Western Refining Southwest, Inc. v. Federal Energy Regulatory Commission

Citations: 636 F.3d 719; 180 Oil & Gas Rep. 139; 2011 U.S. App. LEXIS 5994; 2011 WL 1053362Docket: 09-60947

Court: Court of Appeals for the Fifth Circuit; March 24, 2011; Federal Appellate Court

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The case involves a dispute between Western Refining Southwest, Inc. and Western Refining Pipeline Company (collectively "Western") and Enterprise Crude Pipeline, LLC ("Enterprise") regarding a capacity lease agreement for an oil pipeline. Under this agreement, Western leased pipeline capacity from Enterprise to transport crude oil from Midland, Texas, to Hobbs, New Mexico, committing to a minimum purchase of 10,000 barrels per day for the first two years. The lease stipulated a monthly rental payment system and required Enterprise to reserve enough capacity for 15,000 barrels per day. Texas law governs any disputes related to the lease, which became effective in June 2007 for ten years.

The agreement mandated that Western operate as an individual common carrier and maintain its own tariffs, while Enterprise would not act as an agent for Western regarding shipper tenders. Western requested and received a waiver from the Federal Energy Regulatory Commission (FERC) for tariff filing requirements, citing that only its affiliate would use the leased capacity. However, in May 2008, Western failed to inform Enterprise of its planned transportation activities for June, prompting Enterprise to utilize Western's leased capacity for its own purposes by reversing the pipeline's flow. The FERC's jurisdiction over the case is grounded in the Interstate Commerce Act, which governs the transportation of oil by pipeline. The court affirmed the FERC's ruling on the matter.

Enterprise transferred Western's line fill into a storage tank in Midland, Texas, prompting Western to attempt to withdraw 46,200 barrels from its inventory on Enterprise's pipeline system. Enterprise permitted a withdrawal of only 20,200 barrels, citing a minimum inventory requirement of 26,000 barrels per their agreement. Throughout 2008, Western continued to pay monthly lease fees. On February 9, 2009, Western filed a complaint against Enterprise, alleging unjust and unreasonable actions that violated section 1(6) of the Act due to Enterprise's reversal of pipeline flow and unauthorized retention of Western's crude oil. Western claimed damages under section 8 of the Act, which holds common carriers liable for violations. The Commission determined that the complaint did not invoke its jurisdiction over oil pipeline transportation but rather concern a private contractual dispute, thus directing the matter to state court. Western's request for rehearing was denied, reaffirming that the contract was for leasing pipeline facilities, not oil transportation, and the Commission lacked jurisdiction. The Commission further asserted that even if it had jurisdiction, it would not exercise it due to the absence of primary jurisdiction. Regarding the Commission’s ripeness argument, the appeal was deemed ripe for review as the jurisdictional issue was not under consideration by any state court, and withholding judicial review would impose hardship on Western by limiting access to a judicial forum. Other circuits have similarly rejected ripeness arguments in comparable cases, affirming the appropriateness of judicial review for agency authority issues.

Middle South Energy contests the authority of the state to conduct a proceeding, not the outcome of the state's decision. Citing Middle S. Energy, Inc. v. Ark. Pub. Serv. Comm’n, 772 F.2d 404 (8th Cir. 1985), it emphasizes that a pending state court case does not make the current case unripe, as the state court's interpretation of a contract does not resolve the federal constitutional issue related to the Contracts Clause. The focus then shifts to whether the Commission possesses jurisdiction over Western's claims against Enterprise, specifically regarding the reversal of pipeline flow and the seizure of crude oil. The analysis follows Chevron’s two-step framework for reviewing agency interpretations of statutory authority. The first step assesses if Congress has directly addressed the issue; if not, the second step evaluates whether the agency's interpretation is a permissible construction of the statute, warranting deference unless deemed arbitrary or capricious. The text of the statute is critical to this analysis. The Interstate Commerce Act of 1887, originally regulating railroads, was later expanded to include oil pipeline transportation with the Hepburn Act of 1906. In 1977, authority over oil pipelines was transferred from the Interstate Commerce Commission to the Federal Energy Regulatory Commission, although subsequent legislation preserved certain regulations as they existed prior to the transfer.

The Act establishes regulations to prevent discriminatory and unreasonable practices by common carriers regarding rates, fares, charges, and classifications. Common carriers are required to file reasonable, nondiscriminatory rates for regulatory approval and must avoid imposing unjust tariff terms on shippers. Certain financial reporting and accounting procedures are mandated. However, pipeline companies are exempt from specific provisions that apply to rail carriers, particularly those concerning market entry, exit regulations, and acquisitions of control. Unlike regulations governing the Federal Power Act and the Natural Gas Act, which require regulatory approval for leases and acquisitions, there are no comparable regulations for oil pipeline capacity leases. 

