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Olympic Pipe Line Co. v. City of Seattle

 

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Olympic Pipe Line Company (Olympic), which operates a hazardous liquid pipeline system through western Washington and Oregon, filed suit against the City of Seattle (Seattle) to prevent the city from shutting down its pipeline operations within the city. In addition, Olympic sought a declaratory judgment that the federal Pipeline Safety Improvement Act of 2002 (PSA)[1] preempts municipal regulations regarding the safety, design, construction, testing, or operation of the pipeline.[2] The district court granted both the motion for a preliminary injunction to prevent Seattle from closing the pipeline, and a motion for summary judgment that the PSA preempted the city’s safety regulations for the pipeline. Seattle appealed, and the Ninth Circuit affirmed the district court decision that the PSA preempts municipal pipeline safety standards.

Olympic operates a 400-mile hazardous liquid pipeline system in parts of Washington and Oregon, including a twelve-mile lateral delivery line (Seattle Lateral) off the main pipeline which travels from Renton, Wash., through several communities, including Seattle, to reach the commercial shipping terminals on Harbor Island. In Seattle, the pipeline runs past elementary schools, through a residential neighborhood, beneath Interstate 5, and alongside electricity transmission lines. Olympic’s original franchise to operate the Seattle Lateral through the city was granted in 1966, with the most recent franchise agreement between the city and Olympic dating back to 1991. In July 1999, a section of Olympic’s main pipeline exploded north of Seattle in Bellingham, Washington. The explosion killed three people, spilled approximately 230,000 gallons of gasoline, and caused millions of dollars of property and environmental damage. Following the explosion, Olympic shut down the northern half of its pipeline until early 2001, and prior to re-opening, entered into agreements with Bellingham granting safety oversight powers to the city and agreeing to perform hydrostatic tests on the pipeline. During the hydrostatic tests Olympic performed in the Washington communities of Bellingham, Renton, and Woodinville following the explosion, a portion of each tested pipeline failed.

When Olympic’s franchise for the Seattle Lateral expired in 2000, Seattle requested Olympic respond to a number of safety concerns and conduct a hydrostatic test in Seattle as a condition of renewal. Olympic refused. Seattle responded by notifying the company that it would suspend pipeline operations within sixty days until a new franchise agreement was signed or Olympic performed a hydrostatic test on the Seattle Lateral, that its failure to comply with the suspension would result in criminal sanctions, and that because Olympic had declared bankruptcy, the city would not enter into a new franchise agreement until the company or its successor emerged from bankruptcy. Olympic did not respond to the city’s demands and instead filed suit, seeking an injunction to prevent the city from shutting down the Seattle Lateral and a declaratory judgment that Seattle’s attempts to regulate pipeline safety were preempted by the federal PSA. The district court granted Olympic’s motion for an injunction, as well as its motion for summary judgment, holding that the city regulations were preempted by federal law. Seattle appealed, arguing that its safety regulations were not preempted by the PSA because its regulations can coexist with the federal regulations, that the franchise agreement and indemnity agreement between Olympic and the city waived any preemption defense, and that public policy required its agreements to be enforced.

The standard of review for a grant of summary judgment is de novo.[3] The Ninth Circuit affirmed the district court’s decision that the PSA preempted the city’s pipeline safety regulations. The court first addressed whether the PSA preempts municipal safety regulations on a hazardous liquid pipeline.[4] Interstate and intrastate hazardous liquid pipelines are subjected to different standards under the PSA. For interstate pipelines, the statute does not allow state and local authorities to “adopt or continue in force safety standards.”[5] The PSA does, however, create two exceptions to its general express preemption of state safety standards: if a state authority is authorized by the U.S. Department of Transportation (DOT) to oversee interstate pipeline facilities,[6] or if DOT delegates its authority to conduct pipeline inspections to ensure compliance with federal safety standards.[7] Aside from those narrow exceptions, the regulations for the PSA clarify that it “leaves to exclusive Federal regulation and enforcement the ‘interstate pipeline facilities,’ those used for the pipeline transportation of hazardous liquids in interstate or foreign commerce.”[8] For intrastate pipelines, the PSA permits state regulations requiring more stringent safety standards only if the state has been formally certified by DOT.[9]

