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Parties Involved:
Federal Energy Regulatory Commission
Respondent
Jack J. Grynberg
Intervenor
Rocky Mountain Natural Gas Company
Petitioner

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 7, 1997 Decided June 6, 1997 

No. 96-1328

ROCKY MOUNTAIN NATURAL GAS COMPANY,

PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

JACK J. GRYNBERG,

INTERVENOR

On Petition for Review of an Order of the 

Federal Energy Regulatory Commission

Michael L. Beatty argued the cause for petitioner, with 

whom William S. Scherman and John N. Estes, III were on 

the briefs.

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Joel M. Cockrell, Attorney, Federal Energy Regulatory 

Commission, argued the cause for respondent, with whom 

Joseph S. Davies, Acting Solicitor, was on the brief.

Nancy J. Skancke argued the cause for intervenor Jack J. 

Grynberg.

Before: GINSBURG, SENTELLE, and TATEL, Circuit Judges.

Opinion for the Court filed by Circuit Judge GINSBURG.

GINSBURG, Circuit Judge: Rocky Mountain Natural Gas 

Company petitions for review of an order of the Federal 

Energy Regulatory Commission granting Jack Grynberg and 

his business partners retroactive abandonment of their interstate service obligations with respect to six natural gas wells. 

Because that decision cannot be reconciled with the Commission's own precedent, we grant the petition and remand this 

matter to the agency for further proceedings.

I. Background

In 1968 Jack Grynberg and his partners in the Greater 

Green River Basin Drilling Program (hereinafter Grynberg) 

entered into a contract to sell gas from certain fields in 

Colorado to the Mountain Fuel Company for a term of 20 

years. Grynberg obtained authorization from the FERC to 

sell the gas in interstate commerce and thereafter connected 

one well to Mountain Fuel's distribution system.

In 1975 Grynberg entered into a contract with Rocky 

Mountain for the sale in intrastate commerce of gas from 

certain wells in the fields described in the 1968 contract with 

Mountain Fuel. In 1991 Rocky Mountain determined that 

this gas previously had been dedicated to interstate commerce; the buyer thereupon refused to continue paying more 

than the price set by the Commission for gas that had been 

dedicated to interstate commerce before enactment of the 

Natural Gas Policy Act in 1978. Rocky Mountain also demanded the refund of all monies that it had already paid 

Grynberg for gas at prices in excess of the ceiling price 

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established for interstate gas. Grynberg refused and this 

litigation ensued.

In 1992 the Commission determined that the gas here at 

issue indeed had been dedicated to interstate commerce by 

the 1968 contract between Grynberg and Mountain Fuel. 

Grynberg v. Rocky Mountain Natural Gas Company, 60 

FERC ¶ 61,167 (August 7, 1992). The gas sold to Rocky 

Mountain should, therefore, have been sold interstate and at 

the price established pursuant to § 104 of the NGPA. Accordingly, the Commission ordered Grynberg to refund any 

amounts paid in excess of the § 104 price, plus interest.

Grynberg filed a petition for rehearing seeking, among 

other things, retroactive abandonment of his 1968 dedication 

of gas to interstate commerce. Grynberg v. Rocky Mountain 

Fuel Company, 62 FERC ¶ 61,046 (January 21, 1993). The 

Commission concluded that retroactive abandonment would 

be inappropriate because: (1) Grynberg knowingly diverted 

gas from the interstate market to the intrastate market and 

therefore had "unclean hands"; (2) the only "real risk Grynberg took was the risk in selling gas in the intrastate market 

illegally without seeking affirmation from the Commission 

that what it was doing was legal"; and (3) the Commission 

could not "permit Grynberg to collect a price higher than 

Congress allowed."

Grynberg then filed a second petition for rehearing asking 

the Commission to disallow refunds for the period from 1975 

to 1978, i.e. before the NGPA had superseded the Natural 

Gas Act. The Commission granted this petition, reasoning 

that the NGA had been enacted for the protection of interstate purchasers, whereas Rocky Mountainthe only party 

claiming to have been injured by the diversion of gas under 

the 1975 contractwas an intrastate purchaser. See Grynberg v. Rocky Mountain Natural Gas Company, 63 FERC 

¶ 61,315 (June 23, 1993). Therefore, with respect to the 

award of refunds for the period before enactment of the 

NGPA in 1978, the Commission concluded:

The equities of the case do not require that Rocky 

Mountain receive the additional benefit of refunds, when 

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it has already obtained the benefit of receiving gas which 

was dedicated to the interstate market. In this case, 

however, no downstream interstate purchaser or consumer has filed a complaint or alleged that it suffered any 

damages as a result of the diversion. Accordingly, we 

will not require Grynberg to refund pre-NGPA overcharges to the interstate customer to whom the gas was 

dedicated as damages for the diversion.

This still left Grynberg liable for overcharges on sales made 

between 1978 and 1991, wherefore Grynberg then petitioned 

this court for review.

