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

• Decision Date: 28 December 2017
• Docket Number: Civil Action No. 3:15cv452
• Citation: 286 F.Supp.3d 751
• Parties: FEDERAL ENERGY REGULATORY COMMISSION, Petitioner, v. POWHATAN ENERGY FUND, LLC, Houlian "Alan" Chen, Heep Fund, Inc., and CU Fund, Inc., Respondents.
• Court: U.S. District Court — Eastern District of Virginia

286 F.Supp.3d 751

FEDERAL ENERGY REGULATORY COMMISSION, Petitioner,

v.POWHATAN ENERGY FUND, LLC, Houlian "Alan" Chen, Heep Fund, Inc.,andCU Fund, Inc., Respondents.

Civil Action No. 3:15cv452

United States District Court, E.D. Virginia, Richmond Division.

Signed December 28, 2017

Samuel Graves Backfield, Lisa Lee Owings, Federal Energy Regulatory Commission Office of General Counsel General and Administrative Law, Washington, DC, Daniel Thomas Lloyd, Elizabeth Keller Canizares, Federal Energy Regulatory Commission (NA), Washington, DC, Steven Carl Tabackman, Washington, DC, for Petitioner.

John Staige Davis, V., Jonathan Tyler Lucier, Richmond, VA, Christian Elizabeth Piccolo, William Miller McSwain, Drinker Biddle & Reath LLP (PA–NA), Philadelphia, PA, Warren Thomas Allen, II, Skadden Arps Slate Meagher & Flom LLP, Washington, DC, Abbe David Lowell, Michael Bhargava, Norton Rose Fulbright US LLP (DC–NA), Washington, DC, Donna Marie Byrne, John Nowell Estes, III, Skadden, Arps, Slate, Meagher & Flom, Washington, DC, James Patrick Danly, Skadden Arps Slate Meagher & Flom LLP (DC), Washington, DC, for Respondents.

MEMORANDUM OPINION

M. Hannah Lauck, United States District Judge

This matter comes before the Court on cross-briefs filed by Petitioner Federal Energy Regulatory Commission ("FERC" or the "Commission"), (ECF No. 39), and Respondents Powhatan Energy Fund, LLC ("Powhatan"), Houlian "Alan" Chen ("Chen"), HEEP Fund, Inc. ("HEEP Fund"), and CU Fund, Inc. ("CU Fund") (collectively, the "Respondents"), (ECF No. 38). Both briefs discuss, as ordered by the Court, the meaning of this Court's de novo review under Section 31 of the Federal Power Act ("FPA"), codified at 16 U.S.C. § 823b(d)(3)(B).¹ (ECF No. 36.) The parties also have submitted supplemental briefs, (ECF Nos. 52, 53), filed pursuant to this Court's January 8, 2016 Order, (ECF No. 44), and a great deal of supplemental authority. (ECF Nos. 55–1, 68, 69, 78, 83, 85, 88–1.) With the Court's leave, a group of administrative law professors filed a Brief as Amici Curiae, (ECF No. 82), and the Commission responded, (ECF No. 84). The Court heard oral argument, and the matter is ripe for disposition. The Court exercises jurisdiction pursuant to 16 U.S.C. § 823b(d)(3)(B) and 28 U.S.C. § 1331.² For the reasons that follow, the Court concludes that the Respondents are entitled to a trial de novo governed by the Federal Rules of Civil Procedure and the Federal Rules of Evidence.

I. Factual and Procedural Background

A. Factual Background

In 2010, the Commission's Office of Enforcement ("Enforcement") began investigating Respondents³ for engaging in allegedly manipulative and fraudulent energy trading.⁴ (Compl. 2, ECF No. 1; Penalty O. at 13.) On August 25, 2010, the Commission issued an order formalizing the investigation. (Penalty O. at 13.) On August 9, 2013, nearly three years later, Enforcement staff issued letters of preliminary findings to Respondents, and "invited Respondents to provide argument or evidence suggesting [that] the preliminary conclusion was incorrect." (Commission Br. 10, ECF No. 39.) Two months later, Respondents replied. (Penalty O. at 14.) On August 5, 2014, the Commission issued a Notice of Alleged Violations. (Penalty O. at 14.)

On December 17, 2014, after failed attempts at settlement, the Commission issued its Order to Show Cause ("OSC"). (Compl. at 3.) The OSC directed Respondents to show cause as to why they should not be found to have violated the statute and regulation forbidding the use of manipulative behaviors in connection with the purchase or sale of electric energy⁵ : 16 U.S.C. § 824v(a)⁶ and 18 C.F.R. § 1c.2,⁷ respectively. (Penalty O. at 14.) The OSC also ordered Respondents to elect either a formal hearing before an administrative law judge prior to the assessment of a penalty, pursuant to 16 U.S.C. § 823b(d)(2), or to proceed under 16 U.S.C. § 823b(d)(3)(A), under which the Commission would "promptly" assess penalties upon a finding of violation.⁸ (Penalty O. at 15.) No further factfinding occurred after the Commission issued the OSC. Accordingly, the entire record before the Court—to which FERC refers as the "administrative record"—consists of information compiled before the Commission issued the OSC and before Respondents made their penalty assessment election. On January 12, 2015, after the Commission granted Respondents an extension of time, the Respondents each opted for the more immediate penalty assessment and elected to proceed in accordance with § 823b(d)(3)(A). (Compl. ¶ 9; Penalty O. at 16.)

