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The Mobile-Sierra Doctrine: A Return to Its Statutory Roots

The 9th Circuit’s Snohomish and PUC decisions rationalize what has been a confusing, conflicted area of law.

Fortnightly Magazine - May 2007

parties could bind non-parties or the commission—because FERC’s orders were remanded on other grounds 16 —the decisions’ logic compels a negative answer. If, as the 9th Circuit held, the  Mobile-Sierra “public-interest” test is not substantively different from the just-and-reasonable standard, but simply focuses on the contract’s effects on different entities (namely, the consuming public rather than the contracting parties), then Mobile-Sierra cannot preclude non-parties from seeking to assert their statutory rights.

The decisions’ emphasis on the just-and-reasonable standard’s statutory basis also suggests further reasons why  Mobile-Sierra cannot enable contracting parties to bind non-parties and the commission to a higher contract-modification standard. As noted, FPA 205(a) demands that “all rates … be just and reasonable” and declared unjust and unreasonable rates to be “unlawful.” FPA 306 gives “any person” the right to file a complaint objecting to “anything done or omitted to be done by any licensee or public utility in contravention of the provisions of this act.” FPA 206 works in tandem with sections 205 and 306, providing that “whenever the commission … shall find that any rate… is unjust, unreasonable, unduly discriminatory or preferential, the commission shall determine the just-and-reasonable rate, charge, classification, rule, regulation, practice, or contract to be thereafter observed and in force, and shall fix the same by order.”

These provisions operate together to establish both a substantive legislative command that jurisdictional rates be just and reasonable and a procedural mechanism for “any person” to seek changes to rates that are not just and reasonable. Neither contracting parties nor the commission has any power to deprive non-parties of “rights provided by a statute enacted by both houses of Congress and signed into law by the president.” 17

The D.C. Circuit’s decision in Atlantic City Electric Co. v. FERC  18 reinforces this point, holding unequivocally that the commission lacks the power to deprive parties of rights that Congress gave them by statute. While contracting parties may waive their rights by private agreement, they may only waive “their” rights. Id. at 11 (emphasis added). “It goes without saying that a contract cannot bind a nonparty.” EEOC v. Waffle House Inc. , 534 U.S. 279, 294 (2002) . For similar reasons, Judge Silverstein found it “troubl[ing]” that the settling parties in Bridgeport sought to bind non-parties to settlement provisions that would deprive them of statutory rights that they did not agree to waive. 19

Moreover, these decisions entirely are consistent with FERC’s historic (and, until more recently, settled) understanding of the  Mobile-Sierra doctrine’s intrinsic limitations:

Mobile-Sierra does not speak to situations … where a non-party to [a contract] … seeks changes under section 206. Under [one] interpretation, parties to a contract who agree among themselves not to seek rate changes would be able to bind not only one another, but also other entities who are not parties to that contract (and did not receive the contractual benefits in exchange for which the parties traded away their right to seek rate changes). This result is not what the Supreme Court intended in  Mobile-Sierra.20

Much of the outcry regarding nonparties’ rights