New Orleans Public Service, Inc. v. City of New Orleans

• Decision Date: 14 February 1986
• Docket Number: No. 85-3654,85-3654
• Citation: 782 F.2d 1236
• Parties: NEW ORLEANS PUBLIC SERVICE, INC., Plaintiff-Appellant, v. The CITY OF NEW ORLEANS, the Council for the City of New Orleans, Sidney J. Barthelemy, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1236

782 F.2d 1236

NEW ORLEANS PUBLIC SERVICE, INC., Plaintiff-Appellant, v. The CITY OF NEW ORLEANS, the Council for the City of New Orleans, Sidney J. Barthelemy, et al., Defendants-Appellees.

No. 85-3654.

United States Court of Appeals Fifth Circuit.

Feb. 14, 1986.

Andrew P. Carter, J. Wayne Anderson, W. Glenn Burns, New Orleans, La., for plaintiff-appellant.

A. Karen Hill, F.E.R.C., Jerome M. Feit, Washington, D.C., for amicus-F.E.R.C.

Herschel L. Abbott, Jr., David G. Radlauer, Edward H. Bergin, R. Lewis McHenry, H. Mark Adams, Eric J. Mayer, W.D. Meriwether, Jr., Vice President & Gen. Counsel, Middle South, New Orleans, La., Louis H. Willenken, Reid & Priest, New York City, for amicus-Middle South.

Thomas Milliner, Bruce Naccari, Beverly Zervigon, Okla Jones, II, Salvador Anzelme, City Atty., New Orleans, La., Bernhardt K. Wruble, Clinton A. Vince, Glen L. Ortman, Paul E. Nordstrom, Washington, D.C., for City of New Orleans.

Hiram C. Eastland, Jr., Robert H. Harper, Jackson, Miss., for amicus-Miss. Public Service Com'n.

Richard M. Troy, Asst. Atty. Gen., La. Dept. of Justice, New Orleans, La., for amicus-State of la.

Frank Spencor, Jackson, Miss., Felshaw King, President, Nat. Ass'n of State Utility Consumer Advocates, Clearfield, Utah, for amicus-Nat. Ass'n of State Utility.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before RANDALL and WILLIAMS, Circuit Judges, and HINOJOSA, ^* District Judge.

RANDALL, Circuit Judge:

Appellant New Orleans Public Service, Inc. appeals the district court's dismissal of this cause of action for lack of subject matter jurisdiction and the district court's decision to abstain. We reverse and remand.

I.

Appellant New Orleans Public Service, Inc. ("NOPSI"), a subsidiary of Middle South Utilities Inc. ("MSU"), provides electric services to most of the City of New Orleans. NOPSI also engages in the production, wholesale interstate purchase, wholesale interstate sale and retail sale of electric power. The genesis of this case is an "Opinion and Order Setting Just Reasonable and Non-Discriminatory Rates," 31 F.E.R.C. (CCH) p 61,305 (June 13, 1985) ("Opinion No. 234"), issued by the Federal Energy Regulatory Commission ("FERC"), allocating the cost of Grand Gulf Unit One, a 1250 megawatt nuclear power plant located in Port Gibson, Mississippi, among four MSU subsidiaries: Arkansas Power & Light Co.; Louisiana Power & Light Co.; Mississippi Power & Light Co.; and NOPSI. ¹ NOPSI's share of the costs was 17%. In July 1985, NOPSI accordingly began paying its 17% of the costs, 15.5 million dollars a month.

On May 17, 1985, NOPSI filed an application for a permanent rate increase with Appellee Council for the City of New Orleans ("the Council"). On July 25, 1985, the Council entered a resolution requiring NOPSI to refile its application and directing NOPSI to file a request for interim rate relief. Emergency interim relief was granted by the Council on September 5, 1985. In its interim relief order, the Council directed NOPSI to freeze electric rates until further regulatory action. The Council noted that NOPSI's immediate cash flow problems could be alleviated by NOPSI's issuance of 35 million dollars in securities pending the approval of the Securities and Exchange Commission; the repayment of 32 million dollars in cash advances made by NOPSI to an MSU subsidiary; and the continued omission of NOPSI's dividend payments on common stock to MSU.

NOPSI sought injunctive relief from the Council's order in the district court. NOPSI first raised a statutorily-based preemption claim. NOPSI alleged that the Council, in setting NOPSI's retail rates, had refused to recognize the expenses NOPSI was required to pay by FERC order: the Council's rate freeze assumed in essence that the FERC opinion had never been issued, and that NOPSI was obtaining no Grand Gulf Unit I power. The refusal to recognize FERC-determined wholesale costs for retail rate-making purposes frustrated the FERC order allocating costs, thereby violating FERC's exclusive authority to regulate wholesale energy under the Federal Power Act, 16 U.S.C. Secs. 824-824k. NOPSI also claimed that the Council's refusal to honor the FERC order constituted an impermissible burden on interstate commerce, as NOPSI would be rendered insolvent; the FERC order allocating costs among companies in several states would be frustrated; financial agreements among the MSU companies would be harmed; the operation of Grand Gulf Unit One would be threatened; and the viability of the interstate integrated electric system would be seriously undermined.

