Williston Basin v. Exclusive Gas Storage Leasehold

• Decision Date: 09 May 2008
• Docket Number: No. 06-35660.,06-35660.
• Citation: 524 F.3d 1090
• Parties: WILLISTON BASIN INTERSTATE PIPELINE COMPANY, Plaintiff-Appellant, v. AN EXCLUSIVE GAS STORAGE LEASEHOLD AND EASEMENT IN THE CLOVERLY SUBTERRANEAN GEOLOGICAL FORMATION, Including But Not Limited to the Formation Beneath Section 35, T9S, R23E Carbon County, Montana, and Beneath Section 19, T58N, R99W Park County, Wyoming, and Certain Oil or Gas Wells Located Therein; Howell Petroleum Corporation; Anadarko Petroleum Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

524 F.3d 1090

WILLISTON BASIN INTERSTATE PIPELINE COMPANY, Plaintiff-Appellant, v. AN EXCLUSIVE GAS STORAGE LEASEHOLD AND EASEMENT IN THE CLOVERLY SUBTERRANEAN GEOLOGICAL FORMATION, Including But Not Limited to the Formation Beneath Section 35, T9S, R23E Carbon County, Montana, and Beneath Section 19, T58N, R99W Park County, Wyoming, and Certain Oil or Gas Wells Located Therein; Howell Petroleum Corporation; Anadarko Petroleum Corporation, Defendants-Appellees.

No. 06-35660.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 5, 2008.

Filed May 9, 2008.

Robert T. Hall, III (argued) and Andrea Wolfman, Thelen Reid Brown Raysman & Steiner LLP, Washington, D.C., for the plaintiff-appellant.

Jon Metropoulos and Dana L. Hupp, Gough, Shanahan, Johnson & Waterman, Helena, MT, for the plaintiff-appellant.

W. Scott Mitchell and Jason S. Ritchie, Holland and Hart LLP, Billings, MT, for the defendants-appellees.

Patrick R. Day (argued), Holland and Hart LLP, Cheyenne, WY, for the defendants-appellees.

Appeal from the United States District Court for the District of Montana; Richard F. Cebull, District Judge, Presiding. D.C. No. CV-06-00010-RFC.

Before: RAYMOND C. FISHER, RONALD M. GOULD, and SANDRA S. IKUTA, Circuit Judges.

IKUTA, Circuit Judge:

Williston Basin Interstate Pipeline Company (Williston) claims that it has lost and is continuing to lose natural gas stored in its Elk Basin Storage Reservoir due to the operation of gas production wells owned by Howell Petroleum Corporation and Anadarko Petroleum Corporation (Howell/Anadarko). Two of those wells are located within the lateral boundaries of Williston's storage reservoir, but are completed in geologic formations (the Morrison and Sundance formations) below the geologic formation in which Williston stores its natural gas (the Cloverly formation). Williston brought an action in federal district court, seeking damages and injunctive relief pursuant to its state law claims of conversion and negligence and also seeking to condemn the two Howell/ Anadarko wells located within the lateral boundaries of the Elk Basin Storage Reservoir. The district court dismissed Williston's action. In this appeal, we consider Williston's arguments that the district court erred in dismissing Williston's complaint for lack of subject matter jurisdiction or for failure to state a claim under the Natural Gas Act (NGA), 15 U.S.C. §§ 717-717z. Williston contends that the district court erred in holding that Williston needed authorization from the Federal Energy Regulatory Commission (FERC) before it could condemn Howell/Anadarko's wells, and therefore erred in dismissing Williston's condemnation claim. Williston also contends that its state law claims raised a substantial federal question because they were aimed at enforcing a duty created by the NGA. We reject both of Williston's arguments and affirm the district court.

I

Williston is an interstate natural gas pipeline company that delivers gas to a variety of customers in Montana, North Dakota, South Dakota and Wyoming. As part of its operations, Williston stores gas in the Elk Basin Storage Reservoir within the Elk Basin Field, which is located in southern Montana and northern Wyoming. The Elk Basin Storage Reservoir is located in an underground geological formation (the Cloverly formation) from which the producible natural gas has already been removed. Williston now uses this formation for storage and withdrawal of its stored natural gas, and has installed seven active injection/withdrawal wells in the reservoir for this purpose.

As an interstate natural gas company, Williston is subject to federal regulation. See 15 U.S.C. § 717(a), (b). The NGA authorizes FERC to regulate the "transportation of natural gas" in interstate commerce. See id. § 717(a); 42 U.S.C. § 7172(a). Williston's gas storage facilities are regulated by FERC "since those facilities are a critical part of the transportation of natural gas and sale for resale in interstate commerce." Schneidewind v. ANR Pipeline Co., 485 U.S. 293, 308, 108 S.Ct. 1145, 99 L.Ed.2d 316 (1988); see also 18 C.F.R. § 284.1(a) (providing that "[t]ransportation includes storage"). Under the NGA, a natural gas company must obtain a certificate of public convenience and necessity (CPCN) from FERC before it can engage in the acquisition, construction, operation or extension of any facility. 15 U.S.C. § 717f(c)(1)(A). Natural gas companies must operate their facilities in compliance with the terms and conditions set forth in their CPCN and in FERC regulations. See id. §§ 717(a), 717f(c)(1)(A), 717f(e).

