Fed. Energy Regulatory Comm'n v. Powhatan Energy Fund, LLC

• Decision Date: 11 February 2020
• Docket Number: No. 18-2326,18-2326
• Citation: 949 F.3d 891
• Parties: FEDERAL ENERGY REGULATORY COMMISSION, Petitioner – Appellee, v. POWHATAN ENERGY FUND, LLC ; Houlian "Alan" Chen; Heep Fund, Inc. ; CU Fund, Inc., Respondents – Appellants. Edison Electric Institute; Electric Power Supply Association ; Energy Trading Institute, Amici Supporting Appellants.
• Court: U.S. Court of Appeals — Fourth Circuit

949 F.3d 891

FEDERAL ENERGY REGULATORY COMMISSION, Petitioner – Appellee,

v.POWHATAN ENERGY FUND, LLC ; Houlian "Alan" Chen; Heep Fund, Inc. ; CU Fund, Inc., Respondents – Appellants.

Edison Electric Institute; Electric Power Supply Association ; Energy Trading Institute, Amici Supporting Appellants.

No. 18-2326

United States Court of Appeals, Fourth Circuit.

Argued: December 11, 2019

Decided: February 11, 2020

ARGUED: John N. Estes III, SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Washington, D.C., for Appellants. Anand Ram Viswanathan, FEDERAL ENERGY REGULATORY COMMISSION, Washington, D.C., for Appellee. ON BRIEF: Patrick R. Hanes, Jonathan T. Lucier, WILLIAMS MULLEN, Richmond, Virginia, for Appellant Powhatan Energy Fund, LLC. Donna M. Byrne, SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Washington, D.C.; Abbe David Howell, WINSTON & STRAWN LLP, Washington, D.C., for Appellants Houlian Chen, HEEP Fund Inc., and CU Fund Inc. Larry R. Parkinson, Director, Office of Enforcement, Geo. F. Hobday, Jr., Director, Courtney Spivey Urschel, Deputy Director, Division of Investigations, David Morenoff, Deputy General Counsel, Robert H. Solomon, Solicitor, Samuel G. Backfield, Lisa L. Owings, Mark E. Nagle, Daniel T. Lloyd, Elizabeth K. Canizares, FEDERAL ENERGY REGULATORY COMMISSION, Washington, D.C., for Appellee. Emily Fisher, EDISON ELECTRIC INSTITUTE, Washington, D.C., for Amicus Edison Electric Institute. Christopher McEachran, Raleigh, North Carolina, Matthew A. Fitzgerald, Richmond, Virginia, Todd Mullins, Noel Symons, MCGUIREWOODS LLP, Washington, D.C., for Amici Edison Electric Institute, Electric Power Supply Association, and Energy Trading Institute.

Before WILKINSON, KEENAN, and DIAZ, Circuit Judges.

Affirmed and remanded by published opinion. Judge Wilkinson wrote the opinion, in which Judge Keenan and Judge Diaz joined.

WILKINSON, Circuit Judge:

The Federal Power Act (FPA) prohibits manipulation of the nation’s interstate energy markets and authorizes the Federal Energy Regulatory Commission (FERC) to enforce this prohibition through civil penalties. Appellants in this case are financial trading entities and an individual trader alleged to have unlawfully manipulated a wholesale electricity market. FERC notified appellants of its intent to seek civil penalties against them; appellants denied the allegations and elected to have the case proceed via the FPA’s "Alternate Option," which provides for the assessment of liability in federal district court rather than by an administrative law judge. After FERC filed the district court action, appellants moved to dismiss in part, asserting that most of the conduct underlying FERC’s claim fell outside the five-year statute of limitations on civil penalty actions in 28 U.S.C. § 2462.

The question here is when FERC’s claim "first accrued" with respect to this district court action, thereby starting § 2462 ’s five-year clock. Appellants maintain that the limitations period commenced at the time of their alleged illicit trading activity. FERC asserts that its claim did not accrue until it fulfilled each of the FPA’s prerequisites to filing suit in federal district court. The district court adopted the latter view and held that FERC’s action was timely. We agree. Because FERC had no complete and present cause of action until each statutory prerequisite to suit was met, the statute of limitations did not run until that date. Accordingly, we hold that this action was timely filed and affirm the district court’s judgment.

I.

A.

FERC is an independent regulatory commission comprised of five members appointed by the President and confirmed by the Senate. 42 U.S.C. § 7171(a) - (b). Pursuant to the FPA, FERC is charged with safeguarding the integrity of our nation’s interstate energy markets. Specifically, Congress has "delegate[d] responsibility to FERC to regulate the interstate wholesale market for electricity—both wholesale rates and the panoply of rules and practices affecting them." FERC v. Elec. Power Supply Ass’n , ––– U.S. ––––, 136 S. Ct. 760, 773, 193 L.Ed.2d 661 (2016). At bottom, this regulatory landscape is designed to ensure that consumers pay "just and reasonable" rates for electric power. See id. at 773 (quoting 16 U.S.C. § 824d(a) ).

