United States District Court, E.D. California
L. Nunley United States District Judge.
Federal Energy Regulatory Commission (“FERC”),
has filed this action, seeking affirmance of its
administrative Order Assessing Civil Penalties
(“Assessment Order”) against Defendants. ECF No.
1 (“Petition”). In its Assessment Order, FERC
states that Barclays Bank PLC (“Barclays”) and
four individuals violated the anti-manipulation provisions of
the Federal Power Act (“FPA”), 16 U.S.C. §
824v(a), and FERC's Anti-Manipulation Rule, 18 C.F.R.
1c.1. Administrative Record (“AR”)
16-66. The Assessment Order also assessed
penalties and disgorgements against Defendants totaling
$487.9 million. AR 84-85.
before the Court is FERC's Motion to Affirm Civil
Penalties. ECF No. 125. The parties have fully briefed the
motion. See ECF No. 125 (motion), 136-54
(Defendants' opposition briefing and declarations), 166
(reply). The matter came on for hearing on February 9, 2017,
at which time the parties responded to specific questions put
to them by the Court. See ECF No. 186.
reasons that follow, the Court concludes, in agreement with
every other federal court that has expressly addressed this
issue, that Defendants are entitled to conduct discovery
under the Federal Rules of Civil Procedure. See FERC v.
Maxim Power Corp., 196 F.Supp.3d 181 (D. Mass. 2016);
FERC v. City Power Marketing, LLC, 199 F.Supp.3d 218
(D.D.C. 2016); FERC v. Silkman, 2017 WL 374697, 2017
U.S. Dist. LEXIS 10902 (D. Me. 2017); FERC v. ETRACOM
LLC, 2017 WL___, 2017 U.S. Dist. LEXIS 33430 (E.D. Cal.
2017). Accordingly, the Motion To Affirm will be denied
without prejudice to its renewal as a dispositive motion at
an appropriate time.
October 9, 2013, FERC commenced this action by filing its
“Petition” in this Court, referring to itself as
“Petitioner” and Barclays and the individuals as
“Respondents.” ECF No. 1. The Court will refer to
FERC as the “Plaintiff and to Barclays and the
individuals as “Defendants.”
22, 2015, the Court denied Defendants' motions to
transfer venue of this case to the Southern District of New
York, or to dismiss (in whole or in part) on grounds of lack
of jurisdiction, failure to state a claim, or statute of
limitations. ECF No. 88. An overview of the alleged manipulation
is set forth in that order.
the beginning of this litigation, the parties have sparred
over whether or not the Court should permit the parties to
conduct discovery under the Federal Rules of Civil Procedure.
See ECF Nos. 44 (Defendants' motion to dismiss),
52 (Joint Report re Fed.R.Civ.P. 26(f)), 101 (Defendants'
briefing on bifurcation), 103 (FERC's briefing on
bifurcation), 118 (Defendants' motion for discovery).
2006, acting under the authority granted it by 16 U.S.C.
§ 824v(a), FERC promulgated its Anti-Manipulation Rule,
18 C.F.R. § (“FERC Rule”) 1c.2. 71 Fed. Reg.
4244 (January 26, 2006). Broadly speaking, the rule prohibits
fraudulent practices “in connection with the purchase
or sale of electric energy or the purchase or sale of
transmission services subject to the jurisdiction of the
Commission.” FERC Rule 1c.2(a); see Simon v.
KeySpan Corp., 694 F.3d 196, 207 (2d Cir. 2012) (the
rule bars “fraud or deceit in connection with the sale
of energy”), cert. denied, 133 S.Ct. 1998
2007, FERC's Office of Enforcement staff
(“Enforcement”) commenced a preliminary
investigation into allegations of “manipulative trading
by Barclays in physical electricity markets in the western
U.S., ” and notified Barclays that it was doing so.
