F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
MAR 26 2003
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
JUSTIN HILL; GARY A. MARTIN;
MARY ANN MARTIN; JIM A
MOWDER; ALLAN FLENTIE; No. 02-3096
ROBERT A. CROWN; DAVID
STUTENROTH; WILLIAM D.
HAMILTON; LAWRENCE PAPER
COMPANY, INC.,
Plaintiffs - Appellants,
and
MARY ALICE STANDIDGE; W.S.
DICKEY CLAY MANUFACTURING
COMPANY, on behalf of themselves
and other retail natural gas customers
similarly situated,
Plaintiffs,
vs.
KANSAS GAS SERVICE
COMPANY; GREELEY GAS
COMPANY; UTILICORP UNITED,
INC.,
Defendants - Appellees.
--------------------------
KANSAS CORPORATION
COMMISSION,
Amicus Curiae.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
(D.C. No. 01-CV-2315-CM)
Stuart W. Conrad (and C. Edward Peterson, with him on the briefs), Finnegan,
Conrad & Peterson, L.C., Kansas City, Missouri, for Plaintiffs - Appellants.
Karl Zobrist (and Brian D. Martin, with him on the brief), Blackwell, Sanders,
Peper, Martin, L.L.P., Kansas City, Missouri, for Defendants - Appellees
UtiliCorp. United Inc. and Greeley Gas Company.
John P. DeCoursey, Kansas Gas Service Company, Shawnee Mission, Kansas for
Defendant - Appellee Kansas Gas Service Company.
John J. McNish, Advisory Counsel, Kansas Corporation Commission, Topeka,
Kansas, Amicus Curiae.
Before SEYMOUR, PORFILIO, and KELLY, Circuit Judges.
KELLY, Circuit Judge.
Plaintiffs-Appellants, various individual and business retail natural gas
customers in the state of Kansas (“Plaintiffs”), appeal the dismissal of their class
action complaint for lack of subject-matter jurisdiction under Fed. R. Civ. P. 12
(b)(1). The three named defendants: Kansas Gas Service Company (“KGS”),
Greeley Gas Company (“Greeley”), and Utilicorp United, Inc., (“Utilicorp”)
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(collectively, “Defendants”), are local natural gas public utilities 1 operating
within the state of Kansas. Plaintiffs’ complaint asserted claims arising under the
Natural Gas Policy Act of 1978, 15 U.S.C. §§ 3301- 3432 (“NGPA”) and 42
U.S.C. § 1983 based on alleged deprivations of their property without due process
or just compensation. The complaint sought, inter alia, a declaratory judgment
that Plaintiffs have a property interest in certain refunds that Defendants have
received from various interstate natural gas pipelines and that the refunds should
therefore be distributed to Plaintiffs and other similarly situated retail natural gas
customers. The district court dismissed the action on the ground that it lacked
subject-matter jurisdiction under 28 U.S.C. § 1342 (“the Johnson Act” or “§
1342”) and this appeal followed. Our jurisdiction arises under 28 U.S.C. § 1291,
and we affirm.
Background
Plaintiffs allege that they were retail natural gas customers of Defendants
or their predecessors in interest between 1983 and 1988. During this time the
NGPA set statutory price ceilings for sales of natural gas by natural gas producers
1
The Natural Gas Policy Act of 1978 refers to a natural gas public utility
engaged in the distribution or sale of natural gas for “ultimate consumption” as a
“local distribution company.” 15 U.S.C. § 3301 (17). This opinion will therefore
refer to these entities as “LDCs” when not specifically referring to the defendants
named in this action.