After cross-briefing⁹ and a review of the extensive record, the Commission issued its eighty-nine-page Order Assessing Civil Penalties (the "Penalty Order") on May 29, 2015. In the Penalty Order, the Commission found that Respondents had "violated section 222 of the [FPA] and section 1c.2 of the Commission's regulations, which prohibit energy market manipulation, through a scheme to engage in fraudulent Up–To Congestion (UTC) transactions in [PJM's] energy markets to garner excessive amounts of certain credit payments to transmission customers." (Compl. ¶ 10; see Penalty O. at 2.) The Commission also determined that the trades engaged in by Respondents constituted "a wash trading scheme in violation of the Commission's prohibition of that practice." (Compl. ¶ 10.) As a result of these findings, and pursuant to 16 U.S.C. § 823b(c),¹⁰ the Commission assessed civil penalties of $16,800,000 against Powhatan; $10,080,000 against CU Fund; $1,920,000 against HEEP Fund; and, $1,000,000 against Chen." (Compl. ¶ 11.) The Commission also directed disgorgement of unjust profits, plus interest, in the amounts of $3,465,108 for Powhatan; $1,080,576 for CU Fund; and, $173,100 for HEEP Fund.

After Respondents failed to pay the penalties within 60 days, pursuant to § 823b(d)(3)(B),¹¹ the Commission filed the action in this Court. FERC demands a jury trial, if the Court finds that the statute allows such a trial. (Compl. ¶¶ 1, 29.)

B. Procedural Background

After FERC filed this action, Respondents filed motions to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6).¹² Respondent Powhatan argued that it did not receive "fair notice" that the Commission would consider the trades at issue illegal because the Commission had not previously listed the specific types of trades engaged in as unlawful. (ECF No. 20.) Respondents Chen, HEEP Fund, and CU Fund posed a similar argument in their motion to dismiss, but further focused on: whether the Complaint alleges fraud with specificity; whether the statute of limitations bars much of the Commission's claims; and, whether the Commission could bring such an action and penalty against Chen, an individual. (ECF No. 22.)

Powhatan's memoranda in support of its motion to dismiss failed to address the procedural requirements of this case, specifically, what procedures the Court must follow in conducting the "review de novo [of] the law and the facts involved" required by § 823b(d)(3)(B). (See ECF Nos. 20, 21, 33.) Likewise, FERC's response to Powhatan's motion neglected to take up that threshold issue. (See ECF No. 28.) The memoranda in support of and opposition to Chen, HEEP Fund, and CU Fund's motion only briefly addressed the Court's procedure and the standard of review.

(Chen Mem. Supp. Mot. Dismiss 4–7, ECF No. 23; FERC Resp. Chen Mot. Dismiss 29, ECF No. 29; Chen Reply Mot. Dismiss 3 n.1, 4–8, ECF No. 34.) Because the procedure the Court follows in conducting its "review de novo [of] the law and the facts involved" necessarily will impact the lens through which it views the motions to dismiss, the Court ordered the parties to submit briefing "detailing the respective party's position regarding the procedure mandated by 16 U.S.C. § 823b(d)(3)(B)." (ECF No. 36.)

After the parties submitted cross-briefs discussing the meaning of this Court's de novo review procedure under § 823b(d)(3)(B), the Court denied the motions to dismiss without prejudice and ordered additional briefing. (ECF No. 44.) The parties then filed their respective supplemental briefs.¹³ (ECF Nos. 52, 53.)

II. Analysis

This matter presents an issue of first impression in this District, and one which neither the Supreme Court of the United States nor the United States Court of Appeals for the Fourth Circuit has addressed.¹⁴ The Court must determine whether, as Respondents contend, 16 U.S.C. § 823b(d)(3) entitles Respondents to a de novo trial governed by the Federal Rules of Civil Procedure and the Federal Rules of Evidence,¹⁵ or whether, as FERC contends, § 823b(d)(3) merely grants the Court the "discretion to craft the procedure that will best facilitate its review," (FERC Br. 2, ECF No. 39). The Court concludes, consistent with other district courts to decide this issue,¹⁶ that the language and structure of the statute and principles of due process entitle Respondents to a de novo trial governed by the Federal Rules of Civil Procedure and the Federal Rules of Evidence.¹⁷

A. Principles of Statutory Interpretation Must Guide the Court's Analysis

The Court must employ traditional principles of statutory interpretation to determine what procedure is required when conducting a "review de novo" under § 823b(d)(3)(B). The purpose of statutory interpretation is "to try to determine congressional intent." Dole v. United Steelworkers of Am. , 494 U.S. 26, 35, 110 S.Ct. 929, 108 L.Ed.2d 23 (1990). The analysis must "begin, as always, with the language of the statutory text," and "[i]n the absence of a definition from Congress, [the Court] accord[s] words in a statute their ordinary, contemporary, common meaning." United States v. Midgett , 198 F.3d 143, 145–46 (4th Cir. 1999) (internal citation and quotation marks omitted). "The plainness or ambiguity of statutory language is determined by reference to the language itself, the specific context in which that language is used, and the broader context of the statute as a whole." Robinson v. Shell Oil...