In this original action, several States, joined by the United
States, the Federal Energy Regulatory Commission (FERC), and a
number of pipeline companies, challenge the constitutionality of
Louisiana's tax on the "first use" of any natural gas brought into
Louisiana which was not previously subjected to taxation by another
State or the United States. The primary effect of the tax, which is
imposed on pipeline companies, is on gas produced in the federal
Outer Continental Shelf (OCS) and then piped to processing plants
in Louisiana and, for the most part, eventually sold to
out-of-state consumers. The first-use tax statute (Act), as well as
provisions of other Louisiana statutes, provides a number of
exemptions from and credits for the tax whereby Louisiana consumers
of OCS gas for the most part are not burdened by the tax, but it
uniformly applies to gas moving out of the State. Section 47:1303C
of the Act declares that "the tax shall be deemed a cost associated
with uses made by the owner in preparation of marketing of the
natural gas," and prohibits any attempt to allocate the cost of the
tax to any party except the ultimate consumer. A Special Master
filed reports, including one recommending that Louisiana's motion
to dismiss on jurisdictional grounds be denied, and that the
plaintiff States' motion for judgment on the pleadings be denied
and further evidentiary hearings be conducted. Exceptions were
filed to the reports.
Held:
1. Louisiana's exceptions to the Special Master's recommendation
that the motion to dismiss be denied are rejected. Pp.
451 U. S.
735-745.
(a) Louisiana's First-Use Tax, while imposed on the pipelines,
is passed on to the ultimate consumer. Thus, the plaintiff States,
as major purchasers of natural gas whose cost has increased as a
direct result of imposition of the tax, are directly affected in a
"substantial and real" way, so as to justify the exercise of this
Court's original jurisdiction under Art. III, § 2, cl. 2, of the
Constitution, which provides for such jurisdiction over cases in
which a "State shall be a Party," and 28 U.S.C. § 1251(a) (1976
ed., Supp. III), which provides that this Court shall have
"original and exclusive jurisdiction of all controversies between
two or more States." Jurisdiction is also supported by the
plaintiff States' interests as
parens patriae, acting to
protect their citizens from substantial economic injury presented
by imposition of
Page 451 U. S. 726
the First-Use Tax.
Pennsylvania v. West Virginia,
262 U. S. 553. Pp.
451 U. S.
735-739.
(b) This case is an appropriate one for the exercise of this
Court's exclusive jurisdiction under § 1251(a), even though state
court actions are pending in Louisiana in which the constitutional
issues raised here are presented. Neither the plaintiff States, the
United States, nor the FERC is a named party in any of the state
actions, and they have not sought to intervene therein. Louisiana's
tax, affecting millions of consumers in over 30 States, implicates
serious and important concerns of federalism fully in accord with
the purposes and reach of this Court's original jurisdiction. The
exercise of original jurisdiction is also justified because the tax
affects the United States' interests in the administration of the
OCS area, and the case is therefore an appropriate one for the
exercise of this Court's nonexclusive original jurisdiction under
28 U.S.C. § 1251(b)(2) (1976 ed., Supp. III), of suits brought by
the United States against a State.
Arizona v. New Mexico,
425 U. S. 794,
distinguished. Pp.
451 U. S.
739-745.
2. Plaintiffs' exceptions to the Special Master's recommendation
that judgment on the pleadings be denied pending further
evidentiary hearings are sustained. Pp.
451 U. S.
746-760.
(a) Section 47:1303C of the Louisiana Act violates the Supremacy
Clause. Under the Natural Gas Act, determining pipeline and
producer costs is the task of the FERC in the first instance,
subject to judicial review. In exercising its authority to regulate
the determination of the proper allocation of costs associated with
the interstate sale of natural gas to consumers, the FERC normally
allocates part of the processing costs between marketable
hydrocarbons extracted in the course of processing and the "dried"
gas, insisting that the owners of the hydrocarbons bear a fair
share of the expense associated with processing, rather than
passing all of the costs on to the gas consumers. However, §
47:1303C provides that the amount of the Louisiana tax is a cost
associated with uses made by the owner in preparation of marketing
the natural gas and forecloses the owner from seeking reimbursement
for payment of the tax from any third party other than a purchaser
of the gas, even though the third party may be the owner of
marketable hydrocarbons extracted from processing. Thus, the
Louisiana statute is inconsistent with the federal scheme, and must
give way.
Cf. Northern Natural Gas Co. v. State Corporation
Comm'n of Kansas, 372 U. S. 84. Pp.
451 U. S.
746-752.
(b) The First-Use Tax is unconstitutional under the Commerce
Clause. The flow of gas from OCS wells, through processing plants
in Louisiana, and through interstate pipelines to the ultimate
consumers in
Page 451 U. S. 727
over 30 States, constitutes interstate commerce and, even though
"interrupted" by certain events in Louisiana, is a continual flow
of gas in interstate commerce. The tax impermissibly discriminates
against interstate commerce in favor of local interests as the
necessary result of various tax credits and exclusions provided in
the Act and other Louisiana statutes whereby Louisiana consumers of
OCS gas are substantially protected against the impact of the tax,
whereas OCS gas moving out of the State is burdened with the tax.
Nor can the tax be justified as a "compensatory" tax, compensating
for the effect of the State's severance tax on local production of
natural gas, since Louisiana has no sovereign interest in being
compensated for the severance of resources from the federally owned
OCS land. Pp.
451 U. S.
753-760.
Exceptions to Special Master's report sustained in part and
overruled in part.
WHITE, J., delivered the opinion of the Court, in which BURGER,
C.J., and BRENNAN, STEWART, MARSHALL, BLACKMUN, and STEVENS, JJ.,
joined. BURGER, C.J., filed a concurring opinion,
post, p.
451 U. S. 760.
REHNQUIST, J., filed a dissenting opinion,
post, p.
451 U. S. 760.
POWELL, J., took no part in the consideration or decision of the
case.
Page 451 U. S. 728
JUSTICE WHITE delivered the opinion of the Court.
In this original action, several States, joined by the United
States and a number of pipeline companies, challenge the
constitutionality of Louisiana's "First-Use Tax" imposed on certain
uses of natural gas brought into Louisiana, principally from the
Outer Continental Shelf (OCS), as violative of the Supremacy Clause
and the Commerce Clause of the United States Constitution.
I
The lands beneath the Gulf of Mexico have large reserves of oil
and natural gas. Initially, these reserves could not be developed
due to technological difficulties associated with offshore
drilling. In 1938, the first drilling rig was constructed off the
coast of Louisiana, and, with the advent of new technologies,
Page 451 U. S. 729
offshore drilling, has become commonplace. [
Footnote 1] Exploration and development of the OCS
in the Gulf of Mexico have become large industries providing a
substantial percentage of the natural gas used in this country.
[
Footnote 2] Most of the gas
being extracted from the lands underlying the Gulf is piped to
refining plants located in coastal portions of Louisiana, where the
gas is "dried" -- the liquefiable hydrocarbons gathered and removed
-- on its way to ultimate distribution to consumers in over 30
States. It is estimated that 98% of the OCS gas processed in
Louisiana is eventually sold to out-of-state consumers with the 2%
remainder consumed within
Page 451 U. S. 730
Louisiana. [
Footnote 3] The
contractual arrangements between a producer of gas and the pipeline
companies vary. Most often, the producer sells the gas to the
pipeline companies at the wellhead, although the producer may
retain an interest in any extractable components. Some producers,
however, retain full ownership rights, and simply pay a flat fee
for the use of the pipeline companies' facilities. [
Footnote 4]
The ownership and control of these large reserves of natural gas
have been much disputed. In
United States v. Louisiana,
339 U. S. 699
(1950), the Court applied the principle of its holding in
United States v. California, 332 U. S.
19 (1947) -- that the United States possesses paramount
rights to lands beneath the Pacific Ocean seaward of California's
low-water mark -- to the offshore areas adjacent to Louisiana. In
1953, Congress passed the Submerged Lands Act, 43 U.S.C. §§
1301-1315, ceding any federal interest in the lands within three
miles of the coast, while confirming the Federal Government's
interest in the area seaward of the 3-mile limit. [
Footnote 5]
See United States v.
Louisiana, 363 U. S. 1 (1960);
United States v. Maine, 420 U. S. 515,
420 U. S.
524-526 (1975). In the same year, Congress passed the
Outer Continental Shelf Lands Act, 43 U.S.C. § 1331-1343 (OCS Act),
which declared that the
"subsoil and seabed of the outer Continental Shelf appertain to
the United States and are subject to its jurisdiction, control, and
power of disposition. . . ."
§ 1322. The OCS Act also established procedures for federal
leasing of OCS land to develop mineral resources. While the passage
of these Acts established the
Page 451 U. S. 731
respective legal interests of the parties, there has been
extensive litigation to establish the legal boundaries of the
federal OCS domain.
See generally United States v.
Louisiana, 446 U. S. 253,
446 U. S.
254-260 (1980) (detailing the history of the
"long-continuing and sometimes strained controversy" between the
United States and Louisiana concerning the OCS lands).
In 1978, the Louisiana Legislature enacted a tax of seven cents
per thousand cubic feet of natural gas [
Footnote 6] on the "first use" of any gas imported into
Louisiana which was not previously subjected to taxation by another
State or the United States. La.Rev.Stat.Ann. §§ 47:1301-47:1307
(West Supp. 1981) (Act). The Tax imposed is precisely equal to the
severance tax the State imposes on Louisiana gas producers. The Tax
is owed by the owner of the gas at the time the first taxable "use"
occurs within Louisiana. § 1305B. About 85% of the OCS gas brought
ashore is owned by the pipeline companies, the rest by the
producers. Since most States impose their own severance tax, it is
acknowledged that the primary effect of the First-Use Tax will be
on gas produced in the federal OCS area and then piped to
processing plants located within Louisiana. It has been estimated
that Louisiana would receive at least $150 million in annual
receipts from the First-Use Tax. [
Footnote 7]
Page 451 U. S. 732
The stated purpose of the First-Use Tax was to reimburse the
people of Louisiana for damages to the State's waterbottoms,
barrier islands, and coastal areas resulting from the introduction
of natural gas into Louisiana from areas not subject to state
taxes, as well as to compensate for the costs incurred by the State
in protecting those resources. § 1301C. Moreover, the Tax was
designed to equalize competition between gas produced in Louisiana
and subject to the state severance tax of seven cents per thousand
cubic feet, and gas produced elsewhere not subject to a severance
tax such as OCS gas. § 1301A. The Act specified a number of
different uses justifying imposition of the First-Use Tax including
sale, processing, transportation, use in manufacturing, treatment,
or "other ascertainable action at a point within the state." §
1302(8). [
Footnote 8]
The Act itself, as well as provisions found elsewhere in the
state statutes, provided a number of exemptions from and credits
for the First-Use Tax. The Severance Tax Credit provided that any
taxpayer subject to the First-Use Tax was entitled to a direct tax
credit on any Louisiana severance tax owed in connection with the
extraction of natural resources within the State. La.Rev.Stat.Ann.
§ 47:647 (West Supp.
Page 451 U. S. 733
1981). [
Footnote 9] Second,
municipal or state-regulated electric generating plants and natural
gas distributing services located within Louisiana, as well as any
direct purchaser of gas used for consumption directly by that
purchaser, were provided tax credits on other Louisiana taxes upon
a showing that
"fuel costs for electricity generation or natural gas
distribution or consumption have increased as a direct result of
increases in transportation and marketing costs of natural gas
delivered from the federal domain of the outer continental shelf .
. . ,"
which implicitly includes any increases resulting from the
First-Use Tax. La.Rev.Stat.Ann. § 47:11B (West Supp. 1981).
