Adrian Energy v. MI Pub Serv

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206

File Name: 07a0080p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

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Plaintiffs-Appellants, -

ADRIAN ENERGY ASSOCIATES, et al.,

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No. 06-1015

v.

,

>

MICHIGAN PUBLIC SERVICE COMMISSION, et al., -

Defendants-Appellees, -

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Intervenor-Defendant. -

CONSUMERS ENERGY COMPANY,

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Appeal from the United States District Court

for the Western District of Michigan at Lansing.

No. 05-00060—Richard A. Enslen, District Judge.

Argued: September 22, 2006

Decided and Filed: February 26, 2007

Before: MERRITT, SUTTON, and GRIFFIN, Circuit Judges.

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COUNSEL

ARGUED: Thomas J. Waters, FRASER, TREBILCOCK, DAVIS & DUNLAP, Lansing, Michigan,

for Appellants. Michael A. Nickerson, OFFICE OF THE ATTORNEY GENERAL, Lansing,

Michigan, for Appellee. Michael G. Wilson, CONSUMERS POWER COMPANY, Jackson,

Michigan, for Intervenor. ON BRIEF: Thomas J. Waters, Graham K. Crabtree, Thaddeus E.

Morgan, David E.S. Marvin, FRASER, TREBILCOCK, DAVIS & DUNLAP, Lansing, Michigan,

for Appellants. Michael A. Nickerson, OFFICE OF THE ATTORNEY GENERAL, Lansing,

Michigan, for Appellee. Michael G. Wilson, CONSUMERS POWER COMPANY, Jackson,

Michigan, for Intervenor.

1

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et al.

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OPINION

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MERRITT, Circuit Judge. This case arose from a contractual dispute between plaintiffs,

who are eight small power-producing companies,1 and the intervenor, Consumers Energy, a

Michigan utility. Consumers Energy purchases power from plaintiffs pursuant to negotiated

agreements, the terms, conditions and interpretation of which is governed by a complex state and

federal regulatory scheme. Plaintiffs contend that Consumers Energy is not paying them

contractually-agreed upon amounts, and they have sought relief in several different forums over the

past several years, including state and federal courts, as well as state and federal regulatory agencies,

all arising from the same dispute. Despite the convoluted procedural history raising many issues,

the only issue to be decided in this appeal is whether the district court properly declined to exercise

its discretionary jurisdiction under the Declaratory Judgment Act.

Plaintiffs sought declaratory and injunctive relief in the court below from an order of the

Michigan Public Service Commission concerning the power purchase agreements. The suit named

the Michigan Public Service Commission and the individual commissioners in their official

capacities as defendants, and Consumers Energy intervened. Relying on the Declaratory Judgment

Act, the district court declined to exercise jurisdiction over the matter and dismissed the complaint2

without prejudice, noting particularly the pending appeal in the Michigan Court of Appeals.

Plaintiffs brought that action in the Michigan state courts after the Michigan Public Service

Commission upheld Consumer Energy’s interpretation of the Power Purchase Agreements between

plaintiffs and Consumer Energy.

Plaintiffs argue on appeal that the complaint was not one solely for declaratory judgment and

the district court erred in treating it as such. They also contend that the district court erred in

declining jurisdiction because the complaint raises preemption issues under the Supremacy Clause,

as well as claims of violations of federal statutes, thereby bringing it within the court’s subject

matter jurisdiction.

We affirm the district court’s judgment declining jurisdiction, but do so based on the

alternate ground of abstention. In addition, we remand the case for the district court to enter a stay

until the conclusion of the state proceedings rather than dismiss the case. Plaintiffs’ pending state

court action, along with the stay of the federal action, gives plaintiffs an adequate judicial forum to

air their grievances, including any federal claims.

I.

Plaintiffs are eight small power producers that sell power to Consumers Energy Company,

a Michigan utility, and an intervenor in this case. The sale of power from these small producers is

governed by a complex set of federal and state regulations, as well as the Power Purchase

Agreement each plaintiff has with Consumers Energy. Plaintiffs are nonutility power producers

known as “qualifying small power production facilities” and “qualifying cogeneration facilities”

1

Adrian Energy Associates, LLC; Cadillac Renewable Energy, LLC; Genesee Power Station, LP; Grayling

Generating Station, LP; Hillman Power Company, LLC; T.E.S. Filer City Station, LP; Viking Energy of Lincoln, Inc.

and Viking Energy of McBain, Inc.

