City of Moundridge v. Exxon Mobil Corp.

• Citation: 429 F.Supp.2d 117
• Decision Date: 19 April 2006
• Docket Number: No. CIV.A.04-940(RWR).,CIV.A.04-940(RWR).
• Parties: CITY OF MOUNDRIDGE, et al. Plaintiffs, v. EXXON MOBIL CORPORATION, et al. Defendants.
• Court: U.S. District Court — District of Columbia

429 F.Supp.2d 117

CITY OF MOUNDRIDGE, et al. Plaintiffs, v. EXXON MOBIL CORPORATION, et al. Defendants.

No. CIV.A.04-940(RWR).

United States District Court, District of Columbia.

April 19, 2006.

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Charles F. Wheatley, Jr., Wheatley & Ranquist, Annapolis, MD, for Plaintiffs.

Stuart Harvey Harris, Howrey Simon Arnold & White, LLP, Kevin David McDonald, Jones Day, Francis A. Vasquez, Jr., White & Case LLP, Robert A. Burgoyne, Fulbright & Jaworski LLP, Washington, DC, Layne E. Kruse, Fulbright & Jaworski, Houston, TX, J. Robert Robertson, Kirkland & Ellis, LLP, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

ROBERTS, District Judge.

Eighteen municipalities¹ sued Exxon Mobil Corporation, BP America, Inc., Coral Energy Resources, L.P., ChevronTexaco Corporation, and ConocoPhillips Corporation for violations of the antitrust laws including agreeing to artificially inflate the price of natural gas; monopolizing, attempting to monopolize, and conspiring to monopolize; and price discrimination. The cities now seek preliminary injunctive relief to prevent defendants from refusing to sell natural gas for delivery to these cities, and from raising the average wellhead price above $5.85 per thousand cubic feet ("Mcf") for the cities until the matter is resolved on the merits. Because the plaintiffs have failed to show irreparable harm and a likelihood of success on the merits, the preliminary injunction will be denied.

BACKGROUND

In December of 1999, the National Petroleum Council ("NPC")² released Natural Gas: Meeting the Challenges of the Nation's Growing Natural Gas Demand ("the 1999 Report"). (Pls.' Statement of Facts, Ex. 3.) The 1999 Report indicated that the supply of natural gas in the United States had increased since 1992, that natural gas usage in the U.S. would increase between 1999 and 2010, and that this increase in demand could be met by the industry at "an average production weighted U.S. wellhead gas price through 2010 of approximately $2.74 per million British thermal units ("MMBtu")." (Pls.' Statement of Facts, Ex. 3 at 20.) The average price of natural gas, however, exceeded the estimate projected in the 1999 Report by early 2000. (See Pls.' Statement of Facts, Ex. 5 at 137.)

On February 1, 2001, plaintiffs, as members of the National Association of Gas Consumers ("NAGC"), filed a complaint with the Federal Energy Regulatory Commission ("FERC"). (Pls.' Mot. and Application for Prelim. Inj. ("Pls.' Mot. for Prelim. Inj.") at 3.) The complaint asked that FERC "set a benchmark price for natural gas at the wellhead of $2.74 per MMBtu—the same figure declared as a reasonable average by the NPC in its 1999 Report." (Id.) On November 4, 2002, FERC dismissed plaintiffs' complaint and held that the Wellhead Decontrol Act of 1989 divested the FERC of jurisdiction over the matter. (Id.) Plaintiffs filed for a rehearing, and FERC declined to rehear plaintiffs' complaint, citing reasons it stated in its initial dismissal. (Id. at 4.)

On March 13, 2002, Secretary of Energy Spencer Abraham requested a new study on natural gas that would "provide insights on energy market dynamics, including price volatility ... and an outlook on the longer-term sustainability of natural gas supplies." (Defs.' Joint Mem. in Opp'n to Pls.' Mot. for Prelim. Inj. ("Defs.' Opp'n"), Ex. E at A-1.) The NPC formed a new subcommittee and several "Task Groups," including the Supply Task Group in which all defendants, except Coral Energy Resources, participated and which an executive from Exxon Mobil chaired, to undertake the inquiry. (Defs.' Opp'n, Ex. E at B-15.) In September of 2003, the NPC released the report Balancing Natural Gas Policy: Fueling the Demands of a Growing Economy ("the 2003 Report"). (Id., Ex. E.) The 2003 Report concluded that there was a shortage of natural gas in the United States and that higher gas prices were required to meet increasing demand. (Pls.' Mot. for Prelim. Inj. at 3.) According to the 2003 Report, the price of natural gas would continue to rise unless the United States government adopted a series of legislative policies recommended by the NPC. (See Defs.' Opp'n, Ex. E at 11.) The price of natural gas in the U.S. has not fallen below the price projections of the 2003 report. (Pls.' Mot. for Prelim. Inj. at 4.) In fact, "[t]he wellhead price of natural gas in the United States in 2003 increased dramatically, from an average of $2.95 per [Md.] in 2002 to 54.88 Mcf in 2003, almost double." (Id.)

