Amicus Curiae Brief — New Orleans Public Service, Inc. v. Council of City of New Orleans

In the Supreme Court of the

OCTOBER TERM, 1988

New ORLEANS PUBLIC SERVICE, INC., PETITIONER

Vv.

THE COUNCIL OF THE CITY OF NEW ORLEANS, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

BRIEF FOR THE UNITED STATES AND THE FEDERAL

ENERGY REGULATORY COMMISSION AS AMICI CURIAE

CHARLES FRIED

Solicitor General

DAVID L. SHAPIRO

Special Assistant (o the

Attorney General

RICHARD J. LAZARUS

Assistant to the Solicitor General

Department of Justice

Washington, D.C. 20530

(202) 633-2217

CATHERINE C. COOK

General Counsel

JEROME M. FEIT

Solicitor

Federal Energy Regulatory Commission

Washington, D.C. 20426

QUESTION PRESENTED

Whether a federal court should wholly abstain from ad-

judicating a claim, brought by a public utility against a

local regulatory authority, that the authority is violating

federal law by refusing to honor terms fixed by the Federal!

Energy Regulatory Commission for the interstate sale of

electric power at wholesale.

TABLE OF CONTENTS

Page

i Ce reese EL le ib wasdeesseeeesecee« l

a 9

Ee a 21

TABLE OF AUTHORITIES

Cases:

Alabama Pub. Serv. Comm'n v. Southern Ry., 341 U.S.

i ceed eae eee behedabbaanceecoccesss 11

Aluminum Co. of America vy. Utilities Comm'n, 713

F.2d 1024 (4th Cir. 1983), cert. denied, 465 U-S.

eee sd besiabeeroerbesceecoénseoecs 17

American Elec. Power Co. v. Kentucky Pub. Serv.

Comm'n, 787 F.2d 588 (6th Cir. 1986), cert. denied,

481 U.S. 1023 (1987) .... 2... ee, 5, 16

Appalachian Power Co. v. Public Serv. Comm'n, 614

F. Supp. 64 (S.D. W. Va.), aff'd, 770 F.2d 159 (4th

Cir. 1985), on remand, 630 F. Supp. 656 (S.D. W. Va.

1986), aff'd, 812 F.2d 898 (4th Cir. 1987) ............ 17

Appalachian Power Co. v. Public Serv. Comm'n, 812

F.2d 898 (4th Cir. 1987)... . 22.0 12

Babbitt v. United Farm Workers, 442 U.S. 289 (1979) __. 15

Burford v. Sun Oil Co., 319 U.S. 315 (1943) .......... 3, 10

Catrone v. Massachusetts State Racing Comm'n, 535 F.2d

669 (ist Cir. 1976) .... 2.20, 15

Colorado Interstate Gas Co. v. Federal Power Comm'n,

324 U.S. 581 (1945)... nn, 13

Colorado River Water Conservation Dist. vy. United

States, 424 U.S. 800 (1976) ........................ 10

Cox Cable Communications, Inc. v. Simpson, 569 F.

Supp. 507 (D. Neb. 1983) ...................54..... 15

England v. Louisiana State Bd. of Medical Examiners,

375 U.S. 411 (1964) ................. See e veces. UN-H2

Fujikawa v. Gushiken, 823 F.2d 1341 (9th Cir. 1987) . 15

Gibson v. Berryhill, 411 U.S. 564 (1973) ........ | 13

Hagans v. Lavine, 415 U.S. §28 (1974) ...... 14

Huffman v. Pursue, Lid., 420 U.S. 592 (1975) 12, 20

(111)

IV V

Cases — Continued: Page Cases — Continued: Page

Juidice v. Vail, 430 U.S. 327 (1977) ...... 0.06 eee eee 12 System Energy Resources, Inc., 41 F.E.R.C. 4 61,238

Kentucky West Va. Gas Co. v. Pennsylvania Pub. Utility (1987), appeal pending, No. 88-1067 (D.C. Cir.) ...... 2

Comm'n, 791 F.2d 111 (3d Cir. 1986)... 2.6... 13, 16 Trainor v. Hernandez, 431 U.S. 434 (1977) ............. 12

Kremer v. Chemical Constr. Co., 456 U.S. 461 (1982).... 20 United Mine Workers v. Gibbs, 383 U.S. 715 (1966) ..... 14

Lake Carriers’ Ass'n v. MacMullan, 406 U.S. 498 Western Air Lines v. Board of Equalization, 480 U.S.

OED ide cc nncvandectcccsidacscvctesconssoeccess 13 A) 13

Middle South Energy v. Council of New Orleans, No. Younger v. Harris, 401 U.S. 37 (1971)... . 0. ee, 4,12

85-5273 (E.D. La. Dec. 18, 1986)... eee eee 5 Zablocki v. Redhail, 434 U.S. 374 (1978) .............. 1}

Middle South Energy, Inc., 31 F.E.R.C. 4 61,305, on

reh’g, 32 F.E.R.C. $61,425 (1985), aff'd sub nom.

Mississippi Indus. v. FERC, 808 F.2d 1525, reh’g

granted and vacated in part, 822 F.2d 1104 (D.C. Cir.

1987), cert. denied, No. 86-1380 (Dec. 14, 1987) ...... 2, 12

Middle South Energy, Inc. v. Arkansas Pub. Serv.

Comm'n, 772 F.2d 404 (8th Cir. 1985), cert. denied,

474 U.S. 00GB CIGBED 2... nc ccc ccc cece re ccccseveces 12, 16

Middlesex County Ethics Comm. y. Garden State Bar

Ass'n, 457 U.S. GE oo bcc vdscccenvecccsusecs 12

Mississippi Power & Light Co. v. Mississippi, No.

86-1970 (June 24, 1988) ..... 2.6.6 ee eee eee 1, 11, 12

Nantahala Power & Light Co. v. Thornburg, 476 U.S.

