Jenkins v. Entergy Corp.

• Decision Date: 02 March 2006
• Docket Number: No. 13-05-035-CV.,13-05-035-CV.
• Citation: 187 S.W.3d 785
• Parties: David JENKINS and Cindy Jenkins, Individually and on Behalf of all Persons Similarly Situated, Appellants, v. ENTERGY CORPORATION, Entergy Services, Inc., Entergy Power Inc., and Entergy Power Marketing Corporation, Appellees.
• Court: Texas Court of Appeals

Page 785

187 S.W.3d 785

David JENKINS and Cindy Jenkins, Individually and on Behalf of all Persons Similarly Situated, Appellants, v. ENTERGY CORPORATION, Entergy Services, Inc., Entergy Power Inc., and Entergy Power Marketing Corporation, Appellees.

No. 13-05-035-CV.

Court of Appeals of Texas, Corpus Christi-Edinburg.

March 2, 2006.

Rehearing Overruled April 7, 2006.

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John H. Conway, Washington, DC, Joseph D. Jamail, Frank M. Staggs, Jr., Jamail & Kolius, Micheal D. Sydow, Sydow & McDonald Kaiser & Ahmed LLP, Dymra R. Henderson, Sydow & McDonald, Houston, for appellants.

John F. Williams, David C. Duggins, Clark, Thomas & Winters, Austin, Richard G. Baker, Baker & Zbranek, Liberty, Lawrence L. Germer, Paul A. Scheurich, Beaumont, for appellees.

Before Justices HINOJOSA, YAÑEZ, and CASTILLO.

OPINION

Opinion by Justice CASTILLO.

This appeal is brought from the trial court's decision not to strike an intervention, and from the order of the trial court dismissing the underlying suit for lack of subject matter jurisdiction. In separate conclusions of law, the trial court found that both the Federal Energy Regulatory Commission ("FERC") and the Texas Public Utilities Commission ("PUC") have exclusive jurisdiction. We affirm in part, reverse in part, and remand.

I. Background

On August 5, 2003, appellants, David and Cindy Jenkins, individually and on behalf of all persons similarly situated ("Jenkins"), filed a petition alleging that appellees, Entergy Corporation, Entergy Services, Inc., Entergy Power, Inc., Entergy Power Marketing Corporation, Arkansas Electric Cooperative Corporation,¹ and Entergy Arkansas, Inc. (collectively "Entergy"), had devised an improper price-gouging scheme to sell and deliver higher-priced electrical power to Jenkins, while rejecting and/or selling less expensive power to off-system utilities.

In the petition, Jenkins identifies Entergy Gulf States, Inc. ("EGSI")² as an "unnamed co-conspirator," but asserts that it is not an indispensable party: "It [EGSI] is expressly not named as a party defendant, since primary jurisdiction over EGSI lay [sic] with the Public Utilities Commission of Texas."

Entergy Corporation is a public utilities holding company with five subsidiary companies, each of which is a public utility. The Entergy companies include electric power generation, transmission and distribution systems. The five subsidiaries operate in different states throughout the southern United States, providing electrical service to approximately 2.6 million retail customers. EGSI is the operating company serving approximately one million Texas consumers. Each operating company has electric generation facilities, consisting of either nuclear, coal, natural gas, or oil-fired generating plants. Power is shared and distributed under a System Agreement, to which all Entergy companies are parties. The companies also purchase and sell power from each other and from non-affiliates in the wholesale power market. Although each company operates its generation, transmission and distribution facilities independently, the production, purchasing, and sale of wholesale electricity on behalf of those companies in order to meet needs of retail and wholesale customers are controlled centrally by Entergy Services, Inc. ("ESI"). These decisions are made through a dispatch center located in The Woodlands, Texas. ESI performs a monthly accounting, assigning a portion of the total power resources used by the whole system to each operating company, generating an "intra-system bill."

Jenkins alleges that Entergy and EGSI worked in concert to force excessive purchases of power by EGSI from within the Entergy system, rather than using cheaper power generated by non-Entergy companies, with the result that excessive prices were charged to EGSI customers. Jenkins complains that low-cost power is sold in the wholesale market for a profit, while high-cost power produced by the most inefficient systems is billed to Entergy's and EGSI's Texas customers. Jenkins further alleges that the accounting system was manipulated in an improper and illegal manner, resulting in excessive charges to retail customers between 1994 and 2000 that exceeded prevailing market prices. Jenkins contends that Entergy, through this pattern of theft and conversion, realized substantial illicit profits. Claims include breach of duty and breach of fiduciary duty, aiding and abetting, conspiracy, and violations of the Texas Theft Liability Act.³ Jenkins seeks damages, including a disgorgement of profits and exemplary damages.

