Source: http://nj.findacase.com/research/wfrmDocViewer.aspx/xq/fac.19770909_0040002.C03.htm/qx
Timestamp: 2016-10-26 00:35:14
Document Index: 183542717

Matched Legal Cases: ['§ 1292', '§ 717', '§ 78', '§ 78', '§ 717', '§ 717', '§ 717', '§ 717', '§ 717']

| Clark v. Gulf Oil Corp.
Clark v. Gulf Oil Corp.
argued as amended april 11 1978.: September 9, 1977.
MILTON CLARK, FREDERICK W. ROST, ST. REGIS APARTMENTS, LTD., A CALIFORNIA LIMITED PARTNERSHIP, MELVIN BALSER, MANAGING AGENT, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED PHILADELPHIA GAS WORKS, PLAINTIFF-INTERVENOR,v.GULF OIL CORPORATION AND TEXAS EASTERN TRANSMISSION CORPORATION (D.C. CIVIL NO. 76-2106) THEODORE Q. THOMPSON AND JAMESTOWN VILLAGE APARTMENTS, LTD., A CALIFORNIA LIMITED PARTNERSHIP, MELVIN BALSER, MANAGING AGENT V. GULF OIL CORPORATION PHILADELPHIA ELECTRIC COMPANY TEXAS EASTERN TRANSMISSION CORPORATION (D.C. CIVIL NO. 76-2711) PHILADELPHIA GAS WORKS, PLAINTIFF-INTERVENOR, APPELLANT IN NO. 77-1661 MILTON CLARK, ET AL., APPELLANTS IN NO. 77-1662
The district court dismissed the complaint against Philadelphia Electric Company for lack of complete diversity of citizenship. As to the other defendants, the district court held that no private cause of action exists under the Natural Gas Act and on that basis it granted Gulf's motions to dismiss the complaint against it.*fn1 The district court, however, granted certification pursuant to 28 U.S.C. § 1292(b) to permit plaintiffs and PGW to seek an interlocutory appeal on the issue of whether plaintiffs may pursue a private right of action against Gulf under the Natural Gas Act.*fn2 This court granted permission to appeal by order dated April 26, 1977. We find no merit in the limited issue before us and affirm the order of the district court.
In addition to ordering Gulf to comply prospectively, the FPC ordered Gulf to refund to Texas Eastern for flow through to the latter's customers a sum equal to the difference between Texas Eastern's request for gas and Gulf's deliveries multiplied by the difference between the contract price and the otherwise applicable area or national rates and interest. The refunds were payable both for Gulf's past defaults and in the event of future defaults on its delivery obligations.*fn3 Because appellants herein claim that their cost of replacing Gulf's underdeliveries greatly exceeded the formula price devised by the FPC, they sought rehearing on the proper measure of damages. In its opinion 780-A issued December 9, 1976, the FPC noted that though the relief it afforded might not in fact fully compensate the distributors/customers for the damages they had incurred, it concluded that its formula was "an equitable estimate of damage to customers." In its opinion, however, the FPC did not limit those injured by Gulf's underdeliveries to the relief granted by the Commission. Instead, it stated that its order did not preclude customers and distributors served through Texas Eastern's system from seeking further compensation outside the Commission. Appellants turn to that statement of the Commission in their briefs and oral argument in this court as a partial basis for the monetary relief they seek in this proceeding.
A threshold question we must first address is whether the district court had subject matter jurisdiction over this case.*fn4 Gulf contends that under Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 94 L. Ed. 1194, 70 S. Ct. 876 (1950), there is no federal question jurisdiction because the complaints show on their face that the plaintiffs' claims do not, in fact, arise under the Constitution, laws or treaties of the United States. Gulf asserts that because the basic allegations in the complaints charge the breach of the Gas Purchase Contract, for which the plaintiffs seek damages and equitable relief, the cause of action does not arise under federal law and so cannot be heard in the federal court absent diversity of citizenship. Gulf further asserts that plaintiffs add nothing to the complaint when they allege that the contract was "certificated" by the FPC and that by breaching the contract, Gulf also breached section 7 of the Natural Gas Act.
