Wagner & Brown v. ANR Pipeline Co.

• Decision Date: 10 February 1988
• Docket Number: No. 87-2500,87-2500
• Citation: 837 F.2d 199
• Parties: WAGNER & BROWN, Plaintiff-Appellant, v. ANR PIPELINE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 199

837 F.2d 199

WAGNER & BROWN, Plaintiff-Appellant, v. ANR PIPELINE COMPANY, Defendant-Appellee.

No. 87-2500.

United States Court of Appeals Fifth Circuit.

Feb. 10, 1988.

Rehearing Denied March 14, 1988.

Andrew Wooley, Everard A. Marseglia, Jr., Houston, Tex., for plaintiff-appellant.

B. Thomas Cook, Robert C. Williams, Houston, Tex., for defendant-appellee.

Appeal from the United States District Court for the Southern District of Texas

Before CLARK, Chief Judge, JOLLY and JONES, Circuit Judges.

CLARK, Chief Judge:

Wagner & Brown appeals the district court's dismissal of its action for damages for breach of a take-or-pay clause in a natural gas purchase contract. The district court did not abuse its discretion by deferring to the primary jurisdiction of the Federal Energy Regulatory Commission (FERC) for a determination of whether such take-or-pay issues affected the maximum lawful price of natural gas. The judgment appealed from is affirmed. However, to avoid possible prejudice to Wagner & Brown's rights under the contract, we direct the district court to modify its order dismissing the cause to provide that the action be stayed for 180 days to permit FERC to exercise its jurisdiction.

I.

This dispute arises from a contract for the sale of natural gas entered into between Wagner & Brown and ANR pipeline in August 1981. Under the terms of the contract, ANR Pipeline Company, a shipper and seller of natural gas, agreed to purchase natural gas produced by Wagner & Brown. Article IV of the contract contains a minimum purchase obligation, commonly known as a "take-or-pay" provision, under which ANR is obligated to take 75% of the gas produced at Wagner & Brown's wells or to pay Wagner & Brown as if this amount of gas was taken. ¹

Wagner & Brown alleges that from January 1984 through April 1986, ANR failed to take the minimum volumes of gas and did not meet the payment requirements under the contract. On July 31, 1986, Wagner & Brown filed suit against ANR in state court, seeking damages for breach of the contract. ANR removed to the Southern District of Texas. ANR then filed a complaint with the Federal Energy Regulatory Commission (FERC), asking FERC to issue an order that the take-or-pay prepayments would constitute unlawful payments in excess of the maximum natural gas prices established in the Natural Gas Policy Act of 1978, 15 U.S.C. Secs. 3301-3432 (1982) (the NGPA). ² ANR's complaint is currently pending before FERC. ³

On the day that it filed its complaint with FERC, ANR filed a motion to dismiss Wagner & Brown's suit pending in the Southern District of Texas. ANR argued that dismissal was proper because FERC has exclusive or primary jurisdiction to consider whether take-or-pay prepayments violate NGPA price ceilings.

After a hearing on the motion, the district court dismissed Wagner & Brown's suit, finding that the controlling issues in the case were within FERC's primary jurisdiction. Wagner & Brown appeals.

II.

Primary jurisdiction is a judicially created doctrine whereby a court of competent jurisdiction may dismiss or stay an action pending a resolution of some portion of the action by an administrative agency. The doctrine is invoked:

"whenever enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body; in such a case the judicial process is suspended pending referral of such issues to the administrative body for its views."

United States v. Western Pacific R.R. Co., 352 U.S. 59, 63-64, 77 S.Ct. 161, 165, 1 L.Ed.2d 126 (1956). It is a flexible doctrine to be applied at the discretion of the district court. El Paso Natural Gas Co. v. Sun Oil Co., 708 F.2d 1011, 1020 (5th Cir.1983), cert. denied, 468 U.S. 1219, 104 S.Ct. 3589, 82 L.Ed.2d 887 (1984); Mississippi Power & Light Co. v. United Gas Pipe Line Co., 532 F.2d 412, 418 (5th Cir.1976), cert. denied, 429 U.S. 1094, 97 S.Ct. 1109, 51 L.Ed.2d 541 (1977). Application of the doctrine is especially appropriate where:

"uniformity of certain types of administrative decisions is desirable, or where there is a need for the 'expert and specialized knowledge of the agencies.' "

Avoyelles Sportsmen's League, Inc. v. Marsh, 715 F.2d 897, 919 (5th Cir.1983) (quoting, Western Pacific, supra, 77 S.Ct. at 165).

A court considering deferring to an agency's primary jurisdiction must weigh the benefits of obtaining the agency's aid against the need to resolve the litigation expeditiously and may defer only if the benefits of agency review exceed the costs imposed on the parties. Gulf States Utilities Co. v. Alabama Power Co., 824 F.2d 1465, 1473 (5th Cir.1987) (citing, Mississippi Power & Light Co. v. United Gas Pipeline Co., 532 F.2d 412, 419 (5th Cir.1976), cert. denied, 429 U.S. 1094, 97 S.Ct. 1109, 51 L.Ed.2d 541 (1977).