[
Footnote 10] Furthermore,
imported natural gas used for drilling oil or gas within the State
was exempted from the First-Use Tax. La.Rev.Stat.Ann. § 47:1303A
(West Supp 1981). Thus, Louisiana consumers of OCS gas, for the
most part, are not burdened by the Tax, but it does uniformly apply
to gas moving out of the State. The Act also purported to establish
the legal effect of the Tax in terms of defining the proper
Page 451 U. S. 734
allocation of the Tax among potentially liable parties.
Specifically, the Act declared that the "tax shall be deemed a cost
associated with uses made by the owner in preparation of marketing
of the natural gas." § 1303C. Any contract which attempted to
allocate the cost of the Tax to any party except the ultimate
consumer was declared to be "against public policy and
unenforceable to that extent."
Ibid.
On March 29, 1979, eight States filed a motion for leave to file
a complaint under this Court's original jurisdiction pursuant to
Art. III, § 2, of the Constitution. The complaint sought a
declaratory judgment that the First-Use Tax was unconstitutional
under: (1) the Commerce Clause, Art. I, § 8, cl. 3; (2) the
Supremacy Clause, Art. VI, cl. 2; (3) the Import-Export Clause,
Art. I, 10, cl. 2; (4) the Impairment of Contracts Clause, Art. I,
§ 10, cl. 1; and (5) the Equal Protection Clause of the Fourteenth
Amendment. The plaintiff States also sought injunctive relief
against Louisiana or its agents collecting the Tax with respect to
any gas in interstate commerce as well as a refund of taxes already
collected. We granted plaintiffs' motion for leave to file on June
18, 1979. 442 U.S. 937. Subsequently, as is usual, we appointed a
Special Master to facilitate handling of the suit.
445 U.
S. 913 (1980). To date, the Special Master has issued
two reports. In the first report, dated May 14, 1980, the Special
Master recommended that the Court approve the motions of New
Jersey, the United States, the Federal Energy Regulatory Commission
(FERC), and 17 pipeline companies to intervene as plaintiffs. The
Master's second report was issued on September 15, 1980, and
essentially made two recommendations. First, the Master recommended
that we deny Louisiana's motion to dismiss and reject the
submissions that the plaintiff States had no standing to bring the
action, and that the case was not an appropriate one for the
exercise of our original jurisdiction. Second, on the plaintiff
States' motion for judgment on the pleadings on the grounds that
the Tax was unconstitutional on its face, the Special Master, while
recognizing
Page 451 U. S. 735
that the statute was constitutionally suspect in certain
respects, recommended that the motion be denied and that further
evidentiary hearings be conducted. We heard oral argument on the
exceptions filed to the reports.
II
Initially, we must resolve Louisiana's contention, rejected by
the Special Master, that the case should be dismissed. In support
of its motion, Louisiana presents two principal arguments. First,
Louisiana contends that the plaintiff States lack standing to bring
the suit under the Court's original jurisdiction. Second, Louisiana
argues that even if the bare requirements for exercise of our
original jurisdiction have been met, this case is not an
appropriate one to entertain here, because of certain pending state
court actions in Louisiana in which the constitutional issues
sought to be presented may be addressed.
See Arizona v. New
Mexico, 425 U. S. 794,
425 U. S. 797
(1976).
See also Ohio v. Wyandotte Chemicals Corp.,
401 U. S. 493,
401 U. S. 501
(1971). We agree with the Special Master that both contentions
should be rejected.
A
1
The Constitution provides for this Court's original jurisdiction
over cases in which a "State shall be a Party." Art. III, § 2, cl.
2. Congress has, in turn, provided that the Supreme Court shall
have "original and exclusive jurisdiction of all controversies
between two or more States." 28 U.S.C. § 1251(a) (1976 ed., Supp.
III). In order to constitute a proper "controversy" under our
original jurisdiction,
"it must appear that the complaining State has suffered a wrong
through the action of the other State, furnishing ground for
judicial redress, or is asserting a right against the other State
which is susceptible of judicial enforcement according to the
accepted principles of the common law or equity systems of
Page 451 U. S. 736
jurisprudence."
Massachusetts v. Missouri, 308 U. S.
1,
308 U. S. 15
(1939).
See New York v. Illinois, 274 U.
S. 488,
274 U. S. 490
(1927);
Texas v. Florida, 306 U.
S. 398,
306 U. S. 405
(1939). [
Footnote 11]
Louisiana asserts that this case should be dismissed for want of
standing because the Tax is imposed on the pipeline companies, and
not directly on the ultimate consumers. Under its view, the alleged
interests of the plaintiff States do not fall within the type of
"sovereignty" concerns justifying exercise of our original
jurisdiction. Standing to sue, however, exists for constitutional
purposes if the injury alleged
"fairly can be traced to the challenged action of the defendant,
and not injury that results from the independent action of some
third party not before the court."
Simon v. Eastern Kentucky Welfare Rights Organization,
426 U. S. 26,
426 U. S. 41-42
(1976).
See Duke Power Co. v. Carolina Environmental Study
Group, Inc., 438 U. S. 59,
438 U. S. 72-81
(1978). This is clearly the case here. The plaintiff States are
substantial consumers of natural gas. [
Footnote 12] The First-Use Tax, while imposed on the
pipeline companies, is clearly intended to be passed on to the
ultimate consumer. Indeed, the statute forbids the Tax from being
passed on or back to any third party other than the purchaser of
the gas, and explicitly directs that it should be considered as a
cost of preparing the gas for market. La.Rev.Stat.Ann. § 47:1303C
(West Supp.
Page 451 U. S. 737
1981). In fact, the pipeline companies, with the approval of the
FERC, have passed on the cost of the First-Use Tax to their
customers.
See Louisiana First-Use Tax in Pipeline Rate
Cases, Docket No. RM78-23, Order No. 10, 43 Fed.Reg. 45553
(1978). [
Footnote 13] Thus,
the Special Master properly determined that, "although the tax is
collected from the pipelines, it is really a burden on consumers."
Second Report at 12. It is clear that the plaintiff States, as
major purchasers of natural gas whose cost has increased as a
direct result of Louisiana's imposition of the First-Use Tax, are
directly affected in a "substantial and real" way, so as to justify
their exercise of this Court's original jurisdiction.
2
Jurisdiction is also supported by the States' interest as
parens patriae. A State is not permitted to enter a
controversy as a nominal party in order to forward the claims of
individual citizens.
See Oklahoma ex rel. Johnson v. Cook,
304 U. S. 387
(1938);
New Hampshire v. Louisiana, 108 U. S.
76 (1883). But it may act as the representative of its
citizens in original actions where the injury alleged affects the
general population of a State in a substantial way.
See, e.g.,
Missouri v. Illinois, 180 U. S. 208
(1901);
Kansas v. Colorado, 185 U.
S. 125 (1902);
Georgia v. Tennessee Copper Co.,
206 U. S. 230
(1907).
See generally Note, The Original Jurisdiction of
the United States Supreme Court, 11 Stan. L.Rev.
Page 451 U. S. 738
665, 671-678 (1959).
Cf. Hawaii v. Standard Oil Co.,
405 U. S. 251,
405 U. S.
257-259 (1972) (the Court has recognized the right of a
State to sue as
parens patriae "to prevent or repair harm
to its
quasi-sovereign' interests" in original jurisdiction
suits).
In this respect, this case is functionally indistinguishable
from
Pennsylvania v. West Virginia, 262 U.
S. 553 (1923), in which the Court entertained a suit
brought by one State against another. In that case, West Virginia,
then the leading producer of natural gas, required gas producers in
the State to meet the needs of all local customers before shipping
any gas interstate. Ohio and Pennsylvania moved for leave to file a
complaint under the Court's original jurisdiction claiming that the
statute violated the Commerce Clause in that the statute would have
the effect of cutting off supplies of natural gas to those States.
Both States claimed to be protecting a two-fold interest --
"one as the proprietor of various public institutions and
schools whose supply of gas will be largely curtailed or cut off by
the threatened interference with the interstate current, and the
other as the representative of the consuming public whose supply
will be similarly affected."
The Court granted leave to file, finding both interests to be
substantial. With respect to representing the interests of its
citizens the Court stated:
"The private consumers in each State not only include most of
the inhabitants of many urban communities, but constitute a
substantial portion of the State's population. T heir health,
comfort and welfare are seriously jeopardized by the threatened
withdrawal of the gas from the interstate stream. This is a matter
of grave public concern in which the State, as the representative
of the public, has an interest apart from that of the individuals
affected. It is not merely a remote or ethical interest, but one
which is immediate and recognized by law."
Id. at
262 U. S.
592.
Page 451 U. S. 739
Pennsylvania v. West Virginia counsels that we should
not dismiss this action. Plaintiff States have alleged substantial
and serious injury to their proprietary interests as consumers of
natural gas as a direct result of the allegedly unconstitutional
actions of Louisiana. This direct injury is also supported by the
States' interest in protecting its citizens from substantial
economic injury presented by imposition of the First-Use Tax. Nor
does the incidence of the Tax fall on a small group of citizens who
are likely to challenge the Tax directly. Rather, a great many
citizens in each of the plaintiff States are themselves consumers
of natural gas, and are faced with increased costs aggregating
millions of dollars per year. As the Special Master observed,
individual consumers cannot be expected to litigate the validity of
the First-Use Tax given that the amounts paid by each consumer are
likely to be relatively small. Moreover, because the consumers are
not directly responsible to Louisiana for payment of the taxes,
they of course are foreclosed from suing for a refund in
Louisiana's courts. In such circumstances, exercise of our original
jurisdiction is proper.
B
With respect to Louisiana's second argument, it is true that we
have construed the congressional grant of exclusive jurisdiction
under 1251(a) as requiring resort to our obligatory jurisdiction
only in "appropriate cases."
Illinois v. City of
Milwaukee, 406 U. S. 91,
406 U. S. 93
(1972);
Arizona v. New Mexico, 425 U.S. at
425 U. S.
796-797. This view is consistent with the general
observation that the Court's original jurisdiction should be
exercised "sparingly."
United States v. Nevada,
412 U. S. 534,
412 U. S. 538
(1973).
See Ohio v. Wyandotte Chemicals Corp., 401 U.S. at
401 U. S. 501;
Massachusetts v. Missouri, 308 U.S. at
308 U. S. 18-20.
[
Footnote 14] In
City of
Milwaukee, we noted that what is
Page 451 U. S. 740
"appropriate" involves not only "the seriousness and dignity of
the claim," but also
"the availability of another forum where there is Jurisdiction
over the named parties, where the issues tendered may be litigated,
and where appropriate relief may be had."
406 U.S. at
406 U. S. 93.
Louisiana urges that presently pending state lawsuits raising the
identical constitutional issues presented here constitute
sufficient reason to forgo the exercise of our original
jurisdiction.
There have been filed in various lower courts several suits
challenging the constitutionality of the First-Use Tax. The first
suit was brought by Louisiana in state court, seeking a declaratory
judgment that the First-Use Tax is constitutional.
Edwards v.
Transcontinental Gas Pipe Line Corp., No. 216,867 (19th
Judicial Dist., East Baton Rouge Parish). Among the named
defendants were all of the pipeline companies doing business in the
State. The pipeline companies sought to have the Tax declared
unconstitutional. [
Footnote
15] Other lawsuits were filed in state court seeking a refund
of taxes paid under protest.
Southern Natural Gas Co. v.
McNamara, No. 225,533 (19th Judicial District, East Baton
Rouge Parish). These refund actions were filed after this Court
granted plaintiff States' motion for leave to file their complaint.
