Petition — Philadelphia Gas Works v. Gulf Oil Corp.

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| Supreme Qourt, U. S.

FILED

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SUT Sovak, ., cIERN

IN THE

SUPREME COURT OF THE UNITED

October Term, 1977

77-1166

MILTON CLARK, FREDERICK W. Rost, Sr. REGIS APARTMENTS,

Lb., a California limited partnership; MELVIN BALSER,

Managing Agent, on behalf of themselves and all others

similarly situated;

PHILADELPHIA GAS WORKS,

Plaintiff-Intervenor, Petitioner

GULF OIL CORPORATION

and

TEXAS EASTERN TRANSMISSION CORPORATION

Petition for a Writ of Certiorari

To the United States Court of Appeals

For the Third Circuit

A. GRANT SPRECHER

BARTON A. HERTZBACH

OBERMAYER, REBMANN, MAXWELL & HIPPEL

14th Floor Packard Building

Philadelphia, Pennsylvania 19102

CHARLES D. ABLARD

OBERMAYER, REBMANN, MAXWELL & HIPPEL

Suite 500

2011 I Street, N.W.

Washington, D.C. 20006

Attorneys for Petitioner,

Philadelphia Gas Works

THE LEGAL INTELLIGENCER, 66 NORTH JUNIPER STREET, PHILA., PA. 19107 (215) 561-4058

TABLE OF CONTENTS

Page

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r cneneseddasdns 2

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,,,, 3

Reasons for Granting the Writ

I. The Decision Below Is in Conflict With Congres-

sional Policy Expressed in the Natural Gas Act,

and Presents Important Questions of Private

Remedies and Administrative Regulation Which

Should Be Resolved by This Court. 8

II. The Decision Below Is in Conflict With a Decision

in Another Court of Appeals Which Implied a

Private Cause of Action Under the Natural Gas

Act, and Sheuld Be Reviewed by This Court .... 14

r ⁰˙AAnmm 16

Appendix A (Opinion of Court of Appeals, Nos. 77-1661,

. o A3

Appendix B (Judgment of Court of Appeals, Nos. 77-1661,

r e A27

Appendix C (Memorandum and Orders of District Court,

Sk Ek SE .. 431

Appendix D (Natural Gas Act, Sections 7 (b), (e), (e),

%ßyyh; ↄ AAA ²⁰ cc ˙ ²˙ÄT—T A5

TABLE OF CITATIONS

Cases:

Allen v. State Board of Elections, 393 U.S. 544 (1969) ..10, 12

Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723

c AAA el 12

TABLE OF CITATIONS—(Continued)

Cases: Page

Cort v. Ash, 422 U.S. 66 (1975) ............... 7, 8, et seq.

Farmland Industries, Inc. v. Kansas-Nebraska Gas Co.,

486 F.2d 315 (8th Cir. 1973) aff’g 349 F. Supp. 670

,, .. 7, 14, 15, 16

Federal Power Commission v. Interstate Gas Co., 336 U.S.

c eo ee ee 9, 14

Federal Power Commission v. Louisiana Power and Light

i I 14

Gulf Oil Corp., 30 F. P. C. 1559 (1963) .............. 4, 5, 13

Gulf Oil Corp. and Texas Eastern Transmission Corp.,

F. P. C. Opinion No. 780, 10 F. P. S. (Bender) 5-761,

Fed. Util. L. Rep. 711,869 (filed Oct. 15, 1976), F. P. C.

Opinion No. 780-A, 11 F. P. S. (Bender) 5-201, Fed.

Util. L. Rep. $11,882 (filed Dec. 9, 1976), affirmed, 563

F.2d 588 (3d. Cir. 1977), petition for cert. docketed

sub nom. Gulf Oil Corp. v. Federal Energy Regulatory

Commission, No. 77-596 (docketed Oct. 25, 1977)

3, 4, et seq.

J. I. Case Company v. Borak, 377 U.S. 426 (1964)

10, 11, 13, n.10, 16

Northern Natural Gas Co. v. Federal Power Commission,

.. eee 9, n. 5

Panhandle Eastern Pipeline Co. v. Michigan Consolidated

Gas Co., 177 F.2d 942 (6th Cir. 1949) ............. 15

Phillips v. United Corp., 5 SEC Jud. Dec. 445, 455 Fed.

Sec. L. Rep. (CCH) 990395 (S. D. N. V. July 30, 1947),

appeal dismissed sub nom. Phillips v. SEC, 171 F.2d

, ² ů . eh ae 13, n. 10

Piper v. Chris-Craft Industries, Inc., 430 U.S. 1 (1977)

10, 11, 12

Polansky v. Trans World Airlines, Inc., 523 F.2d 332 (3d

. ˙EwW-W»W?? ũZ. . . 15

TABLE OF CITATIONS— (Continued)

Cases: Page

Texas Eastern Transmission Corp. v. Federal Power Com-

mission, 470 F.2d 757 (5th Cir. 1972) ........... 9, n.5

Statutes:

Department of Energy Organization Act, 91 Stat. 565

een ee 9, n.6

Federal Judiciary Act, as amended, 62 Stat. 957 (1948):

D esse 2

t ²⅛˙ ꝛth.. ꝛ ¶ð nnn. 7

Natural Gas Act, 52 Stat. 821 (1938), 15 U.S.C. 5717, et

seq.:

Section 7 (b), 15 U.S.C. §717f(b) .......... 2, 6, et seq.

Section 7(c), 15 U.S.C. §717f(c) ........... 2, 4, et seq.

Section 7(e), 15 U.S.C. §717f(e) ........... 2, 6, et seq.

Section 22, 15 U.S.C. §717u uw 2, 6, et seq.

Securities Exchange Act of 1934, 48 Stat. 881 (1934), 15

U.S.C. §78a et seq.: Section 27, 15 U.S.C. §78 aa

10, n.7

Miscellaneous:

COMMENT, Private Rights of Action under Amtrak and

Ash, 123 U. Pa. L. Rev. 1892 (197500))): 14

O’Neil, Public Regulation and Private Rights of Action,

LI 14

Subcommittee on Oversight and Investigation of the House

Committee on Interstate and Foreign Commerce,

Federal Regulation and Regulatory Reform, 94th

Come, BE BaGe. CERES „„ 11

iii

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1977

No.

Milton Clark, Frederick W. Rost, St. Regis Apartments, Ltd.,

a California limited partnership, Melvin Balser,

Managing Agent, on behalf of themselves and all others

similarly situated;

Philadelphia Gas Works,

Plaintiff-Intervenor, Petitioner

Gulf Oil Corporation

And

Texas Eastern Transmission Corporation

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Philadelphia Gas Works petitions for a writ of cer-

tiorari to review the judgment and opinion of the United

States Court of Appeals for the Third Circuit entered in this

case on December 30, 1977.

OPINIONS BELOW

The opinion of the Court of Appeals, not yet reported,

is printed in Appendix A, pp. A3-A23.1 The opinion and

orders of the United States District Court for the Eastern

District of Pennsylvania, not yet reported, are printed in

Appendix C, pp. A31-A50.

JURISDICTION

The udgment of the Court of Appeals was entered on

December 30, 1977 (Appendix B, pp. A27, A28). The juris-

diction of this Court is invoked under 28 U.S.C. §1254(1).

QUESTION PRESENTED

Whether a private cause of action for relief is to be

implied in favor of Philadelphia Gas Works against a pro-

ducer of natural gas for violation of sections 7(b), (c) and

(e) of the Natural Gas Act.

STATUTES INVOLVED

Sections 7(b), (c), (e), and 22 of the Natural Gas

Act, 52 Stat. 824, 833 (1938), as amended, 15 U.S. C.

§§717f(b), 717f(c), 717f(e), and 717u, are set forth in

Appendix D, pp. A53-A55.

1. The Appendices to this Petition containing the opinions below,

the judgment, and texts of the statutes involved have been printed in

the back of this volume.

STATEMENT OF THE CASE

This petition involves issues related to the companion

case of Gulf Oil Corp. v. Federal Power Commission, 563

F.2d 588 (3d Cir. 1977), in which Philadelphia Gas Works

(“PGW”) was an intervenor-appellee. The companion case

is presently before this Court on a petition for a writ of

certiorari to the Court of Appeals. Gulf Oil Corp., supra,

petition for cert. docketed sub nom. Gulf Oil Corp. v. Fed-

eral Energy Regulatory Commission, No. 77-596 (Oct. 25,

1977) .2 Both cases arise from Gulf Oil Corporation’s viola-

tion of its certificate of public convenience and necessity

and violation of the Natural Gas Act, 52 Stat. 821 (1938),

as amended, 15 U.S.C. §717 et seq.

In the companion case, the Court of Appeals affirmed

the order of the Federal Power Commission (the “Commis-

sion”) requiring Gulf Oil Corpo~stion to deliver greater

quantities of gas than it had been delivering, and ordering

refunds by Gulf. The instant case was heard by the same

panel of the Court of Appeals and this petition raises the

limited issue of whether a private cause of action for relief

is implied for a violation of the Natural Gas Act.

Factual History

Reference to the detailed factual background of the com-

panion case will provide a fuller understanding of the sig-

nificance of the instant proceeding. (See Gulf Oil Corporation’s

Petition for a Writ of Certiorari; Comp. Case App. A, pp.

la-28a, 48a-52a; Comp. Case App. D, pp. 67a-78a.) A synopsis

of the facts necessary to an essential understanding of this

case is set forth below.

The petitioner, PGW, is a municipally owned gas distribu-

tion facility serving primarily residential, as well as certain

commercial and industrial users within the City of Philadel-

2. The opinions of the Court of Appeals and the Federal Power

Commission in the companion case are set forth in Appendices to

Petition for Writ of Certiorari, Gulf Oil Corp. v. Federal Energy Regu-

latory Commission, No. 77-596 (petition for cert. docketed Oct. 25,

1977). Those Appendices will be cited hereinafter as “Comp. Case App.,”

and reference shall be to the page numbers as used therein (e. g., Comp.

Case App. A, pp. ).

phia. For almost thirty years, and at all times relevant hereto,

PGW has been a customer of Texas Eastern Transmission

Corporation (“Texas Eastern”), a pipeline company. Texas

Eastern is one of two such pipeline companies who supply in

excess of 97 percent of the natural gas consumed in the City

of Philadelphia.

In 1963, Texas Eastern entered into a gas purchase con-

tract with Gulf Oil Corporation (“Gulf”) for the purchase of

approximately 4.4 trillion cubic feet of gas. Pursuant to the

Natural Gas Act, the Federal Power Commission (the “Com-

mission”) approved this contractual arrangement and issued

a certificate of public convenience and necessity on December

19, 1963. Gulf Oil Corp., 30 FPC 1559 (1968). Under the

certificated contract Gulf agreed to supply Texas Eastern with

natural gas over a 26 year period at a price not to exceed 21

cents per thousand cubic feet (Mcf). In the contract embodied

in the certificate, Gulf warranted to Texas Eastern that it

would provide a minimum daily quantity of gas of up to

625,000 Mcf subject to Texas Eastern’s demand for delivery

of that amount.

Since January 1, 1971, Texas Eastern has regularly de-

manded of Gulf the maximum of 625,000 Mcf per day; how-

ever, Gulf has failed to fulfill its contractual and statutory

obligations. On November 7, 1975, the Commission issued an

order directing both Texas Eastern and Gulf to show cause

why they were not in violation of the certificate of public

convenience and necessity. PGW and its customers intervened

in those proceedings, and after hearings, the Commission

issued Opinion No. 780, 10 F.P.S. (Bender) 5-761, Fed. Util.

L. Rep. (CCH) 911,869 (filed October 15, 1976) (Comp. Case

App. D. pp. 67a-94a).

In Opinion No. 780, the Commission found that Gulf had

violated its certificate and contract obligations, and thus had

violated section 7(c) of the Act. Gulf was ordered to comply

with its contract and statutory obligations in the future. In

addition, the Commission ordered Gulf to pay to Texas East-

ern a refund which was to be passed through to the latter’s

customers, including PGW.

The amount of the refund was to be a sum equal to the

difference between Texas Eastern’s request for gas and Gulf’s

deliveries multivlied by the difference between the. contract

price and the otherwise applicable area or natural rates and

interest. The Commission provided that Gulf could recoup the

payments when the volume remaining to be deliverd under the

contract equaled the deficiencies, but ordered continuous re-

funds if Guif’s future deliveries did not comply with Texas

Eastern’s demands. The effect of the refund order is merely to

deprive Gulf of the present value of the money. The refund is

not analogous to damages, reparation, or penalties since Texas

Eastern’s customers ultimately must repay the money ob-

tained under the refund order. Thus, the refund order is more

in the nature of a temporary performance bond. Gulf Oil

Corp. v. F.P.C., supra (Comp. Case App. A, p. 37a).

The Commission acknowledged that the actual costs of

replacement gas secured by Texas Eastern and its customers

could have exceeded those assumed in the refund formula;

nonetheless, the Commission regarded the formula as the most

efficient and immediate method of compensating the aggrieved

customers. In fact, PGW suffered replacement costs which

greatly exceeded the national price of gas adopted in the

Commission’s formula. Consequently, PGW sought rehearing

on the issue of the proper measure of damages.

On December 9, 1976, the Commission issued Opinion

No. 780-A, 11 F.P.S. (Bender) 5-201, Fed. Util. L. Rep. (CCH)

11,882 (1976) (Comp. Case App. E, pp. 95a-116a). The

Commission noted that the relief afforded by its refund for-

mula might not in fact fully compensate Gulf’s customers and

ultimate consumers for the damages they had incurred. In

addition, the Commission decided that the refunds that it

ordered did not prevent PGW from seeking additional relief

in the forum of its choosing. (Opinion No. 780-A, Comp. Case

App. E, pp. 110a, 111a).

On review, the Court of Appeals affirmed the Commission.

Gulf Oil Corp. v. F.P.C., supra, Comp. Case App. A, pp. 1a-58a.

The companion case is now before this Cet on a petition

for a writ of certiorari. Gulf Oil Corp. v. Federal Energy

Regulatory Commission, No. 77-596 (Petition for cert. dock-

eted Oct. 25, 1977).

