The opinion of the court was delivered by: Vaughn R Walker United States District Chief Judge
The United States has filed criminal charges against Reliant Energy Services, Inc ("Reliant") and four Reliant employees: Jackie Thomas, Reginald Howard, Lisa Flowers and Kevin Frankeny (collectively "defendants"). The indictment charges each defendant with one count of commodities price manipulation in violation of § 9(a)(2) of the Commodity Exchange Act (CEA), 7 USC § 13(a)(2), four counts of wire fraud in violation of 18 USC § 1343 and one count of conspiracy in violation of 18 USC § 371. Doc #1 (Indictment). Defendants jointly moved to dismiss the original indictment on vagueness and other grounds. Doc #72 (MTD).
Subsequent to the filing of defendants' motion, the government obtained three superseding indictments. Without abandoning their initial motion, defendants now jointly move to dismiss the third superseding indictment on the ground that it is barred by the applicable statute of limitations. Doc #218 (MTD-3SI). Based upon the parties' arguments and the applicable law, both motions are DENIED.
This case arises from California's electricity "crisis" in summer 2000. In 1996, California created two new non-governmental entities to orchestrate the transmission and sale of electricity: the California Independent System Operator ("CAISO") and the California Power Exchange ("CalPX"), both of which were California non-profit, public-benefit corporations. Until it ceased operation in 2001, CalPX was a crucial hub of the electricity generation market, overseeing an auction system for the sale and purchase of electricity on a non-discriminatory basis to meet the electricity loads of CalPX customers, called load-serving entities ("LSEs"), that provide electricity to retail, end-use customers. CalPX's auctions ran on a day-ahead and same-day basis. CalPX would determine, on an hourly basis, a single "market clearing price" which all electricity wholesalers would be paid based on short-term supply and demand bids submitted by all CalPX participants ("spot market"). In addition, CalPX operated a block forward market by matching supply and demand bids for long-term electricity contracts ("term market").
Responsibility for the efficient functioning of the high-voltage transmission grid fell to CAISO and, to that end, it ran the spot market for electricity. During the time period in question in this case, if consumer demands were not met by scheduled supplies into CalPX or other sources, CAISO was required to procure additional electricity to serve consumers' requirements and maintain the stability of the grid. To facilitate this, CAISO purchased reserve capacity from wholesalers. This reserve capacity was left idle until CAISO required additional generation of power. If CAISO required additional generation of power, it issued an order to the wholesaler to generate such power out of the reserve capacity; if not, the reserve capacity was left ungenerated. The CAISO-operated market was called the "real time" or "imbalance" market.
While CAISO and CalPX were organized under California law, both were subject to the jurisdiction and regulation of the Federal Energy Regulatory Commission (FERC). Under the Federal Power Act (FPA), FERC has jurisdiction over "the sale of electric energy at wholesale in interstate commerce," 16 USC § 824(b), but the California Public Utility Commission retained jurisdiction over all retail sales of electricity in California.
While LSEs had sources of electricity that they themselves owned or controlled (e g, nuclear, hydraulic), retail customer demand for electricity greatly exceeded this source of supply. The court will refer to this excess demand for an LSE's supply as the LSE's "net short." CalPX operated as the exclusive market for LSEs' net short electricity needs. LSEs were required to purchase the majority of their net short demand in the CalPX spot market.
Reliant, based in Houston, Texas, owns five generation plants in southern California. According to the indictment, in early June 2000, defendant Flowers (on behalf of Reliant) entered into long-term trading contracts for electricity delivery for the third quarter of 2000 and 2001, expecting that electricity prices would increase. Indictment ¶16. On June 19, 2000, however, the spot market price for electricity unexpectedly fell. Based upon the trading contracts entered into by Flowers and the sharply decreased market price, defendants determined that Reliant was facing a multi-million dollar loss. Id. To avoid this loss, the indictment alleges that defendants conspired to manipulate (and did manipulate) the California electricity market to increase the price of electricity.
Specifically, the government asserts that defendants manipulated the market by creating a false and misleading appearance of an electricity supply shortage to CalPX, CAISO and other market participants. Id ¶19. Defendants were able to create this illusion of a supply shortage by (1) shutting down some of Reliant's generation plants, (2) physically withholding electricity from the spot market, (3) submitting supply bids at inflated prices to ensure that the bids were not accepted and (4) disseminating false and misleading rumors and information to CAISO, brokers and other traders regarding the availability and maintenance status of, and environmental limitations on, Reliant's southern California generation plants. Id.