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to interstate natural gas pipelines. 2 Despite these price ceilings, the NGPA
authorized producers to sell gas for amounts exceeding the price limits in order to
recover the cost of any state “severance, production, or similar tax, fee, or other
levy imposed on the production of natural gas.” 15 U.S.C. § 3320 (repealed
effective 1993); Aplee. Supp. App. at 30-31. Because, in 1974, the Federal Power
Commission, the predecessor to the Federal Energy Regulatory Commission
(“FERC”), qualified Kansas ad valorem taxes as a recoverable production tax,
producers of natural gas from that time forward charged them to their interstate
pipeline customers. The interstate pipelines, in turn, added those amounts to the
price of natural gas charged to LDCs (including the defendants in this action),
which in turn passed the costs through to their retail customers via Purchased Gas
Adjustment clauses or Cost of Gas Riders (collectively, “PGA clauses”) in their
filed rate tariffs. 3
In 1983, more than a decade after natural gas producers first started
charging interstate pipelines to recover the cost of Kansas ad valorem taxes, a
2
In 1989 Congress repealed the sections of the NGPA providing natural
gas price controls, 15 U.S.C. § 3311-3320. See Pub. L. 101-60, § 2(b), July 26,
1989, 103 Stat. 158, effective January 1, 1993.
3
In describing the PGA clauses at issue here, the Court of Appeals of
Kansas has stated that the clauses permit LDCs to “pass on their natural gas
commodity cost (selling price from pipeline to LDC) to their customers. Based
on the clauses, Kansas ad valorem taxes were passed on to retail customers.”
Farmland Indus., Inc. v. Kansas Corp. Comm’n, 37 P.3d 640, 643 (Kan. Ct. App.
2002).
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complaint was filed before the FERC challenging the legality of the charges on
the ground that the taxes did not constitute a “production, severance or similar
tax,” and that the rates charged therefore violated the NGPA to the extent that
they exceeded the Act’s prescribed price ceilings. Sun Exploration & Prod. Co.,
36 F.E.R.C. ¶61,093 at 61,223 (1986). After initially upholding the legality of the
charges, and after several years of litigation including multiple appeals to the
United States Court of Appeals for the District of Columbia Circuit, the FERC
concluded that the taxes at issue should be treated as property taxes rather than
severance taxes, and that the prices charged therefore violated the NGPA.
Colorado Interstate Gas Co., 65 F.E.R.C. ¶61,292 at 62,367 (1993).
Consequently, the FERC ordered the natural gas producers to refund the
overcharge amounts to their interstate pipeline customers, and the interstate
pipelines to pass through the refunds to the affected LDCs. Id. at 62,374. The
District of Columbia Circuit affirmed the FERC’s holding and ordered the
producers to refund the taxes included in the rates charged to interstate pipelines
between 1983 and 1988. Public Serv. Co. of Colorado v. FERC, 91 F.3d 1478,
1492 (D.C. Cir. 1996).
Subsequent to the FERC’s orders, the Kansas Corporation Commission
(“KCC”)–which under Kansas law is charged with regulating the rates and
charges of natural gas LDCs, see Kan. Stat. Ann. §§ 66-1,200 to 1,210–opened a
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docket to determine how the refunds should be distributed by the LDCs to their
numerous retail customers. In 1999, the KCC approved each Defendant’s refund
distribution plan. Each plan proposed to allocate a portion of the refunded
amounts to a low-income energy assistance program with the remainder to be
refunded to specified categories of retail customers.
On January 2, 2001, the KCC issued an order directing KGS to release a
portion of the refund amounts in its possession for use in its approved low-income
assistance program, with the remainder to be immediately distributed to current
sales customers through its PGA clause. By the end of January, however, it had
become apparent that many residential natural gas customers would face
significant hardships due to the combination of lower-than-normal winter
temperatures and substantially higher natural gas prices. 4 Based in part on these
“changed circumstances,” the KCC issued an order on February 19, 2001 granting
reconsideration of the January 2nd order and setting a hearing to further discuss
distribution of the refunds. Aplee. Supp. App. at 88-89.
Following a series of hearings, orders, and petitions for reconsideration by
various concerned parties, the KCC issued an order on May 3, 2001 (the “May 3
4
In fact, on January 31, 2001, both houses of the Kansas Legislature
passed unanimous resolutions urging the KCC to allocate all ad valorem tax
refunds held by Kansas LDCs to low-income energy assistance for qualified
individuals and families not already receiving low-income energy assistance
program (LIEAP) benefits. See Aplee. Supp. App. at 147-48.