We do not believe that Skelly Oil, supra, supports Gulf's position. In that case, Skelly and others contracted with Phillips to sell it natural gas for resale to Michigan-Wisconsin Pipeline Co. ("Michigan-Wisconsin"). The contracts provided that the sellers would have the right to cancel the contracts in the event Michigan-Wisconsin failed to secure a certificate of public convenience from the FPC by October 1, 1946. The right of cancellation was to be exercised by written notice delivered to Phillips at any time after December 1, 1946, "but before the issuance of such certificate." On November 30, 1946, the Commission ordered the issuance of a certificate to Michigan-Wisconsin on certain stated terms and conditions. Although news of the Commission's action was released the same day, the actual content of its order was not made public until December 2, 1946. On that same day, the sellers gave notice of cancellation. Phillips and Michigan-Wisconsin then brought suit in the federal district court against the sellers for declaratory judgment because a certificate of public convenience had been issued "within the meaning of said natural gas act and said contracts" and that the contracts were "still in effect and binding." A motion to dismiss the complaint for want of jurisdiction was denied, and the district court held the contracts to be binding. The Tenth Circuit affirmed. In reversing with directions to dismiss, the Supreme Court held that the action did not arise under the laws of the United States and that it should have been dismissed as to certain defendants because jurisdiction could not have been sustained as to them on grounds of diversity of citizenship. A reading of the case reveals that the plaintiffs' pleadings did not allege any violation of federal law but merely an anticipatory defense based on federal law. The Supreme Court concluded that would not do.*fn5
In the instant case, however, the complaints aver an "action to recover damages and secure equitable relief for injuries [plaintiffs] have sustained as a direct result of violations by defendants of section 7 of the Natural Gas Act, 15 U.S.C. § 717(f) . . . ." Whether they are entitled to such relief is, of course, the question to be decided. But it is clear they have alleged injuries flowing from a violation of federal law which would give the district court subject matter jurisdiction. Under Bell v. Hood, 327 U.S. 678, 90 L. Ed. 939, 66 S. Ct. 773 (1946), Hagans v. Lavine, 415 U.S. 528, 39 L. Ed. 2d 577, 94 S. Ct. 1372 (1973), and Gagliardi v. Flint, 564 F.2d 112 (3d Cir. 1977), allegations in a complaint of a right to relief under federal law are sufficient to vest the district court with federal question jurisdiction unless the claim is wholly insubstantial and frivolous, or it is made solely for the purpose of obtaining jurisdiction and the alleged claim appears to be immaterial under the federal statute or constitution. Bell v. Hood, supra, 327 U.S. at 681-682. In the instant case, the question whether there exists a private cause of action under the Natural Gas Act has not yet been decided and cannot be said to be insubstantial.
The other cases that Gulf cites to support its position are inapposite. In Pan American Petroleum Corp. v. Superior Court, 366 U.S. 656, 6 L. Ed. 2d 584, 81 S. Ct. 1303 (1961), Cities Service Gas Company sued Texaco and Pan American in Delaware Superior Court to recover charges for natural gas in excess of the contracts between them. The overcharges had resulted from an order of the Kansas Gas Commission, later set aside by the United States Supreme Court. In its complaint, Cities Service proceeded on a breach of contract theory, but pleaded the Supreme Court's overturning of the Kansas order in anticipation of the expected defense by Texaco and Pan American that the higher rates were compelled by law. Texaco and Pan American moved for summary judgment in the Delaware court, the motion was denied, and the two defendants then petitioned the Delaware Supreme Court for a writ of prohibition against further proceedings in the Superior Court. Their theory was that the Natural Gas Act had deprived state courts of jurisdiction over the subject matter of the cases. The Delaware Supreme Court sustained the jurisdiction of the Superior Court and defendants appealed to the United States Supreme Court. The Supreme Court affirmed.