GD GD occ ccccccccvccccecdessedstsvccesbacess 12, 16

NOPSI vy. City of New Orleans, No. 85-3398 (E.D.

La. Sept. 16, 1986S)... 6... cece cece cere eee eeneees 3

NOPSI v. City of New Orleans, 782 F.2d 1236, modified,

798 F.2d 858 (Sth Cir. 1986), cert. denied, 481 U.S.

SEI 0 co vccncvecosstanpocécsstéseasenes 4, 5, 9, 10

NOPSI v. Council of New Orleans, 833 F.2d 583 (Sth

he, GIRS sc cb cacbvsvécoousnensrcisndveeseservs: 6

Ohio Civil Rights Comm'n v. Dayton Christian Schools

Hor., IGE. GIDE ooo ccciscvesscvcescccess 13

Pennzoil Co. v. Texaco, Inc., No. 85-1798 (Apr. 6,

BOOED ccccbcccwcesnesd«svbsteses seeseserésdsss 14, 20

Permian Basin Area Rate Cases, 390 U.S. 747 (1968) .... 13

Romany v. Colegio de Abogados de Puerto Rico, 742

fb T te BRPTTTI Tr 15

Silverman v. Barry, 727 F.2d 1121 (D.C. Cir. 1984) ...... 11

Spartacus, Inc. v. Borough of McKees Rocks, 694 F.2d

SE OE, Ge oi ew ids dovdeceGsotdeetssécesdses 15

Constitution and statutes:

U.S. Const.:

Art. I, § 8, Cl. 3 (Commerce Clause).............. 7

Ary. VI, Cl. 2 (Supremacy Clause)................ 14

Dh Ce cecheeatnede GbbGds oehe 4 ekuuseseeen 14

Federal Power Act, 16U.S.C. (& Supp. 1V) 824 e/seg.... 7,9

Johnson Act, 28 U.S.C. 1342

Miscellaneous

P Bator, D. Meltzer, P. Mishkin & D. Shapiro, Hart

4 Wechsiers The Federal Courts and the Federal

Sgsiem (3d DC a .endede eeeeteenbeeseeasnnase 15

Laycock, Federal Interference with State Prosecutions:

The Need for Prospective Relief, 1977 Sup. Ct. Rev.

Sn iv ck eahaadcdhe deekeue tb dddevececudeaesevecess® 15

Wells, Preliminary Injunctions and Abstention: Some

Problems in Federalism, 63 Cornell L. Rev. 65 (1977) . . 15

In the Supreme Court of the United States

OCTOBER TERM, 1988

No e&88-348

New ORLEANS PUBLIC SERVICE, INC., PETITIONER

Vv.

THE COUNCIL OF THE CITY OF NEW ORLEANS, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI TO

THEM NITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

BRIEF FOR THE UNITED STATES AND THE FEDERAL

ENERGY REGULATORY COMMISSION AS AMICI CURIAE

This submission responds to the Court’s invitation to

the Solicitor General to file a brief expressing the views of

the United States.

STATEMENT

1. Petitioner, New Orleans Public Service, Inc. (NOPSI),

is one of four operating electric utility companies that are

wholly-owned subsidiaries of Middle South Utilities, Inc.

(MSU).' The other subsidiary companies, each of which

' This Court's decision last Term in Mississippi Power & Light Co.

v. Mississippi, No. 86-1970 (June 24, 1988), arose out of the same

transactions underlying the instant dispute; those transactions are

described more fully in the Court's opinion in that case. See slip op

1-9.

(1)

2

sells electric power at retail to its own local customers, are

Louisiana Power & Light (LP&L), Mississippi Power &

Light Company (MP&L), and Arkansas Power & Light

Company (AP&L). A generating subsidiary, Middle South

Energy (MSE), was formed to own and finance two

nuclear power plants, Grand Gulf 1 and 2, and to sell

power from those plants to the operating companies.

in June 1985, the Federal Energy Regulatory Commis-

sion (FERC) approved wholesale rates for power from

Grand Gulf | and allocated its capacity and energy among

the four operating companies. See Middle South Energy,

Inc., 31 F.E.R.C. $61,305, on reh’g, 32 F.E.R.C.

4 61,425 (1985), aff'd sub nom. Mississippi Indus. v.

FERC, 808 F.2d 1525, reh’g granted and vacated in part,

822 F.2d 1104, 1105 (D.C. Cir.), cert. denied, No. 86-1380

(Dec. 14, 1987).2 FERC rejected the New Orleans City

Council’s contention that NOPSI’s share of Grand Gulf |

costs should be 9 percent (see Pet. App. 30A-31A n.11; Br.

in Opp. 4-5 n.4). FERC instead concluded that the

operating companies should share in the system’s total in-

vestment in nuclear capacity “roughly in proportion to

each company’s share of System demand” (31 F.E.R.C. at

61,655-61,656). FERC ordered the following allocation of

Grand Gulf 1 costs: AP&L, 36 percent; LP&L, 14 percent;

MPA&L, 33 percent; and NOPSI, 17 percent (ibid.). MSE

has accordingly billed NOPSI for 17 percent of the costs

since Grand Gulf 1 went into service on July 1, 1985.

The City Council of New Orleans regulates NOPSI’s re-

tail rates. On May 17, 1985, NOPSI applied for a retail

> The District of Columbia Circuit remanded the case to FERC to

consider issues relating to the correctness of its allocation of certain

Grand Gulf 1 costs. See 822 F.2d 1104. On remand, FERC re-

affirmed, with further explanation, its prior allocation. See System

Enerey Resources, Inc., 41 F.E.R.C. 4 61,238 (1987), appeal pending,

No. 88-1067 (D.C. Cir.).