Procedural History

On July 2, 1976, a purported class action was filed in the

United States District Court for the Eastern District of Penn-

sylvania against Gulf and Texas Eastern. Clark v. Gulf Oil

Corp., Civil Action No. 76-2106 (E.D. Pa. 1976). The named

plaintiffs purported to represent consumers of natural gas in

the Philadelphia area, the area supplied by PGW. Plaintiffs

sought damages, equitable relief, and costs for injuries in-

curred by virtue of Gulf’s violation of the Natural Gas Act.

Jurisdiction of the District Court was invoked pursuant to

section 22 of the Natural Gas Act, 52 Stat. 833 (1938), as

amended, 62 Stat. 875, 895 (1948), 15 U.S.C. §717u (Appendix

D, p. A55).

Subsequently, another purported elass action was filed,

Thompson v. Gulf Oil Corp., Civil Action No. 76-2711 (E.D.

Pa. filed Aug. 26, 1976) alleging similar causes of actions. The

District Court consolidated Clark and Thompson. PGW was

granted to intervene in Clark (Appendix C, p. A47).

PGW asserted that Gulf had violated sections 7(b), (c)

and (e) of the Natural Gas Act by failing to deliver the

maximum amount of gas requested by Texas Eastern. PGW

asserted that Texas Eastern had also violated the same pro-

visions of the Act in failing to exercise due diligence in pro-

tecting its customers’ statutory rights. PGW bore the cost of

replacing the gas which Gulf failed to deliver. PGW alleged

that the actual cost of this replacement gas was in excess of

the cost assumed in the Commission’s refund formula. Hence,

PGW sought specific relief in order to recover its full damages.

While Gulf could recoup appropriate portions of the additional

relief, PGW would be assured full relief absent Gulf’s future

performance. PGW would also benefit from the time value of

the additional relief even if Gulf did perform. This benefit

would compensate PGW for the time value of the money ex-

pended by it for the replacement gas.

In seeking full relief, PGW argued in the District Court

that there was to be implied a private cause of action against

Gulf and Texas Eastern as a result of their violations of the

Natural Gas Act. The District Court held that no private

cause of action existed under the Act and granted Gulf’s mo-

tion to dismiss (Appendix C, pp. A3$1-A50). The District

Court, however, recognized the importance of the issue’s rela-

tionship to the national crisis in the supply of natural gas and

the possible conflict with a decision in another circuit. There-

fore it certified the issue under 28 U.S.C. §1292(b) as to the

implication of a private cause of action against Gulf.

The Court of Appeals granted permission to appeal by

order dated April 26, 1977, and this appeal was heard by the

same panel which decided the companion case. The Court of

Appeals unanimously affirmed the District Court (Appendix A,

pp. A3-A23) “ On the question presented here, the Court of

Appeals concluded that no private cause of action for damages

was to be implied under the Natural Gas Act in favor of

retail distributors and ultimate consumers.

While the Court of Appeals held that the District Court

had subject matter jurisdiction in this case, it found that an

implied cause of action was inappropriate due to the absence

of two of the four factors set forth in Cort v. Ash, 422 U.S. 66

(1975). Specifically the court held that although PGW is

among the class for whose especial benefit the statute was en-

acted (first Cort test), it was neither the legislative intent

(second Cort test) nor in accordance with the purpose of the

Natural Gas Act to imply a private cause of action in favor

of PGW (third Cort test). The Court below found the fourth

Cort test to be irrelevant.

In so holding, the court distinguished Farmland In-

dustries, Inc. v. Kansas-Nebraska Gas Co., Inc., 486 F.2d 315

(8th Cir. 1973) which held that there was an implied private

cause of action in favor of a consumer against a natural gas

company who had violated section 7(b) of the Natural Gas

Act.

3. On January 23, 1978, the court granted PGW’s Motion for Stay

of issuance of its mandate to and including February 19, 1978, and upon

the filing of this Petition, until this Court disposes of the case.

—

REASONS FOR GRANTING THE WRIT

I. The Decision Below Is in Conflict With Congressional

Policy Expressed in the Natural Gas Act, and Presents

Important Questions of Private Remedies and Admin-

istrative Regulation Which Should Be Resolved by This

Court.

The Court of Appeals has held that retail distributors

such as PGW and ultimate consumers of natural gas may not

bring a private action under the Natural Gas Act seeking re-

lief for injuries caused by a natural gas company’s repeated

and extended violations of sections 7(b), (c), and (e) of the

Natural Act. Interpreting the Act, the Federal Power Com-

mission decided that its refund order in the companion case

did not prevent PGW from seeking additional relief. However,

the Court of Appeals held that a private action brought under

the Act for such relief was not intended by Congress and is

not consistent with the purposes of the Act. In so construing

the Natural Gas Act which was designed to protect consumers’

interests in an industry essential to the health and welfare of

the nation, the decision of the court below presents federal

questions of major and continuing interest which should be

resolved by this Court.

In reaching its conclusions, the Court of Appeals applied

the tests set forth by this Court in Cort v. Ash, 422 U.S. 66

(1975), and decided that the instant case did not meet two of

those four tests.‘ Specifically, the court determined that a

private action was neither intended by Congress nor con-

sistent with the purposes of the Act.

Regarding congressional intent, the court held that be-

cause the Natural Gas Act created a comprehensive and ef-

fective regulatory scheme for the interstate sale and trans-

4. First, is the plaintiff one of the class for whose especial benefit

the statute was enacted? Second, is there any indication of legislative

intent, explicit or implicit, either to create a private cause of action or

to deny one? Third, is it consistent with the underlying purposes of the

legislative scheme to imply such a remedy for the plaintiff? Fourth, is

the cause of action one traditionally relegated to state law, in an area

basically the concern of the states, so that it would be inappropriate to

infer a cause of action based solely on federal law? Cort v. Ash, 422

U.S. at 78.

portation of natural gas, Congress did not contemplate a pri-

vate right of action when that scheme was violated (See Ap-

pendix A, p. A19). However, the court below agreed with this

Court that the “. . . aim of the Act was to protect ultimate con-

sumers of natural gas from excessive charges.” (Appendix A,

p. Al5), quoting Federal Power Commission v. Interstate Gas

Co. 336 U.S. 577, 581 (1949). Thus, the Court of Appeals de-

cided that Congress intended that consumers® would have only

one federal remedy for violations of the Act: action by the

Federal Power Commission.“

As previously stated, in Opinions No. 780 and No. 780-A,

the Commission ordered Gulf to make refunds to Texas East-

ern and ordered Texas Eastern to flow through those refunds

to its customers. (Comp. Case App. D, pp. 67a-94a; Comp.

Case App. E, pp. 95a-116a.) The Commission realized, how-

ever, that the relief it afforded might not fully compensate

PGW for the damages it had sustained since PGW had in-

curred replacement costs in excess of those used in the

Commission’s refund formula. Consequently, the Commission

decided that the refunds that it ordered did not

. . prevent PGW or other customers and distributing

companies served through Texas Eastern’s system from

seeking additional relief in whatever forum they choose

if they find that relief inadequate. Neither Opinion No.

780 nor this opinion preclude such action, nor does the

Commission take any position on the merits of such pro-

ceedings.

(Opinion No. 780-A, Comp. Case App. E, pp. 110a, 11a).

Thus, the Commission has decided that its broad adminis-

trative powers—which include control over the abandonment

5. A municipal gas corporation has an identity of interest with its

consumers. Northern Natural Gas Co. v. Federal Power Commission,

215 F.2d 892 (8th Cir. 1954). See also Texas Eastern Transmission

Corp. v. Federal Power Commission, 470 F.2d 757, 759 n.1 (5th Cir.

1972).

6. On October 1, 1977, the Federal Energy Regulatory Commission

succeeded to the functions and duties of the Federal Power Commission

under the Natural Gas Act. 91 Stat. 565 (1977), 42 U.S.C. §7101. Refer-

ences to the “Commission” are to both agencies.

and extension of service, and the power to bring actions to

enforce the public interest in the face of violations of the act

—do not preclude, private causes of action on behalf of in-

dividuals injured by violations of the Act.

The Commission’s interpretation of the Natural Gas Act

should be accorded great weight. Cf., Allen v. State Board of

Elections, 393 U.S. 544, 558, n.23 (1°69) [Government posi-

tion considered in deciding implied cause of action]. While the

Commission’s opinion alone does not enlarge or diminish the

jurisdiction of federal courts, Section 22 of the Natural Gas

Act explicitly confers on the district court

.. . exclusive jurisdiction of violations of this chapter or

the rules, regulations, and orders thereunder, and of all

suits in equity and actions at law brought to enforce any

liability or duty created by, or to enjoin any violation of,

this chapter or any rule, regulation or order thereunder.

(Appendix D, p. A55).

In the court below, PGW argued that Section 22, evinced a

congressional intent to create an implied private cause of ac-

tion on behalf of those intended beneficiaries of the Act, par-

ticularly where violations of section 7 occurred. PGW cited

J. I. Case Company v. Borak, 377 U.S. 426 (1964) in which

this Court held that a nearly identical jurisdictional section in

the Securities Exchange Act of 1934,’ showed an implicit con-

gressional intent to create a private cause of action for a

violation of that Act.

In construing Borak, the court below decided that a

general grant of jurisdiction is not conclusive evidence of a

congressional intent to provide a private remedy (Appendix

A, p. Al6). The court adverted to decisions subsequent to

Borak in which this Court stated that private remedies may be

implied if congressional purpose was likely to be undermined

absent private enforcement. Ibid, quoting Piper v. Chris-Craft

Industries, Inc., 430 U.S. 1, 25 (1977). In Piper, this Court

emphasized that Borak had implied a remedy because of the

7. Section 27 of the Securities Exchange Act of 1934 states in

pertinent part:

practical limitations upon the SEC’s enforcement capabilities.

Id. Although the court below took notice of this, it proceeded

to embark upon an analysis of the Commission’s statutory

regulatory and enforcement capabilities. While concluding

that the Act was a comprehensive regulatory scheme and that

the Commission had broad administrative powers (as did the

SEC), the court nonetheless failed to consider the essential

point: private remedies are implied because of practical limi-

tations upon the regulatory effectivenes of the federal agencies.

The Court of Appeals apparently ignored the practical

limitations of the Commission’s ability to tailor remedies for

all injuries sustained as the result of Gulf’s violations.* This

Court may take notice of a recently published report which

details the difficulties encountered by the Federal Power Com-

mission, given its limited resources, in protecting the interests

of ultimate consumers. See Subcommittee on Oversight and

Investigation of the House Committee on Interstate and For-

eign Commerce, Federal Regulation and Regulatory Reform,

94th Cong., 2d Sess. (1976). In the instant case, the propriety

of implication is implicitly supported by the Commission’s ap-

proval of PGW pursuing a private cause of action. In effect,

the Commission recognized that its broad remedial actions—

taken to benefit highly diverse interests—did not provide

remedies tailored to the particular harm suffered by Gulf’s

and Texas Eastern’s distributors and customers.

The congressional aim of protecting consumers, such as

PGW, is best served by allowing consumers to recover their

full damages suffered as a result of violations of the Natural

Gas Act. In disregarding the Commission’s interpretation of

its role and in misconstruing this Court’s pronouncements in

Borak and Piper, the court below has relegated consumers to

Footnote 7—Continued

The district courts of the United States . . shall have exclusive jur-

isdiction of violations of this chapter or the rules or regulations

thereunder, and of all suits in equity and actions at law brought to

enforce any liability or duty created by this chapter or the rules or

regulations thereunder. 15 U.S.C. §78aa.

8. A majority of the court below did consider the thousands of con-

tracts certified by the Commission, but did not consider their impact

upon the Commission’s ability to enforce the Act and fashion adequate

specific relief for violations (Appendix A, pp. A21, A22 n. 12).

remedies provided by the Commission in administrative pro-

ceedings in which the consumers can only.intervene.

While the relief provided in the companion case may be

an equitable balancing of administrative convenience and

consumer recompense, the Commission has implied that spe-

cific private enforcement is a permissible supplement to Com-

mission action. This Court has agreed that such action may be

necessary. See Piper, Blue Chip Stamps v. Manor Drug Stores,

421 U.S. 723, 730 (1975). Thus, private actions under the Act

play a necessary role in affording aggrieved consumers ade-

quate protection. The intent of Congress to protect consumers,

reinforced by the view of the Commission charged with ad-

ministering the Act, and section 22 of the Act in the aggregate

indicate the implicit intent of Congress to create a private

right of action.

With respect to the third Cort test, the Court of Appeals

held that an implied right of action would be inconsistent

with the purposes of the Act (Appendix A, pp. A21, A22) even

though the court stated elsewhere that “. . the overall purpose

of the Natural Gas Act is to protect the interest of consumers

in an adequate supply of gas at reasonable rates” (Appendix

A, p. Al5).

The court below surveyed the Commission's powers and

decided that in this era of energy erises, the Commission

should take responsibilty for problems associated with rates,

certification and curtailment of service. Id. A majority of the

court® then stated that private actions could disrupt the uni-

form regulatory scheme making the Commission’s responsi-

bilities under the act unmanageable. The Court is again com-

mended to consider the attitude of the Commission. Cf., Allen

v. State Board of Elections, supra. Obviously the Commission

did not perceive this private action as a danger to its ad-

ministration of national energy policy.

Thus, it is the position of PGW that its assertion of a

private cause of action seeking damages for Gulf’s violations

of sections 7(b), (c) and (e) is not only in accordance with

the purposes of the Act, but, in fact, represents the best method

of implementing the Act’s purposes.

9. Chief Judge Seitz did not join in this view (Appendix A, p. A22

n. 12).

Alternatively, this Court may decide that a private action

may be maintained only in specified situations, to wit, an

administrative determination that the Act has been violated.'°

Indeed, upon the facts in this case, the Commission found that

Gulf violated section 7(c) of the Act. 11 Cf., Gulf v. F. P. C,

supra (Comp. Case App. A, p. 32a). Thus, PGW argues

alternatively that a private cause of action is to be implied

in its favor against Gulf in view of the Commission’s finding

that there was a violation of the Act.

The court below also disclaimed judicial competence to

afford the specific relief sought by PGW, allocating such

remedial tasks to agencies of Congress. PGW concedes that the

relief it seeks is unusual in that an appropriate portion of the

relief received would be repaid to Gulf upon Gulf’s future

performance. While the relief sought may be in the nature of a

performance bond, it is of no less importance to PGW. If PGW

is not afforded the relief which it seeks, PGW may well be

left with the inadequate remedy afforded by the Commission

even if Gulf performs.

