In re Enron Corp.

• Decision Date: 05 August 2005
• Docket Number: No. 01-16034 (AJG).,01-16034 (AJG).
• Citation: 328 B.R. 75
• Parties: In re ENRON CORP., et al., Reorganized Debtors.
• Court: U.S. Bankruptcy Court — Southern District of New York

328 B.R. 75

In re ENRON CORP., et al., Reorganized Debtors.

No. 01-16034 (AJG).

United States Bankruptcy Court, S.D. New York.

August 5, 2005.

COPYRIGHT MATERIAL OMITTED

Cadwalader, Wickersham & Taft LLP, Edward A. Smith, of Counsel, New York City, Mark C. Ellenberg, of Counsel, Washington, DC, for the Reorganized Debtors.

Lieff, Cabraser, Heimann & Bernstein, LLP, Wendy R. Fleishman, of Counsel, New York City, William Bernstein, Barry R. Himmelstein, Karin Kramer, of Counsel, San Francisco, CA, for Oscar's Photo Lab.

OPINION SUSTAINING DEBTORS' OBJECTION TO PROOFS OF CLAIM NO. 15229-35 FILED BY OSCAR'S PHOTO LAB AND MOTION TO AMEND CERTAIN PROOFS OF CLAIM FILED BY OSCAR'S PHOTO LAB

ARTHUR J. GONZALEZ, Bankruptcy Judge.

In August 2002, the Federal Energy Regulatory Commission ("FERC") issued the Initial Report on Price Manipulation in Western Markets: Fact-Finding Investigation of Potential Manipulation of Electric and Natural Gas Price ("Initial Report"). On October 15, 2002, Oscar's Photo Lab ("OPL") filed separate proofs of claims (Claim Nos. 15229-35, collectively, the "Claims") in unliquidated amounts against Enron Corp. ("Enron") and certain of its affiliated entities (collectively, the "Debtors"). OPL alleges that the Debtors manipulated the wholesale electricity market in California and overcharged for energy through unlawful and anti-competitive acts during the western power crisis of 2000 and 2001. OPL maintains the alleged manipulation in the wholesale electricity market constitutes a violation of state antitrust law and unfair competition law, and seeks disgorgement, restitution, actual and treble damages together with interest and injunctive relief.¹ In March 2003, FERC issued the Final Report on Price Manipulation in Western Markets: Fact-Finding Investigation of Potential Manipulation of Electric and Natural Gas Price ("Final Report"). In September 2003, OPL filed Partial Objection of Claimant OPL to Motion of Enron Corp., et al. for Order Establishing Procedures to Estimate Disputed, Unliquidated, or Contingent Claims (the "Partial Objection"). In footnote 2 of the Partial Objection, OPL asserts that the misconduct relating to the natural gas trading platform is at issue in determining the Debtors' liability to California ratepayers under the timely-filed original Claims. On February 1, 2005, the Debtors filed objections to the Claims and argued that the Federal Power Act (the "FPA") preempts the Claims and the filed rate doctrine precludes consideration of them.

On March 16, 2005, OPL filed the motion to amend proofs of claim (Claim Nos. 15231-33),² to include a cause of action based on the Debtors' alleged manipulation of the California natural gas market. (collectively, the "Gas Claims"). On April 11, 2005, the Debtors filed its objection the relief sought by OPL.³

The issues before the Court are (1) whether the Claims are preempted by the Federal Power Act (the "FPA") and precluded by the filed rate doctrine, (2) whether OPL may amend the Claims to include additional claims concerning the alleged manipulation of California's gas market. Upon consideration of the pleadings and arguments of the parties, the Court finds that because the FERC has exclusive jurisdiction over interstate sales of wholesale electricity, the Claims sought to be enforced by OPL are preempted by the FPA. Further, the filed rate doctrine also precludes consideration of the Claims. In addition, the Court finds that OPL's request to amend its original proofs of claim against the Debtors is not warranted since OPL has failed to meet the standard for a motion to amend. In that, it has included new claims or created new causes of action in its request, and the amendment was not timely asserted. Therefore, the Court sustains the Debtors' objection to the Claims and the Debtors' objection to the motion to amend. Further, the Court finds that even if the amendment regarding the Gas Claims were granted, the filed rate doctrine would preclude the Court from considering such claims.

I. BACKGROUND

Commencing on December 2, 2001, and from time to time continuing thereafter, the Debtors filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code"). On July 15, 2004, the Court entered an Order confirming the Debtors' Supplemental Modified Fifth Amended Joint Plan of Affiliated Debtors (the "Plan") in these cases. The Plan became effective on November 17, 2004.