Even though the Natural Gas Act vests the federal courts with exclusive jurisdiction over suits arising under the Act, the Supreme Court explained, the question whether a particular suit falls within this grant of exclusive jurisdiction depends on the pleadings. Holding that the complaints in the Delaware Superior Court determine the nature of the suit before it, the Supreme Court declared that the rights asserted by the plaintiff are traditional common law claims and they do not lose their character "because it is common knowledge that there exists a scheme of federal regulation of interstate transmission of natural gas." Id. at 663.
Gulf cites Pan American Corp. v. Superior Court for the proposition that the present plaintiffs cannot make this a federal case by characterizing what are nothing but common law claims as claims under the Natural Gas Act. The case, of course, does not support this proposition: as the Court said, "the party who brings a suit is master to decide what law he will rely upon," 366 U.S. at 662, quoting The Fair v. Kohler Die and Specialty Co., 228 U.S. 22, 25, 57 L. Ed. 716, 33 S. Ct. 410 (1913), and the plaintiffs in this suit have clearly chosen to rely on federal law.
The rights of the parties hereto are based upon the contract. It is well settled that the type of action here involved is not barred or superseded by the provisions of the Federal Natural Gas Act. See Pan American Petroleum Corp. v. Superior Court of Delaware, 366 U.S. 656, 81 S. Ct. 1303, 6 L. Ed. 2d 584.
In determining whether a private right of action is implicit in a statute not expressly providing one, Mr. Justice Brennan, writing for the Supreme Court in Cort v. Ash, 422 U.S. 66, 45 L. Ed. 2d 26, 95 S. Ct. 2080 (1975), indicated that at least the following factors are relevant: First, is the plaintiff one of the class for whose especial benefit the statute was enacted? Second, is there any indication of legislative intent, either to create a private cause of action or to deny one? Third, is the implication for a private remedy consistent with the underlying purpose of the legislative scheme? Fourth, is the cause of action traditionally relegated to state law, thereby rendering it inappropriate to infer a cause of action solely on federal law? Id. at 78.
The district court held that implying a private right of action for damages under the Natural Gas Act would not meet three of the four factors established by Cort. The district court did not address the first standard of whether plaintiffs fell within the class for whose especial benefit the statute was enacted, concluding that even if they were, this would not be sufficient to overcome their failure to meet the other three Cort tests. The district court noted that under the congressional regulatory scheme established for the natural gas industry, the FPC may obtain enforcement of its decision in the district court and may develop remedies that enhance the statutory objectives. It also expressed concern that a jury trial de novo in the district court could possibly result in a verdict inconsistent with the FPC's findings in the administrative proceedings which would inevitably lead to "chaos, confusion, and duplication [of] the regulatory scheme." The district court recognized that Congress had provided for review of decisions and orders of the FPC by courts of appeals to which district courts must defer; that the district court's role would necessarily be subordinated to providing remedies in addition to those fashioned by the FPC; and that the FPC was in a more strategic position to fashion remedies to implement the regulatory scheme and carry out its objectives, including the ordering of rate adjustments, refunds, or making declaratory orders. The court also concluded that legal problems relating to natural gas shortages do not lend themselves to piecemeal solutions by separate district court decisions. In sum, then, the district court's analysis of Cort revealed no implied private right of action under the Natural Gas Act.