The government asserts that defendants' scheme was successful; by June 21, 2000, the purported electricity supply shortage had caused the spot market price of electricity to soar. The indictment alleges that defendants took advantage of the artificial price they had created by selling large amounts of electricity at this inflated price. Ultimately, the government alleges, instead of suffering a loss, Reliant made millions in profits and that California electricity purchasers overpaid by as much as $32 million.
Based upon defendants' alleged conspiracy, scheme to defraud and manipulation, the state of California filed a civil suit against Reliant and the government filed the criminal charges at issue here. Count one of the indictment charges defendants with conspiring to commit wire fraud and commodities price manipulation in violation of 18 USC § 371. Counts two through five charge defendants with wire fraud in violation of 18 USC § 1343. Finally, defendants are charged in count six with violating § 9(a)(2) of the CEA, 7 USC § 13(a)(2), which in pertinent part makes it a crime for "[a]ny person to manipulate or attempt to manipulate the price of any commodity in interstate commerce" (hereinafter the "criminal manipulation provision").
After defendants jointly moved to dismiss the original indictment, the government obtained a superseding indictment on June 29, 2005 ("Indictment S1"), and a second superseding indictment on October 11, 2005 ("Indictment S2"). Doc ##231 (1SI), 181. Trial in this matter was scheduled to commence October 31, 2005. A pre-trial conference was held on October 17, 2005, and after reviewing the parties' proposed jury instructions, the court served upon the parties its own proposed final jury instructions on October 24, 2005. On October 25, 2005, the government obtained a third superseding indictment ("Indictment S3"). Doc #208 (3SI). On October 28, 2005, defendants filed a joint motion to dismiss Indictment S3. Doc #218.
Also on October 28, 2005, the Friday before trial was to commence, the government, pursuant to 18 USC § 3731, filed a notice of appeal of one of the court's pre-trial evidentiary rulings. Doc #219. Upon receipt of the government's notice of appeal, the court conveyed to the parties its understanding that the government's § 3731 filings "would divest the court of jurisdiction over aspects of the case that are involved in the appeal and prevent the court from empaneling a jury during the pendency of the appeal." Doc #216 (citations omitted). The court nonetheless requested the parties to appear as scheduled on October 31, 2005, in order to discuss certain matters. Id. One matter the parties took up at that time was the court's jurisdiction to hear and rule upon defendants' motion to dismiss Indictment S3 during the pendency of the appeal, the issue to which the court now turns.
A trio of Ninth Circuit opinions guides the court: United States v Gatto, 763 F2d 1040 (9th Cir 1985), United States v Emens, 565 F2d 1142 (9th Cir 1977), and United States v Cox, 475 F2d 837 (9th Cir 1973).
In Cox, the district court granted the defendants' motion to suppress and, apparently, the government timely appealed pursuant to § 3731. During the pendency of the appeal, the defendant moved to dismiss the indictment. "[C]oncerned as he was with the aspects of the guarantee of speedy trial within the sixth amendment," the district court granted the motion to dismiss, and the Ninth Circuit unanimously affirmed. Cox, 475 F2d at 841. Although it is not perfectly clear whether the court viewed the issue as one of jurisdiction, significantly, the Cox panel did not conclude that the district court lacked jurisdiction to dismiss the indictment due to the government's pending § 3731 appeal.
In Emens, the Ninth Circuit clarified that Cox's holding was indeed jurisdictional in nature. In rejecting the government's argument that "§ 3731 impliedly prohibits a District Court from dismissing an indictment pending appeal of an order granting a motion to suppress evidence," the panel explained that under Cox, "the District Court has the naked power, in appropriate cases, to dismiss an indictment during appeal time." Emens, 565 F2d at 1144. The panel declined, however, to address whether the district court's exercise of that power was appropriate, and instead remanded on the distinct (but for present purposes not irrelevant) ground that the district court erred in concluding that it lacked jurisdiction to reconsider the evidentiary ruling from which appeal was taken. Id.
Most recent and instructive is Gatto. In Gatto, four days before trial, the district court exercised its supervisory power to exclude evidence that was the byproduct of perceived misconduct by law enforcement agents. The government timely appealed under § 3731 and refused to proceed to trial after the district court declined to stay proceedings pending the appeal. The government's appeal was rewarded by the district court dismissing the indictment with prejudice on the ground that the government had unnecessarily delayed prosecution.