2

Adrian Energy Assocs., LLC, et al. v. Mich. Pub. Serv. Comm’n, No. 261718 (Mich. Ct. App. appeal filed Mar.

30, 2005).

No. 06-1015 Adrian Energy, et al. v. Mich. Pub. Serv. Comm’n, Page 3

et al.

(collectively often referred to as “QFs”). See 16 U.S.C. §§ 796(17)(C), (18)(B). Qualifying

facilities are a class of facilities, defined by their size, fuel use, efficiency, and ownership, see FERC

v. Mississippi, 456 U.S. 742, 750 & n.11 (1982), entitled to special treatment under federal and state

laws regulating power producers. See 16 U.S.C. § 824a-3(e)(1); 18 C.F.R. § 292.602(c)(1). They

generate electricity using alternative fuel sources and sell their output to utilities – in this case to

Consumers Energy. Congress enacted the Public Utility Regulatory Policies Act of 1978 (often

referred to as “PURPA”) to overcome traditional electric utilities’ reluctance to purchase power from

nontraditional electric generation facilities and to reduce the financial burden from state and federal

regulation on nontraditional facilities. Federal Power Act, § 30 et seq., as amended, 16 U.S.C.

§ 823a et seq. The utility must purchase the qualifying facility’s power for its full “avoided cost”

– the amount it would have cost the utility to generate, or to construct facilities to generate, the same

power itself or to purchase the power from a facility using non-alternative fuel sources. The Federal

Energy Regulatory Commission (sometimes referred to as “FERC”) promulgates regulations

affecting qualifying facilities.

State public utility commissions are responsible for implementing the Federal Energy

Regulatory Commission’s rules and for setting the rates. Id. § 824a-3(f). Under the Public Utility

Regulatory Policies Act, the states play the primary role in calculating avoided costs and in

overseeing the contractual relationship between qualifying facilities and utilities operating under the

regulations promulgated by the Federal Energy Regulatory Commission. See Indepen. Energy

Producers Ass’n, Inc. v. Cal. Pub. Util. Comm’n, 36 F.3d 848, 856 (9th Cir. 1994) (stating that the

Federal Energy Regulatory Commission “afford[ed] the states . . . a great deal of flexibility both in

the manner in which avoided costs are estimated and in the nature of the contractual relationship

between utility and QF.” (citing Administrative Determination, IV Federal Energy Reg. Comm'n

Rep. (CCH) ¶ 32,457 at 32,173)).

II.

The procedural history of this case is lengthy. The controversy began when plaintiffs

claimed that Consumers Energy was not properly interpreting certain aspects of the Power Purchase

Agreements, resulting in underpayment to plaintiffs. During the term of the Power Purchase

Agreements with plaintiffs, Consumer Energy updated its generating plants to burn a cheaper kind

of coal, and then reduced the price it paid plaintiffs under the avoided cost formula in the Power

Purchase Agreements. Plaintiffs challenged Consumers Energy’s reduction of the price paid,

alleging that the method of calculating the avoided cost was fixed under the Power Purchase

Agreements because Consumers Energy was required to use the cost of the original type of coal used

in its avoided cost formula – in other words, the type of coal used when the agreements were signed

was a fixed reference in the avoided cost formula and could not be changed even if the type of coal

used by Consumers Energy changed.

In October 2003, Consumers Energy asked the Michigan Public Service Commission to

determine whether Consumers Energy was properly construing the contracts and paying plaintiffs

the correct amount under the contracts. Before the Michigan Public Service Commission ruled on

Consumer Energy’s application, plaintiffs filed suit against Consumers Energy in Ingham County

Court in Michigan on October 14, 2003, seeking declaratory judgment and alleging breach of

contract, promissory estoppel, constructive trust and unjust enrichment. Plaintiffs seek to recover

over $12 million from Consumers Energy for alleged underpayment under the terms of the Power

Purchase Agreements. Consumers Energy filed a motion claiming that the entire dispute was within

the primary jurisdiction of the Michigan Public Service Commission. The Ingham County Circuit

Court agreed and entered an order on February 12, 2004, dismissing the case and deferring to the

primary jurisdiction of the Michigan Public Service Commission. Plaintiffs appealed the transfer

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ruling to the Michigan Court of Appeals, which upheld the transfer. Adrian Energy Assocs. v.