The Elk Basin Storage Reservoir was previously owned by Billings Gas Company (Billings). In 1949, FERC issued Billings a CPCN to acquire and use the "Elk Basin Cloverly gas reservoir" for purposes of underground storage. Billings Gas Co., 8 F.P.C. 1166, 1166-67 (1949). The CPCN stated that the reservoir was "more fully described in the application in these proceedings and exhibits appended thereto." Id. at 1167. Montana-Dakota Utilities Co. (Montana-Dakota) then acquired the reservoir and operated it until 1985, at which time FERC approved Williston's application for a CPCN to acquire and operate natural gas facilities including the Elk Basin Storage Reservoir. The CPCN noted again that the facilities were "more fully described in the application." Williston Basin Interstate Pipeline Co. & Montana-Dakota Utils. Co., 30 F.E.R.C. ¶ 61,143, 61,253 (1985).

Billings, Montana-Dakota, and Williston operated the Elk Basin Storage Reservoir until 2002 without any notable interference. During this period, Howell Petroleum Corporation owned leases and mineral interests in oil and gas producing formations in the Elk Basin Field. Problems began in 2002 when Anadarko Petroleum Corp., a corporation engaged in natural gas exploration and production, purchased all of Howell's stock. Soon after the stock purchase, Howell/Anadarko drilled several wells within the Elk Basin Field, including wells 19-1 and 195. Well 19-1 was completed in the Sundance formation and well 195 was completed in the Morrison and Sundance formations. Although the Morrison and Sundance formations are located below the Cloverly formation where Williston's natural gas is stored, both wells are located within the lateral boundaries of the Elk Basin Storage Reservoir and their well bores cross through the Cloverly formation to reach the lower geologic formations.

On January 27, 2006, Williston filed a complaint in district court against Howell/Anadarko, alleging that "[d]efendants have caused and are causing the loss ... of Williston's storage gas." Williston claimed it conducted an analysis of Elk Basin Storage Reservoir data which indicated that the loss of gas in Williston's storage reservoir was directly correlated to increased production from Howell/Anadarko's wells. The complaint asserted state law conversion and negligence claims and sought damages and injunctive relief.

After Howell/Anadarko filed a motion to dismiss for lack of subject matter and diversity jurisdiction, Williston filed an amended complaint which added a claim for condemnation under Rule 71A of the Federal Rules of Civil Procedure.¹ This amended complaint sought condemnation of wells 19-1 and 195 under the authority of Williston's 1985 CPCN. Williston did not allege that its CPCN specifically described the property Williston sought to condemn, nor did Williston provide the district court with a copy of the map exhibits which accompanied its CPCN application, or with any other application materials depicting the lateral and vertical boundaries of the reservoir approved by FERC in the 1949 or 1985 order. In the absence of any FERC authorization to condemn the two wells, Howell/Anardarko argued, among other things, that Williston's amended complaint failed to state a condemnation claim and that the court lacked subject matter jurisdiction over that claim. On July 14, 2006, the district court granted Howell/Anadarko's motion to dismiss Williston's federal claims and declined to exercise supplemental jurisdiction over the state law claims.

II

We first review Williston's challenge to the district court's dismissal of Williston's condemnation claim. Because the district court's order discussed only jurisdictional grounds for dismissal, it apparently dismissed Williston's condemnation claim for lack of subject matter jurisdiction. However, the parties agree that the district court may have dismissed this claim for failure to state a claim. Because we can affirm the district court on any basis supported by the record, see Foster v. Wilson, 504 F.3d 1046, 1050 (9th Cir.2007), we will consider both bases for dismissal.

A

We first consider Williston's argument that the district court could not dismiss Williston's condemnation claim for lack of subject matter jurisdiction. As a general rule, when "[t]he question of jurisdiction and the merits of [the] action are intertwined," dismissal for lack of subject matter jurisdiction is improper. See Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir.2004). Such an intertwining of jurisdiction and merits may occur when a party's right to recovery rests upon the interpretation of a federal statute that provides both the basis for the court's subject matter jurisdiction and the plaintiff's claim for relief. See id. (citing Sun Valley Gas., Inc. v. Ernst Enters., 711 F.2d 138, 139 (9th Cir.1983)). As the Court explained in Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998), "if `the right of the petitioners to recover under their complaint will be sustained if the Constitution and laws of the United States are given one construction and will be defeated if they are given another,'" then the court has jurisdiction over the dispute, and cannot dismiss on jurisdictional grounds. Id. at 89, 118 S.Ct. 1003(quoting Bell v. Hood, 327 U.S. 678, 685, ...