Supreme Court Hears, Debates Natural Gas Antitrust Appeal

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Supreme Court Justices are split in appeal over federal preemption laws concerning state rights to pursue multidistrict litigation against energy companies involved in the natural gas antitrust lawsuit.

Thursday, January 22, 2015 - Throughout January, a handful of energy companies have appeared before the U.S. Supreme Court to appeal a multidistrict litigation ruling by the Ninth Circuit Court of Appeals that allowed state attorneys general to pursue lawsuits for a natural gas price-fixing scandal that took place in the 2000s.

The energy companies are arguing that a state‘s right to sue for the antitrust violations is preempted by the Natural Gas Act, over which the Federal Energy Regulatory Commission has exclusive authority. Plaintiffs argue that the Natural Gas Act was not intended to be used as a field preemption to block the litigation concerning the breaking of state laws. Reports from the hearings have the court split down liberal and conservative lines over the case.

The conservative wing of the Supreme Court is leaning toward nullifying the state claims with federal preemption, while the liberal justices are arguing to uphold the state claims. The initial conflict was resolved when a number of energy companies settled in the face of allegations that they conspired to artificially raise the price of natural gas in the early 2000s. More than $350 million in penalties were assessed following inquiries made by the U.S. Department of Justice and Commodities Futures Trading Commission.

However, none of that money made it to the businesses or states that were affected because of federal preemption. The main argument taking place concerning the energy companies is whether their price-fixing activities should be strictly a regulatory matter at the federal level, or whether states and business should also be able to pursue damages incurred by the artificially raised prices.

The element that makes the state/federal distinction murky in this case is that the plaintiffs are specifically alleging index manipulation by wholesale natural gas sellers, which is preempted by the federal Natural Gas Act. The 21 state attorneys general that have filed suit against the companies are challenging these preemption edicts and feel they should be able to litigate with the energy companies directly for violating their state‘s antitrust laws.

The energy companies are fighting hard over this decision as a ruling in favor of the plaintiffs would cause their regulatory guidelines to become muddied in a time of change when many need to update and replace existing infrastructure to fall in line with new climate change initiatives. Setting a precedent that opens them up to class action suits from states and in regulatory uncertainty will drastically affect the risk of investing with these companies.

Another argument being played out in conjunction with the state/federal sticking point is that of field and conflict preemption. Conflict preemption occurs when a state law conflicts with a federal law and the federal order preempts the state. Field preemption occurs when a federal law is intended to trump state laws over an entire area of focus. The attorneys general are arguing that this case should not invoke full field preemption and that the states should have an opportunity to pursue its own litigation if the violations are not at odds with federal law. The defendants believe that the violations are covered by federal law and have argued that the field they are working in has operated as field preempted in the past.

The case has not yet been decided and continues to be heard before the U.S. Supreme Court.