Our initial inquiry, under the Cort test, is whether plaintiffs are among the class for whose especial benefit the statute was enacted? We believe the overall purpose of the Natural Gas Act is to protect the interest of consumers in an adequate supply of gas and at reasonable rates. The Supreme Court stated the primary aim of the Act in more colorful terms - the protection of consumer interests against exploitation at the hands of natural gas companies. FPC v. Louisiana Power & Light Co., 406 U.S. 621, 631, 32 L. Ed. 2d 369, 92 S. Ct. 1827 (1972); FPC v. Hope Gas Co., 320 U.S. 591, 610, 88 L. Ed. 333, 64 S. Ct. 281 (1944). "The aim of the Act was to protect ultimate consumers of natural gas from excessive charges." FPC v. Interstate Gas Co., 336 U.S. 577, 581, 93 L. Ed. 895, 69 S. Ct. 775 (1949). This does not end the matter, however, because even though plaintiffs may be among the class for whose especial benefit the statute was enacted, it does not necessarily follow that they have an implied cause of action for damages under the Act.
We therefore turn to the second factor of Cort and inquire whether there is any indication of legislative intent, explicit, or implicit, to imply a private remedy in the Act or to deny one. Plaintiffs' contention that there is an implied private right of action draws heavily on J.I. Case Co. v. Borak, 377 U.S. 426, 12 L. Ed. 2d 423, 84 S. Ct. 1555 (1964). In that case, a stockholder of the J.I. Case Co. brought a suit in the federal court for deprivation of his preemptive rights in J.I. Case Co. by reason of a merger between Case and the American Tractor Corporation in violation, inter alia, of section 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a). The plaintiff in Borak relied substantially on section 27 of the 1934 Act, 15 U.S.C. § 78aa, which gives the district courts exclusive jurisdiction of all suits in equity and actions at law brought to enforce any liability or duty created thereunder.
PGW, in the instant case, compares similar language in section 27 of the Securities Exchange Act to section 22 of the Natural Gas Act and concludes, citing Borak, that the grant of jurisdiction in the Natural Gas Act should be read as evidence of congressional intent to create a private right of action for violations of the Act.*fn6
In Piper v. Chris Craft Industries, Inc., 430 U.S. 1, 97 S. Ct. 926, 51 L. Ed. 2d 124 (1977), the Supreme Court refused to imply a remedy under the same 1934 act that figured in Borak notwithstanding the continued existence of the section 27 grant of jurisdiction. The Court adverted to the reasoning of Borak that "where congressional purposes are likely to be undermined absent private enforcement, private remedies may be implied in favor of the particular class intended to be protected by the statute." Id. at 25. The Court emphasized that Borak had implied a remedy "because of practical limitations upon the SEC's enforcement capabilities" that made "'private enforcement . . . a necessary supplement to Commission action.'" Id., quoting J.I. Case v. Borak, 377 U.S. at 432 (emphasis supplied by Piper opinion). See Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 730, 44 L. Ed. 2d 539, 95 S. Ct. 1917 (1975).
Sections 7(b), (c), and (e) of the Natural Gas Act make no express provision whatsoever for a private cause of action.*fn7
Section 7(b) is designed to give the FPC control over the abandonment of facilities or service subject to its jurisdiction. Section 7(c) prohibits a natural gas company subject to the Commission's jurisdiction from engaging in the transportation or sale of natural gas unless such company has in force a certificate of public convenience and necessity issued by the Commission authorizing such acts or operations. Both sections are absolutely barren of any explicit expression or of any implied indication that a private right of action for damages is contemplated for a violation of the Act. Nor is there any express provision that denies a private cause of action for a violation. These sections, however, are typical provisions in the regulatory scheme of public utilities.*fn8 The statutory requirement in section 7(b) that there first be a determination that the supply of gas is depleted and that a further continuance of service is unwarranted before abandonment is intended to insure the availability of a necessary energy resource. It is the Commission's task to facilitate and maintain that availability. The requirement in section 7(c) is intended to prevent wasteful competition in the sale and distribution of an important natural resource.*fn9 Therefore, the Commission is expressly charged with the duty and responsibility of determining whether the proposed service is or will be necessary and whether it "will be required by the present or future public convenience." 15 U.S.C. § 717f(e) (1970). This provides the Commission with the machinery to curb unnecessary and wasteful competition and to examine the adequacy of the proposed service. Thus, its primary purpose is to regulate competition among natural gas companies and prohibit anyone from competing until after the Commission has determined whether the proposed operation is necessary, whether it will serve the public convenience and whether the applicant can render an adequate service at fair and reasonable rates.
