Olympic Pipe Line Co. v. City of Seattle

• Decision Date: 08 February 2006
• Docket Number: No. 04-35307.,04-35307.
• Citation: 437 F.3d 872
• Parties: OLYMPIC PIPE LINE COMPANY, a Delaware corporation, Plaintiff-Appellee, v. CITY OF SEATTLE, a Washington municipal corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 872

437 F.3d 872

OLYMPIC PIPE LINE COMPANY, a Delaware corporation, Plaintiff-Appellee, v. CITY OF SEATTLE, a Washington municipal corporation, Defendant-Appellant.

No. 04-35307.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 14, 2005.

Filed February 8, 2006.

William H. Patton, City of Seattle, Seattle, WA, for the defendant-appellant.

G. Val Tollefson and Katherine Kennedy, Danielson Harrigan Leyh & Tollefson LLP, Seattle, WA, for the plaintiff-appellee.

Kevin Hawley, Lima, OH, for the amicus.

Appeal from the United States District Court for the Western District of Washington; Robert S. Lasnik, District Judge, Presiding. D.C. No. CV-03-02343-RSL.

Before: PREGERSON, GRABER, and GOULD, Circuit Judges.

GOULD, Circuit Judge:

We must decide whether the City of Seattle ("Seattle" or "the City") can enforce specific provisions of two contracts it has with the Olympic Pipe Line Company ("Olympic") to provide safety oversight of a hazardous liquid pipeline within Seattle's city boundaries, despite the apparent federal preemption of hazardous liquid pipeline safety regulation by the Pipeline Safety Improvement Act of 2002, 49 U.S.C. § 60101 et seq. ("PSA").

After a section of Olympic's hazardous liquid pipeline exploded in Bellingham, Washington, killing three people and causing extensive environmental damage, Seattle declined to renew Olympic's franchise for the section of pipeline within the city limits until Olympic complied with the City's list of pipeline safety demands.¹ If Olympic failed to comply, the City said it would shut down the operation of Olympic's pipeline within Seattle's city limits. Declining to comply with Seattle's demands, Olympic filed suit for injunctive and declaratory relief, asserting that, even though the franchise agreement between Seattle and Olympic arguably included safety oversight provisions, Seattle's attempt to impose safety regulations pursuant to those provisions was preempted by the PSA. The district court granted Olympic's motion for a preliminary injunction, halting Seattle's effort to shut down Olympic's pipeline. The district court then granted summary judgment in favor of Olympic, determining that Seattle's regulatory efforts were preempted by the PSA.

We have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm.

I

The Olympic Pipe Line Company operates a 400-mile pipeline system spanning parts of Washington and Oregon. Olympic's main pipeline is a 299-mile conduit beginning about fifteen miles from the Washington-Canada border, at a refinery near Ferndale, Washington, and running southward to its terminus in Portland, Oregon. Lateral delivery lines carry petroleum products from the main pipeline to bulk terminals at Seattle, Seattle-Tacoma International Airport, Tacoma, Olympia, and Vancouver, Washington, as well as Linnton and Portland, Oregon. The lateral pipeline at the center of this dispute is Olympic's Seattle Lateral Line ("Seattle Lateral"), which branches from Olympic's main pipeline in Renton, Washington, travels through the cities of Renton, Federal Way, and Seattle, and ends at the commercial shipping terminals on Harbor Island.² Seven miles of the twelve-mile long Seattle Lateral are located in the City of Seattle.³ This section of the Seattle Lateral runs by elementary schools and a residential neighborhood, underneath Interstate 5, and next to electricity transmission lines.

Seattle originally granted Olympic a franchise to operate its pipeline within Seattle city limits in 1966. The Seattle City Council adopted the most recent franchise agreement between the parties, effective January 1, 1991, as Seattle City Ordinance 116331 ("Franchise Agreement").⁴ The Franchise Agreement permitted Olympic to maintain and operate its pipeline under and along certain Seattle public streets and rights-of-way for a ten-year term, with the possibility for two additional ten-year renewals. Seattle conditioned Olympic's franchise on the execution of an Indemnity Agreement, ensuring the City that Olympic's pipeline would "not result in the City incurring any liability, environmental or otherwise, as a result of Olympic Pipe Line's Pipeline or operations pursuant to the Permit."

On June 10, 1999, a section of Olympic's main pipeline exploded near Whatcom Creek in Bellingham, Washington, spilling approximately 230,000 gallons of unleaded gasoline, killing three people, and causing millions of dollars of property and ecological damage. The accident caused Olympic to shut down the northern half of its pipeline until February 2001; to spend millions of dollars to remediate the environmental damage caused by the accident; and to repair, inspect, and upgrade its pipeline. Relevant to Seattle's demands, after the 1999 rupture Olympic entered into several agreements with the City of Bellingham, which included giving some safety oversight powers to Bellingham and agreeing to perform a hydrostatic test of the pipeline. Olympic also conducted hydrostatic tests on three sections of its pipeline located in the cities of Bellingham, Woodinville, and Renton. During each hydrostatic test, a portion of the tested pipeline failed along a longitudinal seam.

