Kinetica Partners, LLC v. U.S. Dep't of the Interior

• Citation: 505 F.Supp.3d 653
• Decision Date: 03 December 2020
• Docket Number: Civil Action No. H-19-3758
• Parties: KINETICA PARTNERS, LLC, Plaintiff, v. UNITED STATES DEPARTMENT OF THE INTERIOR, Defendant, and Tennessee Gas Pipeline Company, L.L.C., Intervenor-Defendant.
• Court: U.S. District Court — Southern District of Texas

505 F.Supp.3d 653

KINETICA PARTNERS, LLC, Plaintiff,

v.UNITED STATES DEPARTMENT OF THE INTERIOR, Defendant,andTennessee Gas Pipeline Company, L.L.C., Intervenor-Defendant.

Civil Action No. H-19-3758

United States District Court, S.D. Texas, Houston Division.

Signed December 3, 2020

Daniel W. Wolff, Crowell & Morning LLP, Washington, DC, Kelley C. Morris, James J. Ormiston, Gray Reed & McGraw LLP, Houston, TX, for Plaintiff.

Michael S. Sawyer, US DOJ, Washington, DC, for Defendant.

Anne E. Lynch, Michael D. Farber, Van Ness Feldman LLP, Washington, DC, Marjorie A. McKeithen, Tyler J. Rench, Jones Walker LLP, New Orleans, LA, for Intervenor-Defendant.

MEMORANDUM OPINION AND ORDER

SIM LAKE, SENIOR UNITED STATES DISTRICT JUDGE

Plaintiff Kinetica Partners, Inc. ("Plaintiff") alleges that the June 27, 2019, Order ("Order") issued by the Assistant Secretary of Land and Mineral Management ("the ASLM") of the United States Department of the Interior ("DOI") violated the Administrative Procedure Act ("APA") and denied Plaintiff due process under the Fifth Amendment of the United States Constitution.¹ Tennessee Gas Pipeline Company, L.L.C. ("Tennessee Gas") intervened on DOI's behalf.² Pending before the court are Plaintiff's Motion for Summary Judgment ("Plaintiff's MSJ") (Docket Entry No. 30); Intervenor-Defendant Tennessee Gas Pipeline Company, L.L.C.’s Cross-Motion for Summary Judgment and Opposition to Plaintiff's Motion for Summary Judgment ("Tennessee Gas's MSJ") (Docket Entry No. 33); and Defendant's Cross-Motion for Summary Judgment ("DOI's MSJ") (Docket Entry No. 34). For the reasons set forth below, Tennessee Gas's MSJ will be denied, DOI's MSJ will be denied, Plaintiff's MSJ will be granted in part and denied in part, and The Order will be vacated.

I. Regulatory Scheme

This lawsuit concerns rights-of-way ("ROW's") that are associated with oil and gas pipelines on the Outer Continental Shelf ("OCS"). Congress has charged the Secretary of the DOI with administering leases and ROWs on the OCS. 43 U.S.C. § 1337. The DOI Secretary has charged the Bureau of Safety and Environmental Enforcement ("BSEE") with regulating oil and gas developments on the OCS. 30 C.F.R. § 250.101.

Exercising this delegated authority, BSEE has established regulations governing the granting, assignment, and expiration of pipeline ROWs. 30 C.F.R. §§ 250.1009 - 250.1019. BSEE is vested specifically with the statutory authority to issue and regulate "[r]ights-of-way through the submerged lands of the outer Continental Shelf ... for pipeline purposes for the transportation of oil, natural gas, sulphur, or other minerals ...." 43 U.S.C. § 1334(e) ; 43 U.S.C. § 1337(p) (Interior "may grant a lease, easement or right-of-way on the outer Continental Shelf."). A company may construct and operate a pipeline in the OCS only if it has a valid federal ROW issued by BSEE. See 30 C.F.R. § 250.1000.

Holders of ROWs are required to decommission pipelines "[u]pon relinquishment, forfeiture, or cancellation of a right-of-way grant." Id. § 250.1010(h). ROW grants "shall be deemed to have expired" if "the purpose of the grant ceases to exist or use of the associated pipeline is permanently discontinued for any reason." Id. § 250.1014. "All holders of a ROW are jointly and severally liable for meeting decommissioning obligations for facilities on their ROW, including pipelines, as the obligations accrue and until each obligation is met." 30 C.F.R. § 250.1701. These liabilities accrue as soon as a party "become [s] the holder of a pipeline right-of-way on which there is a pipeline, platform, or other facility." 30 C.F.R. § 250.1702. Once a facility, including a pipeline, is "no longer useful for operations," the holder must decommission that facility. 30 C.F.R. § 250.1703.

If pipelines on the OCS are used for "the transportation of natural gas in interstate commerce" or "foreign commerce," they may also be subject to regulation by the Federal Energy Regulatory Commission ("FERC"). 15 U.S.C. § 717(b). FERC is an independent regulatory commission within the Department of Energy, 42 U.S.C. § 7171(a), that is charged with issuing "certificate[s] of public convenience and necessity, including abandonment of facilities or services, and the establishment of physical connections under section 7 of the Natural Gas Act," id. § 7172 (a) (1) (D). Section 7 (b) of the Natural Gas Act bars any natural gas company from "abandon[ing] all or any portion of its facilities subject to the jurisdiction of FERC, or any service rendered by means of such facilities, without the permission and approval of [FERC]." 15 U.S.C. § 717f(b).

