On December 5, 2016, the United States Court of Appeals for the Eighth Circuit (“Eighth Circuit”) ruled that the United States District Court for the District of Minnesota (“District Court”) did not have federal question jurisdiction over the breach of contract suit filed in Great Lakes Transmission Limited Partnership v. Essar Steel Minnesota., LLC. The Eighth Circuit vacated the lower court’s $32.9 million judgment in favor of the pipeline and remanded for dismissal. 

The case at issue had initially been brought by Great Lakes Transmission Limited Partnership (“Great Lakes”) in the District Court under a theory of diversity jurisdiction. Great Lakes claimed that Essar Steel Minnesota (“Essar”) had breached its obligations under a gas transportation service agreement (“TSA”) to pay the maximum reservation rate for the transportation path as reflected in Great Lakes FERC Gas Tariff (“Tariff”). On the eve of trial, Essar informed the court that one of Great Lakes limited partners – TC PipeLines, LP, a Delaware master limited partnership – had thousands of public unitholders whose citizenship destroyed diversity jurisdiction. On this basis, the District Court agreed that diversity jurisdiction had been destroyed. Nonetheless, the District Court found that it did have federal question jurisdiction “given the disputed and substantial federal issues at play.”

Specifically, the District Court found that even though the Natural Gas Act (“NGA”) – under which the Tariff is governed – does not create a cause of action, federal question jurisdiction still exists under a rule announced by the United States Supreme Court in Grable & Sones Metal Products, Inc. v. Darue Engineering & Manufacturing. In Grable, the Court explained that federal question jurisdiction may exists where a “state-law claim necessarily raise[s] a stated federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities.” In asserting jurisdiction, the District Court noted that federal tariffs carry the same legal force as federal regulations, and are thus considered federal law.” Further, the District Court found that the construction and application of this federal law was both “necessarily raised” and “actually disputed.”

In rejecting the District Court’s assertion of jurisdiction, the Eighth Circuit found that even assuming the District Court correctly held that federal issues were “necessarily raised” and “actually disputed,” the Eighth Circuit did not agree that the federal issues in the case were “substantial,” or that federal courts can exercise federal question jurisdiction “without disturbing any congressionally approved balance of federal and state judicial responsibilities.” The Eighth Circuit noted that the Tariff provisions at issue in the proceeding were interpreted in accordance with Michigan law as required by the TSA. The Eighth Circuit also noted that FERC previously declined to assert primary jurisdiction in this case, which further suggested that any federal interest in maintaining national uniformity was not substantial. Finally, the Eighth Circuit stated that its reluctance to exercise federal jurisdiction under the Grable rule is especially heightened in this case because “the interpretation of a contract is ordinarily a matter of state law to which we defer.”

The Eighth Circuit Opinion is available here.