Oneok v. Learjet

LII note: The U.S. Supreme Court has now decided Oneok v. Learjet.


Does the Natural Gas Act, which regulates wholesale prices of natural gas, preempt state antitrust liability when accusations concern not wholesale, but retail prices?

Oral argument: 
January 12, 2015

The Supreme Court will decide whether the Natural Gas Act (“NGA”) preempts state laws that regulate the retail of natural gas. Oneok and other sellers of natural gas argue that the NGA preempts the claims that these sellers of natural gas violated antitrust laws by illegally manipulating the retail price of natural gas and engaging in wash sales. Learjet, however, contends that while wholesale rates are regulated by the NGA, the NGA does not preempt state law that regulates retail rates. The Supreme Court’s resolution of this case could impact federalism concerns as well as the future of the natural gas market.

Questions as Framed for the Court by the Parties 

Does the Natural Gas Act preempt state-law claims challenging industry practices that directly affect the wholesale natural gas market when those claims are asserted by litigants who purchased gas in retail transactions?


Starting in 2005, Respondents Learjet, Inc. and other retail gas purchasers (collectively, “Learjet”), filed claims in both federal and state court alleging that Petitioners Oneok, Inc. and other natural gas traders (collectively, “Oneok”), skewed the market for natural gas and inflated gas prices by “engaging in wash sales” (sales that are designed to “offset[] sales of the same product between two parties used to create a false price for use in the indices”) and misreporting price figures to trade publications that strongly influenced the prices of natural gas. Learjet claimed that these practices violated state antitrust laws and ultimately culminated in the 2000-2002 energy crisis.

In 2007, this multi-district litigation was consolidated and considered by the Nevada District Court. In response to Learjet’s argument that Oneok had violated state antitrust laws, Oneok argued that the Natural Gas Act (“NGA”) preempted Learjet’s state law claims. Under the NGA, the Federal Energy Regulatory Commission (“FERC”) has exclusive power to regulate “(1) ‘the transportation of natural gas in interstate commerce,’ (2) ‘the sale in interstate commerce of natural gas for resale’ (i.e., wholesale sales), and (3) ‘natural-gas companies engaged in such transportation or sale.’” The NGA also grants the FERC the authority to regulate practices that impact pricing. The district court granted summary judgment Learjet in 2011, stating that Oneok’s claims were preempted by the NGA, a federal law regulating the wholesale purchases of gas.

Oneok appealed to the Ninth Circuit, which reversed the district’s court ruling. The Ninth Circuit reasoned that, in enacting the NGA, Congress had intended to “[divide] up regulatory power over the natural gas industry,” rather than preempt state laws regulating the retail price of natural gas. The Ninth Circuit’s decision heavily relied on Gallo, an earlier case in which the Ninth Circuit found that state law antitrust claims were not barred by federal regulation by FERC. The Ninth Circuit also found that the FERC’s Code of Conduct was not evidence that the NGA preempted state law regarding wash sales and the misreporting of prices, because the “application” of this document is limited to sales “within [the FERC’s] jurisdiction.”

In 2013, Oneok petitioned the Supreme Court for a writ of certiorari to review the Ninth Circuit’s decision.


The Supreme Court must determine if the Natural Gas Act (“NGA”)—which regulates the wholesale price of natural gas—preempts states’ attempts to regulate, via antitrust law, natural gas companies alleged to have conspired to inflate retail prices. Oneok argues that retail prices directly affect the wholesale rate and so are within the NGA’s comprehensive ambit. Learjet contends instead that the difference between a “retail price” and a “wholesale price” is crucial to deciding the NGA’s reach. Learjet argues that because this is a retail price matter, state supplementary regulation is both allowed and even specifically reserved to the states, despite the opinion of the Federal Energy Regulatory Commission (“FERC”), which executes the NGA. Retail prices are sales between consumers and middleman suppliers, and thus their rate tables may possibly involve only intrastate commerce; the wholesale market, by contrast, is traded on an open market across state lines and is thus the subject of the NGA.


Oneok argues that the NGA gives the FERC broad power—namely over “any rule, regulation, practice, or contract . . . affecting wholesale gas rates”—and that any action relating to wholesale prices is preempted from state interference. Oneok argues that the accusations of retail price index manipulation fall within the exclusive federal power of wholesale rates because retail contracts “regularly incorporate” these wholesale rates. Since wholesale contracts, which all sides agree are under exclusive federal jurisdiction, include retail price information, the NGA necessarily preempts accusations based on retail price as well.

Learjet counters that the difference between retail prices and wholesale prices warrant state authority over retail prices because the NGA specifically reserves some power to the states, representing a balancing analysis rather than a blanket preemption: the state’s interest in preventing fraud and antitrust violations should mean there is room for both federal and state joint sovereignty. Learjet adds that state rules can stand side-by-side with federal law as long as there is no direct conflict between state law and the NGA. The Wisconsin Respondents—parties who initiated the Wisconsin suits in this case—argue that the legislative history behind the passing of the NGA reflects a legislative command to preserve all state authority that existed before it, merely adding federal law to fill in where states could not reach under the dormant commerce clause doctrine. The wholesale versus retail distinction, the Wisconsin Respondents argue, is not merely splitting hairs: it is a meaningful basis that the courts, in a long line of cases without exception, have used to divvy up state versus federal power of the natural gas market since the NGA’s passage in 1938. According to the Wisconsin Respondents, based on this distinction, prices being “wholesale” forms the very basis of the FERC’s jurisdiction.

