Arkansas Louisiana Gas Co. v. Hall
453 U.S. 571 (1981)

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U.S. Supreme Court

Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571 (1981)

Arkansas Louisiana Gas Co. v. Hall

No. 78-1789

Argued April 20, 1981

Decided July 2, 1981

453 U.S. 571

CERTIORARI TO THE SUPREME COURT OF LOUISIANA

Syllabus

In 1952, respondent natural gas producers and petitioner entered into a contract under which respondents agreed to sell petitioner natural gas from a certain gas field in Louisiana. The contract contained a fixed price schedule and a "favored nations clause," which provided that, if petitioner purchased gas from the gas field from another party at a higher rate than it was paying respondents, then respondents would be entitled to a higher price for their sales to petitioner. In 1954, respondents filed the contract and their rates with the Federal Power Commission (now the Federal Energy Regulatory Commission) and obtained from it a certificate authorizing the sale of gas at the specified contract rates. In 1961, petitioner purchased certain leases in the same gas field from the United States and began producing gas on its leasehold. In 1974, respondents filed an action in a Louisiana state court, contending that petitioner's lease payments to the United States had triggered the favored nations clause. Because petitioner had not increased its payments to respondents as required by that clause, respondents sought as damages an amount equal to the difference between the price they actually were paid in the intervening years and the price they would have been paid had that clause gone into effect. Although finding that the clause had been triggered, the trial court held that the "filed rate doctrine," which prohibits a federally regulated seller of natural gas from charging rates higher than those filed with the Commission pursuant to the Natural Gas Act, precluded an award of damages for the period prior to 1972 (the time during which respondents were subject to the Commission's jurisdiction). The intermediate appellate court affirmed, but the Louisiana Supreme Court reversed, holding that respondents were entitled to damages for the period between 1961 and 1972 notwithstanding the filed rate doctrine. The court reasoned that petitioner's failure to inform respondents of the lease payments to the United States had prevented respondents from filing rate increases with the Commission, and that, if they had done so, the increases would have been approved.

Held: The filed rate doctrine prohibits the award of damages for petitioner's breach during the period that respondents were subject to the Commission's jurisdiction. Pp. 453 U. S. 576-585.

Page 453 U. S. 572

(a) The Natural Gas Act bars a regulated seller of natural gas from collecting a rate other than the one filed with the Commission, and prevents the Commission itself from imposing a rate increase for gas already sold. Here, the Louisiana Supreme Court's ruling amounts to nothing less than the award of a retroactive rate increase based on speculation about what the Commission might have done had it been faced with the facts of this case. This is precisely what the filed rate doctrine forbids. It would undermine the congressional scheme of uniform rate regulation to allow a state court to award as damages a rate never filed with the Commission, and thus never found to be reasonable within the meaning of the Act. Pp. 453 U. S. 576-579.

(b) Congress has granted exclusive authority over rate regulation to the Commission, and, in so doing, withheld the authority to grant retroactive rate increases or to permit collection of a rate other than the one on file. It would be inconsistent with this purpose to permit a state court to do through a breach of contract action what the Commission may not do. Under the filed rate doctrine, the Commission alone is empowered to approve the higher rate respondents might have filed with it, and until it has done so, no rate other than the one on file may be charged. The court below thus has usurped a function that Congress has assigned to a federal regulatory body. Cf. Chicago & North Western Transp. Co. v. Kalo Brick & Tile Co.,450 U. S. 311. This the Supremacy Clause will not permit. Pp. 453 U. S. 579-582.

(c) Under the filed rate doctrine, when there is a conflict between the filed rate and the contract rate, the filed rate prevails. P. 453 U. S. 582.

(d) Permitting the state court to award what amounts to a retroactive right to collect a rate in excess of the filed rate "only accentuates the danger of conflict," and no appeal to equitable principles can justify such usurpation of federal authority. Pp. 453 U. S. 583-584.

368 So.2d 984, affirmed in part, vacated in part, and remanded.

MARSHALL, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, WHITE, and BLACKMUN, JJ., joined. POWELL, J., filed a dissenting opinion, post, p. 453 U. S. 585. STEVENS, J., filed a dissenting opinion, in which REHNQUIST, J., joined, post, p. 453 U. S. 586. STEWART, J., took no part in the consideration or decision of the case.

