E. & J. Gallo v. Encana Corporation ( 2007 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
E. & J. GALLO WINERY, 
Plaintiff-Appellee,
v. No. 05-17352
ENCANA CORPORATION, formerly
known as PANCANADIAN ENERGY  D.C. No.
CV-03-05412-AWI
CORPORATION; WD ENERGY
OPINION
SERVICES INC., formerly known as
ENCANA ENERGY SERVICES,
Defendants-Appellants.

Appeal from the United States District Court
for the Eastern District of California
Anthony W. Ishii, District Judge, Presiding
Argued and Submitted
February 13, 2007—San Francisco, California
Filed September 19, 2007
Before: Betty B. Fletcher, Richard R. Clifton, and
Sandra S. Ikuta, Circuit Judges.
Opinion by Judge Ikuta
12523
E. & J. GALLO WINERY v. ENCANA CORP. 12527
COUNSEL
Richard P. Levy, David A. Battaglia, James P. Fogelman,
Julian W. Poon and J. Christopher Jennings, Gibson, Dunn &
Crutcher, LLP, Los Angeles, California, for defendant-
appellant EnCana Corporation formerly known as Pan-
Canadian Energy Corporation; WD Energy Services, Inc., for-
merly known as EnCana Energy Services.
Joseph W. Cotchett, Frank M. Pitre, Steven N. Williams, and
Barbara L. Lyons, Cotchett, Pitre, Simon & McCarthy, Bur-
lingame, California; D. Greg Durbin and Timothy J.
Buchanan, McCormick, Barstow, Sheppard, Wayte & Car-
ruth, LLP, Fresno, California; G. Kip Edwards, Kings Beach,
California, for plaintiff-appellee E. & J. Gallo Winery.
OPINION
IKUTA, Circuit Judge:
E. & J. Gallo Winery (“Gallo”) alleged that EnCana Corp.,
a natural gas supplier, and WD Energy Services, Inc., a
wholly-owned marketing subsidiary of EnCana Corp. (collec-
tively “EnCana”), along with multiple unnamed coconspira-
tors, inflated the price Gallo paid for natural gas through their
violations of state and federal antitrust laws. EnCana sought
summary judgment on the ground that the filed rate doctrine
and federal preemption bar Gallo’s claims as a matter of law.
The district court denied EnCana’s summary judgment
motion. We have jurisdiction over this interlocutory appeal
pursuant to 28 U.S.C. § 1292(b), and we now affirm the dis-
trict court.
12528 E. & J. GALLO WINERY v. ENCANA CORP.
I
GALLO’S CLAIMS AND PROCEDURAL HISTORY
Gallo is a wine producer and distributor headquartered in
California that purchased natural gas for use in its wineries
and glass plant. During the period between June 1, 2000, and
December 31, 2001, Gallo purchased its gas at the California
border market known as PG&E Citygate from EnCana, an
energy trader.1 During this period, the purchase and sale con-
tract between Gallo and EnCana did not specify how the par-
ties would calculate the price of the natural gas. However,
both parties concede that, as a matter of practice, the purchase
price was pegged to indices published in two trade publica-
tions, Natural Gas Intelligence (“NGI”) and Gas Daily.
Beginning in the summer of 2000, both natural gas and
electricity prices at the California border markets were subject
to widespread manipulation by energy traders that dramati-
cally raised the price of natural gas. See FINAL REPORT ON
PRICE MANIPULATION IN WESTERN MARKETS (“FINAL REPORT”),
FEDERAL ENERGY REGULATORY COMMISSION (2003). One of the
key elements of the market misconduct was the manipulation
of prices reported to private indices published by natural gas
trade publications. These indices, including NGI and Gas
Daily, reported the sales price for wholesale transactions at
market rates. As explained by the district court:
The indices published in the NGI or the Gas Daily
Index are closely linked to rates, but are not rates
themselves. The published index represents a compi-
lation of submitted and verified information gathered
from voluntary submissions of trading activity and is
published as a price representing trading activity at
each location.
1
Natural gas is transported from producing basins in the Western and
Central portion of the United States and Canada into California at four dif-
ferent border pipeline points called “Citygates.”
E. & J. GALLO WINERY v. ENCANA CORP. 12529
E. & J. Gallo Winery v. EnCana Corp., No. CV-F-03-5412
#AWI-LJO, 2005 WL 2435900 at *19 (E.D. Cal. Sept. 30,
2005) (memorandum order and opinion denying defendant’s
motion for summary judgement).
Buyers and sellers relied on these indices to determine the
market price for natural gas transactions. See FINAL REPORT,
at III-17. However, there was neither a formal process for
reporting pricing data to the publishers of the indices, nor any
oversight by the Federal Energy Regulatory Commission
(“FERC”), which has jurisdiction over certain natural gas
wholesale transactions. See E. & J. Gallo Winery, 2005 WL
2435900, at *19. The process by which the prices in natural
gas transactions were reported to the publishers of indices was
left largely to the traders themselves. After investigating the
operation of the indices, FERC explained that:
[M]ost of the largest natural gas marketing compa-
nies in the country had no formal process for report-
ing trade data to the publishers of the price indices;
the process was left to the trading desks and the trad-
ers themselves. Traders from all companies describe
a typical trading day as hectic, pressure packed, and
frenetic. One of their many tasks was to report trad-
ing data to the Trade Press; this was viewed as both-
ersome but necessary. Often it was a job given to the
newest employee. Many companies report passing
around a form or using a spreadsheet on a shared
drive. The last person who filled out the form or
spreadsheet may have been required to total the
numbers and send them to the Trade Press. There
was nothing to stop a trader from changing the num-
bers someone else had entered. In other cases, trad-
ers took an oral “survey” to get a sense of where the
market was trading. Sometimes they represented it to
the Trade Press as an actual survey, but in other
cases they made up trades to average out to a number
that was consistent with this “survey.”
12530 E. & J. GALLO WINERY v. ENCANA CORP.
FINAL REPORT, at III-29. Thus, despite their wide use as refer-
ence points in pricing natural gas sales and derivatives,
including most of the transactions subject to FERC’s jurisdic-
tional authority, the information used to calculate the indices
was reported in a less than meticulous manner. Not only were
the indices ripe for manipulation, but also FERC’s investiga-
tion confirmed that such abuse actually occurred. Market par-
ticipants had provided false reports of natural gas prices and
trade volumes, and had engaged in other misconduct. Id. at
ES-1-ES-6.
As a purchaser in the wholesale market, Gallo alleges it
was affected by the widespread price manipulation identified
by FERC in such markets. Specifically, Gallo claims that
EnCana and its competitors engaged in a number of illegal
practices designed to manipulate the indices, including agree-
ing to set the “basis”2 price of natural gas at an inflated rate,
misreporting natural gas prices paid to the indices, and engag-
ing in “wash trades.”3 Because Gallo paid EnCana for natural
gas at rates pegged to the indices, Gallo claims it was injured
by the illegal practices that artificially inflated the indices.
Gallo seeks to recover as damages the amount it was over-
charged due to the allegedly illegal conduct. Gallo states it
can establish its damages by determining a hypothetical fair
index price and then subtracting that price from the actual
price Gallo paid for natural gas.
On April 9, 2003, Gallo filed a six-count complaint against
EnCana, consisting of federal and state antitrust actions and
state law damage claims arising under various statutes: the
2
Basis is the difference between the commodity price of natural gas as
quoted on the New York Mercantile Exchange and the price paid for natu-
ral gas at the California border. Thus, basis generally reflects the cost of
transportation.
3
A wash trade is a transaction where two parties simultaneously buy and
sell the same quantity of natural gas at the same price and on the same
day. This creates a false appearance of demand for and short supply of nat-
ural gas.
E. & J. GALLO WINERY v. ENCANA CORP. 12531
Sherman Act, 15 U.S.C. § 1, California’s Cartwright Act,
CAL. BUS. & PROF. CODE §§ 16720 et seq., California’s Unfair
Competition Law, CAL. BUS. & PROF. CODE §§17200 et seq.,
California’s Uniform Fraudulent Transfer Act, CAL. CIV.
CODE §§ 3439 et seq., and under a theory of unjust enrich-
ment. Gallo sought treble damages, disgorgement or restitu-
tion, and injunctive relief, as well as a constructive trust for
fraudulently transferred assets.
