Court Gives Go-Ahead to Antitrust Suits in Gas Industry

Steven D. Schwinn, John Marshall Law School

The Supreme Court ruled this week in Oneok, Inc. v. Learjet, Inc. that the Natural Gas Act did not preempt retail gas purchasers' antitrust lawsuits against sellers (gas pipelines) for manipulating gas indexes used to set contract rates. Our argument review of the case is here.

The case arose when retail, intrastate purchasers of gas sued gas sellers for falsely reporting gas price data to industry journals that buyers and sellers used to set their contract price for gas purchases. The false reporting resulted in higher gas prices than the true market rate, so purchasers overpaid for their gas. Purchasers sued sellers under state antitrust laws. The sellers moved to dismiss, arguing that the state antitrust suits (by then removed to federal court) were preempted by the Natural Gas Act and FERC's authority under the Act.

Under the NGA, FERC has authority to regulate interstate, wholesale gas sales (sometimes called "jurisdictional" sales), but not intrastate, retail sales. Indeed, the NGA "was drawn with meticulous regard for the continued exercise of state power [over retail sales], not to handicap or dilute it in any way."

So the question was whether the price manipulation, which affected the buyers' intrastate purchases but also affected interstate, wholesale gas prices, was preempted by the NGA.

But there was a catch: the sellers (joined by the government, as amicus) only argued field preemption. Everyone agreed that the NGA contained no express preemption provision, and the sellers did not raise a conflict preemption argument.

The Court said that the answer lies in the "target at which the state law aims." In other words, because the state antitrust suits targeted sellers for manipulation of intrastate (non-jurisdictional) rates, it didn't matter that the manipulation also affected interstate, wholesale (jurisdictional) rates (over which FERC has authority). If the state law aims at intrastate sales, there's no field preemption by the NGA.

But the Court expressly withheld judgment on conflict preemption, leaving that question to the lower courts. It also expressly withheld judgment on the question whether FERC's determination that the NGA field preempts the buyers' claim holds any sway. The Court said that neither the sellers nor the government pointed to any FERC determination, so the Court wouldn't rule on it.

The case is a clear victory for gas purchasers who paid higher-than-market prices because of price manipulation by sellers. Those cases now go back to the lower courts to proceed on the merits.

But at the same time the case also suggests a strategy for sellers in the next round of antitrust litigation: Look for a way to argue conflict preemption (if there is such a way), and ask FERC to opine on the scope of NGA's field preemption.