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Order”) substantially modifying the manner in which the refunds were to be
distributed. The KCC found that residential gas users as a class were impacted
more severely than other classes of users by the combination of colder
temperatures and higher gas costs. Accordingly, the KCC ordered the refund
amounts possessed or soon to be possessed by Defendants–which by this time
totaled over 30 million dollars–to be distributed to qualified residential natural
gas customers in Defendants’ respective service areas with a family income at or
below 300 percent of the federal poverty level. Aplee. Supp. App. at 114-15.
The KCC stated that the maximum amount of any individual refund would be the
difference between the customer’s 1999-2000 and 2000-2001 heating season
natural gas bills and that each eligible customer should receive his or her refund
via a bill credit to the customer’s account in that amount. The KCC further
ordered Defendants to submit separate low-income distribution plans tailored to
the needs of their individual customers within the limits set forth in the May 3
Order.
Following submission of Defendants’ plans, several intervenors, including
the Midwest Gas Users Association (“MGUA”), an unincorporated association of
large natural gas customers whose members included some of the industrial
plaintiffs named in this action, filed petitions for reconsideration of the May 3
Order. Before the KCC ruled on the intervenors’ petitions, MGUA filed a civil
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action in Kansas district court which unsuccessfully sought a temporary
restraining order enjoining implementation of the KCC’s orders. On June 25,
2001, Plaintiffs filed the instant action through the same attorneys that
represented MGUA. The KCC denied the interveners’ petitions for
reconsideration on June 29, 2001 and on July 6 approved with some modifications
Defendants’ previously submitted distribution plans.
Plaintiffs’ complaint in the present action sought: (1) a declaratory
judgment that they have a property interest in the refunds Defendants have
received and that the refund amounts should therefore be distributed to them and
other similarly situated retail customers, (2) the placement of all refund amounts
in a constructive trust pending resolution of Plaintiffs’ claims, and (3) an order
directing the refunds to be distributed to Plaintiffs and other retail customers by
virtue of their status as third party beneficiaries of the transactions giving rise to
the refunds. Aplt. App. at 26-30. Defendants moved to dismiss on the ground
that the district court lacked jurisdiction under 28 U.S.C. § 1342, which precludes
federal courts from retaining jurisdiction over any suit seeking to enjoin, suspend
or otherwise restrain the operation of “any order affecting rates chargeable by a
public utility and made by a State administrative agency,” where four additional
requirements are satisfied. The district court granted Defendants’ motion and
dismissed the action, holding that the KCC orders at issue were “order[s]
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affecting rates,” and that each of the conditions enumerated in § 1342 were
satisfied. This appeal followed.
Discussion
Originally enacted in 1934, the Johnson Act, 28 U.S.C. § 1342, provides
that:
The district courts shall not enjoin, suspend or restrain the operation
of, or compliance with, any order affecting rates chargeable by a
public utility and made by a State administrative agency or a rate-
making body of a State political subdivision, where:
(1) Jurisdiction is based solely on diversity of citizenship or
repugnance of the order to the Federal Constitution; and,
(2) The order does not interfere with interstate commerce;
and,
(3) The order has been made after reasonable notice and
hearing; and,
(4) A plain, speedy and efficient remedy may be had in the
courts of such State.
Plaintiffs argue that the district court erred in dismissing their claims under §
1342 because (1) the KCC orders at issue do not affect rates; (2) the Johnson
Act’s fourth requirement is not met because there is “no state remedy in Kansas
for addressing the wrongs [of which Plaintiffs complain],” Aplt. Br. at 29; and (3)
to the extent Plaintiffs have asserted a property right claim arising from a state
utility matter, such is “well within the subject-matter jurisdiction grant of 28
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U.S.C. § 1331” under the Supreme Court’s recent opinion in Verizon Maryland,
Inc. v. Public Serv. Comm’n of Maryland, 535 U.S. 635, 122 S.Ct. 1753 (2002).
Aplt. Br. at 18. 5
We review de novo a dismissal for lack of subject-matter jurisdiction under
Fed. R. Civ. P. 12 (b)(1). Tippetts v. United States, 308 F.3d 1091, 1093-94 (10th
Cir. 2002); U.S. West Inc., v. Tristani, 182 F.3d 1202, 1206 (10th Cir. 1999)
(reviewing de novo the district court’s dismissal for lack of subject-matter
jurisdiction under the Johnson Act). “The burden of showing that the [Johnson
Act’s] conditions are present is on the party invoking the act.” Tristani, 182 F.3d
at 1207.
