Fed. Energy Regulatory Comm'n v. Barclays Bank PLC, 2:13-cv-02093-TLN-DB

• Decision Date: 29 September 2017
• Docket Number: No. 2:13-cv-02093-TLN-DB,2:13-cv-02093-TLN-DB
• Parties: FEDERAL ENERGY REGULATORY COMMISSION, Plaintiff, v. BARCLAYS BANK PLC, et al., Defendants.
• Court: U.S. District Court — Eastern District of California

FEDERAL ENERGY REGULATORY COMMISSION, Plaintiff, v. BARCLAYS BANK PLC, et al., Defendants.

No. 2:13-cv-02093-TLN-DB

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF CALIFORNIA

September 29, 2017

ORDER

This matter is before the Court pursuant to Defendant Ryan Smith's ("Defendant Smith") Motion for Judgment on the Pleadings. (ECF No. 212.) Federal Energy Regulatory Commission ("FERC") opposes the motion. (ECF No. 220.) Defendant Smith has filed a reply. (ECF No. 221.) On August 24, 2017, the Court held a hearing and heard oral argument on this motion.¹ The Court has carefully considered the arguments raised by the parties. For the reasons set forth below, Defendant Smith's motion is GRANTED.

I. INTRODUCTION AND BACKGROUND

Defendant Smith contends that the instant action is time-barred by 28 U.S.C. § 2462 as it relates to him. The Court has discussed the nature of the allegations against Defendant Smith andthe other Defendants in detail. (See ECF No. 88 ("May 22, 2015 Order").) An additional, detailed recitation is unnecessary to resolve the instant motion. Suffice it to say that FERC alleges that Defendant Smith participated "in an unlawful scheme to manipulate electricity markets in and around California" during his tenure with Defendant Barclays Bank PLC ("Barclays") and that FERC contends this violated Section 222 of the Federal Power Act ("FPA"), 16 U.S.C. § 824v, and 18 C.F.R. § 1c.2 ("Anti-Manipulation Rule"). (ECF No. 1 at ¶¶ 3, 36, 41, 44-46, 126.) On July 16, 2013, FERC assessed Defendant Smith a $1 million civil penalty for his alleged violation of those provisions. (Order Assessing Civil Penalties ("Assessment Order"), ECF No. 1-1). On October 9, 2013, FERC instituted this action, pursuant to Section 31(d)(3)(B) of the FPA, 16 U.S.C. § 823b(d)(3)(B), seeking an order from this Court affirming that penalty. (ECF No. 1 at ¶ 6.)

There are four dates relevant to the instant motion. The first is March 29, 2007 — the date on which Defendant Smith states his employment with Barclays was terminated. (ECF No. 212 at 6, 8.) The second is June 21, 2011. (ECF No. 212 at 7.) It is undisputed that this is the date that Defendant Smith entered into an agreement ("Tolling Agreement") to toll the statute of limitations in his case. (See Tolling Agreement, ECF No. 45-1 at 10.) The third is October 31, 2012 — the date FERC issued its Order to Show Cause and Notice of Proposed Penalty ("OSC") addressed to Defendant Smith and the other Defendants. (ECF No. 1 at ¶ 41.) The fourth is October 9, 2013 — the date the instant action was filed in this Court. (ECF No. 1.)

FERC has opposed the motion on two purely legal points and has not contested the aforementioned dates. The two questions that must be resolved in order to decide the instant motion are as follows: (1) whether the Tolling Agreement terminated according to its terms on October 31, 2012; and (2) if so, did the five-year statute of limitations supplied by 28 U.S.C. § 2462 continue to run until FERC filed this action on October 9, 2013? As discussed in more detail below, the Court concludes the answer to both questions is "yes." Consequently, Defendant Smith's motion must be granted.

Before analyzing the legal questions posed by the instant motion, the Court will make two observations regarding the four dates identified above, specifically the first and third dates.FERC's Assessment Order, which FERC incorporated by reference into its pleading, states that Defendant Smith's "employment at Barclays was terminated in March 2007." (ECF No. 1-1 at 51 n.252.) FERC's opposition does not take issue with the precise date offered by Defendant Smith and use of any other date in March 2007 would not result in a different outcome for this motion. Consequently, the Court will use March 29, 2007, for convenience. With respect to the OSC, FERC disputes whether the OSC constituted the "written notice" required by Defendant Smith's Tolling Agreement. However, FERC has not opposed the motion on the ground that if the OSC does constitute such "written notice" that it would be notice as of a different date.