3

rate increase to reflect the Grand Gulf | costs that it would

be required to pay under the FERC allocation. The instant

case is the third in a series of lawsuits that NOPSI has

brought in federal district court against the Council of the

City of New Orleans, based on the Council’s refusal to

allow NOPSI to recover its Grand Gulf 1 costs in its retail

rates.

2. a. NOPSI I: On July 17, 1985, the Council an-

nounced a public hearing, to be held on July 25, 1985, to

consider whether interim rate relief for NOPSI was war-

ranted (Res. R-85-423). The Council stated that the issue

of interim rate relief needed to be addressed because

“various factors, including questions as to the legality and

prudency of the [contracts relating to Grand Gulf 1], the

prudency and reasonableness of the said expenses, and

lack of information on certain relevant matters, prevent

the Council from either denying or granting the requested

rate relief at the present time” (/bid.).

On August 2, 1985, NOPSI filed a complaint in federal

district court seeking declaratory and injunctive relief, and

money damages (86-546 Pet. App. 37A). NOPSI asked the

court, inter alia, to issue preliminary and permanent in-

junctions enjoming the Council from denying NOPSI re-

covery, through its retail rates, of its FERC-allocated

share of the expenses of Grand Gulf 1. The C ouncil denied

NOPSI’s request for interim rate relief on September 5,

1985 (Res. R-85-5261).

On September 16, 1985, the district court granted the

Council’s motion to dismiss. NOPS/ v. City of New

Orleans, No. 85-3398 (E.D. La.). The court held that dis-

missal was warranted under the Johnson Act, 28 U.S.C.

1342, and under Burford v. Sun Oil Co., 319 U.S. 315

(1943). Burford abstention was appropriate, the court ex-

plained, because NOPSI’s rate increase was a matter ot

local concern requiring local administrative expertise and

4

because the Council’s actions would not directly conflict

with FERC’s order.

While the district court’s ruling was pending on appeal,

the Council and NOPSI entered into a settlement agree-

ment with respect to the treatment of Grand Gulf | costs

(Res. R-86-112). The agreement set out in detail the

amounts by which NOPSI could increase its rate base an-

nually until the costs of Grand Gulf | were fully re-

covered. Pursuant to the agreement, NOPSI also agreed

permanently to absorb $51.2 million of the costs (id. at 4).

Both sides purported to reserve their legal rights, including

the Council’s right to investigate the issue of prudence (id.

at 11-12).

On appeal, the court of appeals initially reversed both

aspects of the district court’s ruling,’ but on its own mo-

tion for reconsideration subsequently reversed itself on the

abstention issue. See NOPSI v. City of New Orleans, 782

F.2d 1236, modified, 798 F.2d 858 (Sth Cir. 1986), cert.

denied, 481 U.S. 1023 (1987). The court concluded that

Burford abstention was appropriate because “the regula-

tion and adjustment of local utility rates is of paramount

local concern and a matter which demands local adminis-

trative expertise” (798 F.2d at 862). The court also held

that abstention was appropriate under Younger v. Harris,

401 U.S. 37 (1971), because there was an ongoing ad-

ministrative proceeding before the Council: “NOPSI

would have a full and fair opportunity to litigate its federal

' See NOPSI v. City of New Orleans, 782 F.2d 1236 (Sth Cir. 1986).

The court concluded that the Johnson Act did not apply because

NOPSI's request for injunctive relief rested on a “statutorily -based

preemption claim” and therefore did not rest solely on the “ ‘repug-

nance of the order to the Federal Constitution,’ ” within the meaning

of the Johnson Act (782 F.2d at 1242, quoting 28 U.S.C. 1342). The

court sumilarly concluded that Burford abstention wa» inappropriate

where, as in this case, “the claim presented is predicated upon tederal

preemption” (782 F.2d at 1243)

5

claims” through the state appellate process, and there were

no exceptional circumstances, such as bad faith or harass-

ment, that rendered abstention improper (798 F.2d at

864).

NOPSI petitioned for a writ of certiorari, and, in re-

sponse to this Court’s invitation in a case raising a related

issue (see American Elec. Power Co. v. Kentucky Pub.

Serv. Comm'n, cert. denied, 481 U.S. 1023 (1987)), the

United States and FERC filed a brief as amici curiae

urging the Court to grant NOPSI’s petition. Although we

noted in our submission that the case was “blemished by

procedural problems” because of the settlement agreement

entered into between NOPSI and the City Council (86-49

U.S. Br. 23), we contended the abstention issue remained

sufficiently coucrete to warrant review. The Court,

however, denied NOPSI’s petition.

b. NOPSI II; While NOPSI I was pending before the

court of appeals, the Council announced on October 10,

1985, that it would conduct a prudence investigation into

NOPSI expenditures on Grand Gulf | and requested that

NOPSI answer a lengthy series of questions posed by the

Council (Res. R-85-636). On November 11, 1985, NOPSI

filed a second lawsuit in federal district court in which it

sought to enjoin the investigation. NOPSI subsequently

amended its complaint to seek an injunction or a declara-

tory judgment only to the extent that the Council pro-

posed taking any action to require NOPSI or its share-

holders to absorb all or a portion of the cost of Grand

Gulf 1 allocated to NOPSI by FERC.

The district court dismissed NOPSI’s complaint. See

MSE v. Council of New Orleans, No. 85-5273 (E.D. La.

Dec. 18, 1986). The court ruled, first, that NOPSI’s claims

were not ripe because it was not clear whether the Council

intended to proceed in a manner contrary to federal law.

The court next ruled, in the alternative, that both Younger

and Burford abstention were appropriate.

6

On appeal, the court of appeals affirmed. See NOPSI vy.