The Ninth Circuit rejected Seattle’s argument that its franchise and indemnity agreements imposing safety standards on Olympic were not preempted by the PSA. The Washington Utilities and Transportation Commission (WUTC), the agency which regulates hazardous liquid pipeline safety in the state, has been delegated authority over interstate and intrastate pipeline issues in Washington. WUTC has entered into an agreement with DOT delegating it the authority to act as an agent of DOT in pipeline incident investigation, inspection, and safety monitoring. Although Seattle has the ability to enter into regulatory agreements with DOT relating to hazardous liquid pipelines, the city did not do so, nor had it been delegated authority by DOT to conduct pipeline inspections. Thus, the Ninth Circuit concluded that WUTC, not Seattle, was the only state agency delegated authority to regulate pipelines in the state and that “the PSA expressly preempts the City’s attempts to impose safety regulations on the Seattle Lateral.”[10] The Ninth Circuit distinguished a previous decision in which the court held that the HLPSA, a PSA predecessor, did not preempt a municipality from imposing safety standards in a franchise agreement with an intrastate pipeline operator.[11] At that time, the HLPSA had allowed state regulation of intrastate pipelines by “[a]ny state agency.”[12] However, when HLPSA was incorporated into the PSA in 1992, Congress amended the statutory language from “[a]ny state agency” to “[a] state authority that has submitted a current certification.”[13] The Ninth Circuit interpreted this amendment to indicate Congressional intent to limit regulatory authority over pipelines to certified state agencies. Because Seattle had not been certified, the court held that the city’s regulations were preempted by the PSA.

The Ninth Circuit next rejected Seattle’s argument that it could contractually require Olympic to comply with its safety conditions. The court observed that if the city acted as a municipal proprietor in the franchise agreement, it could impose safety measures as contractual conditions. To determine whether Seattle had acted as a proprietor or a regulator, the court evaluated whether the city acted to protect its own interests in the agreement which reflected “typical behavior of private parties in similar circumstances” and whether the “narrow scope of the challenged action defeat[s] an inference that its primary goal was to encourage a general policy rather than address a specific proprietary problem.”[14] The court concluded that Seattle’s interest in requiring the safety measures was to prevent pipeline accidents, and thus it had “acted pursuant to its general duty to protect the public health and safety–a duty grounded in the City’s regulatory, police power–rather than in an attempt to protect its role in the real estate market.”[15] Because its concern was with public safety, the Ninth Circuit held that the safety conditions were not valid contractual conditions because Seattle had acted as a regulator, not a
municipal proprietor, in conditioning the renewal of the franchise agreement with Olympic on compliance with its safety requirements.

Seattle argued that even if its regulations were preempted by the PSA, the court should nonetheless require Olympic to comply with the city’s safety conditions because the franchise and indemnity agreements waived Olympic’s right to contest such conditions. The Ninth Circuit first rejected Seattle’s argument that the Olympic’s agreements with the city waived the company’s right to raise a preemption argument against the city. Because “[p]reemption is a power of the federal government, not an individual right of a third party,”[16] the Ninth Circuit held that Olympic did not have the capacity to waive it’s claim. Seattle next argued that public policy demanded that the court require Olympic to comply with the safety measures to prevent it and other companies from entering into contracts they know are unenforceable. The Ninth Circuit rejected this argument because Congress, not the courts, should properly determine public policy. In addition, the court noted that while public policy “might normally discourage companies from entering into contracts that they do not intend to honor, that policy concern is more than balanced by the superordinate federal need to maintain the PSA’s policy of providing national uniformity in the establishment and enforcement of hazardous liquid pipeline safety regulations.”[17]

Thus, the Ninth Circuit affirmed the district court decision to grant summary judgment to Olympic on the grounds that the federal PSA preempts the city’s hazardous liquid pipeline safety regulations, thus enjoining the city from closing down the Seattle Lateral section of the pipeline.


[1] 49 U.S.C. §§ 6105, 60129-60133 (Supp. 2004).

[2] Olympic also originally sought a declaratory judgment that the city’s termination or denial of its franchise agreement would violate the Commerce Clause and that the city’s franchise fees were arbitrary and unreasonable. However, the Ninth Circuit reviewed only the question of whether the PSA pre-empted the city regulations. Olympic Pipe Line Co. v. City of Seattle, 437 F.3d 872, 874 (9th Cir. 2006).

[3] Hambleton Bros. Lumber Co. v. Balkin Enters. Inc., 397 F.3d 1217, 1226 (9th Cir. 2005).

[4] The U.S. Constitution grants Congress the power to preempt state and local laws in the Supremacy Clause. U.S. Const. art. IV, § 2.

[5] 49 U.S.C. § 60104(c) (Supp. 2002).

   [6] Id. § 60106(a).

   [7] Id. § 60117(c).

[8] 49 C.F.R. § 195, app. A (2005).

[9] 49 U.S.C. § 60105(c) (Supp. 2002).

[10] Olympic Pipe Line Co. v. City of Seattle, 437 F.3d 872, 880 (9th Cir. 2006).

[11] Shell Oil Co. v. City of Santa Monica, 830 F.2d 1052, 1066 (9th Cir. 1987).

[12] Id. at 1064 (relying on the text of the former 49 U.S.C. § 2002(d)).

[13] 49 U.S.C. § 60104(c) (Supp. 2002).

[14] Aeroground, Inc. v. San Francisco, 170 F. Supp. 2d 950, 957 (N.D. Cal. 2001) (citing Cardinal Towing & Auto Repair, Inc. v. Bedford, 180 F.3d 686, 693 (5th Cir. 1999)).

[15] Olympic Pipe Line, 437 F.3d at 881.

[16] Id. at 883.

[17] Id.

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