- Supreme Court’s Holding in Oneok v. Learjet Could Lead to New Risks for Market Participants
- May 6, 2015 | Authors: Joseph J. Bial; Daniel J. Howley; Thomas Reid Millar; Natalie Mitchell
- Law Firms: Cadwalader, Wickersham & Taft LLP - New York Office ; Cadwalader, Wickersham & Taft LLP - Washington Office ; Cadwalader, Wickersham & Taft LLP - New York Office ; Cadwalader, Wickersham & Taft LLP - Washington Office
- On April 21, 2015, the Supreme Court decided Oneok v. Learjet,1 holding that “Respondents’ state-law antitrust claims are not within the field of matters pre-empted by the Natural Gas Act”2 even though the claimed violations “affected . . . federally regulated wholesale natural gas prices.”3 This is an important decision for market participants for several reasons:
First, the decision could expose entities accused of market manipulation under the Natural Gas Act (“NGA”) to the risk of possible follow on litigation by private plaintiffs who are trying to stretch the bounds of Oneok’s applicability, based on antitrust claims. However, the majority appears to foresee additional argument regarding conflict preemption on remand the outcome of which could foreclose this possibility. Class action litigation alleging violations of either the NGA or the Federal Power Act (“FPA”) have not been successful in the past because (1) the statutes do not provide for private rights of action; and (2) the NGA (and the FPA) was understood to preempt state law claims. Antitrust compliance programs may be tested in the wake of this ruling where plaintiff law firms attempt to examine the energy space more closely and mine state antitrust laws for potential suits.
Second, despite the Court’s effort to narrow the scope of its decision, some litigants may seek to extend the precedent to circumstances involving follow-on civil antitrust litigation tied to other FERC jurisdictional products, including electricity products and markets governed by the FPA.4
Third, Oneok is likely to be featured in future demand response litigation, whether it is before the Court on a grant of certiorari or in other forums.5
Following the western energy crisis in the early 2000s, FERC found that certain natural gas price indices published during that time were inaccurate. These inaccuracies were caused, at least in part, by false or misleading reporting on the part of market participants. Respondents purchased natural gas at these allegedly manipulated prices. They claimed that they overpaid for natural gas sold in the retail market and brought state-law antitrust claims to recover their losses. Petitioners argued that the state-law antitrust claims are precluded by the federal Natural Gas Act and, consequently, fall under the exclusive jurisdiction of the federal government, including the Federal Energy Regulatory Commission (“FERC” or the “Commission”). The conduct at issue in the lawsuits affected both retail and wholesale rates.
The Court’s Decision
The Supreme Court held that Congress carefully crafted the NGA to “preserve for the States the authority to regulate nonjurisdictional sales,”6 that is, retail as opposed to wholesale rates. According to the Court, the state-law claims at issue are “firmly on the States’ side of the dividing line.”7 The lawsuits “do not seek to challenge the reasonableness of any rates expressly approved by FERC,” the Court said.8 Instead, “they seek to challenge the background marketplace conditions that affected both jurisdictional and nonjurisdictional rates,” wholesale and retail rates.9
The majority closed its decision addressing whether it should defer to “FERC’s determination that field pre-emption bars the respondents’ claims,”10 which both the petitioners and the Solicitor General had urged in their briefs. The Court found no reason to defer or address the issue in greater detail where the record failed to identify any “specific FERC determination that state antitrust claims fall within the field pre-empted by the [NGA].”11
Justices Scalia and Roberts dissented, arguing that the majority “smudge[d]” the line between federal and state authority: “The Court’s make-it-up-as-you-go-along approach to preemption has no basis in the [NGA], contradicts our cases, and will prove unworkable in practice.”12 Instead, the dissent suggested that resolving the case based on the Court’s proper precedents should be “[s]traightforward.”13 The dissenting Justices argued that: (1) the NGA empowers the Commission to regulate practices affecting wholesale rates; and (2) nothing in the NGA suggests that the States share power to regulate such practices. Where the Commission determined that it has authority to regulate the subject matter at issue in the antitrust lawsuits, the Commission’s exclusive authority extends to this conduct and preempts the state antitrust regulation. Emphasizing that the majority’s decision is out of step with the NGA’s purpose, to provide “harmonious and comprehensive regulation of the industry,”14 the dissent warned that “[f]rom now on . . . pipelines will have to ensure that their behavior conforms to the discordant regulations of 50 States—or more accurately, to the discordant verdicts of untold state antitrust juries.”15
The Court exclusively addressed field preemption, providing that conflict preemption was “for the lower courts to resolve in the first instance.”16 Perhaps signaling a view that conflict preemption could usefully apply, the majority further explained that “[t]o the extent any conflicts arise between state antitrust law proceedings and the federal rate-setting process, the doctrine of conflict pre-emption should prove sufficient to address them.”17 As these issues work their way through the lower courts, Oneok stands as the most recent decision in a line of related cases addressing the scope of FERC’s jurisdiction, including with regard to demand response in EPSA.18
Despite the Court’s narrow holding, Oneok bears possible clues regarding the Court’s thinking with respect to the scope of FERC’s authority under the FPA and how that might influence its view of FERC’s authority to regulate demand response, issues currently pending the Court’s possible grant of certiorari.
For example, the majority in Oneok suggests a view that where the conduct at issue is directed at wholesale rates, FERC’s jurisdiction may reign supreme.19 Litigants may seek to distinguish demand response from the antitrust laws in Oneok on this basis and argue by analogy that the authority retained by the states as a result of EPSA is directed at wholesale rates via demand response. Moreover, the Court implied that it may apply Chevron deference to FERC’s view of its jurisdiction where FERC has made a specific determination about the scope of its authority.20 Perhaps FERC’s statements of jurisdictional authority in Order No. 745, to which the D.C. Circuit refused to defer, would be sufficient for the Court. Demand response litigants are likely to make this argument as well, both before the Court and in other litigation.
1 See Oneok, Inc. v. Learjet, Inc., No. 13-271 (Apr. 21, 2015) (“Decision”); see also our previous Clients & Friends Memo (discussing the Supreme Court arguments).
2 Decision at 2.
3 Id. at 1.
4 The NGA and FPA have long been viewed as in pari materia. FPC v. Sierra Pac. Power Co., 350 U.S. 348 (1956).
5 See our previous Client’s and Friend’s Memo (discussing the Solicitor General’s petition for a writ of certiorari in FERC v. Electric Power Supply Association (“EPSA”)).
6 Decision at 9 (citing Ninth Circuit’s opinion affirmed by the Court).
7 Id. at 11 (citation omitted) (internal quotation marks omitted).
10 Id. at 2.
11 Id. at 16.
12 See Oneok, Inc. v. Learjet, Inc., No. 13-271, at 1 (Apr. 21, 2015) (Scalia, J. and Roberts, C.J., dissenting) (“Dissent”).
13 Id. at 3.
14 Id. at 10.
15 Id. at 9-10.
16 Decision at 15-16.
18 See, e.g., FERC v. EPSA, 753 F.3d 216 (D.C. Cir. 2014).
19 Decision at 14-15 (distinguishing petitioners’ cases).
20 Id. at 16.