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PETCO PETROLEUM CORP. v. NATURAL GAS PIPELINE CO. OF AM.

August 17, 2005.

PETCO PETROLEUM CORPORATION and BERGMAN PETROLEUM CORPORATION, Plaintiffs,
v.
NATURAL GAS PIPELINE COMPANY OF AMERICA, Defendant.



The opinion of the court was delivered by: J. PHIL GILBERT, District Judge

MEMORANDUM AND ORDER

This matter comes before the Court on defendant Natural Gas Pipeline Company of America's ("NGPL") motion to dismiss the Second Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) (Doc. 49). Plaintiffs Petco Petroleum Corporation ("Petco") and Bergman Petroleum Corporation ("BPC") have responded to the motion (Doc. 59), and NGPL has replied to that response (Doc. 60). The Court also considers NGPL's motion to reconsider (Doc. 76) the Court's order denying leave to supplement its motion to dismiss (Doc. 75). Petco and BPC have responded to the motion to reconsider (Doc. 77).

I. Motion to Reconsider (Doc. 76)

  On May 11, 2005, NGPL asked the Court for leave to supplement the pending motion to dismiss the Second Amended Complaint. It sought to file a supplemental brief arguing that this case is moot and to submit additional exhibits in support of that position. On May 25, 2005, the Court denied the motion finding that submission of exhibits was inappropriate in light of the fact that the pending motion to dismiss was pursuant to Rule 12(b)(6), which ordinarily does not allow consideration of matters outside the pleadings. NGPL seeks reconsideration of this ruling.

  It appears that either the Court misunderstood NGPL's original request or that NGPL has misunderstood the consequences of the Court's order. The Court's order was not intended to foreclose NGPL from filing a separate motion to dismiss for lack of subject matter jurisdiction pursuant to Rule 12(b)(1). Indeed, subject matter jurisdiction is an issue that can be raised at any time, and if a party is aware of a jurisdictional question, a deliberate failure to raise the issue is sanctionable. BEMI, LLC v. Anthropologie, Inc., 301 F.3d 548, 551-52 (7th Cir. 2002); see Fed.R.Civ.P. 12(h)(3). On the contrary, the Court intended to indicate simply that raising those issues in the pending Rule 12(b)(6) motion to dismiss for failure to state a claim, as opposed to in a new Rule 12(b)(1) motion, was inappropriate. The Court's order did not restrict NGPL from filing a new motion to dismiss based on subject matter jurisdiction notwithstanding the Court's refusal to allow supplementation of the pending motion to dismiss. For these reasons, the Court will deny NGPL's motion to reconsider (Doc. 76) and will allow it a reasonable time in which to file a Rule 12(b)(1) motion to dismiss Count I for lack of jurisdiction. In the meantime, the Court will reserve ruling on the Rule 12(b)(6) motion to dismiss as it relates to Count I, including the issue of whether consideration of a letter from a United States Department of Transportation ("DOT") attorney to the plaintiffs' counsel can be properly considered in deciding that motion.

  II. Motion to Dismiss (Doc. 49)

  A. Alleged Facts

  In its prior order granting NGPL's motion to dismiss the original complaint, the Court set forth the general facts alleged in this controversy. They have not substantially changed since that order, to the Court will simply quote the relevant alleged facts from that order, indicating with brackets and ellipses any substantive changes from the prior order: The Court will set forth the alleged facts in very general terms, for that is all that is required to decide this motion. This case centers on the various parties' respective rights to and activities in subterranean geological formations beneath a parcel of land in Fayette and Effingham Counties called Loudon Field. Approximately 40 years ago, NGPL acquired rights from Humble Oil and Refining Company ("Humble") to use a subterranean geological formation under Loudon Field called the Devonian Reservoir. Humble's rights to use other formations beneath the Loudon Field were ultimately transferred to BPC. NGPL also acquired gas storage easements from numerous individuals with rights in Loudon Field. As a result, NGPL and BPC own rights to different subterranean layers underlying Loudon Field.

