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From Antitrust Law Daily, January 13, 2015

Supreme Court hears conflicting U.S., state views on Natural Gas Act preemption

By Greg Hammond, J.D.

The U.S. Supreme Court heard oral arguments yesterday from two natural gas companies, the U.S. Department of Justice, and the Kansas Solicitor General, advocating differing views on preemption of state antitrust law claims by the Natural Gas Act (NGA). The Court is reviewing a decision (715 F3d 716, 2013-1 Trade Cases ¶78,338) of the U.S. Court of Appeals in San Francisco, reviving state antitrust law claims that had been rejected on preemption grounds (Oneok, Inc. v. Learjet, Inc., Dkt. 13-271).

Learjet, Inc.—a retail buyer of natural gas—alleged that Oneok, Inc.—a natural gas trader—manipulated the price of natural gas by reporting false information to price indices published by trade publications and engaging in “wash sales.” The district court found that the state law antitrust claims were preempted by the NGA. The U.S. Court of Appeals, however, reversed the district court’s decision, finding: (1) the NGA does not preempt Learjet’s state antitrust claims and (2) the 2003 enactment of the Federal Energy Regulatory Commission’s (FERC) Code of Conduct did not affect the appellate court’s conclusion that the NGA does not grant FERC jurisdiction over claims arising out of false price reporting and other anticompetitive behavior associated with nonjurisdictional sales.

In July 2014, the Supreme Court granted Oneok’s petition for certiorari, which asks whether the Natural Gas Act 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 December 2014, the Court granted the U.S. Solicitor General and the Kansas Solicitor General leave to participate in oral arguments as amicus curiae.

The crux of Oneok’s argument is that this is an area the Supreme Court has determined to be field preempted—that when FERC acts in this area, it has exclusive jurisdiction.

The U.S. agreed, arguing, “FERC, in our view, has authority to regulate under Section 5 and Section 1 the practices of those jurisdictional sellers that directly affect the wholesale rate; that is, the rate over which FERC has exclusive jurisdiction.” Further, the U.S. asserted that the Court has repeatedly determined that with regard to the NGA, Congress intended field preemption to apply because Congress wanted to have national uniformity.

In opposition, Learjet contended that, “[t]his is an anti-trust case, and the plaintiffs’ claims here are very simple. It’s that they paid too much in retail transactions for natural gas because the defendants conspired to fix prices.”

According to Learjet, this is important for two reasons, which independently save the claims from preemption: (1) state regulation in this case is retail, which falls squarely within Section 1(b) reservation of power in the NGA; and (2) the claims necessarily fall outside any field FERC could possibly regulate, because FERC has no power over antitrust. “Only by applying conflict preemption analysis can we be assured that both state and federal regulatory schemes may operate with some degree of harmony,” Learjet asserted.

The Solicitor General of Kansas agreed with Learjet’s arguments that the analysis in this case should address conflict preemption, not field preemption. In applying the conflict preemption analysis, the state solicitor general argued, “under any legal regime, under any economic theory, price-fixing conspiracy is per se unlawful. And the States are not interfering with FERC here. FERC was never asked to bless the conspiracy.”

Attorneys: Neal K. Katyal (Hogan Lovells US LLP) for Oneok, Inc. Jeffrey L. Fisher for Learjet, Inc. Anthony A. Yang, U.S. Department of Justice. Stephen R. McAllister, Solicitor General of Kansas.

Companies: Oneok, Inc.; Learjet, Inc.

MainStory: TopStory Antitrust

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