Argument analysis: The scope of field preemption under the Natural Gas Act

At Monday’s oral arguments in ONEOK, Inc. v. Learjet, the Justices appeared to be divided in their questioning regarding the Natural Gas Act split of jurisdiction between the Federal Energy Regulatory Commission and the states. The Ninth Circuit held that state antitrust law claims regarding pricing data and practices for retail gas transactions were not preempted by the NGA. The core state claims raised by the purchasers involve antitrust conspiracy in retail gas price reporting that affected wholesale prices of gas.

It is well settled that field preemption applies to the setting of wholesale gas rates under the NGA. However, in its briefs and oral arguments, ONEOK advanced an even broader claim for field preemption when wholesale and retail transactions are intertwined.

Arguing on behalf of ONEOK, Neal Katyal firmly maintained that the Court should reject the Ninth Circuit’s approach and instead find field preemption of gas pricing practices that directly affect wholesale rates: “Congress has drawn a bright line between state and federal authority in the setting of wholesale rates . . . . States may not regulate in areas where FERC has properly exercised its jurisdiction.”

Justice Elena Kagan, in particular, stridently pressed Katyal on whether field preemption of state antitrust claims involving retail pricing is appropriate under the NGA: “The question is whether FERC’s authority should be exclusive or whether it could be concurrent, not field preemption.” She further elaborated, “I don’t really see a reason in this kind of case why you would exclude the state entirely,” suggesting that the case would best be addressed under conflict rather than field preemption.

Katyal, however, reminded Justice Kagan about a similar line of questioning in Kurns v. Railroad Friction Products Corp. in 2012. In that case, Justice Kagan was one of six Justices applying field preemption to state tort law claims under the Locomotive Inspection Act.

In addressing whether field preemption applies to the facts at hand in this case, the questioning from the Justices divided along predictable lines. In addition to Justice Kagan, Justices Sonia Sotomayor, Stephen Breyer, and Ruth Bader Ginsburg seemed somewhat skeptical that field preemption applies to these facts.

A number of hypotheticals posed by these Justices raised doubts about whether FERC would have any ability to address the alleged harms that the purchasers had raised as antitrust plaintiffs. Katyal did not have a clear answer to this question – although Assistant to the Solicitor General Anthony Yang (arguing in support of ONEOK on behalf of the United States) later on maintained that federal antitrust remedies would remain available even if the Court finds field preemption.

Justice Anthony M. Kennedy (who also joined the majority in Kurns) did not suggest how he would address the field preemption claim, but he did ask whether there is an argument for conflict preemption based on the facts of this case. In response, Katyal suggested this would be an issue to be addressed, if necessary, on remand.

In his questioning of the advocates, Chief Justice John Roberts seemed much more open to the possibility of field preemption on these facts – asking in particular how states could separate out jurisdictional from non-jurisdictional entities. Yang responded: “The state could require that all retail sales be based on an index that is exclusively retail based” rather than regulating retail price information that directly affects wholesale rates.

Jeffrey Fisher began the arguments on behalf of Learjet. He maintained that because this case involves state regulation of retail prices, it falls “squarely” within a provision of the NGA that reserves authority over retail sales of gas to the states. In addition, he maintained that the scope of field regulation of NGA is limited to wholesale transactions and does not include the retail prices at issue in this case.

Justice Antonin Scalia questioned Fisher regarding whether there is any state regulation of gas prices on these facts. Instead, Justice Scalia expressed some sympathy for ONEOK’s main argument, noting that “it’s state regulation of a practice that affects state prices, retail prices, but also affects wholesale prices.” Fisher countered, however, that the operative word in the NGA is “sales” rather than “prices.”

Justice Kagan also challenged Fisher on whether Learjet agrees with the reasoning of the Ninth Circuit, which had suggested that FERC lacked any authority over the particular practices at issue in the purchasers’ antitrust claims. Mr. Fisher clarified that Learjet does not “have to fight FERC’s power here” to oppose ONEOK’s field preemption claim.

When questioned by Justice Kennedy, Fisher made an effort to distinguish Kurns: There, he emphasized, “[t]he agency had full power to decide any locomotive practice that would be regulated, and so therefore the state couldn’t tread on the field that Congress had given to the agency.” Fisher maintained, however, that the NGA is very different, as “Congress hasn’t given antitrust regulation to FERC.”

Representing Kansas and other states as amici arguing in support of Learjet, Stephen McAllister completed the arguments.

On rebuttal for ONEOK, Katyal maintained that upholding the Ninth Circuit opinion would constitute a “real break” from the Court’s field preemption jurisprudence. He concluded that “FERC is here before you saying, we have exclusive authority in this area. It should be deferred to.”