 
NGPL and BPC agree that the Devonian Reservoir contains two formations known as the Grand Tower Dolomite and the Cedar Valley Limestone, the formation directly above the Grand Tower Dolomite. They agree that NGPL has the rights to those formations. NGPL and BPC do not agree, however, about whether the Devonian Reservoir also includes the New Albany Shale, the formation directly above the Cedar Valley Limestone. Believing it has rights to the New Albany Shale, BPC employs Petco to operate wells and conduct drilling and development activities there and in other subterranean formations underlying Loudon Field.
With the appropriate approvals and certifications, in the late 1960s, NGPL began using the Grand Tower Dolomite [and the Cedar Valley Limestone] to store highly pressurized natural gas. . . . NGPL would alternately inject highly pressurized gas into the reservoir and then withdraw it. The high pressure and the stresses caused from repeatedly injecting and withdrawing the pressurized gas caused the Grand Tower Dolomite [and Cedar Valley Limestone] storage reservoir to fracture and the pressurized gas to escape into the . . . New Albany Shale [and other layers] where Petco operates wells. The gas is also able, through improperly capped wells or those with degraded or defective cement, to leak into other subterranean layers, to contaminate freshwater aquifers and water wells and to vent to the surface such that it creates a risk of fire or explosion. NGPL monitors for leaks of its pressurized gas through defective cement caps solely using noise and temperature logs. [NGPL does not, however, use storage gas inventory audit or management techniques common in the industry and cannot, therefore, discover in a timely manner the escape of gas stored from the reservoir.]
The migration of the gas into the New Albany Shale [and the Carper Sand formation immediately above the New Albany Shale,] and into the wells Petco operates for BPC interferes with . . . Petco's operations. This, along with the leaks, contaminations and venting noted above pose a danger to the public and to Petco employees working in the area. B. Procedural History
  Count I of the Second Amended Complaint asserts a claim under the Natural Gas Pipeline Safety Act ("NGPSA"), 49 U.S.C. § 60101, et seq. It alleges that NGPL's failure to contain the gas in the Devonian Reservoir renders the reservoir "unsafe" and constitutes a "hazardous leak." It claims that NGPL's failure to repair, replace or remove the "unsafe" Devonian Reservoir from service or to repair the "hazardous leak" is a violation of regulations promulgated under the NGPSA. Compl. ¶¶ 43 & 45. Count II asks for a declaratory judgment that BPC's and Petco's rights to the New Albany Shale are superior to NGPL's rights. Count III is a claim for trespass based on the migration of NGPL's gas into the New Albany Shale and the Carper Sand and on its interference with BPC's and Petco's operations in those geological formations and others above it. Original jurisdiction in federal court is based on the federal question presented in Count I and on diversity jurisdiction.

  NGPL has filed a motion to dismiss Count I on the grounds that BPC and Petco have not stated a claim for a violation of the NGPSA as required in a private party suit under the act. Specifically, it argues that the NGPSA does not govern underground geological gas storage formations like the Devonian Reservoir. It also asks the Court to abstain from exercising jurisdiction over Counts II and III. As the Court is reserving ruling on Count I pending resolution of subject matter jurisdiction issues, the Court turns directly to Counts II and III.

  C. Analysis

  NGPL asks the Court to abstain from exercising diversity jurisdiction over Counts II based on Brillhart v. Excess Insurance Company, 316 U.S. 491 (1942), and over Count III based on Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976). Brillhart and Colorado River both allow the Court to abstain from hearing a case on the basis that the issues are currently being litigated before a state court, although they apply to two different types of causes of action. As noted earlier, Count II seeks a declaratory judgment as to who has superior rights to the New Albany Shale, and Count III is a claim for trespass based on the migration of NGPL's gas.

  1. Count II: Brillhart Abstention

  The Court finds that abstention is appropriate for Count II, a declaratory judgment claim seeking to declare that BPC has superior rights to the New Albany Shale. In Wilton v. Seven Falls Company, 515 U.S. 277, 289 (1995), the Supreme Court confirmed that abstention decisions in declaratory judgment actions are governed by Brillhart v. Excess Insurance Company, 316 U.S. 491 (1942). Brillhart held that a federal court has discretion to decline to exercise jurisdiction over a declaratory judgment claim when another proceeding in state court would fully adjudicate all the matters in controversy in that claim. Brillhart, 316 U.S. at 494-95. Brillhart stated:
Ordinarily it would be uneconomical as well as vexatious for a federal court to proceed in a declaratory judgment suit where another suit is pending in a state court presenting the same issues, not governed by federal law, between the same parties. Gratuitous interference with the orderly and ...

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