oneokIn adopting the Natural Gas Act (NGA), Congress determined that wholesale natural gas pricing issues should be the exclusive preserve of the Federal Energy Regulatory Commission (FERC) and thus that State efforts to regulate the wholesale market were preempted.  Courts uniformly barred States from seeking to regulate any “practice . . . affect[ing]” the wholesale rates charged by natural gas companies—until a 2013 U.S. Court of Appeals for the Ninth Circuit decision that is the subject of a pending Supreme Court certiorari petition.  ONEOK, Inc. v. Learjet, Inc., No. 13-271.  The decision below would permit plaintiffs’ lawyers to proceed with antitrust challenges under state laws to industry practices that directly affected wholesale prices.  The court reasoned that preemption was inappropriate because the challenged practices also directly affected a small number of retail natural gas sales.

In response to an invitation from the justices, the Solicitor General of the United States last week filed a brief urging that certiorari be denied.  Interestingly, however, the Solicitor General’s brief agrees with the defendants (natural gas suppliers who engage primarily in wholesale transactions) that the Ninth Circuit’s anti-preemption ruling was dead wrong.  The Solicitor General recommends against Supreme Court review primarily because he concludes that other courts are unlikely to repeat the Ninth Circuit’s error, particularly with respect to transactions arising after Congress revised the NGA in 2005.  But in light of the Ninth Circuit’s fundamental misunderstanding of the scope of NGA preemption, I am far less sanguine that it will eventually see the error of its ways.  Unless review is granted, there is every reason to believe that the Ninth Circuit will adhere to its anti-preemption precedent in future cases.

On ten or more occasions every term, the justices request the views of the Solicitor General on whether the Court should grant specific certiorari petitions.  The Solicitor General correctly recognizes in his ONEOK brief that merely because the decision below was incorrect is not alone sufficient grounds to recommend that review be granted.  The Court has limited the size of its docket to about 75 cases per term.  The justices thus usually adhere to the dictates of Supreme Court Rule 10, which states that the Court generally will grant certiorari only in cases that raise an “important question of federal law” and that have decided the question in a manner that conflicts with a relevant decision of the Supreme Court or other appellate courts.  Accordingly, the Solicitor General not infrequently recommends that the Court deny a certiorari petition even though he concludes, as here, that the decision below was incorrectly decided.

But the Solicitor General’s principal rationale for recommending a denial of certiorari—that the Ninth Circuit’s error is of reduced importance because it is unlikely to be repeated—is subject to serious question.  The plaintiffs accuse natural gas traders of having manipulated privately published price indices in 2001-02.  Because buyers and sellers rely on those indices as reference points for pricing all types of natural gas transactions, the direct effect of the alleged manipulation was to raise wholesale natural gas prices.  While conceding that wholesale purchasers were barred by the NGA from challenging the alleged manipulation on state antitrust grounds, the Ninth Circuit held that preemption did not extend to suits brought by retail purchasers who challenged the very same manipulation, because retail sales fall outside of FERC’s jurisdiction.  The court concluded this despite the fact that the alleged manipulation unquestionably was a “practice . . . affect[ing]” wholesale prices within the meaning of the NGA.

The Solicitor General recognizes the clear error of the Ninth Circuit’s approach.  But he points to a 2005 federal statute, the Energy Policy Act (EPAct), as a basis for concluding that the Ninth Circuit would not repeat the error.  The EPAct amended the NGA so that it now states explicitly that FERC is authorized to regulate private price indices.  It also prohibits the manipulation of price indices in violation of FERC rules.  The Solicitor General reasons that this explicit FERC authority should make it clear now, even to the Ninth Circuit, that all state-law claims involving manipulation of a price index are preempted by the NGA, whether asserted by wholesale or retail purchasers.

The flaw in the reasoning here is that it does not come to grips with the Ninth Circuit’s rationale for rejecting a preemption defense.  The Ninth Circuit fully recognized that, even before the adoption of the EPAct in 2005, FERC possessed authority to regulate manipulation of privately published price indices.  It nonetheless ruled that States may award damages to retail purchasers who were injured by the manipulation, even though such manipulation unquestionably is a “practice . . . affect[ing]” retail prices within the meaning of the NGA.  The relevant statutory preemption language—set forth at 15 U.S.C.§ 717d(a)—has not changed.  Since that language was insufficient to persuade the Ninth Circuit to recognize that the NGA bars state antitrust claims against Petitioners based on their pre-2005 conduct, there is no reason to conclude that the Ninth Circuit would bar state claims against Petitioners based on identical post-2005 conduct.  Indeed, the Ninth Circuit’s rationale would permit continued state regulation of any practice affecting wholesale natural gas rates, provided only that the practice also has a direct impact on some retail purchasers.

Moreover, the Solicitor General’s efforts to explain away the direct conflict between the Ninth Circuit decision and other court decisions—in particular, decisions from the Supreme Courts of Nevada and Tennessee—are unconvincing.  He notes that the fact pattern addressed by the Ninth Circuit varied somewhat from the fact patterns in the other two cases.  But as Washington Legal Foundation explains in its brief urging that the certiorari petition be granted, all three cases involved claims by retail customers who alleged that they were injured by the practices of natural gas traders, and the Solicitor General does not deny that the Ninth Circuit claims would have been held preempted if judged under the rule of decision established by the other two courts. Moreover, most of the defendants in these cases would not ordinarily be subject to the Ninth Circuit’s jurisdiction for their conduct in this case.  That court’s jurisdiction here was merely an artifact of the multi-district litigation being consolidated in Nevada.  To subject defendants, under these circumstances, to the severe consequences of an erroneous judgment by the Ninth Circuit that is inconsistent with every other court that has ruled on this question would be particularly unjust.

The Solicitor General concedes that the Ninth Circuit erred in rejecting Petitioners’ preemption defense, a ruling that exposes Petitioners to massive state antitrust liability—including liability well beyond what even federal antitrust treble damages rules would permit.  In light of that concession and the high likelihood that the Ninth Circuit will persist in its error unless corrected, the justices should grant the Petition when they consider it at their June 26 conference.

Also posted at WLF’s contributor page at