Leggett v. Duke Energy Corp.
| Decision Date | 23 April 2010 |
| Docket Number | No. W2007-00788-SC-R11-CV.,W2007-00788-SC-R11-CV. |
| Citation | 308 SW 3d 843 |
| Parties | Samuel D. LEGGETT et al. v. DUKE ENERGY CORPORATION et al. |
| Court | Tennessee Supreme Court |
Brian S. Faughnan and Cannon Fairfax Allen, Memphis, Tennessee, for the appellants, Williams Companies, Inc., Williams Energy Marketing & Trading Company, Inc., and Williams Merchant Services.
Leo Bearman, Jr., Michael Cotter Patton, and W. Michael Richards, Memphis, Tennessee; and Terry J. Houlihan, San Francisco, California, for the appellants, Reliant Energy Services, Inc. and Reliant Energy, Inc.
Jef Feibelman, Memphis, Tennessee, for the appellants, ONEOK, Inc. and ONEOK Energy Marketing and Trading Company, LP.
Douglas Ray Tribble, San Diego, California; John S. Golwen, Memphis, Tennessee; Michael J. Kass, San Francisco, California; and Joshua Ray Denton and Robert Dale Grimes, Nashville, Tennessee, for the appellant, Dynegy Marketing and Trade.
Glen G. Reid, Jr. and Robert Edgar Craddock, Jr., Memphis, Tennessee, for the appellants, CMS Energy Corporation, CMS Field Services, and CMS Marketing Services & Trading Company.
Brent Benoit, J. Michael Dorman, James R. Leahy, and Stacy Williams, Houston, Texas; Paul Howard Morris and Shea Sisk Wellford, Memphis, Tennessee, for the appellants, El Paso Corporation and El Paso Merchant Energy, LP.
Joel B. Kleinman, Washington, DC; Lela M. Hollabaugh and Paul G. Summers, Nashville, Tennessee, for the appellants, Duke Energy Corporation and Duke Energy Trading and Marketing Company, LLC.
Joel B. Kleinman, Washington, DC, for the appellants, American Electric Power Co. and AEP Energy Services, Inc.
Alan G. Crone, Memphis, Tennessee; John S. Wilder, Somerville, Tennessee; and Thomas H. Brill, Mission Hills, Kansas, for the appellees, Samuel D. Leggett, Bing's Stop & Shop, Wolfe River Café, and Frank H. Colvett, Jr.
The plaintiffs, commercial and residential consumers of natural gas, purchased natural gas from utilities, which had acquired the product wholesale from the defendants. In this class action antitrust suit, the plaintiffs allege that the defendants engaged in various anti-competitive practices, including making false statements about natural gas transactions and engaging in "wash trades" and "churning." After the defendants filed a motion to dismiss, contending that the claims were barred by both field pre-emption and the filed rate doctrine, the chancellor dismissed the claims. The plaintiff appealed and the Court of Appeals reversed, holding that the claims were not subject to dismissal. Because the Natural Gas Act and subsequent federal legislation pre-empt state actions in this particular field of regulation, the judgment of the Court of Appeals is reversed and all claims are dismissed.
This litigation represents a single component of a complex, nationwide effort by consumers and other purchasers challenging the pricing practices of wholesalers of natural gas. Williams Companies, Inc., Williams Energy Marketing & Trading Company, Inc., Williams Merchant Services, Reliant Energy Services, Inc., Reliant Energy, Inc., ONEOK, Inc., ONEOK Energy Marketing and Trading Company, L.P., Dynegy Marketing & Trade, CMS Energy Corporation, CMS Field Services, CMS Marketing Services & Trading Company, El Paso Corporation, El Paso Merchant Energy, LP, Duke Energy Corporation, Duke Energy Trading and Marketing Company, LLC, American Electric Power Co., and AEP Energy Services, Inc. (the "Defendants") sold natural gas at wholesale to Tennessee utilities (the "Utilities"), which then sold the product at retail to a variety of individuals and businesses in Tennessee, including Samuel D. Leggett, Frank H. Colvett, Jr., Bing's Stop & Shop, Wolfe River Café, and others, who make up the class filing this suit (the "Plaintiffs"). The Plaintiffs claim that, from at least January 1, 2000, through October 31, 2002, the Defendants engaged in a pervasive and widespread scheme to artificially inflate the price of wholesale natural gas, and that the Utilities passed along those costs to the Plaintiffs.
