Great Lakes Gas Transmission Ltd. v. Essar Steel Minn. LLC

• Decision Date: 05 December 2016
• Docket Number: No. 16-1101,16-1101
• Parties: Great Lakes Gas Transmission Limited Partnership, Plaintiff–Appellee v. Essar Steel Minnesota LLC ; Essar Steel Limited, formerly known as Essar Steel Holdings, Ltd. ; Essar Steel India Limited, formerly known as Essar Steel Limited; Essar Global Fund Ltd., formerly known as Essar Global Limited, Defendants–Appellants
• Court: U.S. Court of Appeals — Eighth Circuit

843 F.3d 325

Great Lakes Gas Transmission Limited Partnership, Plaintiff–Appellee

v.Essar Steel Minnesota LLC ; Essar Steel Limited, formerly known as Essar Steel Holdings, Ltd. ; Essar Steel India Limited, formerly known as Essar Steel Limited; Essar Global Fund Ltd., formerly known as Essar Global Limited, Defendants–Appellants

No. 16-1101

United States Court of Appeals, Eighth Circuit.

Submitted: October 20, 2016

Filed: December 5, 2016

Counsel who presented argument on behalf of the appellant was Douglas H. Flaum, of New York, NY. The following attorney(s) appeared on the appellant brief; Nicole M. Moen, of Minneapolis, MN., Shahzeb Lari, of New York, NY., Spencer Bruck, of New York, NY., Amanda Pober, of New York, NY.

Counsel who presented argument on behalf of the appellee was David W. Elrod, of Dallas, TX. The following attorney(s) appeared on the appellee brief; David T. Schultz, of Minneapolis, MN., Julian Cyril Zebot, of Minneapolis, MN., Worthy Walker, of Dallas, TX., Hayley Ellison, of Dallas, TX.

Before MURPHY, GRUENDER, and SHEPHERD, Circuit Judges.

GRUENDER, Circuit Judge.

Great Lakes Gas Transmission Limited Partnership ("Great Lakes") brought suit against Essar Steel Minnesota, LLC and related entities ("ESML") for breach of contract in federal court, asserting diversity jurisdiction. The parties later discovered that diversity jurisdiction did not exist, and ESML filed a motion to dismiss for lack of subject matter jurisdiction. The district court held that it had federal question jurisdiction and denied the motion. The case proceeded to trial, and judgment was entered for Great Lakes. For the reasons discussed below, we conclude that the district court lacked subject matter jurisdiction. Therefore, we vacate the judgment and remand with instructions to dismiss for lack of jurisdiction.

I.

Great Lakes operates a pipeline that transports natural gas from Canada to locations in Minnesota. ESML's predecessor, Minnesota Steel Industries ("MSI"), sought to obtain gas for use at a steel production facility it planned to build in Nashwauk, Minnesota. Thus, on September 6, 2006, MSI and Great Lakes entered into a Transportation Service Agreement ("TSA") for the transportation of gas to Nashwauk.

The TSA provided that Great Lakes would transport up to 55,000 dekatherms of gas per day from July 1, 2009 to March 31, 2024. In exchange for the transportation of natural gas, the TSA required MSI to pay Great Lakes its maximum reservation rates and charges on a monthly basis under the applicable rate schedule reflected in Great Lakes's gas tariff ("Tariff") on file with the Federal Energy Regulatory Commission ("FERC"). The TSA also incorporated by reference the terms of the Tariff, which included provisions such as a force majeure clause and a limitation of liability clause. Additionally, the TSA stated that any controversy arising under the agreement "shall be determined in accordance with the laws of the State of Michigan."

On October 22, 2007, Essar Steel Holdings Ltd. acquired MSI, and MSI subsequently changed its name to ESML. According to ESML, it was still in the process of obtaining financing to construct the planned Nashwauk facility when the 2008 financial crisis delayed construction of the facility. Thus, in early 2009, ESML communicated to Great Lakes that performance under the existing terms of the TSA was impractical and that it wished to modify the terms, including the commencement date. As of October 2009, the parties had not reached an agreement, and ESML had not made any of the monthly payments due beginning in August 2009. As a result, on October 29, 2009, Great Lakes brought suit against ESML in federal court.

Great Lakes's first amended complaint ("FAC") pleaded a claim for breach of contract under a theory of anticipatory repudiation, and it requested relief in the form of all future payments that would have been due under the TSA until its expiration in March 2024. The FAC did not mention a cause of action based on federal law, and it included only a passing reference to the Tariff in the factual background section, stating that "MSI agreed to pay the rates indicated in the Contract, which include the maximum reservation rate for the Contract's transportation path as reflected in Great Lakes' FERC Gas Tariff, Second Revised Volume No. 1 (‘Tariff’)." The FAC identified diversity jurisdiction as the only basis for subject matter jurisdiction.

