Opinion ID: 529388
Heading Depth: 1
Heading Rank: 2

Heading: CIG's Common Law Claims

Text: 6 The district court instructed the jury that it could find Natural breached the Service Agreement only if Natural failed to purchase gas and refused to pay CIG the rate that FERC decided was appropriate for volumes not purchased. Neither party disputes that Natural refused to purchase gas. The parties dispute the rate FERC determined to be appropriate for gas not taken. Natural argues that the district court should have directed a verdict on the breach of contract claim in its favor because it paid CIG the FERC determined rate for gas not purchased. We agree. 7 In order to apprehend the parties' arguments on this issue, it is necessary to examine the long history of the dispute over Natural's minimum purchase obligation before FERC. 1 For many years the service agreements between CIG and Natural contained two provisions which, together, defined Natural's minimum purchase obligation. 2 Section 2 of the Service Agreement, the minimum daily take provision, required Natural to accept each day 90% of its General Daily Entitlement. 3 Section 4 of the Service Agreement, the minimum annual bill, required Natural to purchase each year 90% of its Total Annual Entitlement, or pay CIG a predetermined rate for gas not purchased. 4 8 Natural first objected to the minimum purchase obligation in the Service Agreement when CIG sought approval of the rates and terms of the Agreement from FERC in 1982. The reasonableness of the minimum purchase obligation was considered in administrative proceedings before an administrative law judge in 1983. The judge found the minimum bill provisions to be unreasonable and ordered CIG to modify the Service Agreement so that CIG could collect from Natural only the fixed costs 5 associated with the sale of gas. This decision was appealed to FERC, which, in response, modified the precise mechanism by which CIG could collect money for unpurchased gas but left unchanged the basic ruling that CIG could collect only fixed costs for unpurchased gas. 6 9 In response to FERC's ruling, CIG submitted to FERC a modification of its Service Agreement by which it sought to collect F-1 fixed costs for F-1 gas which Natural did not purchase and H-1 fixed costs for unpurchased H-1 gas. Since the fixed cost component of gas rates included profits on the sale of gas, CIG's submitted rate would have insured full profits on unsold gas. However, FERC did not approve this rate for unpurchased gas. 7 It ruled that CIG could collect only F-1 fixed costs for whichever type of gas Natural did not purchase. CIG appealed FERC's order to this court asserting that it should collect full profits on unsold gas. We rejected this appeal. Colorado Interstate Gas Co. v. FERC, 791 F.2d 803 (10th Cir.1986), cert. denied, 479 U.S. 1043, 107 S.Ct. 907, 93 L.Ed.2d 857 (1987). 10 CIG now argues that these extensive proceedings only considered one aspect of the minimum purchase obligation, namely, the minimum annual bill provision (Section 4) of the Service Agreement. It insists FERC simply overlooked the minimum daily take requirement (Section 2) in the individual proceedings. CIG asserts that the minimum daily take requirement was later modified by FERC's Order No. 380-C which ruled that minimum take provisions were meant to be governed by Order No. 380. 11 Although FERC's general orders treated minimum bill provisions identically with minimum take provisions, CIG argues that because FERC Order No. 380-C states sellers may collect fixed costs, 8 CIG may collect F-1 fixed costs for unsold F-1 gas and H-1 fixed costs for unsold H-1 gas. If we were to accept CIG's argument, CIG could collect a higher rate for each year that Natural failed to purchase gas by adding up its compensation for Natural's daily failure to take gas than it could by using the individually tailored FERC formula for determining CIG's compensation for Natural's annual failure to purchase gas. Aside from the irrationality of this result, we think it ignores the fact that FERC has plainly examined both the minimum annual bill and the minimum daily take requirements in the Service Agreement since the original ALJ decision. 