In delineating the scope of § 1342, we have observed that “[t]he evil sought
to be remedied by the Johnson Act was the federal courts’ interference with the
states’ own control of their public utility rates.” Tennyson v. Gas Serv. Co., 506
F.2d 1135, 1137 (10th Cir. 1974). In Tennyson, we further noted that “by its
broad wording it is clear that [the Johnson Act] was intended to keep
constitutional challenges to orders affecting rates out of the federal courts ‘lock,
stock and barrel,’ or, as Professor Moore succinctly puts it, to effect a ‘general
5
Plaintiffs also advance various arguments bearing on the merits of their
claims, such as whether they had a property interest in the refunded amounts and
whether they were deprived of their property under color of state law. See Aplt.
Br. at 11, 12. Because we conclude that the district court correctly held that it
lacked jurisdiction over Plaintiffs’ action, we need not address these arguments.
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hands-off policy relative to state rate making.’” Id. at 1138. Of course, the plain
language of § 1342 also demonstrates that Congress did not intend to insulate
from federal court review every matter involving a state administrative agency
with regulatory authority over a public utility. As a threshold matter, a federal
court will not be deprived of jurisdiction under § 1342 unless a plaintiff’s
challenge is to an “order affecting rates,” and then only if each of the four
conditions enumerated in the statute is satisfied. Tristani, 182 F.3d at 1207.
1. Order Affecting Rates
In the present action the district court concluded that the KCC orders were
orders “affecting rates” because the KCC itself so characterized the orders and
because the rates that qualified low-income natural gas customers would pay for
gas would necessarily be less as a result of the orders. Aplt. App. at 310.
Plaintiffs strenuously contend, however, that the orders did not affect rates
because:
there was no change made or sought to tariffs and there was no
increase or decrease ordered or sought in the rates that the defendants
charge their customers. . . . There was merely a mechanism
established outside the rates and tariffs to credit [] select low income
customers’ bills . . . . The rates for utility service were not modified
at all.
Aplt. Br. at 26.
It may be the case, as Plaintiffs argue, that the challenged orders did not
specifically call for a rate increase or decrease, and “[n]ot one rate in the LDC’s
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tariff books will change.” Aplt. Br. at 23. However, § 1342 does not require that
an order result in a direct rate or tariff modification before it will operate to
deprive a federal court of subject-matter jurisdiction. On the contrary, the
proscriptive language contained in § 1342 clearly requires only that the challenged
order or orders affect rates. It makes no difference that the aspect of the orders of
which Plaintiffs complain (i.e., distribution of refunds in the form of a bill credit)
do not themselves directly involve a “rate” charged by an LDC or listed in its filed
tariff. As we noted in Tennyson, “the Johnson Act proscribes federal interference
not with a ‘rate’ simpliciter but with ‘any order affecting rates.’” 506 F.2d at
1140; see also National Teleinformation Network, Inc., v. Michigan Public Serv.
Comm’n, 687 F. Supp. 330, 334 (W. D. Mich. 1988) (holding that because the
phrase “order affecting rates” does not contemplate the breakdown of a rate
affecting order into constituent rate and non-rate elements, § 1342’s prohibition on
federal interference with such orders should not be “selectively applied to only the
elements of an order that affect rates.”). After thoroughly reviewing the KCC’s
orders and the entire record on appeal, we conclude for the reasons that follow that
the KCC’s orders qualify as orders “affecting rates” under § 1342.
Consideration of how the refunds would have been distributed in the
absence of the challenged orders makes it clear that the KCC’s orders affected
rates for purposes of § 1342. In addition to permitting Defendants to pass the cost
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of gas through to retail customers, Defendants’ respective PGA clauses each
provided that any supplier refunds received must be distributed to Defendants’
current sales customers. Aplee Supp. App. at 123. Furthermore, each clause
provided that the KCC could, “on a case-by-case basis,” exercise its discretion to
alter the manner in which any supplier refunds are distributed. Aplee. Supp. App.
at 98-99. Describing how a refund distribution under the unmodified terms of the
PGA clauses would operate, the KCC stated in its May 3 Order that the clauses:
each provide[] a specific treatment of refunds which would require
the refund to be reflected as a reduction in the cost of gas during a
period of time which generally would be 12 months. For instance, in
KGS’s tariff a “Supplier Refund factor” is calculated and the
Company “shall include the Supplier Refund factor as a negative
adjustment to the cost of gas purchased by the Company to meet sales
service requirements.[”] All other tariffs examined reach the same
result with slightly different language.