Page 453 U. S. 573

JUSTICE MARSHALL delivered the opinion of the Court.

The "filed rate doctrine" prohibits a federally regulated seller of natural gas from charging rates higher than those filed with the Federal Energy Regulatory Commission pursuant to the Natural Gas Act, 52 Stat. 821, as amended, 15 U.S.C. § 717 et seq. (1976 ed. and Supp. III). The question before us is whether that doctrine forbids a state court to calculate damages in a breach of contract action based on an assumption that, had a higher rate been filed, the Commission would have approved it.

I

Respondents are producers of natural gas, and petitioner Arkansas Louisiana Gas Co. (Arkla) is a customer who buys their gas. In 1952, respondents [Footnote 1] and Arkla entered into a contract under which respondents agreed to sell Arkla natural gas from the Sligo Gas Field in Louisiana. The contract contained a fixed price schedule and a "favored nations clause." The favored nations clause provided that, if Arkla purchased Sligo Field natural gas from another party at a rate higher than the one it was paying respondents, then respondents would be entitled to a higher price for their sales to Arkla. [Footnote 2]

Page 453 U. S. 574

In 1954, respondents filed with the Federal Power Commission (now the Federal Energy Regulatory Commission) [Footnote 3] the contract and their rates and obtained from the Commission a certificate authorizing the sale of gas at the rates specified in the contract.

In September, 1961, Arkla purchased certain leases in the Sligo Field from the United States and began producing gas on its leasehold. In 1974, respondents filed this state court action contending that Arkla's lease payments to the United States had triggered the favored nations clause. Because Arkla had not increased its payments to respondents as required by the clause, respondents sought as damages an amount equal to the difference between the price they actually were paid in the intervening years and the price they would have been paid had the favored nations clause gone into effect.

In its answer, Arkla denied that its lease payments were purchases of gas within the meaning of the favored nations clause. Arkla subsequently amended its answer to allege in addition that the Commission had primary jurisdiction over the issues in contention. Arkla also sought a Commission ruling that its lease payments had not triggered the favored nations clause. The Commission did not act immediately, and the case proceeded to trial. The state trial court found that Arkla's payments had triggered the favored nations clause, but nonetheless held that the filed rate doctrine precluded

Page 453 U. S. 575

an award of damages for the period prior to 1972. The intermediate appellate court affirmed, 359 So.2d 255 (1978), and both parties sought leave to appeal. The Supreme Court of Louisiana denied Arkla's petition for appeal, 362 So.2d 1120 (1978), and Arkla sought certiorari in this Court on the question whether the interpretation of the favored nations clause should have been referred to the Commission. We denied the petition. 444 U.S. 878 (1979).

While Arkla's petition for certiorari was pending, the Supreme Court of Louisiana granted respondents' petition for review and reversed the intermediate court on the measure of damages. 368 So.2d 984 (1979). The court held that respondents were entitled to damages for the period between 1961 and 1972 notwithstanding the filed rate doctrine. The court reasoned that Arkla's failure to inform respondents of the lease payments to the United States had prevented respondents from filing rate increases with the Commission, and that, had respondents filed rate increases with the Commission, the rate increases would have been approved. Id. at 991. After the decision by the Supreme Court of Louisiana, the Commission, in May, 1979, finally declined to exercise primary jurisdiction over the case, holding that the interpretation of the favored nations clause raised no matters on which the Commission had particular expertise. Arkansas Louisiana Gas Co. v. Hall, 7 FERC 61, 175, p. 61,321. [Footnote 4] The Commission

Page 453 U. S. 576

did, however, state: "It is our opinion that the Louisiana Supreme Court's award of damages for the 1961-1972 period violates the filed rate doctrine." Id. at 61,325. n. 18. [Footnote 5] Under that doctrine, no regulated seller is legally entitled to collect a rate in excess of the one filed with the Commission for a particular period. See infra at 453 U. S. 576-579. We granted Arkla's subsequent petition for certiorari challenging the judgment of the Louisiana Supreme Court. 449 U.S. 1109 (1981). [Footnote 6]

II

Sections 4 (c) and 4 (d) of the Natural Gas Act, 52 Stat. 822 823, 15 U.S.C. §§ 717c(c) and 717c(d), require sellers of

