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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1989
- **Citation:** 491 U.S. 350

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0250%3A06. Public record. Not legal advice.