While PGW seeks specific relief, this relief would not

give rise to ad hoc determinations infringing on the Com-

mission’s perogative. Clearly, any conflicts between private

litigants and federal agencies are potential conflicts that exist

whenever a private right of action is implied. Such potential

for conflict exists because federal courts will no doubt con-

sider facts and legal issues identical to those considered by the

agency; consequently divergence is possible. However, issues

which appear to be peculiarly appropriate for administrative

resolution are not cause for a court eschewing a private right

10. In a case which preceded and presaged Borak, the SEC, although

maintaining that a shareholder must first present his case to the Com-

mission, submitted that he should be able to seek judicial assistance if

in fact the SEC rejects his claim. Such position was accepted by the

Court. Phillips v. United Corp., 5 SEC Jud. Dec. 445, 455 Fed. Sec. L.

Rep. (CCH) 990395, at 91069 (S.D.N.Y. July 30, 1947), appeal dis-

missed sub nom. Phillips v. SEC, 171 F.2d 180 (2d Cir. 1948).

11. In the companion case, the Commission, in Opinion No. 780-A,

placed exclusive reliance on section 7(c) rather than section 7(b). On

appeal, the Commission argued that Gulf also violated section 7(b), but

consideration of this issue was refused by the Court of Appeals although

the court implied that the argument would be attractive. Gulf v. F.P.C.,

Comp. Case App. A, p. 3la n. 20.

of action. Rather, the court should refer those issues to the

agency for initial determination, and then resolve the remain-

ing issues, if any, as consistently as possible with the prior

administrative determination. See O’Neil, Public Regulation

and Private Rights of Action, 52 Cal. L.Rev. 231, 247, 248, n.

70 (1964). See also COMMENT, Private Rights of Action

Under Amtrak and Ash, 123 U. Pa. L. Rev. 1392, 1435 (1975).

Only if implying a private cause of action would necessarily

conflict with the very purpose of the statute would implication

be denied.

PGW does not seek to have federal courts supplant the

Commission. PGW seeks, as the Commission recognizes, relief

tailored to the actual damage PGW suffered upon Gulf’s and

Texas Eastern’s unlawful failure to deliver natural gas. If

this Court reverses the Court of Appeals in the companion

case and denies certiorari in the instant case, PGW will be

left without any effective remedy. Thus, the instant case and

the companion case in the aggregate present the issue of

whether there is to be adequate enforcement of the Natural

Gas Act.

If the aim of the Act really is to protect consumers from

excessive charges, Federal Power Commission v. Interstate Gas

Co., 336 U.S. 577, 581 (1949), and to protect consumers from

exploitation at the hands of natural gas companies, Federal

Power Commission v. Louisiana Power & Light Co., 406 U.S.

621, 631 (1972), then a private right of action to ensure full

recovery for injured consumers cannot be inconsistent with

the purpose of the Act.

II. The Decision Below Is in Conflict With a Decision in

Another Court of Appeals Which Implied a Private

Cause of Action Under the Natural Gas Act, and Should

Be Reviewed by This Court.

The Court of Appeals for the Eighth Circuit has held

that there is to be implied a private cause of action in favor

of a direct industrial consumer for violation by a natural gas

company of section 7(b) of the Natural Gas Act. Farmland

Industries, Inc. v. Kansas-Nebraska Natural Gas Co., Inc.,

486 F.2d 315 (8th Cir. 1973), aff'g 349 F.Supp. 670 (D.

Neb. 1972). In the proceedings below, PGW asserted that Gulf

had violated section 7(b) as well as 7(c) and 7(e) of the Act

and that Farmland was persuasive precedent for implying pri-

vate actions for each violation.

The court below held that Farmland was distinguishable

on its facts and that it was not persuasive precedent since it

preceded the quadripartite test in Cort v. Ash. The court de-

cided that by virtue of Polansky v. Trans World Airlines, Inc.,

523 F.2d 332 (8rd Cir. 1975), each violation of a federal

statute must be tested against the Cort standards and that

each violated statutory section must meet the Cort standards.

The court ruled that there had been no abandonment as in

Farmland, and hence section 7 (b); also, the court ruled that

Farmland did not apply to sections 7(c) and (e).“

In holding that there was no abandonment within the

meaning of Farmland, the Court of Appeals stated that in

Farmland, abandonment was predicated upon the permanent

cessation of all service at the expiration of the contract term

without Commission approval (Appendix A, p. A20). The

court did not adequately consider Panhandle Eastern Pipeline

Co. v. Michigan Consolidated Gas Co., 177 F.2d 942 (6th Cir.

1949) which held that a reduction in service constitutes a

section 7(b) abandonment. Although Farmland did involve a

permanent reduction in service, this does not preclude a hold-

ing that substantial (albeit temporary) reductions for ex-

tended periods of time are also section 7(b) abandonments.

Cf., Panhandle Eastern, supra. Since section 7 (b) was clearly

intended to protect the consumer from non-approved dis-

continuity of service, such a result would not be unwarranted.

See Farmland, 349 F. Supp. at 680.

The Eighth Circuit affirmed Farmland on the basis of the

district court’s finding that: (1) the plaintiff, a direct customer

of defendant’s was within the class intended to be protected

by section 7 (b); (2) private enforcement would further the

congressional purpose of the Act; (3) the duty breached was

created by the Act; (4) the violation affected the plaintiff

12. The Court also held that plaintiffs had failed to state facts

implicating section 7(e) and had thus not stated a case for the violation

of that section (Appendix A, p. A17, n. 7; continued from p. A16).

directly; and (5) no other remedy was available to guard

adequately the right asserted. Farmland, 349 F. Supp. at 679.

Thus, three of the four Cort criteria were considered, leaving

only the issue of congressional intent not explicitly considered.

PGW submits that the issue of intent, too, would have passed

the Cort test by virtue of section 22 of the Natural Gas Act

and Borak, supra. The court below, however, did not weigh

these factors but implied that in any case, Farmland would not

apply to violations of sections 7(c) and 7(e).

To the extent Gulf violated section 7(b) of the Act, the

court’s tacit conclusion is in conflict with the Eighth Circuit

in Farmland. PGW asserts that Farmland was decided con-

sistently with the Cort standards and that, in addition, Farm-

land is persuasive precedent for implying private causes of

action under other subsections of section 7. Section 7(b) is

in pari materia with sections 7(c) and (e) and hence Farm-

land is equally applicable to those provisions. The same result,

that there is to be implied a private cause of action for viola-

tions of sections 7(c) and (e) should likewise follow.

CONCLUSION

For the foregoing reasons, the petition for a writ of

certiorari should be granted.

Respectfully submitted,

A. Grant Sprecher

Barton A. Hertzbach

OBERMAYER, REBMANN, MAXWELL

& HIPPEL

14th Floor Packard Building

Philadelphia, Pennsylvania 19102

Charles D. Ablard

OBERMAYER, REBMANN, MAXWELL

& HIPPEL

Suite 500

2011 I Street, N.W.

Washington, D.C. 20006

Attorneys for Petitioner,

Philadelphia Gas Works

APPENDIX A

IN THE

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Nos. 77-1661

77-1662

MILTON CLARK, FREDERICK W. Rost, ST. REGIS APARTMENTS,

LTD., a California limited partnership; MELVIN BALSER,

Managing Agent, on behalf of themselves and all others

similarly situated ; PHILADELPHIA GAS WORKS,

Plaintiff-Intervenor

GULF OIL CORPORATION

and

TEXAS EASTERN TRANSMISSION CORPORATION

(D. C. Civil No. 76-2106)

THEODORE Q. THOMPSON and JAMESTOWN VILLAGE

APARTMENTS, LTD., a California limited partnership;

MELVIN BALSER, Managing Agent

GULF OIL CORPORATION

PHILADELPHIA ELECTRIC COMPANY

TEXAS EASTERN TRANSMISSION CORPORATION

(D. C. Civil No. 76-2711)

PHILADELPHIA GAS WORKS, Plaintiff-Intervenor,

Appellant in No. 77-1661

MILTON CLARK, et al., Appellants in No. 77-1662

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

Argued September 9, 1977

Before SEITZ, Chief Judge; ALDISERT and ROSENN,

Circuit Judges

Thomas E. Wiener, Esquire

Howard D. Scher, Esquire

GooDIs, GREENFIELD, HENRY & EDELSTEIN

1234 Market Street

Philadelphia, Pa. 19107

Attorneys for Appellants Milton Clark,

et al.

A. Grant Sprecher, Esquire

Barry J. Hart, Esquire

Stephen Schachman, Esquire

OBERMAYER, REBMANN, MAXWELL & HIPPEL

14th Floor, Packard Building

Philadelphia, Pa. 19102

Attorneys for Philadelphia Gas Works

John L. McConn, Jr., Esquire

1100 Esperson Building

Houston, Texas 77002

James E. Farrell, Jr., Esquire

Gulf Oil Corporation

1 Presidential Boulevard

Bala-Cynwyd, Pa. 19004

Attorneys for Gulf Oil Corporation

M. Carton Dittman, Jr., Esquire

Oliver C. Biddle, Esquire

Lewis A. Grafman, Esquire

Linda S. Martin, Esquire

BALLARD, SPAHR, ANDREWS & INGERSOLL

United Engineers Building

20th Floor

30 South 17th Street

Philadelphia, Pa. 19103

Jack D. Head, Esquire

P.O. Box 2521

Houston, Texas 77001

James W. McCartney, Esquire

Judy M. Johnson, Esquire

Vinson & Elkins

2100 First City National Bank Bldg.

Houston, Texas 77002

Attorneys for Texas Eastern

Transmission Corporation

OPINION OF THE COURT

(Filed December 30, 1977)

ROSENN, Circuit Judge

This appeal raises for the first time in this circuit the

question of whether a private cause of action for damages

against a producer of natural gas for failure to comply with

a certificate of public convenience and necessity issued by the

Federal Power Commission is implied under the Natural Gas

Act, 15 U.S.C. §717 et seq., in favor of retail distributors and

ultimate consumers of natural gas.

The appellants Clark, et al., filed a purported class action

in the United States District Court for the Eastern District

of Pennsylvania against Gulf Oil Corporation (“Gulf”) and

Texas Eastern Transmission Corporation (“Texas Eastern’’).

Plaintiffs request certification under Rule 23, Fed. R. Civ. P.,

to represent consumers of natural gas in the Philadelphia

area, the area supplied by Philadelphia Gas Works (“PGW”),

seeking damages, equitable relief, and costs. The appellants

Theodore Q. Thompson, et al., alleging that they represent

the users of natural gas supplied by Philadelphia Electric

Company (“PECO”), filed a similar class action in the

United States District Court for the Eastern District of

Pennsylvania. The Clark and Thompson complaints contain

three separate asserted causes of action: (1) an i:aplied pri-

vate cause of action purportedly arising under the Act; (2) a

breach of contract action as third party beneficiaries under a

gas purchase contract between Gulf and Texas Eastern, and

(3) an action based on Gulf’s and Texas Eastern’s alleged

conspiracy to withhold natural gas from the interstate mar-

ket. The district court consolidated the Clark and Thompson

cases and PGW was granted leave to intervene.

The district court dismissed the :omplaint against Phila-

delphia Electric Company for lack of complete diversity of

citizenship. As to the other defendants, the district court held

that no private cause of action exists under the Natural Gas

Act and on that basis it granted Gulf’s motions to dismiss

the complaint against it.! The district court, however, granted

certification pursuant to 28 U.S.C. §1292(b) to permit plain-

tiffs and PGW to seek an interlocutory appeal on the issue

of whether plaintiffs may pursue a private right of action

against Gulf under the Natural Gas Act.? This court granted

permission to appeal by order dated April 26, 1977. We find

no merit in the limited issue before us and affirm the order

of the district court.

This appeal is a companion case to Gulf Oil Corp. v.

Federal Power Commission, No. 76-2596 (3d Cir. September

7, 1977), in which the plaintiffs had intervened. In that case,

we affirmed the order of the Federal Power Commission

(“FPC”) requiring Gulf to deliver to Texas Eastern greater

quantities of gas than it had been delivering and ordering

performance and refunds by Gulf. Because the detailed state-

ment of the factual background underlying this proceeding

is set forth in our opinion, Gulf Oil Corp. v. FPC, supra, a

1. In the context of a motion to dismiss under Fed. R. Civ. P. 12(b)

(6) for failure to state a claim upon which relief can be granted, we

assume for the basis of our discussion that all facts pleaded by the

plaintiffs are true. Cruz v. Beto, 405 U.S. 319, 322 (1972).

2. PGW asserts in its brief that Texas Eastern has violated sec-

tions 7(b), 7(c), and 7(e) of the Natural Gas Act. The purported viola-

tions arise from Texas Eastern’s lack of due diligence in protecting its

customers’ statutory rights by failure to seek enforcement of Gulf’s duty

to deliver to Texas Eastern the statutorily mandated daily contract

quantities of gas pursuant to its certificate of public convenience and

necessity.

As to Texas Eastern, the class action appellants (plaintiffs) do not

assert a cause of action against it arising out of the Natural Gas Act;

the certification of the district court of the controlling question of law

is limited to Gulf Oil Corporation.

skeletal statement should suffice for an understanding of the

single issue raised in this appeal.

The intervenor, Philadelphia Gas Works, is a munici-

pally owned gas distribution facility serving commercial,

industrial, and residential users within the City of Philadel-

phia. For almost thirty years, it has been a customer of Texas

Eastern, one of two such pipeline companies that supplies in

excess of 97 percent of the natural gas consumed in Pennsyl-

vania. The Clark plaintiffs are customers of PGW.

