State v. Reliant Energy, Inc.

• Decision Date: 27 September 2012
• Docket Number: No. 55752.,55752.
• Citation: 128 Nev. Adv. Op. 46,289 P.3d 1186
• Parties: The STATE of Nevada, in its Proprietary Capacity and as Parens Patriae, by and through its Attorney General; Peggy Maze JOHNSON and Launa Wilson, Individually and as Class Representatives for All Others Similarly Situated; and Larry Lancto, Individually and as Class Representative for All Others Similarly Situated, Appellants, v. RELIANT ENERGY, INC., a Texas Corporation; Reliant Resources, Inc., a Delaware Corporation; CenterPoint Energy, Inc., a Texas Corporation; and Kathleen M. Zanaboni, an individual, Respondents.
• Court: Nevada Supreme Court

289 P.3d 1186

128 Nev. Adv. Op. 46

The STATE of Nevada, in its Proprietary Capacity and as Parens Patriae, by and through its Attorney General; Peggy Maze JOHNSON and Launa Wilson, Individually and as Class Representatives for All Others Similarly Situated; and Larry Lancto, Individually and as Class Representative for All Others Similarly Situated, Appellants,

v.RELIANT ENERGY, INC., a Texas Corporation; Reliant Resources, Inc., a Delaware Corporation; CenterPoint Energy, Inc., a Texas Corporation; and Kathleen M. Zanaboni, an individual, Respondents.

No. 55752.

Supreme Court of Nevada.

Sept. 27, 2012.

Catherine Cortez Masto, Attorney General, and Eric P. Witkoski, Chief Deputy Attorney General, Carson City; James Tynan Kelly, Houston, TX, for Appellants the State of Nevada, Peggy Maze Johnson, and Launa Wilson.

Boies, Schiller & Flexner LLP and Douglass A. Mitchell, Las Vegas, for Appellant Larry Lancto.

Snell & Wilmer, LLP, and D. Neal Tomlinson, Gregory A. Brower, and Richard C. Gordon, Las Vegas; Baker Botts, LLP, and J. Gregory Copeland and Mark R. Robeck, Houston, TX, for Respondents Reliant Energy, Inc.; Reliant Resources, Inc.; and Kathleen M. Zanaboni.

Kemp, Jones & Coulthard, LLP, and William S. Kemp, Las Vegas, for Respondent CenterPoint Energy, Inc.

OPINION

By the Court, CHERRY

, J.:

Due in part to significant manipulation of the natural gas markets from 2000 to 2001, gas and electricity prices skyrocketed in Nevada and other western states. This case arises out of the resulting energy crisis. In this case, appellants alleged that respondents, in violation of Nevada antitrust laws, conspired with the now-defunct Enron Corporation to drive up the price of natural gas in the Southern Nevada and Southeastern California markets. Appellants asserted that respondents engaged in rapid bursts of purchasing natural gas followed by rapid bursts of selling the same gas, which resulted in considerable profits for respondents and significantly higher prices for natural gas consumers. Appellants further alleged that respondents' plan for manipulating the markets worked because of a secret agreement with Enron that left respondents with greater profits from the sale of gas as well as ensured that respondents would always have a sufficient supply of natural gas. The district court ultimately dismissed the case, holding that the claims were barred by principles of federal preemption. We, like the district court, conclude that appellants' claim is preempted by federal law.

FACTS

Gas and electric energy prices skyrocketed in western markets during an eight-month or longer period in 2000–2001. In response to these extraordinarily high prices, the Federal Energy Regulatory Commission (FERC) conducted an investigation. FERC staff found significant manipulation in the natural gas market, which also affected the electric energy market, but ultimately concluded that supply shortfalls and fatally flawed market design were the root causes of the markets' meltdowns.

Nevertheless, appellants the State of Nevada ^FN2

and Peggy Maze Johnson, Launa Wilson, and Larry Lancto, as class representatives, filed suit in state district court against respondents Reliant Energy, Inc., a Texas Corporation; Reliant Resources, Inc.; CenterPoint Energy, Inc.; and Kathleen Zanaboni, a Reliant trader. Appellants asserted a single claim for antitrust violations under Nevada's Unfair Trade Practices Act (UTPA), NRS Chapter 598A, based on allegations that, between November 2000 and March 2001, Reliant, through Zanaboni, conspired with Enron to manipulate the natural gas market in order to obtain greater profits for itself while driving up natural gas prices for other consumers. Appellants claimed that, along the lines of what was described in the Federal Energy Regulatory Commission, Final Report on Price Manipulation in Western Markets (2003) (Final Report), Reliant engaged in this manipulation through high-volume, rapid-burst trading, often buying and selling many times its needs in quick bursts—an activity FERC termed churning—in order to artificially increase the overall market price of natural gas. ^FN3 Further, appellants alleged, Reliant and Enron orally agreed to average the purchase prices and to separately average the sales prices and then net them against each other, which, due to the market's structure, ensured supply and resulted in profits to Reliant.