Consumers Energy Co., No. 255319 (Mich. Ct. App. Nov. 3, 2005) (J.A. at 332).

The proceeding before the Michigan Public Service Commission included full discovery and

a multi-day hearing with 11 witnesses. On February 28, 2005, the Michigan Public Service

Commission determined that Consumers Energy was not required under the Power Purchase

Agreements or any other orders or regulations to base its avoided cost on the price of the coal burned

when the agreements were signed and that avoided costs may be calculated on Consumers Energy’s

actual ongoing coal costs. In re Consumers Energy Co., No. U-13917 (Mich. Pub. Serv. Comm’n

Feb. 28, 2005) (J.A. at 2149).

Based on the Michigan Public Service Commission’s ruling, plaintiffs simultaneously filed

an appeal with the Michigan Court of Appeals, an appeal to the Federal Energy Regulatory

Commission and a complaint in the district court for the Western District of Michigan (which is the

subject of this appeal) for declaratory and injunctive relief on March 30, 2005. The federal

complaint sought a ruling from the district court that the Michigan Public Service Commission’s

February 28, 2005, order violates federal law because it relied on state law when only federal

statutes – the Public Utility Regulatory Policies Act and the Federal Power Act -- are applicable to

resolve the dispute between plaintiffs and Consumers Energy. The suit names as defendants the

Michigan Public Service Commission and the individual commissioners in their official capacities.

Plaintiffs’ First Amended Complaint requests relief from enforcement of the order on three

grounds: (I) the February 28 Order violates the Public Utility Regulatory Policies Act; (II) the

February 28 Order violates the Federal Power Act and (III) the February 28 Order violates the

Supremacy Clause of the United States Constitution because the state law relied on by the Michigan

Public Service Commission in the Order is preempted by federal law. Plaintiffs assert jurisdiction

under 28 U.S.C. § 1331 and the Declaratory Judgment Act, 28 U.S.C. § 2201 et seq. Specifically,

the first count in the First Amended Complaint requests declaratory relief in the form of a judgment

enjoining the Michigan Public Service Commission from enforcing its February 28, 2005, Order

because it is preempted by federal law and the count also requests an injunction prohibiting the

Michigan Public Service Commission from failing to follow the Public Utility Regulatory Policies

Act and requiring Consumers Energy to pay plaintiffs amounts of money wrongly withheld under

the Power Purchase Agreements. The second count requests a declaratory judgment that the

Michigan Public Service Commission’s order is in conflict with the Federal Power Act, is preempted

by federal law and that the Michigan Public Service Commission should be enjoined from enforcing

its order. The third count seeks a declaratory judgment that the Michigan Public Service

Commission’s orders are preempted by federal law pursuant to the Supremacy Clause and the

Michigan Public Service Commission should be enjoined from enforcing its orders. Consumers

Energy was granted intervenor status due to its possible liability to plaintiffs for over $12 million

should plaintiffs’ interpretation of the energy rate calculation under the Power Purchase Agreements

be adopted.

As noted above, in addition to filing a complaint in the federal court in Michigan, plaintiffs

also appealed the Order to the Michigan Court of Appeals and that appeal has been fully briefed and

remains pending. See Adrian Energy Assocs. v. Mich. Pub. Serv. Comm’n, No. 261718 (Mich. Ct.

App.). In May 2005, plaintiffs moved the Michigan Court of Appeals to hold the appeal in abeyance

pending the outcomes of the federal case and the appeal to the Federal Energy Regulatory

Commission. In the alternative, plaintiffs requested to file a brief only on “state law” issues and to

No. 06-1015 Adrian Energy, et al. v. Mich. Pub. Serv. Comm’n, Page 5

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reserve the federal issues. The motion was summarily denied.3 Plaintiffs then filed a Motion to

Withdraw Appeal with the Michigan Court of Appeals that was denied on January 11, 2006.