As amended by the Energy Policy Act of 2005, the FPA prohibits the use of manipulative schemes in connection with the purchase or sale of electric energy. In particular, § 824v(a) of the Act, known as the Anti-Manipulation Provision, makes it unlawful for any entity "directly or indirectly, to use or employ," in connection with the purchase or sale of electric energy or transmission services subject to FERC’s jurisdiction, "any manipulative or deceptive device or contrivance ... in contravention of such rules and regulations as [FERC] may prescribe as necessary or appropriate in the public interest or for the protection of electric ratepayers." 16 U.S.C. § 824v(a). FERC has promulgated rules and regulations implementing this Provision. See 18 C.F.R. § 1c.2(a). And Congress has vested FERC with the authority to enforce these rules by imposing civil penalties to the tune of up to $1 million per day per violation. 16 U.S.C. § 825o -1(b).

The FPA creates two procedural pathways by which such civil penalties may be assessed and imposed. 16 U.S.C. § 823b. We refer to them as the Default Option and the Alternate Option. In the main, the Default Option provides for administrative adjudication before an administrative law judge (ALJ), id. § 823b(d)(2), whereas the Alternate Option provides for adjudication in federal district court, id. § 823b(d)(3). It is up to the alleged violator to choose the track.

Both options begin with the same, statutorily prescribed first step: "Before issuing an order assessing a civil penalty against any person under this section, [FERC] shall provide to such person notice of the proposed penalty." 16 U.S.C. § 823b(d)(1). In this notice, FERC is required to inform the alleged violator of the two procedural pathways, and the subject party must then elect between them within thirty days of receiving the notice. Id. ; id. § 825o -1(b) (directing FERC to provide "notice and opportunity for public hearing" before assessing penalties). FERC, by regulation, satisfies the notice requirement by issuing an Order to Show Cause (OSC) to the suspected wrongdoer. See 18 C.F.R. § 385.209(a)(2). The OSC describes the alleged violations and directs the recipient to demonstrate why FERC should not assess the proposed penalty. See Enforcement of Statutes, Regulations & Orders, 123 FERC ¶ 61156, 62014 (May 15, 2008). In addition, the OSC commences a "contested on-the-record proceeding" before FERC, id. § 385.2201(c)(1)(i), the purpose of which is to determine whether the OSC’s proposed civil penalties should in fact be assessed.

The exact form that this proceeding takes is determined by the alleged violator’s choice of procedural pathway. If the subject of an OSC elects the Default Option, then the case proceeds to a formal adjudication before an ALJ. 16 U.S.C. § 823b(d)(2). No penalty is assessed against the regulated party until a "determination of violation has been made on the record after an opportunity for an agency hearing ... before an administrative law judge." Id. § 823b(d)(2)(A). Limited judicial review of the ALJ’s determination is available in the applicable court of appeals. Id. §§ 823b(d)(2)(B) ; 825l .

On the other hand, if, after receiving an OSC, a party elects the Alternate Option, no formal administrative hearing is statutorily required before FERC assesses a penalty. Instead, the case is channeled into an abbreviated agency proceeding, which we will call the Show Cause Process. In this context, the FPA mandates that FERC "shall promptly assess" a penalty "by order." 16 U.S.C. § 823b(d)(3)(A). Then, if the violator does not pay the amount set forth in this penalty assessment order (PAO) in full within 60 calendar days, FERC must "institute an action in the appropriate district court of the United States for an order affirming the assessment of the civil penalty." Id. § 823b(d)(3)(B). In such an action, the district "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." Id.

Finally, upon the district court’s final judgment, or after a final administrative order under the Default Option, FERC must file an action in federal district court "to recover" any civil penalty that remains unpaid. 16 U.S.C. § 823b(d)(5).

Because the FPA does not contain a statute of limitations, the general statute of limitations applicable to many penalty provisions throughout the U.S. Code applies to actions brought under both the Default and Alternate Options. It provides:

Except as otherwise provided by Act of Congress, an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued if, within the same period, the offender or the property is found within the United States in order that proper service may be made thereon.

28 U.S.C. § 2462.

B.

Appellants are Dr. Houlian Chen and various financial entities either owned by Dr. Chen or on whose behalf he has executed trades in the wholesale electricity market. In September 2007, Dr. Chen began trading on a wholesale electricity market administered by PJM Interconnection, LLC (the PJM Market). In August 2010, FERC began investigating after receiving two independent complaints that appellants were engaging in fraudulent and unlawful trading on the PJM Market.

After an extensive investigation and the failure of settlement efforts, FERC issued an OSC to appellants on December 7, 2014, alleging that they had violated the Anti-Manipulation Provision and its implementing regulations. J.A....