On February 11, 2004, EnCana moved to dismiss the com-
plaint on the grounds that, among other things, the filed rate
doctrine barred all of Gallo’s federal claims and that federal
preemption barred Gallo’s state law claims. The district court
denied the motion because it determined that Gallo—given its
status as a retail purchaser for consumption—might be able to
prove its damages in a way that would not impinge on
FERC’s authority over wholesale rates. After Gallo filed an
amended complaint, EnCana filed a second motion to dismiss,
which was also denied. Then, on July 25, 2005, EnCana
moved for summary judgment, contending that Gallo’s dam-
age claims are barred because they require a court to deter-
mine a hypothetical fair rate in the wholesale natural gas
market, a determination barred by the filed rate doctrine and
associated principles of federal preemption. The district court
denied this motion, holding that Gallo could prove its dam-
ages without requiring the court “to examine the fairness of
a rate or tariff that has been filed by FERC.” E. & J. Gallo
Winery, 2005 WL 2435900, at *23. However, the district
court certified its order for interlocutory appeal pursuant to 28
U.S.C. § 1292(b) because the applicability of the filed rate
doctrine is a controlling question of law in this case, and it
stayed the mandate pending this court’s decision on this issue.
On October 24, 2005, EnCana filed a timely petition for inter-
locutory review, which we granted on December 8, 2005.
12532 E. & J. GALLO WINERY v. ENCANA CORP.
II
STANDARD OF REVIEW
We review de novo the district court’s denial of summary
judgment. See Lee v. Gregory, 363 F.3d 931, 932 (9th Cir.
2004). Summary judgment is appropriate only where the
“pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a matter of law.”
Fed. R. Civ. P. 56(c). Therefore, this court must “determine,
viewing the evidence in the light most favorable to the non-
moving party, whether there are any genuine issues of mate-
rial fact and whether the district court correctly applied the
relevant substantive law.” Suzuki Motor Corp. v. Consumers
Union of U.S., Inc., 330 F.3d 1110, 1131-32 (9th Cir. 2003),
cert. denied, 540 U.S. 983 (2003). We also review de novo
the district court’s analysis of preemption and the filed rate
doctrine. See Cal. ex rel. Lockyer v. Dynegy, Inc., 375 F.3d
831, 849 n.16 (9th Cir. 2004).
III
ANALYSIS
Gallo’s damage claims are based on the theory that the
rates it paid EnCana were unfairly high because they were
pegged to indices that were artificially inflated due to illegal
practices. EnCana argues that Gallo is challenging market-
based rates that were authorized by FERC, and thus Gallo’s
claims are barred by two legal principles: the filed rate doc-
trine and associated principles of federal preemption. We start
by explaining these legal principles, which are central to our
analysis.
E. & J. GALLO WINERY v. ENCANA CORP. 12533
A
The Filed Rate Doctrine
[1] The filed rate doctrine and associated principles of fed-
eral preemption bar challenges under state law and federal
antitrust laws to rates set by federal agencies. See Transmis-
sion Agency of N. Cal. v. Sierra Pac. Power Co., 295 F.3d
918, 929 (9th Cir. 2002) (“[S]tate law, and some federal law
(e.g. antitrust law), may not be used to invalidate a filed rate
nor to assume a rate would be charged other than the rate
adopted by the federal agency in question.”). The doctrine is
a judicial creation that arises from decisions interpreting fed-
eral statutes that give federal agencies exclusive jurisdiction
to set rates for specified utilities, originally through rate-
setting procedures involving the filing of rates with the agen-
cies. The filed rate doctrine was first applied to rates filed
with the Interstate Commerce Commission under the Inter-
state Commerce Act, see Keogh v. Chicago & Nw. Ry. Co.,
260 U.S. 156 (1922), and was subsequently extended to the
Natural Gas Act, ch. 556, 52 Stat. 821 (codified as amended
at 15 U.S.C. §§ 717-717w) (“NGA”), see Ark. La. Gas Co. v.
Hall (“Arkla”), 453 U.S. 571, 576-77 (1981), the Federal
Power Act, see Nantahala Power and Light Co. v. Thornburg,
476 U.S. 953 (1986), and the Communications Act, see AT&T
v. Cent. Office Tel., Inc., 524 U.S. 214 (1998), among others.
In its first delineation of the filed rate doctrine, the
Supreme Court held in Keogh that a plaintiff could not
recover for damages caused by paying transportation rates
that had been allegedly set in violation of the Sherman Act,
because the rates had been filed with and approved by the
Interstate Commerce Commission (“ICC”). Keogh, 260 U.S.
156. The Sherman Act permits any person who is “injured in
his business or property by reason of anything forbidden in
the antitrust laws” to “recover threefold the damages by him
sustained, and the cost of suit, including a reasonable attor-
ney’s fee.” 15 U.S.C. § 15(a). The Court held that a plaintiff
12534 E. & J. GALLO WINERY v. ENCANA CORP.
could not be “injured in his business or property” for purposes
of the Sherman Act by paying rates that had been approved
by the ICC and were thus the legal rates. Keogh, 260 U.S. at
163 (quoting 15 U.S.C. § 15(a)). The Court noted that
“[i]njury implies violation of a legal right,” id., and that a law-
ful rate could not cause such a violation.
When the Court revisited Keogh sixty-two years later, it
reaffirmed that Keogh’s interpretation of “injury” under sec-
tion 15 of the Sherman Act precluded an award based on law-
ful rates approved by the ICC. See Square D Co. v. Niagara
Frontier Tariff Bureau, Inc., 476 U.S. 409 (1986). The Court
noted that “Keogh represents a longstanding statutory con-
struction that Congress has consistently refused to disturb,
even when revisiting this specific area of law.” Id. at 421-22.
The logic underlying the Court’s statutory construction in
Keogh is equally applicable to the NGA, which provides the
framework for federal regulation of the natural gas industry.
Arkla, 453 U.S. at 577; see also Fed. Power Comm’n v. Hope
Natural Gas Co., 320 U.S. 591, 609-11 (1944). Section 4 of
the NGA provides that rates in natural gas transactions subject
to the NGA’s scope4 “shall be just and reasonable.” 15 U.S.C.
§ 717c(a). Section 4 also provides that natural gas companies
must file their rates for transportation or sale with the Federal
Power Commission (now FERC) and allows FERC to hold
hearings to determine the lawfulness of the rates. 15 U.S.C.
§ 717c(e). In finding a rate just and reasonable, FERC conclu-
sively determines that the rate is lawful for transactions sub-
ject to its jurisdiction under the NGA. As a result, “[n]o court
may substitute its own judgment on reasonableness for the
judgment of [FERC]. The authority to decide whether the
4
Section 1(b) of the NGA, 15 U.S.C. § 717(b), established that the NGA
applies “to the transportation of natural gas in interstate commerce, to the
sale in interstate commerce of natural gas for resale for ultimate public
consumption for domestic, commercial, industrial, or any other use, and
to natural-gas companies engaged in such transportation or sale.”
E. & J. GALLO WINERY v. ENCANA CORP. 12535
rates are reasonable is vested by [section] 4 of the [NGA]
solely in [FERC], and the right to a reasonable rate is the right
to the rate which [FERC] files or fixes.” Arkla, 453 U.S. at
577 (internal citations and quotation marks omitted).
Consistent with the logic of the filed rate doctrine, the
Supreme Court determined that the Supremacy Clause pre-
cludes a state court from awarding damages that, in effect,
give the plaintiff a rate different from the rate filed with and
approved by a federal agency. See id. at 580. In the leading
case of Arkla, a purchase contract between Arkla and certain
gas producers included a “favored nations clause” providing
that if Arkla paid more for gas from some other seller, Arkla
would also pay the producers that higher price. Id. at 573. The
contract rates were filed with and approved by FERC (or its
predecessor agency). Id. at 574. After Arkla allegedly began
paying higher rates to another provider of natural gas, the gas
producers brought an action against Arkla claiming a breach
of the “favored nations clause.” Id. The state supreme court
awarded the producers damages. Id. at 575.
The Supreme Court reversed this judgment, holding that
the NGA barred the producers “from collecting a rate other
than the one filed with [FERC].” Id. at 578. FERC’s determi-
nation of the lawful rate preempted any conflicting state
determination, and thus the Supremacy Clause precluded a
state court from using a breach-of-contract action to grant
producers a rate higher than FERC allowed. Id. at 583-84. By
awarding damages, the state supreme court had “usurped a
function that Congress has assigned to a federal regulatory
body,” which “the Supremacy Clause will not permit.” Id. at
582. Put succinctly, “[w]hen the filed rate doctrine applies to
state regulators, it does so as a matter of federal pre-emption
through the Supremacy Clause.” Entergy La., Inc. v. La. Pub.
Serv. Comm’n, 539 U.S. 39, 47 (2003).
[2] From the foregoing review of the filed rate doctrine and
associated principles of federal preemption, we can derive the
12536 E. & J. GALLO WINERY v. ENCANA CORP.
following principle: to the extent Congress has given FERC
authority to set rates under the NGA and FERC has exercised
that authority, such rates are just and reasonable as a matter
of law and cannot be collaterally challenged under federal
antitrust law or state law. For convenience, we will refer to
such just and reasonable rates as “FERC-authorized rates.”
