Shell Oil Co. v. City of Santa Monica
| Decision Date | 21 October 1987 |
| Docket Number | 86-6206,Nos. 86-6103,s. 86-6103 |
| Citation | 830 F.2d 1052 |
| Parties | SHELL OIL COMPANY, a Delaware corp., Plaintiff-Appellant-Cross-Appellee, v. CITY OF SANTA MONICA, a municipal corp., Defendant-Appellee-Cross-Appellant. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Edward S. Renwick, Los Angeles, Cal., for plaintiff-appellant-cross-appellee.
Mary H. Strobel, Santa Monica, Cal., for defendant-appellee-cross-appellant.
Appeal from the United States District Court for the Central District of California.
Before PREGERSON, NELSON and WIGGINS, Circuit Judges.
Shell Oil Company appeals from a grant of summary judgment holding (1) that the City of Santa Monica is exempt from the dormant commerce clause under the market participant doctrine in its setting of a franchise fee for an oil pipeline traversing the city and (2) that the state constitution does not bar the fee. Santa Monica cross-appeals from a grant of summary judgment holding that the Hazardous Liquid Pipeline Safety Act, 49 U.S.C.A. Secs. 2001-2014 (Supp.1987), preempts Santa Monica from imposing any safety standards in an intrastate pipeline franchise agreement. We have jurisdiction pursuant to 28 U.S.C. Sec. 1291 (1982). We affirm in part and vacate and remand in part.
In 1941, the City of Santa Monica and a predecessor of Shell Oil Company entered into a forty-year franchise agreement to operate an oil pipeline underneath city streets. Santa Monica does not hold a fee interest in the streets; it holds an easement in the streets for street purposes. The 1941 franchise granted Shell's predecessor an exclusive subsurface easement in, under, along, and across certain public streets. It provided that the grantee would comply with all ordinances, rules, or regulations then or thereafter adopted by the Santa Monica City Council. The franchise did not include any provision for renewal. Today, Shell owns, operates, and maintains the pipeline.
The entire pipeline traverses 82.2 miles from Ventura County, California, to Shell's Wilmington refinery in Los Angeles County, California. The portion within Santa Monica totals 3.9 miles. The ten-inch diameter pipe enters the northeast corner of the city and runs roughly north to south, parallel to the coast, a few blocks inside Santa Monica's eastern boundary with the City of Los Angeles. For the most part, the pipe lies approximately forty-eight inches below the surface of the street. It runs within some fifty feet of the city's water well # 6, passes by the San Vicente reservoir, intersects several storm drains flowing west to the sea, and crosses over the Santa Monica Freeway (Interstate 10). The area the pipe traverses is heavily residential and commercial. Under the franchise agreement, Shell paid Santa Monica a total annual fee of $1,029.60, based on a formula of $.005 per inch internal diameter per linear foot of pipe.
As of 1985 and early 1986, the Ventura pipeline carried in excess of 32,000 barrels of crude oil per day. All of Shell's drilling sites are onshore in California. Pursuant to "exchange agreements," however, Shell also acquires title to oil drilled by other oil companies on the outer continental shelf and transmits the combined oil through the pipeline. Shell thus holds title to all of the oil while in the pipeline. Approximately 89% of the pipeline's oil is then delivered to Shell's Wilmington refinery, accounting for 24% of the refinery's input. Some of the fuel produced at the refinery is delivered to suppliers in Nevada and Arizona. The remaining 11% of the crude oil carried in the pipeline is distributed to the other oil companies from whom Shell acquired title under the exchange agreements. 1
Prior to the expiration of the agreement in 1981, Santa Monica and Shell commenced negotiations for a new franchise agreement. In May 1981, Shell proposed an annual fee of $8,514.51, which Santa Monica rejected. After commissioning a firm to appraise the fair rental value of the route, Santa Monica proposed a flat fee of $237,000 per year (with inflation escalators). This amount was based on a five-foot wide subsurface right of way valued at a rate corresponding to 50% of the abutting surface land value, assessed at an annual 12.5% rate of return. Shell countered with a figure of $10,000 to $12,500 per year, based on its own firm's appraisal of pipeline The parties also disagreed over the inclusion of safety standards in the proposed franchise agreement. The engineering firm retained by Santa Monica noted three prior ruptures in the Ventura pipeline, resulting in spills of 4,337 barrels of crude oil, and analyzed the risks and consequences of future ruptures. See NDE Technology, Inc., Safety Study for the Section of the Shell Oil Ventura 10-Inch Crude Pipeline (November 1981). In view of the age of the pipeline, its special physical characteristics, 3 and the high density residential and commercial areas it traverses, the NDE report recommended numerous safety improvements, which Santa Monica proposed to include in the franchise agreement. The firm retained by Shell to conduct a safety analysis, while acknowledging the possibility of accidents, emphasized the safety record of the Ventura pipeline, disputed some aspects of the NDE report, and generally presented a more optimistic view of the potential risks. See Bechtel Petroleum, Inc., Santa Monica Segment Shell Ventura Crude Oil Pipeline (February 1982). Shell objected to the inclusion of any safety standards in the franchise.
franchise fees with numerous other California cities. 2
To date, the parties have not signed a new franchise agreement. Interim agreements have allowed Shell to continue to use the substreet easement, apparently at a fee of approximately $10,000 or $11,000 per year.
