Ne. Rural Elec. Membership Corp. v. Wabash Valley Power Ass'n, Inc.

• Decision Date: 22 February 2013
• Docket Number: No. 12–2037.,12–2037.
• Citation: 707 F.3d 883
• Parties: NORTHEASTERN RURAL ELECTRIC MEMBERSHIP CORPORATION, Plaintiff–Appellant, v. WABASH VALLEY POWER ASSOCIATION, INC., Defendant–Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

707 F.3d 883

NORTHEASTERN RURAL ELECTRIC MEMBERSHIP CORPORATION, Plaintiff–Appellant,

v.WABASH VALLEY POWER ASSOCIATION, INC., Defendant–Appellee.

No. 12–2037.

United States Court of Appeals,Seventh Circuit.

Argued Sept. 25, 2012.

Decided Feb. 22, 2013.

John S. Bloom (argued), Attorney, Shambaugh, Kast, Beck & Williams, Fort Wayne, IN, for Plaintiff–Appellant.

James T. Malysiak (argued), Attorney, Jenner & Block LLP, Chicago, IL, Don F. Morton, Attorney, Parr, Richey, Obremskey, Frandsen & Patterson, Lebanon, IN, for Defendant–Appellee.

Before KANNE, TINDER, and HAMILTON, Circuit Judges.

HAMILTON, Circuit Judge.

This appeal tests the boundaries of federal-question subject matter jurisdiction. The issue is whether a claim for breach of a long-term requirements contract for wholesale electricity arises under federal law or state law. We conclude that the claim arises under state law, that the district court therefore lacked jurisdiction to enter its preliminary injunction, and that the case should be remanded to state court.

Defendant Wabash Valley Power Association, Inc. (Wabash Valley) is a not-for-profit power generation cooperative. Plaintiff Northeastern Rural Electric Membership Corporation (Northeastern) is a member of Wabash Valley that purchases electricity from Wabash Valley and resells it to consumers. In 1977, Northeastern and Wabash Valley entered into a wholesale power supply contract under which Northeastern agreed to purchase all of its electric power from Wabash Valley for the next forty years. The contract provided that Northeastern would pay for the electricity at rates to be set by the Wabash Valley board of directors “[s]ubject to the approval of the Public Service Commission of Indiana,” though the key contractual provision also stated that revised rates would not be effective unless approved by the ambiguously phrased “applicable regulatory authorities,” as well as the administrator of the federal Rural Electrification Administration.

On January 5, 2012, Northeastern filed this suit in Indiana state court seeking a declaratory judgment that Wabash Valley materially breached the 1977 contract by taking action in 2004 that had the effect of transferring regulation of its rates from the Indiana Commission to the Federal Energy Regulatory Commission (FERC).¹ Northeastern contends that the “applicable regulatory authorities” in the 1977 contract are limited to the Indiana Commission, while Wabash Valley believes that the contract language is flexible enough to permit rate regulation by either regulatory body.

Wabash Valley removed the case to federal court under 28 U.S.C. § 1441(a) on the theory that the claim for breach of contract necessarily arises under the Federal Power Act (FPA), 16 U.S.C. §§ 791a et seq. Northeastern moved to remand to state court while Wabash Valley moved for a preliminary injunction to prevent Northeastern from ceasing performance under the contract. The district court denied Northeastern's motion for remand and granted Wabash Valley's motion for a preliminary injunction, agreeing with Wabash Valley that federal jurisdiction exists because Northeastern's suit is “a collateral attack on the FERC-filed rate,” and thus raises a question of federal law. Northeastern has appealed both rulings, arguing that the suit does not attack a filed rate.

We have appellate jurisdiction to consider the preliminary injunction under 28 U.S.C. § 1292(a)(1). The appeal of the district court's denial of remand also fits within the narrow doctrine of pendent appellate jurisdiction because the preliminary injunction appeal presents precisely the same question of subject matter jurisdiction as the motion to remand. The denial of a motion to remand ordinarily cannot be appealed, see 28 U.S.C. § 1447(d), but here the denial of remand is “inextricably intertwined” with the appealable preliminary injunction. See, e.g., Research Automation, Inc. v. Schrader–Bridgeport Int'l, Inc., 626 F.3d 973, 977 (7th Cir.2010) (exercising pendent appellate jurisdiction over non-appealable transfer order that presented same issue as appealable denial of injunction to block litigation in transferee district); cf. Abelesz v. Magyar Nemzeti Bank, 692 F.3d 661, 669 (7th Cir.2012) (holding that appellate jurisdiction over denial of motion to dismiss based on foreign sovereign immunity defense did not support pendent appellate jurisdiction over rejection of separate statute of limitations defense).

