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From Antitrust Law Daily, July 01, 2014

High Court to consider preemption of state antitrust law claims against gas companies

By Jeffrey May, J.D.

The U.S. Supreme Court today agreed to consider whether state-law antitrust claims are preempted by the Natural Gas Act (NGA). The Court granted a petition for certiorari filed by natural gas companies, asking whether the NGA preempts state-law claims challenging industry practices that directly affect the wholesale natural gas market when those claims are asserted by litigants who purchased gas in retail transactions (In Re: Western States Wholesale Natural Gas Antitrust Litigation: Oneok, Inc. v. Learjet, Inc., Dkt. 13-271).

The High Court will review a decision of the U.S. Court of Appeals in San Francisco, reviving state antitrust law claims brought by commercial and industrial end users of natural gas (715 F3d 716, 2013-1 Trade Cases ¶78,338). The Ninth Circuit ruled that Section 5(a) of the NGA did not preempt the natural gas buyers’ claims under state antitrust laws for price manipulation associated with transactions falling outside of the jurisdiction of the Federal Energy Regulatory Commission (FERC). The buyers alleged harm in retail transactions, and the NGA did not regulate retail sales. Therefore, there was no preemption, in the appellate court’s view. Summary judgment in favor of the defendants on the buyers’ state antitrust claims was reversed.

The natural gas companies allegedly manipulated the price of natural gas by reporting false information to price indices published by trade publications. In addition, they purportedly engaged in wash sales—prearranged sales in which traders agreed to execute a buy or a sell on an electronic trading platform and then to immediately reverse or offset the first trade by bilaterally executing over the telephone an equal and opposite buy or sell.

According to the petitioning natural gas companies, the NGA gives the federal government exclusive power to regulate wholesale natural gas and the practices of natural gas companies affecting wholesale gas rates. “The Ninth Circuit in the decision below broke with this Court’s teachings—and created a recipe for regulatory chaos—by authorizing every state to impose its own unique regulatory regime on the wholesale gas market,” the petitioners contended.

Various interest groups and trade associations, including the Washington Legal Foundation, the Electric Power Supply Association, and the American Gas Association, had asked the Court to grant the petition and provide guidance in this area.

U.S. views. The Court decided to take the case, even though the U.S. Solicitor General suggested that the petition be denied. The government contended in its friend-of-the-court brief that, although the appellate court reached an incorrect conclusion about the scope of FERC's authority, review was not warranted. The appellate court decision did not conflict with any state supreme court decision. Furthermore, a decision by the Court would be of limited prospective significance in light of recent changes to the regulatory environment. In the government's view, it was unlikely that the factual scenario giving rise to the respondents' claims would recur.

Attorneys: Neal Kumar Katyal (Hogan Lovells US LLP) for Oneok, Inc. Jennifer Gille Bacon (Polsinelli PC) for Learjet, Inc.

Companies: Learjet, Inc.; Oneok, Inc.

MainStory: TopStory Antitrust

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