While Section 5(2) outlines a regulatory process for acquiring a carrier’s property through various means, this does not extend to oil pipeline companies. Pipeline companies must file tariffs with the Commission, and shippers pay rates as listed in these tariffs. The Act allows any party to challenge pipeline rates and practices by filing a complaint with the Commission, which can determine and prescribe just practices if deemed unjust or unreasonable. Violations of the Act result in liability for damages to affected parties. The Commission has jurisdiction over common carriers transporting oil by pipeline, as defined in the Act. The definition of 'common carrier' includes all pipeline companies engaged in this transportation. The determination of the Commission's jurisdiction in disputes, such as whether Enterprise was acting as a common carrier when leasing pipeline capacity to Western, hinges on these definitions and regulations.

The capacity lease agreement between Western and Enterprise delineates their rights and obligations, allowing Western to lease pipeline capacity owned by Enterprise. Western, as the lessee, must utilize this capacity solely as an individual common carrier facility, maintaining its own tariffs in compliance with relevant laws and collecting revenue from shippers under these tariffs. Western's predecessor, Giant, obtained a waiver from tariff filing requirements based on the stipulation that only an affiliate, Giant Industries Arizona, would use the leased capacity. However, if an unaffiliated shipper requested transportation, Western would be required to file a tariff with the Commission.

After acquiring Giant, Western filed tariffs to establish common carrier service for specific routes, although neither Western nor its affiliate paid fees based on Enterprise's tariff filings. Instead, they operated under a monthly rental fee arrangement allowing transport of 15,000 barrels per day. The relationship between the two entities is characterized as lessor/lessee, with the agreement explicitly outlining a monthly fee structure rather than rates linked to tariff filings.

The Tenth Circuit case Phillips Pipe Line Co. v. Diamond Shamrock Ref. Mktg. Co. is referenced, illustrating that the filed rate doctrine does not apply to lessees like Diamond, who is a common carrier rather than a shipper. Consequently, since Western is similarly categorized as a common carrier and lessee—not a shipper paying tariff rates—its claims against Enterprise are only valid if Enterprise is recognized as a common carrier. The Commission correctly determined it lacked jurisdiction over the dispute, as Enterprise does not function as a common carrier in relation to Western.

Western asserts that its claims are related to oil transportation and argues that section 1(3) of the Act encompasses transportation regardless of ownership or contract. Western claims that because Enterprise owns the pipeline, any party involved in transporting oil through it, including a lessee acting as a common carrier, can file claims against Enterprise under the Act. However, the court disagrees, stating that the clause does not establish common carrier obligations where none exist. It clarifies that, despite the lack of a contractual agreement, a common carrier relationship is absent since Western's affiliate shipper pays rates to Western based on its own tariff, not to Enterprise.

The court emphasizes that Enterprise is not classified as a common carrier and that the clause ensures parties cannot evade common carrier liability by claiming non-ownership. Consequently, if Western discriminates against a shipper, that shipper can pursue action against Western under the Act. This interpretation aligns with congressional intent to eliminate discrimination in transportation rates, as originally aimed at railroads.

The court also clarifies that the Act's provisions apply solely to common carriers, asserting that Enterprise does not fit this definition regarding Western. Thus, the Commission lacks jurisdiction over Western's dispute with Enterprise. The court concludes that the statute's language is clear, negating the need to apply further interpretative steps as outlined in Chevron. 

Lastly, Western argues that the Act mandates a hearing from the Commission regarding its claims, but the Commission clarifies that the Act allows it to investigate complaints in a manner it deems appropriate without requiring a formal hearing.

The Supreme Court has established that courts cannot impose procedural requirements on agencies that lack a basis in the Administrative Procedure Act (APA) or relevant statutes. FERC is only required to hold an evidentiary hearing when there is a genuine issue of material fact, and may resolve disputes based on the written record. Western did not demonstrate any genuine factual issues inadequately addressed by the Commission, negating the necessity for a hearing. Additionally, Western's assertion that factual disputes cannot be resolved during a motion to dismiss is incorrect; disputes related to subject-matter jurisdiction can be resolved prior to adjudicating a case's merits. The Commission effectively reviewed the extensive record and determined its lack of jurisdiction over the dispute. Consequently, the Commission's order dismissing Western's claims is affirmed.