Reporting firms such as Platts, a division of the McGraw-Hill Companies, gather information about volume and pricing from those in the natural gas market and publish indices reflecting their data, such as Gas Daily and the monthly Inside FERC Gas Market Report ("IFERC"). In turn, natural gas sellers, purchasers, and futures traders rely on the indices to evaluate market conditions and set prices. The Plaintiffs allege that the various Defendants reported thousands of natural gas trades to these firms containing false or misleading information designed to influence the price of gas in their favor. The Plaintiffs contend that, as a part of their efforts to manipulate pricing, the Defendants reported sales that did not exist, failed to report sales that did occur, and reported actual sales accompanied by false information regarding the volume and the price.
The Plaintiffs further assert that certain of the Defendants engaged in "wash trades" and "churning" in an effort to inflate the price of natural gas. "A wash trade is a transaction where two parties simultaneously buy and sell the same quantity of natural gas at the same price and on the same day, creating a false appearance of demand for and short supply of natural gas." E. & J. Gallo Winery v. EnCana Corp., 503 F.3d 1027, 1032 n. 3 (9th Cir.2007). "In churning, volumes of natural gas are sequentially bought and sold by a trader and counterparty so that each time a buy/sell cycle is complete, the basis price has been incrementally increased without the net exchange of any actual natural gas." E. & J. Gallo Winery v. EnCana Energy Servs., Inc., No. CV F 03-5412 AWI LJO, 2008 WL 4224492, at *7 (E.D.Cal. Sept. 12, 2008). The Plaintiffs allege that as a result of these practices, the Defendants caused further artificial inflation of the wholesale prices at which the Utilities purchased natural gas. Because the Utilities, in turn, passed those prices on to retail customers such as the Plaintiffs, the Plaintiffs experienced substantial, unwarranted expense.
All in all, the Plaintiffs contend that more than three-quarters of the trades reported to three of IFERC's "trading desks,"2 as well as thousands of trades reported to Gas Daily, were false, misleading, or knowingly inaccurate. Since 2002, several of the Defendants have been subjected to civil penalties associated with false reporting and market manipulation. For example, ONEOK, Inc. and ONEOK Energy Marketing and Trading Company, L.P. each paid $3 million in penalties to the Commodity Futures Trading Commission (the "CFTC") in October of 2002; Dynegy Marketing and Trade and non-party West Coast Power LLC paid $5 million to the CFTC in December of 2002; El Paso Corporation and El Paso Merchant Energy, LP paid $20 million in penalties to the CFTC in March of 2003; Williams Companies, Inc., and Williams Energy Marketing & Trading Company, Inc., paid $20 million in civil penalties to the CFTC in July of 2003; Duke Energy Corporation and Duke Energy Trading and Marketing Company, LLC, paid $28 million to the CFTC in September of 2003; CMS Energy Corporation, CMS Marketing Services & Trading Company, and CMS Field Services paid $16 million to the CFTC in November of 2003; during the same month, Reliant Energy Services, Inc.3 paid $18 million to the CFTC; and American Electric Power Company and AEP Energy Services, Inc., paid $30 million to the CFTC in January of 2005. Further, AEP Energy Services, Inc., paid an additional $30 million to the United States Department of Justice.
In January of 2005, the Plaintiffs filed a complaint for damages under the Tennessee Trade Practices Act ("TTPA") alleging an unlawful conspiracy to increase the wholesale price of natural gas. Later, the case was removed to federal court and referred to a Multi-District Litigation Panel, which assigned the suit to the U.S. District Court for the District of Nevada. The Defendants sought a dismissal for failure to state a claim, but before ruling on the motion, the district court remanded the case to the Chancery Court of Fayette County. On September 18, 2006, the Plaintiffs filed a motion for class certification in the chancery court, seeking certification for two subclasses—first, the "Indirect Residential Class," as represented by Leggett and Colvett, and secondly, the "Indirect Business Class," as represented by Bing's Stop & Shop and Wolfe River Café. See generally Tenn. R. Civ. P. 23 (governing class actions). They defined the proposed subclasses as follows:
Afterward, the Defendants renewed the motion to dismiss that had...
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...25 percent penalty. 738 F.Supp. at 254. Rice is a district court order that is not binding on this court. Leggett v. Duke Energy Corp., 308 S.W.3d 843, 871 (Tenn.2010). In limiting liability, the court in Rice held that the legislature's use of the words “in all cases” was dispositive of it......