In its original answer, Entergy alleged that Jenkins' claims were preempted by federal law. On September 15, 2003, Entergy removed the matter to federal court, urging federal question jurisdiction. Entergy urged that the terms and conditions of the sharing and allocation of power between the various operating companies were controlled by a tariff, approved by and on file with the Federal Energy Regulatory Commission ("FERC"). Although Jenkins' claims were couched in terms of state torts, Entergy urged that in reality all involved alleged violations of federal law and questions of the reasonableness of the tariff under federal law.

On January 29, 2004, the federal court remanded the matter to the state trial court. The order notes that Jenkins had opted not to plead federal claims and invoked no federal law in his complaint. Therefore, in order to fall within federal question jurisdiction, Entergy, who bore the burden on removal, had to satisfy a three-part test.⁴ The federal court concluded that "this case provides no basis for federal jurisdiction since no federal right is an essential element of Plaintiffs' state-law claims." While FERC regulates the wholesale of electricity in interstate commerce, none of Jenkins' claims were dependent upon the violation of a federal tariff. Jenkins could conceivably prove his claims by providing evidence of fraudulent accounting techniques used to overcharge customers. The federal tariff is "not an essential element to any of Plaintiffs' claims," and it "is well settled law that a case cannot be removed on the basis of a federal defense." The federal court determined that, whether or not the Entergy System Agreement governs the behavior of the parties, it provided no basis for removal jurisdiction. The federal court concluded it had no subject matter jurisdiction in the case.

On April 23, 2004, EGSI filed a petition in intervention, asserting that all of Jenkins' allegations involved prices paid by EGSI to other Entergy defendants and prices paid by EGSI customers for retail electricity. Further, all of the proposed class consisted solely of EGSI customers. EGSI urged that it therefore had a justiciable interest in the suit. That same day, the Entergy defendants (now including EGSI) filed a motion to dismiss for want of jurisdiction, urging that jurisdiction of the trial court was preempted by FERC, and by the Texas Public Utilities Commission ("PUC"), which governs retail rates for power sold to Texas consumers. Entergy pointed out that Jenkins had acknowledged that (1) EGSI's purchases from the Entergy system were based upon FERC "approved rate formulas and tariffs," and (2) EGSI's retail rates and services are subject to the jurisdiction of the PUC.

Jenkins moved to strike the intervention of EGSI, arguing that EGSI was an "interloper," seeking neither to secure affirmative relief nor to defeat any attempt to recover from it. Jenkins urged that EGSI had no justiciable interest in the suit and that, as a joint-tortfeasor, it had no right to intervene for the purpose of defeating a recovery against a named defendant. Following a hearing held June 1, 2004, the trial court issued an order on June 15, 2004, denying the motion to strike the intervention.

Jenkins also opposed Entergy's motion to dismiss, urging that FERC law and regulations did not preempt the state court's jurisdiction. Extensive briefing was provided by both parties; on October 5, 2004, a hearing was held on the motion to dismiss for want of jurisdiction. On November 24, 2004, the trial court entered a "Final Judgment of Dismissal," finding that it lacked subject-matter jurisdiction to proceed. Findings of fact and conclusions of law were entered on December 17, 2004. They reflect the court considered the briefing and argument of the parties, as well as submitted affidavits.⁵ The trial court determined there were no contested issues of fact for the court to find. Conclusions of law include the following: (1) Jenkins' causes of action all addressed matters governed by the System Agreement, a tariff filed with and accepted by FERC; (2) asserted damages are the difference between the price paid by Jenkins for electric service from EGSI and the price Jenkins would have paid if available lower-priced power had been allocated to EGSI; (3) under the Federal Power Act, FERC possesses exclusive jurisdiction over federal electric tariffs and court proceedings complaining of actions taken and decisions made under approved federal tariffs are preempted; (4) the amount paid by Jenkins and other retail customers of EGSI for electrical service in Texas is within the exclusive jurisdiction of the Texas PUC; and (5) because the acts and decisions complained of fall within the exclusive jurisdiction of FERC and the relief sought lies within the exclusive jurisdiction of the PUC, the trial court lacks subject matter jurisdiction over the matter.

II. The Agreement and the Transactions in Issue

The System Agreement is a federal tariff, approved and regulated by FERC. It applies an approved rate structure to regulate wholesale prices for electric power.⁶ The System Agreement networks a system of companies by which the following is accomplished: (1) power generated by each participating company...