Court Opinion

ID: 2995347
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:19:51.217553+00
Date Added: 2024-06-11T11:45:25.087818
License: Public Domain

In the
United States Court of Appeals
For the Seventh Circuit

No. 00-4340

Midwestern Gas Transmission Company,

Plaintiff-Appellant,

v.

William D. McCarty, et al.,

Defendants-Appellees.

Appeal from the United States District Court
for the Southern District of Indiana, Indianapolis Division.
No. 00 C 592--David F. Hamilton, Judge.

Argued September 24, 2001--Decided November 2, 2001

  Before Posner, Ripple, and Kanne, Circuit
Judges.

  Posner, Circuit Judge. This is a suit by
an interstate natural-gas pipeline,
Midwestern, to enjoin the Southern
Indiana Gas and Electric Company (SIGECO)
from prosecuting an action before the
Indiana Utility Regulatory Commission
(IURC) and the Commission from
entertaining the action. SIGECO seeks in
that action a ruling that Midwestern
must, pursuant to Ind. Code sec.sec. 8-1-
2-87, 87.5, obtain IURC’s permission to
connect its pipeline to two industrial
users of gas in Indiana who purchased
their gas from out of state sellers other
than Midwestern but seek delivery of the
gas from Midwestern, which has a pipeline
close to these users. The Federal Energy
Regulatory Commission (FERC) had approved
the connection upon application by
Midwestern in a proceeding that began
prior to the proceeding initiated by
SIGECO before the Indiana commission,
which in fact had stayed its proceeding
to await the outcome of the proceeding
before FERC.

  The ground of Midwestern’s suit was that
the Natural Gas Act preempts the state
regulatory law on which SIGECO has based
its action before the Indiana commission.
The district court dismissed the suit,
ruling that the Younger doctrine (on
which see, e.g., Younger v. Harris, 401
U.S. 37, 43-53 (1971); New Orleans Public
Service, Inc. v. Council of City of New
Orleans, 491 U.S. 350, 364-70 (1989);
Lynk v. LaPorte Superior Court No. 2, 789
F.2d 554, 557-60 (7th Cir. 1986))
required Midwestern, if it wanted to
argue preemption, to argue it as a
defense in the proceeding before the
state commission.

  Younger holds that federal courts are
not to use their equity powers to enjoin
proceedings in state courts or (see Ohio
Civil Rights Comm’n v. Dayton Christian
Schools, Inc., 477 U.S. 619, 626-27
(1986)) administrative agencies
merelybecause the person seeking the
injunction has a federal defense to the
state proceeding. States oughtn’t to be
impeded in their efforts to enforce their
own laws in their own courts and
administrative agencies by injunctions
issued at the behest of defendants in
state proceedings who, seeking to delay
and if possible derail those proceedings
in midcourse, run to a federal court for
an injunction against the continuation of
the proceeding. Hoover v. Wagner, 47 F.3d
845, 848 (7th Cir. 1995); Grode v. Mutual
Fire, Marine & Inland Ins. Co., 8 F.3d
953, 957 (3d Cir. 1993); Champion
International Corp. v. Brown, 731 F.2d
1406, 1408 (9th Cir. 1984). The policy
has no application to a case such as
this, in which, because of dual federal-
state jurisdiction over an activity, here
the sale and distribution of natural gas,
a federal proceeding (here before the
Federal Energy Regulatory Commission)
overlapping the state proceeding reaches
completion while the state proceeding is
still pending at an early stage. There is
no affront to the state’s prerogative of
enforcing its own laws when valid federal
law has created a federal forum for the
determination of issues that the state
proceeding would be able to consider and
the proceeding in the federal forum
determines those issues before the
counterpart state forum is ready to do
so. "[P]rinciples of comity and
federalism do not require that a federal
court abandon jurisdiction it has
properly acquired simply because a
similar suit is later filed in a state
court." Town of Lockport v. Citizens for
Community Action at Local Level, Inc.,
430 U.S. 259, 264 n. 8 (1977); see also
Montclair Parkowners Ass’n v. City of
Montclair, 264 F.3d 829, 830-31 (9th Cir.
2001); Polykoff v. Collins, 816 F.2d
1326, 1332-33 (9th Cir. 1987); Mobil Oil
Corp. v. City of Long Beach, 772 F.2d
534, 542-43 (9th Cir. 1985).

