Alliance Energy Servs., LLC v. Kinder Morgan Cochin LLC

• Decision Date: 21 January 2015
• Docket Number: Case No. 14–cv–1668 SRN/TNL.
• Citation: 80 F.Supp.3d 963
• Parties: ALLIANCE ENERGY SERVICES, LLC, a Minnesota Limited Liability Corporation, Plaintiff, v. KINDER MORGAN COCHIN LLC, a Delaware limited liability corporation; Kinder Morgan Cochin ULC, an Alberta unlimited liability corporation; Kinder Morgan G.P., Inc., a Delaware corporation; and Kinder Morgan Management, LLC, a Delaware limited liability company, Defendants.
• Court: U.S. District Court — District of Minnesota

80 F.Supp.3d 963

ALLIANCE ENERGY SERVICES, LLC, a Minnesota Limited Liability Corporation, Plaintiff

v.KINDER MORGAN COCHIN LLC, a Delaware limited liability corporation; Kinder Morgan Cochin ULC, an Alberta unlimited liability corporation; Kinder Morgan G.P., Inc., a Delaware corporation; and Kinder Morgan Management, LLC, a Delaware limited liability company, Defendants.

Case No. 14–cv–1668 SRN/TNL.

United States District Court, D. Minnesota.

Signed Jan. 21, 2015.

Morgan Lewis & Bockius LLP, Houston, TX, Daniel C. Beck, Derek R. Allen, Eric F. Swanson, Thomas H. Boyd, Christopher A. Camardello, Winthrop & Weinstine, PA, Minneapolis, MN, for Plaintiff.

Barrett H. Reasoner, Brian T. Ross, Laura J. Kissel, Gibbs & Bruns LLP, Houston, TX, Shawn M. Raiter, Larson King, LLP, St. Paul, MN, for Defendants.

MEMORANDUM OPINION AND ORDER

SUSAN RICHARD NELSON, District Judge.

I. INTRODUCTION

This matter is before the Court on the following motions: (1) Defendants' Partial Motion to Dismiss [Doc. No. 4]; and (2) Plaintiff's Motion to Remand to State Court [Doc. No. 26]. For the reasons set forth below, the Court grants Plaintiff's Motion to Remand to State Court. Accordingly, Defendants' Partial Motion to Dismiss is denied, as moot.

II. BACKGROUND

A. The Parties

Plaintiff Alliance Energy, LLC, a Minnesota limited liability company (“Plaintiff” or “Alliance”), filed its Amended Complaint in Minnesota state district court against Defendants Kinder Morgan Cochin LLC, a Delaware limited liability corporation [hereinafter, “KM Cochin”]; Kinder Morgan Cochin ULC, an Alberta unlimited liability corporation; Kinder Morgan G.P., Inc., a Delaware corporation; and Kinder Morgan Management, LLC, a Delaware limited liability company [collectively, “Defendants”]. (Notice of Removal, Ex. 2 [Doc. No. 1–2].) The organizational ownership of each Kinder Morgan entity is detailed in a chart Plaintiff prepared. (See Am. Compl., Ex. A “Organizational Chart” [Doc. No. 1–3].) The chart demonstrates that KM Cochin, Kinder Morgan Cochin ULC, and Kinder Morgan Management, LLC, are owned by Kinder Morgan G.P. (Id. ) Plaintiff initially named Wells Fargo Bank, National Association (“Wells Fargo”), as a Defendant in this case. However, based upon stipulation and agreement of the parties, the Court ordered that Wells Fargo be dismissed from the case without prejudice. (Order 9/5/14 [Doc. No. 41].)

Plaintiff is a propane procurement and supply company. (See Am. Compl. ¶ 1 [Doc. No. 1–2].) Defendants “operated a pipeline for the shipment of propane from Canada to North Dakota, Minnesota, Indiana, Iowa and ending in Windsor, Ontario.” (Id. )

B. The Transportation Service Agreement and Incorporated Tariffs

The basis of this lawsuit involves a Transportation Service Agreement (“TSA” or “the contract”) between Alliance and KM Cochin. (Am. Compl. ¶ 20 [Doc. No. 1–2].) The TSA is governed by Texas state law. (Id. ) Pursuant to the contract, Alliance “agreed to ship four million barrels of propane over the course of a year [through Defendants' pipeline], and [Defendants] agreed to provide service sufficient to transport at least [those] four million barrels in addition to the propane transport of other customers' propane.” (Id. ¶ 1.) Although Plaintiff contracted to ship four million barrels of propane, the TSA states that “[n]either Party shall be liable to the other Party for any delay or failure to perform any of its obligations under this Agreement to the extent [that] such performance is prevented by Force Majeure.” (Am. Compl., Ex. E “TSA” § 7.1 [Doc. No. 1–3].) “At all material times,” the relevant portion of Defendants' pipeline “[allegedly] is and has been subject to regulation under provisions of the Interstate Commerce Act by the Federal Energy Regulatory Commission (‘FERC’).” (Am. Compl. ¶ 18 [Doc. No. 1–2].)

The TSA includes, and incorporates by reference, FERC Tariff No. 54.4.0, “Local Tariff Applying on Petroleum Products General Rules and Regulations Governing the Transportation of Light Hydrocarbon Liquids by Pipeline” [hereinafter “General Tariff”]. (Id. ¶ 20; see Am. Compl., Ex. E “TSA” § 4.2 [Doc. No. 1–3].) The General Tariff provides relevant definitions of terms, and contingency clauses if Alliance fails to perform, or if current propane offerings are in excess of Defendants' facilities. (See generally id. ) For instance, section 16 of the General Tariff permits KM Cochin to decrease the amount of propane it transports, if the current offerings of its shippers, including Alliance, is in excess of KM Cochin's facilities. Section 16 of the General Tariff provides that “[w]hen ... there shall be offered to the Carrier [KM Cochin] more Product [propane or ethane-propane mix] than can be immediately transported, the transportation shall be apportioned by the Carrier among all Shippers on an equitable basis.” (Am. Compl., Ex. E “General Tariff” at 7 [Doc. No. 1–3].)