Council of New Orleans, 833 F .2d 583 (Sth Cir. 1987). The

court recognized that the Council’s prudence investigation

could “certainly be interpreted as directed towards areas

now off-limits to state regulators” (id. at 586). The court

nonetheless concluded that NOPSI’s request for an injunc-

tion was not ripe because the Council’s inquiry presented

“only a possibility of harm to NOPSI. If such harm oc-

curs, the validity of the New Orleans City Council's action

will depend on facts not yet in existence” (id. at 588).

NOPSI would suffer no irreparable injury, the court ex-

plained, pending completion of the Council’s prudence in-

quiry (ibid.). The court of appeals did not address the

district court’s abstention ruling.

c. NOPSI III: On February 4, 1988, the Council issued

a rate order based on its completed prudence inquiry. The

Council found: (1) “NOPSI’s oversight and review of its

Grand Gulf obligation was uncritical and severely deti-

cient”; (2) “NOPSI made no effort to reduce its risk ex-

posure in the wake of the Three Mile Island Nuclear inci-

dent in 1979-80, which demonstrated the risks of operating

a nuclear reactor”; and (3) “NOPSI imprudently failed to

reduce the risk of its Grand Gulf commitment by selling a

portion of its share of the power off-system, that is, to

some other user.” Pet. App. 8A. Based on these findings,

the Council disallowed $135 million of NOPSI’s deferred

Grand Gulf costs and required NOPSI to deduct that

amount from its rate base (id. at 24A). In order to reflect

the disallowance, the Council also reduced rate increases

then planned for NOPSI (ibid.). The Council explained,

however, that the amount disallowed did not reflect the

full extent of NOPSI’s imprudence, because that amount

would have caused NOPSI to become insolvent (id. at

9A). The Council had instead disallowed only that

amount — minus an additional ten percent “buffer” —that

it concluded NOPSI could absorb without becoming in-

solvent (/bid.).

:

NOPSI subsequently filed the instant action in federal

district court, seeking a declaratory judgment and both

preliminary and permanent injunctive relief from the

Council’s order. NOPSI’s complaint was based solely on

federal grounds: its principal claim was that the order was

preempted by federal law, and it contended that this claim

fell within the exclusive jurisdiction of the federal courts

under the Federal Power Act, 16 U.S.C. (& Supp. IV) 824

et seq.’ NOPSI also argued that it would suffer irreparable

harm absent preliminary injunctive relief because its in-

ability to recover the $135 million in deferred Grand Gulf

costs would reduce its common equity, eliminate its re-

tained earnings, render it unable to sell rate recovery

bonds, jeopardize its ability to continue to pay its FERC-

mandated allocation of Grand Gulf costs, and make it

unable to pay dividends on either preferred or common

stock for at least five years.®

* Upon the issuance of the City Council's order, the Council and a

local consumer organization, the Alliance for Affordable Energy,

filed separate lawsuits in state court. In a suit against NOPSI and

others, the Council sought a declaration that the Council's order

represented a just and reasonable exercise of the Council's power and

that NOPSI’s failure to comply with the order would be unlawful. See

Boissiere v. Cain, No. 88-2503 (Civ. Dist. Ct. Parish of Orleans, La.,

filed Feb. 4, 1988). In a suit against the City Council, the Alliance tor

Affordable Energy sought an order directing the C ouncil to disallow

NOPSI’s recovery of additional Grand Gulf costs. See Alliance for

Affordable Energy, inc. v. Council of New Orleans, No. 88-2502

(Civ. Dist. Ct. Parish of Orleans, La., filed Feb. 4, 1988). The City

Council named NOPSI as a “defendant in reconvention” in the second

lawsuit and NOPSI removed both cases to federal district court. Both

cases were later remanded pursuant to that court's subsequent decision

to abstain. See Pet. App. 27A & n.6.

» The complaint also alleged that the Council's actions violated the

Commerce Clause and were barred by doctrines of estoppel

* NOPSI also filed a complaint (petition of appeal) in state court

NOPSI's state court complaint sought relief based on several state law

On March 10, 1988, the federal district court dismissed

NOPSI’s complaint (Pet. App. 22A-33A). The court

agreed with NOPSI that the Johnson Act does not pre-

clude federal court jurisdiction over the lawsuit (id. at

25A-26A), but concluded that federal courts do not have

exclusive jurisdiction under the Federal Power Act over

NOPSI’s federal preemption claim and that both Burford

and federal constitutional grounds. NOPSI argued that the Council's

rate order was unlawful under state law because it abrogated its settle-

ment agreement with NOPSI, was not supported by substantial evt-

dence in the record, and was based on an improper legal standard of

prudence. NOPSI also argued that the order violated both the State

and Federal Constitutions because it denied NOPSI due process and

constituted a taking of property without just compensation. NOPSI's

state law complaint, however, did not seek relief based on NOPSI's

federal preemption claim. Nor did it seek preliminary injunctive rehet.

In a letter to the state court that accompanied its state court filing,

NOPSI notified the court of the pendency of its federal court lawsuit

against the City Council and explained that it was filing with the state

court in order to avoid later being barred by the applicable state

limitations period NOPSI also explained that it had not included its

federal preemption Clann because the federal courts had exclusive

jurisdiction over that claum, but that it wished to reserve the right to

include that cownt im its state complaint should the federal court

subsequently dismiss NOPSI's federal lawsuit.

Following the federal district court's dismissal of NOPSI's action on

abstention grounds, NOPSI amended its sta > court complaint to in-

clude a federal preemption argument and also filed a motion for

preliminary injunctive rehef based solely on its claim of federal

preemption. The state trial court denied NOPSI's motion tor pre-

luminary relief on May 5, 1988, and NOPSI's appeal of that ruling ts

now pending before a state appellate tribunal, which denied NOPSI's

request for expedited appeal. See NOPS/ v. Council of New Orleans,

No. 88-CA-1369 (4th Cir. La. Ct. App.). The parties to the state trial

court proceeding have since filed cross-motions in support of petitions

for review and/or summary judgment on the merits, which are pend-

ing before that court. Oral argument on those motions was held on

November 30, 1988.