On appeal, the Ninth Circuit rejected the government's argument -- the same argument the government advances here -- "that the district court lost jurisdiction over the action when the government filed its notice of appeal pursuant to 18 USC § 3731 to challenge the exclusionary order." 763 F2d at 1049. Quoting Griggs v Provident Consumer Discount Co, 459 US 56 (1982), the case upon which the government principally relies, the panel acknowledged that "[i]n the usual circumstance, the filing of a notice of appeal confers jurisdiction on the court of appeals and divests the district court of its control over those aspects of the case involved in the appeal." Gatto, 763 F2d at 1049 (quotations and alterations omitted) (emphasis added). But the court went on: "Section 3731 appeals, however, are not usual. As we previously observed [in Cox and Emens], a district court retains the naked power, in appropriate cases, to dismiss an indictment while a section 3731 appeal from a pretrial order is pending. We believe this to be a sound policy." Id (emphasis added).
The court proceeded to debunk the notion that the government's right to appeal mandates unqualified jurisdictional deference by district courts without regard to a defendant's interest in swift proceedings:
The government has a conditional right to appeal a suppression order, but the exercise of that right may result in a disruptive effect on the criminal trial process, therefore harboring a potential for abuse. As a result, the government's right to appeal pretrial suppression orders must be balanced with a defendant's right to proceed to trial on the indictment. This can best be accomplished * * * by retaining jurisdiction in the district court to dismiss the indictment in appropriate cases.
The government's appeal on the eve of trial in a matter of the magnitude, apparent public importance and complexity of the case at bar is, to say the very least, a "fly in the ointment." 10/31/05 Tr at 5:10. This case involves a large corporation, four individual defendants and teams of lawyers. The duration of the trial will be measured in weeks or months, not days. Due to the publicity surrounding the events that led to this prosecution, only a very large jury venire will yield a panel of twelve jurors who are both impartial and available for the duration of the proceedings. The defendants have already once anticipated, and the court has once made preparations for, the commencement of trial -- for naught. It is surprising that the government would deem a case of this nature seriously jeopardized by the evidentiary ruling that sparked the present appeal. A weighty prosecution is seldom landed on light tackle. In light of the government's representation that it would appeal dismissal of Indictment S3 (presumably even if the court did not dismiss any other operative charging instrument), 10/31/05 Tr at 11:23-12:2, piecemeal resolution of pre-trial issues is a palpable concern.
Given these circumstances, this is an "appropriate case," Gatto, 763 F2d at 1050, for the court to entertain a motion to dismiss during the pendency of a § 3731 appeal of an evidentiary ruling. Moreover, the undersigned perceives little risk that this court and the Ninth Circuit will be "stepping on each other's toes." United States v Ienco, 126 F3d 1016, 1018 (7th Cir 1997) (Posner, J). Despite the passage of almost four months since the government filed its notice of appeal, the government has not even filed its opening brief in the court of appeals, cf 18 USC § 3731 (mandating that interlocutory appeals by the government be "diligently prosecuted"); United States v Jenkins, 490 F2d 868, 869 (2d Cir 1973) (Friendly, J) (stating that a delay of several months between the government's notice of appeal and filing of its opening appellate brief "scarcely conforms with our notion of diligent prosecution and we would have dismissed the appeal on that ground if defendant had so requested"); United States v Goldstein, 479 F2d 1061, 1064 n 4 (2d Cir 1973) ("In view of the statutory command of diligent prosecution, we believe that the Government's brief in appeals of this sort should ordinarily be filed within 30 days after the notice of the appeal."). Government counsel represented to the court that the government would "expeditiously" pursue the requisite approval of the Solicitor General and subsequently "file a motion to expedite the appeal in order to move this matter as quickly as possible toward a resolution in the court of appeals," 10/31/05 Tr at 5:17-23. A four-month delay in filing an opening brief serves only to thicken the riddle of the government's conduct.
Having concluded that the government's appeal does not divest the court of jurisdiction to rule upon defendants' motion to dismiss Indictment S3, the court turns to that motion.
Defendants argue that Indictment S3 is barred by the five-year statute of limitations applicable to non-capital federal offenses, 18 USC § 3282. Specifically, defendants contend that because Indictment S3 is substantially broader than Indictment S1 (the last timely filed indictment) with respect to the conspiracy and wire fraud charges, Indictment S3 cannot relate back to Indictment S1 for limitations purposes.
"Generally speaking, the return of an indictment tolls the statute of limitations with respect to the charges contained in the indictment. If a superseding indictment on the same charges is returned while a previous indictment is still pending, the tolling continues." United States v Pacheco, 912 F2d 297, 305 (9th Cir 1990) (citations omitted). Tolling does not continue, however, if the superseding indictment "broadens or substantially amends the charges in the original indictment." United States v Sears, Roebuck & Co, 785 F2d 777, 778 (9th Cir 1986) (quotations and alterations omitted).
