In Algonquin Gas Transmission, LLC v. Weymouth Massachusetts, a First Circuit panel last month ruled that a statute of limitations defense is inapplicable to a Natural Gas Act (NGA) preemption claim against a locality. The court also held that the Federal Energy Regulatory Commission’s (FERC) longstanding policy of “encourag[ing] cooperation between interstate pipelines and local authorities” doesn’t impose a legally enforceable duty on pipeline companies to go through local regulatory review processes before filing an NGA preemption suit.[1]

Procedural background

In January 2017, FERC issued Algonquin Gas Transmission, LLC (Algonquin) an NGA Section 7(c) FERC certificate to construct and operate an interstate natural gas transportation project that included a new compressor station in the Town of Weymouth, Massachusetts. The certificate conditioned construction of the station on a consistency determination from the Massachusetts Office of Coastal Zone Management (OCZM) under the Coastal Zone Management Act (CZMA). OCZM, however, declined to issue the consistency determination unless Algonquin first obtained a local wetlands permit from the Town of Weymouth under a Massachusetts wetlands protection regime that allows localities to adopt and enforce regulations more stringent than those imposed by the state.[2]

The Town denied Algonquin’s permit request, but the Massachusetts Department of Environmental Protection (MassDEP) reversed the locality after an administrative appeal by the company. The Town, however, appealed the reversal, which then prompted MassDEP to stay the proceedings pending a judicial determination of whether the local permit requirement was preempted by the NGA. As a result, Algonquin filed a declaratory judgment action in Massachusetts federal district court seeking a ruling that the NGA preempted the local permit requirement and an injunction prohibiting the Town from enforcing it. The district court granted Algonquin’s motion for summary judgment on both conflict and field preemption grounds and enjoined enforcement of the local regulations.[3] Undeterred, the Town appealed that ruling to the First Circuit.

Statute of limitations inapplicable to preemption claim

The Town argued, among other things, that Algonquin’s preemption claim was time-barred. There being no applicable federal statute of limitations, the Town urged the First Circuit to “borrow” a Massachusetts 60-day limitations period applicable to state law writs of certiorari for challenging quasi-judicial actions. The court rejected that argument, however, holding that Algonquin’s suit for declaratory and injunctive relief was essentially “equitable in nature” as to which no statute of limitations applied.[4]

FERC’s “cooperation” policy does not create a legally enforceable duty

Like most NGA section 7(c) certificates, Algonquin’s certificate referenced a longstanding Commission policy that “encourages cooperation between interstate pipelines and local authorities” with respect to any local permits potentially applicable to jurisdictional natural gas transportation facilities.[5] FERC further explains, however, that any such local permits “must be consistent with the conditions of [the] certificate,” and that state or local regulators cannot “prohibit or unreasonably delay the construction or operation of facilities approved by the Commission.”[6]

The Town argued that FERC’s cooperation policy imposed a legal duty requiring Algonquin to “make a reasonable attempt to obtain [local permit] approval” before asking the district court to declare the local requirements preempted.[7] The First Circuit disagreed, noting that “Weymouth provides no support for the existence of such a duty under federal law,” and that FERC’s policy “does not require such cooperation from Algonquin; it merely ‘encourages’ it.”[8]

Other arguments and rulings

The First Circuit panel also rebuffed the Town’s argument that the case wasn’t ripe because the FERC certificate imposed conditions on project construction other than the OCZM consistency determination that remained unsatisfied. Despite the unsatisfied conditions, the court found the case to be ripe because the relief Algonquin sought was “neither ‘advisory’ nor ‘irrelevant;’” if granted, it “would finally remove a principal impediment that stands in the way of a final action by” OCZM, thereby clearing “a procedural logjam that would not otherwise be cleared.”[9]

The panel also disagreed with the Town’s argument that the district court’s preemption determination was erroneous. The appellate court, however, affirmed only on conflict preemption principles, holding it unnecessary to address the lower court’s additional ruling applying broader principles of field preemption.[10] Among other things, the panel found that the Town based its local permit denial on conclusions that were directly at odds with FERC’s findings in the certificate concerning the project’s environmental, safety, siting and other considerations. In the court’s view, the locality’s permit denial created an “effectively complete obstacle to FERC’s ultimate determination that ‘public convenience and necessity’ ‘require’ that the Weymouth Compressor Station be built.”[11]

Observations and implications

In Algonquin, the Town of Weymouth, wittingly or unwittingly, tried to use FERC’s cooperation policy together with a statute of limitations defense to put the pipeline company in an untenable “heads I win tails you lose” position. In one breath, the Town asserted that Algonquin breached a “duty” arising from FERC’s cooperation policy by not taking enough time to navigate the local permit and appeal process before filing a preemption suit. Then, in the other breath, the Town claimed that Algonquin waited too long to sue, arguing that the company’s lawsuit was time-barred under a short state law statute of limitations.

The First Circuit’s rejection of those two arguments should help prevent similar “Catch-22” [12] scenarios from arising in the future, but without unduly hampering cooperation between pipeline companies and local/state regulators of the type encouraged by FERC’s policy. By holding that FERC’s cooperation policy doesn’t create a legal duty, interstate natural pipeline companies aren’t forced to waste time and money slogging through unnecessary local or state permitting regimes before seeking judicial relief on NGA preemption grounds. At the same time, the court’s no-statute-of-limitations ruling should make pipeline companies feel less compelled to race to court the instant a potential preemption situation arises. Instead, they can try to work out potential conflicts with local or state regulators without fear that doing so might create a statute of limitations problem if a preemption suit were later to become necessary— a result that seems fully consistent with the letter and spirit of FERC’s cooperation policy.