9

and Younger abstention were appropriate (id. at

26A-33A).

The court of appeals affirmed (Pet. App. 2A-20A). In

examining the appropriateness of abstention, « assumed

that NOPSI could prove “as it alleges, with some apparent

evidentiary support,” that the Council's order “ ‘is beyond

the Council’s retail ratemaking authority and violates

federal law’ ” because the order “results in ‘trapping’ [of]

FERC allocated costs,” and “was based on factors that the

state could not legally consider” (id. at 11A). The court of

appeals concluded that its prior “opinion in NOPS/ /

nonetheless requires us to uphold the district court's dect-

sion to abstain” (id. at 20A).’

DISCUSSION

Two Terms ago, we urged the Court to grant review in

NOPSI 1.* We contended then that the Fifth Circuit's

abstention ruling was incorrect, conflicted with decisions

of other courts of appeals, and raised important issues of

federal law warranting a grant of certiorari. We recog:

nized that an intervening settlement agreement between

the parties had diminished somewhat the concreteness of

the controversy, but concluded, on balance, that plenary

review was appropriate. NOPSI's current petition raises

similar abstention issues, but without the mootness Claims

that plagued NOPS/ /. Because we continue to believe that

the Fifth Circuit has misapplied this Court's precedent in

abstaining om deciding the merits of NOPSI's preemp-

tion claim, because a circuit conflict persists on the issue,

Like the district court, the court of appeals rejected NOPSITs

argument that the Federal Power Act provides federal courts with ex

clusive jurisdiction over its preemption claim (sce Pa. App

1LA-1SA). That holding is not challenged in NOPSI's petition in thy

case

* A copy of that carher tihng » attached to thes Driet

and because additional matters of importance are raised

on this record, we again urge the Court to grant further

review.

1. The most recent decision of the Fifth Circuit in

NOPS1 111, like its prior decision in NOPS] J, is incorrect.

“Abstention from the exercise of federal jurisdiction is the

exception, not the rule.” Colorado River Water Conserva-

tion Dist. v. United States, 424 U.S. 800, 813 (1976). In

our view, neither Burford nor Younger abstention is ap-

propriate where, as in this case, the utility makes a

substantial claim that a local regulatory authority has im-

properly “trapped” costs allocated to it by FERC pursuant

to FERC’s exclusive jurisdiction over the terms of sale of

power among members of an interstate utility system. The

independent interest of any single state in such an in-

herently interstate controversy is not sufficient to justify

denying the federal plaintiff the choice of a federal forum.

Moreover, even if it is determined that limited abstention

is warranted, the district court should at the very least be

required to consider whether interim relief is necessary to

prevent irreparable harm to federally protected interests.

a. In Burford, the Court concluded that it would be

best to “leave * * * problems of [state] law to the state

court” in that case because of the great harm to state

pohcies that might result from federal court misinterpreta-

tion of state law concerning the development, production,

and conservation of interstate oil and gas resources (319

U.S. at 332; see id. at 327, 329-330, 331 & n.28, 333-334).’

This case, in contrast, concerns the scope of federal

regulatory law and policy. The federal question whether a

particular FERC allocation must be honored by a local

regulatory authority in a particular context is, moreover,

qualitatively different from the type of broad and amor-

* Indeed, the state courts were described as “working partners with

the [state] Ratlroad Commission in the business of creating a [state]

regulatory system for the of industry” (319 US. at 326)

phous due process claims raised in Burford and Alabama

Pub. Serv. Comm’n v. Southern Ry., 341 U.S. 341, 347

(1951), which is the only case since Burford in which this

Court has squarely upheld abstention on the basis of that

decision.'® In the present case, unlike those cases, any

resulting disruption of state law or policy would be a

deliberate result of an elaborate and comprehensive

congressionally-enacted scheme. Congress determined

that terms for the allocation of power and costs among

members of a multistate public utility holding company

should be conclusively resolved by a neutral federal ad-

ministrative forum (FERC) in accordance with federal

law. See Mississippi Power & Light Co. v. Mississippi, No.

86-1970 (June 24, 1988), slip op. 16-17. Herce, Burford

abstention is inappropriate in this class of cases because

the underlying premise of abstention on that ground —the

need to avoid disruption of state law or policy or to make

determinations “predominantly local” in character —is

missing. Cf. Zabiocki v. Redhail, 434 U.S. 374, 379-380

n.5 (1978) (“there is, of course, no doctrine requiring

abstention merely because resolution of a federal question

may result in the overturning of a state policy”); England

v. Louisiana State Bd. of Medical Examiners, 375 U.S.

411, 415-416 (1964) (“recognition of the rote of state

courts as the final expositors of state law implies no

disregard for the primacy of the federal judiciary in

deciding questions of federal law”); Si/verman vy. Barry,

727 F.2d 1121, 1123-1124 n.4 (D.C. Cir. 1984).

'° In Alabama Pub. Serv. Comm'n v. Southern Ry., a railroad

sought to enjoin a state commission's refusal to permit discontinuance

of two intrastate trains; the railroad argued there that the

commission’s order constituted an unconstitutional deprivation of its

property. The Court's requirement of abstention was based on its con-

clusion that the correctness of the challenged order depended on “pre-

dominantly local factors” (341 U.S. at 349).