[
Footnote 16]
Page 451 U. S. 741
Since, under Louisiana law, there is no provision for interim
injunctive relief, the pipeline companies were required to pay the
Tax. The receipts have been put in an escrow account subject to
refund with interest paid on the account at the rate of 6%. Neither
the plaintiff States, the United States, nor the FERC is a named
party in any of the state actions, nor have they filed leave to
intervene, although Louisiana represented at oral argument that
such a motion would not be opposed. [
Footnote 17] The final suit was commenced by the FERC
against various state officials, seeking to enjoin enforcement of
the First-Use Tax on constitutional grounds.
FERC v.
McNamara, No. C.A. 78-384 (MD La.). That action is presently
stayed.
In
City of Milwaukee, on which Louisiana relies, the
proposed suit by Illinois against four municipalities did not fall
within our exclusive grant of original jurisdiction, because
political subdivisions of the State could not be considered as a
State for purposes of 28 U.S.C. § 1251(a) (1976 ed., Supp. III) 406
U.S. at
406 U. S. 97-98.
Similarly, the decision in
Wyandotte Chemicals did not
involve § 1251(a), since it was a suit between a State and citizens
of another State, and so did not fall under our exclusive
jurisdiction. Louisiana also relies,
Page 451 U. S. 742
however, on
Arizona v. New Mexico for an example of a
case where we determined not to exercise our exclusive jurisdiction
in a case between States because the matter was "inappropriate" for
determination. [
Footnote
18]
In that case, we denied Arizona's motion for leave to file a
complaint against New Mexico. Arizona was suing to challenge New
Mexico's electrical energy tax which imposed a net kilowatt hour
tax on any electric utility generating electricity in New Mexico.
Arizona sought a declaratory judgment that the tax constituted,
inter alia, an unconstitutional discrimination against
interstate commerce. Arizona brought the suit in its proprietary
capacity as a consumer of electricity generated in New Mexico and
as
parens patriae for its citizens. Arizona further
alleged that it had no other forum in which to vindicate its
interests. New Mexico asserted that the three Arizona utilities
affected by the statute had chosen not to pay the tax, and instead
had jointly filed suit in state court seeking a declaratory
judgment that the tax was unconstitutional. This Court held
that,
"[i]n the circumstances of this case, we are persuaded that the
pending state court action provides an appropriate forum in which
the
issues tendered
Page 451 U. S. 743
here may be litigated."
425 U.S. at
425 U. S. 797
(emphasis in original) .
Of course, the issue of appropriateness in an original action
between States must be determined on a case-by-case basis. Despite
the facial similarity with
Arizona v. New Mexico, there
are significant differences from the present case that compel an
opposite result. First, one of the three electric companies
involved in the state court action in New Mexico was a political
subdivision of the State of Arizona. Arizona's interests were thus
actually being represented by one of the named parties to the suit.
In this case, none of the plaintiff States is directly represented
in the tax refund case. [
Footnote 19] It is also important to note that Arizona
had itself not suffered any direct harm as of the time that it
moved for leave to file a complaint, since none of the utilities
had yet paid the tax. Unlike the present case, it was highly
uncertain whether Arizona's interest as a purchaser of electricity
had been adversely affected. [
Footnote 20] New Mexico's procedure did not limit the
utility companies to seeking a refund of taxes already paid, but
rather permitted the companies to refuse to pay the tax pending a
declaration of the statute's constitutionality. In contrast,
Louisiana requires the Tax to be paid pending the refund action
with interest accruing at the rate of 6%. As recognized by the
Special Master, the effect of the limited interest rate is to
permit Louisiana to benefit from any delay attendant to the state
court proceedings even if the Tax is ultimately found
unconstitutional.
The tax at issue in the
Arizona case did not
sufficiently implicate the unique concerns of federalism forming
the basis of our original jurisdiction. At most, the New Mexico
tax
Page 451 U. S. 744
affected only some residents in one State. In the present case,
the magnitude and effect of the First-Use Tax is far greater. The
anticipated $150-million yearly tax is intended to be, and is
being, passed on to millions of consumers in over 30 States. Unlike
the day-to-day taxing measures which spurred the Court's
observations in
Wyandotte, it is not at all a "waste" of
this Court's time to consider the validity of a tax with the
structure and effect of Louisiana's First-Use Tax. Indeed, there is
nothing ordinary about the Tax. Given the underlying claim that
Louisiana is attempting, in effect, to levy the Tax as a substitute
for a severance tax on gas extracted from areas that belong to the
people at large to the relative detriment of the other States in
the Union, it is clear that the First-Use Tax implicates serious
and important concerns of federalism fully in accord with the
purposes and reach of our original jurisdiction.
The exercise of our original jurisdiction is also supported by
the fact that the First-Use Tax affects the United States'
interests in the administration of the OCS -- a factor totally
absent in
Arizona v. New Mexico. While we do not have
exclusive jurisdiction in suits brought by the United States
against a State,
see 28 U.S.C. 1251(b)(2) (1976 ed., Supp.
III), we may entertain such suits as original actions in
appropriate circumstances.
See, e.g., United States v.
California, 332 U. S. 19
(1947).
See also United States v. Alaska, 422 U.
S. 184,
422 U. S. 186,
n. 2 (1975). To be sure, we
"seek to exercise our original jurisdiction sparingly, and are
particularly reluctant to take jurisdiction of a suit where the
plaintiff has another adequate forum in which to settle lis
claim."
United States v. Nevada, 412 U.S. at
412 U. S. 538.
In this case, however, it is clear that a district court action
brought by the United States, which necessarily would not include
the plaintiff States, would be an inadequate forum in light of the
present posture of this case. In addition. because of the interest
of the United States in protecting its rights in the OCS area, with
ramifications for all coastal States, as well
Page 451 U. S. 745
as its interests under the regulatory mechanism that supervises
the production and development of natural gas resources, we believe
that this case is an appropriate one for the exercise of our
original jurisdiction under § 1251(b)(2).
For the reasons stated above, we reject Louisiana's exceptions
to the report of the Special Master, and accept the recommendation
that we deny Louisiana's motion to dismiss. [
Footnote 21]
Page 451 U. S. 746
III
On the merits, plaintiffs argue that the First-Use Tax violates
the Supremacy Clause because it interferes with federal regulation
of the transportation and sale of natural gas in interstate
commerce. The Supremacy Clause provides that
"[t]his Constitution, and the Laws of the United States which
shall be made in Pursuance thereof . . . shall be the supreme Law
of the Land . . . any Thing in the Constitution or Laws of any
State to the Contrary notwithstanding."
Art. VI, cl. 2. It is basic to this constitutional command that
all conflicting state provisions be without effect.
See McCulloch v.
Maryland, 4 Wheat. 316,
316 U. S. 427
(1819).
See also Hines v. Davidowitz, 312 U. S.
52 (1941). Consideration under the Supremacy Clause
starts with the basic assumption that Congress did not intend to
displace state law.
See Rice v. Santa Fe Elevator Corp.,
331 U. S. 218,
331 U. S. 230
(1947). But as the Court stated in
Rice:
"Such a purpose [to displace state law] may be evidenced in
several ways. The scheme of federal regulation may be so pervasive
as to make reasonable the inference that Congress left no room for
the States to supplement it.
Pennsylvania R. Co. v. Public
Service Comm'n, 250 U. S. 566,
250 U. S.
569;
Cloverleaf Butter Co. v. Patterson,
315 U. S.
148. Or the Act of Congress may touch a field in which
the federal interest is so dominant that the federal system will be
assumed to preclude enforcement of state laws on the same subject.
Hines v. Davidowitz, 312 U. S. 52. Likewise, the
object sought to be obtained by the federal law and the character
of obligations imposed by it may reveal the same purpose.
Southern R. Co. v. Railroad Commission, 236 U. S.
439;
Charleston
Page 451 U. S. 747
& W.C. R. Co. v. Varnville Co., 237 U. S.
597;
New York Central R. Co. v. Winfield,
244 U. S.
147;
Napier v. Atlantic Coast Line R.
Co., [
272 U.S.
605]. Or the state policy may produce a result inconsistent
with the objective of the federal statute.
Hill v.
Florida, 325 U. S. 538."
Ibid. Of course, a state statute is void to the extent
it conflicts with a federal statute -- if, for example, "compliance
with both federal and state regulations is a physical
impossibility,"
Florida Lime & Avocado Growers, Inc. v.
Paul, 373 U. S. 132,
373 U. S.
142-143 (1963), or where the law "stands as an obstacle
to the accomplishment and execution of the full purposes and
objectives of Congress."
Hines v. Davidowitz, supra, at
312 U. S. 67.
See generally Ray v. Atlantic Richfield Co., 435 U.
S. 151,
435 U. S.
157-158 (1978);
City of Burbank v. Lockheed Air
Terminal, Inc., 411 U. S. 624,
411 U. S. 633
(1973).
Plaintiffs argue that § 1303C of the Act violates the Natural
Gas Act, 15 U.S.C. §§ 717-717w (1976 ed. and Supp. III) (Gas Act),
as amended by the Natural Gas Policy Act of 1978. [
Footnote 22] In 1938, Congress enacted the
Gas Act to assure
Page 451 U. S. 748
that consumers of natural gas receive a fair price and also to
protect against the economic power of the interstate pipelines.
See FPC v. Hope Natural Gas Co., 320 U.
S. 591,
320 U. S. 610,
612 (1944);
Atlantic Refining Co. v. Public Service Comm'n of
New York, 360 U. S. 378,
360 U. S.
388-389 (1959). The Gas Act was intended to provide the
Federal Power Commission, now the FERC, with authority to regulate
the wholesale pricing of natural gas in the flow of interstate
commerce from wellhead to delivery to consumers.
Phillips
Petroleum Co. v. Wisconsin, 347 U. S. 672,
347 U. S. 682
(1954).
Under the present law, natural gas owners are entitled to
recover from their customers all legitimate costs associated with
the production, processing, and transportation of natural gas.
See FPC v. United Gas Pipe Line Co., 386 U.
S. 237,
386 U. S. 243
(1967) (cost of service normally includes proper allowance for
taxes and this allowance is "obviously within the jurisdiction of
the Commission"). As part of the First-Use Tax, Louisiana has
directed that the amount of the Tax should be "deemed a cost
associated with uses made by the owner in preparation of marketing
of the natural gas." § 1303C. [
Footnote 23]
Page 451 U. S. 749
The Act further provides that an owner shall not have an
enforceable right to seek reimbursement for payment of the Tax from
any third party other than a purchaser of the gas,
ibid.,
even though the third party may be the owner of marketable
hydrocarbons that are extracted from the gas in the course of
processing.
The effect of § 1303C is to interfere with the FERC's authority
to regulate the determination of the proper allocation of costs
associated with the sale of natural gas to consumers. The
unprocessed gas obtained at the wellhead contains extractable
hydrocarbons which are most often owned and sold separately from
the "dried" gas. The FERC normally allocates part of the processing
costs between these related products, and insists that the owners
of the liquefiable hydrocarbons bear a fair share of the expense
associated with processing. [
Footnote 24]
See generally FPC v. United Gas Pipe
Line Co., supra, at
386 U. S. 243
("income and expense of unregulated and regulated activities should
be segregated"). By specifying that the First-Use Tax is a
processing cost to be either borne by the pipeline or other owner
without compensation, an unlikely event in light of the large sums
involved, or passed on to purchasers, Louisiana has attempted a
substantial usurpation of the authority of the FERC by dictating to
the pipelines the allocation of processing costs for the interstate
shipment
Page 451 U. S. 750
of natural gas. Owners of natural gas are foreclosed by the
operation of § 1303C from entering into valid contracts requiring
the owners of the extracted hydrocarbons t reimburse the pipelines
for costs associated with transporting and processing these
products. The effect of § 1303C is to shift the incidence of
certain expenses, which the FERC insists are incurred substantially
for the benefit of the owners of extractable hydrocarbons, to the
ultimate consumer of the processed gas without the prior approval
of the FERC.
