Williams Natural Gas Co. v. City of Oklahoma City

Citation890 F.2d 255
Decision Date22 November 1989
Docket NumberNos. 89-6209,89-6227 and 89-6228,s. 89-6209
PartiesWILLIAMS NATURAL GAS COMPANY, a Utah Corporation, Plaintiff-Appellant, Smith Cogeneration, Inc., an Oklahoma Corporation, and Powersmith Co-Generation Project, a limited partnership, Plaintiffs-Intervenors-Appellants, v. The CITY OF OKLAHOMA CITY, a Municipal Corporation, and Oklahoma Natural Gas Company, a Delaware Corporation, Defendants-Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (10th Circuit)

Douglas E. Nordlinger of Skadden, Arps, Slate, Meagher & Flom, Washington, D.C. (J. Clayton La Grone, William R. Burkett & Steven L. Tolson of Hall, Estill, Hardwick, Gable, Golden & Nelson, Oklahoma City, Okl., John S.L. Katz and John N. Estes of Skadden, Arps, Slate, Meagher & Flom, Washington, D.C., and S. Paul Hammons of Andrews, Davis, Legg, Bixler, Milsten & Price, P.C., Oklahoma City, Okl., on the briefs), for plaintiff-appellant and plaintiffs-intervenors-appellants.

Curtis M. Long of Huffman Arrington Kihle Gaberino & Dunn, Tulsa, Okl. (J. Clarke Kendall II, Gerald L. Hilsher, and Brad D. Fuller of Huffman Arrington Kihle Gaberino & Dunn, Burck Bailey, Harry H. Selph II, Doneen Douglas Jones, and Thomas J. Enis of Fellers, Snider, Blankenship, Bailey & Tippens, Oklahoma City, Okl., on the briefs), for defendants-appellees.

Catherine C. Cook, Gen. Counsel, Jerome M. Feit, Sol., and Katherine Waldbauer filed an amicus curiae brief for the F.E.R.C.

Before McKAY, LOGAN, and BRORBY, Circuit Judges.

BRORBY, Circuit Judge.

This appeal arises from the United States District Court for the Western District of Oklahoma, where that court denied appellant's motion to construe federal condemnation rights under the Natural Gas Act and to disregard and stay the order of the Oklahoma County District Court. The order of the federal district court, issued May 30, 1989, effectively denied appellants full enforcement of a Federal Energy Regulatory Commission ("FERC" or "Commission") certificate authorizing appellants to construct and operate a natural gas pipeline to service the PowerSmith Cogeneration Project's ("PowerSmith") cogeneration facility in Oklahoma City. 1

We find the state court lacked jurisdiction to entertain a collateral challenge to the FERC certificate and, accordingly, we REVERSE.

I. Statement of the Case

The dispute has its genesis in the competition between appellee Williams Natural Gas Company ("Williams") and appellant Oklahoma Natural Gas Company ("ONG") for the contract to transport natural gas to the PowerSmith facility--a competition eventually won by Williams. In order to service PowerSmith, Williams needed to construct a twelve-mile extension of an existing interstate pipeline to PowerSmith. As an interstate "natural-gas company" under the Natural Gas Act ("NGA"), 15 U.S.C. Secs. 717-717w (1988), Williams could not construct or operate the extension without applying to and receiving from FERC, pursuant to Sec. 7(c) of the NGA, 15 U.S.C. Sec. 717f(c), an authorizing certificate of public convenience and necessity.

ONG is the local distribution company with a city franchise to sell, transport and distribute natural gas to the general public in Oklahoma City. The city franchise grants ONG the right to construct, operate and maintain facilities in the public streets and other public ways for its distribution purposes. Williams' pipeline construction would also require access to and use of the streets of Oklahoma City. Therefore, on October 18, 1988, before Williams was able to complete its application to FERC, ONG commenced the race to the courthouse and filed a declaratory judgment action in Oklahoma County District Court, asserting its franchise gives it the right to use City streets to the exclusion of a nonfranchised transporter. Williams and PowerSmith answered on November 10, 1988, asserting as a defense that the NGA, 15 U.S.C. Secs. 717-717w, preempts Oklahoma franchise law and therefore Williams was not required to obtain a franchise.

On October 28, 1988, ten days after ONG had filed its action in state court, Williams applied to FERC for the certificate of public convenience and necessity authorizing the construction and operation of the PowerSmith pipeline. ONG responded by protesting and intervening in opposition to Williams' application. In its intervention, ONG contested FERC's jurisdiction to regulate the proposed pipeline, questioned the sufficiency and substance of Williams' application and urged the Commission to explore alternative proposals.