We will refer to the statutory interpretation of the Sherman
Antitrust Act that bars federal antitrust challenges to FERC-
authorized rates and the preemption analysis set forth in Arkla
that bars state law challenges collectively as the “Filed Rate
Doctrine.”
B
FERC-Authorized Rates and the Indices
The underlying issue in this appeal is whether Gallo is chal-
lenging FERC-authorized rates. If so, Gallo’s claims would be
barred by the Filed Rate Doctrine and EnCana would be enti-
tled to summary judgment.
This issue requires the analysis of several factors. First,
because FERC no longer authorizes rates through a formal
rate-filing mechanism, we must determine whether market-
based rates can be FERC-authorized rates. This determination
requires consideration of the significant changes in the natural
gas regulatory regime from the time the Supreme Court
decided Keogh and Arkla to the present.
Second, Gallo paid EnCana retail rates pegged to indices
that reflected the wholesale market in natural gas. We must
consider whether the Filed Rate Doctrine can bar damage
claims based on an index that represents market-based whole-
sale rates, but that is not a rate itself. We must also consider
whether Gallo’s damage claims can be barred by the Filed
Rate Doctrine when Gallo’s purchases were retail purchases,
which are outside of FERC’s jurisdiction.
E. & J. GALLO WINERY v. ENCANA CORP. 12537
In analyzing these issues, we must be mindful that under
the summary judgment standard, we view the evidence in the
light most favorable to Gallo, the non-moving party.
Transition from Filed Rates to Market-Based Rates. As
explained above, courts originally developed the Filed Rate
Doctrine in light of FERC’s exclusive jurisdiction to set rates
through a rate filing procedure. See Arkla, 453 U.S. at 576-77.
We briefly review the changes in FERC’s natural gas jurisdic-
tion and rate-setting procedure to provide the context for
determining whether market-based rates can be FERC-
authorized rates.
Congress originally gave FERC rate-setting jurisdiction
over certain segments of the natural gas market to address
concerns about monopolization in the natural gas market.
Before Congress enacted the NGA, the natural gas market
consisted of three segments: producers, interstate pipelines,
and local distribution companies. Producers drilled for the
natural gas at the wellhead and then sold the gas to interstate
pipelines. Interstate pipelines then transported the gas to vari-
ous locations throughout the country where it was purchased
by local distribution companies, who, in turn, sold the natural
gas to consumers. As a result of their control over the trans-
portation of natural gas, interstate pipelines developed
monopoly power over both purchases of natural gas at the
wellhead and sales to local distribution companies. General
Motors Corp. v. Tracy, 519 U.S. 278, 283 (1997).
In order to curb the market power of interstate pipelines,
Congress passed the NGA. By its terms, the NGA is applica-
ble to: “(1) the transportation of natural gas in interstate com-
merce; (2) its sale in interstate commerce for resale [i.e.,
wholesale sales]; and (3) natural gas companies5 engaged in
5
A “natural-gas company” is defined as “a person engaged in the trans-
portation of natural gas in interstate commerce, or the sale in interstate
commerce of such gas for resale.” 15 U.S.C. § 717a(6).
12538 E. & J. GALLO WINERY v. ENCANA CORP.
such transportation or sale.” Panhandle E. Pipe Line Co. v.
Pub. Serv. Comm’n of Ind., 332 U.S. 507, 516 (1947) (foot-
note added). The NGA is expressly inapplicable to “any other
transportation or sale of natural gas or to the local distribution
of natural gas or to the facilities used for such distribution or
to the production or gathering of natural gas.” 15 U.S.C.
§ 717(b).6 The Supreme Court confirmed that this statutory
language excluded retail sales. See Panhandle E. Pipe Line
Co., 332 U.S. at 517 (“The line of the statute [is] thus clear
and complete. It cut[s] sharply and cleanly between sales for
resale and direct sales for consumptive uses.”). However, the
language included sales by gas producers at the wellhead. See
Phillips Petrol. Co. v. Wisconsin, 347 U.S. 672 (1954) (inter-
preting the NGA definition of natural gas companies to
include independent gas producers at the wellhead). As a
result, during this period FERC’s rate-setting jurisdiction
reached sales by producers at the wellhead and sales by inter-
state pipelines, but not sales by local distribution companies
to consumers (i.e., retail sales). See E. & J. Gallo Winery, No.
2005 WL 2435900, at *3. FERC exercised its rate-setting
jurisdiction through the statutory filed-rate mechanism previ-
ously discussed.
As a result of an overburdened federal regulatory system
and low price ceilings on wellhead sales imposed by FERC,
there were acute shortages of natural gas during the 1970s. To
6
15 U.S.C. § 717(b) provides:
Transactions to which provisions of chapter applicable
The provisions of this chapter shall apply to the transportation of
natural gas in interstate commerce, to the sale in interstate com-
merce of natural gas for resale for ultimate public consumption
for domestic, commercial, industrial, or any other use, and to
natural-gas companies engaged in such transportation or sale . . .
but shall not apply to any other transportation or sale of natural
gas or to the local distribution of natural gas or to the facilities
used for such distribution or to the production or gathering of nat-
ural gas.
E. & J. GALLO WINERY v. ENCANA CORP. 12539
ameliorate the shortages, Congress began the process of
deregulating much of the natural gas industry, beginning in
1978 with the passage of the Natural Gas Policy Act
(“NGPA”), Pub. L. No. 95-621, 92 Stat. 3352 (codified as
amended at 15 U.S.C. §§ 3301-3432 (1994)). The NGPA
eliminated the low price ceilings on wellhead sales, replacing
them with maximum price ceilings for wellhead sales of natu-
ral gas that would encourage natural gas production. Id.In 1989, Congress passed the Natural Gas Wellhead
Decontrol Act of 1989 (“WDA”), Pub. L. No. 101-60, 103
Stat. 157, which completely eliminated FERC’s authority to
set prices at the wellhead by removing “first sales” from
FERC’s rate-setting jurisdiction.7 Despite the complexity of
the statutory definition of first sales,8 first sales are, in
7
15 U.S.C. § 3431(a)(1)(A) provides:
For purposes of section 1(b) of the Natural Gas Act [15 U.S.C.
§ 717 (b)], the provisions of the Natural Gas Act [15 U.S.C.
§ 717 et seq.], and the jurisdiction of the Commission under such
Act shall not apply to any natural gas solely by reason of any first
sale of such natural gas.
8
15 U.S.C. § 3301(21) defines “first sale” as follows:
(A) General rule
The term “first sale” means any sale of any volume of natural gas—
(i) to any interstate pipeline or intrastate pipeline;
(ii) to any local distribution company;
(iii) to any person for use by such person;
(iv) which precedes any sale described in clauses (i), (ii),
or (iii); and
(v) which precedes or follows any sale described in clauses
(i), (ii), (iii), or (iv) and is defined by the Commission as a
first sale in order to prevent circumvention of any maximum
lawful price established under this chapter.
(B) Certain sales not included
Clauses (i), (ii), (iii), or (iv) of subparagraph (A) shall not include
the sale of any volume of natural gas by any interstate pipeline,
12540 E. & J. GALLO WINERY v. ENCANA CORP.
essence, merely sales of natural gas that are not preceded by
a sale to an interstate pipeline, intrastate pipeline, local distri-
bution company, or retail customer. In other words, sales by
pipelines, local distribution companies, and their affiliates
cannot be first sales unless these entities are selling gas of
their own production. § 3301(21)(B). Additionally, to give
effect to the North American Free Trade Agreement, on Octo-
ber 24, 1992, Congress amended the NGA to provide that all
sales of Canadian and Mexican natural gas are also first sales.
Energy Policy Act of 1992, Pub. L. No. 102-486, 106 Stat.
2866 (codified at 15 U.S.C. § 717b(b)9). Congress’s decision
to remove FERC’s authority to set prices for first sales left the
determination of natural gas prices at the wellhead to market
forces. See Regulation of Natural Gas Pipelines After Partial
Wellhead Decontrol, 50 Fed. Reg. 42,408, 42,412 (Oct. 18,
1985).
Although the WDA’s elimination of low price ceilings
encouraged a more competitive market at the wellhead, pipe-
line companies continued to “bundle” their transportation ser-
vice with their own natural gas sales and require customers to
purchase both. Because consumers lacked the means of trans-
intrastate pipeline, or local distribution company, or any affiliate
thereof, unless such sale is attributable to volumes of natural gas
produced by such interstate pipeline, intrastate pipeline, or local
distribution company, or any affiliate thereof.
9
15 U.S.C. § 717b(b) provides:
With respect to natural gas which is imported into the United
States from a nation with which there is in effect a free trade
agreement requiring national treatment for trade in natural gas,
and with respect to liquefied natural gas—
(1) the importation of such natural gas shall be treated as a
“first sale” within the meaning of section 3301(21) of this title;
and
(2) the Commission shall not, on the basis of national origin,
treat any such imported natural gas on an unjust, unreasonable,
unduly discriminatory, or preferential basis.