Aplee. Supp. App. at 98. However, instead of leaving Defendants’ tariffs to
“operate on their primary terms which would have spread the refunds to all
current sales customers,” Aplee. Supp. App. at 126, the KCC exercised its
authority to modify the default distribution scheme so as to channel the refund
amounts to qualified low-income retail customers. Had the KCC not elected to
alter the manner in which the refunds would be distributed under the PGA
clauses, Defendants’ cost of gas would have decreased due to the refund-based
negative adjustment, which would have translated into a decrease in the per unit
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price of gas paid by Defendants’ retail customers. 6 Consequently, the KCC orders
which modified the default scheme were clearly orders “affecting rates” under §
1342.
Furthermore, the KCC’s orders affected rates because the May 3 Order
specifically provided that all refund amounts not needed to meet low-income
assistance program requirements must be passed through to existing sales
customers pursuant to the procedures set forth under Defendants’ existing PGA
clauses. See Aplee. Supp. App. at 113, 115. As noted above, such a refund
would operate by decreasing the LDC’s cost of gas, which in turn would decrease
the price of gas purchased by retail customers. Just as the May 3 Order affected
rates because it modified the operation of a refund distribution scheme that would
have resulted in a reduction of the price of natural gas paid by current sales
customers, it also affected rates because it ordered compliance with that default
6
The record contains an example of how refunds are distributed to retail
customers under Defendants’ PGA clauses and Cost of Gas Riders. As noted
above, the KCC on January 2, 2001 approved KGS’s plan to utilize a portion of
the ad valorem tax refunds in its possession for low-income assistance, and
ordered KGS to “immediately distribute the remaining $5.644 million . . . to
existing general sales customers via its COGR.” Aplee. Supp. App. at 52.
Significantly, a bill insert designed to explain to customers how the $5.644
million refund would be distributed under KGS’s COGR stated that each
customer’s bill contained a “credit” derived from the ad valorem tax refunds it
had received. However, rather than providing a lump-sum credit to each
customer’s bill, the insert explained that the credit would be “provided through a
reduction in the cost of gas” of approximately “45 cents per Mcf [one thousand
cubic feet] on your current bill.” Aplt. App. at 218.
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scheme upon the happening of a triggering event. Accordingly, we hold that the
challenged orders constituted orders “affecting rates” under § 1342.
2. The Four Johnson Act Conditions
Our conclusion that the KCC’s orders affected rates does not end our
inquiry into whether the district court properly determined that it lacked
jurisdiction over Plaintiffs’ case. As noted above, § 1342 deprives a district court
of jurisdiction over a suit challenging “any order affecting rates” only where the
section’s four additional requirements are met. On appeal, Plaintiffs do not
challenge the district court’s conclusion that the KCC’s orders did not interfere
with interstate commerce, 28 U.S.C. § 1342(2), and that the orders were issued
after reasonable notice and hearings. 28 U.S.C. § 1342(3). See Aplt. App. at
315-316. Rather, Plaintiffs contend that even if the KCC orders at issue affected
rates, § 1342 is nonetheless inapplicable because (1) jurisdiction was not based
solely on diversity of citizenship or a constitutional violation, and (2) Plaintiffs
have asserted a federal issue for which no adequate state remedy exists.
As to Plaintiffs’ inadequate state remedy argument, we note that Plaintiffs
failed to raise this argument before the district court. In their memorandum in
opposition to Defendants’ motion to dismiss, Plaintiffs argued only that the
Johnson Act was inapplicable because the orders at issue did not affect rates,
jurisdiction was not based solely on diversity or repugnance of the orders to the
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Constitution, and the order was issued without adequate notice. Aplt. App. 206,
211, 214. We have repeatedly held that absent “extraordinary circumstances,” we
do not consider arguments raised for the first time on appeal. McDonald v.