Plaintiffs filed an Application for Leave to Appeal with the Michigan Supreme Court challenging

the Court of Appeals’ refusal to let them withdraw their appeal, but the Supreme Court denied that

Application on February 27, 2006. Adrian Energy Assocs. v. Mich. Pub. Serv. Comm’n, No. 130314

(Mich. S. Ct. Feb. 27, 2006).

Pursuant to plaintiffs’ appeal, on June 1, 2005, the Federal Energy Regulatory Commission

issued a “Notice of Intent Not to Act,” thereby declining to initiate an enforcement action against

the Michigan Public Service Commission.4 However, the Federal Energy Regulatory Commission

clarified that its decision not to act did not “constitute a ruling on the merits of any issue raised” nor

did it prohibit plaintiffs from bringing a private action against the Michigan Public Service

Commission “in the appropriate court.”

The court below entered a judgment of dismissal without prejudice, which is the basis of this

appeal. The court found that it had jurisdiction under 28 U.S.C. § 1331, but, due to the posture of

the complaint as one for declaratory relief, it would not exercise its discretionary jurisdiction under

the Declaratory Judgment Act. 28 U.S.C. § 2201(a). The opinion is very narrow, reaching only the

jurisdictional issue and making no findings about the merits of the case.5 Adrian Energy Assocs.

v. Mich. Pub. Serv. Comm’n, No. 5:05-CV-60, 2005 WL 2571881 (W.D. Mich. Oct. 12, 2005). The

plaintiffs filed a motion for reconsideration requesting that the district court grant a stay in lieu of

dismissing the case or that they be allowed to file a second amended complaint. The district court

denied the motion. (J.A. at 340)

III.

Plaintiffs raise several issues on appeal, most of which were not discussed or ruled upon by

the district court. Plaintiffs devote much of their opening brief in our Court to discussions about the

merits of the case – primarily attacking the substance of the Michigan Public Service Commission’s

February 28, 2005, Order – about which the district court said nothing. Because we generally do

not reach issues not ruled upon by the district court, the only issue before us on appeal, therefore,

is whether the district court erred in declining to exercise discretionary jurisdiction under the

Declaratory Judgment Act. We decline to address whether the Michigan Public Service Commission

3

After the Michigan Court of Appeals denied plaintiffs’ motion to file briefs addressing only the state law

issues, plaintiffs attempted again to reserve their federal claims from decision by the Michigan Court of Appeals by filing

an England reservation pursuant to England v. Louisiana State Bd. of Med. Examiners, 375 U.S. 411, 419-22 (1964).

The motion was denied. The Sixth Circuit has held that a party’s England reservation in a state action may suffice to

defeat claim preclusion in a subsequent federal action arising from the same facts. DLX, Inc. v. Kentucky, 381 F.3d

511(6th Cir. 2004). No federal court has ruled on plaintiffs’ attempt to reserve any federal issues solely to the federal

courts and we have no opinion on that issue at this time.

4

A utility or a qualifying facility may petition the Federal Energy Regulatory Commission to bring an action

against a state public utility commission in federal district court to enforce the Federal Energy Regulatory Commission’s

rules. If the Federal Energy Regulatory Commission does not initiate an enforcement action itself, then the electric utility

or qualifying facility may itself sue the state public utility commission in federal district court. Id. § 824a-3(h)(2). Xcel

Energy Servs. Inc. v. F.E.R.C., 407 F.3d 1242, 1243-44 (D.C. Cir. 2005); Connecticut Valley Elec. Co. v. F.E.R.C., 208

F.3d 1037, 1043 (D.C. Cir. 2000).

5

In their Motions to Dismiss, defendants raised other challenges to the jurisdiction of the district court,

including sovereign immunity under the Eleventh Amendment, abstention under Burford v. Sun Oil Co., 319 U.S. 315

(1943), and the Johnson Act, 28 U.S.C. § 1342. The district court did not address these other challenges to its

jurisdiction.