The effect of § 1303C is akin to the state regulation overturned
in
Northern Natural Gas Co. v. State Corporation Comm'n of
Kansas, 372 U. S. 84,
372 U. S. 92
(1963). In
Northern Natural Gas, a state administrative
agency's rule required an interstate pipeline company to purchase
natural gas ratably from all the wells in a particular field. The
Court held that the rule violated the superior interests of the
Federal Government under the Gas Act. The state Commission's order
shifted the burden of performing the "complex task of balancing the
output of thousands of natural gas wells within the State" to the
pipeline company. This requirement
"could seriously impair the Federal Commission's authority to
regulate the intricate relationship between the purchasers' cost
structures and eventual costs to wholesale customers who sell to
consumers in other States. This relationship is a matter with
respect to which Congress has given the Federal Power Commission
paramount and exclusive authority."
Ibid.
While the Special Master noted that the FERC was of the opinion
that the First-Use Tax was impermissible, the Special Master
refused to recommend that the Court grant plaintiffs' motion for
judgment on the Supremacy Clause issue respecting § 1303C because
he discerned a factual issue concerning the nature of the
gas-drying process. Under the Special Master's view, if the facts
demonstrated that processing was done for the profit of the owners
of the extractable hydrocarbons, then the position of the FERC that
such costs
Page 451 U. S. 751
should not be passed on to the consumers was correct. If,
however, the processing was done as a means of standardizing the
heat content of the gas for sale to consumers, then it would be
reasonable to pass the Tax forward, and thus § 1303C would be
consistent with Gas Act policy. The Special Master concluded that
this question was best resolved after suitable factual development,
and that, in any event, it may be that, "in the end, FERC's orders
can be adjusted so that the laws will mesh without conflict."
It is our view, however, that the issue is ripe for decision
without further evidentiary hearings. Under the Gas Act,
determining pipeline and producer costs is the task of the FERC in
the first instance, subject to judicial review. Hence, the further
hearings contemplated by the Special Master to determine whether
and how processing costs are to be allocated are as inappropriate
as Louisiana's effort to preempt those decisions by a statute
directing that processing costs be passed on to the consumer. Even
if the FERC ultimately determined that such expenses should be
passed on
in toto, this kind of decisionmaking is within
the jurisdiction of the FERC, and the Louisiana statute, like the
state Commission's order in
Northern Natural Gas, supra,
is inconsistent with the federal scheme, and must give way. At the
very least, there is an "imminent possibility of collision,"
ibid. [
Footnote 25]
The FERC need not adjust its ruling to accommodate the Louisiana
statute. To the contrary, the State may not trespass on the
authority of the federal agency. As we see it, plaintiffs are
entitled to judgment on the pleadings that
Page 451 U. S. 752
§ 1303C is invalid under the Supremacy Clause. To that extent,
therefore, we sustain plaintiffs' exceptions to the Special
Master's second report. [
Footnote 26]
Page 451 U. S. 753
IV
Plaintiffs also argue that the First-Use Tax violates the
Commerce Clause of the United States Constitution which provides
that "[t]he Congress shall have Power . . . [t]o
Page 451 U. S. 754
regulate Commerce . . . among the several States. . . ." Art. I,
8, cl. 3. Prior case law has established that a state tax is not
per se invalid because it burdens interstate commerce,
since interstate commerce may constitutionally be made to pay its
way.
Complete Auto Transit, Inc. v. Brady, 430 U.
S. 274 (1977).
See Western Live Stock v. Bureau of
Revenue, 303 U. S. 250
(1938). The State's right to tax interstate commerce is limited,
however, and no state tax may be sustained unless the tax: (1) has
a substantial nexus with the State;(2) is fairly apportioned;(3)
does not discriminate against interstate commerce; and (4) is
fairly related to the services provided by the State.
Washington Revenue Dept. v. Washington Stevedoring Assn.,
435 U. S. 734,
435 U. S. 750
(1978). One of the fundamental principles of Commerce Clause
jurisprudence is that no State, consistent with the Commerce
Clause, may "impose a tax which discriminates against interstate
commerce . . . by providing a direct commercial advantage to local
business."
Northwestern States Portland Cement Co. v.
Minnesota, 358 U. S. 450,
358 U. S. 458
(1959).
See Boston Stock Exchange v. State Tax Comm'n,
429 U. S. 318,
429 U. S. 329
(1977). This antidiscrimination principle "follows inexorably from
the basic purpose of the Clause" to prohibit the multiplication of
preferential trade areas destructive of the free commerce
anticipated by the Constitution.
Boston Stock Exchange,
supra. See Dean Milk Co. v. Madison, 340 U.
S. 349,
340 U. S. 356
(1951).
Initially, it is clear to us that the flow of gas from the OCS
wells, through processing plants in Louisiana, and through
interstate pipelines to the ultimate consumers in over 30 States,
constitutes interstate commerce. Louisiana argues that the taxable
"uses" within the State break the flow of commerce, and are wholly
local events. But although the Louisiana "uses" may possess a
sufficient local nexus to support
Page 451 U. S. 755
otherwise valid taxation, [
Footnote 27] we do not agree that the flow of gas from
the wellhead to the consumer, even though "interrupted" by certain
events, is anything but a continual flow of gas in interstate
commerce. Gas crossing a state line at any stage of its movement to
the ultimate consumer is in interstate commerce during the entire
journey.
California
Page 451 U. S. 756
v. Lo-Vaca Gathering Co., 379 U.
S. 366,
379 U. S. 369
(1965).
See Michigan-Wisconsin Pipe Line Co. v. Calvert,
347 U. S. 157,
347 U. S. 163
(1954);
FPC v. East Ohio Gas Co., 338 U.
S. 464,
338 U. S.
472-473 (1950);
Deep South Oil Co. v. FPC, 247
F.2d 882, 887-888 (CA5 1957).
See generally Illinois Natural
Gas Co. v. Central Illinois Public Service Co., 314 U.
S. 498,
314 U. S.
503-504 (1942) (fact of sale does not serve to change
the "essential interstate nature of the business").
A state tax must be assessed in light of its actual effect
considered in conjunction with other provisions of the State's tax
scheme.
"In each case, it is our duty to determine whether the statute
under attack, whatever its name may be, will in its practical
operation work discrimination against interstate commerce."
Best Co. v. Maxwell, 311 U. S. 454,
311 U. S.
455-456 (1940).
See Halliburton Oil Well Cementing
Co. v. Reily, 373 U. S. 64,
373 U. S. 69
(1963);
Gregg Dyeing Co. v. Query, 286 U.
S. 472,
286 U. S.
478-480 (1932). In this case, the Louisiana First-Use
Tax unquestionably discriminates against interstate commerce in
favor of local interests as the necessary result of various tax
credits and exclusions. No further hearings are necessary to
sustain this conclusion. Under the specific provisions of the
First-Use Tax, OCS gas used for certain purposes within Louisiana
is exempted from the Tax. OCS gas consumed in Louisiana for (1)
producing oil, natural gas, or sulphur;(2) processing natural gas
for the extraction of liquefiable hydrocarbons; or(3) manufacturing
fertilizer and anhydrous ammonia, is exempt from the First-Use Tax.
§ 1303A. Competitive users in other States are burdened with the
Tax. Other Louisiana statutes, enacted as part of the First-Use Tax
package, provide important tax credits favoring local interests.
Under the Severance Tax Credit, an owner paying the First-Use Tax
on OCS gas receives an equivalent tax credit on any state severance
tax owed in connection with production in Louisiana. § 47:647 (West
Supp. 1981). On its face, this credit favors those who both own OCS
gas and engage in
Page 451 U. S. 757
Louisiana production. [
Footnote 28] The obvious economic effect of this
Severance Tax Credit is to encourage natural gas owners involved in
the production of OCS gas to invest in mineral exploration and
development within Louisiana, rather than to invest in further OCS
development or in production in other States. Finally, under the
Louisiana statutes, any utility producing electricity with OCS gas,
any natural gas distributor dealing in OCS gas, or any direct
purchaser of OCS gas for consumption by the purchaser in Louisiana
may recoup any increase in the cost of gas attributable to the
First-Use Tax through credits against various taxes or a
combination of taxes otherwise owed to the State of Louisiana. §
47:11B (West Supp. 1981). Louisiana consumers of OCS gas are thus
substantially protected against the impact of the First-Use Tax,
and have the benefit of untaxed OCS gas which, because it is not
subject to either a severance tax or the First-Use Tax, may be
cheaper than locally produced gas. OCS gas
Page 451 U. S. 758
moving out of the State, however, is burdened with the First-Use
Tax. [
Footnote 29]
The Special Master was aware that the effect of the Louisiana
tax system is to favor local interests. With respect to the
Severance Tax Credit, the Special Master noted that,
"[s]ince there is no apparent relation between the ownership of
outer continental shelf gas and the production of gas in Louisiana,
it is hard to understand Louisiana's motive in permitting this
credit, but it obviously aids an intrastate operation in a way not
available to a pipeline engaged only in interstate transportation
or producing gas outside of Louisiana."
Second Report at 34. Moreover, the credit available to
electrical generating plants, gas distributing services, and direct
purchasers resulted in Louisiana customers being "protected in
whole or in part from the incidence of the tax which is passed on
to consumers out of the State."
Ibid. Despite these
concerns, the Special Master did not recommend granting plaintiffs'
motion to invalidate the Tax under the Commerce Clause because, as
he saw it, it was difficult to tell the effect of the various
credits, given the totality of the operation of the state tax
provisions. Thus, instead of being discriminatory, the "actuality
of operation" test required by
Halliburton Oil Well Cementing
Co. v. Reily, supra, at
373 U. S. 69,
might demonstrate, after a full hearing, that the First-Use Tax is
a proper
"'compensating' tax intended to complement the state severance
tax as the use tax complemented the sales tax in
Henneford v.
Silas Mason Co., 300 U. S. 577 (1937)."
Second Report at 35.
In our view, the First-Use Tax cannot be justified as a
compensatory tax. The concept of a compensatory tax first requires
identification of the burden for which the State is attempting to
compensate. Here, Louisiana claims that the
Page 451 U. S. 759
First-Use Tax compensates for the effect of the State's
severance tax on local production of natural gas. To be sure,
Louisiana has an interest in protecting its natural resources, and,
like most States, has chosen to impose a severance tax on the
privilege of severing resources from its soil.
See Bel Oil
Corp. v. Roland, 242 La. 498,
137 So. 2d
308,
appeal dism'd, 371 U. S. 2 (1962);
Edwards v. Parker, 332 So. 2d 176 (La.1976). But the
First-Use Tax is not designed to meet these same ends, since
Louisiana has no sovereign interest in being compensated for the
severance of resources from the federally owned OCS land. The two
events are not comparable in the same fashion as a use tax
complements a sales tax. In that case, a State is attempting to
impose a tax on a substantially equivalent event to assure uniform
treatment of goods and materials to be consumed in the State. No
such equality exists in this instance.
The common thread running through the cases upholding
compensatory taxes is the equality of treatment between local and
interstate commerce.
See Boston Stock Exchange, 429 U.S.
at
429 U. S.
331-332;
Henneford v. Silas Mason Co.,
300 U. S. 577,
300 U. S.
583-584 (1937).
See generally Halliburton Oil,
373 U.S. at
373 U. S. 70
("equal treatment for in-state and out-of-state taxpayers similarly
situated is the condition precedent for a valid use tax on goods
imported from out-of-state"). As already demonstrated, however, the
pattern of credits and exemptions allowed under the Louisiana
statute undeniably violates this principle of equality. As we have
said, OCS gas may generally be consumed in Louisiana without the
burden of the First-Use Tax. Its principal application is to gas
moving out of the State. Of course, it does equalize the tax
burdens on OCS gas leaving the State and Louisiana gas going into
the interstate market. But this sort of equalization is not the
kind of "compensating" effect that our cases have recognized.