In 1963, Texas Eastern entered into a gas purchase con-

tract with Gulf for the purchase of approximately 4.4 trillion

cubic feet (Tcf) of gas to be supplied in minimum daily

quantities. This contractual arrangement was approved under

a certificate of public convenience and necessity issued by

the FPC on December 19, 1963. Gulf Oil Corp., 30 FPC 1559

(1963). Under the certificated contract, Gulf was to supply

Texas Eastern with the gas over a 26 year period at a price

not to exceed 21 cents per thousand cubic feet. Under the

contract, as entered into subsequent to the issuance of the

certificate and pursuant thereto, Gulf warranted itself to pro-

vide Texas Eastern a certain minimum amount of gas per

day subject to Texas Eastern’s demand for delivery of that

amount. On November 7, 1975, the FPC issued an order di-

recting both Texas Eastern and Gulf to show cause why they

were not in violation of the certificate of public convenience

and necessity issued in 1963. These appellants intervened in

those proceedings and, after hearings, the Commission issued

opinions No. 780 and 780-A which were the subject of review

in this court at Gulf’s behest in Gulf Oil Corp. v. FPC, supra.

In the foregoing opinion, the FPC found, and we agreed,

that under the certificate of public convenience, Gulf is obli-

gated to deliver 625,000 Mcf (thousand cubic feet) of gas per

day except when Texas Eastern demands less until the expira-

tion of its contract to Texas Eastern.

In addition to ordering Gulf to comply prospectively, the

FPC ordered Gulf to refund to Texas Eastern for flow

through to the latter’s customers a sum equal to the difference

between Texas Eastern’s request for gas and Gulf’s deliveries

multiplied by the difference between the contract price and

the otherwise applicable area or national rates and interest.

The refunds were payable both for Gulf’s past defaults and

in the event of future defaults on its delivery obligations.*

Because appellants herein claim that their cost of replacing

Gulf’s underdeliveries greatly exceeded the formula price

devised by the FPC, they sought rehearing on the proper

measure of damages. In its opinion 780-A issued December

9, 1976, the FPC noted that though the relief it afforded

might not in fact fully compensate the distributors/customers

for the damages they had incurred, it concluded that its

formula was “an equitable estimate of damage to customers.”

In its opinion, however, the FPC did not limit those injured

by Gulf’s underdeliveries to the relief granted by the Com-

mission. Instead, it stated that its order did not preclude

customers and distributors served through Texas Eastern’s

system from seeking further compensation outside the Com-

mission. Appellants turn to that statement of the Commission

in their briefs and oral argument in this court as a partial

basis for the monetary relief they seek in this proceeding.

II.

A threshold question we must first address is whether the

district court had subject matter jurisdiction over this case.“

Gulf contends that under Skelly Oil Co. v. Phillips Petroleum

Co., 339 U.S. 667 (1950), there is no federal question juris-

3. Coupled with the refund provision is a recoupment order which

permits Gulf, once it has “delivered an amount of gas equivalent to the

contract amount less the amounts of gas for which it has paid refunds

. . to charge the contract price plus the amount of the refund previ-

ously paid on an equivalent amount of gas... . Over the entire contract,

Gulf would have received exactly the contract price for all 4.4 Tef, but

it would, in effect, have been required to lose the time value of its money

required to compensate its customers for their losses due to Gulf’s non-

delivery in accordance with the terms of the contract.” Opinion No.

780-A quoted in Gulf Oil Corp. v. FPC, supra, slip opinion p. 28.

By coupling the recoupment provision to the refund order, the FPC

made it clear that it did not consider the refund as equivalent of dam-

ages. In the view of the FPC, Gulf could not be ordered both to com-

pensate the customers of Texas Eastern for their additional expenses

and to deliver the full 4.4 Tef required by its contract with Texas

Eastern: the customers were not entitled to both damages and specific

performance.

4. The district court did not reach the issue of whether there is

federal question jurisdiction.

diction because the complaints show on their face that the

plaintiffs’ claims do not, in fact, arise under the Constitution,

laws or treaties of the United States. Gulf asserts that because

the basic allegations in the complaints charge the breach of

the Gas Purchase Contract, for which the plaintiffs seek dam-

ages and equitable relief, the cause of action does not arise

under federal law and so cannot be heard in the federal court

absent diversity of citizenship. Gulf further asserts that

plaintiffs add nothing to the complaint when they allege that

the contract was “certificated” by the FPC and that by

breaching the contract, Gulf also breached section 7 of the

Natural Gas Act.

PGW responds to Gulf’s argument by pointing out that

Gulf’s conduct is actionable under federal law as a breach

of the certificate of public convenience and a violation of the

Natural Gas Act. PGW asserts that although the same con-

duct by Gulf may be actionable under state law on a third

party beneficiary breach of contract theory, its complaint

does in fact allege a violation of federal law with resultant

damages.

We do not believe that Skelly Oil, supra, supports Gulf’s

position. In that case, Skelly and other contracted with Phil-

lips to sell it natural gas for resale to Michigan-Wisconsin

Pipeline Co. (‘Michigan-Wisconsin”). The contracts pro-

vided that the sellers would have the right to cancel the

contracts in the event Michigan-Wisconsin failed to secure

a certificate of public convenience from the FPC by October

1, 1946. The right of cancellation was to be exercised by

written notice delivered to Phillips at any time after De-

cember 1, 1946, “but before the issuance of such certificate.”

On November 30, 1946, the Commission ordered the issuance

of a certificate to Michigan-Wisconsin on certain stated terms

and conditions. Although news of the Commission’s action

was released the same day, the actual content of its order was

not made public until December 2, 1946. On that same day,

the sellers gave notice of cancellation. Phillips and Michigan-

Wisconsin then brought suit in the federal district court

against the sellers for declaratory judgment because a cer-

tificate of public convenience had been issued “within the

meaning of said natural gas act and said contracts” and that

the contracts were “still in effect and binding.” A motion to

dismiss the complaint for want of jurisdiction was denied,

and the district court held the contracts to be binding. The

Tenth Circuit affirmed. In reversing with directions to dis-

miss, the Supreme Court held that the action did not arise

under the laws of the United States and that it should have

been dismissed as to certain defendants because jurisdiction

could not have been sustained as to them on grounds of diver-

sity of citizenship. A reading of the case reveals that the

plaintiffs’ pleadings did not allege any violation of federal

law but merely an anticipatory defense based on federal law.

The Supreme Court concluded that would not do.5

In the instant case, however, the complaints aver an

“action to recover damages and secure equitable relief for

injuries [plaintiffs] have sustained as a direct result of viola-

tions by defendants of section 7 of the Natural Gas Act, 15

U.S.C. 8717 (f)... Whether they are entitled to such relief

is, of course, the question to be decided. But it is clear they

have alleged injuries flowing from a violation of federal law

which would give the district court subject matter jurisdiction.

Under Bell v. Hood, 327 U.S. 678 (1946), Hagans v. Lavine,

415 U.S. 528 (1973), and Gagliardi v. Flint, F.2d (3d

Cir. 1977), allegations in a complaint of a right to relief

under federal law are sufficient to vest the district court with

federal question jurisdiction unless the claim is wholly insub-

stantial and frivolous, or it is made solely for the purpose of

obtaining jurisdiction and the alleged claim appears to be

immaterial under the federal statute or constitution. Bell v.

Hood, supra, at 681-682. In the instant case, the question

whether there exists a private cause of action under the

Natural Gas Act has not yet been decided and cannot be said

to be insubstantial.

The other cases that Gulf cites to support its position

are inapposite. In Pan American Petroleum Corp. v. Superior

5. The Supreme Court in Skelly Oil, supra, observed that “[t]o

sanction suits for declaratory relief as within the jurisdiction of the

District Courts merely because, as in this case, artful pleadings antici-

pate a defense based on federal law would contravene the whole trend

of jurisdictional legislation by Congress, disregard the effective func-

tioning of the federal judicial system and distort the limited procedural

purposes of the Declaratory Judgment Act.” 339 U.S. at 673-674.

All

Court, 366 U.S. 656 (1961), Cities Service Gas Company sued

Texaco and Pan American in Delaware Superior Court to re-

cover charges for natural gas in excess of the contracts be-

tween them. The overcharges had resulted from an order of

the Kansas Gas Commission, later set aside by the United

States Supreme Court. In its complaint, Cities Service pro-

ceeded on a breach of contract theory, but pleaded the Su-

preme Court’s overturning of the Kansas order in anticipation

of the expected defense by Texaco and Pan American that the

higher rates were compelled by law. Texaco and Pan Ameri-

can moved for summary judgment in the Delaware court, the

motion was denied, and the two defendants then petitioned

the Delaware Supreme Court for a writ of prohibition against

further proceedings in the Superior Court. Their theory was

that the Natural Gas Act had deprived state courts of juris-

diction over the subject matter of the cases. The Delaware

Supreme Court sustained the jurisdiction of the Superior

Court and defendants appeal to the United States Supreme

Court. The Supreme Court affirmed.

Even though the Natural Gas Act vests the federal courts

with exclusive jurisdiction over suits arising under the Act,

the Supreme Court explained, the question whether a particu-

lar suit falls within this grant of exclusive jurisdiction de-

pends on the pleadings. Holding that the complaints in the

Delaware Superior Court determine he nature of the suit

before it, the Supreme Court declared that the rights asserted

by the plaintiff are traditional common law claims and they

do not lose their character “because it is common knowledge

that there exists a scheme of federal regulation of interstate

transmission of natural gas.” Id. at 663.

Gulf cites Pan American Corp. v. Superior Court for the

proposition that the present plaintiffs cannot make this a

federal case by characterizing what are nothing but common

law claims as claims under the Natural Gas Act. The case,

of course, does not support this preposition: as the Court said,

“the party who brings a suit is master to decide what law he

will rely upon,” 366 U.S. at 662, quoting The Fair v. Kohler

Die and Specialty Co., 228 U.S. 22, 25 (1913), and the plain-

tiffs in this suit have clearly chosen to rely on federal law.

Al2

Gulf supports its contention that the allegation of breach

of certificate and violation of the Natural Gas Act add noth-

ing to what is in reality a breach of contract action by citing

Saturn Oil & Gas Co. v. Northern Natural Gas Co., 359 F.2d

297 (8th Cir. 1966). The case grew out of the same situation

as Pan American, supra. A gas producer charged a gas dis-

tributor rates in excess of the contract between them under

compulsion of an order by the Kansas Gas Commission. After

the Supreme Court set aside the Commission’s order, the dis-

tributor brought an action against the producer for a refund

of the overcharges. The entire discussion on which Gulf now

relies is as follows:

The rights of the parties hereto are based upon the

contract. It is well settled that the type of action here

involved is not barred or superseded by the provisions

of the Federal Natural Gas Act. See Pan American Petro-

leum Corp. v. Superior Court of Delaware, 366 U.S.

For the same reasons that Pan American itself is irrelevant

to this case, Saturn Oil is also. It simply does not speak to

the question whether there is federal jurisdiction over an

action based upon the Natural Gas Act.

We are not persuaded that the appellants’ cause, of first

impression in this court, is insubstantial or frivolous; the

complaints raise serious questions under the Natural Gus Act

which the district court could have decided only after it

assumed jurisdiction over the controversy. We therefore hold

that the district court had federal subject matter jurisdiction

of the case.

III.

In light of the district court’s proper assertion of subject

matter jurisdiction, it remains for us to determine whether

the district court’s holding that there is no implied private

cause of action under the Natural Gas Act against Gulf is

correct. Plaintiffs’ complaints in substance allege that Gulf

and Texas Eastern intended that the 1963 Gas Purchase Con-

tract between them be for the benefit of the distributor/cus-

Al3

tomers of Texas Eastern and that plaintiffs are such custom-

ers. The contract was “certificated” by the Federal Power

Commission and a certificate of public convenience was issued

to, and accepted by, Texas Eastern. Beginning sometime in

1971, Gulf failed on an intermittent basis to meet its delivery

obligations to Texas Eastern as required under the certifi-

cated Gulf contract and as demanded by Texas Eastern.

Beginning in 1973 Gulf began regular underdeliveries to Texas

Eastern of quantities demanded by Texas Eastern under the

contract, and the deficits have continued to the present. As a

result of the shortfall, PGW has been required to purchase

additional supplies of natural gas on a short-term basis di-

rectly from other suppliers, and make other supplementations

which have resulted in much higher cost to PGW and its cus-

tomers and which all of the plaintiffs claim have caused them

damages.

On appeal to this court, plaintiffs argue that Gulf has

violated sections 7(b), (c) and (e) of the Natural Gas Act.

In determining whether a private right of action is

implicit in a statute not expressly providing one, Mr. Justice

Brennan, writing for the Supreme Court in Cort v. Ash, 422

U.S. 66 (1975), indicated that at least the following factors

are relevant: First, is the plaintiff one of the class for whose

especial benefit the statute was enacted? Second, is there any

indication of legislative intent, either to create a private

cause of action or to deny one? Third, is the implication for

a private remedy consistent with the underlying purpose of

the legislative scheme? Fourth, is the cause of action tradi-

tionally relegated to state law, thereby rendering it inappro-

priate to infer a cause of action solely on federal law? Id.

at 78.

The district court held that implying a private right of

action for damages under the Natural Gas Act would not

meet three of the four factors established by Cort. The district

court did not address the first standard of whether plaintiffs

fell within the class for whose especial benefit the statute was

enacted, concluding that even if they were, this would not be

sufficient to overcome their failure to meet the other three

Cort tests. The district court noted that under the congres-

sional regulatory scheme established for the natural gas indus-

Al4

try, the FPC may obtain enforcement of its decision in the

district court and may develop remedies that enhance the

statutory objectives. It also expressed concern that a jury trial

de novo in the district court could possibly result in a verdict

inconsistent with the FPC’s findings in the administrative

proceedings which would inevitably lead to “chaos, confusion,

and duplication [of] the regulatory scheme.” The district

court recognized that Congress had provided for review of

decisions and orders of the FPC by courts of appeals to which

district courts must defer; that the district court’s role would

necessarily be subordinated to providing remedies in addition

to those fashioned by the FPC; and that the FPC was in a

more strategic position to fashion remedies to implement the

regulatory scheme and carry out its objectives, including the

ordering of rate adjustments, refunds, or making declaratory

orders. The court also concluded that legal problems relating

to natural gas shortages do not lend themselves to piecemeal

solutions by separate district court decisions. In sum, then,

the district court’s analysis of Cort revealed no implied pri-

vate right of action under the Natural Gas Act.