12

b. Younger abstention is also inappropriate. The most

“vital consideration” prompting Younger abstention is the

“notion of ‘comity’, that is * * * the belief that the Na-

tional Government will fare best if the States and their in-

stitutions are left free to perform their separate functions

in their separate ways” (401 U.S. at 44). See Ohio Civil

Rights Comm’n v. Dayton Christian Schools, Inc., 477

U.S. 619, 626-627 (1986); Middlesex County Ethics

Comm. v. Garden State Bar Ass’n, 457 U.S. 423, 431

(1982); Trainor v. Hernandez, 431 U.S. 434, 441 (1977);

Juidice v. Vail, 430 U.S. 327, 334 (1977); Huffman v. Pur-

sue, Lid., 420 U.S. 592, 601 (1975). This notion —of

allowing each state to perform its separate function — loses

much of its force, however, when, as in this case, the in-

terests of several states are at odds because of their par-

ticipation in a multistate “common pool”; in such a case, a

decision by the tribunals of any one state in favor of its

citizens may have a corresponding direct adverse effect on

citizens of other participating states. See Mississippi In-

dus. v. FERC, 808 F.2d at 1548-1549; Appalachian Power

Co. v. Public Serv. Comm’n, 812 F.2d 898, 904-905 (4th

Cir. 1987); Middle South Energy, Inc. v. Arkansas Public

Serv. Comm’n, 772 F.2d 404, 416-417 (8th Cir. 1985), cert.

denied, 474 U.S. 1102 (1986).'' Unlike the federal claims

at issue in Younger and its progeny, therefore, the claims

in such inherently interstate disputes are not readily

susceptible to resolution by leaving states “free to perform

their separate functions in their separate ways.” '?

'' The common pool may consist of shared benefits, as in Nan-

tahala Power & Light Co. v. Thornburg, 476 U.S. 953 (1986), or of

shared burdens, as in this case and Mississippi Power & Light Co. See

Mississippi Power & Light Co., slip op. 18.

| '? For this same reason, there may also be some basis for question-

ing whether state fora can provide the unbiased decisionmaking upon

13

We do not contend that abstention is necessarily un-

desirable whenever a federal plaintiff raises a federal pre-

emption claim. See Lake Carriers’ Ass'n v. MacMullan,

406 U.S. 498, 511-512 (1972) (abstention on claims of

federal unconstitutionality and federal statutory pre-

emption was warranted because resolution of the federal

questions presented was “ ‘dependent upon, or may be

materially altered by, the determination of an uncertain

issue of state law’ ”). But federal preemption claims, turn-

ing as they frequently do on an understanding of a com-

plex federal regulatory scheme, are often not appropriate

for the exercise of deference to state tribunals. See, é.g.,

Kentucky West Va. Gas Co. v. Pennsylvania Pub. Util.

Comm'n, 791 F.2d 1111, 1116-1117 (3d Cir. 1986).

Whether abstention is appropriate in a case involving a

claim of federal preemption depends, among other things,

on the relative significance of the preemption claim in the

lawsuit, on its relation to issues of state law, and on the

nature of the preemption argument. In our view, all of

these factors render abstention inappropriate in this case.

The preemption claim is dispositive of the merits of the

lawsuit and, as described above, the nature of the pre-

emption argument deprives the considerations underlying

Younger, particularly the notion of comity, of substantial

force. Cf. Western Air Lines v. Board of Equalization,

480 U.S. 123, 129-130 (1987) (“The general principle that

* * * the meaning of words in a federal statute is a ques-

tion of federal law has especial force when the purpose of

the federal statute is to eliminate discriminatory state

which Younger abstention is predicated. Ct. Gibson v. Berryhill, 411

U.S. $64, $77 (1973). The City Council, for instance, is a popularly

elected legislative body. When setting rates, its proceedings are not

judicial; they are “essentially a legislative function " Colorado Inter-

state Gas Co. v. Federal Power Comm'n, 324 U.S. 581, 589 (1945); see

also Permian Basin Area Rate Cases, 390 U.S. 747, 776 (1968)

14

treatment.”); Hagans v. Lavine, 415 U.S. 528, 550 (1974)

(quoting United Mine Workers v. Gibbs, 383 U.S. 715,

729 (1966) (“ ‘the federal courts are particularly ap-

propriate bodies for the application of pre-emption prin-

ciples’ ”).

Finally, contrary to the Council’s claim (Br. in Opp. 3,

23), this Court’s decision in Pennzoil Co. v. Texaco, Inc.,

No. 85-1798 (Apr. 6, 1987), does not suggest otherwise.

The Court in Pennzoil denied that it was “hold[ing]} that

Younger abstention is always appropriate whenever a civil

proceeding is pending in a state court” (slip op. 11 n.12).

Abstention was appropriate in Pennzoil, the Court ex-

plained, only because it was needed to protect the “vital”

state interest in enforcing the orders and judgments of

state courts. The federal injunction sought in Pennzoil

would have interfered with the execution of state court

judgments and “would do so on grounds that challenge the

very process by which those judgments were obtained”

(slip op. 11). No comparable state interest is implicated in

this case. Nor is the constitutional issue here — essentially a

question of the preemptive effect of a federal statute under

the Supremacy Clause—comparable to the Fourteenth

Amendment due process claim that the decision in Penn-

zoil sought to avoid.

c. For all these reasons, we believe that abstention in

this case is not warranted and that NOPSI’s choice of a

federal forum should be sustained. If it is determined,

however, that limited abstention is appropriate, an im-

portant question is presented by NOPSI’s request in this

action for preliminary injunctive relief. That request,

based solely on a claim of irreparable injury to a protected

federal interest, should be entertained by the district court.