This litigation arises out of the California energy crisis of 2000-01. Prior to the energy crisis, the California legislature had passed Assembly Bill 1890⁴ (the "Bill") to create two non-governmental entities, the California Power Exchange (the "PX") and the California Independent System Operator (the "ISO"), to operate markets and manage the sale of electricity. The PX and the ISO were organized under California law, but regulated by FERC. California v. Dynegy, Inc., 375 F.3d 831, 850 (9th Cir.2004). The central transactions, wholesale sales of energy in interstate commerce, were governed by FERC approved rules and a FERC "jurisdictional" ISO and PX. Further, the centralized wholesale spot electricity markets operated by the ISO and the PX were established subject to FERC review and approval. The ISO and the PX served as clearinghouses. Since August 2, 2000, FERC has commenced refund proceeding, and partnership and gaming proceeding to investigate certain of the Debtors. FERC found that the Debtors engaged in gaming⁵ in the form of inappropriate trading strategies and further engaged in the deliberate submission of false information or the deliberate omission of material information. Enron Power Mktg., Inc., et al., 106 FERC ¶ 61,024 (2004). Both proceedings are ongoing, including the determination of remedies by FERC.

II. DISCUSSION

1. Preemption and Filed Rate Doctrine

A. Legal Standard of Preemption

"Federal preemption of state law is rooted in the Supremacy Clause, Article VI, clause 2, of the United States Constitution." Transmission Agency of Cal. v. Sierra Pacific Power Co., 295 F.3d 918, 928 (9th Cir.2002). Where Congress manifests intent to occupy an entire regulatory field, any remedy sought outside of the congressional scheme is considered completely preempted. Metro. Life Ins. Co. v. Taylor, 481 U.S. 63-64 (1987). Federal courts have rarely identified legislation that has been found to completely preempt state jurisdiction. Caterpillar, Inc. v Williams, 482 U.S. 386, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987).

Here, neither party raises the argument that complete preemption is applicable, nor is there any evidence in the record that would support the conclusion that Congress intended for complete preemption to apply in this case. In the absence of an express preemption by Congress, state law is preempted (1) "when Congress intends that federal law occupy a given field." Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 248, 104 S.Ct. 615, 78 L.Ed.2d 443 (1984) ("Field Preemption"), and (2) "to the extent that state law actually conflicts with federal law, that is, when it is impossible to comply with both state and federal law, or where the state law stands as an obstacle to the accomplishment of the full purposes and objectives of Congress." Id. ("Conflict Preemption").

B. Preemption

1) Field Preemption

The Debtors, in support of their position that the Claims should be barred by FERC's exclusive jurisdiction, cite to Grays Harbor v. IDACOR Inc., 379 F.3d 641 (9th Cir.2004), Dynegy, and Snohomish County v. Dynegy Power Marketing Inc., 384 F.3d 756 (9th Cir.2004). These cases addressed FERC's exclusive jurisdiction and its remedial power concerning the wholesale electricity market. The Debtors argue that the Claims, alleging violations of state antitrust and unfair competition law, are nearly identical to those involved in the cited cases, therefore, for the reasons set forth in those cases, field preemption is applicable here.

The Dynegy court ruled that "state actions against wholesale electricity suppliers alleging violations of California's unfair business practices law are preempted by FPA because the conduct the state sought to condemn was expressly governed by the ISO tariffs and they encroach upon the substantive provisions of the tariff, an area reserved exclusively to FERC, both to enforce and to seek remedy." 375 F.3d at 852.

The Court finds that the statute's framework under the FPA supports the conclusion in Dynegy that FERC has been granted broad authority by Congress, in addition to the authority to determine the "just and reasonable rates" for wholesale power. The statute delegates to the Federal Energy Commission "exclusive authority to regulate the transmission and sale at wholesale of electric energy in interstate commerce except those which Congress has made explicitly subject to regulation by the states.... Retail sales of electricity and wholesale intrastate sales are within the exclusive jurisdiction of the states." Federal Power Act, 16 U.S.C. § 824-824m.

Neither party disputes that the transactions at issue involved wholesale interstate sales of electricity. Further, there has been no evidence presented or any representation by either party that the sales that gave rise to this dispute should be characterized as either retail sales of electricity or wholesale intrastate sales. The statute provides that upon a determination by FERC that "any rate charge, or classification, demanded, observed, charged, or collected by any public utility for any transmission or sale subject to the jurisdiction of the Commission, or that any rule, regulation, practice, or contract affecting such rate, charge, or classification is unjust, unreasonable, unduly discriminatory or preferential, the Commission shall determine the just and reasonable rate, charge, classification, rule, regulation, practice, or contract to be thereafter observed and in force, and shall fix the same by order."...