FERC determined that Reliant's sales were subject to its jurisdiction, but because FERC's regulations lacked explicit guidelines or prohibitions against Reliant's churning, its behavior was not in violation of FERC's regulations. See Final Report. In its Final Report, FERC recommended an amendment to the regulations to provide explicit guidelines or prohibitions to control the trading of natural gas.

Pointing to the FERC report, respondents separately moved to dismiss the complaint for, inter alia, failure to state a claim upon which relief can be granted, asserting that the UTPA claim was preempted by federal law. Zanaboni also moved to dismiss for lack of personal jurisdiction. Appellants opposed these motions to dismiss.

The district court granted the motions to dismiss, determining that Nevada's UTPA did not apply because the alleged misconduct in the natural gas market is governed by federal law and, thus, the claim was preempted. The district court further determined that it did not have jurisdiction over Zanaboni because sufficient contacts with Nevada had not been established.

[1]

Appellants then filed a motion to alter or amend the dismissal order for two reasons—(1) the court had expressly relied on federal decisions that were later reversed and vacated, and (2) recent caselaw demonstrated that FERC does not have exclusive jurisdiction over the wholesale natural gas market; consequently, the State of Nevada is not prohibited from applying its antitrust laws to respondents' conduct. Respondents opposed the motion. The district court denied the motion, and this appeal followed.^FN4

DISCUSSION

Standard of review

[2]

[3]

[4]

This court reviews de novo an order granting an NRCP 12(b)(5) motion to dismiss, accepting all factual allegations in the complaint as true, and drawing all inferences in the plaintiffs' favor. Buzz Stew, LLC v. City of N. Las Vegas, 124 Nev. 224, 227–28, 181 P.3d 670, 672 (2008). We will uphold an order of dismissal when it appears beyond a doubt that the plaintiff could prove no set of facts that would entitle him or her to relief. Id. We also review de novo the district court's preemption analysis. See Nanopierce Tech. v. Depository Trust, 123 Nev. 362, 370, 168 P.3d 73, 79 (2007).

Appellants' claim arises under Nevada's UTPA, which is codified in NRS Chapter 598A. In particular, appellants assert that respondents' alleged price-fixing activities violated NRS 598A.060(1)

. Respondents contend, however, that because FERC was conferred with exclusive jurisdiction to ensure that the interstate sales of natural gas have just and reasonable rates, appellants' claim is preempted by federal law.

Federal preemption

[5]

[6]

The doctrine of preemption arises from the United States Constitution's Supremacy Clause. Nanopierce, 123 Nev. at 370, 168 P.3d at 79. Under the Supremacy Clause, federal law preempts state law when Congress expressly so provides, or when the state law conflicts with the terms or purposes behind federal law. Id. at 370–71, 168 P.3d at 79. Because federal law does not contain an express provision preempting state antitrust law in this instance, only implied preemption is at issue here.

[7]

[8]

[9]

There are two types of implied preemption: field preemption and conflict preemption. Id. at 371–72, 168 P.3d at 79–80. The parties' arguments here concern the first type, field preemption. Field preemption occurs “when congressional enactments so thoroughly occupy a legislative field, or touch a field in which the federal interest is so dominant, that Congress effectively leaves no room for states to regulate conduct in that field.” Id. at 371, 168 P.3d at 79. Thus, we examine “the entire regulatory scheme ... to determine whether, based on its level of comprehensiveness or the nature of the field regulated, Congress intended to preclude states from also imposing requirements on that field.” Id. at 371, 168 P.3d at 79–80. If so, state law is preempted regardless of conflict. Id.

Appellants argue that field preemption is inapplicable to this case because even though the field historically had been preempted, at the time of the alleged market manipulation, the field had been deregulated and was no longer subject to FERC control. Respondents counter that deregulation of a federally controlled field does not, without more, demonstrate Congressional intent to allow states to then regulate the field.

To determine whether congressional deregulation of natural gas sales means that state regulation of such sales is permissible, we review the historical background of federal regulation over the transportation and sale of natural gas, which has been set forth in large part by the Ninth Circuit Court of Appeals in E. & J. Gallo Winery v. Encana Corp., 503 F.3d 1027, 1036 (9th Cir.2007)

, and other courts that have addressed related issues.

The federal energy regulatory system

The natural gas market has traditionally consisted of three segments—producers at the natural gas wellhead, interstate pipelines that transport the gas from the wellhead to local distributers around the country, and local distributors who sell the gas to consumers. In re Hawaiian & Guamanian Cabotage Antitrust, 647 F.Supp.2d 1250, 1264 (W.D.Wash.2009)

(citing E. & J. Gallo Winery v. Encana Corp., 503 F.3d 1027, 1036 (9th Cir.2007)). Because the interstate pipelines controlled the gas's transportation, they developed monopoly power over both natural gas purchases from the wellhead and sales to local distribution companies. Gallo, 503 F.3d at 1036 (citing General Motors Corp. v. Tracy, 519 U.S. 278, 283, 117 S.Ct. 811,...