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erred in concluding that Consumers Energy was paying the proper rate under the Power Purchase

Agreements.6

The district court, although not discussing the merits of the case, agreed that it had subject-

matter jurisdiction. As the Supreme Court noted in Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96

n.14 (1983):

It is beyond dispute that federal courts have jurisdiction over suits to enjoin state

officials from interfering with federal rights. See Ex parte Young, 209 U.S. 123, 160-

62 (1908). A plaintiff who seeks injunctive relief from state regulation, on the

ground that such regulation is pre-empted by a federal statute which, by virtue of the

Supremacy Clause of the Constitution, must prevail, thus presents a federal question

which the federal courts have jurisdiction under 28 U.S.C. § 1331 to resolve.

However, simply because a federal court may have subject matter jurisdiction does not mean that

it must be exercised in every instance. In certain limited instances, “federal courts may decline to

exercise their jurisdiction, in otherwise ‘exceptional circumstances,’ where denying a federal forum

would clearly serve an important countervailing interest.” Quackenbush v. Allstate Ins. Co., 517

U.S. 706, 716 (1996) (quoting Colo. River Water Conserv. Dist. v. United States, 424 U.S. 800, 813

(1976)). These “exceptional circumstances” may relate to a policy of accommodating federal-state

relations.

We first briefly discuss the Declaratory Judgment Act, the law used by the district court to

decline exercise of its jurisdiction. The granting of declaratory relief is entrusted to the discretion

of the district court. 28 U.S.C. § 2201(a) says:

In a case of actual controversy within its jurisdiction, . . . any court of the United

States, upon the filing of an appropriate pleading, may declare the rights and other

legal relations of any interested party seeking such declaration, whether or not

further relief is or could be sought. Any such declaration shall have the force and

effect of a final judgment or decree and shall be reviewable as such.

(Emphasis added). This section of the Act gives district courts statutory discretion to decide whether

to entertain actions for declaratory judgments. Section 2201 explicitly provides that “any court of

the United States, upon the filing of an appropriate pleading, may declare the rights and other legal

relations of any interested party seeking such declaration.” (Emphasis added).

This court reviews the district court’s exercise of discretion under the Declaratory Judgment

Act for abuse of discretion. Scottsdale Ins. Co. v. Roumph, 211 F.3d 964, 967 (6th Cir. 2000).

“[D]istrict courts possess discretion in determining whether and when to entertain an action under

6

We briefly address plaintiffs’ claim that the Michigan Public Service Commission’s February 28 Order

conflicts with the Federal Power Act, the Public Utility Regulatory Policies Act and regulations of the Federal Energy

Regulatory Commission, and is therefore void by virtue of the Supremacy Clause of the United States Constitution. We

agree, of course, that the Supremacy Clause bars states from acting within a zone of exclusive federal jurisdiction.

However, none of the issues raised by plaintiffs in their complaint concerning the February 28 Order fall within the

mandatory jurisdiction of the Federal Energy Regulatory Commission or the federal courts. Plaintiffs do not contend

in their complaint that the State of Michigan has improperly implemented the Acts in conflict with federal law; instead

they challenge only the Michigan Public Service Commission’s interpretation of the terms of the Power Purchase

Agreements. Such challenges to a State’s interpretation of a power purchase agreement are generally not preempted by

federal law or regulations. See generally New Orleans Pub. Serv., Inc. v. Council of New Orleans, 911 F.2d 993 (5th

Cir. 1990). Moreover, the state courts are fully competent to, and often do, address and correctly apply relevant federal

law or regulations to the cases in their courts.

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the Declaratory Judgment Act, even when the suit otherwise satisfies subject matter jurisdictional

prerequisites.” Wilton v. Seven Falls Co., 515 U.S. 277, 282 (1995).