Before we commence our analysis of plaintiff’s implied

cause of action claim, we must first ascertain precisely what

relief it is they seek. Although it is not clear from the com-

plaint or throughout most of its brief what relief PGW seeks,

PGW does at one point state:

What PGW seeks . is immediate monetary relief to

cover fully the costs PGW incurred in securing replace-

ment gas over and above the limited monetary relief

afforded by the FPC. As with the monetary relief secured

from the FPC, PGW concedes the necessity of restoring

such amounts to Gulf based on the timetable set forth

by the FPC in opinion No. 780.

At oral argument before us, counsel for the Clark group

expressly stated that his plaintiffs sought identical relief. It

appears, therefore, that plaintiffs’ proposed right of action

seeks no more than to supplement the refunds already

awarded by the FPC, an award we have recently affirmed.

Our initial inquiry, under the Cort test, is whether plain-

tiffs are among the class for whose especial benefit the statute

Al5

was enacted? We believe the overall purpose of the Natural

Gas Act is to protect the interest of consumers in an adequate

supply of gas and at reasonable rates. The Supreme Court

stated the primary aim of the Act in more colorful terms—

the protection of consumer interests against exploitation at

the hands of natural gas companies. FPC v. Louisiana Power

E Light Co., 406 U.S. 621, 631 (1972); FC v. Hope Gas Co.,

320 U.S. 591, 610 (1944). “The aim of the Act was to protect

ultimate consumers of natural gas from excessive charges.”

FPC v. Interstate Gas Co., 336 U.S. 577, 581 (1949). This

does not end the matter, however, because even though plain-

tiffs may be among the class for whose especial benefit the

statute was enacted, it does not necessarily follow that they

have an implied cause of action for damages under the Act.

We therefore turn to the second factor of Cort and

inquire whether there is any indication of legislative intent,

explicit, or implicit, to imply a private remedy in the Act or

to deny one. Plaintiffs’ contention that there is an implied

private right of action draws heavily on J. I. Case Co. v.

Borak, 377 U.S. 426 (1964). In that case, a stockholder of

the J. I. Case Co. brought a suit in the federal court for

deprivation of his preemptive rights in J. I. Case Co. by rea-

son of a merger between Case and the American Tractor

Corporation in violation, inter alia, of section 14(a) of the

Securities Exchange Act of 1934, 15 U.S.C. §78n(a). The

plaintiff in Borak relied substantially on section 27 of the

1934 Act, 15 U.S.C. §78AA, which gives the district courts

exclusive jurisdiction of all suits in equity and actions at

law brought to enforce any liability or duty created there-

under.

PGW, in the instant case, compares similar language in

section 27 of the Securities Exchange Act to section 22 of the

Natural Gas Act and concludes, citing Borak, that the grant

of jurisdiction in the Natural Gas Act should be read as evi-

dence of congressional intent to create a private right of

action for violations of the Act.“

6. Comparable language in section 22 of the Natural Gas Act,

15 U.S.C. §717a, reads as follows:

The district court of the United States . shall have exclusive

jurisdiction of violations of this chapter, or the rules, regulations

Al6

In Piper v. Chris Craft Industries, Inc., 430 U.S. 1 (1977),

the Supreme Court refused to imply a remedy under the

same 1934 act that figured in Borak notwithstanding the con-

tinued existence of the section 27 grant of jurisdiction. The

Court adverted to the reasoning of Borak that “where con-

gressional purposes are likely to be undermined absent private

enforcement, private remedies may be implied in favor of the

particular class intended to be protected by the statute.” Id.

at 25. The Court emphasized that Borak had implied a remedy

“because of practical limitations upon the SEC’s enforcement

capabilities” that made private enforcement . . . a neces-

sary supplement to Commission action.’” Id., quoting J. I.

Case v. Borak, 377 U.S. at 432 (emphasis supplied by Piper

opinion). See Blue Chip Stamps v. Manor Drug Stores, 421

U.S. 723, 730 (1975).

It is apparent, then, that a general grant of jurisdiction

such as that provided by section 22 of the Natural Gas Act

is not conclusive evidence of a congressional intent to provide

a private remedy. The language of section 22 of the Natural

Gas Act makes good sense because other sections of the Act

provide for action and litigation in the district court, making

section 22 operative without necessarily implying a private

right of action for damages. The grant of jurisdiction in the

district courts need not be read as extending beyond those

causes of action expressly provided for elsewhere in the Act.

It does not apply necessarily to causes of action which are not

provided for in the statute. We must therefore examine the

congressional scheme under the Natural Gas Act to determine

whether a private cause of action is necessary to effectuate

the policy and purpose of that scheme.

Sections 7(b), (c), and (e) of the Natural Gas Act make

no express provision whatsoever for a private cause of

action.’

Note 6—Continued

and orders thereunder and of all suits in equity or actions at law

brought to enforce any liability or duty created by or to enjoin any

— of this chapter or any rule, regulation, or order there-

under.

Mg Section 7(b), 15 U.S.C. §717f(b) (1970), provides in pertinent

part:

No natural gas company shall abandon all or any portion of its

facilities subject to the jurisdiction of the Commission, or any

Al7

Section 7(b) is designed to give the FPC control over

the abandonment of facilities or service subject to its juris-

diction. Section 7(c) prohibits a natural gas company subject

to the Court’s jurisdiction from engaging in the transporta-

tion or sale of natural gas unless such company has in force

a certificate of public convenience and necessity issued by the

Commission authorizing such acts or operations. Both sections

are absolutely barren of any explicit expression or of any

implied indication that a private right of action for damages

is contemplated for a violation of the Act. Nor is there any

express provision that denies a private cause of action for a

violation. These sections, however, are typical provisions in

the regulatory scheme of public utilities.“ The statutory re-

quirement in section 7(b) that there first be a determination

that the supply of gas is depleted and that a further continu-

ance of service is unwarranted before abandonment is in-

tended to insure the availability of a necessary energy

resource. It is the Commission’s task to facilitate and maintain

that availability. The requirement in section 7(c) is intended

to prevent wasteful competition in the sale and distribution

service rendered by means of such facilities, without the permission

and approval of the Commission

Section 7(c), 15 U.S.C. §717f(c) (1970), provides in pertinent part:

No natural-gas company .. shall engage in the . . sale of natural

gas, subject to the jurisdiction of the Commission . . unless there is

in force with respect to such natural-gas company a certificate of

public convenience and necessity issued by the Commission author-

izing such acts or operations.

Section 7(e), 15 U.S.C. §717(e) (1970), provides in pertinent part:

[A] certificate shall be issued to any qualified applicant therefor,

authorizing the whole or any part of the operation, sale [or] service

.. covered by the application, if it is found that the applicant is

able and willing properly to do the acts and to perform the service

proposed .. and that the proposed service, sale, or operation

to the extent authorized by the certificate, is or will be required by

the present or future public convenience and necessity; . . .

Although plaintiffs conclusionally allege also a violation of section 7(e),

they state no facts implicating this section and we hold that plaintiffs

have not stated a case in violation of this section of the Act.

8. There are similar provisions in the Interstate Commerce Act

(49 U.S.C. §1 (18-20), the Communications Act of 1934 (47 U.S.C.

§214) and the Motor Carrier Act (49 U.S.C. §§304, 306, 307, 308).

Al8

of an important natural resource.“ Therefore, the Commission

is expressly charged with the duty and responsibility of deter-

mining whether the proposed service is or will be necessary

and whether it “will be required by the present or future

public convenience.” 15 U.S.C. §717f(e) (1970). This provides

the Commission with the machinery to curb unnecessary and

wasteful competition and to examine the adequacy of the pro-

posed service. Thus, its primarv purpose is to regulate com-

petition among natural gas companies and prohibit anyone

from competing until after the Commission has determined

whether the proposed operation is necessary, whether it will

serve the public convenience and whether the applicant can

render an adequate service at fair and reasonable rates.

Furthermore, the Commission is charged under the Act

with the power of oversight and regulation: It carries the

responsibility for determining whether rates to be charged

are fair and reasonable and whether the proposed service to

localities and persons and the proposed classes of service are

impartial and non-discriminatory. 15 U.S.C. §717(c) (1970).

The Commission has the power after conducting a hearing

to grant certificates of public convenience and necessity, to

fix just and reasonable rates and practices, and to order a

decrease in rates when they are unjust, preferential, unduly

discriminatory, otherwise unlawful, or are not the lowest

reasonable rates, 15 U.S.C. §717(d) (1970). It may also per-

mit abandonment of facilities or services. The Commission is

empowered to prescribe a system of accounts to be kept by

such natural gas companies and to classify such accounts.

15 U.S.C. §717g(b) and (e) (1970).

Finally, the enforcement provisions of the Act give the

Commission broad administrative powers, the power to pre-

scribe and issue orders and regulations, and to bring actions

to enforce the public interest whenever there are violations

of the Act. 15 U.S.C. 5717 (o) (1970). The Commission has

9. The hearing before the House Committee on Interstate Foreign

Commerce discloses:

It was the express intention of Congress in enacting the existing

certification section of the Natural Gas Act to prevent wasteful com-

petition of natural gas companies. H.R. Rep. #1290, 77th Cong. ist

Sess. 19411.

Al19

extensive powers to investigate complaints or violations, in-

cluding complaints of any state, municipality, or State com-

mission, to conduct hearings, compel attendance of witnesses

and production of records from any place in the United States

or to order testimony by deposition. 15 U.S.C. §717m. When

it appears to the Commission that any person is engaged in

or is about to engage in activity which may violate the Act or

any rule, regulation, or order thereunder, the Commission

may bring an action to enjoin the same in any United States

District Court. 15 U.S.C. §717s(a).

In view of Congress’ evident intent to create a compre-

hensive and effective regulatory scheme for the transporta-

tion and sale of natural gas in interstate commerce, built upon

a carefully conceived and structured system for enforcement

of the Act’s provisions, we conclude that Congress did not

contemplate a private cause of action for damages by retail

customers whenever a regulated natural gas company breached

its certificate of public convenience and necessity under the

Natural Gas Act.

Plaintiffs contend, citing as compelling authority Farm-

land Indus., Inc. v. Kansas-Nebraska Natural Gas Co., Inc.,

486 F.2d 315 (8th Cir. 1973), that Gulf’s underdeliveries to

Texas Eastern of the demanded quantities under the contract

constitute the basis for an implied right of action under sec-

tion 7 (b). ie We disagree. In Farmland, the Eighth Circuit

affirmed a district court opinion which held that there was

an implied private right of action in favor of a direct indus-

trial consumer against a natural gas company that violated

section 7(b) by terminating gas supply service, through fa-

cilities constructed under a certificate of necessity and conve-

nience, without prior FPC approval. Significantly, Farmland

precedes the quadripartite test in Cort v. Ash, supra, to deter-

mine the existence of an implied private right of action, as

10. PGW concedes in its brief in this court that the FPC did not

consider in its opinion 780 whether Gulf’s underdeliveries of the daily

contract quantities constituted a de facto abandonment within the mean-

ing of section 7(b) of the Act, 15 U.S.C. §717f(b). “In opinion 780-A,

the Commission placed exclusive reliance on section 7(c), even after

section 7(b) was brought to its attention on the issue of refunds.” Gulf

Oil Co. v. FPC, supra, slip op. 29. n.20.

A20

well as our later decision in Polanski v. Trans World Airlines,

Inc., 523 F.2d 332 (3d Cir. 1975). In Polanski, we expressed

the view that each incident alleged in connection with viola-

tions of section 1374 (b) of the Federal Aviation Act," spe-

cifically prohibiting discrimination by any regulated carrier,

must be tested against the standards stated by the Supreme

Court in Cort. Therefore, no implied private right of action

for damages can be found here unless the violated statutory

sections meet the Cort standards. Second, the opinion of the

district court in Farmland plainly discloses that the utility,

unlike Gulf in the instant case, had permanently ceased deliv-

ery of all gas at the expiration of their gas purchase contract.

Thus, the finding of abandonment was predicated upon the

permanent cessation of all service at the expiration of the

contract term without Commission approval. Farmland Indus.

v. Kansas-Nebraska Natural Gas Co., Inc., 349 F. Supp. 670,

676 (D. Neb. 1972).

We believe our conclusion that no private cause of action

is implied is further supported by Montana-Dakota Util. Co. v.

Northwest Pub. Serv. Co., 341 U.S. 246 (1951). In that case

the plaintiff electric company sued in federal district court to

recover losses suffered as a result of ailegedly fraudulent and

unlawful rates charged by the defendant public utility com-

pany as a result of a prior interlocking directorate in which

the defendant was involved. Both companies were subject to

the Federal Power Act. Like section 4 of the Natural Gas Act,

section 205(a) of the Federal Power Act requires that rates

and charges be just and reasonable and those that were not

were “declared to be unlawful.” Jurisdiction in the United

States district court was asserted under section 317 of the

Federal Power Act, comparable to section 22 of the Natural

Gas Act. The Supreme Court, however, refused to imply a

private cause of action for violation of the Power Act, holding

that the right to a reasonable rate is the right to the rate

which the Commission fixes, and that “except for review of

the Commission’s orders, the courts can assume no right to

a different one on the ground that, in its opinion, it is the

only or the more reasonable one.” Jd. at 252. In the instant

11. 49 U.S.C. §1374(b) (1970).

A21

case, the FPC has the power, the flexibility, and resourceful-

ness to compel compliance with the certificate and to fashion

and implement appropriate remedies for the shortfall in

Gulf’s deliveries and we perceive nothing in the congressional

scheme to imply a private cause of action for damages for a

violation of the Gas Act.

The foregoing analysis of the Natural Gas Act should

also be sufficient response to the third factor in Cort v. Ash,

whether it is consistent with the underlying purposes of the

legislative scheme to imply such a remedy for the plaintiffs.

We believe it is not. Congress has delegated under its com-

prehensive scheme extensive regulatory powers to the Commis-

sion in an essential and monopolistic industry to grant cer-

tificates of public convenience when the public welfare

dictates and the authority to effectuate compliance with such

a certification. The Commission has the authority to establish

rules and standards in making such determinations; it has

exclusive jurisdiction to determine whether the proposed

service will adequately serve the public interest and whether

a rate meets the “just and reasonable” standard of the Act,

15 U.S.C. §717¢ (1970), Northern Natural Gas Co. v. Kansas

Comm’n, 372 U.S. 84, 89 (1963); and Congress has granted

the Commission “rate-setting authority ... over all interstate

sales for resale.” FPC v. Louisiana Power & Light Co., 406

U.S. 621, 639 (1972). Curtailment of deliveries in this fore-

boding era of energy crises, including natural gas shortages,

fall peculiarly within the FPC’s responsibilities under the

head of its “transportation” jurisdiction. “The Commission

must possess broad powers to devise effective means to meet

these responsibilities.” Id. at 642. Accord, Reynolds Metals

Co. v. FPC, 534 F.2d 379, 384 (D.C. Cir. 1976).