12 As noted earlier, the ALJ stated that he found the minimum bill provisions to be unjust and unreasonable. CIG apparently assumes this reference to the minimum bill provisions meant that the ALJ only considered the minimum annual bill (Section 4) of the contract. Yet, the rest of the opinion makes clear that the ALJ considered both Sections 2 and 4 of the Service Agreement. For instance, in describing the Service Agreement the ALJ stated, CIG's mode of billing to Natural under the F-1 and H-1 Rate Schedules is explained for the situation when the minimum bill provisions operate because Natural failed to take 90 percent of its daily or annual volumetric entitlements. Colorado Interstate Gas Co., 25 F.E.R.C. paragraphs 63,012, 65,015 (Oct. 18, 1983) (emphasis added). The ALJ clearly understood that the Service Agreement provided a single rate of compensation for failure to purchase gas on a daily or annual basis and that he was modifying that rate. 13 This conclusion is confirmed by subsequent FERC orders. In its order of June 1985, FERC surveyed the entire history of CIG's proceedings before the agency on the minimum purchase issue. FERC stated the ALJ found both the minimum annual volume and the minimum daily take requirement in CIG's Service Agreement to be unreasonable. Colorado Interstate Gas Co., 31 F.E.R.C. p 61,325 (June 19, 1985). FERC further noted that the individualized proceedings required CIG to modify both the minimum annual bill and the minimum daily take provisions to eliminate variable costs. Id. The only formula for the elimination of variable costs approved in the individualized proceedings required CIG to charge F-1 fixed costs for failure to purchase either F-1 or H-1 gas. The inescapable conclusion is that FERC regarded this as the sole remedy for failure to purchase gas under either contractual provision. 14 Finally, FERC's amicus brief explains its current interpretation of the FERC proceedings on the minimum purchase issue. The amicus brief states: 15 [T]he district court erred in holding that the Commission did not deal with the minimum purchase obligation and that therefore CIG may litigate that issue in this case ... the Commission treated the minimum bill as the remedy for Natural's failure to live up to its minimum purchase obligation ... therefore, the district court erred in its perception that the minimum bill and take provisions were separate and discrete matters establishing distinct remedies. 16 In light of the deference we owe to FERC's interpretations of its own orders, Colorado Interstate Gas, 791 F.2d at 810; Distrigas of Massachusetts Corp. v. Boston Gas Co., 693 F.2d 1113, 1119 (1st Cir.1982), and the plain meaning of the orders themselves, there is simply no room for CIG's assertion that FERC's individualized proceedings left the minimum daily take provision (Section 2) of the Service Agreement unaffected. 17
18 Natural argues the jury's verdict on bad faith breach of contract must be reversed because FERC's modification of the rate Natural was required to pay CIG for unpurchased gas gave Natural the unqualified right to stop purchasing gas, provided it paid CIG the FERC established price for unpurchased gas. Natural insists that by awarding CIG damages for bad faith failure to purchase gas that were greater than FERC's established rate for failure to purchase, the district court allowed state common law to impinge upon FERC's regulatory authority. CIG asserts that Natural's bad faith alters the character of Natural's conduct so that the FERC rate for unpurchased gas does not apply. While we are unwilling to embrace Natural's claim that FERC's orders shield it from all liability for failure to purchase gas, we do agree that Natural is free from liability for failure to purchase gas based upon the implied duty of good faith and fair dealing in the Service Agreement. 19 The Supreme Court is wary of attempts by parties, dissatisfied with determinations of federal agencies, to neutralize the effect of those determinations through common-law actions for damages. Chicago & N.W. Transp. Co. v. Kalo Brick & Tile Co., 450 U.S. 311, 324, 101 S.Ct. 1124, 1133, 67 L.Ed.2d 258 (1981); Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571, 577 n. 6, 101 S.Ct. 2925, 2930 n. 6, 69 L.Ed.2d 856 (1981). These cases are bottomed on the principle that the Supremacy Clause requires state regulation not thwart federal policy. Kalo Brick & Tile, 450 U.S. at 326, 101 S.Ct. at 1134. Common-law claims that seek to litigate matters already decided by a federal agency are therefore preempted. 20 For instance, in Kalo Brick & Tile, 450 U.S. at 311, 101 S.Ct. at 1127, a shipper of goods by rail, sought to assert a state, common-law tort action for damages caused by a regulated rail carrier's decision to eliminate service on a rail line. The Supreme Court unanimously held that because the Interstate Commerce Commission had, in approving the cessation of service in administrative proceedings, ruled on all the issues underlying the shippers state-court suit, the common-law action was preempted. The Court stated: It is difficult to escape the conclusion that the instant litigation represents little more than an attempt by a disappointed shipper to gain from the Iowa courts the relief it was denied by the commission. Id. at 324, 101 S.Ct. at 1133. 