In Brillhart v. Excess Ins. Co., 316 U.S. 491, 495 (1942), the Court warned district courts

against “[g]ratuitous interference with the orderly and comprehensive disposition of a state court

litigation” and directed them to exercise discretion in deciding whether or not to proceed. The

Supreme Court, however, did not articulate all of the considerations which should guide a district

court’s decision in this regard; it did provide, however, that the court should “ascertain whether the

questions in controversy between the parties to the federal suit[ ] . . . can better be settled in the

proceeding pending in the state court[ ]”, assess “the scope of the pending state proceeding and the

nature of the defenses open there[ ]”, and evaluate “whether the claims of all parties in interest can

satisfactorily be adjudicated in that proceeding, whether necessary parties have been joined, [and]

whether such parties are amenable to process in that proceeding, etc.” Id.

In determining the propriety of entertaining a declaratory judgment action, competing state

and federal interests weigh in the balance, with courts particularly reluctant to entertain federal

declaratory judgment actions premised on diversity jurisdiction in the face of a previously-filed

state-court action. The concern centers on the fact that even if the plaintiffs acted in good faith, the

ultimate outcome of their procedural behavior has been to wrest the case away from the state courts,

a factor that should come into play in assessing the appropriateness of assuming jurisdiction over

these claims.

This court has adopted a five-factor test to determine when a district court should exercise

jurisdiction over a declaratory judgment:

(1)whether the judgment would settle the controversy;

(2)whether the declaratory judgment action would serve a useful purpose in

clarifying the legal relations at issue;

(3)whether the declaratory remedy is being used merely for the purpose of

“procedural fencing” or “to provide an arena for a race for res judicata”;

(4)whether the use of a declaratory action would increase the friction between our

federal and state courts and improperly encroach on state jurisdiction; and

(5)whether there is an alternative remedy that is better or more effective.

Scottsdale Ins. Co., 211 F.3d at 968. Here, the district court applied each factor, finding each of

them disfavored the court’s exercise of its discretionary jurisdiction. D. Ct. Opinion at 7-9 (J.A.

256-58). To summarize the district court’s application of the five factors:

First, resolution of any federal question would not resolve the controversy. The Michigan

Court of Appeals would still be required to decide the pending appeal and the Michigan Public

Service Commission must apply and enforce the ruling regardless of whether it rests on state or

federal law. Second, the declaratory judgment action will not clarify the legal relations at issue. The

Michigan Public Service Commission is likely more knowledgeable of federal law affecting energy

rates than the federal court because it often considers federal law when making regulatory decisions.

Third, the district court viewed the federal suit as “procedural fencing,” labeling it an “illicit

attempt” to get federal review of issues being reviewed by the state court. Fourth, electric rate and

supply determinations are made solely by the Michigan Public Service Commission and reviewed

on appeal by the Michigan Court of Appeals pursuant to statute. Mich. Comp. Laws § 462.26. The

state, therefore, has set up a system of multi-tier review of energy rates making interests of comity

particularly strong. The exercise of federal jurisdiction over this suit would likely be disruptive of

the balance between federal and state bodies. Fifth, an alternative remedy already exists and is

proceeding in the Michigan Court of Appeals. The state court is “duty bound to enforce the

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provisions of the United States Constitution as well as valid federal laws” and routinely does so.

See, e.g., Smith v. Dep’t of Public Health, 428 Mich. 540, 410 N.W.2d 749, 800 (1987). The district

court correctly found all five factors favor dismissal.

While we agree with the district court’s analysis under the Declaratory Judgment Act, we

do not believe that the discretion given to the district court under the Act by itself supplies a

sufficient ground for dismissal. When a plaintiff seeks relief in addition to a declaratory judgment,

such as damages or injunctive relief, both of which a court must address, then the entire benefit

derived from exercising discretion not to grant declaratory relief is frustrated, and a stay or dismissal

would not save any judicial resources. The claims in this case for which declaratory relief is

requested and those for which injunctive relief is requested are so closely intertwined that judicial

economy counsels against dismissing the claims for declaratory judgment relief while adjudicating

the claims for injunctive relief. However, we agree with the district court’s decision not to reach

the merits of the case given the pending state action raising identical claims. While our result is the

same, we believe, for many of the same reasons articulated by the district court to support dismissal

under the Declaratory Judgment Act, that abstention provides the preferable ground on which to

decline reaching the merits of the case at this time.