Furthermore, the Commission is charged under the Act with the power of oversight and regulation: It carries the responsibility for determining whether rates to be charged are fair and reasonable and whether the proposed service to localities and persons and the proposed classes of service are impartial and non-discriminatory. 15 U.S.C. § 717c (1970). The Commission has the power after conducting a hearing to grant certificates of public convenience and necessity, to fix just and reasonable rates and practices, and to order a decrease in rates when they are unjust, preferential, unduly discriminatory, otherwise unlawful, or are not the lowest reasonable rates, 15 U.S.C. § 717d (1970). It may also permit abandonment of facilities or services. The Commission is empowered to prescribe a system of accounts to be kept by such natural gas companies, and to classify such accounts. 15 U.S.C.§ 717g(b) and (c) (1970).
In view of Congress' evident intent to create a comprehensive and effective regulatory scheme for the transportation and sale of natural gas in interstate commerce, built upon a carefully conceived and structured system for enforcement of the Act's provisions, we conclude that Congress did not contemplate a private cause of action for damages by retail customers whenever a regulated natural gas company breached its certificate of public convenience and necessity under the Natural Gas Act.
Plaintiffs contend, citing as compelling authority Farmland Indus., Inc. v. Kansas-Nebraska Natural Gas Co., Inc., 486 F.2d 315 (8th Cir. 1973), that Gulf's underdeliveries to Texas Eastern of the demanded quantities under the contract constitute the basis for an implied right of action under section 7(b).*fn10 We disagree. In Farmland, the Eighth Circuit affirmed a district court opinion which held that there was an implied private right of action in favor of a direct industrial consumer against a natural gas company that violated section 7(b) by terminating gas supply service, through facilities constructed under a certificate of necessity and convenience, without prior FPC approval. Significantly, Farmland precedes the quadripartite test in Cort v. Ash, supra, to determine the existence of an implied private right of action, as well as our later decision in Polansky v. Trans World Airlines, Inc., 523 F.2d 332 (3d Cir. 1975). In Polansky, we expressed the view that each incident alleged in connection with violations of section 1374(b) of the Federal Aviation Act,*fn11 specifically prohibiting discrimination by any regulated carrier, must be tested against the standards stated by the Supreme Court in Cort. Therefore, no implied private right of action for damages can be found here unless the violated statutory sections meet the Cort standards. Second, the opinion of the district court in Farmland plainly discloses that the utility, unlike Gulf in the instant case, had permanently ceased delivery of all gas at the expiration of their gas purchase contract. Thus, the finding of abandonment was predicated upon the permanent cessation of all service at the expiration of the contract term without Commission approval. Farmland Indus. v. Kansas-Nebraska Natural Gas Co., Inc., 349 F. Supp. 670, 676 (D. Neb. 1972).
We believe our conclusion that no private cause of action is implied is further supported by Montana-Dakota Util. Co. v. Northwest Pub. Serv. Co., 341 U.S. 246, 71 S. Ct. 692, 95 L. Ed. 912 (1951). In that case the plaintiff electric company sued in federal district court to recover losses suffered as a result of allegedly fraudulent and unlawful rates charged by the defendant public utility company as a result of a prior interlocking directorate in which the defendant was involved. Both companies were subject to the Federal Power Act. Like section 4 of the Natural Gas Act, section 205(a) of the Federal Power Act requires that rates and charges be just and reasonable and those that were not were "declared to be unlawful." Jurisdiction in the United States district court was asserted under section 317 of the Federal Power Act, comparable to section 22 of the Natural Gas Act. The Supreme Court, however, refused to imply a private cause of action for violation of the Power Act, holding that the right to a reasonable rate is the right to the rate which the Commission fixes, and that "except for review of the Commission's orders, the courts can assume no right to a different one on the ground that, in its opinion, it is the only or the more reasonable one." Id. at 252. In the instant case, the FPC has the power, the flexibility, and resourcefulness to compel compliance with the certificate and to fashion and implement appropriate remedies for the shortfall in Gulf's deliveries and we perceive nothing in the congressional scheme to imply a private cause of action for damages for a violation of the Gas Act.