It may be true that further hearings would be required to
provide a precise determination of the extent of the
discrimination
Page 451 U. S. 760
in this case, but this is an insufficient reason for not now
declaring the Tax unconstitutional and eliminating the
discrimination. We need not know how unequal the Tax is before
concluding that it unconstitutionally discriminates. Accordingly,
we grant plaintiffs' exception that the First-Use Tax is
unconstitutional under the Commerce Clause because it unfairly
discriminates against purchasers of gas moving through Louisiana in
interstate commerce.
V
In conclusion, we hold that § 1303C violates the Supremacy
Clause and that the First-Use Tax is unconstitutional under the
Commerce Clause. Judgment to that effect and enjoining further
collection of the Tax shall be entered. Jurisdiction over the case
is retained in the event that further proceedings are required to
implement the judgment.
So ordered.
JUSTICE POWELL took no part in the consideration or decision of
this case.
[
Footnote 1]
The earliest offshore oil production occurred in 1896 off the
coast of California. The early ventures were extensions of onshore
drilling projects. U.S. Dept. of Interior, Mineral Resource
Management of the Outer Continental Shelf, Geological Survey
Circular 720, p. 2 (1975). The first offshore well drilled from a
mobile platform, the dominant technology used today, located out of
sight from land was drilled 12 miles from the Louisiana coast in
1947.
Ibid. In its proffer of evidence, the State of
Louisiana estimated that there exist over 13,000 wells operating in
OCS lands in the Gulf of Mexico.
See Proffer of Proof of
Louisiana to Special Master 8. According to one source, 948
offshore wells were drilled off the coast of Louisiana in 1978.
Braunstein & Allen, Developments in Louisiana Gulf Coast
Offshore in 1978, 63 AAPG Bull. 1310 (Aug.1979).
[
Footnote 2]
In 1970, South Louisiana, an area including both the onshore and
offshore area adjacent to Louisiana, was responsible for the
production of approximately 33% of domestic natural gas production.
See Federal Power Comm'n, Bureau of Natural Gas, National
Gas Supply and Demand, 1971-1990, Staff Rep. No. 2, pp. 20-22
(1972); J. Schanz & H. Frank, Natural Gas in the Future
National Energy Pattern, in Regulation of the Natural Gas Producing
Industry 18-19 (K. Brown ed.1972). As of 1973, over 25 trillion
cubic feet of natural gas had been produced from Louisiana's
offshore lands, with approximately 77% coming from federal OCS
areas. Geological Survey Circular 720,
supra at 28 (Table
13). It has been estimated that the present reserves in the
offshore area adjacent to the Gulf States is approximately 38
trillion cubic feet of gas. J. Hewitt, J. Knipmeyer, & E.
Schluntz, Estimated Oil and Gas Reserves, Gulf of Mexico Outer
Continental Shelf (U.S. Dept. of Interior, Geological Survey, Dec.
31, 1979).
[
Footnote 3]
See Proffer of Proof of Louisiana to Special Master 21
(Fact No. 43).
[
Footnote 4]
See id. at 11-13 (Facts Nos. 19-22).
[
Footnote 5]
Representatives from the State of Louisiana, as well as from
other Gulf States, appeared before Congress in support of a measure
to provide the States with a share of any income from that part of
the OCS abutting their respective States.
See Hearings on
S.1901 before the Senate Committee on Interior and Insular Affairs,
83d Cong., 1st Sess., 185-186, 187-188, 191-193, 265-266
(1953).
[
Footnote 6]
A thousand cubic feet of gas was defined, as is commonplace in
the industry, as that amount of gas which occupies that volume at a
temperature of 60 degrees Fahrenheit and 15.025 pounds per square
inch of pressure absolute. La.Rev.Stat.Ann. § 47:1303(B) (West
Supp. 1981).
[
Footnote 7]
Estimates of the annual revenues from the First-Use Tax have
varied. The plaintiff States and the United States estimated the
annual receipts to be $225 million, while the pipeline companies
suggested $275 million.
See also Note, The Louisiana
First-Use Tax: Does It Violate the Commerce Clause?, 53 Tulane
L.Rev. 1474 (1979) ($170 million); First-Use Tax, 31 La.Coastal
L.Rep. No. 31 (Oct.1978) ($185 million in first year).
Part II of the First-Use Tax Act created the First-Use Trust
Fund. Receipts of the Tax were to be placed in the fund and
expended in accordance with the terms of the Act. La.Rev.Stat.Ann.
§ 47:1351 (West Supp. 1981). Specifically, the Act provided that
75% of the proceeds would go towards retirement of the general debt
of the State. § 1351A(2). Also 25% of the proceeds were to be
deposited in a Barrier Islands Conservation Account, to be used to
fund capital improvements for projects designed to "conserve,
preserve, and maintain the barrier islands, reefs, and shores of
the coastline of Louisiana." § 1351A(3).
[
Footnote 8]
A taxable "use" was defined as:
"the sale; the transportation in the state to the point of
delivery at the inlet of any processing plant; the transportation
in the state of unprocessed natural gas to the point of delivery at
the inlet of any measurement or storage facility; transfer of
possession or relinquishment of control at a delivery point in the
state; processing for the extraction of liquefiable component
products or waste materials; use in manufacturing; treatment; or
other ascertainable action at a point within the state."
La.Rev.Stat.Ann. § 47:1302(8) (West Supp. 1981).
[
Footnote 9]
The Severance Tax Credit bill was passed at the same time as the
First-Use Tax, and provides as follows:
"A. (1) Every taxpayer liable for and remitting taxes levied and
collected pursuant to [the First-Use Tax] and each taxpayer who
bears such taxes as a direct result of contractual terms or
agreements applied in disregard of R.S. 47:1303(C), shall be
allowed a direct tax credit, at any time following payment of such
tax, but, not in excess of the amount which must be borne by such
taxpayer, against severance taxes owed by such taxpayer to the
state, the amount of which credit shall not exceed the amount of
severance taxes for which such taxpayer is liable to the state as a
direct consequence of the privilege of severing natural resources
from the surface of the soil or water of the state."
The tax credit also assigns the order in which the credit shall
be applied depending on the type of severance credit paid. The
credit is first applied to oil severance taxes and lists in
descending order the other resources subject to severance tax
credit. § 647A(2). The tax credit does not affect any severance
taxes assessed by the local parishes. § 647C.
[
Footnote 10]
The statutory provision exempts from the tax credit provision
any increases in wellhead price attributable to inflation.
[
Footnote 11]
See generally New York v. New Jersey, 256 U.
S. 296,
256 U. S. 309
(1921) ("Before this court can be moved to exercise its
extraordinary power under the Constitution to control the conduct
of one State at the suit of another, the threatened invasion of
rights must be of serious magnitude, and it must be established by
clear and convincing evidence").
[
Footnote 12]
As alleged in the complaint, the annual increase in natural gas
costs directly associated with the First-Use Tax with respect to
each of the plaintiff States is as follows: Maryland ($60,000); New
York ($300,000); Massachusetts ($25,000); Rhode Island ($25,000);
Illinois ($270,000); Indiana ($70,000); Michigan ($650,000);
Wisconsin ($70,000); New Jersey ($20,000).
See Complaint,
at 12-16. Total direct injuries to the plaintiff States was
estimated to be $1.5 million, and injury to the citizen consumers
was estimated at $120 million.
Id. at 16.
[
Footnote 13]
In approving the pass-through, the FERC did not accept the
constitutionality of the First-Use Tax; FERC has consistently taken
the position that the Tax is unconstitutional. Moreover, approval
of the pass-through was expressly conditioned on the pipeline
companies' taking legal action to determine the legality of the
Tax, and to provide for refund to the customers should it be
declared unconstitutional. Administrative proceedings before the
FERC are continuing, and the agency has issued an order to show
cause why the gas producers should not be required to pay the
portion of the First-Use Tax relating to liquid or liquefiable
hydrocarbons transported with or extracted from the gas subject to
the Tax.
[
Footnote 14]
In
Ohio v. Wyandotte Chemicals Corp., 401 U.S. at
401 U. S. 497,
the Court noted that,
"[a]s our social system has grown more complex, the States have
increasingly become enmeshed in a multitude of disputes with
persons living outside their borders. Consider, for example, the
frequency with which States and nonresidents clash over the
application of state laws concerning taxes, motor vehicles,
decedents' estates, business torts, government contracts, and so
forth. It would, indeed, be anomalous were this Court to be held
out as a potential principal forum for settling such
controversies."
[
Footnote 15]
The pipeline companies removed the case to federal court.
Louisiana's motion to remand was granted, essentially on the ground
that the intervention of the Federal District Court would be
contrary to the provisions of the Tax Injunction Act, 28 U.S.C. §
1341.
Edwards v. Transcontinental Gas Pipe Line
Corp., 464 F.
Supp. 654 (MD La.1979).
[
Footnote 16]
By granting plaintiffs' motions for leave to file, we rejected
Louisiana's motions that the case should be dismissed. Moreover,
when we referred the case to the Special Master, we expressly
referred to him all pending motions
except for Louisiana's
motion to dismiss.
See 445 U. S. 913
(1980). Usually, when we decline to exercise our original
jurisdiction, we do so by denying the motion for leave to file.
See Arizona v. New Mexico, 425 U.
S. 794 (1976). Although it is arguable that the Special
Master was not empowered to consider Louisiana's motion, since we
did not refer the question to him, we nonetheless rely on his
report in light of the fact that we must consider Louisiana's
motion to dismiss on the merits in any event, and because the
matter went forward before the Special Master on the assumption
that the motion to dismiss had been referred. Accordingly, we now
see no reason not to acquiesce in the Special Master's views that
the issues were properly before him.
[
Footnote 17]
See Tr. of Oral Arg. 55-58. It is acknowledged that,
but for the "invitation," there exists no procedural mechanism in
Louisiana for the plaintiff States or the United States to be made
parties to the state refund suit.
[
Footnote 18]
In
Pennsylvania v. New Jersey, 426 U.
S. 660 (1976), we denied leave to file to a number of
States challenging commuter income tax provisions adopted by
certain other States. That case, however, clearly has no
applicability to the present action. In
Pennsylvania, the
only reason that the complaining States were denied tax revenues
was because their legislatures had determined to give a credit for
taxes paid to other States, and, to this extent, any injury was
voluntarily suffered.
Id. at
426 U. S. 664.
Moreover, jurisdiction was not proper under the
parens
patriae doctrine, since the claims represented the aggregation
of individual claims for wrongfully paid taxes which the individual
commuter taxpayers were able to contest.
Id. at
426 U. S.
665-666.
See generally Massachusetts v.
Missouri, 308 U. S. 1,
308 U. S. 19-20
(1939). In this case, the plaintiff States are not responsible in
any way for the economic impact of the Tax. Moreover, unlike the
situation in Pennsylvania, individual citizens have no forum in
which to challenge the Tax, because they did not directly pay the
Tax and are not entitled to bring refund actions in Louisiana.
[
Footnote 19]
Despite the fact that these parties have been invited to
intervene,
see n
17,
supra, the Louisiana refund action is an imperfect
forum, primarily because no injunctive relief prior to the
determination on the merits is possible under Louisiana law.
See La.Rev.Stat.Ann. §§ 47:1575, 47:1576 (West 1970 and
Supp. 1981).
[
Footnote 20]
See 425 U.S. at
425 U. S. 798
(STEVENS, J., concurring).
