Antitrust Law Daily Wrap Up, TOP STORY: High Court invites U.S. views on application of state antitrust laws to natural gas industry, (Dec 2, 2013)

By Jeffrey May, J.D.

The U.S. Solicitor General has been asked by the U.S. Supreme Court to weigh in on whether state-law antitrust claims are preempted by the Natural Gas Act (NGA). At issue is a petition for certiorari filed by natural gas companies, asking the High Court whether the NGA preempts state regulation directed at practices that affect the wholesale natural gas market. Today, the Court invited the Solicitor General’s brief. Word from the government on whether the issue merits Supreme Court scrutiny would likely have a significant impact on the Court’s decision to grant or deny the petition (In Re: Western States Wholesale Natural Gas Antitrust Litigation: Oneok, Inc. v. Learjet, Inc., Dkt. 13-271).

The Court has been asked to 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). Because the buyers alleged harm in retail transactions, and the NGA did not regulate retail sales, there could be 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 were accused of manipulating the price of natural gas by reporting false information to price indices published by trade publications. The buyers also alleged that the companies 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, have asked the Court to grant the petition and provide guidance in this area.

“[T]he Ninth Circuit’s recent decision threatens to disrupt that uniform federal scheme by allowing attorneys motivated by large jury awards to create potentially 50 different state regulatory regimes that would bind the natural gas industry,” cautioned the Washington Legal Foundation. “Such an outcome would lead to chaos and serve as an unnecessary drag on free enterprise.”

Justice Samuel Alito took no part in the consideration or decision of the petition.

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

Companies: Learjet, Inc.; Oneok, Inc.

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