Clark v. Gulf Oil Corp.
| Decision Date | 30 December 1977 |
| Docket Number | P,Nos. 77-1661 and 77-1662,No. 77-1661,No. 77-1662,77-1662,77-1661,s. 77-1661 and 77-1662 |
| Parties | Milton CLARK, Frederick W. Rost, St. Regis Apartments, Ltd., a California limited partnership, Melvin Balser, Managing Agent, on behalf of themselves and all others similarly situated, Appellants inhiladelphia Gas Works, Plaintiff-Intervenor, v. GULF OIL CORPORATION and Texas Eastern Transmission Corporation. Theodore Q. THOMPSON and Jamestown Village Apartments, Ltd., a California limited partnership, Melvin Balser, Managing Agent v. GULF OIL CORPORATION, Philadelphia Electric Company and Texas Eastern Transmission Corporation. Appeal of PHILADELPHIA GAS WORKS, Plaintiff-Intervenor in |
| Court | U.S. Court of Appeals — Third Circuit |
Thomas E. Wiener, Mesirov, Gelman, Jaffe, Cramer & Jamieson, Howard D. Scher, Goodis, Greenfield, Henry & Edelstein, Philadelphia, Pa., for Appellants Milton Clark, et al.
A. Grant Sprecher, Barry J. Hart, Stephen Schachman, Obermayer, Rebmann, Maxwell & Hippel, Philadelphia, Pa., for Philadelphia Gas Works.
John L. McConn, Jr., Butler, Binion, Rice, Cook & Knapp, Houston, Tex., James E. Farrell, Jr., Gulf Oil Corp., Bala-Cynwyd, Pa., for Gulf Oil Corp.
M. Carton Dittman, Jr., Oliver C. Biddle, Lewis A. Grafman, Linda S. Martin, Ballard, Spahr, Andrews & Ingersoll, Philadelphia, Pa., Jack D. Head, James W. McCartney, Judy M. Johnson, Vinson, Elkins, Searls, Connally & Smith, Houston, Tex., for Texas Eastern Transmission Corp.
Before SEITZ, Chief Judge, ALDISERT and ROSENN, Circuit Judges.
This appeal raises for the first time in this circuit the question of whether a private cause of action for damages against a producer of natural gas for failure to comply with a certificate of public convenience and necessity issued by the Federal Power Commission is implied under the Natural Gas Act, 15 U.S.C. § 717 et seq., in favor of retail distributors and ultimate consumers of natural gas.
The appellants Clark, et al., filed a purported class action in the United States District Court for the Eastern District of Pennsylvania against Gulf Oil Corporation ("Gulf") and Texas Eastern Transmission Corporation ("Texas Eastern"). Plaintiffs request certification under Rule 23, Fed.R.Civ.P., to represent consumers of natural gas in the Philadelphia area, the area supplied by Philadelphia Gas Works ("PGW"), seeking damages, equitable relief, and costs. The appellants Theodore Q. Thompson, et al., alleging that they represent the users of natural gas supplied by Philadelphia Electric Company ("PECO"), filed a similar class action in the United States District Court for the Eastern District of Pennsylvania. The Clark and Thompson complaints contain three separate asserted causes of action: (1) an implied private cause of action purportedly arising under the Act; (2) a breach of contract action as third party beneficiaries under a gas purchase contract between Gulf and Texas Eastern, and (3) an action based on Gulf's and Texas Eastern's alleged conspiracy to withhold natural gas from the interstate market. The district court consolidated the Clark and Thompson cases and PGW was granted leave to intervene.
The district court dismissed the complaint against Philadelphia Electric Company for lack of complete diversity of citizenship. As to the other defendants, the district court held that no private cause of action exists under the Natural Gas Act and on that basis it granted Gulf's motions to dismiss the complaint against it. 1 The district court, however, granted certification pursuant to 28 U.S.C. § 1292(b) to permit plaintiffs and PGW to seek an interlocutory appeal on the issue of whether plaintiffs may pursue a private right of action against Gulf under the Natural Gas Act. 2 This court granted permission to appeal by order dated April 26, 1977. We find no merit in the limited issue before us and affirm the order of the district court.
This appeal is a companion case to Gulf Oil Corp. v. Federal Power Commission, 563 F.2d 588 (3d Cir. 1977), in which the plaintiffs had intervened. In that case, we affirmed the order of the Federal Power Commission ("FPC") requiring Gulf to deliver to Texas Eastern greater quantities of gas than it had been delivering and ordering performance and refunds by Gulf. Because the detailed statement of the factual background underlying this proceeding is set forth in our opinion, Gulf Oil Corp. v. FPC, supra, a skeletal statement should suffice for an understanding of the single issue raised in this appeal.