The foregoing analysis of the Natural Gas Act should also be sufficient response to the third factor in Cort v. Ash, whether it is consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiffs. We believe it is not. Congress has delegated under its comprehensive scheme extensive regulatory powers to the Commission in an essential and monopolistic industry to grant certificates of public convenience when the public welfare dictates and the authority to effectuate compliance with such a certification. The Commission has the authority to establish rules and standards in making such determinations; it has exclusive jurisdiction to determine whether the proposed service will adequately serve the public interest and whether a rate meets the "just and reasonable" standard of the Act, 15 U.S.C. § 717c (1970), Northern Natural Gas Co. v. Kansas Comm'n, 372 U.S. 84, 89, 9 L. Ed. 2d 601, 83 S. Ct. 646 (1963); and Congress has granted the Commission " rate-setting authority . . . over all interstate sales for resale." FPC v. Louisiana Power & Light Co., 406 U.S. 621, 639, 32 L. Ed. 2d 369, 92 S. Ct. 1827 (1972). Curtailment of deliveries in this foreboding era of energy crises, including natural gas shortages, fall peculiarly within the FPC's responsibilities under the head of its "transportation" jurisdiction. "The Commission must possess broad power to devise effective means to meet these responsibilities." Id. at 642. Accord, Reynolds Metals Co. v. FPC, 175 U.S. App. D.C. 177, 534 F.2d 379, 384 (1976).
There are thousands of contracts between gas transmission companies and their suppliers, each of which must be certified by the Commission under section 7 of the Act. There are thousands of contracts between pipeline companies and their distributors also certified by the Commission. If each of them, as well as the many millions of ultimate consumers thereby affected, could bring a private cause of action for an alleged violation of a certificate of public convenience, an industry essential to the health and welfare of the nation could conceivably be litigated to exhaustion. The uniform regulatory scheme devised by Congress could be disrupted, seriously disabled, and possibly destroyed. Conflicting decisions among the courts and between the courts and the Commission concerning duties and liabilities would be inevitable and the responsibilities of the Commission under the Act unmanageable.*fn12 We therefore conclude that it is not consistent with the underlying purpose of the regulatory scheme to imply a private remedy in damages for a breach of the Act.
The conclusion we reach is especially applicable to the instant case because of the limited nature of the relief sought by plaintiffs. Although plaintiffs seek immediate monetary relief, the money sought is not in the traditional form of outright damages, but money which must eventually be restored to Gulf in accordance with the timetable prescribed by the FPC when the gas contracted for is delivered. The computation of the amount of the relief required, the machinery for recoupment and ordering a resetting of the rates to accomplish the same, in our view, are not within the competence and powers of the courts. Even if they were, such tasks are best left to the expertise, organization, and enforcement machinery created by Congress. The national purpose, powers, and structure of the FPC negate the claim that the ultimate consumers of gas "were intended to have additional weapons in the form of an implied cause of action for damages," Piper v. Chris Craft Indus., Inc., supra 430 U.S. at 38, particularly when, as here, the money sought must eventually be returned. As we have previously indicated, the money to be paid by Gulf under our decision is "nothing more than a temporary performance bond made necessary by Gulf's failure to fulfill the terms of its certificate," Gulf Oil Corp. v. FPC, supra, 563 F.2d 608. Under these conditions, an implied cause of action for damages does not add significant additional protection for ultimate consumers of gas but might well disrupt the congressional scheme devised for the regulation of an essential industry and the protection of the public generally.