Abstention is not one doctrine but several, and the strand that most invites attention here

derives from Burford v. Sun Oil Co., 319 U.S. 315 (1943). The fundamental concern in Burford is

to prevent federal courts from bypassing a state administrative scheme and resolving issues of state

law and policy that are committed in the first instance to expert administrative resolution. See New

Orleans Pub. Serv., Inc. v. Council of New Orleans, 491 U.S. 350, 361-64 (1989); Bath Mem. Hosp.

v. Maine Health Care Fin. Comm'n, 853 F.2d 1007, 1014-15 (1st Cir. 1988).

Burford involved an action to enjoin enforcement of a Texas Railroad Commission order that

granted an oil drilling permit. Even though the federal district court had subject matter jurisdiction

on the basis of diversity and a federal claim of denial of due process, the Supreme Court held that

the district court should abstain from hearing the case because the state had centralized the

regulation of oil and gas matters with the Texas Railroad Commission and provided for adequate

review in the state courts. The Supreme Court concluded that federal court review would lead to

conflicts in the interpretation of state law, thereby frustrating policy.

The Burford doctrine provides that where timely and adequate state-court review is available,

a federal court sitting in equity must decline to interfere with the proceedings or orders of state

administrative agencies: (1) when there are “difficult questions of state law bearing on policy

problems of substantial public import whose importance transcends the result in the case then at

bar”; or (2) where the “exercise of federal review of the question in a case and in similar cases would

be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial

public concern.” New Orleans Public Serv., Inc. v. Council of New Orleans, 491 U.S. at 361

(quoting Colo. River Water Conserv. Dist. v. United States, 424 U.S. 800, 814 (1976)).

First invoked in Burford v. Sun Oil Co., 319 U.S. 315 (1943), Burford abstention requires

a federal court to abstain from jurisdiction where to assume jurisdiction would “be disruptive of state

efforts to establish a coherent policy with respect to a matter of substantial public concern.” Colo.

River Water Conserv. Dist., 424 U.S. at 814. But Burford “does not require abstention whenever

there exists [a complex state administrative] process, or even in all cases where there is a potential

for conflict with state regulatory law or policy.” New Orleans Pub. Serv., Inc. v. Council of New

Orleans, 491 U.S. at 362 (quotation omitted). Instead, “[t]his balance only rarely favors abstention,

and the power to dismiss recognized in Burford represents an extraordinary and narrow exception

to the duty of the District Court to adjudicate a controversy properly before it.” Quackenbush v.

Allstate Ins. Co., 517 U.S. 706, 728 (1996) (quotation omitted). Because Burford abstention is

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concerned with potential disruption of a state administrative scheme, rather than the mere existence

of such a scheme, we must look behind the action to determine whether it implicates the concerns

raised in Burford.

In Coalition for Health Concern v. LWD, Inc., 60 F.3d 1188 (6th Cir. 1995), a panel of this

Court found Burford abstention appropriate where both federal and state statutes were involved in

the regulation of hazardous waste. The Court found that the state had an overriding interest in the

protection of the environment from the effects of unregulated hazardous waste, and that exercise of

federal review would be disruptive of Kentucky’s efforts to establish a coherent policy with respect

to the licensing of hazardous waste facilities. The reasons given by Coalition for Health Concern

for applying Burford abstention apply with equal force here. As in that case, Michigan “has enacted

and is operating its own authorized program” under the Public Utility Regulatory Policies Act and

has established a coherent policy under its law concerning regulation of qualifying facilities. Id. at

1194-95. Michigan has enacted its own state laws and provided a scheme for administrative and

judicial review.

Similarly here, the Public Utility Regulatory Policies Act involves the sale of electricity by

qualifying facilities and the recovery of costs associated with that purchase by utilities and state law

governs the acquisition and sale of electricity to consumers. Federal court intervention in this case

would interfere with the Michigan Public Service Commission’s efforts to ensure that utility

customers are charged appropriate and accurate rates pursuant to the power purchase agreements

entered into between qualifying facilities and the utilities, which were previously approved by the

Michigan Public Service Commission. In addition, by statute, the state of Michigan has determined

that rate orders of the Michigan Public Service Commission are to be appealed to the Michigan

Court of Appeals, thereby providing for adequate judicial review of any Michigan Public Service

Commission orders, including any federal issues raised. Mich. Comp. Laws Ann. § 462.26.