The intervenor, Philadelphia Gas Works, is a municipally owned gas distribution facility serving commercial, industrial, and residential users within the City of Philadelphia. For almost thirty years, it has been a customer of Texas Eastern, one of two such pipeline companies that supplies in excess of 97 percent of the natural gas consumed in Pennsylvania. The Clark plaintiffs are customers of PGW.
In 1963, Texas Eastern entered into a gas purchase contract with Gulf for the purchase of approximately 4.4 trillion cubic feet (Tcf) of gas to be supplied in minimum daily quantities. This contractual arrangement was approved under a certificate of public convenience and necessity issued by the FPC on December 19, 1963. Gulf Oil Corp., 30 FPC 1559 (1963). Under the certificated contract, Gulf was to supply Texas Eastern with the gas over a 26 year period at a price not to exceed 21 cents per thousand cubic feet. Under the contract, as entered into subsequent to the issuance of the certificate and pursuant thereto, Gulf warranted itself to provide Texas Eastern a certain minimum amount of gas per day subject to Texas Eastern's demand for delivery of that amount. On November 7, 1975, the FPC issued an order directing both Texas Eastern and Gulf to show cause why they were not in violation of the certificate of public convenience and necessity issued in 1963. These appellants intervened in those proceedings and, after hearings, the Commission issued opinions No. 780 and 780-A which were the subject of review in this court at Gulf's behest in Gulf Oil Corp. v. FPC, supra. In the foregoing opinion, the FPC found, and we agreed, that under the certificate of public convenience, Gulf is obligated to deliver 625,000 Mcf (thousand cubic feet) of gas per day except when Texas Eastern demands less until the expiration of its contract to Texas Eastern.
In addition to ordering Gulf to comply prospectively, the FPC ordered Gulf to refund to Texas Eastern for flow through to the latter's customers a sum equal to the difference between Texas Eastern's request for gas and Gulf's deliveries multiplied by the difference between the contract price and the otherwise applicable area or national rates and interest. The refunds were payable both for Gulf's past defaults and in the event of future defaults on its delivery obligations. 3 Because appellants herein claim that their cost of replacing Gulf's underdeliveries greatly exceeded the formula price devised by the FPC, they sought rehearing on the proper measure of damages. In its opinion 780-A issued December 9, 1976, the FPC noted that though the relief it afforded might not in fact fully compensate the distributors/customers for the damages they had incurred, it concluded that its formula was "an equitable estimate of damage to customers." In its opinion, however, the FPC did not limit those injured by Gulf's underdeliveries to the relief granted by the Commission. Instead, it stated that its order did not preclude customers and distributors served through Texas Eastern's system from seeking further compensation outside the Commission. Appellants turn to that statement of the Commission in their briefs and oral argument in this court as a partial basis for the monetary relief they seek in this proceeding.
A threshold question we must first address is whether the district court had subject matter jurisdiction over this case. 4 Gulf contends that under Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 70 S.Ct. 876, 94 L.Ed. 1194 (1950), there is no federal question jurisdiction because the complaints show on their face that the plaintiffs' claims do not, in fact, arise under the Constitution, laws or treaties of the United States. Gulf asserts that because the basic allegations in the complaints charge the breach of the Gas Purchase Contract, for which the plaintiffs seek damages and equitable relief, the cause of action does not arise under federal law and so cannot be heard in the federal court absent diversity of citizenship. Gulf further asserts that plaintiffs add nothing to the complaint when they allege that the contract was "certificated" by the FPC and that by breaching the contract, Gulf also breached section 7 of the Natural Gas Act.
PGW responds to Gulf's argument by pointing out that Gulf's conduct is actionable under federal law as a breach of the certificate of public convenience and a violation of the Natural Gas Act. PGW asserts that although the same conduct by Gulf may be actionable under state law on a third party beneficiary breach of contract theory, its complaint does in fact allege a violation of federal law with resultant damages.
We do not believe that Skelly Oil, supra, supports Gulf's position. In that case, Skelly and others contracted with Phillips to sell it natural gas for resale to Michigan-Wisconsin Pipeline Co. ("Michigan-Wisconsin"). The contracts provided that the sellers would have the right to cancel the contracts in the event Michigan-Wisconsin failed to secure a certificate of public convenience from the FPC by October 1, 1946. The right of cancellation was to be exercised by written notice delivered to Phillips at any time after December 1, 1946, "but before the issuance of such certificate." On November 30, 1946, the Commission ordered the issuance of a certificate to Michigan-Wisconsin on certain...
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