The case law does not indicate any formula for determining whether a superseding indictment is substantially broader than its timely filed predecessor, but one principle guides the way in all cases:
Notice to the defendant is the central policy underlying the statute of limitations. If the allegations and charges are substantially the same in the old and new indictments, the assumption is that the defendant has been placed on notice of the charges against him. That is, he knows that he will be called to account for certain activities and should prepare a defense.
Pacheco, 912 F2d at 305 (quoting United States v Italiano, 894 F2d 1280, 1283 (11th Cir 1990)); accord United States v Salmonese, 352 F3d 608, 622 (2d Cir 2003) ("No single factor is determinative; rather, the 'touchstone' of our analysis is notice, i e, whether the original indictment fairly alerted the defendant to the subsequent charges against him and the time period at issue."); United States v Schmick, 904 F2d 936, 940 (5th Cir 1990) ("[N]notice is the touchstone in deciding whether a superseding indictment substantially changes the original charges.").
"To determine whether the superseding indictment impermissibly changed the charges in the original indictment it is necessary to examine the two indictments carefully." Sears, Roebuck & Co, 785 F2d at 779. To that task the court now turns.
The court begins by observing what has not changed. Like its predecessors, Indictment S3 charges each defendant with one count of conspiracy, four counts of wire fraud and one count of commodities price manipulation. Thus, Indictment S3 "neither added new charges nor rendered [defendants] susceptible to increased punishment." Schmick, 904 F2d at 941. Furthermore, "[t]he dates of the conspiracy remain the same." United States v Lash, 937 F2d 1077, 1082 (6th Cir 1991). Finally, Indictment S3 recites without modification the same four factual allegations that are the nucleus of this prosecution (the "four key acts"):
(a) the shut down of certain of defendant Reliant's power plants in California;
(b) the physical and economic withholding of electricity from the California spot markets, by declining to submit supply bids and by submitting false and misleading supply bids at prices designed to ensure that the bids were not accepted;
(c) the exacerbation of the supply shortage through the purchase of additional electricity from the PX and other markets to cover Reliant's pre-existing delivery commitments;
(d) the dissemination of false and misleading rumors and information to the ISO, brokers, and other traders regarding the availability and maintenance status of, and environmental limitations on, defendant Reliant's power plants.
Compare 1SI ¶19 with 3SI ¶19. And both indictments characterize these four key acts as "conduct that was designed to create and did create the false and misleading appearance of an electricity supply shortage to the market." Id.
Defendants focus on the elimination of references to "artificial" electricity prices in the allegations of conspiratorial objectives, unlawful means, sources of injury, overt acts and wire transmissions. For example, where ¶21 of Indictment S1 alleged that the "conspiracy, scheme to defraud, and manipulation" caused CalPX and CAISO to publish, pay and charge "artificially inflated" or "artificially higher" spot prices for electricity, corresponding ¶20 of Indictment S3 alleges that "[i]t was an important part of the scheme to defraud that any increase in spot electricity prices" would be published, paid and charged by CalPX and CAISO. And where ¶22 of Indictment S1 alleged that Pacific Gas & Electric Co ("PG&E") "submitted higher-priced demand bids and paid artificially higher prices" for spot electricity and ancillary services "[a]s a result of the defendants' conspiracy, scheme to defraud, and manipulation," corresponding ¶21 of Indictment S3 alleges that it was "an important part of the scheme to defraud" that PG&E and other market participants would submit bids and pay prices "that were higher than they would have been if not for the defendants' conduct." Similarly, where ¶28 of Indictment S1 alleged overt acts that included causing CalPX to publish "artificially inflated spot prices," corresponding ¶26 of Indictment S3 alleges the publication of prices "that were higher than they would have been absent the defendants' conduct."
These changes reflect deletions rather than additions. Defendants nonetheless argue that Indictment S3 is broader than Indictment S1. According to defendants, under Indictment S1, the government could not obtain a conviction on the wire fraud charges unless the jury found that the defendants' alleged misrepresentations caused the price of electricity to be artificial. This is so, defendants argue, because the purpose of the scheme to defraud alleged in Indictment S1 was to inflate the price of electricity artificially. Because the four wire transactions alleged in the indictment all occurred after the prices were alleged to have become artificially inflated, if electricity prices were not in fact artificially inflated, the wires could not have been used in furtherance of the scheme alleged in Indictment S1. But under Indictment S3, defendants contend, the jury could convict on the ...