21 Through its common-law claim of breach of the contractual duty of good faith and fair dealing, CIG obtained an award of damages that allowed it to collect H-1 fixed costs for unpurchased H-1 gas. FERC and this court have repeatedly denied CIG's request to modify the minimum purchase obligation of the Service Agreement to allow it to collect this rate for failure to purchase gas. Colorado Interstate Gas, 791 F.2d at 808-09. By allowing CIG to press this claim, the district court gave CIG a second chance to which it was not entitled. 22 Nevertheless, CIG argues that this case is distinguishable from Kalo Brick & Tile 9 and is not a collateral attack upon FERC's decision because FERC denied CIG H-1 fixed costs for unpurchased H-1 gas only if Natural decided not to purchase gas in good faith. CIG contends, once Natural decided to shut in CIG's gas in order to harm CIG, FERC's remedy for failure to purchase gas, a remedy which did not allow collection of H-1 fixed costs, was no longer intended by FERC to apply. Essentially, CIG is asking us to imply a good faith limitation upon the scope of FERC's remedy for failure to purchase gas. 23 While we find CIG's argument forceful, we cannot ignore the Supreme Court's vigorous effort to insure agency action is not blunted by state regulation. See, e.g., Nantahala Power and Light Co. v. Thornburg, 476 U.S. 953, 106 S.Ct. 2349, 90 L.Ed.2d 943 (1986) (state regulated rate for retail sale of gas did not give enough weight to FERC determined rate for wholesale gas sales); Kalo Brick & Tile, 450 U.S. at 326, 101 S.Ct. at 1134. We think that limiting the scope of the FERC developed remedy for failure to purchase gas in the manner suggested by CIG would permit circumvention of FERC authority through state contract law. In order for FERC's remedy to be effective, it must have room to breathe. As the Supreme Court has stated, Respondents' theory of the case would give inordinate importance to the role of contracts between buyers and sellers in the federal scheme for regulating the sale of natural gas. Arkansas Louisiana Gas, 453 U.S. at 582, 101 S.Ct. at 2932. We think this statement applies with equal force to this case. 24 Further, the limited evidence we have suggests FERC intended the collection of F-1 fixed costs to be the exclusive contract remedy for failure to purchase gas. FERC's amicus brief notes the jury awarded damages for antitrust, tort, and breach of contract claims. Nevertheless, FERC only sought to have the damages for breach of contract reversed. FERC did not distinguish between the breach of contract damages awarded for bad faith failure to purchase gas and those awarded for failure to purchase gas under Section 2 of the Service Agreement. 10 25 This interpretation of FERC's intent mirrors FERC's interpretation of the scope of its actions in a closely analogous context. During the gas shortage of the early 1970's, FERC permitted sellers of gas to curtail their contractually agreed upon deliveries of gas, if the curtailment was carried out in accordance with plans on file with FERC. See, e.g., United Gas Pipe Line Co. v. FERC, 824 F.2d 417, 421 (5th Cir.1987). Buyers who did not receive gas they contracted for sued sellers based upon breach of contract and various tort theories. Id.; see also CF Industries v. Transcontinental Gas Pipe Line, 614 F.2d 33 (4th Cir.1980). In response, sellers sought to have FERC modify their service agreements to exculpate them from liability for failure to deliver gas to buyers curtailed under curtailment plans. FERC declined to deny the purchasers all remedies for the sellers' failure to deliver gas stating: 26 Claims that are essentially breach of contract in nature and arise because of curtailments initiated and conducted in accordance with effective curtailment tariffs are preempted by federal law, which nullifies them. But claims that require a finding of negligence to permit recovery remain unaffected. 27 Transcontinental Gas Pipe Line, 35 F.E.R.C. paragraphs 61,043, 61,080 (April 7, 1986) (emphasis added). 11 28 We believe FERC intended to draw the same line for failure to take gas as it drew for failure to purchase. Actions based upon tort were not meant to be preempted by FERC's modification of the contract, while actions based upon breach of contract were. Any other distinction would impermissibly undermine the effectiveness of FERC orders. Thus, the jury's verdict for bad faith breach of contract must be reversed.
