United States: ONEOK, Inc. V. Learjet, Inc.: The Supreme Court Holds That Natural Gas Jurisdictional Sellers Are Subject To State Antitrust Claims

On April 21, 2015, the Supreme Court issued its much-anticipated decision in ONEOK Inc. v. Learjet, Inc. addressing the extent to which the Natural Gas Act ("NGA") preempts state antitrust claims brought against jurisdictional sellers.1 In a 7-2 ruling, the Court held that the NGA does not preempt state law antitrust damages claims that are "directed at practices affecting retail rates." The Court's decision allows companies that purchased natural gas pegged to price indices to move forward with their damages claims against gas marketers for allegedly manipulating the reported price of natural gas. In doing so, the Supreme Court has opened the door to expanded antitrust liability for FERC jurisdictional entities in the natural gas industry.

BACKGROUND

Natural gas makes it way to end users through the sequential process of production, sale, interstate transportation, and retail distribution. The NGA authorized the federal government to exercise rate-setting authority over the sales for resale in interstate commerce, interstate transportation and natural gas companies engaged in such sales or transportation, while leaving regulation over "retail" rates, among other things, to state authorities. In prior decisions, the Supreme Court had ruled that state law claims were invalid under the doctrine of "field preemption" if they challenged conduct covered by the NGA. Simply put, if the conduct at issue was subject to FERC's jurisdiction, it could not also be subject to state law. In 2003, after the well-publicized cases of market participants reporting false information to natural gas price indices, FERC adopted new regulations designed to prohibit this form of "market manipulation." See generally FERC, Final Report on Price Manipulation in Western Markets (Mar. 2003); see also Energy Policy Act of 2005, Pub. L. 109-58 (authorizing FERC to issue rules to prevent market manipulation in jurisdictional wholesale gas markets).

As a result of FERC's rules and policies regarding restructuring and unbundling of wholesale gas markets, many large end-users purchase natural gas directly from producers and marketers at market-based rates, independently arranging for interstate transportation. In this regime, the purchase price of the natural gas is often based on price indices compiled from reports of wholesale gas transactions provided by FERC jurisdictional sellers. According to the ONEOK plaintiffs, these jurisdictional sellers artificially raised the reported price of gas by providing false information to the indices. Thus, while the alleged manipulation was directed at the wholesale price of gas (and therefore a matter within the jurisdiction of FERC), it also allegedly inflated the retail price paid by these end-users.

DECISION

In ONEOK, plaintiffs were large end-users who brought lawsuits against natural gas marketing companies under a variety of state antitrust laws. Plaintiffs alleged that they had been overcharged when they purchased gas tied to the prices reported in the indices, and they sought damages from the defendants they alleged were responsible for artificially raising the reported price. The District Court granted summary judgment to the defendants (who were FERC jurisdictional sellers), reasoning that the damages actions were an attempt to regulate conduct in the wholesale gas market and therefore preempted by the NGA. On appeal, however, the Ninth Circuit reversed. The Ninth Circuit held that the state law claims at issue were not preempted because the effects of the alleged price manipulation went beyond the wholesale market and had the effect of raising prices in the retail market for natural gas.

The Supreme Court, in a 7-2 decision, affirmed the Ninth Circuit. The Supreme Court held that state antitrust claims to recover overcharges paid at the retail level could proceed even when those overcharges arose out of practices occurring in the federally regulated wholesale market. Justice Breyer, writing for the Court, emphasized that the NGA was drafted "with meticulous regard for the continued exercise of state power." Slip Op. at 10. The Court then drew a distinction "between 'measures aimed directly at interstate purchasers and wholesales for resale, and those aimed at' subjects left to the States to regulate." Id. at 11 (emphasis in original). The former were preempted, the latter were not. The Court went on to distinguish its prior cases finding preemption by explaining that those cases dealt with state laws that attempted to "directly" regulate entities and activities within FERC's jurisdiction. Here, in contrast, the Court found that the state antitrust laws were aimed at protecting consumers in "retail" markets, a matter left to the states to regulate.2

EFFECTS

The immediate effect of the Court's decision is to send the case back to the lower courts for further litigation on the merits of plaintiffs' allegations. For companies under FERC's jurisdiction, however, the Court's opinion has a number of important implications:

  • Increased uncertainty in the regulation of, and enforcement in, wholesale natural gas markets. As pointed out in the Court's dissenting opinion (Scalia, J.), participants in the interstate natural gas market will now be subject to the laws of multiple states in addition to the regulatory and enforcement framework of FERC. Jurisdictional sellers engage in multiple operations that can have downstream effects in retail markets – and following the logic of the ONEOK decision, those operations may simultaneously be subject to FERC regulations and state antitrust laws. And these state laws are not uniform. Most states have antitrust or consumer protection statutes that vary widely, not only in the scope of prohibited conduct, but also in the different types of enforcement actions that may be brought (e.g., private actions or enforcement actions brought by state officials), as well the different remedies and sanctions for violations. Industry participants need to be particularly mindful of state laws that may potentially supplement or augment FERC's regulations and enforcement authority.
  • Risk of increased private litigation and related strategic considerations. Although the NGA and FERC regulations do not create a private right of action for "market manipulation," many state antitrust laws do. Thus, the most likely effect of the decision will be an increase in litigation by private parties seeking damages for allegedly manipulative practices in the natural gas market. Thus, companies subject to FERC's jurisdiction not only must be cognizant of the agency's aggressive enforcement program, but also must recognize the increased potential for follow-on civil litigation under state antitrust laws. For example, in deciding whether to contest or settle FERC investigations and enforcement actions, companies must take into account the potential risk of civil litigation that flows from agency investigations and carefully consider whether public statements admitting certain facts or wrongdoing could be used by private plaintiffs in aid of an action for damages under state antitrust law.

Footnotes

1 The Court refers to the defendants in the case as "interstate pipelines," but uses this terminology interchangeably with FERC "jurisdictional sellers." Slip Op. at 4. The defendants in the action included companies involved in both the interstate transportation and sale of natural gas.

2 The Supreme Court was careful to note, however, that its decision dealt only with "field preemption," leaving open the possibility that state antitrust actions could still be invalid under the doctrine of "conflict preemption" "[t]o the extent any conflicts arise between state antitrust law proceedings and the federal rate-setting process." Slip. Op. at 15.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Stephen P. Freccero
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.