E. & J. GALLO WINERY v. ENCANA CORP. 12541
porting the gas to their facilities, consumers could not benefit
from the more competitive market at the wellhead. See E. &
J. Gallo Winery, 2005 WL 2435900, at *3.
To further the deregulation process started by Congress,
FERC began its own process of deregulating the natural gas
market by giving consumers more access to wellhead markets
and by moving toward market-based rates. In 1992 FERC
promulgated Order 636, “which required all interstate pipe-
lines to ‘unbundle’ their transportation from their own natural
gas sales and to provide common carriage services to buyers
from other sources that wished to ship gas [in their pipe-
lines].” General Motors, 519 U.S. at 284; see also Pipeline
Service Obligations and Revisions to Regulations Governing
Self-Implementing Transportation; and Regulation of Natural
Gas Pipelines After Partial Wellhead Decontrol, 57 Fed. Reg.
13,267 (April 16, 1992). As a result of Order 636 (which lim-
ited the monopoly power of the pipelines), consumers could
purchase natural gas at the wellhead in an unregulated first
sale and then arrange to transport the natural gas via the inter-
state pipelines, paying separately for the product (natural gas)
and the service (transportation). In addition, FERC issued
blanket sale certificates to interstate pipelines that allowed
them to sell unbundled natural gas at market-based rates
rather than at rates filed with FERC. 57 Fed. Reg. at 13,270.
Following Order 636, FERC continued the deregulation of
rates for the transactions that remained subject to its jurisdic-
tion. After determining that no seller of natural gas could
obtain market power and that market-based rates would be
“just and reasonable,” see id. at 13,296-97; see also Regula-
tions Governing Blanket Marketer Sales Certificates, 57 Fed.
Reg. 57,952, 57,957-58 (Dec. 8, 1992), FERC issued blanket
certificates for sales for resale of natural gas to all persons
except interstate pipelines.10 This resulted in the suspension of
10
Interstate pipelines already had blanket market certificates under
FERC Order 636. See 57 Fed. Reg. at 13,270.
12542 E. & J. GALLO WINERY v. ENCANA CORP.
FERC’s rate-filing requirements for such sales. 57 Fed. Reg.
at 57,953. These blanket certificates allowed all natural-gas
companies subject to FERC’s jurisdiction to charge rates for
gas determined by market demand and freed the blanket cer-
tificate holders from “other regulation under the Natural Gas
Act jurisdiction of [FERC].” 18 C.F.R. § 284.402(a). How-
ever, FERC advised the regulated natural gas industry that it
would continue to “monitor the operation of the market
through the complaint process.” 57 Fed. Reg. at 57,958. This
ongoing monitoring resulted in FERC’s exercising its over-
sight authority in 2003, when it revoked Enron’s blanket mar-
ket certificate. See Enron Power Mktg., Inc., 103 F.E.R.C.
¶ 61, 343, ¶ 68 (2003). In further exercise of its oversight
authority, FERC subsequently amended its blanket market
certificates to explicitly prohibit anticompetitive behavior and
other market abuses, based on FERC’s determination that
price manipulation had occurred in prior years. Amendments
to Blanket Sales Certificates, 68 Fed. Reg. 66,323 (Nov. 26,
2003).
In sum, the actions of Congress and FERC have effected a
substantial deregulation of the natural gas market from the
mid-1990s to the present. Since the mid-1990s, Congress has
limited FERC’s jurisdiction over wholesale sales to those
wholesale sales (not including sales of Canadian and Mexican
natural gas) that are preceded by a sale to an interstate pipe-
line, intrastate pipeline, local distribution company, or retail
customer. See 68 Fed. Reg. at 66,324-25. A market in which
retail consumers such as Gallo can participate has replaced
the original wholesale market (interstate pipelines under
FERC’s jurisdiction buying natural gas from producers and
selling it at filed rates to local distribution companies).
Finally, FERC replaced filed rates with market-based rates.
FERC’s Authorization of Market Rates. Within this histori-
cal context, we turn to the question whether FERC’s authori-
zation of market rates for certain wholesale natural gas
transactions bars damage actions based on those rates to the
E. & J. GALLO WINERY v. ENCANA CORP. 12543
same extent as FERC’s authorization of filed rates barred
claims based on those rates. Gallo contends that only rates
that have been literally filed with and approved by FERC pur-
suant to 15 U.S.C. § 717c(c) can bar damage claims by plain-
tiffs. We disagree.
[3] As we previously noted, the Filed Rate Doctrine is
based on the principle that rates authorized by FERC are just
and reasonable as a matter of law and accordingly cannot be
the basis of a damage action. We have held that this principle
can apply to market-based rates. See Pub. Util. Dist. No. 1 of
Grays Harbor County Wash. v. IDACORP Inc. (“Grays Har-
bor”), 379 F.3d 641, 651 (9th Cir. 2004) (“[W]hile market-
based rates may not have historically been the type of rate
envisioned by the filed rate doctrine, we conclude that they do
not fall outside of the purview of the doctrine.”); PUD No. 1
of Snohomish County v. Dynegy Power Mktg, Inc.
(“Snohomish”), 384 F.3d 756, 761 (9th cir. 2004) (“This
court has rejected Snohomish’s argument that the preemption-
related doctrines at issue do not apply when market-based
rates are involved.”). Although historically FERC set rates
through the statutory filed rate mechanism, the NGA does not
require FERC to use any particular form of regulation in its
quest to ensure reasonable rates. Rather, it has wide latitude
to determine the most effective way to carry out its charge
from Congress. See Mobil Oil Exploration and Producing Se.
Inc. v. United Distribution Cos., 498 U.S. 211, 224 (1991)
(“The Court has repeatedly held that the just and reasonable
standard does not compel [FERC] to use any single pricing
formula . . . .”). Gallo does not contend that FERC’s decision
to issue blanket market certificates exceeded FERC’s author-
ity under the NGA. Nor could Gallo raise such an argument
in this action, because the NGA requires that such challenges
be first brought before FERC. 15 U.S.C. § 717r; see e.g., Cal.
ex rel. Lockyer, 383 F.3d at 1011-13.11
11
To clarify, there are two different types of challenges to FERC-
authorized rates. In a number of cases, such as this one, a buyer brings a
12544 E. & J. GALLO WINERY v. ENCANA CORP.
[4] Moreover, although the Supreme Court initially applied
the Filed Rate Doctrine to actual filed rates, courts have held
that the principles underlying this doctrine preclude chal-
lenges to a wide range of FERC actions, not just the act of lit-
eral rate filing. As the district court pointed out, the principle
of barring challenges to FERC’s decisions extends to “such
regulatory determinations as allocation of costs, penalties for
violations of the tariff’s provisions, and market protocols gov-
erning sales through state regulatory structures,” E. & J. Gallo
Winery, 2005 WL 2435900, at *11 n.3 (internal citations
state law or federal antitrust action against a seller, who in turn raises the
Filed Rate Doctrine as an affirmative defense. See e.g., Grays Harbor, 379
F.3d 641; Snohomish, 384 F.3d 756. In the context of such collateral chal-
lenges to FERC-authorized rates, we do not consider whether the FERC-
authorized rates are just and reasonable. Rather, under the principles of the
Filed Rate Doctrine, they are just and reasonable as a matter of law. In the
case of market-based rates, although we have considered whether FERC
exercised its authority to set rates, we have not considered whether FERC
erred in determining that market-based rates were just and reasonable. See
Grays Harbor, 379 F.3d at 651-52; Snohomish, 384 F.3d at 760.
We have also considered challenges to FERC-authorized rates that arise
in a different context, namely, where a party directly challenges a FERC
decision implementing its rate-setting authority. See e.g., Cal. ex rel. Lock-
yer, 383 F.3d 1006; see also Public Utility District No. 1 of Snohomish
County Washington v. FERC (“PUD of Snohomish”), 471 F.3d 1053,
1082-84 (9th Cir. 2006). Parties claiming that FERC has not fulfilled its
statutory obligation to ensure just and reasonable rates must present this
issue to FERC in the first instance. We may review FERC’s determination
on appeal. 15 U.S.C. § 717r; 16 U.S.C. § 825l(b). Unlike the collateral
challenges described above, such direct challenges do require us to deter-
mine whether FERC has properly exercised its rate-making authority. In
direct appeals of FERC decisions to authorize market-based rates, we have
considered whether “approval of such tariffs was conditioned on the exis-
tence of a competitive market.” Cal. ex rel. Lockyer, 383 F.3d at 1013. We
thought it relevant that FERC approved market-based rates only after find-
ing that the seller did not have, or had adequately mitigated, market power
and that FERC required seller to file periodic reports summarizing its
transactions. Id. This second type of challenge is not before us today, and
we do not reach the question whether FERC’s implementation of its rate-
making authority in the natural gas arena complied with its statutory obli-
gations under the NGA.