Moreover, plaintiffs concede that their complaint contains claims under both federal and state law.

The Michigan Public Service Commission maintains that the Michigan Court of Appeals is the

proper court to review plaintiffs’ claims, including the federal claims.

As in Coalition for Health Concern, federal review at this juncture would be disruptive of

Michigan’s efforts to establish a coherent policy with respect to regulation of qualifying facilities,

particularly as the Michigan Public Service Commission and state courts have or are reviewing the

precise issue raised by the plaintiffs under a legislatively-approved scheme.

IV.

After the district court ruled that it would not exercise its discretionary jurisdiction and

dismissed the complaint without prejudice, plaintiffs filed a motion for reconsideration of the

decision not to stay and to alter, amend, set-aside or vacate judgment. Plaintiffs claim that they will

run up against a statute of limitations problem on their federal claims if the complaint is dismissed

instead of stayed. Plaintiffs also argue that the state court will not resolve their federal questions

consistent with federal law and they are likely to be back in federal court. The district court denied

the motion. J.A. at 340.

Rather than dismissing the complaint without prejudice, the district court should have stayed

the plaintiffs' claims until the state court proceedings concluded. Brindley v. McCullen, 61 F.3d 507,

509 (6th Cir.1995). As we noted in Brindley, “[i]ssuing a stay avoids the costs of refiling, allows

the plaintiffs to retain their place on the court docket, and avoids placing plaintiffs in a sometimes

difficult position of refiling their case before the statute of limitations expires.” Id. Although we

have every reason to believe that the Michigan Court of Appeals will properly address any issues

of federal law in the state court action, a stay will preserve the availability of a federal forum in the

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event the state court fails to address the plaintiffs’ federal claims. Preservation of a federal forum

strikes the appropriate balance between countervailing considerations of the state’s interests in

operating its own courts free from federal interference and the federal interest in protecting federal

rights. See, e.g., Quackenbush, 517 U.S. at 726-31 (Court applied Burford abstention to strike

balance between “the strong federal interest in having certain classes of cases, and certain federal

rights, adjudicated in federal court,” and “the State’s interests in maintaining uniformity in the

treatment of an essentially local problem”) (internal quotations omitted); Deakins v. Monaghan, 484

U.S. 193, 203 n.7 (recognizing that unless federal court retained jurisdiction during the pendency

of the state proceeding, a plaintiff could be barred by the statute of limitations from claims “not

cognizable in the parallel state proceeding”).

Although staying the suit instead of dismissing it will often reflect an abundance of caution,

leaving the district court with “nothing left to do but clear the case number off of its docket once the

state proceedings conclude,” it protects the plaintiff whose federal claims were not resolved on the

merits in state court. Carroll v. City of Mount Clemens, 139 F.3d 1072, 1075-76 (6th Cir. 1998).

If the state court rules on all aspects of plaintiffs’ state court appeal, their federal claims will likely

be precluded by the doctrine of res judicata because their pending state claims concerning the

validity of the Michigan Public Service Commission order are essentially identical to the claims in

the federal lawsuit.

Nonetheless, in the interests of caution, we are constrained to remand the case to the district

court with instructions to stay rather than dismiss plaintiffs’ complaint until the state proceedings

conclude. American Law Institute, Study of the Division of Jurisdiction Between State and Federal

Courts § 1371 Commentary, at 285 (1969) (recommending entry of a stay when the state-court

action could prove “ineffective”). If the state court should dispose of their federal claims on grounds

that do not reach the merits, plaintiffs’ federal action would still be pending. They would not have

to contend with a statute of limitations defense and various tolling arguments upon the filing of a

new federal lawsuit. A stay will protect plaintiffs’ claims from the statute of limitations defense.

See Deakins v. Monaghan, 484 U.S. at 202-03 & n.7.

For the foregoing reasons, we affirm the district court’s judgment declining jurisdiction on

the alternative ground of abstention, but remand the case for the district court to enter a stay rather

than dismiss the lawsuit until the conclusion of the state proceedings.