Rejecting arguments from a virtual who’s who of Big Law energy firms, the U.S. Court of Appeals for the Ninth Circuit ruled Wednesday that retail consumers of natural gas can pursue state law antitrust claims stemming from Enron-era price manipulation.
Polsinelli Shughart senior partner Jennifer Gille Bacon said the claims are worth hundreds of millions or even billions if tried. A former Missouri Bar Association president, Bacon and her co-counsel at Milwaukee’s Kohner, Mann & Kailas litigated the appeal against Sidley Austin; Pillsbury Winthrop Shaw Pittman; Fulbright & Jaworski; Quinn Emanuel Urquhart & Sullivan; Dickstein Shapiro; Hogan Lovells; Orrick, Herrington & Sutcliffe; Locke Lord; GableGotwals; and Baker Botts.
The gas companies argued that state law claims are pre-empted by the federal Natural Gas Act and the Federal Energy Regulatory Corp.’s Code of Conduct. But Judge Carlos Bea said no, citing a 2007 Ninth Circuit decision, E&J Gallo Winery v. EnCana, plus two D.C. Circuit opinions. "Our reasoning in Gallo applies with equal force to the question presented by this case," Bea wrote. "Federal pre-emption doctrines do not preclude state law claims arising out of transactions outside of FERC’s jurisdiction."
Judges Paul Watford and William Sessions III, a Vermont federal judge sitting by designation, concurred.
In re Western States Wholesale Natural Gas Litigation stems from the notorious manipulation of natural gas prices that occurred during the 2000-01 energy crisis. "It’s a fact pattern that may be familiar to many of you," is how Bacon put it to the Ninth Circuit judges at argument last year.
The plaintiffs — industrial businesses, schools and medical centers in Missouri, Kansas, Wisconsin and Colorado — began bringing class claims on behalf of large retail consumers of natural gas in 2005. They allege that traders at companies including Dynegy, AEP Energy, CMS Energy and El Paso Merchant Energy reported false information to trade publications’ price indices and/or engaged in sham sales to artificially inflate natural gas prices.
FERC has jurisdiction over gas prices to wholesalers, not to the retailers who sold gas to the plaintiffs. But the energy companies argued that the alleged pricing scheme was all of one piece, and is therefore solely a matter of federal law.
"The critical point that appellants are missing," Sidley partner Mark Haddad told the Ninth Circuit, "is that FERC, to meaningfully regulate the practices of price reporting, has to regulate the reporting on all sales, not just on the jurisdictional sales."
The Ninth Circuit wasn’t buying.
"When Congress enacted the NGA in 1938, it expressly limited federal jurisdiction over natural gas to ‘the sale in interstate commerce of natural gas for resale,’" Bea wrote for the unanimous panel, and the Supreme Court, Ninth Circuit and Federal Circuit all have read that jurisdiction narrowly. His ruling reversed an order of dismissal by U.S. District Judge Philip Pro of Nevada.
The energy companies did chalk up some minor wins. The plaintiffs were denied leave to amend their complaints to include federal antitrust claims, and a Duke Energy subsidiary was dismissed from the Wisconsin litigation.
On the other hand, the plaintiffs persuaded the Ninth Circuit to reverse a district court order dismissing AEP from the Wisconsin and Missouri suits.
Polsinelli Shughart’s Bacon is a business litigator whose practice is split about evenly between plaintiff and defense work. In Western States, "There are outstanding counsel on the other side of the case," she said. "They have fought long and hard, and probably will continue to do so."