On May 14, 1982, two days prior to the expiration of one of the interim agreements, Shell filed a complaint in federal district court. Shell sought declarations that (1) the proposed fee would unreasonably burden interstate commerce in violation of the commerce clause; (2) Santa Monica may impose only a fee that does not exceed the costs of any city services provided in connection with the pipeline and the reasonable value of the property rights surrendered to Shell in the franchise; (3) the fee violates the California Constitution; (4) Santa Monica violated the federal and state equal protection clauses by discriminating between Shell and other grantees of substreet easements; and (5) federal and state law preempt Santa Monica's attempt to impose any safety standards on the pipeline. Shell also sought permanent injunctive relief, inter alia, that Santa Monica (1) may not prevent Shell from transporting crude oil in the pipeline or otherwise interfere "with Shell's right to transport crude oil by pipeline through the City"; (2) may impose a fee based only on the reimbursement/compensation costs described above; and (3) may not impose any pipeline safety standards.
On June 12, 1986, the district court granted summary judgment in favor of Santa Monica in part and in favor of Shell in part. On the commerce clause issues, the court principally held that Santa Monica is a market participant in the area of oil transportation and thus is not subject to commerce clause restrictions. Second, the court held that the California Constitution did not bar the proposed fee. Finally, the court held that federal law preempts Santa Monica's attempt to impose any safety standards. Both parties filed timely appeals.
Shell's primary challenge is that the $237,000 annual fee violates the federal commerce clause because it places an unreasonable burden on interstate commerce. By its own terms, the commerce clause grants Congress power "[t]o regulate Commerce ... among the several States." U.S. Const. art. I, Sec. 8, cl. 3. The present case does not involve an affirmative exercise of that power by Congress insofar as the route of the pipeline or the amount of the fee is concerned. 4 However, even in the absence of affirmative congressional action, the commerce clause prohibits states from taking certain action respecting interstate commerce. CTS Corp. v. Dynamics Corp. of Am., --- U.S. ----, 107 S.Ct. 1637, 1648, 95 L.Ed.2d 67 (1987). The Court's interpretation of " 'these great silences of the Constitution,' " id. (quoting H.P. Hood & Sons, Inc. v. Du Mond, 336 U.S. 525, 535, 69 S.Ct. 657, 663, 93 L.Ed. 865 (1949)), has sprung primarily from a concern to avoid the Balkanization of commerce among the states. See Hughes v. Oklahoma, 441 U.S. 322, 325-26, 99 S.Ct. 1727, 1731, 60 L.Ed.2d 250 (1979); see also Regan, The Supreme Court and State Protectionism: Making Sense of the Dormant Commerce Clause, 84 Mich.L.Rev. 1091, 1094-95 (1986) (). Yet, as the Court itself recently stated, its dormant commerce clause jurisprudence "has not always been easy to follow." CTS Corp., 107 S.Ct. at 1648.
In the present case, the district court granted Santa Monica's motion for summary judgment on the franchise fee question on the ground that Santa Monica acted as a "market participant" that is not subject to the restrictions of the dormant commerce clause. Under the Court's market participant doctrine, if a state or state subdivision acts as a market participant rather...
To continue reading
Request your trial
-
Swin Resource Systems, Inc. v. Lycoming County, Pa. Through Lycoming County Solid Waste Dept.
...has used its ownership of land to discriminate against the transportation of goods in interstate commerce. Cf. Shell Oil Co. v. City of Santa Monica, 830 F.2d 1052 (9th Cir.1987) (city not a market participant where it assesses franchise fee on oil company seeking to build oil pipeline bene......
-
City of Portland v. United States
...of an oil pipeline that operated under city-owned streets in the public rights-of-way. Id. ; see also Shell Oil Co. v. City of Santa Monica , 830 F.2d 1052, 1057–58 (9th Cir. 1987) (holding that the City of Santa Monica does not act as a market participant when it sets franchise fees for pi......
-
American Trucking Ass'ns, Inc. v. City of Los Angeles
...and the city sought to exercise its power to protect public health and safety. Id. at 882; see also Shell Oil Co. v. City of Santa Monica, 830 F.2d 1052, 1057–58 (9th Cir.1987) (holding that a city “is not a market participant ... in deciding whether, or on what terms to grant a franchise f......
-
Century Federal, Inc. v. City of Palo Alto
...via unsolicited letters to the Court long after the record on the present motions was complete, to rely on Shell Oil Co. v. City of Santa Monica, 830 F.2d 1052 (9th Cir.1987), cert. denied, ___ U.S. ___, 108 S.Ct. 2901, 2902, 101 L.Ed.2d 934 (1988), a case involving commerce clause and equa......
-
Case summaries.
...2002). (664) Olympic Pipe Line Co. v. City of Seattle, 437 F.3d 872, 880 (9th Cir. 2006). (665) Shell Off Co. v. City of Santa Monica, 830 F.2d 1052, 1066 (9th Cir. (656) Id. at 1064 (relying on the text of the former 49 U.S.C. [section] 2002(d)). (657) 49 U.S.C. [section] 60104(c) (Supp. 2......
-
CHAPTER 5 AN INTRODUCTION TO FEDERAL PIPELINE SAFETY REGULATIONS
...as an agent of the Secretary of Transportation under what was then 49 C.F.R. § 190.6(a) . [166] Shell Oil Co. v. City of Santa Monica, 830 F.2d 1052 (9th Cir. 1987). [167] 999 F.2d 354 (8th Cir. 1993). [168] Id. at 359, quoting Arkansas Electric Cooperative Corp. v. Arkansas Pub. Serv. Comm......
-
CHAPTER 10 CARBON DIOXIDE INFRASTRUCTURE: PIPELINE TRANSPORT ISSUES AND REGULATORY CONCERNS--PAST, PRESENT, AND FUTURE
...of CO2 Pipelines", 30 Energy L. J. 85, 95 (2009). [87] 49 U.S.C. Section 60104(c). See also Shell Oil Co. v. City of Santa Monica, 830 F.2d 1052, 1064 (9th Cir. 1987). ("The legislative reports acknowledge broadly, and without qualification, that states may impose additional, compatible sta......