[
Footnote 21]
We note in passing that Louisiana's other arguments against the
exercise of our original jurisdiction are lacking in merit. First,
our original jurisdiction is not affected by the provisions of the
Eleventh Amendment, which only withholds federal judicial power in
suits against a State "by Citizens of another State, or by Citizens
or Subjects of any Foreign State." Thus, an original action between
two States only violates the Eleventh Amendment if the plaintiff
State is actually suing to recover for injuries to specific
individuals.
Hawaii v. Standard Oil Co., 405 U.
S. 251,
405 U. S.
258-259, n. 12 (1972). Second, the Tax Injunction Act,
which, by its terms, only applies to injunctions issued by federal
district courts, 28 U.S.C. § 1341, is inapplicable in original
actions. We thus reject Louisiana's exceptions based on these
grounds.
Louisiana also excepted to each of the recommendations made by
the Special Master in his first report concerning various
preliminary matters. Given the above determination on Louisiana's
motion to dismiss, we reject each of Louisiana's exceptions and
adopt the recommendations contained in the Special Master's first
report. Specifically, we agree that New Jersey, whose allegations
of injury are identical to that of the original plaintiff States,
clearly has standing and should be permitted to intervene. Second,
we believe that the United States' interests in the operation of
the OCS Act and the FERC's interests in the operation of the
Natural Gas Act are sufficiently important to warrant their
intervention as party plaintiffs,
see supra at
451 U. S. 744
and this page. We have often permitted the United States to
intervene in appropriate cases where distinctively federal
interests, best presented by the United States itself, are at
stake.
See, e.g., Arizona v. California, 344 U.S. 919
(1953);
Oklahoma v. Texas, 253 U.
S. 465 (1920). Third, the Master recommended that we
grant the motion of 17 pipeline companies to intervene as
plaintiffs. Given that the Tax is directly imposed on the owner of
imported gas and that the pipelines most often own the gas, those
companies have a direct stake in this controversy and in the
interest of a full exposition of the issues, we accept the Special
Master's recommendation that the pipeline companies be permitted to
intervene, noting that it is not unusual to permit intervention of
private parties in original actions.
See Oklahoma v.
Texas, 258 U. S. 574
(1922).
Cf. Trbovich v. Mine Workers, 404 U.
S. 528,
404 U. S.
536-539 (1972). Finally, we agree with the Special
Master that the Associated Gas Distributors should be permitted to
file an
amicus brief.
[
Footnote 22]
The Natural Gas Policy Act of 1978 was enacted to alleviate the
adverse economic effects of the disparate treatment of intrastate
and interstate natural gas sales. Under 15 U.S.C. § 3320 (1976 ed.,
Supp. III), a price for the first sale of gas shall not be
considered to exceed the maximum lawful price if it is necessary to
recover
"any costs of compressing, gathering, processing, treating,
liquefying, or transporting such natural gas, or other similar
costs, borne by the seller and allowed for, by rule or order, by
the Commission."
Plaintiffs also argue that the entire scheme of taxation in
Louisiana with its series of tax credits and exemptions,
see text
infra at
451 U.S. 756-758, necessarily
interferes with the FERC's comprehensive authority to regulate the
price of gas. The Special Master determined that the decision was
difficult to make given the fact that the FERC had permitted the
cost to be passed on. The Special Master concluded that it may
ultimately be decided that some of the costs are beyond the reach
of the FERC, or that the Tax is not a "substantial hindrance" to
the Commission. We do not need to reach plaintiffs' exception on
this point given our resolution on the other issues presented.
[
Footnote 23]
Section 1303C provides:
"[The First-Use Tax] shall be deemed a cost associated with uses
made by the owner in preparation of marketing of the natural gas.
Any agreement or contract by which an owner of natural gas at the
time a taxable use first occurs claims a right to reimbursement or
refund of such taxes from any other party in interest, other than a
purchaser of such natural gas, is hereby declared to be against
public policy and unenforceable to that extent. Notwithstanding any
such agreement or contract, such an owner shall not have an
enforceable right to any reimbursement or refund on the basis that
this tax constitutes a cost incurred by such owner by virtue of the
separation or processing of natural gas for extraction of liquid or
liquefiable hydrocarbons, or that this tax constitutes any other
grounds for reimbursement or refund under such agreement or
contract, unless there has been a final and unappealable judicial
determination that such owner is entitled to such reimbursement or
refund, notwithstanding the public policy and purpose of this part
and the foregoing provisions of this Subsection C. In any legal
action pursuant to this Subsection, the state shall be an
indispensable party in interest."
[
Footnote 24]
See Mobil Oil Corp. v. FPC, 157 U.S.App.D.C. 235,
238-240, 483 F.2d 1238, 1241-1243 (1973);
Detroit v. FPC,
97 U.S.App.D.C. 260, 269-271, 230 F.2d 810, 819-821 (1955),
cert. denied, 352 U.S. 829 (1956);
Union Oil Company
of California, Docket No. CI77-828
et al., p. 11
(FERC, Apr. 12, 1978);
Canadian Superior Oil (U.S.) Ltd.,
Docket No. CI77-802
et al., p. 4 (FERC, Mar. 28, 1978);
Tennessee Gas Pipeline Co., 38 F.P.C. 691, 698 (1967);
Continental Oil Co., 27 F.P.C. 96, 107-108 (1962). Removal
reduces both the volume and heat content of the natural gas
ultimately received by the gas consumers.
See Area Rate
Proceeding, 40 F.P.C. 530, 611 (1968),
aff'd, 428
F.2d 407 (CA5),
cert. denied, 400 U.S. 950 (1970).
[
Footnote 25]
It is no answer to note that the FERC has administratively
determined that the Tax may be passed on. The agency's position is
that the Tax is unconstitutional as an invasion of its authority,
and, as a condition for permitting the pipeline companies to pass
the Tax through to consumers, has required that the companies
"undertak[e] all legal action . . . to determine the
constitutionality of the tax," and secure means for an effective
refund should any taxes paid be returned upon a final finding that
the Tax was unconstitutional. 43 Fed.Reg. 45553 (1978).
[
Footnote 26]
The United States argues that, once § 1303C is found
unconstitutional, the entire Act falls under § 4 of the Act, which
provides that, in the event of a "final and unappealable judicial
decision" upholding the right of any owner to "enforce a contract
or agreement otherwise rendered unenforceable by R.S. 47:1303 (C),"
the following consequences would occur:
"(2) If the right upheld arises from the provisions of a
contract or agreement requiring any other party to reimburse or
refund to an owner costs or expenses incurred by such owner by
virtue of separation or processing of natural gas for extraction of
liquid or liquefiable hydrocarbons, then this Act shall be null and
void and the secretary shall forthwith return to each taxpayer all
taxes previously paid, together with interest at the rate of six
percent per annum from the date of payment."
Since a specific contractual provision is not involved here, the
precise terms of the Louisiana statute are not met, despite the
fact that a final and unappealable determination of the
unconstitutionality of § 1303C has been made. Accordingly, we are
not in position, based on the provision contained in § 4, to
determine that the entire Act is null and void.
Plaintiff States, as well as the pipeline companies, also press
another Supremacy Clause issue, contending that the First-Use Tax
is inconsistent with the OCS Act, 43 U.S.C. §§ 1331-1356 (1976 ed.
and Supp. III). Under § 1332, it is declared to be the policy of
the United States that
"the subsoil and seabed of the outer Continental Shelf appertain
to the United States and are subject to its jurisdiction, control,
and power of disposition as provided in this subchapter."
Section 1333(a)(1) expressly extends the Constitution and laws
of the United States to the subsoil and seabed of the shelf. While
the Act borrows "applicable and not inconsistent" state laws for
certain purposes, such as were necessary to fill gaps in federal
law,
see Rodrigue v. Aetna Casualty & Surety Co.,
395 U. S. 352,
395 U. S.
355-359 (1969), it expressly declares that "[s]tate
taxation laws shall not apply to the outer Continental Shelf." §
1333(a)(2) (A). Moreover, the OCS Act provides that the provision
for adopting state law
"shall never be interpreted as a basis for claiming any interest
in or jurisdiction on behalf of any State for any purpose over the
seabed and subsoil of the outer Continental Shelf, or the property
and natural resources thereof or the revenues therefrom."
§ 1333(a)(3). By passing the OCS Act, Congress "emphatically
implemented its view that the United States has paramount rights to
the seabed beyond the three-mile limit. . . ."
United States v.
Mine, 420 U. S. 515,
420 U. S. 526
(1975).
Plaintiff States contend that, despite the fact that the
First-Use statute declares that it is not taxing the gas itself,
and thus is not a state-imposed severance tax on OCS production,
the inevitable intent and result of the Act is to impose a tax on
the OCS production in contravention of the express prohibition of
the OCS Act. It is clear that a State has no valid interest in
imposing a severance tax on federal OCS land. In part, Louisiana
purports to justify the Tax as a means of alleviating the alleged
discrimination against Louisiana gas caused by the fact that
Louisiana gas must pay the state severance tax, while OCS gas does
not. But if correcting the claimed imbalance were the sole
justification asserted for the First-Use Tax, there would be grave
doubt about the validity of the Tax. The proper fee or charge for
drilling for gas on the OCS is a determination which is solely
within the province of the Federal Government. Even if the United
States were to decide to open up development to all comers at no
charge in order to spur development of natural gas, Louisiana would
have no interest in overriding that decision by imposing a tax to
equalize the cost of local production with that on the federal OCS
area. Permitting the States to exercise such power would adversely
affect the price which the Government could command from private
developers in their bid price. As clearly required by the OCS Act,
Louisiana's sovereign interest in the development of offshore
mineral interests stops at its 3-mile border. Louisiana, however,
presses certain environmental interests as well in support of its
First-Use Tax, and, in light of this submission, we do not resolve
the issue whether the Tax necessarily infringes on the sovereign
interests of the United States in the OCS.
The intervening pipeline companies also argue that Louisiana has
no valid environmental interest in imposing the First-Use Tax,
since the measure is preempted by the Coastal Zone Management Act
of 1972, 86 Stat. 1280, as amended, 16 U.S.C. §§ 1451-1464 (1976
ed. and Supp. IV). The Coastal Zone Management Act provides federal
funds to compensate States for environmental damage occurring as a
result of offshore energy development to States which agree to
comply with the standards mandated by the Act. The importance of
the concerns for environmental damage are expressly recognized in
the OCS Act.
See 43 U.S.C. § 1332(4)(A) (1976 ed., Supp.
III). We need not reach this contention in light of our disposition
of the other claims, and, to this extent, the exceptions of the
plaintiff States and the pipeline companies are overruled.
[
Footnote 27]
The United States suggests that the uses enunciated in the Act
do not have a sufficient local nexus to support the Tax under the
Commerce Clause.
See Michigan-Wisconsin Pipe Line Co. v.
Calvert, 347 U. S. 157
(1954). While the local nexus of certain of the uses is suspect,
other uses would appear to have a substantial local nexus, so that,
on the present record, it would be difficult to say that the entire
Tax was unconstitutional on this ground. The Act contains a
severability clause providing that, if any use is found to be an
unconstitutional basis for taxation, the next use would be taxed.
See La.Rev.Stat.Ann. § 47 :1303F (West Supp. 1981). Given
our resolution on the discrimination charge, we find it unnecessary
to reach the local nexus claim, especially in light of the
severability clause. To this extent, the exception of the United
States and the FERC is overruled.
The United States and the plaintiff States also argue that the
First-Use Tax is not fairly apportioned. To be valid, a tax on
interstate commerce must be reasonably apportioned to the value of
the activities occurring within the State upon which the Tax is
imposed.