E. & J. GALLO WINERY v. ENCANA CORP. 12545
omitted), as well as “the services, classifications, charges, and
practices included in the rate filing.” Id. By the same token,
the Filed Rate Doctrine would extend to FERC’s decision to
approve market-based rates.
[5] We have indicated in the electricity arena that so long
as FERC “continues to engage in regulatory activity” and has
not effectively abdicated its rate-making authority, FERC’s
approval of market-based rates under the FPA would have the
same preclusive effect on antitrust claims and state damage
actions as did FERC’s approval of literally filed rates. See
Grays Harbor, 379 F.3d 641; Snohomish, 384 F.3d at 760. In
Grays Harbor, a public utility district argued that its action
against an energy wholesaler was not barred by the Filed Rate
Doctrine because the doctrine did not apply in the deregulated
market “where prices are negotiated between parties and the
rates are not filed and approved in advance by FERC.” 379
F.3d at 647-48. Using the principles underlying the Filed Rate
Doctrine, we rejected this argument on several grounds.
First, we held that the state law contract claims were barred
by principles of field preemption because the plaintiff’s
requested relief “seems to require the district court, at some
point, to determine the fair price of the electricity that was
delivered under the contract.” Id. at 648. We concluded that
“the requested relief intrudes on an ‘identifiable portion’ of a
field that the federal government has occupied and addresses
a matter” that the federal government regulates. Id. We also
held that conflict preemption barred state law claims: Grays
Harbor’s damage action created an actual conflict between
federal and state law because “by asking the court to set a fair
price, Grays Harbor is invoking a state rule (specifically, con-
tract law) that would interfere with the method by which the
federal statute was designed to reach its goals (specifically,
FERC regulation of wholesale electricity rates).” Id. at 650.
We next held that the federal antitrust claims would also be
barred by the Filed Rate Doctrine because the relief sought by
Grays Harbor would require the court to set damages by
12546 E. & J. GALLO WINERY v. ENCANA CORP.
assuming a hypothetical rate, the “fair value,” in place of the
“market-based rate regime established by FERC.” Id. at 651.
This would violate the Filed Rate Doctrine because the FERC
market-based rates were the lawful rates. Id.Finally, a failure by FERC to exercise its statutory authority
to approve rates would cast doubt on the underlying premise
of the Filed Rate Doctrine, i.e., that FERC-approved rates are
just and reasonable as a matter of law and thus are not subject
to collateral challenge. In response to Grays Harbor’s claim
that “FERC simply did not set any rates,” id., we relied on
FERC’s assertions that it was continuing to exercise its
authority in the electricity arena. We noted FERC’s statement
that it continued its market oversight by granting permits to
sell at market-based rates only after making a determination
that the seller lacked market power and could not “erect other
barriers to entry.” We noted that “[a]ccording to FERC, these
conditions assure that the market-based rates charged comply
with the FPA’s requirement that rates be just and reasonable.”
Id.; see also Snohomish, 384 F.3d at 760-61. We further noted
that FERC’s oversight was ongoing, that FERC imposed vari-
ous reporting requirements on sellers, and that “FERC has
clearly stated its belief that these procedures satisfy the filed
rate doctrine for market-based rates.” Grays Harbor, 379 F.3d
at 651 (quotation marks omitted). We concluded that market-
based rates “do not fall outside of the purview” of the Filed
Rate Doctrine. Id. Snohomish relied on Grays Harbor in con-
cluding that FERC was “doing enough regulation to justify
federal preemption of state laws.” 384 F.3d at 757.
[6] Because “the FPA and the [NGA] are ‘substantially
identical,’ [and] there is an ‘established practice of citing
interchangeably decisions interpreting the pertinent sections
of the two statutes,’ ” Grays Harbor, 379 F.3d at 649 n.8
(quoting Arkla, 453 U.S. at 577 n.7), the Filed Rate Doctrine
analysis in Grays Harbor is also applicable to market-based
rates under the NGA. First, federal preemption of state dam-
age claims applies to the natural gas arena as well as to the
E. & J. GALLO WINERY v. ENCANA CORP. 12547
electricity arena. A challenge to market-based natural gas
rates established pursuant to FERC’s blanket market certifi-
cate would require a court to reconsider natural gas rates that
FERC had already determined to be reasonable. Because Con-
gress preempted the field by giving FERC exclusive jurisdic-
tion over such rates, challenges to such rates are barred by
field preemption, as in Grays Harbor. See id. 647-49; see also
Schneidewind v. ANR Pipeline Co., 485 U.S. 293, 305 (1988)
(“Congress occupied the field of matters relating to wholesale
sales and transportation of natural gas in interstate com-
merce.”).
Second, permitting a state court to grant an aggrieved party
“a refund” in natural gas rates under FERC jurisdiction would
create a conflict with FERC’s authority to approve market-
based rates, and thus is similarly preempted by conflict pre-
emption. Grays Harbor, 379 F.3d at 649-50. Such a state-
ordered refund may also conflict with the authority FERC has
to order retroactive refunds if the conduct of sellers under
FERC’s jurisdiction violated the terms of the market-based
certificates. See Cal. ex rel. Lockyer, 383 F.3d at 1016 (find-
ing in the context of the FPA that “[t]he power to order retro-
active refunds when a company’s non-compliance has been so
egregious that it eviscerates the tariff is inherent in FERC’s
authority to approve a market-based tariff in the first
instance.”).
The Filed Rate Doctrine bars federal antitrust claims in the
natural gas arena just as it does in the electricity arena.
Because FERC is implementing a market-based rate regime
for natural gas, a court action challenging rates subject to
FERC’s jurisdiction under federal antitrust law would violate
the scope of authority given to FERC by Congress.
[7] Finally, we can also conclude that FERC exercised its
statutory authority under the NGA to approve natural gas
rates, so that the underlying premise of the Filed Rate Doc-
trine remains applicable. Similar to its analysis in the electric-
12548 E. & J. GALLO WINERY v. ENCANA CORP.
ity arena, FERC determined that the best way to ensure just
and reasonable rates in the evolving natural gas market was
to allow natural gas sales to proceed at market prices. 57 Fed.
Reg. at 13,296 n.213. As noted in our foregoing historical
review, supra 12541-42, in order to ensure that market power
was adequately mitigated in the natural gas arena, FERC
reviewed the natural gas market and determined it was com-
petitive. See 57 Fed. Reg. at 13,296-97; 57 Fed. Reg. at
57,957-58. Although FERC did not impose individualized
reporting requirements on sellers of natural gas, FERC main-
tained ongoing oversight of the market and took corrective
responses to evidence of market manipulation. See supra pp.
12541-42. In describing its exercise of rate-making authority,
FERC asserted that “the Commission is instituting light-
handed regulation, relying upon market forces at the wellhead
or in the field to constrain unbundled pipeline sale for resale
gas prices within the NGA’s ‘just and reasonable’ standard.”
57 Fed. Reg. at 13,297 n.220; see also, 57 Fed. Reg. at
57,957-58. Because FERC has not abdicated its responsibili-
ties but has acted, albeit with a light hand, to authorize just
and reasonable rates in the natural gas arena, the Filed Rate
Doctrine continues to preempt any rate-setting activities by
the courts and bar federal antitrust claims under the Filed Rate
Doctrine.12
12
We reject Gallo’s arguments that footnotes 5 and 14 in Arkla represent
the Supreme Court’s conclusion that the Filed Rate Doctrine applies only
to rates actually filed with FERC. In footnote 5, the Supreme Court noted
FERC’s determination that the filed rate doctrine did not apply to gas pro-
ducers after 1972, because after that date, the gas producers became
“small producers,” who were no longer required to file a rate with FERC.
453 U.S. at 576 n.5. The Court further stated that FERCs “small producer”
finding “is not before us, and we do not believe that the state courts erred
in deferring to that finding.” Id. at n. 5. In footnote 14, the Court stated:
“There is no bar to damages for the period after respondents gained ‘small
producer’ status. See n. 5, supra.” Id. at 584 n.14. Gallo puts too much
weight on these brief explanatory asides. The Supreme Court does not
explain the reason there was no bar to damages after the gas producers
became small producers, and the Court may simply have deferred to
FERCs then-current position on the issue. Accordingly, these footnotes do
not control the issue before us.
E. & J. GALLO WINERY v. ENCANA CORP. 12549
Gallo argues that Ting v. AT&T, 319 F.3d 1126 (9th Cir.