We vacated the Commission's order because the agency, in 

determining that Grynberg had dedicated to interstate commerce all the gas underlying the acreage described in the 

1968 contract, had relied exclusively upon a prefatory "whereas" clause of ambiguous import, which seemed to make 

superfluous one article in the body of the contract. Grynberg 

v. FERC, 71 F.3d 413, 416 (1995). We therefore remanded 

the case for the Commission to interpret the contract as a 

whole. Id. We also suggested that, if the Commission 

adhered to its view that the contract dedicated the gas to 

interstate commerce, then it would need to reconsider whether Grynberg had acted in bad faith because:

Grynberg appears to have acted on a good faith belief 

that the six wells were not dedicated to interstate commerce. As we have seen, the contract is ambiguous; it is 

subject to more than one reasonable interpretation.

Id. at 417.

On remand the Commission did adhere to its original 

understanding of the contract. Grynberg v. Rocky Mountain 

Natural Gas Company, 75 FERC ¶ 61,013 (April 2, 1996), 

reh. den. 76 FERC ¶ 61,082 (July 22, 1996). This time, 

however, the Commission concluded that granting retroactive 

abandonment of the contract would be appropriate, but not 

because it had reconsidered whether Grynberg had acted in 

good faith. Rather, the agency said that Grynberg's state of 

mind was "irrelevant;" Grynberg was entitled to retroactive 

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abandonment because no interstate purchaser had been aggrieved by his diversion of gas to the intrastate market. 

Rocky Mountain petitioned this Court for review.

II. Analysis

Rocky Mountain argues that the Commission should not 

have allowed Grynberg retroactively to abandon his commitment of gas to the interstate market because he has unclean 

hands. In concluding that Grynberg's unclean hands were 

"irrelevant," the Commission, according to Rocky Mountain, 

ignored settled principles of equity as well as its own established practice of treating unclean hands as a de facto bar to 

equitable relief.

The Commission responds that it based its decision to 

grant retroactive abandonment squarely upon our decision 

remanding the case. In this regard the Commission points to 

our statement that the Commission would "need to reconsider 

[whether Grynberg had unclean hands] if it finds, on remand, 

that the 1968 agreement dedicated the gas from the six wells 

to interstate commerce." 71 F.3d at 417. As the Commission understands this passage, the court virtually compelled it 

to grant retroactive abandonment on remand.

We see no such compulsion in our prior opinion. We 

neither held nor suggested that a party should have access to 

equitable relief without regard for whether his hands are 

clean. We suggested only that, in light of what appeared to 

the Court to be an ambiguous contract, the Commission, 

should it find that the 1968 contract had in fact dedicated the 

gas here at issue to interstate commerce, would need to 

reconsider its finding that Grynberg had acted in bad faith. 

In the Commission's final analysis, Grynberg still might be 

charged with understanding the meaning of this ambiguous 

contract, if not in 1968, then by 1975. But we left that 

determination to the agency.

As we have said, on remand the Commission decided anew 

that the 1968 contract had dedicated to interstate commerce 

the gas that Grynberg sold intrastate in 1975a point that 

Grynberg no longer contests. Then, however, as a conseUSCA Case #96-1328 Document #276879 Filed: 06/06/1997 Page 5 of 7
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quence of the aforementioned misunderstanding, the Commission thought itself constrained to reach a decision at odds 

with its earlier decision in Mitchell Energy Corporation. 37 

FERC ¶ 61,128 (November 10, 1986). In that case, the 

Commission had considered it relevant, in determining whether to grant retroactive abandonment, that a contract dedicating certain gas to interstate commerce had been executed 

before the law regarding dedication was clear. The seller's 

understandable mistake of law, coupled with the lack of injury 

to any party in the particular circumstances of that case, 

moved the Commission to allow the seller retroactively to 

abandon its prior dedication to interstate commerce of the gas 

that it sold intrastate in 1954. The Commission denied 

retroactive relief, however, with respect to other wells the gas 

from which the seller did not divert to interstate sales until 

1960. By that time Mitchell reasonably should have understood that the gas was dedicated to interstate commerce.

Here, too, the Commission found the diversion of gas from 

interstate to intrastate commerce had harmed no one. Assuming that the Commission would have followed rather than 

overruled Mitchell as a matter of policy, the Commission 

should then have determined whether Grynberg should reasonably have been aware in 1975 that the 1968 contract had 

dedicated the gas to interstate commerce (in which case 

Mitchell would seem to bar equitable relief) or was reasonably unaware of the dedication (in which case Mitchell would 

support the grant of relief). The Commission instead followed a third course, dismissing Grynberg's mental state as 

irrelevant and granting retroactive abandonment solely upon 

the ground that no party had been injured by the diversion. 

In so doing, the Commission treated as irrelevant the very 

factor that it had considered dispositive under seemingly 

identical circumstances in Mitchell. That decision cannot 

stand.

III. Conclusion

The Commission departed without adequate explanation 

from its precedent in Mitchell Energy Corp., apparently 

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believing that our earlier decision remanding this case so 

required. The Commission was under no such compulsion, 

however. We must therefore remand this matter again for 

the Commission to resolve it in a manner consistent with its 

own precedent and policy.

So Ordered.

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