Petition ¶¶ 34, 35; AR 6461 (FERC letter to
Barclays). On October 2, 2008, FERC authorized
Enforcement to commence a “formal investigation”
of Defendants, thus granting Enforcement the power to obtain
testimony and other evidence through compulsory process. AR
Preliminary Findings & Responses
10, 2011, Enforcement issued Preliminary Findings Letters to
Defendants stating that it had preliminarily concluded that
Defendants had engaged in manipulative activity in violation
of the Anti-Manipulation Rule. AR 8, 6022-301. The letters
invited Defendants to respond with any additional information
or rebuttals before Enforcement made a recommendation to
FERC. See AR 6022-301. On August 29
& 30, 2011, Defendants responded to the Preliminary
Findings Letters. AR 8.
Notice of Alleged Violations and Rule 1b.19 Notice &
April 5, 2012, Enforcement issued a “Staff Notice of
Alleged Violations.” AR 8, 6663. It appears that
settlement discussions ensued, but the matter was not
resolved. See AR 94.
3, 2012, Enforcement provided Defendants a FERC Rule 1b.19
letter, notifying Defendants of its intent to recommend that
FERC issue an Order To Show Cause why FERC should not
institute an enforcement action against Defendants seeking
penalties and disgorgements. AR 8, 6371-85; see FERC
Rule 1b.19. The FERC Rule 1b.19 letters invited
Defendants to respond to the 1b.19 letter, advising that they
could address any matter they wanted FERC to consider, and
that they could provide additional evidence. See AR
6371-85. On June 11, 2012, Defendants responded to the FERC
Rule 1b.19 letters. AR 8.
Staff Report & Order To Show Cause
compiled a Staff Report (undated), that “concluded that
Barclays Bank PLC (Barclays) and its individual traders
manipulated the electricity markets in and around California
from November 2006 to December 2008 in violation of 18 C.F.R.
§ 1c.2 (2012) (Anti-Manipulation Rule or 1c.2).”
AR 90-158 (“Staff Report”). Specifically:
Enforcement determined Respondents engaged in a coordinated
scheme … to take the physical positions they had built
and liquidate them in the cash markets - generally at a loss
- to impact the ICE daily index settlements to benefit
Barclays' related financial positions that settled
against those indices.
Petition at 9 ¶ 36; AR 92.
October 31, 2012, FERC directed Defendants to show cause why
they should not be found to have violated 16 U.S.C. §
824v(a) and the Anti-Manipulation Rule, and why they should
not be assessed civil penalties and disgorgements. AR 86-89.
The Staff Report was attached as an exhibit.
further directed Defendants to elect whether they would
proceed by “(a) an administrative hearing before an
Administrative Law Judge (ALJ) at the Commission prior to the
assessment of a penalty under section 31(d)(2), or (b) an
immediate penalty assessment by the Commission under section
31(d)(3)(A).” AR 88. Defendants were advised that if
they chose the “immediate penalty assessment”
route, and if the Commission assessed a penalty which
Defendants failed to pay within 60 days, “the
Commission will commence an action in a United States
district court for an order affirming the penalty, in which
the district court may review the assessment of the civil
penalty de novo.” AR 88.
Answers & Election
filed Answers to the OSC on December 14, 2012. All
Defendants elected the immediate penalty assessment route, so
that they could “have this case adjudicated de
novo by a federal district court pursuant to sections
3l(d)(1) and (3)(A) of the Federal Power Act
(‘FPA'), 16 U.S.C. §§ 823b(d)(1),
(3)(A).” See AR 159-98
(Barclays). On January 28, 2013, Enforcement replied
to Defendants' Answers. AR 958-1062.
Order Assessing Civil Penalties & District Court
16, 2013, FERC issued its Order Assessing Civil Penalties. AR
1-85. In the Order, FERC stated that Defendants had violated
16 U.S.C. § 824v(a) and the Anti-Manipulation Rule, and
it assessed civil penalties and disgorgements against them.
Id On October 9, 2013, FERC filed this action,
seeking an affirmance of its Order Assessing Civil Penalties.
ECF No. 1.
Court has jurisdiction under 16 U.S.C. § 823b(d)(3)(B).
NOVO REVIEW PROCEDURES
Court's current task is to determine how it will proceed.
The applicable statute instructs the Court to “review
de novo the law and the facts involved.” 16 U.S.C.