II. STANDARD OF REVIEW

Federal Rule of Civil Procedure 12(c) permits a party to seek judgment on the pleadings "[a]fter the pleadings are closed — but early enough not to delay trial." "Analysis under Rule 12(c) is 'substantially identical' to analysis under Rule 12(b)(6) because, under both rules, a court must determine whether the facts alleged in the complaint, taken as true, entitle the plaintiff to a legal remedy." Pit River Tribe v. Bureau of Land Management, 793 F.3d 1147, 1155 (9th Cir. 2015) (citing Chavez v. United States, 683 F.3d 1102, 1108 (9th Cir. 2012)). "Judgment on the pleadings is proper when the moving party clearly establishes on the face of the pleadings that no material issue of fact remains to be resolved and that it is entitled to judgment as a matter of law." Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1550 (9th Cir. 1989). "In considering a motion for judgment on the pleadings, a court may consider 'documents attached to the complaint, documents incorporated by reference in the complaint, or matters of judicial notice — without converting the motion . . . into a motion for summary judgment." Lewis v. Russell, 838 F. Supp. 2d 1063, 1067 n.3 (E.D. Cal. 2012) (quoting United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003)).

III. ANALYSIS

A. Whether the Tolling Agreement Terminated on October 31, 2012

The first issue raised by Defendant Smith's motion presents a rather straightforward contractual interpretation question — whether the substance of the OSC constituted "written notice" to Defendant Smith that FERC's investigation into his conduct in this case "terminated."Winnowing the parties' legal arguments to this question requires some preliminary discussion where the Court will identify the following three things: (i) the operative text of the Tolling Agreement; (ii) relevant excerpts from the OSC; and (iii) the area of agreement between the parties on the applicable contract law principles. The Court will then briefly explain why none of FERC's three arguments relating to the Tolling Agreement are persuasive. At which point, all that remains is resolving the contractual interpretation question mentioned at the outset.

i. Preliminary Discussion

a. Operative Text of the Tolling Agreement

By entering into the Tolling Agreement, Defendant Smith agreed to "toll the running of any statute of limitations for all claims brought by [FERC] and/or its staff arising from [his] conduct in the Investigation into Allegations of Market Manipulation of the Electric Markets in the West, Docket No. IN08-8-000, if any . . . that are part of the Investigation by FERC's Office of Enforcement ("Enforcement")." (ECF No. 45-1 at 10.) It was also agreed that this "tolling of the statute of limitations shall continue until Enforcement provides written notice to Mr. Smith that the investigation is terminated or, in the alternative, Mr. Smith elects to terminate the agreement by providing sixty (60) days written notice to the Director of Enforcement and Enforcement lead counsel prior to the effective date of termination." (ECF No. 45-1 at 10.) There is no dispute that the claim that is the subject of the instant motion falls within the sweep of the Tolling Agreement and that tolling began on June 21, 2011.

b. Relevant Excerpts of the OSC

The OSC was issued on October 31, 2012. It was directed to Defendant Smith and the other Defendants. The OSC attaches the Enforcement Staff Report and Recommendation ("Staff R & R") as an appendix.² The OSC explains the Staff R & R "describes the background of Enforcement staff's investigation, findings and analysis, and recommended sanctions." (OSC at 2 n.8.) References to the OSC in this Order are to the document including its appendix.

Here, the question is whether the actual words contained in the OSC constituted "written notice" to Defendant Smith that the relevant investigation into his conduct terminated. Consequently, it will not be a fruitful endeavor to attempt to concisely summarize the entirety of the seventy-three pages of the OSC. Rather, the Court will do what it did at the motion hearing — excerpt six sentences from the OSC that the Court viewed as particularly revealing. (See Tr. of Proceeding, Aug. 24, 2017, ECF No. 228 at 25:13-26:6.) As it did at the hearing, the Court will substitute "you" or "your" for Defendant Smith, whether he is referenced individually or as part of a group, as the OSC is directed to him. Those six sentences are as follows:³

"[Your] case present[s] allegations by [Enforcement] staff of violations of [FERC's] Prohibition of Energy Market Manipulation."⁴ "These allegations arose out of an investigation conducted by [Enforcement] staff and are described [in the attached Staff R & R]."⁵ "[Enforcement] has concluded that that [Barclays] and its individual traders[, including you,] manipulated the electricity markets in and around California from November 2006 to December 2008 in violation of 18 C.F.R. § 1c.2 (2012)."⁶ "[Enforcement s]taff has concluded that Barclays intentionally manipulated the settlement of daily indices to benefit financial swap positions through [your] trading."⁷ "[Enforcement s]taff concludes that [you] w[ere] an active participant in Barclays' manipulation."⁸ "Based on the above conclusions of law and fact, [Enforcement] recommends [FERC] issue . . . [you] an Order to Show Cause . . . why [you] should not be subject to . . . [a] $1 million civil penalty."⁹

c. Applicable Contract Law Principles

The parties agree that the Tolling Agreement is a contract governed by federal common law. (ECF No. 228 at 19:1-12.) Similarly, the parties agree that under federal common law ordinary contract principles apply. (ECF No. 228 at 19:13-21.) Courts interpreting contractsgoverned by federal law "look to general principles for interpreting contracts." Klamath Water Users...