2003), stands for the proposition that once a federal regulatory
agency replaces filed rates with market-based rates, the filed
rate doctrine and federal preemption no longer apply. Gallo’s
reliance on Ting is misplaced. In Ting, we held that the filed
rate doctrine did not bar a plaintiff from challenging market-
based telephone rates permitted by the Federal Communica-
tions Commission (“FCC”) under the recently amended Fed-
eral Communications Act. Id. at 1139. Although the Federal
Communications Act had previously included a filed rate pro-
cedure similar to that in the FPA and NGA, Congress “funda-
mentally altered” the filed rate procedure in 1996 through
statutory amendments that authorized the FCC to eliminate
the rate filing requirement and rely solely on market rates. Id.
at 1132. We determined that in enacting the 1996 amendment,
Congress intended to “replace the filing mechanism with a
market-based mechanism that expressly encompassed state
law.” Id. at 1144. Because Congress did not intend to preempt
state law, we allowed the plaintiff to pursue its state law
claim. The legislative changes to the Federal Communications
Act, reflected in Ting, did not occur in the energy arena. Con-
gress has not made a similar statutory change to the NGA or
FPA such that FERC is permitted to abdicate its authority
and, without any oversight, leave rate setting entirely to the
markets remaining within FERC’s jurisdiction.
[8] We conclude, therefore, for purposes of a challenge to
market-based rates for natural gas transactions under FERC’s
jurisdiction, the principles of the Filed Rate Doctrine are
applicable. This means that the market-based rate for natural
gas transactions under FERC’s jurisdiction are FERC-
authorized rates, and cannot be the basis of a federal antitrust
or state damage action.
Whether Gallo’s Claims Based on Retail Rates and the
Indices are Barred by the Filed Rate Doctrine. Having deter-
mined that the market-based rates for transactions within
FERC’s jurisdiction are FERC-authorized rates, we must con-
12550 E. & J. GALLO WINERY v. ENCANA CORP.
sider the second question, whether Gallo’s specific claims are
barred. To answer this question we must consider two addi-
tional issues. First, we must consider whether the Filed Rate
Doctrine can bar damage claims based on an index that repre-
sents market-based wholesale rates, but that is not a rate itself.
And second, we must consider whether Gallo’s damage
claims that challenge FERC-authorized rates can be barred by
the Filed Rate Doctrine, given that Gallo is making retail pur-
chases which are outside FERC’s jurisdiction.
[9] Whether the Filed Rate Doctrine bars damage arising
from retail purchases. Now that we have determined that
market-based rates can be FERC-authorized rates, our deci-
sion in County of Stanislaus v. Pac. Gas and Elec. Co., 114
F.3d 858 (9th Cir. 1997), readily resolves the second issue:
whether Gallo’s status as a retail purchaser would allow it to
challenge FERC-authorized rates. In County of Stanislaus,
retail customers brought a class action against Pacific Gas &
Electric Company (“PG&E”), PG&E’s pipeline company,
Pacific Gas Transportation (“PGT”), and PG&E’s aggregator
and exporter of Canadian gas, Alberta & Southern Gas Com-
pany (“A&S”). Among other claims, plaintiffs sought treble
antitrust damages for injuries caused by the defendants’ price
fixing activities. Id. at 863. Specifically, the plaintiffs claimed
that A&S conspired with Canadian producers to increase the
price A&S paid for gas above the market rate; A&S sold the
over-priced gas to PGT, which subsequently sold the gas to
PG&E. Id. at 860. PG&E in turn sold to the retail purchaser
plaintiffs, who sought as damages “the ‘overcharge’ that
resulted from the fixed prices.” Id. at 863. We held that
because the price PG&E paid to PGT for gas had been
approved by FERC, that price was just and reasonable. See id.at 861 & 863. Therefore, the retail plaintiffs could not claim
an injury under the federal antitrust laws, because “an award
of treble damages is not an available remedy for a [plaintiff]
claiming that the rate submitted to, and approved by, [FERC]
was the product of an antitrust violation.” Id. at 863 (quoting
Square D, 476 U.S. at 422) (alteration in original). We also
E. & J. GALLO WINERY v. ENCANA CORP. 12551
held that plaintiffs’ state claims were barred: “[i]t makes no
difference that plaintiffs choose to bring some of their claims
under state law; on the facts of this case, the filed rate doc-
trine acts to bar all the challenges that plaintiffs assert.” Id. at
866. In barring plaintiffs’ claims, we implicitly held that retail
purchasers whose damages arose from upstream FERC-
approved wholesale rates—in this case, the rates charged by
PGT to PG&E—could not challenge such rates. By the same
token, if Gallo’s damage claims are based on upstream
market-based rates within FERC’s jurisdiction, such claims
are likewise barred even though Gallo is a retail purchaser.
Cases holding that states cannot promulgate regulations
that would penalize wholesale energy or natural gas purchas-
ers for having paid wholesale rates further support this con-
clusion. For example, in Nantahala Power and Light Co., 476
U.S. 953, the Supreme Court determined that principles of
federal preemption prevented the North Carolina Utilities
Commission from (in effect) forcing Nantahala Power to sell
power to retail customers at rates that would not allow it to
recover its costs of purchasing wholesale power at FERC-
approved rates. See also Miss. Power & Light Co. v. Miss. ex
rel. Moore, 487 U.S. 354, 373 (1988) (“In this case as in Nan-
tahala we hold that a ‘state utility commission setting retail
prices must allow, as reasonable operating expenses, costs
incurred as a result of paying a FERC-determined wholesale
price . . . . Once FERC sets such a rate, a State may not con-
clude in setting retail rates that the FERC-approved wholesale
rates are unreasonable.’ ”) (quoting Nantahala, 476 U.S. at
965, 966)); Entergy, 539 U.S. at 49 (“[W]e conclude that the
[challenged state regulation] impermissibly ‘traps’ costs that
have been allocated in a FERC tariff.”). Although these “cost
trapping” cases (so called because the state agency tried to
preclude the utility from recovering “trapped” wholesale
costs) do not involve a retail customer attempting to bring a
damage action against the utility, they support EnCana’s posi-
tion that wholesale sellers such as EnCana may raise the filed
rate doctrine as a defense to actions putatively attacking retail
12552 E. & J. GALLO WINERY v. ENCANA CORP.
rates, but having the effect of disallowing FERC-approved
wholesale rates.
[10] In light of County of Stanislaus and the cost-trapping
cases, Gallo cannot challenge its retail rates by claiming that
FERC-authorized rates were the result of misconduct, any
more than the retail purchasers in County of Stanislaus could
claim they were injured by PG&E’s purchases from PGT. It
is irrelevant (in this case) that Gallo purchased natural gas for
its own consumption, because the lesson of County of Stanis-
laus is that a retail purchaser cannot recover damages based
on a theory that FERC-authorized rates were unfair. There-
fore, we must partially disagree with the district court’s con-
clusion that Gallo could challenge its retail rates because the
court was “not required to undo or second guess a determina-
tion that was specifically made by FERC.” E. & J. Gallo Win-
ery, 2005 WL 2435900, at *21. To the extent Gallo’s
challenge to the indices is a challenge to those market-based
wholesale rates subject to FERC’s jurisdiction that are
included in the indices, Gallo’s claim would be barred by the
Filed Rate Doctrine.13
13
We do not address the question whether a plaintiff could potentially
develop a methodology to challenge its retail rates without challenging
authorized rates. Certain district courts that previously addressed this
appeared to assume that, for all practical purposes, the indices reflect
FERC-authorized rates. See e.g., In re Western States Wholesale Natural
Gas Antitrust Litig. (Abelman Art Glass), 408 F.Supp.2d 1055 (D.Nev.
2005); In re Western States Wholesale Natural Gas Antitrust Litig. (Texas-
Ohio), 368 F.Supp.2d 1110 (D. Nev. 2005); Sierra Pac. Resources, Inc.
v. El Paso Co., No. CV-S-03-0414-JCM-RJJ (D. Nev. Dec. 8, 2004). This
practical conclusion may turn out to be factually correct in this case: for
example, if the number of non-FERC-authorized rates included in the indi-
ces was de minimis compared to the number of FERC-authorized rates,
the impact of any manipulation of the non-FERC-authorized rates may
have had a de minimis impact on the rates paid by Gallo. Similarly, it may
not be possible to link EnCana to any damages experienced by Gallo due
to manipulation of non-FERC-authorized rates. However, given the state
of this record, we cannot resolve these factual issues on summary judg-
ment. Gallo is entitled to an opportunity to develop these issues and to
prove its damages.
E. & J. GALLO WINERY v. ENCANA CORP. 12553
Gallo contends that such a ruling could leave it without a
remedy for EnCana’s misconduct. This equitable consider-
ation does not compel a different result. Any lack of remedy
arises from the principle of statutory construction announced
in Keogh, namely, that Gallo cannot be damaged by a FERC-
approved rate even if that rate were artificially inflated. See
Keogh, 260 U.S. at 163. The Supreme Court has acknowl-
edged that “[a] finding that federal law provides a shield for
the challenged conduct will almost always leave the state-law
violation unredressed.” Arkla, 453 U.S. 584; see also
Montana-Dakota Utilities Co. v. Nw. Public Service Co., 341
U.S. 246, 254 (1951).