But Oneok says that since the allegations in this case focus on pricing, the differences between retail and wholesale businesses do not matter because the modern practice is to use retail pricing in wholesale price estimates, which has a “direct” effect on the FERC jurisdiction and so is preempted. Section 5 of the NGA uses the “directly affecting” language, and the Supreme Court in Northern Natural Gas declared that any state action “aimed directly at” purchasing patterns could disrupt the federal balance.

Learjet defends that by arguing Northern Natural is distinguishable: in Northern Natural, Kansas tried to regulate interstate pipelines, whereas here the plaintiffs only seek to use intrastate antitrust litigation. The Wisconsin Respondents add that petitioners balancing approach is really a “butterfly effects” test: petitioners seek to include retail prices in the NGA just because they may have an effect on something already in the NGA.


Oneok contends that federal preemption is demonstrated by the FERC’s past administrative law action in this area, which has been upheld by the courts, most significantly when the Supreme Court said that the “FERC’s exclusive jurisdiction applies not only to rates, but also to [matters] that affect wholesale rates.’” The agency’s view of its own jurisdiction, Oneok argues, should be given deference by the Court because FERC is acting according to the wishes of Congress in occupying the entire regulatory field.

Learjet counters that the FERC has never assumed any regulatory position on this precise issue, conspiracy to inflate retail prices, and so does not get the usual deference that is afforded to administrative agencies under the doctrine in Chevron. Learjet thus contends that under that case, whereby “considerable weight” must be given to administrative agencies, like FERC, on the “construction of a statutory scheme” the agency itself administers, the Chevron principle of deference should control here and respondents, with FERC on their side, should win. The Wisconsin Respondents go even further, arguing that even if FERC is given the benefit of Chevron deference, it has admitted that it did not possess jurisdiction over retail rate manipulation. While this may be true under the recent amendments to the NGA in 2005, the Wisconsin Respondents note, the FERC only acquired tools to prevent market manipulation with the 2005 amendment after much lobbying and so during these past periods at issue in this case, antitrust was by FERC’s own admission not an area of NGA competency.


This case presents the Supreme Court with the opportunity to decide whether, for claims brought by natural gas retail purchasers, the Natural Gas Act (“NGA”) preempts state antitrust laws regulating the sale of natural gas. Oneok argues that the NGA preempts state law regarding the wholesale of gas and natural gas company’s actions that impact the price of wholesale gas. The antitrust plaintiffs argue that, although the NGA preempts the states’ power to oversee “wholesale transactions,” it does not preempt state regulations overseeing the retail sales of natural gas, and therefore it does not preempt Learjet and the Wisconsin Respondent’s claims. The Court’s resolution will impact the future of the natural gas market as well as the balance of power between the state and federal government.


Supporting Oneok, amicus Washington Legal Foundation argues that allowing states to exclusively regulate the retail of natural gas would disrupt the uniformity that the FERC and the NGA provide. They contend that uniformity is critical for the efficient operation of the natural gas market. Similarly, Oneok argues thatunless federal law preempts state law in this area, the application of state law may result in a collision with the goals of federal regulatory agencies. The United States echoes this concern, maintaining that allowing state regulations of natural gas retail sales to trump the NGA would interfere with the uniform standards of the NGA, leading to confusion in the industry.

Conversely, amicus supporting Learjet argue that allowing states to regulate the retail sales of natural gas is consistent with the NGA and would not result in a collision between state and federal antitrust laws or threaten federalism. The American Antitrust Institute (“AAI”) contends that, on “substantive issues,” state laws are very similar to federal law. It also asserts that the language used in state antitrust laws tends to mirror federal antitrust laws and usually states that, in the event that federal law conflicts with the state statute, federal antitrust laws should be applied. The AAI points out that, for example, the antitrust laws in Missouri, Colorado, Wisconsin, Kansas, Wyoming, and Oklahoma all track federal antitrust law. Additionally, the AAI argues that allowing state regulations of natural gas retail sales to trump the NGA will not cause regulatory confusion because, due to the Sherman Act, in every state it is illegal for businesses to engage in the type of price fixing at issue in this case.


The Interstate Natural Gas Association of America (“INGAA”) argues that a holding that the NGA does not preempt state law will have a negative effect on the nation’s energy needs. The INGAA maintains that the natural gas industry is inherently an interstate undertaking, and that “[a] very material source of risk in the [natural gas] sector arises from regulatory uncertainty. Investors, according to the INGAA, need guarantees regarding the risk they take on when investing in the natural gas industry; however, if the investors do not know whether the states or the federal government regulates the natural gas sector, this impair investors’ ability to assess the risk of their investment and lead to less investment in natural gasses.

The AAI counters that state law is actually needed to supplement federal rules that make American natural gas more competitive—and better for consumers. According to the AAI, the FERC and the NGA have “important limitations”: the FERC can only award restitution as a remedy, not damages, and so state laws are crucial to protecting customers of natural gas.


While the NGA has been amended since the antitrust allegations in this suit are said to have occurred, this case will help set the parameters of natural gas regulation. The Court’s decision could create a potential disruption in a uniform congressional design, as Oneok argues, or the opposite possibility of a dangerous void in the nation’s natural gas regulation, as Learjet argues. The Court’s job may be to mediate between these two hypothetical extremes in order to determine the future of the natural gas market.

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