After Hurricanes Rita and Katrina made landfall on the Gulf Coast, the price of natural gas was expected to average $14.00 per MMBtu between December 2005 and March 2006. (Pls.' Statement of Facts at 5.) Five plaintiff cities provided the prices they have been or will be paying for natural gas during the 2005-2006 winter (Pls.' Reply, Ex. 24-27), although no city has indicated from whom the natural gas was purchased.³ Defendants note, however, that after the plaintiffs filed their preliminary injunction motion, the price of natural gas began to fall. Specifically, between December 21, 2005 and January 5, 2006 the prices decreased 27 percent due to unseasonably warm weather. (Defs.' Opp'n at 7, Ex. F.) The price of the futures contract for natural gas decreased 29 percent from December 21, 2005, two days before plaintiffs filed their motion, to January 4, 2006. (Defs.' Opp'n at 7.) Plaintiffs are locked into the higher prices, however, under contracts formed in the fall of 2005 before the prices dropped. (Pls.' Reply at 1-2, 7.)

Plaintiffs allege they will lose business and customers as a result of this price increase. (Pls.' Mot. for Prelim. Inj. at 16.) In Moundridge, Kansas, the owners of a family-run grocery store have told the city that, although they remain in business, the high natural gas prices make it increasingly difficult to stay open. (Pls.' Statement of Facts, Ex. 1B ¶ 6.) In Macon, Missouri, the higher natural gas prices have "adversely impacted" the city's major employer so much so that the major employer's parent company continuously monitors the utility costs "with an eye toward moving the Macon operation" to where utility costs are lower. (Id., Ex. 1C ¶¶ 5, 6.) In La Cygne, Kansas, the major commercial consumer of natural gas may cease operations in the city, but the consumer has not established a "time frame for adverse action." (Id., Ex. 1E ¶ 6.) Plaintiffs allege that this loss of customers will result in their collection for gas sold being lower than their liability for gas purchased. According to plaintiffs, the loss of revenue will prevent them from providing "vital social programs" and hamper their ability to fund other city programs. (Pls.' Mot. for Prelim. Inj. at 16; Pls.' Statement of Facts, Ex. 1B ¶ 5, Ex. 1D ¶ 4.)

Plaintiffs argue that defendants have no legitimate justification for raising the price of natural gas because there is no shortage in the United States. (Pls.' Mot. for Prelim. Inj. at 7-8.) According to plaintiffs, technically recoverable natural gas resources are currently 1,769.6 trillion cubic feet ("Tcf'). (Pls.' Statement of Facts at 7.) Working gas, or gas available in the marketplace, in storage was 3.225 Tcf as of November 25, 2005. (Id. at 7-8.) Plaintiffs claim that the amount of natural gas "shut-in," or temporarily unavailable, as a result of Hurricanes Katrina and Rita is 0.519 Tcf. (Id. at 8.) When compared to the total consumption of natural gas in the United States per year-22.4 Tcf—the plaintiffs assert that no shortage of natural gas exists. (Pls.' Statement of Facts at 6-7, Ex. 2 at 73.) Defendants, however, cite to evidence that the supply disruptions caused by Hurricanes Katrina and Rita exacerbated an already tight supply. (Defs.' Opp'n at 7, Ex. B ¶ 6, Ex. G at 2; see also Pls.' Statement of Facts, Ex. 1G ¶ 19 (plaintiffs' expert Dr. Wilson noting that "relatively small available supply curtailments can have substantial price impacts" in inelastic markets, meaning markets where demand varies little in response to price changes).)

Plaintiffs also claim that defendants have gained, or are attempting to gain, control of the natural gas market. Plaintiffs' expert, Dr. John W. Wilson, alleges in his affidavit that defendants "influence, and in some cases control, gas production owned or attributed to smaller independent producers" which amounts to 60 to 70% of the total natural gas production. (Pls.' Mot. for Prelim. Inj. at 22-23.) Defendants respond that their "reported U.S. natural gas reserves amount to no more than 3% of technically recoverable U.S. reserves cited by plaintiffs." (Defs.' Opp'n, Ex. B ¶ 4.) Plaintiffs dispute this calculation, noting that a more accurate formula using the defendants' numbers shows that defendants control 21% of the proved reserves in the United States. (Pls.' Reply at 2, 11-13.)

Plaintiffs filed their complaint in June of 2004. Over a year later on December 23, 2005, plaintiffs moved for a preliminary injunction.⁴

DISCUSSION

A motion for a preliminary injunction generally seeks to maintain the status quo pending a final determination of the suit on the merits. Univ. of Texas v. Camenisch, 451 U.S. 390, 395, 101 S.Ct. 1830, 68 L.Ed.2d 175 (1981); WMATC v. Holiday Tours, Inc., 559 F.2d 841, 844 (D.C.Cir.1977). Where the effect of the preliminary injunction would be to alter rather than maintain the relative positions of the parties, some courts, including judges in this district, have held that such "mandatory injunctive intervention" requires the movant to meet an even higher standard than the one applied to a preliminary injunction seeking only to maintain the parties' relative positions. Veitch v. Danzig, 135 F.Supp.2d 32, 35 (D.D.C.2001)(citing Phillip v. Fairfield Univ., 118 F.3d 131, 133 (2d Cir.1997) and Dorfmann v. Boozer, 414 F.2d 1168, 1173 (D.C.Cir.1969...