Whether the Filed Rate Doctrine bars damage claims based
on indices. The conclusion that Gallo’s damage claims are
barred to the extent they challenge FERC-authorized rates
leads us to the next, more complicated issue: whether the
Filed Rate Doctrine bars claims based on rates reported in the
indices.
EnCana first argues broadly that because the indices consti-
tute a compilation of FERC-authorized rates, the Filed Rate
Doctrine bars damage actions based on rates reported in the
indices. Under our analysis, EnCana’s argument could prevail
only if: (1) all the rates reported in the indices are FERC-
authorized rates or there is some other bar to challenging such
rates; or (2) the Filed Rate Doctrine bars a challenge to a com-
pilation of both FERC-authorized rates and rates that are not
under FERC’s jurisdiction.
[11] With respect to the first argument, viewing the evi-
dence in the light most favorable to Gallo, EnCana has not
carried its burden of establishing that all the transactions that
comprise the indices were FERC-approved transactions or
otherwise shielded from challenge. The district court did not
determine the exact nature of the transactions that comprise
the indices upon which Gallo bases its damage claim. How-
ever, viewing the evidence in a light most favorable to Gallo,
12554 E. & J. GALLO WINERY v. ENCANA CORP.
the record reflects that the indices potentially include transac-
tions that are under FERC’s jurisdiction as well as transac-
tions outside FERC’s jurisdiction. First, there is evidence in
the record some index pricing inputs were misreported or
wholly fictitious. Final Report, at ES-6 & III-29. Misreported
rates and rates reported for fictitious transactions are not
FERC-approved rates, and barring claims that such fictitious
transactions damaged purchases in the natural gas market
would not further the purpose of the filed rate doctrine. See
E. & J. Gallo Winery, 2005 WL 2435900, at *21.
[12] Moreover, as part of its investigation of the indices,
FERC concluded that it “has jurisdiction over most of the
transactions that form the basis for the indices.” Final Report
at III-17 (emphasis added). This language indicates that at
least some of the transactions included in the indices are not
subject to FERC’s jurisdiction, and thus would be subject to
challenge by Gallo. In addition, FERC’s description of the
haphazard manner in which the indices are assembled indi-
cates that the traders reporting their transactions did not dif-
ferentiate between jurisdictional and non-jurisdictional
transactions within the wholesale market. Final Report, at III-
29. As discussed above, see supra 12540-42, during the time
period for which Gallo seeks damages, consumers partici-
pated in the wholesale market. E. & J. Gallo Winery, No.
2005 WL 2435900, at *3-4. These consumer transactions,
which are not regulated by FERC, were potentially included
in the indices. In addition, first sales transactions, either at the
wellhead or via imports from Canada and Mexico, were
potentially included in the indices. These first sales are also
outside of FERC’s jurisdiction.
EnCana argues that even if first sales were reported in the
indices, principles of federal preemption nevertheless bar any
damage claims based on such rates.14 EnCana relies on Trans-
14
EnCana argues that the Filed Rate Doctrine bars claims based on first
sales because some of the natural gas in sales at issue in County of Stanis-
E. & J. GALLO WINERY v. ENCANA CORP. 12555
continental Gas Pipe Line Corp. v. State Oil and Gas Board
of Mississippi, 474 U.S. 409 (1986), which established that in
deregulating first sales in the NGPA, Congress intended to
keep the field clear of state regulations of first sales. By
extension, EnCana argues, principles of preemption would
prevent Gallo from bringing damage claims that have the
effect of reducing the purchase price of first sales.
[13] EnCana’s analysis is incomplete and therefore incor-
rect. Our review of the NGPA and WDA leads us to conclude
that Congress’s removal of FERC’s jurisdiction over first
sales does not preempt the type of claims brought by Gallo in
this action. In enacting the NGPA and the WDA, Congress is
assumed to be aware of the existing context of state and fed-
eral antitrust and damage laws. United States v. Hunter, 101
F.3d 82, 85 (9th Cir. 1996) (“[A]s a matter of statutory con-
struction, we presume that Congress is knowledgeable about
existing law pertinent to the legislation it enacts.”) (quotation
marks omitted). We ordinarily do not deem Congress to pre-
empt laws of general applicability. See Total TV v. Palmer
Commc’ns, Inc., 69 F.3d 298, 302 (9th Cir. 1995). Neither the
NGPA nor the WDA, the two statutory enactments that
removed first sales from FERC’s rate-setting jurisdiction,
includes language suggesting that Congress intended to dis-
place state antitrust or damage laws by withdrawing first sales
from the NGA. Congress’s decision not to expressly preempt
such damage claims indicates a lack of intent to do so. See id.Although Congress’s withdrawal of first sales from FERC’s
jurisdiction does reflect “Congress’ intent to move toward a
less regulated national natural gas market,” Transcon., 474
U.S. at 423, state and federal antitrust and fair competition
laus was imported from Canada and those sales would have been first
sales under the NGPA. County of Stanislaus did not expressly address this
issue, and “[q]uestions which merely lurk in the record, neither brought to
the attention of the court nor ruled upon, are not to be considered as hav-
ing [been] so decided as to constitute precedents.” In re Larry’s Apart-
ment, L.L.C., 249 F.3d 832, 839 (9th Cir. 2001) (alternation in original)
(quoting Webster v. Fall, 266 U.S. 507, 511 (1925)).
12556 E. & J. GALLO WINERY v. ENCANA CORP.
laws complement rather than undermine such a goal, see Total
TV, 69 F.3d at 302, because they support fair competition. By
enabling private parties to combat market manipulation and
other anti-competitive actions, the laws under which Gallo
brought its claim support “Congress’ determination that the
supply, the demand, and the price of high-cost [first sale] gas
be determined by market forces,” Transcon., 474 U.S. at 422.
Just as Congress’s direction to FERC to determine just and
reasonable rates gave rise to the inference that Congress pre-
empted damage claims per the Filed Rate Doctrine, the with-
drawal of FERC’s authority to determine such rates gives rise
to the opposite inference, that normal market forces, including
the tug and pull of private lawsuits, will hold sway. Therefore,
we conclude that Congress did not preclude plaintiffs from
basing damage claims on rates associated with first sales.
Encana also argues that, even though first sales are
exempted from FERC’s rate-setting jurisdiction, Congress has
determined that all first sales occur at rates that are just and
reasonable as a matter of law. For this proposition, EnCana
relies on a provision of the WDA, which states: “Except as
otherwise provided in this subsection, for purposes of sections
4 and 5 of the Natural Gas Act, any amount paid in any first
sale of natural gas shall be deemed to be just and reasonable.”
15 U.S.C. § 3431(b)(1)(A). (Sections 4 and 5 of the NGA, 15
U.S.C. §§ 717c and 717d, govern the rates that can be charged
under FERC’s rate-setting jurisdiction.) Encana’s interpreta-
tion of section 3431(b) is incorrect. Section 3431(a) provides
that the NGA “shall not apply to any natural gas solely by rea-
son of any first sale of such natural gas.” 15 U.S.C.
§ 3431(a)(1)(A). Because FERC’s jurisdiction is limited to
the scope of the NGA, this language eliminates FERC’s gen-
eral authority over first sales.
However, Section 3431(b)(1)(A)’s general statement that
any amounts paid in first sales are “just and reasonable” is not
inconsistent with section 3431(a)’s exclusion of first sales
from the NGA. Rather, Section 3431(b) can be understood as
E. & J. GALLO WINERY v. ENCANA CORP. 12557
ensuring that FERC will not exercise its rate-setting jurisdic-
tion in a way that prevents regulated entities from recovering
amounts paid in first sales. In other words, after an interstate
pipeline, intrastate pipeline, or local distribution company
purchases natural gas in a first sale, any subsequent sale of
that gas is not a first sale. To the extent FERC has rate-setting
authority with respect to those subsequent sales, FERC could
determine that the “just and reasonable” rate for such sales
was lower than the rate that would be necessary for the regu-
lated entities to recover the prices they paid for the natural gas
in their first sale transactions. This would allow FERC to
create its own “cost-trapping” scenario. Section 3431(c)(2),
however, ensures that such cost-trapping will not occur,
because it provides that “for purposes of sections 4 and 5 of
the Natural Gas Act, any amount paid in any first sale of natu-
ral gas shall be deemed to be just and reasonable.” 15 U.S.C.
§ 3431(b)(1)(A); see also 15 U.S.C. § 3431(c)(2). This lan-
guage ensures regulated entities that they can set their sales
prices for natural gas in a manner that will allow them to
recover the “just and reasonable” amounts they previously
paid in first sales. However, Sections 3431(b)(1)(A) and
3431(c)(2) do not mean that first sales are “just and reason-
able” for other purposes, particularly because other first sales
are not subject to the NGA.
