Colorado Interstate Gas Co. v. Natural Gas Pipeline Co. of America, NGPL-T

• Decision Date: 11 September 1989
• Docket Number: 87-2123,NGPL-T,Nos. 87-2109,s. 87-2109
• Citation: 885 F.2d 683
• Parties: , 1989-2 Trade Cases 68,751 COLORADO INTERSTATE GAS COMPANY, Plaintiff/Counterclaim-Defendant/Appellee, v. NATURAL GAS PIPELINE COMPANY OF AMERICA;railblazer, Inc., Defendants/Counter-claimants/Appellants, v. WYOMING INTERSTATE COMPANY, LTD.; the Coastal Corporation, Counterclaim-Defendants/Appellees. Midcon Ventures, Inc., Counterclaimant. Federal Energy Regulatory Commission, Amicus Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 683

885 F.2d 683

58 USLW 2209, 1989-2 Trade Cases 68,751

COLORADO INTERSTATE GAS COMPANY, Plaintiff/Counterclaim-Defendant/Appellee, v. NATURAL GAS PIPELINE COMPANY OF AMERICA; NGPL-Trailblazer, Inc., Defendants/Counter-claimants/Appellants, v. WYOMING INTERSTATE COMPANY, LTD.; the Coastal Corporation,

Counterclaim-Defendants/Appellees.

Midcon Ventures, Inc., Counterclaimant.

Federal Energy Regulatory Commission, Amicus Curiae.

Nos. 87-2109, 87-2123.

United States Court of Appeals Tenth Circuit.

Sept. 11, 1989.

Michael L. Beatty of Colorado Interstate Gas Co., Colorado Springs, Colo., (Rebecca H. Noecker of Colorado Interstate Gas Company, Colorado Springs, Colo., William F. Baxter of Shearman & Sterling, Stanford, Cal., William C. McClearn, James E. Hartley, Joseph W. Halpern, Elizabeth A. Phelan, and Timothy M. Rastello of Holland & Hart, Denver, Colo., J. Kent Rutledge of Lathrop & Uchner, P.C., Cheyenne, Wyo., with him on the briefs), for plaintiff/counterclaim-defendants/appellees.

Phillip Areeda, Cambridge, Mass., (William H. Brown of Brown & Drew, Casper, Wyo., Paul J. Hickey of Rooney, Bagley, Hickey, Evans & Statkus, Cheyenne, Wyo., Gerald M. Stern and Charles E. Foster, Los Angeles, Cal., Joseph M. Wells and Paul E. Goldstein, Lombard, Ill., John T. Cusack and Michael P. Padden of Gardner, Carton & Douglas, Chicago, Illinois; J. Curtis Moffatt and Paul Korman of Gardner, Carton & Douglas, Washington, D.C., Harvey I. Saferstein and Steven A. Marenberg of Irell & Manella, Los Angeles, Cal., and Louis Nizer and Paul Martinson of Phillips, Nizer, Benjamin, Krim & Ballon, New York City, with him on the brief), for defendants/counterclaimants/appellants.

Catherine C. Cook, Gen. Counsel, Jerome M. Feit, Sol., and Joshua Z. Rokach, Atty., of the F.E.R.C., Washington, D.C., for amicus curiae.

Before MOORE, ANDERSON, and BALDOCK, Circuit Judges.

JOHN P. MOORE, Circuit Judge.

This is an appeal from an order of the district court refusing to grant judgment notwithstanding the verdict or a new trial for the defendants, Natural Gas Pipeline Company of America (Natural) and NGPL-Trailblazer. 661 F.Supp. 1448. The jury awarded the plaintiff, Colorado Interstate Gas Company (CIG), $724,033,361 in damages based on CIG's claim that Natural attempted to monopolize the market for long distance transportation of Wyoming gas, breached its contract with CIG, and tortiously interfered with CIG's contractual relations. While the district court reduced the jury award to $412,237,972, Natural argues that the district court failed to rectify the underlying legal errors on which the judgment was based.

Natural deploys a two-pronged attack against each of CIG's claims. First, it asserts that the award of damages for conduct approved by the Federal Energy Regulatory Commission (FERC) impermissibly interferes with FERC's authority to regulate gas sales and transportation markets. Second, Natural argues, in the alternative, that the substantive law of contracts, torts, and antitrust, requires the reversal of the jury's verdict on each claim. We hold that in light of FERC's orders concerning the basic issues underlying the breach of contract dispute, deference to FERC authority requires that we reverse the breach of contract verdict. We further hold that CIG failed to establish there was a dangerous probability that Natural would monopolize the long distance transportation market. Therefore, we reverse the antitrust verdict. The claim for tortious interference with contractual relations neither interferes with FERC's authority nor is substantively flawed; thus, the jury's verdict on that claim will stand.

I. Introduction

CIG and Natural are owners of pipelines which transport natural gas. For many years, Natural has purchased gas from CIG and transported that gas to markets in the Midwest and East. In July 1982, CIG and Natural entered into a new contract (the Service Agreement or Agreement) which obliged CIG to deliver and Natural to purchase specified quantities of natural gas. CIG sold two types of gas to Natural. Field gas was sold at a lower rate (F-1 rate) than gas which was delivered from CIG's main transmission line (H-1 rate). The contract set forth how much gas Natural was required to purchase, both on a annual and on a daily basis. Like previous service agreements between Natural and CIG, the 1982 Service Agreement also contained a minimum bill provision which allowed CIG to bill Natural at a predetermined rate for gas which Natural reserved but did not purchase.

Because CIG's Service Agreement with Natural involved the interstate sale of natural gas, the rates and terms specified in the Agreement required approval by FERC. When, in 1982, CIG sought FERC approval, Natural intervened to protest both the rate increase and its contractual obligation to pay CIG for gas it did not purchase. In response to Natural's intervention, FERC modified the terms of the Service Agreement to reduce the price Natural was required to pay for unpurchased gas.

In July 1983, Natural sharply reduced its gas purchases from CIG. Natural paid CIG what Natural determined to be the FERC modified rate for unpurchased gas. Natural's decrease in purchases forced CIG to stop purchasing gas from some of its suppliers. One of those suppliers, Champlin Petroleum, supplied gas to CIG from the Whitney Canyon gas fields in southern Wyoming. Although Natural claimed that it quit purchasing gas from CIG because it had an oversupply of gas, the evidence made this claim problematical. As soon as CIG ceased purchasing Whitney Canyon gas, Natural made arrangements to purchase that gas directly from Champlin. Indeed, CIG presented evidence that Natural purchased gas from many sources to replace lost volumes from CIG. This substitute gas was often more expensive than CIG's gas. On occasion, Natural resumed purchases of gas from CIG when CIG was attempting to sell gas to new customers. Natural's decision to stop purchasing gas and the losses CIG experienced as a result of that decision form the basis of this litigation.

II. CIG's Common Law Claims

A. Breach of Contract

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.

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

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

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).

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.

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...