More specifically, in its challenge to FERC's jurisdiction, ONG argued that the facilities proposed by Williams should be subject to local rather than federal regulation: "[T]he proposal, notwithstanding that it is cast as an application to expand service by an interstate pipeline, in fact relates to service in the nature of distribution or intrastate transportation," and "[a]s such, the facilities are local in nature and should be subject not to FERC jurisdiction, but rather to local regulation...." Indeed, ONG argued, "[t]his case cries out for local, not federal, regulation."

On February 16, 1989, after denying ONG's request for a hearing in the matter, FERC granted Williams a certificate authorizing and directing Williams to construct and operate the PowerSmith pipeline. As to ONG's jurisdictional contentions, FERC found that the facilities proposed by Williams were within its jurisdiction and therefore subject to subsections (c) and (e) of Sec. 7 of the NGA, 15 U.S.C. Sec. 717f(c), (e). Williams Natural Gas Co., 46 Fed. Energy Reg. Comm'n Rep. (CCH) p 61,160 (1989). In support of this finding FERC determined that the facilities proposed bore little resemblance to a local distribution system. Further, incorporating language from its previous decision in Panhandle Eastern Pipe Line Co., 42 Fed. Energy Reg. Comm'n Rep. (CCH) p 61,076 (1988), the Commission stated,

"[I]rrespective of any local effects resulting from the by-pass, we believe that the transportation service at issue here essentially concerns Federal interests, that is, those embodied in developing interstate transportation policy that provides consumers with a variety of supply options by promoting a competitively priced spot market for natural gas."

Williams, 46 Fed.Energy Reg.Comm'n Rep. (CCH) p 61,160 at 61,559 (quoting Panhandle ).

On March 1, 1989, ONG filed with FERC a Request for Rehearing and Motion to Stay the FERC Order. FERC denied ONG's motion to stay on March 31, 1989, and denied ONG's request for rehearing on May 31, 1989. 47 Fed.Energy Reg. Comm'n Rep. (CCH) p 61,308, 1989 FERC LEXIS 1363. 2

Also on February 16, 1989, the same day FERC issued its order, the Oklahoma state court ruled in ONG's declaratory judgment action. The court held, under Oklahoma law, ONG's franchise insulates it from competition in Oklahoma City from nonfranchisees. The state court specifically reserved for a later time (pending study of further briefs to be submitted by the parties) the issue whether federal law preempts the requirements of Oklahoma law and, thus, whether the authority of a FERC certificate negates the Oklahoma franchise requirement.

On March 28, approximately six weeks after the orders of FERC and the state court had been issued, Williams brought an action to enforce the FERC certificate in the United States District Court for the Western District of Oklahoma pursuant to Sec. 7(h) of the NGA, 15 U.S.C. Sec. 717f(h). Specifically, Williams sought to condemn rights of way across city streets to construct and operate the PowerSmith pipeline under the FERC certificate and to quiet Williams' title to those rights of way as against ONG's franchise rights. Thereafter, by order of April 18, the federal district court authorized Williams to condemn city rights of way "for the purpose of laying a pipeline" pursuant to the FERC certificate. However, the court's order made no mention of Williams' ability to "operate" the pipeline.

In response, on April 28, ONG sought and obtained from the state district court a temporary restraining order ("TRO") enjoining Williams from constructing the pipeline across city streets. On May 1, the federal district court responded by enjoining enforcement of the state TRO, finding that it interfered with its jurisdiction and order permitting the construction. However, in issuing this order, the federal court declined to enjoin the state court's consideration of the preemption issue and abstained from ruling on the question of federal preemption because that issue had been first presented to the state court.

On May 11, Williams and PowerSmith requested the federal district court to reconsider its decision to abstain and again requested the court to enjoin the state court's consideration of the preemption question. However, on May 19, while this motion to reconsider was pending, the state court decided the preemption issue before it, holding the FERC certificate did not preempt the state franchise requirement. The state court therefore permanently enjoined the construction and operation of the pipeline, notwithstanding the authority of the FERC certificate. 3

After the state court granted its injunction, the federal district court issued its final order on May 22, granting the condemnation rights to Williams "for the purpose of the construction, maintenance and operation" of the pipeline. The court then held a hearing on May 24 to consider a further request by Williams and PowerSmith to construe federal condemnation rights under the NGA and to stay the enforcement of the state court order to the extent it interfered with the May 22 condemnation order. Williams and PowerSmith argued the state court injunction was an impermissible infringement upon the federal district court's exclusive condemnation jurisdiction under Sec. 7(h) to enforce the FERC certificate. After further briefing by the parties, the federal court, in an order issued May 30, refused to grant...

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