29 The gravamen of CIG's tortious interference with contract claim is that Natural intentionally stopped taking gas from CIG in order to force CIG to relinquish its contractual right to purchase Whitney Canyon gas from Champlin Petroleum. CIG alleged Natural was motivated by a desire to acquire the rights to purchase Whitney Canyon gas. After CIG gave up its rights to the Whitney Canyon reserves, Natural did, in fact, acquire the gas. 30 Natural argues that the jury's verdict, awarding damages for tortious conduct, must be reversed because CIG's claim is preempted by FERC's modification of the minimum purchase provisions. Natural also asserts that because the Service Agreement allowed it to stop purchasing gas, it may not be held liable for tortious interference based on that conduct. We disagree. 31 FERC's modification of the contract remedy for failure to purchase gas does not limit CIG's right to seek damages for tortious interference with contract. As noted above, in an analogous situation, FERC decided that although it eliminated a gas seller's contractual liability for failure to sell gas to curtailed customers, buyers who did not receive contractually agreed upon volumes of gas could maintain suits based upon a seller's negligent or willful misconduct. United Gas Pipe Line, 824 F.2d at 430. By not contesting tortious interference damages, FERC apparently made the same distinction in this case. Although Kalo Brick & Tile requires preemption of tort actions which conflict with agency orders, 450 U.S. at 326-27, 101 S.Ct. at 1134-35, we decline to find preemption where FERC currently perceives no conflict. 32 More difficult to evaluate is Natural's assertion that its contractual right to choose between purchasing gas or paying CIG for gas not purchased immunized it from a tortious interference claim based upon failure to purchase. There is some support for the proposition that conduct which is otherwise lawful ought not form the basis of a tortious interference claim simply because the alleged tort-feasor is motivated by a desire to interfere with the plaintiff's contractual relations. See Circo v. Spanish Gardens Food Mfg. Co., 643 F.Supp. 51, 56 (W.D.Mo.1985); Perlman, Interference with Contract and Other Economic Expectancies: A Clash of Tort and Contract Doctrine, 49 U.Chi.L.Rev. 61, 128 (1982). Advocates of this position are reluctant to impose limitations on conduct which is otherwise permitted in an economy based upon vigorous competition. Perlman, supra at 78. 33 While we are sympathetic to this view and recognize that the law of tortious interference is evolving, see Restatement (Second) of Torts, ch. 37, introductory note at 5 (1977), we believe that the better position is that taken by the Restatement and followed by many courts. This line of authority holds that motive can be a determinative factor in converting otherwise lawful behavior into improper conduct for which the defendant will be liable. Restatement (Second) of Torts Sec. 767 comment d (1977); Alyeska Pipeline Serv. Co. v. Aurora Air Serv., Inc., 604 P.2d 1090, 1093 (Alaska 1979); see also Perlman, Interference with Contract, 49 U.Chi.L.Rev. 61, 78 (1982). Indeed, Professor Prosser has described the contours of the tort stating that no specific conduct is prohibited ... and liability turns on the purpose for which the defendant acts. W. Prosser, Law of Torts Sec. 129, at 979 (5th ed. 1984). 34 Natural's interest in being free to adjust its purchases of gas is not so strong that it cannot be limited by a requirement not to exercise its discretion for the purpose of interfering with CIG's contractual relationships. Alyeska Pipeline, 604 P.2d at 1093 (right to terminate contract at will did not prevent liability for tortious interference based upon termination of that contract). The tortious interference verdict will stand. 12