Kinder-Morgan, Inc., 287 F.3d 992, 999 (10th Cir. 2002). Finding no reason to
depart from this rule here, we decline to address this argument. 7
Furthermore, we disagree with Plaintiffs’ contention that the first condition
under § 1342 is not satisfied because their claims do not “rely solely on diversity
jurisdiction or the repugnance of the orders to the Constitution.” Aplt. Repl. Br.
at 8. Plaintiffs argue that the Supreme Court’s recent opinion in Verizon
demonstrates that where a plaintiff claims that a state regulatory agency has
issued an order that allegedly conflicts with a federal statute or other source of
federal law other than the Constitution, “separate federal jurisdiction exists under
[28 U.S.C.] § 1331.” Id. Plaintiffs argue that to the extent they have alleged that
the KCC’s order channeling refunds into a low-income assistance program
7
We reach this conclusion despite the general rule that a party will not be
deemed to have waived an argument challenging the existence of subject-matter
jurisdiction by failing to raise the issue before the district court. See Insurance
Corp. of Ireland v. Compagnie Des Bauxites De Guinee, 456 U.S. 694, 702
(1982). Plaintiffs do not here argue that jurisdiction is absent, but rather that
jurisdiction exists. Obviously, the concern which justifies the rule exempting
such challenges from analysis under the waiver doctrine–that a federal court not
decide cases over which it has no jurisdiction under Article III of the
Constitution–is lacking where a waiver would not increase the risk of a court
proceeding without jurisdiction. We believe that application of the waiver
doctrine is therefore appropriate.
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conflicts with federal law, as interpreted by FERC and the D.C. Circuit, Verizon
demonstrates that such allegations are “sufficient to establish a basis for
jurisdiction . . . regardless of the ultimate viability of Plaintiffs[’] claims.” Aplt.
Repl. Br. at 9. We disagree.
In Verizon, the Supreme Court held that where Verizon had alleged that an
order issued by the Maryland Public Service Commission requiring it to pay
certain amounts to a competing telephone service provider violated a provision of
the Telecommunications Act of 1996 (“the Act”), such “presents a federal
question which the federal courts have jurisdiction under 28 U.S.C. § 1331 to
resolve.” 122 S.Ct. at 1758-59. In so doing, the Supreme Court reversed the
Fourth Circuit’s holding that there was no federal question jurisdiction under §
1331 because 47 U.S.C. § 252 did not confer jurisdiction over the type of dispute
presented in the case. See Bell Atl. Md., Inc. v. MCI Worldcom, Inc., 240 F.3d
279, 308-309 (2001). The Court noted that the Fourth Circuit erred because
“even if § 252(e)(6) does not confer jurisdiction, it at least does not divest the
district courts of their authority under 28 U.S.C. § 1331 to review the
Commission’s order for compliance with federal law.” Verizon, 122 S.Ct. at 1758
(emphasis in original). Although the Court in Verizon certainly held that
jurisdiction over Verizon’s claims existed under § 1331, we do not think that
conclusion applies here.
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First, we note that from our review of Plaintiffs’ briefs and the record on
appeal, it appears clear that Plaintiffs rely on the aforementioned federal statutes
not in an attempt to establish a violation of those statutes per se, but rather to
establish the existence of a property interest in the disputed refunds that would
trigger the constitutional guarantees they claim were violated. For example, in
their briefs to this Court, Plaintiffs characterize their claims as “claim[s] of
property deprivation and violation of constitutional rights.” Aplt. Br. at 18.
Similarly, Plaintiffs argue that various federal decisions establish that they have a
“property interest” in the disputed refunds, Aplt. Br. at 12, and that the refunds
were “[t]aken from [t]hem [u]nder [c]olor of [l]aw.” Aplt. Br. at 15. Likewise,
Plaintiffs’ primary contention before the district court was that the KCC’s orders
and Defendants’ conduct “deprive[d] Plaintiffs of their property without due
process and without just compensation in violation of 42 U.S.C. § 1983.” Aplt.
App. at 26.