In this case, the considerations of expertise and uniformity tip the scales in favor of deferral to FERC. FERC has acquired expertise on the subject of gas pricing while performing its rulemaking and price enforcement functions. The NGPA vested FERC with the power "to perform any and all acts (including any appropriate enforcement activity), and to prescribe, issue, amend, and rescind such rules and orders as it may find necessary or appropriate to carry out its functions under [the NGPA]." 15 U.S.C. Sec. 3411(a) (1982). These activities have given FERC insight into why specific grades of gas should bear certain ceiling prices and how these ceilings contribute to the overall policy of natural gas price regulation. FERC's insight gives it special competence to determine what components should be included in the first sale price for natural gas. ⁴

In addition, a ruling by FERC would create uniformity in the construction of take-or-pay clauses. Numerous district courts have ruled that take-or-pay payments do not violate federal NGPA price ceilings. See, e.g., Sid Richardson Carbon & Gasoline Co. v. Internorth, Inc., 595 F.Supp. 497 (N.D.Tex.1984); Koch Industries, Inc. v. Columbia Gas Transmission Corp., No. 83-990-A (M.D.La. filed Nov. 18, 1983), aff'd sub nom., In re Columbia Gas Transmission Corp., No. 84-3282 (5th Cir. July 30, 1984); Southport Exploration, Inc. v. Producer's Gas Co., No. 83-C-550-BT (N.D.Okla. filed March 13, 1984); Challanger Minerals, Inc. v. Southern Natural Gas Co., No. 84-C-357-E (N.D.Okla.1986). The District of Columbia Circuit has recently indicated that Congress probably did not intend that take-or-pay provisions in producer contracts would violate the NGPA. Associated Gas Distributors v. FERC, 824 F.2d 981, 1022 n. 26 (D.C.Cir.1987) ⁵ However, several district courts have considered that take-or-pay payments might be a component of price and have referred individual cases to FERC for resolution. See, e.g., Gulf Oil Corp. v. Tenneco, Inc., 608 F.Supp. 1493, 1503 (E.D.La.1985); Post v. Perry Gas Transmission, Inc., 616 F.Supp. 1 (N.D.Tex. 1983); Hamilton Brothers v. ANR Pipeline, No. 86-6014 (S.D.Tex. filed Aug. 29, 1986). These disparate interpretations underscore the need for a definitive pronouncement from FERC.

If resolution of the issue is left to district courts, they may make different rulings regarding whether prepayments will be considered a component of price. A uniform rule is preferable because the interstate market for gas is a nationwide market regulated under a single act of Congress. Conflicting decisions among the districts, even when brought into closer conformity by appellate decisions, are at best a patchwork solution to a problem that requires uniform resolution. The district court acted within its discretion to rely on FERC to issue such a uniform ruling in the first instance.

Although we agree that FERC has primary jurisdiction, we do not accept ANR's further argument that FERC has exclusive jurisdiction over construction of take-or-pay contracts. FERC itself has recognized federal court jurisdiction over suits involving the construction of contracts for the sale of natural gas. See, e.g., Hall v. FERC, 691 F.2d 1184, 1188 (5th Cir.1982), cert. denied, 464 U.S. 822, 104 S.Ct. 88, 78 L.Ed.2d 961 (1983). Arkansas Louisiana Gas Co. v. Hall, 55 F.P.C. 1018, 1020 (1976).

III.

Wagner & Brown presents essentially five objections to the district court's finding of primary jurisdiction. We will consider them in turn.

A) FERC's Jurisdiction over ANR's Complaint

Wagner & Brown argues that FERC lacks jurisdiction over its dispute with ANR because the dispute is purely contractual. Wagner & Brown states that FERC's authority under the NGPA does not encompass the interpretation of producer-pipeline contracts but rather is limited to determining whether a gas producer is entitled to increase his price to the level mandated by Congress in the NGPA. ⁶ Columbia Gas Development Corp. v. FERC, 651 F.2d 1146, 1159 n. 15 (5th Cir.1981); Pennzoil Co. v. FERC, 645 F.2d 360, 380-81 n. 41 (5th Cir.1981), cert. denied, 454 U.S. 1142, 102 S.Ct. 1000, 11 L.Ed.2d 293 (1982). We disagree.

The NGPA provides that "[i]t shall be unlawful for any person (1) to sell natural gas at a first sale price ⁷ in excess of any applicable maximum lawful price under this chapter ..." 15 U.S.C. Sec. 3414(a)(1) (1982). The Act and the regulations duly promulgated give FERC the power to seek injunctions against sales of gas above the price ceilings. ⁸ Hence, as Wagner & Brown argues, FERC's primary duty under the NGPA is to determine what price ceiling applies to a particular shipment of natural gas. However, implicit in this duty is FERC's authority to determine which payments required under producer-pipeline contracts will be included in the "price" of natural gas. For FERC to effectively exercise its authority to bring suit to enjoin violations of NGPA price ceilings, it must have jurisdiction to determine which payments constitute components of the price of natural gas.

Because ANR's action turns...