II. Factual and Procedural History

In September of 2013 Plaintiff and Tennessee Gas closed an amended purchase and sale agreement pursuant to which Plaintiff acquired approximately 1,300 miles of Tennessee Gas's offshore pipeline system and was to acquire the appurtenant ROWs after the closing.³ The parties closed their agreement after FERC had approved the abandonment-by-sale of the pipelines from Tennessee Gas to Plaintiff.⁴ The parties then jointly sought approval from BSEE to assign the appurtenant ROWs to Plaintiff.⁵

On April 25, 2014, and May 2, 2014, BSEE rejected the proposed assignments for twelve ROWs (the "Assignment Rejection Orders") because it found that each of the twelve pipeline segments associated with the ROWs had ceased transporting gas for at least 90 days.⁶ According to BSEE, some of the subject pipeline segments had last transported gas more than fifteen. years before the assignment requests.⁷ BSEE therefore determined that each ROW associated with the twelve pipelines was "deemed expired" and could not be assigned.⁸

On July 9, 17, and 23, and August 13, 2014, BSEE issued additional notices ("Expiration Notices") to Tennessee Gas, confirming that the ROWs had expired because Tennessee Gas had not submitted an application to BSEE to maintain each ROW within 90 days of when the pipelines associated with each ROW ceased to transport product.⁹ Therefore, each "ROW grant ... [was] deemed to have expired ... due to the pipeline not being used for the purpose for which the pipeline ROW grant was issued."¹⁰

Tennessee Gas petitioned BSEE to administratively reestablish the ROWs on August 7, 2014, and again on June 1, 2015.¹¹ BSEE deemed both petitions deficient because neither petition set forth the primary purpose for which the ROWs would be used as required by 30 C.F.R. Sec. 250.1015(a).¹² BSEE stated that

[g]iven the lack of any future utility for the pipelines at issue, the purpose of the grant has ceased to exist pursuant to 30 CFR 250.1014. The ROWs have, therefore, expired as BSEE had earlier determined.¹³

In a July 21, 2015, letter Plaintiff confirmed with BSEE that the ROWs had no future utility for Plaintiff and that "all of the lines" associated with the ROWs "had no-flow on them for some time, ranging between June 1998 to September 2013."¹⁴

Accordingly, BSEE issued an order on October 22, 2015 ("Final Order"), confirming that the ROWs had expired and refusing to administratively reestablish the ROWs.¹⁵

In July of 2016 Tennessee Gas appealed BSEE's 2015 Final Order and Expiration Notices to the Interior Board of Land Appeals ("IBLA"), an agency tribunal that considers appeals from the public lands agencies within the Interior Department.¹⁶ See 43 C.F.R. § 4.1. BSEE defended its decision that the ROWs had expired, stating that

two basic facts cannot be ignored: The pipelines have sat idle for years and neither TGP nor Kinetica can provide a primary purpose or a statement of any future utility for the ROWs. These circumstances, regardless of their genesis, demonstrate that the ROWs are properly deemed expired and have no basis for re-establishment.¹⁷

On September 11, 2017, the IBLA affirmed the Expiration Notices and 2015 Final Order, holding that

the record supports BSEE finding that these pipeline ROW grants were of no use ... and that their purpose had therefore ceased to [exist], which permitted BSEE to deem these OCS pipeline ROW grants to have expired under 43 C.F.R. § 250.1014.¹⁸

The IBLA relied in part on the 2013 order in which FERC approved the abandonment-by-sale of the pipelines from Tennessee Gas to Plaintiff:

FERC re-examined all certificated pipelines, found most performed a transportation function under its jurisdiction, approved their abandonment by TGP, and granted a certificate of public convenience and necessity to Kinetica Energy. However, FERC separately addressed unused or underutilized pipelines, which included the 12 DOT pipelines at issue in this appeal.¹⁹

On August 4, 2017, Tennessee Gas met with BSEE's solicitor to urge that the agency seek a voluntary remand.²⁰ Tennessee Gas also sent BSEE a white paper explaining its arguments for remand.²¹ Tennessee Gas argued that despite what Plaintiff had told BSEE in 2015, Plaintiff had told FERC in 2012 that it did "plan[ ] to put [the subject pipelines] to use in the future."²²

In March of 2018 Tennessee Gas and BSEE jointly moved for reconsideration of the IBLA's September 2017 decision.²³ They argued that the 2013 FERC order, "when parsed out in detail actually [held] that of the twelve pipelines at issue, FERC deemed only two of the pipelines to be inactive."²⁴ They further argued that Plaintiff's representations to BSEE stating that it had no use for the twelve pipelines "not only conflicted with FERC's determination that only two of the twelve pipelines were ‘inactive;’ they directly contravened representations and statements that Kinetica made under oath to FERC."²⁵ The Joint Motion for Reconsideration concluded:

Because BSEE and the Board were unaware of material facts contained within the FERC docket – facts that would have demonstrated a purpose for the ROWs consistent with 30 C.F.R. § 250.1014 – the Board should grant reconsideration, vacate its Decision, and remand to BSEE to reconsider expiration determinations, which could also re-open BSEE's decision on

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