Skelly Oil Co. v. Phillips Petroleum Co.

The Declaratory Judgment Act is procedural: it expands the remedies a federal court may provide, but it does not expand the classes of cases over which federal courts have subject-matter jurisdiction. A plaintiff seeking declaratory relief must therefore establish the same jurisdictional foundation that would have been required in an ordinary coercive action for damages, injunction, or specific performance.

Had Phillips sued to enforce the gas-purchase contracts through damages or specific performance, its claim would have arisen under the state law governing those contracts. Phillips could not turn that state-law claim into a federal one merely because the producers would defend by arguing that the Federal Power Commission had not issued the certificate contemplated by the contracts.

This application follows the well-pleaded-complaint rule. A federal question must appear in the plaintiff's own properly pleaded claim, without reliance on an anticipated defense or a response to such a defense. Artful pleading cannot create federal jurisdiction by seeking a declaration that an expected federal-law defense will fail.

Allowing declaratory plaintiffs to invoke federal jurisdiction whenever they anticipated a federal defense would divert a large body of state-law litigation into federal court. It would also force federal courts to resolve unsettled questions of local law and would undermine Congress's continuing policy of limiting lower federal courts' jurisdiction.

Phillips was a Delaware corporation and Magnolia was a Texas corporation, so diversity of citizenship supplied a jurisdictional basis independent of the asserted federal question. The absence of federal-question jurisdiction over the claims against Skelly and Stanolind therefore did not require dismissal of the claim against Magnolia.

Magnolia had qualified to do business in Oklahoma and appointed an agent for service of process under Oklahoma law. The lower courts rejected Magnolia's contention that the controversy did not arise in Oklahoma within the scope of that consent, and the Supreme Court declined to revisit that application of local law. Under Neirbo, Magnolia's consent made venue proper in Oklahoma.

The fact that Oklahoma courts may not have offered the same declaratory remedy did not matter. Once diversity jurisdiction and venue existed, the federal court could use the declaratory remedy authorized by federal procedural law.

The court of appeals treated the contract's phrase, "issuance" of a "certificate of public convenience and necessity," as necessarily carrying the same meaning as those words in the Natural Gas Act. The Supreme Court rejected that approach as incomplete. Identical words in a private contract and a statute may have different meanings because the parties need not have incorporated every implication of the statutory scheme.

The November 30 order presented unresolved questions about when a certificate was actually issued. Although the order used present-tense language saying that a certificate "is hereby issued," its full contents were not made public until December 2. The Commission's own rules distinguished adoption of an order from issuance, and the order also deferred the date for calculating rehearing time until later opinions or a supplemental order issued.

The Court did not hold that the Natural Gas Act uses "issuance" in one uniform way for every purpose. The legal significance of the Commission's action could vary with context, and the significance of the order's conditions and delayed rehearing provision warranted informed consideration rather than a purely grammatical reading.

Because the dispute implicated an important regulatory statute and agency practice, the Court concluded that the lower courts should further develop the issues, with appropriate assistance from the Federal Power Commission's experience and interpretation. On remand, the lower court could consider both the statute and the parties' contractual intent without assuming that the contract necessarily adopted the statute's full meaning.