Page 453 U. S. 577

natural gas in interstate commerce to file their rates with the Commission. Under § 4(a) of the Act, 2 Stat. 822, 15 U.S.C. § 717c(a), the rates that a regulated gas company files with the Commission for sale and transportation of natural gas are lawful only if they are "just and reasonable." No court may substitute its own judgment on reasonableness for the judgment of the Commission. The authority to decide whether the rates are reasonable is vested by § 4 of the Act solely in the Commission, see FPC v. Hope Natural Gas Co.,320 U. S. 591, 320 U. S. 611 (1944), and "the right to a reasonable rate is the right to the rate which the Commission files or fixes," Montana-Dakota Utilities Co. v. Northwestern Public Service Co.,341 U. S. 246, 341 U. S. 251 (1951). [Footnote 7] Except when the Commission permits a waiver, no regulated seller of natural gas may collect a rate other than the one filed with the Commission. § 4(d), 52 Stat. 823, 15 U.S.C. § 717c(d). These straightforward principles underlie the "filed rate doctrine," which forbids a regulated entity to charge rates for its services other than those properly filed with the appropriate federal regulatory authority. See, e.g., T.I.M.E. Inc. v. United States,359 U. S. 464, 359 U. S. 473 (1959). The filed rate doctrine has its origins in this Court's cases interpreting the Interstate Commerce Act, see, e.g., Lowden v. Simonds-Shields-Lonsdale Grain Co.,306 U. S. 516, 306 U. S. 520-521 (1939); Pennsylvania R. Co. v. International Coal Co.,230 U. S. 184, 230 U. S. 196-197 (1913), and has been extended across the spectrum of regulated utilities.

"The considerations underlying the doctrine . . . are preservation of the agency's primary jurisdiction

Page 453 U. S. 578

over reasonableness of rates and the need to insure that regulated companies charge only those rates of which the agency has been made cognizant."

City of Cleveland v. FPC, 174 U.S.App.D.C. 1, 10, 525 F.2d 845, 854 (1976). See City of Piqua v. FERC, 198 U.S.App.D.C. 8, 13, 610 F.2d 950, 955 (1979).

Not only do the courts lack authority to impose a different rate than the one approved by the Commission, but the Commission itself has no power to alter a rate retroactively. [Footnote 8] When the Commission finds a rate unreasonable, it "shall determine the just and reasonable rate . . . to be thereafter observed and in force." § 5(a), 52 Stat. 823, 15 U.S.C. § 717d(a) (emphasis added). See, e.g., FPC v. Tennessee Gas Co.,371 U. S. 145, 371 U. S. 152-153 (1962); FPC v. Sierra Pacific Power Co.,350 U. S. 348, 350 U. S. 353 (1956). This rule bars "the Commission's retroactive substitution of an unreasonably high or low rate with a just and reasonable rate." City of Piqua v. FERC, supra, at 12, 610 F.2d at 954.

In sum, the Act bars a regulated seller of natural gas from collecting a rate other than the one filed with the Commission, and prevents the Commission itself from imposing a rate increase for gas already sold. Petitioner Arkla and the Commission as amicus curiae both argue that these rules, taken in tandem, are sufficient to dispose of this case. No matter how the ruling of the Louisiana Supreme Court may be characterized, they argue, it amounts to nothing less than the award of a retroactive rate increase based on speculation

Page 453 U. S. 579

about what the Commission might have done had it been faced with the facts of this case. This, they contend, is precisely what the filed rate doctrine forbids. We agree. It would undermine the congressional scheme of uniform rate regulation to allow a state court to award as damages a rate never filed with the Commission, and thus never found to be reasonable within the meaning of the Act. Following that course would permit state courts to grant regulated sellers greater relief than they could obtain from the Commission itself.

In asserting that the filed rate doctrine has no application here, respondents contend first that the state court has done no more than determine the damages they have suffered as a result of Arkla's breach of the contract. [Footnote 9] No federal interests, they maintain, are affected by the state court's action. But the Commission itself has found that permitting this damages award could have an "unsettling effect . . . on other gas purchase transactions," and would have a "potential for disruption of natural gas markets. . . ." Arkansas Louisiana Gas Co. v. Hall, 13 FERC

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