However, neither § 1983, nor any other federal statute cited by Plaintiffs, is
the source of the substantive rights which Plaintiffs claim were violated. The
right to be free from deprivations of property without due process or just
compensation derive, of course, from the protections contained in the Fourteenth
and Fifth Amendments of the federal Constitution. Moreover, a claim brought
under those constitutional provisions does not lose its character as a constitutional
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claim merely because it relies on a federal statute to establish the existence of a
property interest. A claim seeking damages for a violation of some constitutional
right, while no less important than a claim seeking damages for the violation of a
federal statute, is nonetheless precisely the type of claim that Congress intended
to withdraw from the federal courts’ jurisdiction under the Johnson Act. 8
Moreover, even if Plaintiffs’ citations to the aforementioned federal
statutes could be viewed as an attempt to demonstrate that the statutes themselves
have been violated, rather than merely an attempt to establish the existence of a
property interest, we would nonetheless conclude that Verizon does not establish
the existence of jurisdiction in this case. First, we note that Verizon did not
involve a challenge to the subject-matter jurisdiction of the federal courts under
the Johnson Act. The relevant jurisdictional issue in that case was simply
whether the Fourth Circuit correctly determined that 28 U.S.C. § 1331 did not
provide subject-matter jurisdiction because the exercise of federal question
jurisdiction under § 1331 would have been contrary to the limited grant of
8
To the extent that Plaintiffs attempt to argue that their claims are not
premised entirely on the alleged unconstitutionality of the relevant orders because
Defendants have violated § 1983, we find such an argument unpersuasive.
Reliance on § 1983 to avoid application of the Johnson Act has been uniformly
rejected by courts considering the question. See, e.g., Tennyson, 506 F.2d at
1139 (dismissing § 1983 action under the Johnson Act); Peoples Nat’l Util. Co. v.
City of Houston, 837 F.2d 1366, 1368 (5th Cir. 1988) (holding that plaintiff
cannot use § 1983 as an “end run” around the Johnson Act).
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jurisdiction conferred in the Telecommunications Act itself. However, even if the
Supreme Court in Verizon had specifically determined that the Johnson Act did
not preclude the court’s exercise of jurisdiction, Verizon would nonetheless be
distinguishable from the case at bar.
In Verizon, the Court held that because “Verizon’s claim turns on whether
the Act, or an FCC ruling issued thereunder, precludes the Commission from
ordering payment,” the claim “thus falls within 28 U.S.C. § 1331’s general grant
of jurisdiction.” 122 S.Ct. at 1759. Contrary to Plaintiffs’ suggestion, however,
that statement does not provide that jurisdiction will always be proper under §
1331 whenever a plaintiff alleges that a defendant’s conduct conflicted with or
violated a federal statute. As the Court noted in Verizon, such an allegation will
be sufficient to confer federal question jurisdiction “unless the claim clearly
appears to be immaterial and made solely for the purpose of obtaining jurisdiction
or where such a claim is wholly insubstantial and frivolous.” 122 S.Ct. at 1759
(quoting Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 89 (1998)
(quotations omitted) (emphasis added). Significantly, the Court in Verizon
specifically stated that Verizon’s claim was within § 1331’s grant of jurisdiction
because “there is no suggestion that Verizon’s claim is ‘immaterial’ or ‘wholly
insubstantial and frivolous.’” Id. We cannot say the same about Plaintiffs’ claims
in the present action.
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Unlike the claim in Verizon, Plaintiffs’ attempts to tie the KCC’s orders to
a violation of a federal statute or ruling of a federal court or agency are
completely without merit. First, Plaintiffs cannot establish that Defendants’
conduct or the KCC’s orders violated either the Natural Gas Act, 15 U.S.C. §§
717-717z (“NGA”), or the NGPA. By its terms, the NGA applies only to the
“transportation of natural gas in interstate commerce, [or] to the sale in interstate
commerce of natural gas for resale.” 15 U.S.C. § 717(b). Because Defendants
here did not engage in the sale of natural gas “for resale,” the KCC’s orders or
Defendants’ distribution of refunds could not have possibly contravened any
provision of the NGA. See Columbia Gas Transmission Corp., 31 F.E.R.C.
¶61,307 at 61,681 n. 38 (1985) (holding that charges and refunds by LDCs are
within the authority of state and local regulatory agencies under the NGA).