§ 823b(d)(3)(B). FERC, in agreement with Defendants,
asserts that “de novo” review:
requires a “fresh, independent determination of
‘the matter' at stake.” See Doe v. United
States, 821 F.2d 694, 697-98 (D.C. Cir. 1987) (en banc)
(Ginsburg, J. R. B.) (citations omitted). “Essentially
then, the district court's charge was to put itself in
the agency's place, to make anew the same judgment
earlier made by the agency.” Id. at 698. This
Court has fulfilled the de novo role when “the district
judge made the same judgment earlier entrusted to the agency
head ... on the basis of information he
found sufficient to make the judgment, and without deferring
to the prior agency conclusion on the same matter.”
ECF No. 125 at 8 (FERC); ECF Nos. 136 at 23 (Barclays), 140
at 9 (Smith), 141 at 10 (Levine). The dispute here is about
what are “the law and the facts involved” that
will be the basis for decision in this Court.
asserts that “the law and the facts involved” are
limited to the evidence and arguments that are contained in
what it calls the “administrative record.” ECF
No. 125 at 22. Specifically, it argues, “issue
exhaustion” bars Defendants from introducing new
arguments or evidence here. ECF No. 166 at 15. FERC argues
that there is no unfairness in this because Defendants
“had the opportunity to submit additional factual
affidavits to the Commission from any witnesses they wished
the Commission to consider ….” ECF No. 52 at 8;
ECF No. 166 at 13-14. FERC concedes that additional
proceedings, including expert testimony and discovery, may be
necessary to resolve how much Defendants should pay in
disgorgement. In addition, FERC asserts that it is prepared
to offer any additional evidence the Court deems necessary,
and is “prepared to proceed with a trial” if a
review of the record or supplementary evidentiary hearing is
insufficient to decide the matter. ECF No. 52 at 11.
argue that “the law and the facts involved”
includes any arguments they wish to make now, plus all
evidence they can collect by means of discovery. ECF No. 136
at 55-61. Defendants argue that they are entitled to conduct
discovery so that they can properly defend themselves against
FERC's charges. Defendants point out that they never had
the ability to test the evidence submitted to FERC “to
ensure its relevance, reliability, fairness, competence or
scientific validity.” ECF No. 52 at 14. In any event,
they argue, the evidence Enforcement chose to present to FERC
- in the “administrative record” - consists of
“cherry picked transactional data” and “a
handful” of emails and instant messages
(“IMs”). See ECF No. 52 at 13. Moreover,
no “neutral trier of fact” has ever resolved the
matter in a “contested evidentiary proceeding.”
ECF No. 52 at 14-15.
also argue that basic fairness, and their Due Process rights,
require that they have the opportunity for a full contested
hearing in this Court. ECF No. 136 at 61-63. They assert that
they never intended to waive their right to a “full
adjudicative process” when they elected to go to
district court. ECF No. 52 at 14. To the contrary, they
assert that FERC's Enforcement staff assured them that
they could conduct discovery once the district court case was
filed. ECF No. 136 at 18. Moreover, they argue, the
applicable statute, 16 U.S.C. § 823b(d)(3)(B), as
interpreted by FERC itself in a policy statement, calls for a
“de novo trial.” ECF No. 136 at 60.
The Meaning of the Statute The Court first looks to
the language and structure of the applicable statute, to
determine whether discovery is required.
The first step in interpreting a statute is to determine
whether the language at issue has a plain and unambiguous
meaning with regard to the particular dispute in the case.
This often requires examin[ing] not only the specific
provision at issue, but also the structure of the statute as
a whole, including its object and policy. If the plain
meaning of the statute is unambiguous, that meaning controls.
If the statutory language is ambiguous, then we consult
Wilson v. Comm'r, 705 F.3d 980, 987-88 (9th Cir.
2013) (citations and internal quotation marks omitted). The
disputed statutory language provides that after FERC has
assessed a penalty and waited 60 days:
the Commission shall institute an action in the
appropriate district court of the United States for an order
affirming the assessment of the civil penalty. The court
shall have authority to review de novo the law and the
facts involved, and shall have jurisdiction to enter a
judgment enforcing, modifying, and enforcing as so modified,
or setting aside in whole or in Part such assessment.
16 U.S.C. § 823b(d)(3)(B) (emphasis on disputed terms