The district court dismissed NOPSI's claims for lack of subject matter jurisdiction under Fed.R.Civ.P. 12(b)(1), because of the Johnson Act, 28 U.S.C. Sec. 1342. The Johnson Act places statutory limitations on the circumstances in which a federal court can issue injunctions against state orders affecting rates of public utilities. The Johnson Act provides:

The district courts shall not enjoin, suspend or restrain the operation of, or compliance with, any order affecting rates chargeable by a public utility and made by a State administrative agency or a rate-making body of a State political subdivision, where:

(1) Jurisdiction is based solely on diversity of citizenship or repugnance of the order to the Federal Constitution; and,

(2) The order does not interfere with interstate commerce; and,

(3) The order has been made after reasonable notice and hearings; and,

(4) A plain, speedy and efficient remedy may be had in the courts of such State.

If all four criteria of the Johnson Act are met, the Act will bar federal jurisdiction. South Central Bell Telephone Co. v. Louisiana Public Service Commission, 744 F.2d 1107, 1123 n. 28 (5th Cir.1984), petition for cert. filed, --- U.S. ----, --- S.Ct. ----, --- L.Ed.2d ----, 53 U.S.L.W. 3449 (Nov. 30, 1984) (84-870). NOPSI contended that the first two criteria of the Johnson Act--that jurisdiction be based solely on diversity of citizenship or repugnance of the order to the Federal Constitution, and that the order not interfere with interstate commerce--had not here been met, and that the district court thus had jurisdiction over the case. ²

The district court found otherwise. Although NOPSI's complaint had claimed federal question jurisdiction under 28 U.S.C. Sec. 1331, the district court did not address whether NOPSI had presented a federal question arising under a federal law, but instead discussed the applicability of a particular jurisdictional provision of the Federal Power Act, Sec. 825p, a provision which serves to reinforce the general jurisdictional provisions governing the federal district courts. See Montana-Dakota Utilities Co. v. Northwestern Public Service Co., 341 U.S. 246, 257, 71 S.Ct. 692, 698, 95 L.Ed. 912 (1951) (Frankfurter, J., dissenting). Under Sec. 825p of the Federal Power Act, federal district courts have exclusive jurisdiction over actions "brought to enforce any liability or duty created by or to enjoin any violation" of a FERC opinion or order. ³ Although NOPSI asserted that the FERC opinion created a "duty" on the part of the Council to pass through to its retail rate payers the costs incurred by NOPSI as a result of its 17% FERC cost allocation, the district court's own review of the FERC opinion convinced the court that no "duty" had been created therein. There was no mandate to pass through the expenses allocated by FERC; indeed, "such a provision [was] conspicuous by its absence." Record Vol. 2 at 330. The FERC opinion merely prescribed the interstate wholesale rates that NOPSI would have to pay for its share of Grand Gulf Unit I energy. Given its interpretation of the FERC opinion, the district court found that jurisdiction under Sec. 825p of the Federal Power Act was lacking, and apparently also reasoned that NOPSI could not sustain its statutorily-based claim of federal preemption. Without this statutorily-based claim, jurisdiction rested "solely" on "repugnance of the order to the Federal Constitution," satisfying the first criterion of the Johnson Act. The district court also found that the Council's order did not interfere with interstate commerce, satisfying the second criterion of the Johnson Act. Because the district court concluded that the two Johnson Act criteria challenged by NOPSI had been met, federal jurisdiction was precluded.

Finally, the district court observed that even if it were to find that the Johnson Act did not bar adjudication of NOPSI's request for relief from the Council's regulatory authority, the jurisprudential doctrine of abstention would dictate a similar result. Citing Burford v. Sun Oil, 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943), the district court concluded that it should exercise a "hands-off policy" in reference to the Council's local rate-making.

II.

NOPSI on appeal contends that the district court erred in dismissing this case for lack of subject matter jurisdiction. We agree. In dismissing this case, the district court first considered NOPSI's claims within the jurisdictional grant of 16 U.S.C. Sec. 825p. As discussed above, the district court found from its own review of the FERC opinion that a pass through of NOPSI's costs was not explicitly mandated therein, and was in fact "conspicuous by its absence," thereby precluding jurisdiction under Sec. 825p. ⁴ We need not and do not decide, however, whether the federal court had jurisdiction of this matter under Sec. 825p, for federal jurisdiction over NOPSI's statutorily-based preemption claim can be sustained under a different jurisdictional grant: 28 U.S.C. Sec. 1331. Section 1331 provides for federal jurisdiction over questions "arising under" a federal law. ⁵ As noted by the Supreme Court, "the phrase 'arising under' masks a welter of issues regarding the interrelation of federal and state authority and the proper management of the federal judicial system."...