Gulf Oil Corp. v. Tenneco, Inc.

• Decision Date: 13 May 1985
• Docket Number: Civ. A. No. 83-2714.
• Citation: 608 F. Supp. 1493
• Court: U.S. District Court — Eastern District of Louisiana
• Parties: GULF OIL CORPORATION v. TENNECO, INC.

608 F. Supp. 1493

GULF OIL CORPORATION v. TENNECO, INC.

Civ. A. No. 83-2714.

United States District Court, E.D. Louisiana.

May 13, 1985.

Milton L. Duvielh, New Orleans, La., A. Randall Friday, Houston, Tex., for plaintiff.

Robert K. Reeves, Lafayette, La., for defendant.

ORDER

ROBERT F. COLLINS, District Judge.

This matter is presently before the Court on motions of defendant, Tenneco, Inc., to dismiss for failure to state a claim, for lack of subject matter jurisdiction, for failure to join indispensible parties, and to stay these proceedings pending referral to the Federal Energy Regulatory Commission (FERC) of certain issues within the FERC's primary jurisdiction or exclusive jurisdiction.

Tenneco's motion to dismiss for failure to state a claim, which Tenneco asserted but did not argue in its supporting memoranda, is hereby DENIED, because it appears that Gulf's complaint does indeed state a claim upon which, at the appropriate time, relief can be granted. Tenneco's motion to dismiss for lack of subject matter jurisdiction is also DENIED, except as to any issues within the FERC's exclusive jurisdiction, because there is complete diversity of citizenship and more than $10,000.00 in controversy. Obviously, the Court lacks subject matter jurisdiction over any issues within the FERC's exclusive jurisdiction. However, the Court does have subject matter jurisdiction over all other issues arising in this litigation, including those issues referred to the FERC under the primary jurisdiction doctrine. The Court will reserve its ruling on Tenneco's motion to dismiss for failure to join indispensible parties, until the FERC resolves the issues referred to it. Finally, the Court finds merit in Texaco's motion to stay, and, accordingly, these proceedings are hereby STAYED pending resolution of the following five issues, expressed in the form of interrogatories, that are hereby REFERRED to the FERC:

(1) What are the causes of the severe imbalance between the gas supplies deliverable to Tenneco under its gas purchase contracts with various producer-suppliers and the ability of Tenneco's markets to absorb such gas at current price levels?

(2) Should Tenneco's prepayments to Gulf for gas not taken by Tenneco, pursuant to contractual take-or-pay provisions, be considered in determining if Gulf's contract prices exceeded applicable NGPA price ceilings? If so, did any of Gulf's contract prices exceed applicable NGPA price ceilings?

(3) What is the nature and extent of Gulf's performance obligations under any certificates of public convenience and necessity, issued by the FERC pursuant to the NGA, obligating Gulf to provide service to Tenneco?

(4) Did Gulf reduce its deliveries of NGPA § 104 gas, 15 U.S.C. § 3314, to Tenneco? If so, did such reduction constitute a de facto unauthorized abandonment of service, which is prohibited by NGA § 7(b), 15 U.S.C. § 717f(b)?

(5) Which party, Gulf or Tenneco, has the power to nominate by NGPA category the proportional volumes of gas that will be bought or sold pursuant to the contracts at issue herein?

By specifying the particular issues that are referred to the FERC, the Court does not intend to restrict unduly that agency's ability to assist the Court. The FERC is free, and is urged, to make all findings that it believes will aid the prompt resolution of this dispute.

REASONS

I. Facts and Contentions

On April 29, 1983, Gulf, a producer and supplier of natural gas, was notified that Tenneco,¹ one of its gas purchasers, was unilaterally abrogating various provisions of its gas purchase contracts. Under the terms of its Emergency Gas Purchase Policy (EGPP), Tenneco suspended, or substantially modified in its own favor, contractual provisions concerning price, deliveries, take-or-pay, nomination of gas categories, and other related matters. Tenneco's EGPP is that company's response to an increasingly severe imbalance between the gas supplies deliverable to Tenneco under its gas purchase contracts with various producers and suppliers, and the ability of Tenneco's markets to absorb natural gas at current price levels. Contributing to this imbalance, and to Tenneco's problems, were the economic recession of 1981-82, the market distortions caused by the pricing scheme of the Natural Gas Policy Act of 1978 (NGPA), 15 U.S.C. §§ 3301 et seq., the world-wide glut of crude oil, which resulted in a drop in the price of this competing fuel, and the extremely mild 1982-83 winter heating season in Tenneco's market areas. This combination of adverse factors caused Tenneco to abrogate unilaterally its gas purchase contracts with various producers and suppliers, including Gulf, in order to avoid losing an ever increasing share of its market for natural gas sales. Thus, in Tenneco's opinion, any provision in any of its gas purchase contracts that was contrary to the EGPP would have to be suspended. In particular, Tenneco is concerned with take-or-pay and pricing provisions, and category nomination rights under its gas purchase contracts.

