Fed. Energy Regulatory Comm'n v. Barclays Bank PLC
| Decision Date | 28 March 2017 |
| Docket Number | No. 2:13–cv–2093 TLN DB,2:13–cv–2093 TLN DB |
| Parties | FEDERAL ENERGY REGULATORY COMMISSION, Plaintiff, v. BARCLAYS BANK PLC; Daniel Brin; Scott Connelly; Karen Levine; and Ryan Smith, Defendants. |
| Court | U.S. District Court — Eastern District of California |
Maria Cristina Melendez, Wesley James Heath, Andrew Tamayo, David A. Applebaum, Emily Catherine Scruggs, Federal Energy Regulatory Commission, Washington, DC, for Plaintiff.
Donna M. Byrne, PHV, John N. Estes, III, Skadden, Arps, Slate, Meagher and Flom LLP, Jodi Avergun, PHV, Paul J. Pantano, Jr., Cadwalader, Wickersham and Taft LLP, Dan M. Berkovitz, PHV, Heather Zachary, PHV, Jonathan G. Cedarbaum, PHV, Seth Paul Waxman, PHV, Wilmer Cutler Pickering Hale and Dorr LLP, Todd Mullins, PHV, McGuire Woods LLP, Daren F. Stanaway, PHV, Elizabeth L. Martin, PHV, Michael L. Spafford, PHV, Victoria L.T. Earls, PHV, Paul Hastings, LLP, Washington, DC, Jack Patrick DiCanio, Skadden, Arps, Slate, Meagher & Flom, LLP, Palo Alto, CA, Jason M. Halper, Gregory Markel, PHV, Cadwalader Wickersham & Taft LLP, Jay B. Kasner, PHV, Boris Bershteyn, Steven R. Glaser, PHV, Skadden Arps Slate Meagher and Flom LLP, Allison Charney, PHV, McGuireWoods, LLP, New York, NY, Thomas J. Nolan, Skadden, Arps, Slate, Meagher & Flom LLP, Leslie M. Werlin, McGuireWoods LLP, Los Angeles, CA, Mark C. Kalpin, PHV, Wilmer Cutler Pickering Hale and Dorr LLP, Boston, MA, Patrick Fitzgerald, PHV, Skadden Arps Slate Meagher & Flom, LLP, Chicago, IL, Holly A. House, Paul Hastings LLP, San Francisco, CA, for Defendants.
Plaintiff 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") 16–66.1 The Assessment Order also assessed penalties and disgorgements against Defendants totaling $487.9 million. AR 84–85.
Pending 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.
For the 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 , 233 F.Supp.3d 201, 2017 WL 374697 (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.
On 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."
On May 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. 88.2 An overview of the alleged manipulation is set forth in that order.
From 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 (), 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).
In 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) (), cert. denied , ––– U.S. ––––, 133 S.Ct. 1998, 185 L.Ed.2d 866 (2013).
In July 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;3 AR 6461 (FERC letter to Barclays).4 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 8, 6647–48.5
On June 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, 6022–301.6 The letters invited Defendants to respond with any additional information or rebuttals before Enforcement made a recommendation to FERC.7 See AR 6022–301.
On August 29 & 30, 2011, Defendants responded to the Preliminary Findings Letters. AR 8.8
On April 5, 2012, Enforcement issued a "Staff Notice of Alleged Violations." AR 8, 6663.9 It appears that settlement discussions ensued, but the matter was not resolved. See AR 94.10
On May 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.19.11 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 8.12
Enforcement 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.
On 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.
The OSC 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.
Defendants filed Answers to the OSC on December 14, 2012.13 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 31(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).14 On January 28, 2013, Enforcement replied to Defendants' Answers. AR 958–1062.
On July 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.
This Court has jurisdiction under 16 U.S.C. § 823b(d)(3)(B).
This 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...
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