There are thousands of contracts between gas transmis-

sion companies and their suppliers, each of which must be

certified by the Commission under section 7 of the Act. There

are thousands of contracts between pipeline companies and

their distributors also certificated by the Commission. If each

of them, as well as the many millions of ultimate consumers

thereby affected, could bring a private cause of action for an

alleged violation of a certificate of public convenience, an

industry essential to the health and welfare of the nation

A22

could conceivably be litigated to exhaustion. The uniform

regulatory scheme devised by Congress could be disrupted,

seriously disabled, and possibly destroyed. Conflicting deci-

sions among the courts and between the courts and the Com-

mission concerning duties and liabilities would be inevitable

and the responsibilities of the Commission under the Act

unmanageable.'? We therefore conclude that it is not con-

sistent with the underlying purpose of the regulatory scheme

to imply a private remedy in damages for a breach of the Act.

The conclusion we reach is especially applicable to the

instant case because of the limited nature of the relief sought

by plaintiffs. Although plaintiffs seek immediate monetary

relief, the money sought is not in the traditional form of out-

right damages, but money which must eventually be restored

to Gulf in accordance with the timetable prescribed by the

FPC when the gas contracted for is delivered. The computa-

tion of the amount of the relief required, the machinery for

recoupment and ordering a resetting of the rates to accom-

plish the same, in our view, are not within the competence

and powers of the courts. Even if they were, such tasks are

best left to the expertise, organization, and enforcement ma-

chinery created by Congress. The national purpose, powers,

and structure of the FPC negate the claim that the ultimate

consumers of gas “were intended to have additional weapons

in the form of an implied cause of action for damages,” Piper

v. Chris-Craft Indus., Inc., supra at 38, particularly when, as

here, the money sought must eventually be returned. As we

have previously indicated, the money to be paid by Gulf under

our decision is “nothing more than a temporary performance

bond made necessary by Gulf’s failure to fulfill the terms of

its certificate,” Gulf Oil Corp. v. FPC, supra, slip op. at 35.

Under these conditions, an implied cause of action for dam-

ages does not add significant additional protection for ultimate

consumers of gas but might well disrupt the congressional

scheme devised for the regulation of an essential industry

and the protection of the public generally.

12. While Chief Judge Seitz fully supports the opinion of the court,

he does not join in this paragraph. He believes the views expressed

therein are unnecessary to the determination of this case and fears

they are, at least in part, of questionable soundness.

A23

For reasons stated in the preceding paragraph we need

not dwell long on the fourth factor in the Cort analysis,

whether the cause of action is one traditionaily relegated to

state law. Because the fundament of Gulf’s certificate of public

convenience is the Gas Purchase Contract between Gulf and

Texas Eastern, the claims plaintiffs advance as third-party

beneficiaries for breach of contract are “traditionally rele-

gated” to state courts. As we have pointed out, however, the

remedy which plaintiffs seek is not typical money damages.

Rather, they seek an unusual, limited money relief which

they must ultimately return to Gulf upon the future delivery

of the shortfall in accordance with the timetable fixed by the

Commission in its opinion No. 780. Under such circumstances,

the fourth factor in Cort has little relevance to the instant

case.

We find no merit in the arguments advanced by plaintiffs

for an implied private right of action for damages for a vio-

lation of the Natural Gas Act. Accordingly, the judgment of

the district court will be affirmed.

APPENDIX B

ell

A27

IN THE

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Nos. 77-1661

77-1662

MILTON CLARK, FREDERICK W. Rost, St. REGIS APARTMENTS,

Lb., a California limited partnership; MELVIN BALSER,

Managing Agent, on behalf of themselves and all others

similarly situated; PHILADELPHIA GAS WORKS,

Plaintiff-Intervenor

GULF OIL CORPORATION

and

TEXAS EASTERN TRANSMISSION CORPORATIGN

(D. C. Civil No. 76-2106)

THEODORE Q. THOMPSON and JAMESTOWN VILLAGE

APARTMENTS, LTD., a California limited partnership;

MELVIN BALSER, Managing Agent

GULF OIL CORPORATION

PHILADELPHIA ELECTRIC COMPANY

TEXAS EASTERN TRANSMISSION CORPORATION

(D. C. Civil No. 76-2711)

PHILADELPHIA GAS WORKS, Plaintiff-Intervenor,

Appellant in No. 77-1661

MILTON CLARK, et al., Appellants in No. 77-1662

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

Present: SEITZ, Chief Judge and ALDISERT and ROSENN,

Circuit Judges

A28

JUDGMENT

These causes came on to be heard on the records from

the United States District Court for the Eastern District of

Pennsylvania and were argued by counsel on September 9,

1977.

On consideration whereof, it is now here ordered and

adjudged by this Court that the judgment of the said District

Court entered Mareh 30, 1977, be, and the same is hereby

affirmed. Costs taxed against appellants.

Attest:

M. ELIZABETH FERGUSON

Chief Deputy Clerk

December 30, 1977

APPENDIX C

Sn —

A31

IN THE

UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

MILTON CLARK, et al.

v. Civil Action No. 76-2106

GULF OIL CORPORATION, et al.

THEODORE Q. THOMPSON, et al.

v. Civil Action No. 76-2711

GULF OIL CORPORATION, et al.

MEMORANDUM AND ORDER

CAHN, J. March 29, 1977

In both of the cases before the court there are a series of

preliminary motions most of which are ripe for decision.

These cases are related to the natural gas shortage and involve

an alleged failure by Gulf Oil Corporation (“Gulf”) to fulfill

a contract to provide minimum quantities of natural gas to

Texas Eastern Transmission Company (“Texas Eastern“).

Texas Eastern delivers natural gas by pipeline to Philadel-

phia Gas Works (“PGW”) and Philadelphia Electric Com-

pany (“PECO”), who in turn distribute the gas to the con-

sumer. In the Clark case! the plaintiffs, as users of natural

gas supplied to them by PGW, seek damages, equitable relief,

attorneys’ fees and costs against Gulf and Texas Eastern. In

the Thompson case? the plaintiffs, as users of natural gas

supplied by PECO, seek similar relief from Gulf and Texas

Eastern. The Thompson plaintiffs also named PECO as a

defendant contending that PECO violated its fiduciary duty

to protect its customers by not taking affirmative action

against Gulf and Texas Eastern. In both cases, the complaints

contain class action allegations* whereby the plaintiffs request

1. The case of Milton Clark, et al. v. Gulf Oil Corporation, et al.,

Civil Action No. 76-2106, will be referred to as the Clark case.

2. The case of Theodore Q. Thompson, et al. v. Gulf Oil Corporation,

et al., Civil Action No. 76-2711, will be referred to as the Thompson case.

3. There is no motion for class action certification presently before

the court.

A32

certification under Fed. R. Civ. P. 23 authorizing them to

represent the consumers of natural gas in the Philadelphia

area.

Oral argument was held on all outstanding motions on

December 17, 1976. At that time, the motions of the plaintiffs

to consolidate both cases were granted. Also, PGW’s petition

to intervene in the Clark case was granted, but its request to

file an amended complaint was denied. Before dealing with the

other outstanding motions, it is necessary to set forth the

factual background of this litigation.

FACTUAL BACKGROUND OF LITIGATION

Texas Eastern is a major supplier, through its interstate

pipelines, of the natural gas consumed in the City and County

of Philadelphia. In order to obtain gas for transmission

through its pipelines, Texas Eastern in 1963 entered into con-

tractual arrangements requiring Gulf to supply daily mini-

mum quantities of natural gas. On December 19, 1963, these

contractual arrangements were approved and certified by

the Federal Power Commission ( FPC“) pursuant to the

Natural Gas Act, 15 U.S.C. §717f. The FPC approved the

purchase by Texas Eastern from Gulf of approximately 4.4

trillion cubic feet of gas over a twenty-six year period at a

price not to exceed twenty-one cents per Mcf.‘ Gulf and Texas

Eastern entered into a formal warranty contract on January

6, 1964, incorporating the foregoing terms. The contract set

forth daily minimum and maximum delivery quantities.

Following 1964, Gulf did not supply to Texas Eastern

the daily minimum quantities of natural gas required by the

contract. As a result, on November 7, 1975, the FPC directed

Gulf and Texas Eastern to show cause why they were not in

violation of the certificate of public convenience issued Decem-

ber 19, 1963. Both PGW and customers of PGW were per-

mitted to intervene in the FPC proceedings. PECO did not

intervene. On August 13, 1976, an administrative law judge

issued an initial decision requiring Gulf, within a short period

of time, to comply with its certificate obligations. The admin-

istrative law judge also recommended that the FPC forward

its files on this matter to the Justice Department pursuant to

4. “Mcf” is one thousand cubic feet of gas.

A33

15 U.S.C. §717s(a) for investigation of possible criminal

antitrust violations.’ Exceptions were filed to this decision.

Thereafter, the FPC on October 15, 1976, issued Opinion

No. 780 and an accompanying order in which the FPC found

that Gulf failed to fulfill its delivery responsibilities to Texas

Eastern under the certificate of public convenience issued

December 19, 1963, and under the warranty contract dated

January 6, 1964. The FPC further ordered that Gulf compute

and pay refunds to Texas Eastern calculated on the volume

of underdelivery multiplied by the difference between the

area or national rate applicable to new gas purchases at the

time of underdelivery and the contract price. These refunds

are to be flowed through to Texas Eastern’s jurisdictional

customers. Provision was made for Gulf to recoup the re-

funds after it complied with its responsibility to supply

the contracted-for quantities of gas. Apparently, the mea-

sure of damages imposed by the FPC against Gulf repre-

sents the loss of the interest on the amount of the refunds until

recoupment. By fashioning relief in this manner, the FPC in-

tended that Gulf would be required to supply the 4.4 trillion

cubic feet of gas at a price not to exceed twenty-one cents per

Mcf. If money damages for breach had been part of the relief

ordered by the FPC, then Gulf could have taken the position

that its contractual obligations were terminated upon the pay-

ment of the damages. The intent of the FPC was to require

Gulf to deliver the natural gas to Texas Eastern at the earliest

possible time.

The order of the FPC in regard to refunds is as follows:

(B) On December 15, 1976, Gulf shall file a compu-

tation of refunds to Texas Eastern, and serve it on all

parties to this proceeding subject to the approval of the

Commission and in accordance with the following for-

mula. The refund shall be measured by the difference

between Texas Eastern’s requests for gas, but not more

than the contract maximum amount, and actual deliveries

from November 1, 1964, until December 1, 1976, times

5. Gulf moved to strike reference in the pleadings and briefs of the

plaintiffs to this recommendation of the administrative law judge. How-

ever, at this stage of the proceedings the alleged data, although received

on information and belief, is sufficient to justify the reference objected

to in the pleadings and in the briefs.

A34

the difference between the applicable area or national

rate and the applicable contract price. Damages would be

assessed for eaek month detiveries fell below the amount

demanded by Texas Eastern, if within the contract maxi-

mum, excepting volumes attributable to force majeure.

Gulf shal! make the required refund to Texas Eastern

within 30 days of Commission approval of Gulf’s com-

putation of refund. The refunds shall carry 7% interest

to October 10, 1974, 9% thereafter.

quired in Paragraph (B) above Gulf fails to deliver the

amount of gas required by the contract, it shall within

30 days make further refund to Texas Eastern in accor-

dance with the above formula.

(D) When there remains to be delivered under

Gulf’s contract with Texas Eastern that amount of gas

for which refund has been made, Gulf may file a rate

change so that the price to Texas Eastern for appropri-

ate volumes shall be the contract price plus the amount

of the refund previously paid applicable to the same

volumes.

(E) Within 120 days of the date of the final order

in this proceeding, Texas Eastern shall submit a plan for

the flow-through of the refunds herein ordered to be dis-

bursed indicating the amount payable to each jurisdic-

tional customer, the basis used to compute the amount

payable, and the periods involved. Before doing so, Texas

Eastern shall survey its customers and affected state

regulatory commissions to determine an equitable divi-

sion of the refund amount based on the costs to each cus-

tomer of failing to receive the gas undelivered by Gulf.

Copies of the flow-through plan shall be served on each

of the parties to this proceeding, Texas Eastern’s juris-

dictional customers, and upon affected state regulatory

commissions. Within 30 days of approval of Texas East-

ern’s plan, providing the refund has been received from

Gulf, Texas Eastern shall proceed with the distribution

of refunds to its jurisdictional customers. In case of any

subsequent monthly refunds as provided in Paragraph

A35

allocation plans with the Commission and serve them on

its customers and the state commissions within 30 days

of receiving an additional refund.

In its Opinion No. 780 the FPC gave the following illustra-

tion:

A hypothetical example may clarify our decision.

Assume it were found that before Gulf resumed satisfac-

tion of its contract obligations it had defaulted in the

following amounts:

* 1/ 1/76— 6/21/76 90 Bef at 7e [26¢-19¢]/Mcf = $ 6.3 million

6/21/74-12/ 4/74 40 Bef at 230 [42¢-19¢]/Mcf = $ 9.2 million

12/ 5/74— 7/26/76 150 Bef at 33¢ [52¢-19¢]/Mcf = $49.5 million

7/27/76-12/ 1/76 20 Bef at $1.23 [$1.42-19¢]/Mcf = $24.6 million

Then Gulf would be required to refund immediately plus

appropriate interest, $89.6 million. Then, when it had

delivered all but 300 Bcf of the contract amount, it would

be permitted to recoup its refunds by adding a surcharge

of 7¢/Mcf to the next 90 Bcf sold, 23¢/Mcf to the next

40 Bef, etc., until the entire contract was fulfilled, and

the entire refund recouped.

Over the entire contract, Gulf would have received

exactly the contract price for all 4.4 Tcf, but it would,

in effect, have been required to lose the time value of its

money required to compensate its customers for their

losses due to Gulf’s non-delivery in accordance with the

terms of the contract.