EnCana raises the additional argument that the transactions
comprising the indices were FERC-approved transactions or
otherwise shielded from challenge because FERC has juris-
diction over the “transportation of natural gas in interstate
commerce.” 15 U.S.C. § 717(b). In essence, EnCana argues
that all sales of natural gas transported in interstate pipelines
are subject to FERC jurisdiction and shielded from challenge
by the Filed Rate Doctrine because such sales reflect inter-
state transportation costs. It is true that in today’s natural gas
marketplace “[w]hen the gas sales element is severed—i.e.,
unbundled—from the transaction, FERC retains jurisdiction
over the interstate transportation component.” United Distrib.
Cos. v. F.E.R.C., 88 F.3d 1105, 1153 (D.C. Cir. 1996) (per
12558 E. & J. GALLO WINERY v. ENCANA CORP.
curiam) (emphasis omitted). However, EnCana’s argument
goes too far: a determination that FERC’s jurisdiction covered
any sale of natural gas with an interstate transportation com-
ponent would extend FERC’s authority over virtually all natu-
ral gas that was not produced, sold and used in a single state.
Such an interpretation would conflict with 15 U.S.C. § 717(b)
(providing that the NGA does not apply to sales of natural gas
other than sales for resale) and 15 U.S.C. § 3431(a)(1)(A)
(providing that FERC’s jurisdiction does not extend to natural
gas “solely by reason of any first sale of such natural gas”),
and we therefore reject it. We agree that to the extent FERC
has jurisdiction over the transportation of natural gas in inter-
state commerce and exercises that authority to approve inter-
state transportation rates, the Filed Rate Doctrine would
prevent Gallo from basing damage claims on such rates. How-
ever, as previously discussed, Gallo is challenging at least
some conduct that is not approved by FERC, and thus not
barred by FERC’s jurisdiction over interstate transportation.
[14] Having rejected EnCana’s arguments that Gallo’s
damage claims based on the indices are barred because the
indices include FERC-authorized rates or are first sales, we
turn to the second argument that even if the indices are com-
prised of both jurisdictional and non-jurisdictional rates, we
must deem the indices as a whole to be FERC-authorized
rates and thus shielded from challenge by the Filed Rate Doc-
trine. We must also reject this argument. FERC’s authority is
limited to the jurisdiction specifically set by Congress. As
noted in Panhandle Eastern Pipe Line Co., Congress
employed “unusual legislative precision” to ensure that the
limits of FERC’s jurisdiction were clear:
The omission [in the NGA] of any reference to other
sales, that is, to direct sales for consumptive use, in
the affirmative declaration of coverage was not inad-
vertent. It was deliberate. For Congress made sure its
intent could not be mistaken by adding the explicit
prohibition that the Act ‘shall not apply to any other
E. & J. GALLO WINERY v. ENCANA CORP. 12559
* * * sale * * *.’ (Emphasis added.) Those words
plainly mean that the Act shall not apply to any sales
other than sales ‘for resale for ultimate public con-
sumption for domestic, commercial, industrial, or
any other use.’ Direct sales for consumptive use of
whatever sort were excluded.
332 U.S. at 516-17. Similarly, the D.C. Circuit rejected pipe-
line companies’ argument that FERC had jurisdiction over
pipeline companies’ nonjurisdictional contracts, even if such
contracts would indirectly impact a pipeline company’s
FERC-approved rates. Am. Gas Ass’n v. F.E.R.C., 912 F.2d
1496, 1506 (D.C. Cir. 1990). In the absence of FERC jurisdic-
tion over non-jurisdictional transactions reported in the indi-
ces, the Filed Rate Doctrine does not bar damage claims
based on rates arising from such transactions.15
[15] In sum, the answer to our question whether the Filed
Rate Doctrine bars damage claims based on the indices is not
a simple one. We must conclude that to the extent the indices
are comprised of rates that are not FERC-authorized rates, the
Filed Rate Doctrine does not bar Gallo’s claim that such rates
are unfair and led to unfair retail rates paid by Gallo. How-
ever, Gallo cannot challenge FERC-authorized rates that are
incorporated in the indices. Because such rates are just and
reasonable, damage claims based on such rates are barred by
the Filed Rate Doctrine. Our conclusion may raise complexi-
ties in resolving claims such as Gallo’s; however, this is dic-
tated by our precedents.
15
We also reject the related argument that because wholesale market
rates are often derived from the indices, the Filed Rate Doctrine bars dam-
age claims based on all rates reported in the indices. We are aware of no
basis for holding that the Filed Rate Doctrine bars claims based on a refer-
ence point for pricing transactions (be it a trade index, the Consumer Price
Index, or the New York Stock Exchange) that is not itself a FERC-
approved rate.
12560 E. & J. GALLO WINERY v. ENCANA CORP.
C
EnCana’s Summary Judgment Motion
In conclusion, Gallo’s claims are based on damages it
incurred due to paying retail rates pegged to indices it alleges
were artificially inflated by illegal practices. As we have
explained, to prevail on its summary judgment motion that
Gallo’s damage claims were barred by the Filed Rate Doc-
trine as a matter of law, EnCana would have had to establish
that all transactions in the indices were transactions under
FERC jurisdiction. Viewing the evidence most favorably to
Gallo, as we must in considering EnCana’s summary judg-
ment motion, EnCana has not carried this burden. Rather, the
record reflects that the indices may also include reports of
transactions that were not subject to FERC jurisdiction. The
Filed Rate Doctrine does not bar Gallo’s damage claims based
on rates that are not FERC-authorized rates.
We therefore conclude that the district court did not err in
denying EnCana’s summary judgment motion. “[W]e may
affirm [the district court] on any basis supported by the
record.” Saltarelli v. Bob Baker Group Med. Trust, 35 F.3d
382, 387 (9th Cir. 1994). On remand, the district court may
consider Gallo’s claims to the extent they are based on rates
that are not FERC-authorized rates.
AFFIRMED.
B. FLETCHER, Circuit Judge, concurring:
I concur in the majority opinion but sound a note of con-
cern and caution. The filed-rate doctrine was developed in the
context of filed tariffs that were subject to the usual regulatory
process — a time and procedure for public comment and
complaint and room for disallowance or adjustment by the
E. & J. GALLO WINERY v. ENCANA CORP. 12561
regulators. Courts have expanded its application of the doc-
trine to market-based rates as being FERC-authorized and
entitled to the same deference as filed rates, deeming them to
be just and reasonable because FERC supposedly actively
regulates and oversees the setting of rates. However, I find no
evidence that FERC has set a standard for the determination
of what is a just and reasonable rate nor have the courts done
so. I fear we talk a better game than we play.1
We have held in our electricity cases that establishment of
a market-based rate as a FERC-authorized rate requires active
FERC oversight of the market. See Pub. Util. Dist. No. 1 of
Grays Harbor County Wash. v. IDACORP Inc. (“Grays Har-
bor”), 379 F.3d 641, 651 (9th Cir. 2004) (“The fact that the
rates at issue in this case are market based does not alter this
conclusion. . . . Before allowing Idaho Power Company to
charge market-based rates, FERC first confirmed that Idaho
Power Company did not have, or had adequately mitigated,
market power in generation and transmission and could not
erect other barriers to entry. Idaho Power Co., 78 F.E.R.C.
¶ 61,343, 1997 WL 139585, at *1 (Mar. 27, 1997). Further,
the ability to charge market-based prices comes with certain
filing requirements, including providing FERC with individ-
ual service agreements for contracts such as the one at issue
here. See id. at *3. Even in the context of market-based rates,
FERC actively regulates and oversees the setting of rates.”);
Pub. Utility Dist. No. 1 of Snohomish County v. Dynergy
Power Marketing, Inc., 384 F.3d 756, 762 (9th Cir. 2004)
(“Snohomish”) (“Because FERC has exclusive jurisdiction
over interstate sales of wholesale electricity, and continues to
engage in regulatory activity, we affirm.”). At a minimum,
active oversight requires periodic FERC inquiries into the sta-
tus of the market to ensure that no seller or combination of
1
A provocative article in the New York Times, September 4, 2007, com-
pares electricity rates of states that regulate and those that allow market
forces to set rates suggesting non-regulating states have startlingly higher
rates.
12562 E. & J. GALLO WINERY v. ENCANA CORP.
sellers may exercise market power and that the market-based
rates being charged are just and reasonable. Without mini-
mum standards for FERC oversight, the Filed Rate Doctrine
threatens to come unmoored from its rationale of respecting
the actions of a federal agency to which Congress has dele-
gated authority. Instead, I fear respect is being given to
agency passivity, allowing anticompetitive and otherwise ille-
gal actions to escape review.