If, as NOPSI claims, the denial of interim relief may, as a

practical matter, result in the permanent trapping of costs

and thus in the frustrating of federal policy, then such

relief is necessary to vindicate that policy. At the same

15

time, the granting of interim relief would not, in itself, in-

terfere with the ability of state tribunals to decide NOPSI’s

claims on their merits. It would only prevent the infliction

of irreparable harm in the meantime. '? In related contexts,

this Court and lower courts have previously recognized or

endorsed the appropriateness of a limited form of absten-

tion, coupled with preliminary relief, in order to avoid

irreparable harm. See, e.g., Babbitt v. United Farm

Workers, 442 U.S. 289, 312 n.18 (1979) (“[T]his is a matter

best addressed by the District Court in the first instance.”);

Romany v. Colegio de Abogados de Puerto Rico, 742 F.2d

32, 45 n.13 (ist Cir. 1984); Spartacus, Inc. v. Borough of

McKees Rocks, 694 F.2d 947, 949 & n.3 (3d Cir. 1982);

Catrone v. Massachusetts State Racing Comm'n, 535 F.2d

669, 672 (ist Cir. 1976); Cox Cable Communications, Inc.

v. Simpson, 569 F. Supp. 507, 515-522 (D. Neb. 1983); ct.

Fujikawa v. Gushiken, 823 F.2d 1341, 1347 (9th Cir.

1987). See also P. Bator, D. Meltzer, P. Mishkin & D.

Shapiro, Hart & Wechsler’s The Federal Courts and the

Federal System 1375, 1422-1423 (3d ed. 1988); Laycock,

Federal Interference with State Prosecutions: The Need

for Prospective Relief, 1977 Sup. Ct. Rev. 193, 277-278;

Wells, Preliminary Injunctions and Abstention: Some

Problems in Federalism, 63 Cornell L. Rev. 65 (1977).

2. Further review is also warranted because the absten-

tion issues are important and are the subject of a conthict

in the circuits.

') As noted above (see note 6, supra), the state court demed NOPSI's

request for preliminary reliet and tor an expedited appeal.

The question of preliminary rehet in the present case ts, Of Course,

different from the question presented in Pennzoil. In that case, Lex

aco’s entire federal claim was that it was constitutionally entitled to a

stay of the trial court's judgment pending appeal, a iederal court dew

sion in Texaco’s favor would have disposed of the very sue held ap

propriate for abstention

16

a. At the time we filed our submission in NOPS!/ /,

there was a conflict involving five circuits on the question

of abstention. That conflict has persisted and, as before, is

most starkly presented by comparing the opinions of the

Third, Fifth, Sixth, and Eighth Circuits on the propriety

of Younger abstention in cases raising preemption claims

based on the “filed rate doctrine.” '* The Sixth Circuit,

like the Fifth Circuit, has ruled in favor of Younger

abstention (see American Elec. Power Co. v. Kentucky

Pub. Serv. Comm'n, 787 F.2d 588 (1986), cert. denied, 481

U.S. 1023 (1987)),'* but the Third and Eighth Circuits

have rejected both Burford and Younger abstention (see

Kentucky West Va. Gas Co. v. Pennsylvania Pub. Utility

Comm’n, 791 F.2d 1111 (3d Cir. 1986); Middle South

Energy, Inc. v. Arkansas Pub. Serv. Comm'n, 772 F.2d

404 (8th Cir. 1985), cert. denied, 474 U.S. 1102 (1986).'*

'* As described by this Court in Nentehala Power & Light Co. v.

Thornburg, 476 U.S. 953, 962 (1986), the filed rate doctrine “holds

that interstate power rates filed with FERC or fixed by FERC must be

given binding effect by state utility commissions determining intra-

state rates.”

'’ The per curiam opinion for the Seth Circuit in American Electric

Power is unpublished. The court of appeals held that Younger absten-

hon was required but that Burford abstention was not. Curously,

however, two judges of the three-judge panel sitting in that case filed

separate concurring opimons in which each contended that Burford

abstention was required.

* The preemption claim in Middle South Energy, Inc., like the

preemption claim in this case, arose out of FERC’s allocation of the

-osts of the Grand Gulf | nuclear power facility; it involved the efforts

of a state public service commission to shield the citizens of Arkansas

trom absorbing AP&L's FERC-allocated share of those costs

17

Two Fourth Circuit decisions, both of which also in-

volve the propriety of abstention in cases raising pre-

emption claims based on the filed rate doctrine, further il-

justrate the scope of the currert circuit conflict. In

Aluminum Co. of America v. Utilities Comm'n, 713 F.2d

1024, 1030 (1983), cert. denied, 465 U.S. 1052 (1984)), the

Fourth Circuit upheld abstention on Burford grounds

after concluding that evaluation of plaintiff's claim —that

the state commission's establishment of retail, intrastate

rates conflicted with FERC-approved wholesale interstate

rates —would require detailed factual inquiry. The court

of appeals suggested, however, that abstention would not

be appropriate in a case where the conflict between state

and federal law was direct and clear (ibid.). In an action

based upon that caveat, the Fourth Circuit

subsequently affirmed a district court’s denial of both

Younger and Burford abstention in the context of a

preemption claim more akin to that present in this case

(see Appalachian Power Co. v. Public Serv. Comm'n, 614

F. Supp. 64 (S.D. W. Va.), affd, 770 F.2d 159 (4th Cir.

1985), on ,emand, 630 F. Supp. 656 (S.D. W. Va. 1986),

aff'd, 812 F.2d 898 (4th Cir. 1987)).

There is no merit, moreover, to respondents’ contention

(Br. in Opp. 13 (emphasis in original)) that a circuit con-

flict does not exist because “all the circuits that have con-

sidered the issue (including the Fifth Circuit) appear to

agree * * * that they will not hesitate to exercise jurisdic-

tion where the state and federal actions are in direct con-

flict and that conflict is readily discernible from the

pleadings.” Both the Sixth Circuit's decision in American

Elec. Power and the Fifth Circuit's ruling in this case in-

volved allegations of just such a direct conflict between

federal and state law. Indeed, the Fifth Circuit in its dect-

sion below expressly assumed that the district court had

18

abstained even though “that [which] was not clear when

NOPSI I was decided is now clear: the [Council’s}] Rate

Order results in ‘trapping’ FERC allocated costs * * * [,]

was based on factors that the state could not legally con-

sider[,] and consequently * * * ‘is beyond the Council’s

retail ratemaking authority and violates federal law’ ”

(Pet. App. 11A).'’ Significantly, moreover, the Fifth Cir-

cuit, unlike respondents, readily acknowledged that a

widespread circuit conflict exists on the propriety of

abstention in these circumstances (see id. at 15A, 20A).