Turning to the merits of the appeal, we agree with Northeastern and conclude that the federal courts lack subject matter jurisdiction over this case. Northeastern's claim is limited to a construction of the parties' rights under the 1977 contract and does not necessarily raise a question of federal law. To prove its claim, Northeastern needs to show only that it had a valid contract and that Wabash Valley's voluntary action to transfer regulatory jurisdiction from the Indiana Commission to FERC breached the contract. Neither of these elements necessarily raises a question of federal law. While Northeastern may eventually attempt to use a favorable state court judgment to seek FERC's permission to terminate its obligations under the tariff filed with FERC, Northeastern agrees that such relief cannot be achieved in this suit. If Northeastern prevails on the merits of its claim, it will then need to seek that relief directly from FERC. Northeastern has therefore pled a claim that does not arise under federal law. We vacate the preliminary injunction and order remand of this action to state court.

I. Regulatory, Factual, and Procedural BackgroundA. Wholesale Electrical Power Regulation

Regulation of the electricity market is divided between federal and state regulators. In general, the federal government through FERC regulates the interstate wholesale electricity market, while the states regulate the retail sale of this power to consumers.

FERC regulates the sale of wholesale electricity through rate regulation. Under the Federal Power Act, public utilities under FERC jurisdiction may charge only “just and reasonable” rates. 16 U.S.C. § 824d(a). The Act grants FERC the exclusive authority to enforce this provision by regulating the rates, terms, and conditions governing the interstate transmission and sale of wholesale energy in interstate commerce. See Mississippi Power & Light Co. v. Mississippi ex rel. Moore, 487 U.S. 354, 371, 108 S.Ct. 2428, 101 L.Ed.2d 322 (1988). In practice, FERC enforces this statutory provision through tariff filing. Public utilities regulated by FERC are required to file tariffs that detail rates and terms of service. 16 U.S.C. § 824d(c); 18 C.F.R. § 35.1(a). The basis for the filed tariff is often a contract negotiated privately between wholesaler and distributor that is then submitted to FERC. FERC will then accept the contract as the basis for the rate as long as the terms are “just and reasonable” and not discriminatory. Once a rate is filed, the rate takes effect unless FERC initiates a hearing to inquire into the reasonableness of the rate. 16 U.S.C. § 824d(e). If a utility or customer is unhappy with a proposed term, it may protest the rate filing with FERC or seek to intervene in any proceedings. 18 C.F.R. § 385.211(a) (establishing general rule that “[a]ny person may file a protest to object to ... [a] tariff or rate filing”); 18 C.F.R. § 385.214 (requirements for intervention). An aggrieved party may seek judicial review before a federal court of appeals within 60 days. 16 U.S.C. § 825 l (b). Once a rate is accepted, however, the parties to the rate filing are bound to the terms of the filed rate and may not change them without giving notice and making a new filing with FERC. 16 U.S.C. § 824d(d); 18 C.F.R. § 35.15 (requiring notice and filing with FERC to cancel or terminate a rate schedule). This process provides the exclusive method for reviewing the reasonableness of the terms of filed rates.

FERC's exclusive jurisdiction over the reasonableness of rates under its jurisdiction is protected by the “filed-rate doctrine.” The filed-rate doctrine prohibits courts—both state and federal—from questioning a rate that has been filed with a federal regulator, except through the review process just noted. See Montana–Dakota Utilities Co. v. Northwestern Public Service Co., 341 U.S. 246, 251–52, 71 S.Ct. 692, 95 L.Ed. 912 (1951). The doctrine has been expanded to include the terms of the tariff that affect the rate and state regulations that might indirectly achieve the same result. See Natural Gas Co. v. State Corporation Comm'n of Kan., 372 U.S. 84, 91, 83 S.Ct. 646, 9 L.Ed.2d 601 (1963) (applying doctrine to bar state order allocating purchases among numerous wells in same gas field). By this reasoning, if Northeastern had brought this action as a suit for damages or to enjoin the rate it pays under the filed tariff, the action would be barred by the filed-rate doctrine. An award of damages would require a court to determine that the rate paid was unreasonable, and any damages paid in such a suit would effectively alter the rate Northeastern paid for electricity under the FERC tariff during the period in question.

FERC would have had regulatory authority over the original 1977 Northeastern–Wabash Valley contract but for a relevant exception to FERC's jurisdiction. While the Federal Power Act generally grants FERC exclusive jurisdiction over the regulation of wholesale power, FERC lacks jurisdiction over utilities that are regulated by the Rural Electrification Administration (REA), an agency that has promoted rural electrification by providing loans for infrastructure development. See Dairyland Power Cooperative, 37 F.P.C. 12 (1967) (interpreting 16 U.S.C. § 824(f) to hold that FERC predecessor, the Federal Power Commission, lacked jurisdiction over wholesale rates charged by power cooperatives financed by REA); Salt River Project Agricultural Improvement & Power District v....