Face Challenges Confidently

376 Western Refining Sw., Inc. v. Fed. Energy Regulatory Comm’n

Monday, August 31st, 2015

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
Western Refining Southwest, Inc. v. Federal Energy Regulatory Commission, 636 F.3d 719 (5th Cir. 2011) held that a lessor of an oil pipeline under a capacity lease agreement is not a “common carrier” for purposes of the Interstate Commerce Act. Enterprise leased capacity on its pipeline to Western. The pipeline ran from Midland, Texas to Hobbs, New Mexico, and the capacity lease agreement required Enterprise to set aside enough capacity for Western to transport 15,000 barrels a day from Midland to Hobbs. “Western agreed to act as the common carrier for the leased capacity in the pipeline and maintain tariffs with the [Federal Energy Regulatory] Commission for that purpose.”
Under the terms of the agreement, Western was required to notify Enterprise, by the 25th day of each month, of its expected transportation activity for the following month. In May 2008, Western failed to notify Enterprise of its planned activity for June 2008. Accordingly, Enterprise decided to use the vacant capacity for its own purposes. In order to do so, Enterprise withdrew Western’s line fill and placed it in a storage tank. Enterprise then reversed the flow of the line and used it for its own purposes.
Western filed a complaint against Enterprise before the Federal Energy Regulatory Commission (“FERC”) alleging a number of violations of the Interstate Commerce Act (“Act”) in connection with Enterprise’s use of the pipeline. The FERC declined to exercise jurisdiction over the complaint, stating that it was essentially a private contract dispute that did not fall within the FERC’s “jurisdiction over oil pipeline transportation.” The issue in the case was whether Enterprise’s role could be characterized as that of a common carrier, thus bringing it within the jurisdiction of the FERC.
Because the issue involved an agency interpretation of its statutory authority under the Act, the court applied the two-step Chevron analysis.          Under Chevron, the court must first determine whether Congress “has spoken directly on the precise question at issue.” If Congress has spoken, the court will decide accordingly. If Congress has not spoken, the court will defer to the agency determination so long as it is a permissible interpretation of the statute. Applying the first step, the court determined that the statute unambiguously applies to common carriers engaged in the transportation of oil by pipe line. Having determined that the statute was unambiguous, the only remaining inquiry was whether, under the facts of the case, Enterprise could accurately be characterized as a common carrier. Under the terms of the agreement, Western characterized itself as “an individual common carrier.” The agreement also provided that Western would “separately maintain tariffs in its name in accordance with any applicable state and federal laws and regulations.” Under these facts, the court determined that Western, and not Enterprise, was a common carrier and that the lease between Enterprise and Western created a lessor/lessee relationship with no common carrier liabilities for Enterprise.
Western argued that Western’s status as a common carrier did not preclude Enterprise from also being subject to common carrier liability. Under the Act, common carriers include companies “‘engaged in . . . [t]he transportation of oil . . . by pipe line.’” Transportation as defined in the Act includes “‘instrumentalities . . . of shipment or carriage, irrespective of ownership  or  of  any contract  .  .  .  .’”        Western contended that the clause “irrespective of ownership or of any contract” created a common carrier relationship by virtue of Enterprise’s ownership of the pipeline. The court reasoned that, rather than create common carrier duties where they do not exist, the clause actually prevents parties from evading common carrier liabilities where they do exist. Applied here, the clause prevented Western from evading the Act by claiming that it is only a lessee, and the clause had no effect on Enterprise’s status as lessor. This interpretation was consistent with Congress’ intent to prevent carrier discrimination against shippers. Having determined that Enterprise was not a common carrier under the Act, the court affirmed the FERC’s determination that it lacked jurisdiction.
Under this holding, an owner of a pipeline, in its capacity as lessor of the pipeline, is not engaged in the transportation of oil as that term is defined in the Interstate Commerce Act, and therefore the owner cannot be liable for any claims under the Act.