April 21, 2015

Supreme Court Decides Oneok, Inc. v. Learjet, Inc.

On April 21, 2015, the United States Supreme Court decided Oneok, Inc. v. Learjet, Inc., No. 13-271, holding that state-law antitrust suits challenging retail rates for direct sales of natural gas are not field pre-empted by the Natural Gas Act, even though the conduct at issue also affected wholesale prices.

The collection and sale of natural gas generally consists of three parts. First, producers collect the gas from an underground well; second, a pipeline company carries the gas to a distributor and sells it at wholesale; third, the distributor sells the gas to retail customers. The states may regulate the first and third parts of the process, but because it involves interstate commerce, only the federal government may regulate the second part. Congress enacted the Natural Gas Act (15 U.S.C. § 717, et seq.) to regulate that second part — i.e., interstate wholesale sales of natural gas. The Act gives rate-setting authority to the Federal Energy Regulatory Commission (FERC), but FERC’s authority is limited to wholesale sales, and does not extend to direct retail sales, which are left to the states to regulate.

A group of customers that bought natural gas directly from interstate pipelines (rather than from distributors) sued the pipelines, alleging that they engaged in behavior that violated state antitrust laws. Specifically, they alleged that the pipelines reported false prices to companies that published price indices. The alleged behavior affected both federally regulated wholesale natural-gas prices and nonfederally regulated retail natural-gas prices.

The pipelines moved for summary judgment on the ground of field pre-emption, arguing that as interstate sellers of natural gas the pipelines were directly regulated by the Natural Gas Act, and that because the alleged false reporting affected federally regulated wholesale rates as well as nonfederally regulated retail prices, the claims were pre-empted by the Natural Gas Act.

The district court granted the pipelines’ motion for summary judgment, but the Ninth Circuit reversed, holding that because the plaintiffs sought damages for excessively high retail prices, the Natural Gas Act did not pre-empt their claims, even though the conduct at issue increased wholesale rates as well.

The Supreme Court affirmed, holding that the state antitrust claims were not field pre-empted by the Natural Gas Act. The Court began by observing that it has “repeatedly stressed [that] the Natural Gas Act ‘was drawn with meticulous regard for the continued exercise of state power, not to handicap or dilute it in any way.’” The Court emphasized the “importance of considering the target at which the state law aims in determining whether the state law is pre-empted” (original emphasis). The Court held that because the plaintiffs’ claims here were directed at practices that affected retail sales, their claims were not pre-empted, even though the practices at issue also affected wholesale sales.

The Court clarified that it was deciding only the issue of field pre-emption, and not conflict pre-emption, which the Court left for the lower courts to address in the first instance.

Justice Breyer delivered the opinion of the Court, in which Justices Kennedy, Ginsburg, Alito, Sotomayor and Kagan joined. Justice Thomas filed an opinion concurring in part and concurring in the judgment. Justice Scalia filed a dissenting opinion, in which Chief Justice Roberts joined.

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