Various parties sought rehearing, and on December 9,

1976, the FPC entered an “Opinion and Order denying rehear-

ing in part” entitled Opinion No. 780-A. The order of the FPC

at Opinion No. 780-A is as follows:

(A) The applications for rehearing filed by Gulf,

Texas Eastern, Brooklyn Union, New York and New

England are denied except as provided below. PGW’s

request for clarification in its motion and application for

rehearing is granted as provided below.

(B) Ordering Clause (D) in Opinion No. 780 is

modified to provide that when Gulf delivers gas to Texas

*The year “1976” on this line of the hypothetical example is ap-

parently a typographical error in Opinion 780.

| |

A36

Eastern in an amount greater than 625 MMcf in any one

day at Texas Eastern’s request, the price shall be the

A37

PECO has violated this duty. If such a duty exists it is man-

dated by state law. Therefore, diversity of citizenship between

the parties is necessary—ferthis court to-have jurisdiction over

contract price plus a recoupmeérit of an amount of refund

previously paid on an equivalent volume of gas, as agreed

between Gulf and Texas Eastern.

Ordering Paragraph (B) and flowed through to Texas

Eastern’s customers by Ordering Paragraph (E) does

not preclude any of the customers and distributors served

through Texas Eastern’s system from seexing further

compensation outside the Commission in mitigation of

damages allegedly not compensated by the Commission’s

action herein.

An appeal from the Opinions and Orders of the FPC has

been taken to the Third Circuit Court of Appeals. On Decem-

ber 22, 1976, that court, on motion of Gulf granted a stay of

the FPC’s Orders and Opinions.

I will now consider the following motions: PECO’s mo-

tion to dismiss it as a defendant in the Thompson case; Texas

Eastern’s motions to dismiss it as a defendant in the Clark

and Thompson cases; Gulf’s motions to dismiss it as a defen-

dant in the Clark and Thompson cases; and PGW’s motion to

disqualify counsel for plaintiffs in the Clark case.

PECO’S MOTION TO DISMISS

PECO is a defendant in the Thompson case. There is no

diversity of citizenship between the Thompson plaintiffs and

PECO because some of the Thompson plaintiffs are citizens

of the Commonwealth of Pennsylvania and PECO is a cor-

poration organized and existing under Pennsylvania law, with

its principal office in Pennsylvania. The theory of the Thomp-

son plaintiffs against PECO is based on the rate regulations

established by the Pennsylvania Public Utility Commission

under which PECO may pass onto its customers any increase

in the cost of fuel. 5 Pa. Bul. 1418 (1975). The Thompson

plaintiffs contend that there is a corollary fiduciary duty

imposed on PECO to protect its customers from unreasonable

fuel cost increases. Because PECO has taken no action against

Gulf or Texas Eastern and has failed to intervene in the pro-

ceedings before the FPC, the Thompson plaintiffs urge that

that claim.

The Natural Gas t does not confer jurisdiction over

PECO which distributes gas intrastate to ultimate users on a

local basis. The statute at 15 U.S.C. §717(b) provides:

The provisions of this Act [15 U.S.C. 8717 et seq.]

shall apply to the transportation of natural gas in inter-

state commerce . . , but shall not apply to any other

transportation or sale of natural gas or to the local dis-

tributions of natural gas...

Therefore, the Natural Gas Act does not provide a basis for

federal subject matter jurisdiction.

Plaintiffs recognize that this court lacks subject matter

jurisdiction over the cause of action alleged against PECO,

but suggest that pendent party jurisdiction exists in accor-

dance with dicta set forth in Aldinger v. Howard, — U.S. —,

49 L.Ed. 2d 276 (1976). Aldinger does not preclude the possi-

bility of federal jurisdiction in certain instances “where the

party impleaded is not otherwise subject to federal jurisdic-

tion”. However, the concept of pendent party jurisdiction

should not be applied in this factual context. Jurisdiction over

the claim pleaded by the Thompson plaintiffs that PECO

failed to discharge its fiduciary responsibilities to protect its

customers is exclusively a matter for the Pennsylvania Public

Utilities Commission. This claim against PECO is unrelated

to the operative facts of the federal claims against Gulf and

Texas Eastern. Therefore, the motion of PECO to dismiss

will be granted without prejudice. The Thompson plaintiffs

may, if they so desire, pursue their claim against PECO be-

fore the Pennsylvania Public Utilities Commission.

TEXAS EASTERN’S MOTION TO DISMISS

Both the Clark and Thompson plaintiffs have pleaded an

antitrust violation against Texas Eastern. Plaintiffs aver:

Gulf, in combination with Texas Eastern, has with-

held gas from delivery to Texas Eastern for the inter-

6. See 28 U.S.C. §1332.

A38

state market and both defendants have otherwise engaged

in activities resulting in restraint of trade or commerce

among the several states.

In both cases the sole claim against Texas Eastern is alleged

antitrust violations as averred in the above-quoted statement.

Texas Eastern urges that exclusive jurisdiction is vested

in the FPC to determine antitrust violations and that this

court has no independent jurisdiction because the rates

charged for natural gas are approved by the FPC. Texas

Eastern relies on McLeran v. El Paso Natural Gas Company,

357 F.Supp. 329, 331 (S.D. Tex. 1972) for the following

proposition:

This Court... holds that the FPC has exclusive juris-

diction to determine the rates which a natural gas sup-

plier may charge its customers of natural gas destined

for resale; and, that a rate within the limits set by the

FPC may not be challenged in an antitrust proceeding in

a federal district court.

This court certainly concurs with McLeran that the antitrust

laws cannot be used to interfere with the rate making powers

of the FPC. However, the plaintiffs in both cases contend that

Texas Eastern combined with Gulf to withhold the delivery of

natural gas in order to extract a higher price from the ulti-

mate consumers of the product.

In the case of Otter Tail Power Co. v. United States, 410

U.S. 366, 372 (1973), the Supreme Court stated:

‘Repeals of the antitrust laws by implication from a reg-

ulatory statute are strongly disfavored and have only

been found in cases of plain repugnancy between the

antitrust and regulatory provisions.’

Accord, Intermar, Inc. v. Atlantic Richfield Co., 364 F.Supp.

82 (E.D. Pa. 1973). In the case before this court there has

been no showing, nor does this court find clear repugnancy

between the antitrust and the regulatory statutes. In addition

there has not been a showing that the FPC has been given

exclusive jurisdiction as in the McLeran case.

Quite to the contrary, Congress has placed the primary

burden for enforcing the antitrust laws on the courts. In City

of Pittsburgh v. Federal Power Commission, 237 F.2d 741

A39

(D.D.C. 1956) the court stated that the FPC has no power to

enforce the Sherman Act and cannot decide whether a viola-

tion of the antitrust laws has taken place. More specifically,

in California v. F.P.C., 369 U.S. 482, 490 (1962), it was held

that the district court and not the FPC should decide the

issue of whether the acquisition of the stock of Pacific North-

west Pipeline Corporation by El Paso Natural Gas Company

was violative of the antitrust laws. In reaching this decision,

Mr. Justice Douglas observed:

It is not for us to say that the complementary legis-

lative policies reflected in §7 of the Clayton Act on the

one hand and in §7 of the Natural Gas Act on the other

should be better accommodated. Our function is to see

that the policy entrusted to the courts is not frustrated

by an administrative agency. Where the primary juris-

diction is in the agency, courts withhold action until the

agency has acted. Texas & P.R. Co. v. Abilene Cotton

Oil Co. 204 US 426, 51 Led 553, 27 SCt 350, 9 Ann

Cas 1075. The converse should also be true, lest the anti-

trust policy whose enforcement Congress in this situa-

tion has entrusted to the courts is in practical effect taken

over by the Federal Power Commission. Moreover, as

noted, the Commission in holding that ‘any lessening of

competition is not substantial’ was in the domain of the

Clayton Act, a domain which is entrusted to the court in

which the antitrust suit was pending.

Here, plaintiffs do not complain about the rate approved by

the FPC. The gravamen of their antitrust claim relates to an

alleged agreement to make underdeliveries in an attempt to

circumvent the approved interstate rates by increasing, at the

expense of the plaintiffs, the amount of gas available for

intrastate sales. Therefore, Texas Eastern’s motion to dismiss

the antitrust claim on the ground that sole jurisdiction is

vested in the FPC will be denied.

Another basis for Texas Eastern’s motions to dismiss the

antitrust claim is that this cause of action is not properly

pleaded. Texas Eastern characterizes the above-quoted portion

of the complaint as a “bare bones statement of conspiracy”

which is insufficient to withstand a motion to dismiss. Under-

standably, plaintiffs argue that proof of an antitrust con-

;

1 vl ñ ßÄ——TÄ—⅜⸗

A40

spiracy is uncovered only after extensive and voluminous

discovery and that it would be unfair and against public

policy to require an antitrust plaintiff to have proof positive

of antitonipetitive practices before being permitted to bring

suit. I concur with the plaintiffs in this respect although it

is undeniable that the alleged antitrust violations are “bare

bones” in nature. However, at the on-the-record oral argu-

ment, counsel for the plaintiffs stated that he can prove the

existence of a conspiratorial agreement between Gulf and

Texas Eastern to withhold delivery of natural gas. Therefore,

Texas Eastern’s motion is premature and discovery should be

permitted on the antitrust issue. In Murchison v. Kirby, 27

F.R.D. 14, 18 (S.D.N.Y. 1961), Judge Weinfeld stated:

Obviously there are instances where the facts to

support a charge necessarily come from sources other

than the litigant, and this is particularly true in con-

spiracy cases. . To require a plaintiff charging a

conspiracy to have personal knowledge of essential evi-

dence necessary to sustain the allegations of his com-

plaint would, in most instances, debar the maintenance

of the action.

See also Perma Life Mufflers, Inc. v. International Parts

Corp., 392 U.S. 184 (1968); State of Illinois v. Harper &

Row Publishers, Inc., 301 F.Supp. 484 (N. D. III. 1969). Note

is made of Texas Eastern’s argument that the alleged anti-

competitive activities of Texas Eastern are limited to an ac-

quiescence to Gulf’s under-delivery. Texas Eastern suggests

that there is no precedent to support an antitrust claim

where the defendant has acted only passively. However, in

light of the aforesaid representation of plaintiff’s counsel at

oral argument, resolution of this issue will be deferred until

discovery is afforded to the plaintiff.

Finally, Texas Eastern maintains that the plaintiffs lack

standing to bring an antitrust action because they are indirect

purchasers of the products involved. In this respect, Texas

Eastern relies on Philadelphia Hous. A. v. American Radiator

ES. San. Corp., 50 F.R.D. 18, 30 (E.D. Pa. 1970), aff'd sub

nom., Mangano v. American Radiator & Standard San. Corp.,

488 F.2d 1187 (3d Cir. 1971). However, in Cromar Co. v.

ro tt wae ee

441

Nuclear Materials & Equipment Corp., 543 F. 2d 501, 508

(3d Cir. 1976), it was held that standing in an antitrust case

depends upon a. -detailed-analssis-ef-a- ease by-case—basis of

23.3

— — 2 ——

the factual context presented“. On the record now before the

court there is insufficient information to determine whether

the plaintiffs have standing. Therefore, Texas Eastern’s mo-

tions to dismiss on the standing issue will be denied, but leave

will be given to Texas Eastern to raise the standing issue

following discovery on all antitrust issues.

GULF’S MOTION TO DISMISS

Gulf is a defendant in both the Clark and Thompson

actions. Gulf’s motions to dismiss the antitrust claims will be

denied for the reasons set forth in the discussion of Texas

Eastern’s motion to dismiss those claims.

Plaintiffs have pleaded another cause of action against

Gulf. They contend that there is a private right of action

under the Natural Gas Act and that 28 U.S.C. 81331 and 28

U.S.C. 81397 confer subject matter jurisdiction. Plaintiffs

assert that they may recover money damages from Gulf for

its alleged breach of the contract certified by the FPC. Gulf

argues that this cause of action does not arise under a federal

statute, and therefore, no jurisdiction exists.

An analysis of whether a private right of action exists

under the Natural Gas Act should begin with Cort v. Ash,

442 U.S. 66 (1975). In the Cort case the Supreme Court lists

several factors in determining whether a private right of

action is implicit in the statute.

First, is the plaintiff ‘one of the class for whose especial

benefit the statute was enacted,’. . . Second, is there any

indication of legislative intent, explicit or implicit, either

to create such a remedy or to deny one? . . Third, is it

consistent with the underlying purposes of the legislative

scheme to imply such a remedy for the plaintiff? .. .

And finally, is the cause of action one traditionally rele-

gated to state law, in an area basically the concern of the

States, so that it would be inappropriate to infer a cause

of action based solely on federal law?

Insight can be gained as to whether the Cort standards

are met by assuming that a private right of action exists

A42

under the Gas Act and analyzing the results. The questions of

whether Congress intended to create or deny a private right

of action and whether an implied right of action is consistent

with the underlying legislative scheme will be discussed to-

A43

Congress has established a procedure for those who are

aggrieved by a decision of the FPC. That procedure is an

appeal to the Court of Appeals. In the case of Polansky v.

frans—World Atr—Dines—inc,, 525 F.2d 332 (d Cir. 1975),

—gether-The FPC has aiready detérmined that Gulf and Texas

Eastern were in violation of the certificate of public con-

venience issued December 19, 1963, and have fashioned what,

in their view, is an appropriate remedy. An appeal from the

FPC opinions and orders has been taken to the Third Circuit

Court of Appeals and is presently pending there.

Because the FPC has already found that the Gas Act has

been violated by Gulf, the initial inquiry should be to deter-

mine the effect of those findings of fact. If this court would

conduct an administrative review of the findings of fact made

by the FPC, there would be duplication of effort because that

function has been allotted to the Court of Appeals by the

statute. 15 U.S.C. §717r(b).