The TSA also includes, and incorporates by reference, FERC Tariff No. 73.1.0, “International Joint Incentive Rate Tariff Applying on Propane Transportation” [hereinafter, “Incentive Tariff”]. (See Am. Compl., Ex. E, Attachment A “Incentive Tariff” [Doc. No. 1–3]; Am. Compl., Ex. E “TSA” § 4.1 [Doc. No. 1–3].) The TSA and Incentive Tariff provide that KM Cochin will charge Alliance a reduced transportation rate (“Incentive Rate”), in exchange for Alliance shipping a minimum of four million barrels of propane through Defendants' pipeline during the TSA's one year initial term. (See id. §§ 3.1, 4.1; Am. Compl., Ex. E, “Incentive Tariff” at Item 30 [Doc. No. 1–3].) According to Item 30 of the Incentive Tariff, Alliance owes KM Cochin a deficiency fee if it falls short of shipping four million barrels as long as “such shortfall is ... [not] due to [Kinder Morgan's] inability to provide service.” (Am. Compl. ¶ 39 [Doc. No. 1–2]; Am. Compl., Ex. E, Attachment A “Incentive Tariff” at Item 30 [Doc. No. 1–3].) Item 30 expressly states that “[i]n the event that Shipper fails to nominate and/or to Tender [four million barrels of propane] ... and such shortfall is not due to Carrier's [KM Cochin's] inability to provide service or due to force majeure as set forth in more detail in the TSA, Shipper shall nevertheless pay Carrier a [deficiency payment] ... as set forth in more detail in the TSA.” (Id. )

C. Contractual Dispute Between the Parties

Plaintiff alleges that Defendants “interrupted service on the pipeline as part of the plan to stop propane deliveries to Minnesota and reverse the flow of the pipeline to transport condensate to Canada.” (Am. Compl. ¶ 1 [Doc. No. 1–2].) In fact, Plaintiff claims that “KM Cochin revised its outage schedule to intentionally take the pipeline out of service for three weeks during December 2013, which month of the Peak Period typically had the highest propane demand every year.” (Id. ¶ 34.) KM Cochin allegedly responded by claiming that Section 16 of the General Tariff permitted it to request Alliance to reduce propane shipments during this time period. (Id. ) Alliance, however, contends that Section 16 “clearly states that its provisions apply when ‘current offerings are in excess of facilities,’ and not, as KM Cochin suggests, when KM Cochin has unilaterally reduced service for reasons not permitted under the [c]ontract and is unwilling or unable to operate the facilities at full capacity.” (Id. )

Alliance further alleges that “[t]hese tortious acts of contract interference” prevented Plaintiff from “delivering its four million barrels of propane during the term of the contract.” (Id. ¶ 1.) Defendant penalized Alliance for its failure to deliver the four million barrels by charging Alliance a “purported deficiency fee for the undelivered barrels.” (Id. ) Plaintiff alleges that KM Cochin erroneously sent it an invoice for a deficiency fee of over five million dollars, allegedly misinterpreting the language in Item 30 of the Incentive Tariff. (Id. ¶ 39.) Plaintiff disputes any obligation to pay the deficiency fee because Defendants failed to provide transportation. (Id. ¶ 41.)

Defendants also asserted a “lien on Plaintiff's propane for which it had already pre-paid delivery charges.” (Id. ¶ 1.) Furthermore, Defendants posted a notice in the Houston Chronicle stating their intent to hold a public sale of Plaintiff's propane. (Id. ¶ 42.) Alliance argues that Defendants improperly asserted a lien under the contract, including the General Tariff, because Wells Fargo has a priority lien. (Id. ¶¶ 59–60.) Pursuant to the credit agreement between Alliance and Wells Fargo, Wells Fargo has a “first-priority security interest on all of Alliance's assets ..., including Alliance's propane inventory ...” (Id. ¶ 13.) Wells Fargo perfected its security interest in the collateral, the propane, by filing a UCC Financing Statement. (Id. ¶ 14; Am. Compl., Ex. D “UCC Financing Statement” [Doc. No. 1–2].) As a result of the lien asserted by Defendants, Plaintiff alleges that Wells Fargo held Plaintiff in default of its line of credit “because the purported liens render the propane allegedly ‘ineligible’ for purposes of determining whether Plaintiff meets certain financial covenants with Wells Fargo.” (Am. Compl. ¶ 2 [Doc. No. 1–2].) Alliance alleges that it funds its business through “a revolving line of credit with Wells Fargo.” (Id. ¶ 11.)

Thus, the core of the parties' dispute is the meaning of the phrase “inability to provide service” contained in Item 30 of the Incentive Tariff, which states that Alliance need not pay a deficiency payment if Defendants are unable to provide service. (See Notice of Removal ¶ 13 (explaining that KM Cochin “believes that Alliance's construction and application of the Incentive Tariff is wrong”) [Doc. No. 1].)

D. Procedural Posture and Plaintiff's Claims

Plaintiff initially filed this lawsuit in Minnesota state court. The Complaint asserts nine Texas state law claims based on lien priority, breach of contract, and tort theories. (Am. Compl. ¶¶ 1, 65, 68–101 [Doc....