See Washington Revenue Dept. v. Washington Stevedoring
Assn., 435 U. S. 734,
435 U. S.
746-747 (1978). It is submitted that several factors
suggest this principle is being violated. First, the Tax is imposed
on each use as a function of the volume of the gas subject to the
use, without attempting to tailor the amount of the Tax depending
on the nature or extent of the actual use of the gas within
Louisiana. Second, the use of the proceeds of the First-Use Tax
demonstrates that the Tax is substantially in excess of the amount
fairly associated with the local uses. Under the Act, 75% of the
proceeds are used to service Louisiana's general debt, while only
one-quarter is directly used to alleviate the alleged environmental
damage caused by the pipeline activities. Third, the State has not
demonstrated a sufficient relationship between other services
provided by the State and the amount of the First-Use Taxes
provided. In light of our determination that the Tax is
discriminatory, however, we need not determine the apportionment
issue. The exceptions of the United States, the FERC, and the
plaintiff States to this extent are also overruled.
[
Footnote 28]
The United States has provided an example which the Special
Master used to illustrate the possible discrimination:
"This difference can be illustrated by the following example.
Owner A has 1000 mcf of OCS gas; owner B has 500 mcf of OCS gas and
500 mcf of gas subject to Louisiana's severance tax. A owes $70 of
first use tax; B owes $35 of first use tax and $35 in severance
tax. B, however, pays only $35 in first use taxes. He owes no
severance tax because he can credit the first use payment against
the severance tax liability."
Second Report, at 34, n. 18. It has been observed that the
credit means that
"gas extracted offshore and gas extracted in Louisiana will be
treated the same for Louisiana tax purposes only when the First Use
Taxpayer has no severance tax liability to absorb the First Use
Taxes."
As a result, First-Use Taxpayers have an incentive to
"undertake mineral extraction activities in Louisiana so as to
minimize their effective First Use Tax burden and to compete on
equal terms with other First Use Taxpayers whose First Use Tax
burden has already been so minimized."
W. Hellerstein, State Taxation in the Federal System:
Perspectives on Louisiana's First Use Tax on Natural Gas, Shell
Foundation Lecture at Tulane University School of Law (Nov. 20,
1980), pp. 23-24.
[
Footnote 29]
Of course, § 1303C itself may result in substantial
discrimination, since owners of gas subject to the state severance
tax are not prohibited from allocating that cost to someone other
than the ultimate consumer.
CHIEF JUSTICE BURGER, concurring.
There is much validity in JUSTICE REHNQUIST's dissenting
opinion, and it should keep us alert to any effort to expand the
use of our original jurisdiction. However, I am satisfied that the
Court's resolution of this case is sound, and I therefore join the
Court's opinion.
JUSTICE REHNQUIST, dissenting.
There is no question that this controversy falls within the
literal terms of the constitutional and statutory grant of original
jurisdiction to this Court. U.S.Const., Art. III, § 2, cl. 2; 28
U.S.C. § 1251(a) (1976 ed., Supp. III). As the Court stated in
Illinois v. Milwaukee, 406 U. S. 91,
406 U. S. 93
(1972), however,
"[w]e construe 28 U.S.C. § 1251(a)(1), as we do
Page 451 U. S. 761
Art. III, § 2, cl. 2, to honor our original jurisdiction but to
make it obligatory only in appropriate cases."
Because of the nature of the interests which the plaintiff
States seek to vindicate in this original action, and because of
the existence of alternative forums in which these interests can be
vindicated, I do not consider this an "appropriate case" for the
exercise of original jurisdiction. The plaintiff States have not,
in my view, established the "strictest necessity" required for
invoking this Court's original jurisdiction,
Ohio v. Wyandotte
Chemicals Corp., 401 U. S. 493,
401 U. S. 505
(1971), and therefore I would grant defendant Louisiana's motion to
dismiss the complaint.
I
It has been a consistent and dominant theme in decisions of this
Court that our original jurisdiction should be exercised with
considerable restraint, and only after searching inquiry into the
necessity for doing so. As we noted in
Illinois v.
Milwaukee, "[i]t has long been this Court's philosophy that
our original jurisdiction should be invoked sparingly.'" 406
U.S. at 406 U. S. 93
(quoting Utah v. United States, 394 U. S.
89, 394 U. S. 95
(1969)). Chief Justice Fuller wrote in 1900 that original
"jurisdiction is of so delicate and grave a character that it was
not contemplated that it would be exercised save when the necessity
was absolute. . . ." Louisiana v. Texas, 176 U. S.
1, 176 U. S. 15. The
reasons underlying this restraint have also been long established.
The Court has wisely insisted that original jurisdiction be
sparingly invoked because it is not suited to functioning as a
nisi prius tribunal.
"This Court is . . . structured to perform as an appellate
tribunal, ill-equipped for the task of factfinding, and so forced,
in original [jurisdiction] cases, awkwardly to play the role of
factfinder without actually presiding over the introduction of
evidence."
Ohio v. Wyandotte Chemicals Corp., supra, at
401 U. S. 498.
[
Footnote 2/1]
Page 451 U. S. 762
Over 40 years ago, when the Court's docket was considerably
lighter than it is today, Chief Justice Hughes articulated the
concern that accepting original jurisdiction cases
"in the absence of facts showing the necessity for such
intervention would be to assume a burden which the grant of
original jurisdiction cannot be regarded as compelling this Court
to assume and which might seriously interfere with the discharge by
this Court of its duty in deciding the cases and controversies
appropriately brought before it."
Massachusetts v. Missouri, 308 U. S.
1,
308 U. S. 19
(1939). The Court has recognized that expending its time and
resources on original jurisdiction cases detracts from its primary
responsibility as an appellate tribunal.
"The breadth of the constitutional grant of this Court's
original jurisdiction dictates that we be able to exercise
discretion over the cases we hear under this jurisdictional head,
lest our ability to administer our appellate docket be
impaired."
Washington v. General Motors Corp., 406 U.
S. 109,
406 U. S. 113
(1972).
See also Illinois v. Milwaukee, supra, at
406 U. S. 93-94
("We incline to a sparing use of our original jurisdiction so that
our increasing duties with the appellate docket will not suffer").
Original jurisdiction cases represent an
"intrusion on society's interest in our most deliberate and
considerate performance of our paramount role as the supreme
federal appellate court. . . ."
Ohio v. Wyandotte Chemicals Corp., supra, at
401 U. S.
505.
None of these concerns are adequately answered by the expedient
of employing a Special Master to conduct hearings, receive
evidence, and submit recommendations for our review. It is no
reflection on the quality of the work by the Special Master in this
case or any other master in any other original jurisdiction case to
find it unsatisfactory to delegate the
Page 451 U. S. 763
proper functions of this Court. Of course, this Court cannot sit
to receive evidence or conduct trials -- but that fact should
counsel reluctance to accept cases where the situation might arise,
not resolution of the problem by empowering an individual to act in
our stead. I, for one, think justice is far better served by trials
in the lower courts, with appropriate review, than by trials before
a Special Master whose rulings this Court simply cannot consider
with the care and attention it should. It is one thing to review
findings of a district court or state court, empowered to make
findings in its own right, and quite another to accept (or reject)
recommendations when this Court is in theory the primary
factfinder. As Chief Justice Stone put it in
Georgia v.
Pennsylvania R. Co., 324 U. S. 439,
324 U. S. 470
(1945) (dissenting opinion):
"In an original suit, even when the case is first referred to a
master, this Court has the duty of making an independent
examination of the evidence, a time-consuming process which
seriously interferes with the discharge of our ever-increasing
appellate duties."
II
The prudential process by which the Court culls "appropriate"
original jurisdiction cases from those which are inappropriate
involves two inquiries. In
Massachusetts v. Missouri,
supra, at
308 U. S. 18, the
Court noted:
"In the exercise of our original jurisdiction so as truly to
fulfill the constitutional purpose, we not only must look to the
nature of the interests of the complaining State -- the essential
quality of the right asserted -- but we must also inquire whether
recourse to that jurisdiction . . . is necessary for the State's
protection."
This dual inquiry was reaffirmed in
Washington v. General
Motors Corp., supra, at
406 U. S. 113.
Or, as put in
Illinois v. Milwaukee, 406 U.S. at
406 U. S.
93,
"the question of what is appropriate concerns, of course, the
seriousness and dignity of the claim; yet, beyond that, it
necessarily involves the availability of another
Page 451 U. S. 764
forum where there is jurisdiction over the named parties, where
the issues tendered may be litigated, and where appropriate relief
may be had."
The first prong of the inquiry thus involves an assessment of
the "nature of the interests of the complaining state," "the
essential quality of the right asserted," "the seriousness and
dignity of the claim," and the second prong an examination of the
availability of an alternative forum.
The Court accepts original jurisdiction in this case for two
separate reasons: because the plaintiff States are injured in their
capacity as purchasers of natural gas,
ante at
451 U. S.
736-737, and because the plaintiff States may sue as
parens patriae, ante at
451 U. S.
737-739. In ruling that jurisdiction exists because of
the plaintiff States' own purchases of natural gas, the Court does
not even purport to consider the nature or essential quality of the
States' claim, or whether it is of sufficient "seriousness and
dignity" to justify invoking our "delicate and grave" original
jurisdiction. The Court recognizes that "unique concerns of
federalism" form the basis of our original jurisdiction,
ante at
451 U. S. 743,
but does not explain how such concerns are implicated simply
because one State levies a tax on an item which is eventually
passed on to consumers, one of which happens to be another State.
The "nature of the interests of the complaining state -- the
essential quality of the right asserted" is indistinguishable from
the interest and right of a private citizen, and the States' claim
is of no greater "seriousness and dignity" than the claim of any
other consumer.
I would hold that, as a general rule, when a State's claim is
indistinguishable from the claim of any other private consumer, it
is insufficient to invoke our original jurisdiction. The Court in
the past has referred to claims by a State in its capacity simply
as consumer or owner as mere "makeweights."
See Georgia v.
Pennsylvania R. Co., supra, at
206 U. S. 450;
Georgia v. Tennessee Copper Co., 206 U.
S. 230,
206 U. S. 237
(1907);
see also Pennsylvania v. West Virginia,
262 U. S. 553,
262 U. S.
611
Page 451 U. S. 765
(1923) (Brandeis, J., dissenting).
Cf. Kansas v.
Colorado, 206 U. S. 46,
206 U. S. 98
(1907). I do not think such a makeweight should suffice to invoke
our original jurisdiction, particularly since States now act as
consumers in a vast array of areas.
The fact that States now purchase countless varieties of items
for their own use which were not purchased 50 or even 25 years ago
suggests that concern for our own limited resources is not the only
factor which should motivate us in allowing our original
jurisdiction to be invoked sparingly. With the greatly increased
litigation dockets in most state and federal trial courts, there
will be the strongest temptation for various interest groups within
the State to attempt to persuade the Attorney General of that State
to bring an action in the name of the State in order to make an end
run around the barriers of time and delay which would confront them
if they were merely private litigants. [
Footnote 2/2] Thus, in permitting indiscriminate use of
our original jurisdiction, we not only consume our own scarce
resources, but permit, in effect, the bypassing of ordinary trial
courts where private parties are required to litigate the same
issues. Such a departure from past practice risks the creation of
an entirely separate system for litigation in this country,
standing side by side with the state court systems and the federal
court system. It will obviously be tempting to many interests of a
variety of persuasions on the merits of a particular issue to
"start at the top," so to speak, and have the luxury of litigating
only before a Special Master followed by the appellate-type review
which this Court necessarily gives to his findings and
recommendations.
If all that is required to invoke our original jurisdiction
Page 451 U. S. 766
is an injury to the State as consumer caused by the regulatory
activity of another State, the list of cases which could be pressed
as original jurisdiction cases must be endless. The Court's opinion
contains no limiting principle, as mandated by the frequent
statements that our original jurisdiction be sparingly invoked and
the required inquiry into the nature of the State's claim.