Moreover, it is clear that the KCC’s orders could not have violated the NGPA
because the NGPA provisions that gave rise to the current action–those setting
forth price ceilings for natural gas and permitting overcharges to recover the cost
of state severance taxes–applied only to “first sale[s]” of natural gas. See 15
U.S.C. §§ 3312-3320 (1989) (repealed effective 1993.). Under the NGPA, a “first
sale” is defined to exclude a sale of natural gas by an interstate pipeline or LDC
unless such a sale is “attributable to volumes of natural gas produced by such
interstate pipeline, intrastate pipeline, or local distribution company, or any
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affiliate thereof.” 15 U.S.C. § 3301(21)(B). Because none of the LDCs named as
defendants in this case produced the natural gas it sold, the district court correctly
concluded that the NGPA does not apply to those transactions.
Furthermore, the fact that the refunds to which Plaintiffs’ claim an
entitlement arose from gas charges that were later found to violate the NGPA
does not establish that the KCC’s orders distributing the refunds to one class of
retail customers likewise violated federal law. While prior FERC and federal
court of appeals opinions did establish that the overcharges violated the NGPA,
those opinions did not–as the district court’s order granting Defendants’ motion to
dismiss made abundantly clear–order the LDCs to distribute the refunds to any
retail customers, much less bestow upon Plaintiffs a property interest in the
refunds. Aplt. App. at 313-15. Indeed, neither the FERC nor a federal court
exercising jurisdiction under the NGA or the NGPA could have ordered such a
refund, for as the FERC has repeatedly held, “distribution of refunds by an LDC
is a matter within the purview of state and local regulatory authorities.” Williams
Gas Pipelines Central, Inc., 95 F.E.R.C. ¶61,055 at 61,138 (2001) (denying gas
users’ request to direct refunds to be paid to certain retail gas customers); see also
Williams Gas Pipelines Central, Inc., 95 F.E.R.C. ¶61,3666 at 62,384 (2001)
(holding that FERC “lack[s] jurisdiction over the rates charged by local
distribution customers,” because “[c]harges and refunds by local distribution
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companies are within the purview of state and local regulatory authorities.”).
Plaintiffs’ arguments that District of Columbia Circuit opinions require the
refunds to be distributed to “customers,” Public Serv. Co. of Colorado, 91 F.3d at
1492, or “overcharged consumers,” Anadarko Petroleum Corp. v. FERC, 196 F.3d
1264, 1269 (D.C. Cir. 1999), are similarly unavailing. Even if we were bound by
opinions handed down in other circuits, which we are not, we would agree with
the district court that the references to “customers” or “consumers,” when read in
context, establish that “the ‘customers’ to whom ‘producers’ were required to
make refunds were ‘their customers,’ (i.e., interstate pipelines), and not the
plaintiffs in this case.” Aplt. App. at 314. Indeed, we fail to see how the district
court could have reached a contrary conclusion in light of the aforementioned
jurisdictional limitations imposed upon the FERC and federal courts adjudicating
claims under federal natural gas statutes. For these reasons, we hold that
Plaintiffs’ allegations that the KCC’s orders and Defendants’ conduct conflicted
with or violated a federal statute or ruling issued thereunder are “wholly
insubstantial and frivolous.” Verizon, 122 S.Ct. at 1759; Steel Co., 523 U.S. at
89. Accordingly, we hold that Plaintiffs’ claims were “based solely on diversity
of citizenship or repugnance of the order to the Federal Constitution,” 28 U.S.C.
§ 1342(1), and reject Plaintiffs’ argument that Verizon requires us to conclude
otherwise.
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In light of our rejection of Plaintiffs’ argument that the first condition of
the Johnson Act is not satisfied in this case, as well as our holding that the
challenged KCC orders were orders “affecting rates,” we conclude that the district
court did not err in dismissing Plaintiffs’ action for lack of subject-matter
jurisdiction under 28 U.S.C. § 1342.
AFFIRMED.
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Hill v. Kansas Gas Service Co.
Court: Court of Appeals for the Tenth Circuit
Date filed: 2003-03-26
Citations: 323 F.3d 858
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