Prior to Tenneco's EGPP, the take-or-pay provisions contained in the gas purchase contracts between Gulf and Tenneco required Tenneco either to take delivery of a specified quantity of gas, usually expressed as a specific percentage of a well's deliverability, or, if the specified quantity of gas is not taken, to prepay for a stated percentage of that gas.² In addition, the take-or-pay provisions provided a make-up right that allowed Tenneco a period of time in which to take delivery on the gas paid for but not received under the take-or-pay provisions.³ However, the severe imbalance between deliverability of gas to Tenneco and the ability of Tenneco to market that gas, which imbalance is projected to persist for the next several years,⁴ will cause Tenneco to have excessive take-or-pay obligations for a period of time exceeding the make-up period, thereby rendering the make-up right essentially useless. Under its EGPP, Tenneco seeks to alleviate the harshness of the take-or-pay provisions by, inter alia, reducing the applicable take-or-pay percentages, requiring refunds at the end of the make-up period for any gas paid for but never taken, and refusing to recognize its take-or-pay obligation under contracts with producers and suppliers who refuse to acquiesce in these EGPP amendments to those contracts.⁵

In addition to the take-or-pay modifications, Tenneco's EGPP purports to impose a unilateral price reduction and to specify the quantities of gas from each NGPA category⁶ that Tenneco will purchase pursuant to the contracts at issue. Through the EGPP, Tenneco unilaterally lowers the price of gas in its contracts containing no market-out provision to the maximum lawful price or, if there is no maximum price, to "110% of the No. 2 fuel oil" index published by FERC.⁷ Through the EGPP, Tenneco also unilaterally assumes the right to specify the volume of gas in each NGPA pricing category that Tenneco will purchase from Gulf. Prior to the EGPP, according to Gulf, each of the subject contracts gave Gulf the sole discretion and right to operate its wells and leases in such manner as Gulf deemed advisable, and none of the contracts contained any provision for Tenneco to choose to purchase gas on the basis of NGPA categories. Tenneco contends that Gulf has used its category nomination right to increase the proportional volumes of higher-priced categories of gas and to reduce the proportional volumes of lower-priced categories of gas that Gulf delivers to Tenneco under the contracts at issue. Obviously then, Tenneco intends to exercise this category nomination right by specifying that it will purchase more gas from lower-priced categories and less gas from higher priced categories. Thus, by nominating for purchase larger volumes of gas from lower-priced NGPA categories and by reducing the price it will pay for the gas it buys that does fall within the higher-priced NGPA categories, Tenneco hopes to alleviate some of its burden under these multivintage contracts.

Gulf's⁸ response to Tenneco's actions under the EGPP was the filing of this breach of contract suit. As remedies for this alleged breach of contract, Gulf seeks specific performance and damages.

Tenneco asserts, in addition to its state-law based contractual defenses, that litigation of this matter necessarily will require resolution of several issues that are within FERC's primary or exclusive jurisdiction. Tenneco explicitly contends that the following three issues should be referred to FERC for initial resolution under the primary jurisdiction doctrine:

(1) Are Gulf Oil Corporation's claims herein contrary to its rights and obligations under the NGA and NGPA?

(2) Is Tenneco's EGPP required for it to carry out its obligations under the NGA and NGPA?

(3) What impact would the relief which Gulf Oil Corporation seeks have on Tenneco and the public interest?

Memorandum In Support Of Motion To Dismiss For Failure To State Claim, Or Alternatively For Lack of Subject Matter Jurisdiction, Or Alternatively For Referral And Stay, And To Dismiss For Failure to Join Parties Under Rule 19 at 24.

The Court agrees with Tenneco's assertion that this action should be stayed pending the referral of certain issues arising herein that fall within the FERC's primary or exclusive jurisdiction. However, the Court does not agree with Tenneco as to the precise issues to be referred to the FERC. The three above-quoted issues, which Tenneco contends should be referred to the FERC, are entirely overbroad and, therefore, inappropriate for reference to the FERC. However, Tenneco's three proposed issues suggest the following five more specific issues, expressed in the form of interrogatories, which the discussion below indicates are clearly appropriate for reference to the FERC:

(1) What are the causes of the severe imbalance between the gas supplies deliverable to Tenneco under its gas purchase contracts with various...