  The Natural Gas Act grants the Federal
Energy Regulatory Commission jurisdiction
to regulate the interstate transportation
of natural gas, 15 U.S.C. sec. 717(b),
and the Supreme Court has held that the
Commission’s jurisdiction is exclusive;
state regulation is preempted. Northwest
Central Pipeline Corp. v. State
Corporation Comm’n, 489 U.S. 493, 506-07
(1989); Schneidewind v. ANR Pipeline Co.,
485 U.S. 293, 300-01 (1988); see also
Cascade Natural Gas Corp. v. FERC, 955
F.2d 1412, 1421 (10th Cir. 1992). It
seems to us, as it has seemed to the
other courts to have addressed the issue,
see id. at 1418-19; Public Utilities
Comm’n v. FERC, 900 F.2d 269, 276-77
(D.C. Cir. 1990); Michigan Consolidated
Gas Co. v. Panhandle Eastern Pipe Line
Co., 887 F.2d 1295, 1300 (6th Cir. 1989),
that the transportation of natural gas
bought and produced out of state to
Indiana residents via Midwestern’s
pipeline is interstate transportation
rather than being intrastate
transportation from, as it were, the
purchasers to themselves. It is via the
pipeline that gas is brought from out-of-
state producers to Indiana residents.
Midwestern was therefore required to
obtain, and so sought and did obtain,
FERC’s authorization to build the lines
necessary to connect its pipeline to the
premises of the buyers. See 15 U.S.C.
sec. 717f(c); 18 C.F.R. sec. 157;
Northwest Central Pipeline Corp. v. State
Corporation Comm’n, supra, 489 U.S. at
520.

  SIGECO, which would like to be the
supplier of these buyers, was entitled to
participate as a party in the FERC
proceeding. 15 U.S.C. sec. 717f(c)(1)(B);
18 C.F.R. sec. 157.10; United Gas Pipe
Line Co. v. McCombs, 442 U.S. 529, 538
(1979). As a party, litigating under a
broad public convenience and necessity
standard, it could make a wide range of
arguments against the grant of permission
to Midwestern to build the spur to the
users--such arguments as that a pipeline
with which SIGECO has a contract is
nearer to the buyers (five thousand feet
versus three miles) and that therefore
less construction of new distribution
lines, with possible adverse
environmental consequences, would be
necessary. Midcoast Interstate
Transmission, Inc. v. FERC, 198 F.3d 960,
967-68 (D.C. Cir. 2000). SIGECO made a
number of such arguments, which were
rejected, setting the stage for a
collateral estoppel argument by
Midwestern that we’ll not have to
consider. SIGECO could have made every
one of the arguments that it seeks to
make (and that Midwestern seeks to enjoin
it from making) in the proceeding before
the Indiana commission, which SIGECO
contends has the authority, by virtue of
the two provisions of the Indiana Code
that we cited earlier, which indeed
require IURC’s permission to hook up a
pipeline within the state to a purchaser
within the state, to forbid Midwestern to
connect to the two users even though FERC
has authorized it to do so.

  Whether or not a state has some residual
authority to block a connection
authorized by FERC (dual federal-state
authority to deny needed permits is of
course common), we cannot see how the
Younger doctrine is impaired by forcing a
disputant to make his arguments in the
first authorized forum to become seised
of his dispute, just because that forum
may be federal and a state proceeding may
be stacked, as it were, behind it.
Indeed, there is a peculiar perversity in
SIGECO’s invocation of the Younger
doctrine. It is a doctrine that channels
all proceedings into a single forum, the
state court or agency, see Hickey v.
Duffy, 827 F.2d 234, 239 (7th Cir. 1987);
Waldron v. McAtee, 723 F.2d 1348, 1357
(7th Cir. 1983); Ballard v. Wilson, 856
F.2d 1568, 1570 (5th Cir. 1988), whereas
SIGECO is arguing for using the doctrine
to split the proceedings between federal
and state agencies. The injunction sought
by Midwestern merely seeks to prevent
vexatious litigation by a disappointed
party, namely SIGECO, in the federal
regulatory proceeding.