Consequently, this court would be required to defer to

the Court of Appeals in regard to any administrative review

of the findings of fact made by the FPC. The role of this

court would necessarily be relegated to providing remedies in

addition to those fashioned by the FPC. Under the regulatory

scheme, the FPC is authorized to provide monetary relief in

the form of rate adjustments and refunds or issue declaratory

orders.? The FPC is also authorized to obtain enforcement of

its decisions in the district court. 15 U.S.C. §717s. The FPC

is in a more advantageous position to develop remedies that

enhance the purposes of the regulatory scheme. The legal

problems related to the shortage of natural gas do not lend

themselves to piecemeal solutions by separate district court

devisions. The result would be a fragmented and colloquial

approach to the national problem of equitable distribution of

natural gas. The problem requires a coordinated and uniform

approach by the FPC. By permitting a private right of action,

this court would sanction interference with the congressional

intent to provide regulation and remedies on a national scale.“

7. See 15 U.S.C. §7170; FPC v. Louisiana Power & Light Co., 406

U.S. 621 (1972).

8. The authority of the FPC to protect the public interest has been

given broad construction commensurate with the Commission’s responsi-

bilities. Permian Basin Area Rate Cases, 390 U.S. 747, 776 (1968).

err

the court held that a private right of action should not be

implied from a federal regulatory statute because the statute

has already designated a specific means to vindicate the pub-

lic wrongs, and that a private remedy would undercut the

goals of the statutory scheme.

If, on the other hand, this court concluded that it was

proper for it to conduct a de novo hearing on all issues before

it, a jury might reach factual conclusions different from those

of the FPC which in the interim may have been found by the

Court of Appeals to be supported by substantial evidence.

The hypotheticals mentioned above demonstrate that a

private right of action would introduce chaos, confusion and

duplication into the regulatory scheme. i conclude that the

implication of a private right of action would not further the

purposes of the Gas Act. Also, these considerations negate

any congressional intent to establish a private right of action.

Another Cort standard is whether the cause of action is

one traditionally relegated to state law. In order to apply this

guideline, the court should consider not only the state reme-

dies available to the plaintiff but also other applicable federal

remedies. In the case of Farmland Indus., Inc. v. Kansas-

Nebraska Nat. Gas. Co., Inc., 349 F.Supp. 670 (D.Neb. 1972),

aff'd 486 F.2d 315 (8th Cir. 1973), it was stated:

Where other remedies exist, federal courts are loathe to

declare the creation of a new one by reference.

In the Farmland case, the plaintiffs sought damages for aban-

donment of defendant’s certificated service to the plaintiff

without the approval of the FPC. Under 15 U.S.C. §717f(b),

certificated service cannot be abandoned without the approval

of the FPC. Because the contract between the parties in

Farmland had expired, the plaintiff did not have any con-

tractual right to recover from its supplier. Both the district

court and the circuit court held that under the facts of Farm-

land the plaintiff had a private right of action under the

Natural Gas Act to obtain damages for the abandonment. The

A44

primary reason for permitting the private cause of action was

that, unless a private right existed, the plaintiff would have no

remedy to seek redress for the abandonment.

In the case at bar the plaintiffs have several remedies

A45

law and there is a substantial basis for difference of opinion."

More importantly, the FPC Orders Nos. 780 and 780-A are

presently on appeal to the Third Circuit Court of Appeals, and

therefore, that court in evercising ite discretion may wish to

other than 9 private right of ection under the Gas Act avait

able to them. To begin with both PGW and customers of

PGW were permitted to intervene in the FPC proceedings

which resulted in Opinion No. 780 and an accompanying order

in which the FPC found that Gulf failed to fulfil its delivery

responsibilities to Texas Eastern.“ As a result of this opinion

and order, Gulf is required to pay refunds to Texas Eastern.

These refunds are to be flowed-through to Texas Eastern’s

customers. In addition, the plaintiffs may attempt to remedy

the alleged wrongs in federal court pursuant to the antitrust

laws and in state courts by alleging various contract and

third-party beneficiary causes of action. Further redress may

be available to the Thompson plaintiffs in proceedings before

the Pennsylvania Public Utilities Commission.

From the above discussion it is clear that this case can

be distinguished from Farmland and that the availability of

other state and federal remedies render this case inappropri-

ate for implication of a private statutory right of action.

The above analysis demonstrates that some tests of Cort

v. Ash, supra, are not met. The overall thrust of Cort v. Ash,

supra, is that implied private rights of action based on federal

regulatory legislation are to be found in very limited circum-

stances. Therefore, this court declines to infer a private right

of action as urged by the plaintiffs. Because of the national

crisis in the supply of natural gas and the possible conflict

between this court’s decision and the decision in Farmland,

supra, certification under 28 U.S.C §1292(b) will be granted

on the issue of the availability of a private right of action

under the Natural Gas Act. This is a controlling question of

9. Paragraph (C) of the Order accompanying Opinion 780-A sug-

gests the possibility of a private right of action to obtain recompense

for losses not compenssted under the FPC’s refund plan. However, there

appears to be no reason why the FPC cannot, under its statutory

authority, adjudicate those additional claims on an administrative basis.

10. The first test of Cort v. Ash, supra will not be discussed. Al-

though the plaintiffs may be able to prove that they are within the class

for whose benefit the statute was enacted, this would not be enough to

overcome the fact that the three other Cort tests are not met.

—— 2 ie 2 — tlt ah cies

DAE Rete ETNA i ae i Oe se het ee ee ee

permit an interlocutory appeal on this issue to expedite reso-

lution of this matter.

The plaintiffs also seek to recover damages from Gulf for

breach of contract as third-party beneficiaries of the contract

between Gulf and Texas Eastern. This is a state law claim

and there is no diversity of citizenship between plaintiffs and

Gulf. However, plaintiffs maintain that this court should

exercise pendent subject matter jurisdiction over that claim.

I decline to take jurisdiction of a state law contractual claim

as being pendent to the alleged antitrust claim. The basic

operative facts underlying the alleged antitrust claims are

dissimilar to the contract dispute. It is only where the pen-

dent claim arises out of the same set of operative facts as the

federal claim that pendent jurisdiction should be exercised.

See Aldinger v. Howard, — U.S. —, 49 L.Ed. 276 (1976).

Therefore, plaintiff’s state law claims as third-party benefici-

aries of the contract between Gulf and Texas Eastern will be

dismissed.

PGW’S MOTION TO DISQUALIFY COUNSEL FOR

THE CLARK AND THOMPSON PLAINTIFFS

In both Clark and Thompson the plaintiffs purport to be

adequate class representatives for all consumers of gas in

Philadelphia and Philadelphia County. One of the require-

ments to maintain a class action is that the class representa-

tives and their counsel will adequately represent the interest

of the class. Fed. R. Civ. P. 23(a) (4). PGW’s motion to dis-

qualify counsel for the Clark and Thompson plaintiffs will be

considered in conjunction with the class action motion. How-

ever, discovery on the class action issue under the antitrust

count is to proceed.

/s/

Edward N. Cahn, J.

11. See the suggestion of the availability of a private right of action

in FPC Opinion 780-A.

12. Manual for Complex Litigation, Part I. §0.50 (rev. ed. 1973).

— — — —

Po ~

A47

IN THE

UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

— —

— — —

—— aa lhe — —— — nd

MILTON CLARK, et al.

v. Civil Action No. 76-2106

GULF OIL CORPORATION, et al.

THEODORE Q. THOMPSON, et al.

v. Civil Action No. 76-2711

GULF OIL CORPORATION, et al.

ORDER

AND Now this 29th day of March, 1977, IT IS ORDERED

as follows:

1. The motions of the plaintiffs to consolidate both cases

are GRANTED.

2. The motion of Philadelphia Gas Works to intervene

in Civil Action No. 76-2106 is GRANTED.

3. The motion of Philadelphia Gas Works as intervenor

to file an amended complaint is DENIED.

4. The motion of Gulf Oil Corporation to strike reference

in the pleadings and briefs to the decision of the administra-

tive law judge in regard to his views as to whether anticom-

petitive acts have been committed is DENIED.

5. The motions of Texas Eastern Transmission Corpora-

tion to dismiss the complaints against it in both cases are

DENIED.

6. The motions of Gulf Oil Corporation to dismiss the

complaints against it based on a private right of action under

the Gas Act are GRANTED.

7. The motions of Gulf Oil Corporation to dismiss the

claims against it based upon the plaintiffs’ being third party

beneficiaries of Gulf’s contract with Texas Eastern Transmis-

sion Corporation are GRANTED for lack of subject matter juris-

diction.

A48

8. All other motions to dismiss by Gulf Oil Corporation

are DENIED.

9. Discovery shall proceed forthwith on the antitrust

issues and the class action issue.

BY THE COURT:

/3/

Edward N. Cahn, J.

449

IN THE

UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

MILTON CLARK, et al.

v. Civil Action No. 76-2106

GULF On. CORPORATION, et al.

THEODORE Q. THOMPSON, et al.

v. Civil Action No. 76-2711

GULF OIL CORPORATION, et al.

ORDER

AND Now this 29th day of March, 1977, IT IS ORDERED

that the motion of Philadelphia Electric Company to dismiss

the complaint against it in Civil Action No. 76-2711 is

GRANTED without prejudice.

BY THE COURT:

/s/

Edward N. Cahn, J.

A50

IN THE

UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

MILTON CLARK, et al.

v. Civil Action No. 76-2106

GULF OIL CORPORATION, et al.

THEODORE Q. THOMPSON, et al.

v. Civil Action No. 76-2711

GULF OIL CORPORATION, et al.

ORDER

AND Now this 29th day of March, 1977, IT IS ORDERED

that certification is granted pursuant to 28 U.S.C. §1292(b)

to permit plaintiffs to seek an interlocutory appeal on the

issue of whether plaintiffs may pursue a private right of ac-

tion against Gulf Oil Corporation under the National Gas Act.

This is a controlling question cf law and there is a sub-

stantial basis for difference of opinion. The FPC Orders Nos.

780 and 780-A are presently on appeal to the Third Circuit

Court of Appeals. That court, in exercising its discretion, may

wish to permit an interlocutory appeal on this issue to expe-

dite resolution of the entire controversy.

BY THE COURT:

/s/

Edward N. Cahn, J.

APPENDIX D

2375522 e

—

„ n oe

A53

NATURAL GAS ACT

Public—No. 688—75th Congress

Chapter 556—3d Session

LH. R. 6586]

* * * *

Extension of Facilities; Abandonment of Service

Section 7

* * * *

(b) No natural-gas company shall abandon all or any

portion of its facilities subject to the jurisdiction of the

Commission, or any service rendered by means of such facil-

ities, without the permission and approval of the Commis-

sion first had and obtained, after due hearing, and a finding

by the Commission that the available supply of natural gas is

depleted to the extent that the continuance of service is un-

warranted, or that the present or future public convenience

or necessity permit such abandonment. [52 Stat. 824 (1938) ;

15 U.S.C. § 717f (b)]

a natural-gas company upon completion of any proposed

construction or extension shall engage in the transporta-

tion or sale of natural gas, subject to the jurisdiction of

the Commission, or undertake the construction or extension

of any facilities therefor, or acquire or operate any such

facilities or extensions thereof, unless there is in force with

respect to such natural-gas company a certificate of pub-

lic convenience and necessity issued by the Commission

authorizing such acts or operations: provided, however, That

if any such natural-gas company or predecessor in interest

was bona fide engaged in transportation or sale of natural

gas, subject to the jurisdiction of the Commission, on the

effective date of this amendatory Act, over the route or routes

or within the area for which application is made and has so

operated since that time, the Commission shall issue such

certificate without requiring further proof that public con-

venience and necessity will be served by such operation, and

without further proceedings, if application for such certificate

is made to the Commission within ninety-days after the effec-

454

tive date of this amendatory Act. Pending the determination

of any such application, the continuance of such operation

shall be lawful.

In all other cases the Commission shall set the matter

for hearing and shall give such reasonable notice of the

hearing thereon to all interested persons as in its judgment

may be necessary under rules and regulations to be prescribed

by the Commission; and the application shall be decided in

accordance with the procedure provided in subsection (e) of

this section and such certificate shall be issued or denied ac-

cordingly: Provided, however, That the Commission may issue

a temporary certificate in cases of emergency, to assure main-

tenance of adequate service or to serve particular customers,

without notice or hearing, pending the determination of an

application for a certificate, and may by regulation exempt

from the requirements of this section temporary acts or oper-

ations for which the issuance of a certificate will not be re-

quired in the public interest. [52 Stat. 825 (1938), as

amended, 56 Stat. 83 (1942); 15 U.S.C. § 717f (e)!

(e) Except in the cases governed by the provisos con-

tained in subsection (c) of this section, a certificate shall be

issued to any qualified applicant therefor, authorizing the

whole or any part of the operation, sale, service, construction,

extension, or acquisition covered by the application, if it is

found that the applicant is able and willing properly to do the

acts and to perform the service proposed and to conform to

the provisions of the Act and the requirements, rules, and

regulations of the Commission thereunder, and that the pro-

posed service, sale, operation, construction, extension, or

acquisition, to the extent authorized by the certificate, is or

will be required by the present or future public convenience

and necessity; otherwise such application shall be denied.

The Commission shall have the power to attach to the issuance

of the certificate and to the exercise of the rights granted

thereunder such reasonable terms and conditions as the public

convenience and necessity may require. [56 Stat. 84 (1942);

15 U.S.C. § 717f (e)]

A55

Jurisdiction of Offenses; Enforcement of Liabilities

and Duties

Section 22

The District Courts of the United States and the United

States courts of any Territory or other place subject to the

jurisdiction of the United States shall have exclusive jurisdic-

tion of violations of this chapter or the rules, regulations, and

orders thereunder, and of all suits in equity and actions at law

brought to enforce any liability or duty created by, or to en-

join any violation of, this chapter or any rule, regulation, or

order thereunder. Any criminal proceeding shall be brought

in the district wherein any act or transaction constituting the

violation occurred. Any suit or action to enforce any liability

or duty created by, or to enjoin any violation of, this chapter

or any rule, regulation, or order thereunder may be brought in

any such district or in the district wherein the defendant is an

inhabitant, and process in such cases may be served wherever

the defendant may be found. Judgments and decrees so ren-

dered shall be subject to review as provided in sections 225 and

347 of Title 28. No costs shall be assessed against the Com-

mission in y judicial proceeding by or against the Commis-

sion under this chapter. [52 Stat. 833 (1938), as amended,

62 Stat. 875, 895 (1948); 15 U.S.C. § 717u]

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.