Thus, the case proceeded under the assumption that diversity jurisdiction existed. On May 15, 2012, when ruling on a counterclaim by ESML, the district court applied Michigan law to determine that the force majeure clause did not apply to the unforeseen financial crisis. On March 19, 2013, the court again applied Michigan law to hold that ESML had committed an anticipatory repudiation of the TSA and to deny ESML's affirmative defense based on the Tariff's limitation of liability clause. As a result, the court granted Great Lakes's motion for partial summary judgment and held that Great Lakes was entitled to recover the entire payment stream due under the TSA. Because the parties agreed that damages needed to be reduced to net present value and that determining the particular discount rate to apply was a question of fact, a trial was scheduled to calculate damages.

Meanwhile, ESML filed a complaint with FERC on November 27, 2012, asking FERC to order Great Lakes "to negotiate in good faith to resolve this dispute with ESML." FERC found that it lacked exclusive jurisdiction because ESML was not challenging the reasonableness of the Tariff's rate, and FERC declined to exercise its primary jurisdiction. Thus, FERC dismissed the complaint.

On the eve of trial, ESML alerted the court that one of Great Lakes's limited partners, TC PipeLines, LP, had hundreds or thousands of public unitholders whose citizenship destroyed diversity jurisdiction. Great Lakes had not previously disclosed their existence, and ESML noticed the inaccuracy in Great Lakes's citizenship disclosure while preparing a trial brief. ESML moved to dismiss the case for lack of subject matter jurisdiction.

On May 4, 2015, the district court denied the motion to dismiss. The court agreed with ESML that diversity jurisdiction was not present. Nevertheless, the court held that federal question jurisdiction existed. The court did not base its decision on the proposition that federal law created the cause of action. In fact, it rejected the argument that the Natural Gas Act ("NGA") creates an express cause of action for recovering payments due under a federal tariff, and it declined to rule on whether the NGA creates an implied cause of action. Rather, the court held that it had federal question jurisdiction "given the disputed and substantial federal issues at play." Great Lakes Gas Transmission Ltd. P'ship v. Essar Steel Minn., LLC , 103 F.Supp.3d 1000, 1017–18 (D. Minn. 2015). The court also held that its jurisdiction over the claim was exclusive because of the NGA's exclusive jurisdiction provision.

The case proceeded to trial, and Great Lakes received a judgment in the amount of $32,902,183. On appeal, ESML raises four arguments: (1) the district court lacked subject matter jurisdiction; (2) the district court erred in granting summary judgment on the anticipatory repudiation claim; (3) the district court erred in dismissing ESML's affirmative defense based on the Tariff's limitation of liability provision; and (4) the district court abused its discretion in excluding ESML's expert witness on damages and in limiting ESML's cross-examination of Great Lakes's expert witness. We agree with ESML that the district court lacked subject matter jurisdiction, and thus we do not address ESML's remaining arguments.

II.

"Federal courts are courts of limited jurisdiction, possessing only that power authorized by Constitution and statute." Gunn v. Minton , –––U.S. ––––, 133 S.Ct. 1059, 1064, 185 L.Ed.2d 72 (2013) (citation and quotation marks omitted). "The existence of subject matter jurisdiction in federal court is a question of law subject to de novo review." Keene Corp. v. Cass , 908 F.2d 293, 296 (8th Cir. 1990). The parties agree that the only possible basis for subject matter jurisdiction is federal question jurisdiction, which grants federal district courts "original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States." See 28 U.S.C. § 1331.

"[T]he question whether a claim ‘arises under’ federal law must be determined by reference to the ‘well-pleaded complaint.’ " Merrell Dow Pharm. Inc. v. Thompson , 478 U.S. 804, 808, 106 S.Ct. 3229, 92 L.Ed.2d 650 (1986) (quoting Franchise Tax Bd. v. Constr. Laborers Vacation Trust , 463 U.S. 1, 9–10, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983) ). The well-pleaded complaint rule "provides that federal jurisdiction exists only when a federal question is presented on the face of the plaintiff's properly pleaded complaint." Caterpillar Inc. v. Williams , 482 U.S. 386, 392, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987). "Federal question jurisdiction exists if the well-pleaded complaint establishes either that federal law creates the cause of action or that the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal law." Williams v. Ragnone , 147 F.3d 700, 702 (8th Cir. 1998) (citation and quotation marks omitted). Thus, we first address whether federal law creates the cause of action in this case, and we next address whether Great Lakes's right to relief necessarily depends on resolution of a substantial question of federal law.

III.

"[T]he vast majority of cases brought under the general federal-question jurisdiction of the federal courts are those in which federal law creates the cause of action." Merrell Dow , 478 U.S. at 808, 106 S.Ct. 3229. Federal law may create a cause of action "either expressly or by implication." Transamerica Mortg. Advisors, Inc. v. Lewis , 444 U.S. 11, 15, 100...