I would require that the State's claim involve some tangible
relation to the State's sovereign interests. Our original
jurisdiction should not be trivialized and open to run-of-the-mill
claims simply because they are brought by a State, but rather
should be limited to complaints by States
qua States. This
would include the prototypical original action, boundary disputes,
and the familiar cases involving disputes over water rights. In
such cases, the State seeks to vindicate its rights as a State, a
political entity. [
Footnote 2/3]
Since nothing about the complaint in this case involves sovereign
interests, I would hold that there is no jurisdiction on the basis
of the States' own purchases of natural gas. [
Footnote 2/4]
Page 451 U. S. 767
Nor is this an appropriate case for the plaintiff States to
invoke original jurisdiction as
parens patriae. The Court
announces that a State may sue in this capacity in an original
action "where the injury alleged affects the general population of
a State in a substantial way,"
ante at
451 U. S. 737,
but the established rule, which may be different than the Court's
paraphrase, was articulated in
Pennsylvania v. New Jersey,
426 U. S. 660,
426 U. S. 665
(1976) (per curiam) in these terms:
"It has . . . become settled doctrine that a State has standing
to sue only when its sovereign or quasi-sovereign interests are
implicated and it is not merely litigating as a volunteer the
personal claims of its citizens."
In
Oklahoma ex rel. Johnson v. Cook, 304 U.
S. 387,
304 U. S. 394
(1938), Chief Justice Hughes stressed that the principle that a
State may sue as
parens patriae
"does not go so far as to permit resort to our original
jurisdiction in the name of the State, but in reality for the
benefit of particular individuals, albeit the State asserts an
economic interest in the claims and declares their enforcement to
be a matter of state policy."
Here the plaintiff States are not suing to advance a sovereign
or quasi-sovereign interest. Rather they are suing to promote the
economic interests of those of their citizens who purchase and use
natural gas. Advancing the economic interests of a limited group of
citizens, however, is not sufficient to support
parens
patriae original jurisdiction. In
Oklahoma v Atchison, T.
& S. F. R. Co., 220 U. S. 277,
220 U. S. 289
(1911), the Court ruled that a State had no standing to challenge
in an original action unreasonable freight rates imposed by
citizens of another State affecting shippers within the State. In
New Hampshire v. Louisiana, 108 U. S.
76 (1883),
Page 451 U. S. 768
the Court rejected an effort by New Hampshire to collect as
assignee on Louisiana state bonds, when the proceeds would end up
in the hands of the assignors, New Hampshire citizens. And in
North Dakota v. Minnesota, 263 U.
S. 365 (1923), the Court turned back an effort by the
plaintiff State to sue for flood damage to farmers' land. In my
view, this suit, brought to benefit state consumers of natural gas,
is closer to these cases than those cited by the Court,
Missouri v. Illinois, 180 U. S. 208,
180 U. S. 241
(1901) (health menace to entire State from spread of contagious
diseases specifically noted);
Kansas v. Colorado,
185 U. S. 125
(1902) (rights to water);
Georgia v. Tennessee Copper Co.,
206 U. S. 230
(1907) (rights to air in unpolluted State).
The Court relies heavily on
Pennsylvania v. West
Virginia, 262 U. S. 553
(1923), which it describes as "functionally indistinguishable" from
the case before us.
Ante at
451 U. S.
738-739. I think
Pennsylvania v. West Virginia,
decided over the dissents of Justices Holmes, Brandeis, and
McReynolds, is readily distinguishable, "functionally" or
otherwise. The harm in
Pennsylvania v. West Virginia was
the threatened complete cessation of deliveries of natural gas.
This harmed all the citizens of the State, since it would have
prevented any of them from purchasing the natural gas. The harm
involved was also far more serious than the harm in this case. In
Pennsylvania v. West Virginia, the harm was the complete
halt in deliveries of a commodity upon which citizens of the
plaintiff State depended. The opinion there stressed the direct
link to the "health, comfort and welfare" of the citizens of
Pennsylvania and the serious jeopardy they would be in if their
supply of heating gas were suddenly cut off. 262 U.S. at
262 U. S.
591-592. Such a direct link to health and welfare is
simply not present in this case. The distinction between an
increase in the cost of a commodity passed on to consumers
complained of here, and the complete cessation of a service upon
which citizens depended, seems palpable.
Page 451 U. S. 769
III
The exercise of original jurisdiction in this case is
particularly inappropriate since the issues the plaintiff States
would have us decide not only can be, but in fact are being,
litigated in other forums. Although this case would come within our
original and exclusive jurisdiction if appropriate, the question
whether it is appropriate depends in part on the availability of
alternative forums.
See Illinois v. Milwaukee, 406 U.S. at
406 U. S. 93;
Arizona v. New Mexico, 425 U. S. 794,
425 U. S.
796-797 (1976). [
Footnote
2/5]
The precise issues which the Court finds it somehow necessary to
reach today are raised in actions which are currently pending in a
Louisiana state court. An action by Louisiana seeking a declaratory
judgment that its First-Use Tax is constitutional is pending,
Edwards v. Transcontinental Gas Pipe Line Corp., No.
216,867 (19th Judicial Dist., East Baton Rouge Parish), as is a
refund suit brought by the 17 pipeline companies actually liable
for the tax,
Southern Natural Gas Co. v. McNamara, No.
225,533 (19th Judicial Dist., East Baton Rouge Parish). The
pipeline companies raise in the Louisiana proceeding the identical
challenges raised by the plaintiff States in the present case.
[
Footnote 2/6]
In view of the foregoing, I consider
Arizona v. New Mexico,
supra, controlling. There, the Court declined to exercise
original
Page 451 U. S. 770
and exclusive jurisdiction over a suit brought by Arizona
challenging injury to it and its citizens as consumers of
electricity generated in New Mexico and subject to a New Mexico
tax. As here, the tax was imposed on utilities, not directly on the
consumers. The Court quoted language from
Illinois v.
Milwaukee, supra, and
Massachusetts v. Missouri,
308 U. S. 1 (1939),
concerning the sparing use of our original jurisdiction and the
appropriateness of considering alternative forums, and noted that
the utilities, like the pipeline companies here, had sued in state
court. The Court concluded that,
"[i]n the circumstances of this case, we are persuaded that the
pending state court action provides an appropriate forum in which
the
issues tendered here may be litigated."
(Emphasis in original.) 425 U.S. at
425 U. S. 797.
Although the Court in this case stresses that the plaintiff States
are not parties in the Louisiana state court proceedings, in
Arizona v. New Mexico, we specifically emphasized that the
relevant question was whether the
issues could be
litigated elsewhere.
IV
The basic problem with the Court's opinion, in my view, is that
it articulates no limiting principles that would prevent this Court
from being deluged by original actions brought by States simply in
their role as consumers or on behalf of groups of their citizens as
consumers. Perhaps the principles sketched in this dissent are not
the best limiting principles which could be devised, but the
difficulty in developing such principles does not lessen the need
for them. The absence of limiting principles in the Court's
opinion, I fear,
"could well pave the way for putting this Court into a quandary
whereby we must opt either to pick and choose arbitrarily among
similarly situated litigants or to devote truly enormous portions
of our energies to such matters."
Ohio v. Wyandotte Chemicals Corp., 401 U.S. at
401 U. S. 504.
[
Footnote 2/7] The problem
Page 451 U. S. 771
is accentuated in this case because it falls within our original
and exclusive jurisdiction, which means that similar cases not only
can be, but
must be, brought here.
In conclusion, I can do no better than quote from a dissent
Justice Frankfurter penned under similar circumstances:
"Jurisdictional doubts inevitably lose force once leave has been
given to file a bill, a master has been appointed, long hearings
have been held, and a weighty report has been submitted. And so,
were this the last, as well as the first, assumption of
jurisdiction by this Court of a controversy like the present, even
serious doubts about it might well go unexpressed. But if
experience is any guide, the present decision will give momentum to
kindred litigation and reliance upon it beyond the scope of the
special facts of this case. . . . [L]egal doctrines have, in an odd
kind of way, the faculty of self-generating extension. Therefore,
in pricking out the lines of future development of what is new
doctrine, the importance of these issues may make it not
inappropriate to indicate difficulties which I have not been able
to overcome and potential abuses to which the doctrine is not
unlikely to give rise."
Texas v. Florida, 306 U. S. 398,
306 U. S. 434
(1939). [
Footnote 2/8]
[
Footnote 2/1]
It is true that, in this case, the Court decides that judgment
on the pleadings is appropriate, and that therefore it is not
necessary to conduct a trial. I do not understand the Court,
however, to be ruling that original jurisdiction is appropriate
only when a trial is not necessary, and therefore, in accepting
original jurisdiction of this case, the Court opens the door to
similar cases which may necessitate a trial.
[
Footnote 2/2]
Experience teaches that these are not empty concerns.
See,
e.g., New Hampshire v. Louisiana, 108 U. S.
76,
108 U. S. 89
(1883) (State suing as assignee of bondholders, bondholders funding
lawsuit and to collect any award);
North Dakota v.
Minnesota, 263 U. S. 365,
263 U. S. 375
(1923) (State suing for flood damage to farmers' land, farmers
funding lawsuit and to collect any award).
[
Footnote 2/3]
Requiring that a State's claim implicate sovereignty interests
also serves the oft-repeated expression in our opinions that the
Court will not interfere with action by one State unless the injury
to the complaining State is of "serious magnitude."
See Alabama
v. Arizona, 291 U. S. 286,
291 U. S. 292
(1934);
Colorado v. Kansas, 320 U.
S. 383,
320 U. S. 393,
and n. 8 (1943). The Court cites this concern,
ante at
451 U. S. 736,
n. 11, but does not explain why a tax of seven cents per thousand
cubic feet of gas is an injury of "serious magnitude."
[
Footnote 2/4]
It is true that the Court has exercised original jurisdiction in
cases where the right asserted by a complaining State cannot truly
be considered a right affecting sovereign interests. I do not doubt
the Court's power to exercise original jurisdiction in such cases,
nor do I in this case. The decision that a particular type of case
was an "appropriate" one for original jurisdiction a century ago,
however, does not mean that the same sort of case is an appropriate
one today. Justice Harlan explicitly recognized in
Ohio v.
Wyandotte Chemicals Corp., 401 U. S. 493,
401 U. S.
497-499 (1971), that societal changes and "the evolution
of this Court's responsibilities in the American legal system"
affected the determination of what was an appropriate case in which
to exercise original jurisdiction. The increase in state regulatory
efforts, on the one hand, and the role of States as consumers, on
the other, suggests that new considerations need to be brought to
bear on the present question.
[
Footnote 2/5]
The Court's dismissal of the significance of
Illinois v.
Milwaukee and
Ohio v. Wyandotte Chemicals Corp. as
cases not within the exclusive jurisdiction of this Court thus
simply does not wash.
Illinois v. Milwaukee indicated the
appropriateness of considering the existence of alternative forums
in the context of original and exclusive jurisdiction.
Arizona
v. New Mexico makes the appropriateness of such consideration
in original and exclusive jurisdiction cases quite clear.
[
Footnote 2/6]
The fact that the pipeline companies have seen fit to bring suit
on their own behalf undermines the analysis of the Court that the
consumers of the gas, both the States and the States' citizens, are
the real parties in interest. The pipeline companies obviously have
a sufficient interest to justify their suit.
[
Footnote 2/7]
It is hardly satisfactory simply to note, as does the Court,
that "the issue of appropriateness in an original action between
States must be determined on a case-by-case basis."
Ante
at
451 U. S.
743.
[
Footnote 2/8]
Because of my views on the jurisdictional question, I find it
unnecessary to address the merits of this case beyond noting that
the pressure in original actions to avoid factual inquiries which
this Court of course cannot make may go far to explain the entry of
judgment on the pleadings over the ruling by the Special Master
that further factual development is necessary to a proper
resolution of the issues.