  There is more that is wrong with
invocation of the Younger doctrine in
this case. The doctrine presupposes that
the state has a valid interest that it is
seeking to enforce, even if there may be
objections based on federal law to a
particular enforcement proceeding. For
example, no one doubts that a state has a
valid interest in enforcing the ethical
rules governing the behavior of lawyers
in the state’s courts, though in a
particular case there might be a valid
federal defense--the proceeding might
violate due process or some other federal
right. If the state does not have such an
interest, if for example it is seeking to
regulate activities that clearly are
under exclusive federal control, then
there is no basis for invoking Younger.
See Chaulk Services, Inc. v.
Massachusetts Comm’n Against
Discrimination, 70 F.3d 1361, 1370 (1st
Cir. 1995), and cases cited there;
Norfolk & Western Ry. v. Public Utilities
Comm’n of Ohio, 926 F.2d 567, 573 (6th
Cir. 1991). This is not to say that a
defense of federal preemption
automatically defeats Younger, the
position rejected in New Orleans Public
Service, Inc. v. Council of City of New
Orleans, supra, 491 U.S. at 364-67. That
would be question-begging. The state
court has the same right and power to
decide a defense of preemption as it does
to decide any other federal defense. But
the state here is not asserting a state
interest; it is trying to take control of
the interstate market in natural gas.
There just is no way in which forcing
Midwestern to obtain IURC’s permission to
deliver gas to these Indiana purchasers
from out of state can be thought to
advance a legitimate state interest. Mere
defiance of clear federal law removing an
area from potential state regulation is
not such an interest.

  We can see this more clearly by asking
just what SIGECO’s "interest" in the case
is--why it wants to block Midwestern from
delivering gas to these Indiana
establishments. SIGECO is a local gas
distribution company that has contracts
with several pipelines, not including
Midwestern. The pipelines do not sell gas
themselves, they merely transport it, but
they have affiliates that sell the gas
they transport. The affiliates of the
pipelines that supply SIGECO are in
competition with the gas companies that
sold the gas to the two Indiana
purchasers who want Midwestern to deliver
it to them. If SIGECO can persuade the
Indiana commission to forbid Midwestern
to deliver the gas, these purchasers will
have to rescind their purchases and
instead buy from an affiliate of one of
the pipelines with which SIGECO has a
contract; in that event SIGECO will make
the connection between the pipeline and
the customer’s premises and obtain a fee
for doing so. In other words, SIGECO is
seeking to enlist the State of Indiana in
an effort to limit interstate competition
in the sale of natural gas, specifically
an effort to compel users of gas in
SIGECO’s market area to buy from a
supplier contractually linked to SIGECO.
SIGECO wants to charge a toll to anyone
who sells gas in its service area.

  But Congress and FERC have ordained, the
former in deregulatory amendments to the
Natural Gas Act and the latter in a host
of implementing regulations, that there
shall be a nationwide competitive market
in the sale of natural gas. See Natural
Gas Policy Act of 1978, Pub. L. No. 95-
621; Natural Gas Wellhead Decontrol Act
of 1989, Pub. L. No. 101-60, both
codified at 15 U.S.C. sec. 3301 et seq.;
Department of Energy, Federal Energy
Regulatory Commission, Order No. 636, 57
Fed. Reg. 13267, 13268-69 (1992);
Department of Energy, Federal Energy
Regulatory Commission, Order No. 436, 50
Fed. Reg. 42408, 42411 (1985); General
Motors Corp. v. Tracy, 519 U.S. 278, 283-
84 (1997); Richard J. Pierce, Jr., "The
Evolution of Natural Gas Regulatory
Policy," 10 Natural Resources &
Environment 53, 54-55 (Summer 1995);
Michael J. Doane & Daniel F. Spulber,
"Open Access and the Evolution of the
U.S. Spot Market for Natural Gas," 37 J.
Law & Econ. 477 (1994). It was pursuant
to this federal policy that Midwestern
was authorized by FERC to deliver the gas
ordered from out of state by Indiana
purchasers. SIGECO must be enjoined from
harassing the purchasers and Midwestern
by pursuing a state regulatory proceeding
aimed at undoing the results of a federal
regulatory proceeding.

  The judgment denying the relief sought
by Midwestern is reversed and the case is
remanded to the district court for
further proceedings consistent with this
opinion.

Reversed and Remanded.