Only respondents refuse to acknowledge the obvious.

b. We also continue to believe that the abstention

issues are important. The circumstances that have given

rise to the plethora of lower court decisions are likely to

'” For this reason, respondents’ effort (Br. in Opp. 24-27) to argue

the merits of NOPSI’s preemption claim is misguided. Whether a cir-

cuit conflict is presented depends on the court of appeals’ reasoning,

not respondents’. Both the court of appeals’ and district court’s opin-

ions strongly suggest, moreover, that neither found much force in

respondents’ preemption arguments. As described by the district court

(Pet. App. 30A), “the Council! faults NOPSI not for buying a ‘pig ina

poke’ but for failing to find a sucker to buy it when the faux-pas

became apparent.” The court added that it “is not ready to assume

there are many, if any, such suckers purchasing electricity in the

wholesale market today” (id. at 30A n.11). Finally, the district court

commented on the Council’s selection of “a figure of 8% for the

prudence disallowance,” explaining that “the Council, and in this case,

everyone else knows that the 8% figure * * * represents the difference

between FERC’s 17% allocation and what NOPSI consistently claims

as its relative share in the MSU system, i.e., 9%. Thus, the disallowed

costs bear no apparent relationship to the savings NOPSI is said to

have foregone” (id. at 30A-31A n.11).

Similarly, the court of appeals concluded that “the language of [the

Supreme Court’s opinion in Mississippi Power & Light C O.] seems to

foreclose” the Council's inquiry into “NOPSI’s asserted imprudence in

tailing to resell the power it had agreed to, and is now bound by the

FERC order to, buy” (Pet. App. 13A).

19

persist. Utilities in neighboring states will continue to af-

filiate and enter into joint financing and power sharing ar-

rangements in order to construct the more massive power

production facilities necessary to meet increased demand.

And, as happened with Grand Gulf 1, cost overruns and

lower than predicted energy demand will sometimes strain

those arrangements and continue to produce the type of

interstate dispute that underlies the controversy presented

in this case.

Resolution of the abstention issues also continues to be

especially important to a fair resolution of these interstate

disputes. As NOPS] J vividly illustrated, a utility’s liability

for wholesale rates may be immediate and ongoing, and a

delay in passing those costs through in retail rates will

often have consequences that are irreparable; it may create

immediate cash flow problems and uncertainties that may

threaten bankruptcy, impede securities offerings, and

force compromise settlements (see pages 4, 7, supra). Be-

cause abstention, especially without consideration of ap-

propriate preliminary relief, may contribute to, and even

precipitate, this result, respondents’ argument (Br. in Opp.

25), that this Court may determine the merits of the pre-

emption claim on review of the decisions of the state

tribunals, rings hollow.

3. Finally, this case presents an excellent vehicle for

addressing the abstention issues. It is not blemished by the

procedural problems present in NOPS/ / because the

settlement agreement entered into between the parties,

which diminished the concreteness of the controversy in

NOPSI I, is wholly incidental to this lawsuit. That agree-

ment purported to preserve the Council’s right to disallow

NOPSI’s right to recover certain Grand Gulf costs on the

ground that they were imprudently incurred (see page 4,

supra). This case concerns the lawfulness of the Council’s

exercise of that right.

20 21

The presence in this case of parallel state judicial pro- CONCLUSION

ceedings does not render further review inappropriate (see

iti i iorari should be granted

note 6, supra). To be sure, those parallel proceedings sug- The petition for a writ of certiorari sch ogaatein

gest arguments of comity that were not present in NOPS/ J. Respectfully submitted.

Moreover, the state courts may determine the merits while

the federal proceedings are pending, possibly injecting Cranes Fup

issues of res judicata into any future federal court con- Solicitor General

sideration of the preemption question. See Huffman v. DAVID L. SHAPIRO

Pursue, Ltd., 420 U.S. at 607-608 & n.19; see also Kremer Special Assistant to the

v. Chemical Constr. Co., 456 U.S. 461 (1982). The parallel Asterney General

RICHARD J. LAZARUS

State proceedings do not, however, change our views on |

Assistant to the Solicitor Genera

the impropriety of federal abstention in this case and,

more important, need not prevent this Court from ad- CATHERINE C. COOK

dressing the fundamental question whether, at the time of General Counsel

the federal district court’s decision, total abstention was JEROME M. FEIT

Solicitor

appropriate. See Pennzoil Co. v. Texaco, Inc., slip op. 15 Seitntet Genes Dieitetiey Oxiiiiinsion

(“In this opinion, we have addressed the situation that ex-

isted on the morning of December 10, 1985, when this case DECEMBER 1988

was filed in the United States District Court for the South-

ern District of New York.”). Any issues of res judicata

that may arise after that time may properly be addressed

on remand.

Indeed, were the rule otherwise, the opportunity would

seldom if ever arise for Supreme Court review of an

abstention ruling in a case such as this. For, as long as the

abstention issue remains unsettled, a federal plaintiff will,

as in this case, be compelled to initiate a parallel state

court proceeding in order to protect itself against the

possibility of federal court abstention after the applicable

State limitations period has run. We do not believe that ac-

tion that a plaintiff must take in order to preserve its right

to seek relief in some forum should deprive that plaintiff

ot the ability to seek Supreme Court review of its choice of

a tederal court.

US GOVERNMENT PRINTING OFFICE 1956 — 241 699 0000