Seattle did not automatically renew Olympic's franchise for the Seattle Lateral upon its December 31, 2000, expiration. Instead, Seattle first sought information from Olympic and the applicable regulating state and federal agencies regarding pipeline safety. The City then hired a consultant, SECOR International, Inc. ("SECOR"), to investigate possible pipeline integrity issues. SECOR's investigation culminated in Seattle's requesting that Olympic respond to thirty-three safety concerns before the City would determine whether it would agree to a new franchise agreement. Among the listed items, Seattle requested that Olympic complete a hydrostatic test of the Seattle Lateral. Olympic refused to perform the test.

Seattle responded with two letters, one from the Director of Transportation and one from the Mayor. The Transportation Director's letter notified Olympic that Seattle was suspending all pipeline operations no later than sixty days from the letter's date until the parties agreed upon a new franchise agreement, and that Olympic's failure to comply would subject the company to criminal sanctions. The Mayor's letter notified Olympic that, because of Olympic's bankruptcy⁵ and the refusal of Olympic's corporate parent⁶ to provide a corporate guarantee, Seattle would not grant a new franchise agreement until a solvent Olympic or its successor company emerged from bankruptcy. The Mayor's letter also stated that as of August 26, 2003, he would suspend Olympic's operation of the Seattle Lateral; however, he would rescind that order if Olympic could prove the pipeline was safe by performing a hydrostatic test of the pipeline and two inspection digs within sixty days, or before Seattle schools returned to session. Mayor Nickels asked for a response indicating Olympic's intentions by July 11, 2003.⁷

Instead of responding, on July 16, 2003, Olympic filed this action against Seattle⁸ for injunctive relief restraining the City from ordering Olympic to shut down the Seattle Lateral and a declaratory judgment that: (1) the PSA preempts Seattle's attempts to control, regulate, or otherwise interfere with matters relating to the safety, design, construction, testing, or operation of Olympic's pipeline; (2) the termination or denial of Olympic's franchise would be a violation of the Commerce Clause; and (3) the franchise fees sought by Seattle were arbitrary and unreasonable. See Olympic Pipe Line Co. v. City of Seattle, 316 F.Supp.2d 900, 901 (W.D.Wash.2004). On August 21, 2003, the district court granted Olympic's motion for a preliminary injunction, enjoining Seattle from closing down the Seattle Lateral.⁹ Id.

The parties then both moved for summary judgment. The district court granted Olympic's motion in part, declaring that the PSA preempted the City's attempts to regulate the safety and inspection of the Seattle Lateral. Id. at 902-03. Contrary to Seattle's claims, the district court held that Olympic did not "waive" its ability to claim federal preemption. Id. at 904-05. The court also concluded that the City's actions were preempted because, in attempting to enforce the safety provisions of its contract, Seattle was acting in its regulatory rather than proprietary capacity. Id. at 905-06. Finally, the court noted that its determination did not preclude Seattle from taking other actions possibly affecting Olympic's continued operation of the pipeline.¹⁰ Id. at 907 & n. 8. The court enjoined Seattle from ordering Olympic to undertake particular inspections or implement particular safety measures on the Seattle Lateral. Seattle timely appealed.¹¹

On appeal, Seattle argues that its attempt at safety regulation is not preempted by the PSA because the PSA does not "fill the field" of pipeline safety regulation. Seattle also asserts that, even if the PSA does preempt the City's actions, Olympic waived its right to raise preemption as a defense when the company entered into the Franchise Agreement and the Indemnity Agreement. Finally, the City contends that public policy requires that the agreements be enforced.

We turn first to the question of federal preemption: whether the PSA preempts a municipality's attempt to impose safety standards on a hazardous liquid pipeline.¹²

II

The Supremacy Clause of Article VI of the United States Constitution grants Congress the power to preempt state or local law. U.S. Const. art. VI, § 2; AGG Enters., 281 F.3d at 1327. Under the doctrine of preemption, a federal law can displace state law through express preemption, field preemption, or conflict preemption.¹³ See, e.g., Schneidewind v. ANR Pipeline Co., 485 U.S. 293, 299-300, 108 S.Ct. 1145, 99 L.Ed.2d 316 (1988); Cal. Fed. Sav. & Loan Ass'n v. Guerra, 479 U.S. 272, 280-81, 107 S.Ct. 683, 93 L.Ed.2d 613 (1987)....